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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 2001
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 1-7831
ELSINORE CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0117544
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
202 FREMONT STREET, LAS VEGAS, NEVADA 89101
(Address of principal executive offices) (Zip Code)
(702) 385-4011
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES X NO
On March 27, 2002 there were 4,993,965 shares of common stock issued and
outstanding. The market value of the common stock held by non-affiliates of the
registrant as of March 27, 2002 was approximately $17,376.35. The market value
was computed by reference to the closing sales price of $.05 per share reported
on the NASDAQ "Bulletin Board" as of March 27, 2002.
TABLE OF CONTENTS
PART I Page
Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a
Vote of Security Holders 17
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 18
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 21
Item 7A Quantitative and Qualitative Disclosures
About Market Risk 32
Item 8. Financial Statements and
Supplementary Data 32
PART III
Item 10. Directors and Executive Officers
of the Registrant 55
Item 11. Executive Compensation 57
Item 12. Security Ownership of Certain
Beneficial Owners and Management 60
Item 13. Certain Relationships and
Related Transactions 63
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 64
SIGNATURES 71
PART I
Item 1. BUSINESS.
General.
Elsinore Corporation, a Nevada corporation ("Elsinore" or the "Company"),
is registered with the Nevada Gaming Commission (the "Commission") as a publicly
traded holding company of Four Queens, Inc. ("Four Queens"), the licensed
operator of the Four Queens Hotel and Casino in Las Vegas, Nevada (the "Four
Queens Casino") and a wholly owned subsidiary of the Company. The Company
incorporated under the laws of the State of Nevada on September 5, 1972 and its
principal executive office is located at 202 Fremont Street, Las Vegas, Nevada
89101 and its telephone number is (702) 385-4011. Four Queens also holds a
casino service license in New Jersey allowing it to distribute its casino game
"Multiple Action Blackjack." Four Queens currently distributes the game to six
casinos in New Jersey. The Four Queens' New Jersey license expired on May 31,
2001; however, the application for renewal has been accepted by the New Jersey
Gaming Commission and is pending approval. While awaiting such final approval
for renewal, the license is considered active. There can be no assurance that
this license will be renewed. Gaming management activities conducted by
Elsinore's other subsidiaries prior to the Company's bankruptcy reorganization,
discussed below, have terminated.
Recent Developments.
On March 14, 2002, Elsinore announced that Four Queens entered into a
definitive asset purchase agreement (the "Purchase Agreement") for the sale of
substantially all of Four Queens Casino's assets, including the hotel and
casino, to SummerGate, Inc., a Nevada corporation, for a purchase price, subject
to certain adjustments, of approximately $22 million, plus the value of cash on
hand and the assumption of certain liabilities. In addition, pursuant to the
terms of the asset purchase agreement, SummerGate, Inc. will offer employment to
all Four Queens employees.
The assets of the Four Queens constitute substantially all of the assets of
Elsinore. Upon the consummation of the sale of the Four Queens, Elsinore will
not have an operating asset. The Board of Directors of both Elsinore and the
Four Queens anticipate that, following the sale of the Four Queens, they will
adopt a plan of dissolution and begin the process of winding-up and dissolving
both the Four Queens and Elsinore. Elsinore anticipates that the proceeds from
the sale will be used solely to pay the debts of the Four Queens and Elsinore,
as well as to pay any accrued and unpaid dividends on Elsinore's outstanding 6%
cumulative convertible preferred stock (the "Preferred Stock"), plus the
liquidation preference on the Preferred Stock, if Elsinore is dissolved. At
February 28, 2002, total liabilities of Elsinore were approximately $7.6
million, and total liabilities of the Four Queens were approximately $7.8
million (of which SummerGate, Inc. will assume approximately $4.0 million
pursuant to the terms of the asset purchase agreement). The increase in total
liabilities from December 31, 2001 was due primarily to an increase in notes
payable as a result of recent slot machine purchases. In addition, as of
February 28, 2002, Elsinore had outstanding approximately 50,000,000 shares of
Preferred Stock, with a liquidation preference of approximately $22 million,
including accumulated dividends, and approximately 4,993,965 shares of common
stock (the "Common Stock").
In the event the Four Queens and Elsinore are dissolved, based upon the
total assets of the Four Queens and Elsinore as of March 14, 2002 and assuming
the consummation of the sale, after the payment of the Four Queens' and
Elsinore's debt and the payment of the Preferred Stock's liquidation preference,
including accumulated dividends, there will not be any remaining assets
available for distribution to the holders of Elsinore's Common Stock.
The beneficial owner of a majority of Elsinore's capital stock, who
exercises voting and investment authority over 100% of the Preferred Stock and
approximately 99.6% of Common Stock (on an as-converted basis), delivered a
written consent on March 22, 2002 approving the sale of the Four Queens.
Consummation of the sale is subject to a number of conditions, including
receipt of required regulatory approvals, such as approval of the Nevada Gaming
Commission, and other licensing approvals. There can be no assurance that the
conditions to the sale will be satisfied or that the sale of the Four Queens
will be consummated. If all conditions are satisfied, the sale is expected to be
consummated during the second quarter of 2002.
In connection with the Purchase Agreement, the Company recognized a
non-cash impairment loss of approximately $13.2 million during 2001. See
discussion in Notes to the Consolidated Financial Statements.
The Four Queens Casino.
Four Queens owns the Four Queens Casino, which has been in operation since
1966. The Four Queens Casino has consistently concentrated on delivering high
quality, traditional Las Vegas-style gaming and entertainment. The Four Queens
Casino is located on approximately 3.2 acres, of which 2.3 acres are leased from
various lessors. The property is situated adjacent to the Golden Nugget Hotel &
Casino in the heart of Fremont Street in downtown Las Vegas. The property
features approximately 690 hotel rooms, including 45 suites, approximately
32,000 square feet of casino space, three full-service restaurants, two
fast-service restaurants, three cocktail lounges, a gift shop, approximately
14,600 square feet of function space and approximately 543 parking spaces. The
casino has 1,025 slot machines, 27 gaming tables, a keno parlor, and a sports
book.
Management. On October 31, 1995, Elsinore and certain of its wholly owned
subsidiaries filed for protection pursuant to Chapter 11 of the U.S. Bankruptcy
Code. The resulting plan of reorganization of Elsinore and those subsidiaries
(the "Plan") was confirmed on August 12, 1996 (the "Confirmation Date") and
became effective following the close of business on February 28, 1997 (the "Plan
Effective Date"). From the Confirmation Date until March 31, 1997, Riviera
Gaming Management Corp. - Elsinore ("RGME"), an indirect subsidiary of Riviera
Holdings Corp. ("Riviera"), managed the Four Queens Casino under an interim
management arrangement. The term of RGME's definitive management arrangement for
the Four Queens Casino (the "Management Arrangement"), which went into effect on
April 1, 1997 in accordance with the terms of the Plan, was approximately 40
months, subject to earlier termination or extension. RGME was paid a minimum
annual fee of $1 million in equal monthly installments. The Management
Arrangement terminated on December 31, 1999.
Operations. The following table sets forth the contributions from major
activities to the Company's total revenues from the Four Queens Casino for the
years ended December 31, 2001, 2000, and 1999.
2001 2000 1999
---- ---- ----
(Dollars in Thousands)
Casino(1) $ 38,075 $ 37,051 $ 39,408
Hotel(2) 8,950 9,647 8,822
Food & beverage(2) 10,792 10,298 9,646
Other(3) 1,426 8,137 3,130
------ ------ ------
59,243 65,133 61,006
Less: Promotional allowances(4) (5,429) (5,073) (5,012)
------ ------ ------
Net revenue $ 53,814 $ 60,060 $ 55,994
====== ====== ======
(1) Consists of the net win from gaming activities (i.e., the difference
between gaming wins and losses).
(2) Includes revenues from services provided as promotional allowances to
casino customers and others on a complimentary basis.
(3) Consists primarily of amounts collected by Palm Springs East, L.P.
("PSELP"), of $6.2 million in 2000 and $1.2 million in 1999, commissions
from credit card and automatic teller cash advances, and miscellaneous
other income (including net royalties of $77,000 in 2001, $85,000 in 2000,
and $85,000 in 1999 from the licensing of MULTIPLE ACTION "registered
trademark" blackjack).
(4) To be consistent with the 2001 presentation, approximately $608,000 and
$760,000 of slot club "cash back" rewards, previously shown as casino
expenses, was reclassified as a reduction of casino revenues for 2000 and
1999, respectively, pursuant to the Emerging Issues Task Force ("EITF")
00-22. See Note 1 to the Consolidated Financial Statements.
The following table summarizes the primary aspects of the Company's
operations at the Four Queens Casino at December 31, 2001.
Casino:
Floor area (square feet) 32,000
Slot machines 1,025
Blackjack tables 16
Craps tables 3
Big six 0
Caribbean stud poker tables 1
Roulette wheels 2
Three card poker 1
Let-it-ride tables 2
Pai gow poker tables 2
Keno (seats) 15
Sports book 1
Hotel:
Rooms 690
Meeting areas (square feet) 14,600
Restaurants and entertainment and cocktail lounges:
Restaurants 5
Restaurant seats 454
Cocktail lounges 3
Other:
Gift shops 1
Parking facilities (cars) 543
Operating Strategy. The Company believes that the following key elements
have contributed to the Company's success.
Fun and Friendly Environment. The Company believes that the Four
Queens Casino is distinguished by its fun and friendly atmosphere and the
high level of personalized service provided to its patrons. The Company
strives to maintain the level of service that has allowed the property to
maintain its customer loyalty.
Marketing and Promotion. The Company promotes its gaming entertainment
experience using a variety of advertising media including print, outdoor
advertising, radio broadcast and the Internet. The Company continues to
host a bus program offering a value-oriented experience to customers,
primarily from the Southern California area, desiring a day or overnight
trip. The Company continues to focus on maintaining its customer database
by enrolling customers into its slot clubs by offering attractive
promotional, cash, complimentary and retail offers.
Targeted Database Marketing. The Company also continues to focus its
efforts on a direct mail program in order to maintain its current customer
database. The Company targets its database customers with a variety of
monthly incentive offers, special promotions, tournaments and special
events.
Competition. The gaming industry is highly competitive. Gaming activities
include: traditional land-based casinos; riverboat and dockside gaming; casino
gaming on Indian land; state-sponsored lotteries; video poker in restaurants,
bars and hotels; pari-mutuel betting on horse racing, dog racing and jai-alai;
sports bookmaking; card rooms and Internet gaming. The expansion of casino
gaming in or near any geographic area from which the Company attracts or expects
to attract a significant number of its customers could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company believes that successful gaming facilities compete based on the
following: location, atmosphere, quality of gaming facilities, entertainment,
quality of food and beverage, and value. Although the Company believes it
competes favorably with respect to these factors, some of its competitors have
significantly greater financial and other resources than the Company.
The Company competes with a multitude of casino hotels in the greater Las
Vegas metropolitan area. Currently, there are approximately 40 major gaming
properties located on or near the Las Vegas Strip, 13 located in the downtown
area and several located in other areas of Las Vegas. Las Vegas gaming square
footage and room capacity are continuing to increase. On the Las Vegas Strip, a
number of marquee properties have opened in the last several years, including
the 2,600-room Aladdin Hotel and Casino which opened in August 2000, the
1,000-room addition at the Stratosphere Casino Hotel & Tower in mid-2001, and
the 447-room Palms Casino Resort which opened in November 2001. The most
significant projects now under construction or planned for 2002 are: a 620-room
addition to the Orleans Hotel & Casino, on West Tropicana Avenue, in October
2002 and the opening of a 350-room Ritz Carlton, at Lake Las Vegas. Each of the
foregoing facilities has or may have a theme and attractions that have drawn or
may draw significant numbers of visitors. Moreover, most of these facilities
attract or may attract primarily middle-income patrons, who are the focus of the
Company's marketing strategy. Although the Company believes that these
additional facilities will draw more visitors to Las Vegas, future additions,
expansions and enhancements to existing properties and construction of new
properties by the Company's competitors could divert additional gaming activity
from the Company. There can be no assurance that the Company will compete
successfully in the Las Vegas market in the future.
Employees. At December 31, 2001, the Four Queens Casino employed 889
persons, approximately 47% of whom were covered by collective bargaining
agreements.
Control.
Of the 4,929,313 shares of Common Stock issued pursuant to the Plan,
4,646,439 shares or 94.3% of the total outstanding were acquired by certain
investment accounts (the "MWV Accounts") managed by Morgens, Waterfall,
Vintiadis and Company, Inc. ("MWV"). Of the shares which the MWV Accounts
acquired, 995,280 shares were purchased at $5.00 per share under a Subscription
Rights Agreement dated October 10, 1996 (the "Rights Agreement"), which was
called for by the Plan. Under the Rights Agreement, a total of 1,000,000 shares
of Common Stock were subscribed for at $5.00 per share and were issued on the
Plan Effective Date. The other 4,720 shares were subscribed for by certain
holders of the common stock that was canceled on the Plan Effective Date.
Also pursuant to the Plan, the Company was required to issue additional
shares of Common Stock to the following creditor groups or to a disbursing agent
on behalf of such creditor groups:
Unsecured Creditors of Four Queens, Inc. 50,491
Unsecured Creditors of Elsinore Corporation 14,159
------
Total 64,650
======
The Company issued these shares on July 10, 2000.
The shares of Common Stock acquired by the MWV Accounts, other than the
995,280 shares which were purchased under the Rights Agreement, were issued to
the MWV Accounts under the Plan (i) in partial satisfaction of the MWV Accounts'
respective allowed claims relating to the Company's 12.5% First Mortgage Notes
due 2000 that were issued in October 1993 and (ii) as a premium for the MWV
Accounts' purchase of Common Stock under the Rights Agreement which was not
subscribed for by other persons entitled to participate under the Rights
Agreement.
Holders of the approximately 15.9 million shares of pre-Plan Effective Date
common stock that were canceled on the Plan Effective Date received, in the
aggregate, 77,426 shares of Common Stock (including 4,720 shares purchased under
the Rights Agreement). This represents 1.6% of the Common Stock outstanding on
the Plan Effective Date.
As a condition to the approvals by the State Gaming Control Board (the
"Board") and the Commission which were required for the Plan to become
effective, limitations were placed on the persons who could exercise voting and
investment power (including dispositive power) with respect to Common Stock
owned by any of the MWV Accounts. Under those limitations, John C. "Bruce"
Waterfall is the only individual who exercises voting and investment authority
over the Common Stock on behalf of any of the MWV Accounts. Mr. Waterfall is
also the Company's Chairman of the Board.
Recapitalization.
On September 29, 1998, MWV Accounts contributed $4,641,000, net of $260,000
of expenses, to the capital of Elsinore, which Elsinore used, together with
other funds of Elsinore, to purchase in full all of Elsinore's outstanding 11.5%
First Mortgage Notes due 2000 in the original aggregate principal amount of
$3,856,000 and $896,000 of original principal amount 13.5% Second Mortgage Notes
of Elsinore due 2001.
Also on September 29, 1998, the Company issued to the MWV Accounts
50,000,000 shares of Series A Convertible Preferred Stock of the Company in
exchange for the surrender to the Company of $18,000,000 original principal
amount of certain second mortgage notes held by the MWV Accounts. The 50,000,000
shares of Series A Convertible Preferred Stock have (i) the right to receive
cumulative dividends at the rate of 6% per year; (ii) the right to receive the
amount of $.36 per share, plus all accrued or declared but unpaid dividends on
any shares then held, upon any liquidation, dissolution or winding up of the
Company for an aggregate liquidation preference of $18,000,000; (iii) voting
rights equal to the number of shares of the Company's Common Stock into which
the shares of Preferred Stock may be converted, and (iv) the right to convert
the shares of Preferred Stock into 93,000,000 shares of the Company's Common
Stock.
In addition, Elsinore issued to the MWV Accounts new second mortgage notes
("Existing Notes") in the aggregate principal amount of $11,104,000 in exchange
for all remaining outstanding second mortgage notes held by the MWV Accounts in
the same aggregate principal amount, pursuant to an amended indenture governing
the New Mortgage Notes that reduced the interest rate payable thereon from the
13.5% payable under the old second mortgage notes to the 12.83% payable under
the New Mortgage Notes. Following the recapitalization described in this
section, Elsinore had notes outstanding in the aggregate principal amount of
$11,104,000. The transactions, as described in this section, are collectively
referred to as the "Recapitalization."
The Company entered into a Third Supplemental Indenture on October 31, 2000
("New Notes"), in which New Notes were exchanged for the Existing Notes in the
same principal amount. The New Notes have the same terms, provision, and
conditions as the Existing Notes, except that the New Notes are due in full on
October 20, 2003 ("Notes").
The Las Vegas Market.
Las Vegas is one of the fastest growing and largest entertainment markets
in the United States. As reported by the Las Vegas Convention and Visitors
Authority ("LVCVA"), for fiscal year 2001, gaming revenues in Clark County were
$7.6 billion. Management believes that the number of visitors traveling to Las
Vegas has increased at a significant rate, from 16.2 million visitors in 1987 to
a record 35 million in 2001, representing a compound annual growth rate of
4.55%; however, visitor volume decreased from 35.8 million in 2000. The negative
impact to visitor volume was due, in part, as a result of the acts of terrorism
which occurred in New York City and Washington, D.C. on September 11, 2001,
which disrupted travel to Las Vegas. Aggregate expenditures by Las Vegas
visitors increased at a compound annual growth rate of 6.83% from $14.3 billion
in 1990 to $31.6 billion in 2001. The number of hotel and motel rooms in Las
Vegas increased by approximately 104% from 61,934 in 1988 to 126,610 in 2001,
surpassing 100,000 rooms in January 1997, the first market to reach that level.
Despite this significant increase in the number of rooms, hotel occupancy rates
on average were approximately 90.8% for the five year period from 1997 through
2001. Approximately 1,700 rooms are expected to be added to the Las Vegas market
by 2003. The most significant projects currently under construction are the room
additions to the Orleans on West Tropicana Avenue and the opening of the Ritz
Carlton at Lake Las Vegas.
The following table sets forth certain statistical information for the Las
Vegas market for the years 1997 through 2001, as reported by the LVCVA.
Las Vegas Market Statistics
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Visitor volume (in thousands) 35,017 35,850 33,809 30,605 30,465
Clark County gaming revenues $7,632 $7,673 $7,211 $6,347 $6,152
(in millions)
Hotel/motel rooms 126,610 124,270 120,294 109,365 105,347
Average hotel occupancy rate 88.9% 92.5% 92.1% 90.3% 90.3%
Airport passenger traffic 35,204 39,776 33,669 30,227 30,306
(in thousands)
Convention attendance 4,049 3,853 3,773 3,302 3,519
(in thousands)
The Downtown Market.
General Information. Downtown Las Vegas, with its famous neon lighting and
its 13 major casinos all located within close proximity of each other, attracts
a significant number of loyal customers comprised of both visitors to Las Vegas
and local residents.
Results of the downtown Las Vegas casinos have been adversely affected by,
among other things, the opening of themed mega-casinos on the Las Vegas Strip.
In the 1989-1991 period, the opening of the Mirage and Excalibur casino/hotels
depressed the growth rate of downtown Las Vegas gaming revenues. Similarly, the
openings of the Bellagio, MGM Grand, Luxor, Treasure Island, Monte Carlo, and
New York New York casino/hotels had an adverse effect on downtown gaming
revenue. In addition, the recent openings of Mandalay Bay, The Venetian, Paris,
the MGM Grand expansion, and the new Aladdin, all on the Las Vegas Strip, have
had a further adverse effect on downtown gaming revenue. These new casinos are
primarily designed to attract high-end gaming and convention customers and,
based on construction costs, are or will be priced at rates well above those
which have been or can be charged by the Four Queens Casino based on the
Company's investment in that facility.
With the proliferation of mega-casinos on the Las Vegas Strip, the Company
believes that downtown Las Vegas has become increasingly appealing to the
price-conscious vacationer. Four Queens attempts to offer a competitive package
of rooms, restaurants, and the popular gaming devices demanded by the
value-oriented vacationer.
The Fremont Street Experience. The Fremont Street Experience, a
public/private downtown Las Vegas revitalization development, opened to the
public December 13, 1995. The development consists of a 90 foot high, 80 foot
wide celestial vault, 1,400 feet in length, spanning Fremont Street, from Main
Street to Fourth Street. Fremont Street from Main Street to Las Vegas Boulevard
was closed to vehicular traffic creating a pedestrian mall. The celestial vault
is the framework for the largest graphic display system in the world, which uses
more than two million lights and the largest sound system in the world,
entertaining millions of guests with sound and light shows. Nine major
entertainment venues including the Four Queens Casino connect the development
offering more than 11,000 slot machines, 350 blackjack and other table games, 45
restaurants and approximately 7,000 hotel rooms. The development also includes a
1,400 space parking facility. A 250,000 square feet entertainment retail center
featuring a 14-screen movie complex and a variety of restaurants and other
retail outlets opens on the mall Spring, 2002. The goal of the Fremont Street
Experience is to create a special attraction for gaming customers and other
visitors to Las Vegas through multiple activities which include on-going street
entertainment, special events, concerts and community activities. Events can
draw as many as 80,000 people. Through such attractions, the Fremont Street
Experience attempts to draw visitors to the downtown area and provide
competition with the larger and new gaming and entertainment complexes located
on or near the Las Vegas Strip.
The Company and several of the other downtown casino operators collectively
own the Fremont Street Experience through their ownership of Fremont Street
Experience LLC, which holds title to the project. The Company has a 17.65%
ownership share and is responsible for a proportionate share of the project's
operating costs. See Note 9 to the Consolidated Financial Statements.
Gaming Regulation and Licensing.
Nevada. Elsinore is registered with the Commission as a publicly traded
company and has been found suitable as the sole shareholder of Four Queens. Four
Queens holds a nonrestricted gaming license to conduct nonrestricted gaming
operations at the Four Queens Casino. Ownership and operation of casino gaming
facilities in Nevada, as well as the manufacture and distribution of gaming
devices, are subject to extensive state and local regulation. Publicly traded
parent corporations and holding companies of Nevada gaming licensees, as well as
the licensed subsidiaries, are subject to the Nevada Gaming Control Act and
their regulations promulgated thereunder (collectively, the "Nevada Act") and
various local regulations. A registered company and its gaming operations and
companies are subject to the licensing and regulatory control of the Commission,
the Board, the Clark County Liquor Gaming Licensing Board and possibly other
local agencies throughout the State of Nevada, including the City of Las Vegas
(collectively, the "Nevada Gaming Authorities").
The laws, regulations, and supervisory procedures of the Nevada Gaming
Authorities have their genesis in various declarations of public policy which
are concerned with, among other things: (i) the prevention of unsavory or
unsuitable persons from having a direct or indirect involvement with gaming at
any time or in any capacity; (ii) the establishment and maintenance of
responsible accounting practices and procedures; (iii) the maintenance of
effective controls over the financial practices of licensees, including the
establishment of minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record keeping and
requiring the filing of periodic reports with the Nevada Gaming Authorities;
(iv) the prevention of cheating and fraudulent practices; and (v) the creation
of a source of state and local revenues through taxation and licensing fees.
Neither gaming licenses nor the registration approvals given to publicly traded
corporations are transferable. Changes in such laws, regulations and procedures
could have an adverse effect on the Company's operation.
Since the Company is registered with the Commission as a publicly traded
corporation and has been found suitable as the sole shareholder of Four Queens,
it is required to submit, upon application and on a periodic basis, detailed
financial and operating reports to the Commission. Additionally, the Company may
be required to furnish any other information requested by the Commission. No
person may become a shareholder of, or receive any percentage of profits from,
licensed Nevada operating companies without first obtaining licenses and
approvals from the Nevada Gaming Authorities.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, any registered company
or its licensed subsidiary 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 licensed subsidiary must
file applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers,
directors, and key employees of the registered company who are actively and
directly involved in the gaming activities of the licensed subsidiary 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
deemed reasonable. A finding of suitability is comparable to licensing, and both
require the submission of detailed personal and financial information followed
by a thorough investigation. An applicant for licensing or a finding of
suitability must pay all of the costs of the investigation. Changes in licensed
positions with the registered company or its licensed subsidiary must be
reported to the Nevada Gaming Authorities. In addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities also have jurisdiction to disapprove a change in a corporate
position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the registered company or its licensed subsidiary, the
companies involved would be required to sever all relationships with such a
person. Additionally, the Commission may require the registered company or its
licensed subsidiary to terminate the employment of any person who refuses to
file appropriate applications. Determinations of suitability or questions
pertaining to licensing are not subject to judicial review in Nevada.
Elsinore and Four Queens are required to submit detailed financial and
operating reports to the Commission. Substantially all loans, leases, sales of
securities and similar financing transactions by Four Queens must be reported
to, or approved by, the Commission.
If it were determined that the Nevada Act was violated by the licensed
subsidiary or the registered company, the gaming licenses or registration held
by the registered company and its licensed subsidiary could be limited,
conditioned, suspended, or revoked subject to compliance with certain statutory
and regulatory procedures. Moreover, at the discretion of the Commission, the
registered company and its licensed subsidiary and persons involved could be
subject to substantial fines for each separate violation of the Nevada Act.
A beneficial holder of the registered company's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and have his suitability as a beneficial holder of
the registered company's voting securities determined if the 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 such
an investigation. Also, the Clark County Liquor Gaming Licensing Board and the
City of Las Vegas have taken the position that it has the authority to approve
all persons owning or controlling the stock of any corporation controlling a
gaming license.
The Nevada Act requires any person who acquires more than 5% of the
registered company's voting securities to report the acquisition to the
Commission. The Nevada Act requires that beneficial owners of more than 10% of
the registered company's voting securities apply to the Commission for a finding
of suitability within 30 days after the Chairman of the Board mails written
notice requiring such a filing. Under certain circumstances, an "institutional
investor," as defined in the Nevada Act, which acquires more than 10%, but not
more than 15% of the registered company's voting securities, may apply to the
Commission for a waiver of such a finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold the voting securities for
investment purposes only unless the voting securities were acquired and are held
in the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the registered company, any change in the
registered company's corporate charter, bylaws, management, policies or
operations of the registered company, or any of its gaming affiliates, or any
other action which the Commission finds to be inconsistent with holding the
registered company's voting securities for investment purposes only. Activities
which are not deemed inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by shareholders; (ii)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies, or operations; and (iii) such other activities as the
Commission may determine to be consistent with such investment intent. If the
Commission grants a waiver to an "institutional investor" the waiver does not
include a waiver or exemption from the requirement for prior approval to
"acquire control" of a registered corporation. If the beneficial holder of
voting securities who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Commission or the
Chairman of the Board may be found unsuitable. The same restriction applies to a
record owner if the record owner, after request, fails to identify the
beneficial owners. Any shareholder found unsuitable and who holds, directly or
indirectly, any beneficial ownership of the common stock of a registered
corporation beyond such period of time as may be prescribed by the Commission
may be guilty of a criminal offense. The registered company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a shareholder or to have any other relationship with the registered company
or its subsidiaries, it: (i) pays that person any dividend or interest on voting
securities of the registered company, (ii) allows that person to exercise,
directly or indirectly, any voting right conferred through securities held by
that person, (iii) pays remuneration in any form to that person for services
rendered or otherwise, or (iv) fails to pursue all lawful efforts to require
such unsuitable person to relinquish his voting securities for cash at fair
market value.
The Commission may, in its sole discretion, require the holder of any debt
security of a registered corporation to file applications, be investigated and
be found suitable to own the debt security of the registered corporation. If the
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
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 registered 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 a disclosure may be grounds for
finding the record holder unsuitable. The registered company is also required to
render maximum assistance in determining the identity of the beneficial owner.
The Commission has the power to require the registered company's stock
certificates to bear a legend indicating that the securities are subject to the
Nevada Act.
The registered company may not make a public offering of its securities
without the prior approval of the 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 such approval, if given, would not constitute a finding,
recommendation or approval by the Commission or the Board as to the accuracy or
adequacy of the prospectus or the investment merits of the securities. Any
representation to the contrary is unlawful.
Application for approval of public offerings and the like may be filed
without complete documentation related thereto so long as the documents and
information are supplied to the Board and Commission as they become available in
accordance with the normal and customary practice of the securities industry.
Additionally, the Commission may, either generally or specifically, exempt any
person, security or transaction from application pursuant to its regulations
regarding publicly traded corporations.
Changes in control of the registered company or its subsidiaries through
merger, consolidation, stock or asset acquisitions, management or consulting
agreements, or any act or conduct by a person whereby he obtains control, may
not occur without the prior approval of the Commission. Entities seeking to
acquire control of a registered corporation must satisfy the Board and the
Commission in a variety of stringent standards prior to assuming control of such
registered corporation. The Commission may also require controlling
shareholders, officers, directors and other persons having a material
relationship or involvement with the entity proposed to acquire control, to be
investigated and licensed as part of the approval process related to the
transaction.
License fees and taxes, computed in various ways depending upon the type of
gaming activity involved, are payable to the State of Nevada and to the counties
and cities in which the Nevada licensee's respective operations are conducted.
Depending upon the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly, or annually and are based upon either: (i) a
percentage of gross revenues received; (ii) the number of gaming devices
operated; or (iii) the number of table games operated. A casino entertainment
tax is also paid by casino operations where entertainment is furnished in
connection with the selling of food or refreshments. Nevada licensees that hold
a license as an operator of a slot route, or a manufacturer's or distributor's
license, also pay certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, or
required to be registered, or is under common control with such person
(collectively, "Licensees"), and who proposes to become involved in a gaming
venture outside the State of Nevada, is required to deposit with the Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Board of his participation in such foreign
gaming. The revolving fund is subject to increase or decrease in the discretion
of the Commission. Thereafter, Licensees are required to comply with certain
reporting requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Commission if they knowingly violate any laws of the
foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct
the foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engage in activities that are
harmful to the State of Nevada or its ability to collect gaming taxes and fees,
or employ a person in the foreign operation who has been denied a license or
finding of suitability in Nevada on the basis of personal unsuitability.
The granting of any registrations, amendment of orders of registration,
findings of suitability, approvals or licenses are discretionary with the Nevada
Gaming Authorities. The burden of demonstrating the suitability or desirability
of certain business transactions is at all times upon the applicants. Any
licensing or approval process requires the submission of detailed financial,
business and possibly personal information, and the completion of a thorough
investigation.
New Jersey. Four Queens was granted a Casino Service Industry License by
the State of New Jersey on May 11, 1998. The Four Queens' New Jersey license
expired on May 31, 2001; however, the application for renewal has been accepted
by the New Jersey Gaming Commission and is pending approval. While awaiting such
final approval for renewal, the license is considered active. There can be no
assurance that this license will be renewed.
Item 2. PROPERTIES.
Except for certain small parcels of land owned in fee, the real property
underlying the Four Queens Casino is leased pursuant to several long-term
leases, none of which expire before October 31, 2024. An adjoining garage is
occupied under a lease that expires in 2034. Such leases generally provide for
annual minimum rental and adjustments relating to cost of living. The Four
Queens Casino is subject to security interests under the Company's Notes. See
Note 6 of Notes to Consolidated Financial Statements.
Item 3. LEGAL PROCEEDINGS.
In the first half of 1997, Elsinore and Mr. Allen E. Paulson ("Paulson")
commenced discussions which culminated in an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of September 15, 1997, between Elsinore and
entities controlled by Paulson, namely R&E Gaming Corp. ("R&E") and Elsinore
Acquisition Sub, Inc. ("EAS"), to acquire by merger (the "Merger") the
outstanding Common Stock for $3.16 per share in cash plus an amount of
additional consideration in cash equal to the daily portion of the accrual on
$3.16 at 9.43% compounded annually, from June 1, 1997 to the date immediately
preceding the date such acquisition is consummated. The Merger Agreement
provided for EAS to merge into Elsinore, and Elsinore to become a wholly owned
subsidiary of R&E.
Contemporaneously with the Merger Agreement, R&E executed an Option and
Voting Agreement (the "Option Agreement") with MWV, on behalf of the MWV
Accounts which owned 94.3% of the outstanding Common Stock prior to the
Recapitalization. Under certain conditions and circumstances, the Option
Agreement provided for, among other things: (i) the grant by the MWV Accounts to
R&E of an option to purchase all of their Common Stock; (ii) an obligation by
R&E to purchase all of the MWV Accounts' Common Stock; and (iii) the MWV
Accounts to vote their Common Stock in favor of the Merger Agreement. Elsinore's
shareholders approved the Merger Agreement at a special meeting of shareholders
held on February 4, 1998.
Paulson also entered into discussions with Riviera to acquire a controlling
interest in that company as well. Riviera owns and operates the Riviera Hotel
and Casino in Las Vegas and is the parent corporation of RGME. On September 16,
1997, R&E and Riviera Acquisition Sub, Inc. ("RAS") (another entity controlled
by Paulson) entered into an Agreement and Plan of Merger with Riviera, which
provided for the merger of RAS into Riviera (the "Riviera Merger"), and for
Riviera to become a wholly owned subsidiary of R&E. R&E also entered into an
Option and Voting Agreement with certain Riviera shareholders, including MWV
acting on behalf of the MWV Accounts, containing terms similar to those
described above with respect to the Option Agreement.
The Merger Agreement contained conditions precedent to the consummation of
the Merger, including: (i) the Option Agreement being in full force and effect
and MWV having complied in all respects with the terms thereof; (ii) all
necessary approvals from gaming authorities; and (iii) consummation of the
Riviera Merger.
On March 20, 1998, Elsinore was notified by R&E, through Paulson, that it
was R&E's position that the Merger Agreement was void and unenforceable against
R&E and EAS, or alternatively, R&E and EAS intended to terminate the Merger
Agreement. R&E alleged, among other things, violations by Elsinore of the Merger
Agreement, violations of law and misrepresentations by MWV in connection with
the Option and Voting Agreement and the non-satisfaction of certain conditions
precedent to completing the merger. The Company denied the allegations and asked
that R&E complete the merger. Thereafter, in April 1998, Paulson, R&E, EAS and
certain other entities filed a lawsuit against eleven defendants, including
Elsinore and MWV (Paulson, et al. v Jeffries & Company et al.). On January 25,
2000, the Court granted Plaintiffs' motion for leave to file a Fourth Amended
Complaint. Plaintiffs' allegations in the Fourth Amended Complaint against the
Company include breach of the Merger Agreement by Elsinore, as well as fraud and
various violations of the federal securities laws in connection with the
proposed merger. Plaintiffs are seeking: (i) unspecified actual damages in
excess of $20 million; (ii) $20 million in exemplary damages; and (iii)
rescission of the Merger Agreement and other relief. The lawsuit was filed in
the United States District Court for the Central District of California.
On March 1, 2000, the Company filed its Answer to the Fourth Amended
Complaint, denying the material allegations thereof. In addition, the Company
alleged various counterclaims against plaintiffs for breach of the Merger
Agreement, fraud and violations of the federal securities laws. The
counterclaims seek specific performance of the Merger Agreement, compensatory
damages, punitive
damages and other relief.
By order dated February 20, 2001, the Court established a discovery cut-off
of November 30, 2001 and a trial date of March 26, 2002. Subsequently, the Court
issued an order continuing the trail to April 9, 2002. The Company is currently
unable to form an opinion as to the amount of its exposure, if any. Although the
Company intends to defend the lawsuit vigorously, there can be no assurance that
it will be successful in such defense or that future operating results will not
be materially adversely affected by the final resolution of the lawsuit.
On October 6, 2000, Palm Springs East, Limited Partnership ("PSELP"), a
subsidiary of the Company, entered into a release and settlement agreement (the
"PSELP Agreement") with the 29 Palms Band of Mission Indians (the "Tribe")
regarding the settlement of a promissory note (the "Note") owed by the Tribe to
PSELP. The Note was originally entered into by and between PSELP and the Tribe
on October 8, 1996 for the aggregate amount of $9,000,000. Pursuant to the terms
of the PSELP Agreement, the Tribe paid PSELP an aggregate amount of $3,500,000
on October 5, 2000, in addition to the $2.7 million previously paid by the Tribe
in 2000. No additional amounts are due in connection with the settlement
agreement.
In addition, pursuant to the terms of the PSELP Agreement, PSELP and the
Tribe agreed to release each other and their respective affiliates from any and
all liability, obligations rights, claims demands, actions or causes of action
relating to the Note.
The Company is also a party to other claims and lawsuits. Management
believes that such matters are either covered by insurance, or if not insured,
will not have a material adverse effect on the financial statements of the
Company taken as a whole.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 16, 2001, the Company held its Annual Meeting of Shareholders.
Each of the Directors of the Company, John C. "Bruce" Waterfall, Philip W.
Madow, S. Barton Jacka and Donald A. Hinkle were re-elected. Out of the
4,993,965 shares of Common Stock and 50,000,000 shares of Preferred Stock
entitled to vote at such meeting, there were present in person or by proxy
54,646,439 shares. Each share of Common Stock and Preferred Stock (on an
as-converted basis except with respect to election of directors and as otherwise
required by Nevada General Corporation Law) is entitled to one vote on all
matters submitted to a vote of stockholders. In connection with the cumulative
voting feature applicable to the election of directors, each stockholder is
entitled to as many votes as shall equal the number of shares held by such
person at the close of business on the record date, multiplied by the number of
directors to be elected. The voting results were as follows:
Name For % Against % Withheld %
John C. "Bruce" Waterfall 54,646,439 100% 0 0% 0 0%
Philip W. Madow 54,646,439 100% 0 0% 0 0%
S. Barton Jacka 54,646,439 100% 0 0% 0 0%
Donald A. Hinkle 54,646,439 100% 0 0% 0 0%
This was the only matter voted upon at the meeting.
In connection with the Purchase Agreement as discussed in Item 1. BUSINESS
- - Recent Developments, the beneficial owner of a majority of Elsinore's capital
stock, who exercises voting and investment authority over 100% of the Preferred
Stock and approximately 99.6% of Common Stock (on an as-converted basis),
delivered a written consent on March 22, 2002 approving the sale of the assets
of the Four Queens.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no organized or established trading market for the Common Stock.
The Common Stock's prices are reported on the NASDAQ Stock Market "Bulletin
Board" under the symbol ELSO. The following table sets forth, for the periods
indicated, the high and low bid prices as reported, which represents
inter-dealer prices without adjustment for retail markups, markdowns or
commissions, and may not reflect actual transactions.
2001 2000
----------------- -----------------
High Low High Low
----------------- -----------------
First quarter $0.75 $0.20 $7.50 $0.38
Second quarter 0.75 0.24 4.00 0.53
Third quarter 0.65 0.24 1.88 0.72
Fourth quarter 0.65 0.24 1.00 0.31
As of the close of business on March 22, 2002, there were approximately 921
record owners of Common Stock.
Elsinore has not paid any dividends on the Common Stock in the past two
years and does not currently expect to pay any dividends in the foreseeable
future.
The trading market for the Common Stock is extremely thin. The MWV Accounts
own 94.3% of the outstanding Common Stock, which they acquired pursuant to the
Plan and, upon conversion of their 50,000,000 shares of Series A Convertible
Preferred Stock into shares of Common Stock, will own 99.6% of the Common Stock.
The MWV Accounts have bought and sold Common Stock only within the MWV Accounts.
The Common Stock held by the MWV Accounts is deemed beneficially owned by Mr.
Waterfall, Elsinore's Chairman of the Board, and Elsinore's directors and
executive officers as a group are deemed to own beneficially 99.6% of the
outstanding Common Stock. The remaining .4% of the outstanding shares is widely
dispersed among numerous shareholders.
Pursuant to the Plan, the Company issued 64,650 additional shares of New
Common Stock. These shares were issued on July 10, 2000. These shares were
exempt from registration pursuant to Section 3(a)(10) of the Securities Act of
1933.
Item 6. SELECTED FINANCIAL DATA.
Set forth below is selected consolidated historical financial data with
respect to the Company for the five years ended December 31, 2001. The selected
consolidated financial data as of December 31, 2001 and 2000 and for the three
years ended December 31, 2001, should be read in conjunction with the audited
consolidated financial statements and notes thereto set forth elsewhere herein.
Reorganized Predecessor
Company Company
---------------------------------------------------------
March 1 | Jan. 1
To | To
December 31, Dec. 31,|Feb. 28,
2001 2000 1999 1998 1997 | 1997
---- ---- ---- ---- ---- | ----
(Dollars in thousands except per share amounts)|
Balance sheet data: |
Total assets $32,761 $47,995 $48,793 $49,748 $49,823 |
Current portion |
of long-term debt 603 1,178 2,079 1,906 1,477 |
Long-term debt less |
current maturities 8,684 10,093 14,264 15,548 38,141 |
6% Cumulative |
convertible |
preferred stock 21,760 20,528 19,366 18,270 - |
|
Shareholders' equity $18,039 $31,608 $25,339 $24,109 $3,086 |
|
Operations data: |
Revenues (net) $53,814 $60,060 $55,994 $55,097 $43,186 | $9,796
Income(loss) before |
extraordinary items (13,569)(b) 6,269 960 (1,272) (1,914)| (190)
Extraordinary item - - - (77)(a) |
Gain on extinguishment |
of debt - - - - - | 35,977
Net income(loss) (13,569) 6,269 960 (1,349) (1,914)| 35,787
Undeclared dividends |
on cumulative |
preferred stock 1,232 1,162 1,096 270 - | -
Net income (loss) |
applicable to |
common shares ($14,801) $5,107 $(136) $(1,619) $(1,914)|$35,787
|
Basic and diluted per |
share amounts: |
Basic income (loss) before |
extraordinary items ($0.33) $1.02 $(.03) $(.31) $(.39)| $(.01)
Extraordinary items - - - (.02) - | 2.26
Basic income (loss) |
per share ($0.33) $1.02 $(.03) $(.33) $(.39)| $2.25
|
Diluted income (loss) |
per share ($0.33) $.06 $(.03) $(.33) $(.39)| $2.25
|
|
Capital costs: |
Depreciation and |
Amortization $3,954 $3,872 $3,332 $2,804 $1,774 | $529
Interest expense 1,415 1,634 1,997 4,372 4,239 | 772
Capital costs $5,369 $5,506 $5,329 $7,176 $6,013 | $1,301
(a) The Company incurred approximately $77,000 in extraordinary costs
associated with the buyout of its 11.5% First Mortgage Notes.
(b) In connection with the Purchase Agreement, the Company recognized a
non-cash impairment loss of approximately $13.2 million during 2001. See
discussion in Notes of the Consolidated Financial Statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto set forth elsewhere herein.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. Certain information included in
this Form 10-K and other materials filed 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 business strategies, plans for
future development and upgrading, capital spending, financing sources, existing
and expected competition, the sale of assets pursuant to the Purchase Agreement
and the effects of regulations. Such forward-looking statements involve
important known and unknown risks and uncertainties that could cause actual
results and liquidity to differ materially from those expressed or anticipated
in any forward-looking statements. Such risks and uncertainties include, but are
not limited to: those related to the effects of competition; leverage and debt
service; financing needs or efforts; actions taken or omitted to be taken by
third parties, including the Company's customers, suppliers, competitors, and
stockholders, as well as legislative, regulatory, judicial, and other
governmental authorities; the loss of any licenses or permits or the Company's
failure to renew gaming or liquor licenses on a timely basis; changes in
business strategy, capital improvements, or development plans; general economic
conditions; changes in gaming laws, regulations (including the legalization of
gaming in various jurisdictions), or taxes; risks related to development and
upgrading activities; risks related to the sale of assets under the Purchase
Agreement and other factors described from time to time in the Company's reports
filed with the Securities and Exchange Commission. In addition, recent terrorist
attacks in the United States, as well as future events occurring in response or
in connection to them, including, without limitation, future terrorist attacks
against United States targets, actual conflicts involving the United States or
its allies or military or trade disruptions, negative impacts on the airline
industry, increased security restrictions or the public's general reluctance to
travel, could negatively impact our business, financial condition, results of
operations and may result in the volatility of the market place for our common
stock and on the future price of our common stock. Accordingly, actual results
may differ materially from those expressed in any forward-looking statement made
by or on behalf of the Company. Any forward-looking statements are made pursuant
to the Private Securities Litigation Reform Act of 1995, and, as such, speak
only as of the date made. The Company undertakes no obligation to revise
publicly these forward-looking statements to reflect subsequent events or
circumstances.
LIQUIDITY AND CAPITAL RESOURCES
The Company has entered into a Purchase Agreement for the sale of
substantially all of Four Queens Casino's assets, including the hotel and
casino, to SummerGate, Inc., a Nevada corporation, for a purchase price, subject
to certain adjustments, of approximately $22 million, plus the value of cash on
hand and the assumption of certain liabilities. See Item 1. BUSINESS - Recent
Developments.
The assets of the Four Queens constitute substantially all of the assets of
Elsinore. Upon the consummation of the sale of the Four Queens, Elsinore will
not have any operating assets. The Board of Directors of both Elsinore and the
Four Queens anticipate that, following the sale of the Four Queens, they will
adopt a plan of dissolution and begin the process of winding-up and dissolving
both the Four Queens and Elsinore. Elsinore anticipates that the proceeds from
the sale will be used solely to pay the debts of the Four Queens and Elsinore,
as well as to pay any accrued and unpaid dividends on Elsinore's outstanding
Preferred Stock, plus the liquidation preference on the Preferred Stock, if
Elsinore is dissolved. At February 28, 2002, total liabilities of Elsinore were
approximately $7.6 million, and total liabilities of the Four Queens were
approximately $7.8 million (of which SummerGate, Inc. will assume approximately
$4.0 million pursuant to the terms of the asset purchase agreement). The
increase in total liabilities from December 31, 2001, was due primarily to an
increase in notes payable as a result of recent slot machine purchases. In
addition, as of February 28, 2002, Elsinore had outstanding approximately
50,000,000 shares of Preferred Stock, with a liquidation preference of
approximately $22 million, including accumulated dividends, and approximately
4,993,965 shares of Common Stock.
In the event the Four Queens and Elsinore are dissolved, based upon the
total assets of the Four Queens and Elsinore as of March 14, 2002 and assuming
the consummation of the sale, after the payment of the Four Queens' and
Elsinore's debt and the payment of the Preferred Stock's liquidation preference,
including accumulated dividends, there will not be any remaining assets
available for distribution to the holders of Elsinore's Common Stock.
The beneficial owner of a majority of Elsinore's capital stock, who
exercises voting and investment authority over 100% of the Preferred Stock and
approximately 99.6% of Common Stock (on an as-converted basis), delivered a
written consent on March 22, 2002 approving the sale of the assets of the Four
Queens.
Consummation of the sale is subject to a number of conditions, including
receipt of required regulatory approvals, such as approval of the Nevada Gaming
Commission, and other licensing approvals. There can be no assurance that the
conditions to the sale will be satisfied or that the sale of the Four Queens
will be consummated. If all conditions are satisfied, the sale is expected to be
consummated during the second quarter of 2002.
In connection with the Purchase Agreement, the Company recognized a
non-cash impairment loss of approximately $13.2 million during 2001. An
impairment loss was necessary as net proceeds resulting from the sale of the
Four Queens will be less than the carrying value of the assets to be sold as of
December 31, 2001. Approximately $12.9 million of the impairment loss was
related to buildings and equipment and the remainder was related to the
impairment of reorganization value in excess of amounts allocable to
identifiable assets. See discussion in Notes of the Consolidated Financial
Statements.
The Company had cash and cash equivalents of approximately $4.6 million at
December 31, 2001, as compared to approximately $5 million at December 31, 2000.
During 2001, the Company's net cash provided by operating activities was
$3,419,000 compared to $8,287,000 in 2000, and $2,983,000 in 1999. The decrease
from 2000 was due primarily to $6.2 million received during 2000 from 29 Palms
Mission Band of Indians (the "Band") pursuant to a settlement agreement. In
addition, as a result of the acts of terrorism which occurred in New York City
and Washington, D.C. on September 11, 2001, there have been disruptions in
travel, which have resulted in decreased customer visitation to our property. We
have experienced declines, most noticeably in room and casino revenues, which
have materially adversely affected our operating results since September 11,
2001. Although the Company cannot be certain of the impact that the events of
September 11 may continue to have, if any, on future operations, the current
results compared to prior years are continuing to improve. Other factors
affecting the earnings before interest, taxes, depreciation, amortization,
rents, extraordinary item, impairment loss, merger and litigation costs, and
undeclared dividends ("EBITDA"), for the years ended 2001, 2000, and 1999 was
$9.4 million, $16 million, and $10.6 million, respectively. While EBITDA should
not be construed as a substitute for operating income or a better indicator of
liquidity than cash flow from operating activities, which are determined in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"), it is included herein to provide additional information with
respect to the ability of the Company to meet its future debt service, capital
expenditure and working capital requirements. Although EBITDA is not necessarily
a measure of the Company's ability to fund its cash needs, management believes
that certain investors find EBITDA to be a useful tool for measuring the ability
of the Company to service its debt. EBITDA margin is EBITDA as a percent of net
revenues. The Company's definition of EBITDA may not be comparable to other
companies' definitions.
The Company has contractual obligations under long-term debt, capital and
operating lease agreements as of December 31, 2001. As discussed in Item 1.
BUSINESS - Recent Developments, the Company has reached an agreement to sell
substantially all of the assets, with the assumption of certain liabilities and
lease commitments, of the Four Queens Casino. The sale is subject to certain
conditions. The Company anticipates that the proceeds from the sale will be used
solely to pay the debts of the Four Queens and Elsinore, as well as to pay any
accrued and unpaid dividends on Elsinore's outstanding Preferred Stock, plus the
liquidation preference on the Preferred Stock, if Elsinore is dissolved.
However, as of December 31, 2001, the Company had the following contractual
obligations and commitments:
Payments Due by Year
------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Long-term debt $181 $7,119 $- $- $- $- $7,300
Capital leases 422 95 3 3 4 1,460 1,987
Operating leases 4,169 4,073 4,011 4,012 4,012 103,111 123,388
----- ----- ----- ----- ----- ------- -------
Total $4,772 $11,287 $4,014 $4,015 $4,016 $104,571 $132,675
===== ====== ===== ===== ===== ======= =======
Significant debt service on the Company's 12.83% Mortgage Notes (the
"Notes") is paid in August and February, during each fiscal year, which
significantly affects the Company's cash and cash equivalents in the second and
fourth quarters and should be considered in evaluating cash increases or
decreases in the second and fourth quarters.
The Notes are due in full on October 20, 2003. The Notes are redeemable by
the Company at any time at 100% of par, without premium. The Company is required
to make an offer to purchase all Notes at 101% of face value upon any "Change of
Control" as defined in the indenture governing the Notes. The sale of the Four
Queens Casino does not constitute a change in control, as defined in the
indenture and does not require an offer to purchase the Notes at 101% of face.
The indenture also provides for mandatory redemption of the Notes by the Company
upon order of the Nevada Gaming Authorities. The Notes are guaranteed by Elsub
Management Corporation, Four Queens, Inc. and Palm Springs East Limited
Partnership ("PSELP") and are collateralized by a second deed of trust on, and a
pledge of, substantially all the assets of the Company and the guarantors.
Scheduled interest payments on the Notes and other indebtedness is $1.2
million in 2001, declining to $1 million in 2003. Management believes that
sufficient cash flow will be available to cover the Company's debt service for
the next twelve months and enable investment in forecasted capital expenditures
of approximately $1.8 million for 2002, of which $500,000 is expected to be
financed. The Company's ability to service its debt is dependent upon future
performance, which will be affected by, among other things, prevailing economic
conditions and financial, business and other factors, certain of which are
beyond the Company's control.
In December 2000, the Company made an additional principal payment on the
Notes in the amount of $3 million, after the receipt of $3.5 million by Palm
Springs East, L.P. ("PSELP") regarding the settlement agreement with the Band.
In June 2001, the Company made an additional principal payment on the Notes in
the amount of $1 million from the Company's operating cash flow.
Upon consumation of the sale of the Four Queens, the Company expects to pay
off the remaining $7 million of principal of the Notes due October 20, 2003.
However, there can be no assurance that the sale of the Four Queens will be
consumated.
A note agreement executed in connection with the issuance of the Notes,
among other things, places significant restrictions on the incurrence of
additional indebtedness by the Company, the creation of additional liens on the
collateral securing the Notes, transactions with affiliates and payment of
certain restricted payments. In order for the Company to incur additional
indebtedness or make a restricted payment, the Company must, among other things,
meet a specified consolidated fixed charges coverage ratio and have earned an
EBITDA in excess of $0. The ratio is defined as the ratio (the "Ratio") of
aggregate consolidated EBITDA to the aggregate consolidated fixed charges for
the twelve-month reference period. As of the reference period ended December 31,
2001 the Ratio was 2.75 to 1.00 and the Company was in compliance. Pursuant to
covenants applicable to the Company's Notes and Third Supplemental Indenture,
the Company is required to maintain a minimum consolidated fixed charges
coverage ratio of 1.25 to 1.00. At December 31, 2001, the Company was in
compliance with the Ratio requirements. The Company must also maintain a minimum
consolidated net worth of not less than an amount equal to its consolidated net
worth on the Effective Date of the Plan, less $5 million. At December 31, 2001,
the Company was in compliance with the minimum net worth requirements; however,
the Company was not in compliance with a covenant pertaining to limitations on
restricted payments. Specifically, we paid approximately $884,000 in connection
with our ownership interest of the Fremont Street Experience, while the note
agreement limited such payments to $600,000. A waiver has been obtained by the
Company through December 31, 2002.
Management considers it important to the competitive position of the Four
Queens Casino that expenditures be made to upgrade the property. Uses of cash
included capital expenditures of $1.6 million, $1.7 million, and $3 million
during 2001, 2000, and 1999, respectively. As a result of the acts of domestic
terrorism committed in Washington D.C. and New York City on September 11,
management has budgeted mandatory and maintenance capital expenditures to be
$1.8 million for the year 2002. The Company expects to finance such capital
expenditures from cash on hand, cash flow, and lease financing. Based upon
current operating results and cash on hand, the Company estimates it has
sufficient operating capital to fund its operations and capital expenditures for
the next twelve months. The Company's ability to make such expenditures is
dependent upon future performance, which will be affected by, among other
things, prevailing economic conditions and financial, business and other
factors, certain of which are beyond the Company's control.
RGME managed the Four Queens Casino in accordance with the Interim
Management Arrangement effective August 12, 1996 and in accordance with the
Management Arrangement among the Company, Four Queens, Inc. and RGME effective
April 1, 1997. RGME received an annual fee of $1 million in equal monthly
installments. The Management Arrangement terminated on December 31, 1999. The
Four Queens Casino is currently self-managed.
Recently Issued Accounting Standards
In the first quarter of 2001, the Emerging Issues Task Force ("EITF")
reached a consensus on certain issues in EITF 00-22 "Accounting for "Points" and
Certain Other Time-Based Sales Incentive Offers, and Offers for Free Products or
Services to Be Delivered in the Future." EITF 00-22 requires that cash rebates
or refunds be shown as a reduction of revenues effective for quarters ending
after February 15, 2001. The Company adopted the consensus provisions of EITF
00-22 in the first quarter of 2001. To be consistent with the 2001 presentation,
approximately $546,000 of slot club "cash back" rewards, previously shown as
casino expenses, were reclassified as a reduction of casino revenues for the
year ended 2000. This did not have any effect on previously reported EBITDA, as
defined, or net income.
In June 2001, the Financial Accounting Standards Board ("FASB") issued two
new pronouncements: SFAS No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." FAS 141 prohibits the use of the
pooling-of-interest method for business combinations initiated after June 30,
2001 and also applies to all business combinations accounted for by the purchase
method that are completed after June 30, 2001. There are also transition
provisions that apply to business combinations completed before July 1, 2001,
that were accounted for by the purchase method. SFAS 142 is effective for fiscal
years beginning after December 15, 2001 to all goodwill and other intangible
assets recognized in an entity's statement of financial position at that date,
regardless of when those assets were initially recognized. The new standards are
not expected to have a significant impact on our financial statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 requires one accounting model be
used for long-lived assets to be disposed of by sale and broadens the
presentation of discontinued operations to include more disposal transactions.
The requirements of SFAS No. 144 are effective for fiscal years beginning after
December 15, 2001. The adoption of SFAS No. 144 is not expected to have a
material effect on the Company's financial position or results of operations.
EITF 00-14 "Accounting for Certain Sales Incentives," which is scheduled to
be effective January 1, 2002, focuses on the accounting for, and presentation
of, discounts, coupons, and rebates. EITF 00-14 requires that cash or equivalent
amounts provided or returned to customers as part of a transaction should not be
shown as an expense but should be an offset to the related revenue. The
Company's offers certain incentives to its customers to encourage visitation and
play at the casino. The adoption of EITF 00-14 is not expected to have a
material effect on the Company's financial position or results of operations.
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America. As
such, we are required to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Our
accounting policies related to the allowance for casino receivables, long-lived
assets impairments and self-insurance reserves require that we use significant
judgment in the determination of estimates related to these items. We consider
historical, as well as current and projected social, economic and regulatory
information in the determination of these estimates, and there can be no
assurance that actual results will not differ from our estimates. Additionally,
see a summary of our signficant accounting policies in Note 1 to the
Consolidated Financial Statements for the year ended December 31, 2001.
RESULTS OF OPERATIONS
2001 COMPARED TO 2000
REVENUES
Net revenues decreased by approximately $6,246,000, or 10.4%, from
$60,060,000 during the 2000 period, to $53,814,000 for the 2001 period. This
decrease was primarily due to $6.2 million in payments received in 2000 under a
settlement agreement with the Band and a decrease in hotel revenues offset by an
increase in casino revenues. On September 11, 2001, acts of terrorism occurred
in New York City and Washington, D.C. As a result of such terrorist acts, there
has been a disruption in travel. These terrorist acts and travel disruptions
have resulted in decreased customer visitation to our property. We have
experienced declines, most noticeably in room and casino revenues, which has
materially adversely affected our operating results since September 11, 2001 as
discussed below.
Casino revenues increased by approximately $1,024,000, or 2.8%, from
$37,051,000 during the 2000 period to $38,075,000 during the 2001 period. This
increase was primarily due to a $1,100,000, or 100%, increase in slot promotion
revenue, a $825,000, or 11.7%, increase in table games revenue and a $135,000,
or 100%, increase in poker revenue, partially offset by a $1,049,000, or 3.6%,
decrease in slot machine revenue. The increase in table games revenue was
attributable to an increase in the win percentage of 1.9%, which was partially
offset by a decrease in drop of $1,518,000, or 2.7%. The increase in slot
promotion revenue was due to the implementation of a promotional slot program in
February 2001 known as $21 WinsSM. The average daily headcount for $21 WinsSM
during the nine-month 2001 period was 172. The decrease in slot machine revenue
was attributable to a decrease in slot coin-in of $19,943,000 or 4.0%. The
increase in poker revenue was attributable to poker tournament revenue earned
during the Four Queens Poker Classic, which was held from September 5 through
September 23, 2001, as well as revenues earned from live poker play during the
same time period.
Hotel revenues decreased by approximately $697,000, or 7.2%, from
$9,647,000 during the 2000 period to $8,950,000 during the 2001 period. This
decrease was primarily due to a decrease in room occupancy, as a percentage of
total rooms available for sale, from 91.5% for the 2000 period, to 88.5% for the
2001 period and the average daily room rate decreased $1.25, from $38.44 in the
2000 period to $37.19 in the 2001 period.
Food and beverage revenues increased approximately $494,000, or 4.8% from
$10,298,000 during the 2000 period to $10,792,000 during the 2001 period. This
increase was primarily due to an increase in cash food sales as a result of an
increase in complimentary covers of 6,212, or 6.1% and an increase in a higher
averages of food and beverage checks.
Other revenues decreased by approximately $6,711,000, or 82.5%, from
$8,137,000 during the 2000 period to $1,426,000 during the 2001 period. This
decrease was primarily due to payments received in 2000 of approximately
$6,191,000, under a settlement agreement with the Band and a reduction in
commemorative chips taken to income of approximately $281,000.
Promotional allowances decreased by approximately $356,000, or 7.0%, from
$5,073,000 during the 2000 period to $5,429,000 during the 2001 period due to a
decrease in complimentary rooms, food and beverage resulting from an decrease in
casino complimentaries due, in part, to decreased slot play.
DIRECT COSTS AND EXPENSES OF OPERATING DEPARTMENTS
Total direct costs and expenses of operating departments, including taxes
and licenses, increased by approximately $1,170,000, or 3.4%, from $34,128,000
for the 2000 period to $35,298,000 for the 2001 period.
Casino expenses increased $1,174,000, or 9.9%, from $11,847,000 during the
2000 period to $13,021,000 during the 2001 period, and expenses as a percentage
of revenue increased from 32.1% to 34.2%.
Hotel expenses decreased $224,000, or 2.3%, from $9,608,000 during the 2000
period to $9,384,000 during the 2001 period, however, expenses as a percentage
of revenue increased from 99.6% to 104.8%.
Food and beverage costs and expenses increased by approximately $301,000,
or 4.4%, from $6,887,000 during the 2000 period to $7,188,000 during the 2001
period; however, expenses as a percentage of revenues decreased from 66.9% to
66.6%.
Taxes and licenses decreased $81,000, or 1.4%, from $5,786,000 in the 2000
period to $5,705,000 in the 2001 period.
OTHER OPERATING EXPENSES
Selling, general and administrative expenses decreased $843,000, or 8.5%,
from $9,940,000 during the 2000 period to $9,097,000 during the 2001 period, and
as a percentage of total net revenues, expenses increased from 16.6% to 16.9%
primarily due to a reduction in slot marketing expenses as a result of a
discontinued promotion.
The Company has commitments for various union payroll increases which are
expected to increase future payroll costs.
EBITDA
EBITDA, as defined, decreased by approximately $6,572,000, or 41.1%, from
$15,991,000 during the 2000 period to $9,919,000 during the 2001 period. The
decrease was due primarily to payments received in 2000 of approximately
$6,191,000, under a settlement agreement with the Band and a reduction in
commemorative chips taken to income of approximately $281,000, as discussed in
other revenues above.
OTHER EXPENSES
Rent expense increased by approximately $162,000, or 3.9%, from $4,137,000
during the 2000 period to $4,299,000 during the 2001 period, due primarily to
corresponding annual Consumer Price Index increases for land lease agreements.
Depreciation and amortization increased by approximately $82,000, or 2.1%
from $3,872,000 during the 2000 period to $3,954,000 during the 2001 period,
primarily due to the acquisition of new equipment and the completion of a room
remodel project.
Interest expense decreased by approximately $219,000, or 13.4% from
$1,634,000 during the 2000 period to $1,415,000 for the 2001 period. The
reduction in interest expense was primarily due to a reduction in the principal
balance of the Company's Notes as a result of additional principal payments by
the Company in June 2001.
During 2001, the Company incurred approximately $127,000 in merger and
litigation costs. Approximately $370,000 was incurred as a result of litigation
costs related to the Agreement and Plan of Merger, between Elsinore and Allen E.
Paulson, which was offset by a reimbursement from the Company's directors' and
officers' insurance carrier in the amount of $243,000.
IMPAIRMENT LOSS
The Company recognized a non-cash impairment loss of approximately $13.2
million during 2001, in connection with the Purchase Agreement. An impairment
loss was necessary as net proceeds resulting from the sale of the Four Queens
will be less than the carrying value of the assets to be sold as of December 31,
2001. Approximately $12.9 million of the impairment loss was related to
buildings and equipment and the remainder was related to the impairment of
reorganization value in excess of amounts allocable to identifiable assets. See
discussion in the Notes of the Consolidated Financial Statements.
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND UNDECLARED DIVIDENDS ON
CUMULATIVE CONVERTIBLE PREFERRED STOCK
As a result of the factors discussed above, the Company experienced a net
loss before provision for income taxes and undeclared dividends on cumulative
convertible preferred stock in the 2001 period of $13,569,000 compared to a net
profit of $6,269,000 in the 2000 period, a decline of $19,838,000.
2000 COMPARED TO 1999
REVENUES
Net revenues increased by approximately $4,066,000, or 7.3%, from
$55,994,000 during the 1999 period, to $60,060,000 for the 2000 period. This
increase was primarily due to payments of $6.2 million received under a
settlement agreement with the Band, offset partially by a decrease in casino
revenues of $2.4 million, as discussed below.
Casino revenues decreased by approximately $2,357,000, or 6.0%, from
$39,408,000 during the 1999 period to $37,051,000 during the 2000 period. This
decrease was primarily due to a $2,284,000, or 100%, decrease in slot promotion
revenue, a $630,000, or 2.1%, decrease in slot machine revenue, and a $129,000,
or 24.3%, decrease in keno revenue, partially offset by a $686,000, or 9.8%,
increase in table games revenue. Slot promotion revenue decreased due to the
termination of a license agreement on December 1, 1999, for the $40 for $20 slot
promotion. The decrease in slot machine revenue is attributable to a decrease in
hold percentage of 0.08% and a decrease in slot coin-in of $4,177,000 or 0.8%.
The increase in table games revenue is attributable to an increase in drop of
$8,778,000, or 18.8%, partially offset by a decrease in the win percentage of
0.9%.
Hotel revenues increased by approximately $825,000, or 9.4%, from
$8,822,000 during the 1999 period to $9,647,000 during the 2000 period. This
increase was primarily due to an increase of $4.56 in the average daily room
rate, from $33.88 in the 1999 period to $38.44 in the 2000 period, while room
occupancy, as a percentage of total rooms available for sale, decreased from
95.0%, for the 1999 period, to 91.5%, for the 2000 period. Cash room revenue
increased $892,000, or 13.3%, from the 1999 period.
Food and beverage revenues increased approximately $652,000, or 6.8%, from
$9,646,000 during the 1999 period to $10,298,000 during the 2000 period. This
increase was primarily due to an increase in food revenues as a result of an
increase in covers and a higher average check. An increase in complimentary
beverages given to patrons during their play in the casino also contributed to
the revenue increase. In addition, cash beverage revenue increased as a result
of a higher average check.
Other revenues increased by approximately $5,007,000, or 160.0%, from
$3,130,000 during the 1999 period to $8,137,000 during the 2000 period. This
increase was primarily due to payments of $2.7 million received under a
settlement agreement with the Band, as well as a payment in the amount of $3.5
million as a result of a final release and settlement agreement entered into
with the Band on October 6, 2000.
Promotional allowances decreased by approximately $61,000, or 1.2%, from
$5,012,000 during the 1999 period to $5,073,000 during the 2000 period due to an
increase in complimentary rooms, food and beverage resulting from an increase in
casino complimentaries due, in part, to increased play in the casino.
DIRECT COSTS AND EXPENSES OF OPERATING DEPARTMENTS
Total direct costs and expenses of operating departments, including taxes
and licenses, decreased by approximately $1,083,000, or 3.1%, from $35,211,000
for the 1999 period to $34,128,000 for the 2000 period primarily due to the
termination of the $40 for $20 slot promotion on December 1, 1999.
Casino expenses decreased $1,113,000, or 8.6%, from $12,960,000 during the
1999 period to $11,847,000 during the 2000 period, and expenses as a percentage
of revenue decreased from 32.9% to 32.0%, due primarily to the termination of
the $40 for $20 slot promotion as discussed above.
Hotel expenses increased by approximately $12,000, or 0.1% from $9,596,000
during the 1999 period to $9,608,000 during the 2000 period. However expenses as
a percentage of revenues decreased from 108.8% to 99.6%, primarily due to the
allocation of hotel costs, associated with complimentary room sales, to the
casino department.
Food and beverage costs and expenses increased by approximately $211,000,
or 3.2%, from $6,676,000 during the 1999 period to $6,887,000 during the 2000
period. However expenses as a percentage of revenues decreased from 69.2% to
66.9%, primarily due to an increase in cost of sales. Cost of sales increased as
a result of a corresponding increase in revenue, partially offset by the
allocation of food and beverage costs, associated with complimentary food and
beverage sales, to the casino department.
Taxes and licenses decreased $193,000, or 3.2%, from $5,979,000 in the 1999
period to $5,786,000 in the 2000 period as a result of corresponding decreases
in casino revenues.
The Company believes that citywide competition for experienced employees
may increase employee turnover and lead to increased payroll costs. In addition,
the Company has commitments for various union payroll increases which are
expected to have an impact on future payroll costs.
OTHER OPERATING EXPENSES
Selling, general and administrative expenses decreased $267,000, or 2.6%,
from $10,207,000 during the 1999 period to $9,940,000 during the 2000 period,
and as a percentage of total net revenues, expenses decreased from 18.2% to
16.6% due primarily to the elimination of the RGME management fee as of December
31, 1999. This decrease was partially offset by the implementation of a slot
marketing promotion in February 2000.
EBITDA
EBITDA, as defined, increased by approximately $5,416,000, or 51.2%, from
$10,576,000 during the 1999 period to $15,992,000 during the 2000 period. The
increase was due primarily to an increase in other revenues and a reduction in
expenses as discussed above.
OTHER EXPENSES
Rent expense increased by approximately $168,000, or 4.2%, from $3,969,000
during the 1999 period to $4,137,000 during the 2000 period, due primarily to
corresponding annual CPI increases for land lease agreements.
Depreciation and amortization increased by approximately $540,000, or 16.2%
from $3,332,000 during the 1999 period to $3,872,000 during the 2000 period,
primarily due to the acquisition of new equipment and the completion of a room
remodel project.
Interest expense decreased by approximately $363,000, or 18.2% from
$1,997,000 during the 1999 period to $1,634,000 for the 2000 period, due
primarily to the payoff of certain bankruptcy notes that resulted from the
February 28, 1997 Plan of Reorganization and the additional principal payment in
the amount of $3 million on the 12.83% Mortgage Note on December 4, 2000.
During 2000, the Company incurred approximately $80,000 in merger and
litigation costs. Approximately $285,000 was incurred as a result of litigation
costs related to the Agreement and Plan of Merger, between Elsinore and Allen E.
Paulson, which was offset by a reimbursement from the Company's directors' and
officers' insurance carrier in the amount of $313,000. Approximately $108,000
was incurred as a result of costs associated with the Company's non-binding
letter of intent with PDS Financial Corporation, which was terminated on April
19, 2000.
NET INCOME BEFORE PROVISION FOR INCOME TAXES AND UNDECLARED DIVIDENDS ON
CUMULATIVE CONVERTIBLE PREFERRED STOCK
As a result of the factors discussed above, the Company experienced net
income before provision for income taxes and undeclared dividends on cumulative
convertible preferred stock in the 2000 period of $6,269,000 compared to a net
income before provision for income taxes and undeclared dividends of $960,000 in
the 1999 period, an improvement of $5,309,000 or 553.0%.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
The Company's financial instruments include cash and long-term debt. At
December 31, 2001, the carrying values of the Company's financial instruments
approximated their fair values based on current market prices and rates. It is
the Company's policy not to enter into derivative financial instruments. The
Company does not currently have any significant foreign currency exposure since
it does not transact business in foreign currencies. Therefore, the Company does
not have significant overall currency exposure at December 31, 2001. The Company
does not have any variable rate debt.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
For the years ended December 31, 2001, 2000 and 1999
Page
Independent Auditors' Reports 33
Consolidated Balance Sheets as of December 31, 2001 and 2000 34
Consolidated Statements of Operations for the Years
Ended December 31, 2001, 2000 and 1999 36
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 2001,
2000 and 1999 38
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2001, 2000 and 1999 39
Notes to Consolidated Financial Statements 41
All Financial Statement Schedules are omitted because they are either not
required or not applicable, or the required information is presented in the
Notes to the Consolidated Financial Statements.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Elsinore Corporation
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Elsinore
Corporation and Subsidiaries (the "Company") as of December 31, 2001 and 2000,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2001.
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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2001 and 2000, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 13, on March 14, 2002, the Company announced that an
agreement had been entered into for the sale of substantially all of the assets
of the Company's wholly owned sole operating subsidiary, Four Queens, Inc.,
which owns the Four Queens Casino.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
March 14, 2002
Elsinore Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 2001 and 2000
(Dollars in Thousands)
2001 2000
------------- -------------
Assets
Current Assets:
Cash and cash equivalents $4,643 $5,008
Accounts receivable, less allowance for
doubtful accounts of $163 and $282,
respectively 1,163 530
Inventories 360 394
Prepaid expenses 1,165 1,396
------------- -------------
Total current assets 7,331 7,328
Property and equipment, net 23,637 38,697
Reorganization value in excess of amounts
allocable to identifiable assets, net - 287
Other assets 1,793 1,683
------------- -------------
Total assets $32,761 $47,995
============= =============
(continued)
Elsinore Corporation and Subsidiaries
Consolidated Balance Sheets (continued)
December 31, 2001 and 2000
(Dollars in Thousands)
2001 2000
------------- -------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $1,095 $1,243
Accrued interest 316 255
Accrued expenses 4,024 3,618
Current portion of long-term debt 603 1,178
------------- -------------
Total current liabilities 6,038 6,294
Long-term debt, less current portion 8,684 10,093
------------- -------------
Total liabilities 14,722 16,387
------------- -------------
Commitments and contingencies (Note 9)
Shareholders' Equity:
6% cumulative convertible preferred stock, no
par value. Authorized, issued and
outstanding 50,000,000 shares. Liquidation
preference and accrued dividends of $21,760
and $20,528 at December 31, 2001 and 2000,
respectively 21,760 20,528
Common stock, $.001 par value per share.
Authorized 100,000,000 shares. Issued
and outstanding 4,993,965 shares at
December 31, 2001 and 2000, respectively 5 5
Additional paid-in capital 5,877 7,109
Retained earnings (accumulated deficit) (9,603) 3,966
------------- -------------
Total shareholders' equity 18,039 31,608
------------- -------------
Total liabilities and shareholders'
equity $32,761 $47,995
============= =============
See accompanying notes to the Consolidated Financial Statements.
Elsinore Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands)
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
Revenues, net:
Casino $38,075 $37,051 $39,408
Hotel 8,950 9,647 8,822
Food and beverage 10,792 10,298 9,646
Other 1,426 8,137 3,130
--------- --------- ---------
Total revenues 59,243 65,133 61,006
Promotional allowances (5,429) (5,073) (5,012)
--------- --------- ---------
Net revenues 53,814 60,060 55,994
--------- --------- ---------
Costs and expenses:
Casino 13,021 11,847 12,960
Hotel 9,384 9,608 9,596
Food and beverage 7,188 6,887 6,676
Taxes and licenses 5,705 5,786 5,979
Selling, general and
administrative 9,097 9,940 10,207
Rents 4,299 4,137 3,969
Depreciation and
amortization 3,954 3,872 3,332
Interest 1,415 1,634 1,997
Impairment loss 13,193 - -
Merger and litigation costs 127 80 318
--------- --------- ---------
Total costs and
expenses 67,383 53,791 55,034
--------- --------- ---------
Net income (loss) before
undeclared dividends on
cumulative preferred
stock (13,569) 6,269 960
Undeclared dividends on
cumulative preferred stock 1,232 1,162 1,096
--------- --------- ---------
Net income (loss) applicable
to common shares ($14,801) $5,107 $(136)
========= ========= =========
Elsinore Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands)
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
Basic and diluted income
(loss) per share:
Basic income (loss) per
share ($2.96) $1.02 ($.03)
========= ========= =========
Weighted average number of
common shares outstanding 4,993,965 4,993,965 4,929,313
========= ========= =========
Diluted income (loss)
per share ($2.96) $.06 ($.03)
========= ========= =========
Weighted average number of
common and common share
equivalent shares
outstanding 4,993,965 97,993,965 4,929,313
========= ========= =========
See accompanying notes to the Consolidated Financial Statements.
Elsinore Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 2001, 2000 and 1999
(Dollars in Thousands)
Common Stock Preferred Stock
--------------- ----------------- Retained
Additional Total
Out- Out- Paid- Earnings Share-
standing standing In- (Accumulated holders'
Shares Amount Shares Amount Capital Deficit) Equity
---------------------------------------------------------------
Balance, Jan. 1,
1999 4,929,313 $5 50,000,000 $18,270 $9,367 ($3,263) $24,379
Net income 960 960
Undeclared
preferred
Stock
dividends 1,096 (1,096) -
---------------------------------------------------------------
Balance, Dec. 31,
1999 4,929,313 5 50,000,000 19,366 8,271 (2,303) 25,339
Common stock
issued 64,652
Net income 6,269 6,269
Undeclared
preferred
stock
dividends 1,162 (1,162)
---------------------------------------------------------------
Balance, Dec. 31,
2000 4,993,965 5 50,000,000 20,528 7,109 3,966 31,608
Net income (13,569) (13,569)
Undeclared
preferred
stock
dividends 1,232 (1,232)
---------------------------------------------------------------
Balance, Dec. 31,
2001 4,993,965 $5 50,000,000 $21,760 $5,877 ($9,603) $18,039
===============================================================
See accompanying notes to the Consolidated Financial Statements.
Elsinore Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
Cash flows from operating
activities:
Net income (loss) ($13,569) $6,269 $960
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation and amortization 3,954 3,872 3,332
Impairment loss 13,193 - -
Provision for uncollectible
accounts (14) 108 50
Changes in assets and
liabilities:
Accounts receivable (619) 56 (271)
Inventories 34 200 (149)
Prepaid expenses 231 (209) (34)
Other assets (110) (14) (101)
Accounts payable (148) (560) 1,011
Accrued expenses 406 (955) 214
Accrued interest 61 (480) (2,029)
--------- --------- ---------
Net cash provided by
operating activities 3,419 8,287 2,983
Cash flows used in investing
activities:
Capital expenditures (1,566) (1,695) (3,046)
Cash flows used in financing
Activities:
Principal payments on
long-term debt (2,218) (5,131) (1,994)
--------- --------- ---------
Net increase (decrease) in
cash and cash equivalents (365) 1,461 (2,057)
Cash and cash equivalents at
beginning of year 5,008 3,547 5,604
--------- --------- ---------
Cash and cash equivalents at
end of year $4,643 $5,008 $3,547
========= ========= =========
Elsinore Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in Thousands)
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
Supplemental disclosure of non-
cash investing and financing
activities:
Equipment purchased with
capital lease financing $234 $59 $883
Undeclared preferred stock
dividends $1,232 $1,162 $1,096
Supplemental disclosure of cash
activities:
Cash paid for interest $1,348 $2,169 $4,025
Cash paid for income taxes $51 $2 $57
See accompanying notes to the Consolidated Financial Statements.
Elsinore Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Elsinore
Corporation and its wholly owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation.
Impairment Loss
As discussed in Note 13, on March 14, 2002, Elsinore announced that its
wholly owned subsidiary, Four Queens, Inc. ("Four Queens"), which operates the
Four Queens Hotel & Casino ("Four Queens Casino") entered into a definitive
asset purchase agreement (the "Purchase Agreement") for the sale of
substantially all of Four Queens Casino's assets, including the hotel and
casino, to SummerGate, Inc., a Nevada corporation, for a purchase price, subject
to certain price adjustments, of approximately $22 million, plus the value of
cash on hand and the assumption of certain liabilities. The assets of the Four
Queens constitute substantially all of the assets of Elsinore.
In connection with the purchase agreement, the Company recognized a
non-cash impairment loss of approximately $13.2 million during 2001.
Accounting for Casino Revenue and Promotional Allowances
In accordance with industry practice, the Company recognizes as casino
revenue the net win from gaming activities, which is the difference between
gaming wins and losses. The retail value of complimentary food, beverages and
hotel services furnished to customers is included in the respective revenue
classifications and then deducted as promotional allowances. The estimated costs
of providing such promotional allowances are included in casino costs and
expenses and consist of the following:
Years Ended December 31,
2001 2000 1999
-------------------------------
(Dollars in thousands)
Hotel $ 956 $ 767 $ 903
Food & beverage 2,738 2,617 2,498
------ ------ ------
Total $3,694 $3,384 $3,401
====== ====== ======
Cash Equivalents
Cash equivalents include highly liquid investments with a maturity date of
90 days or less at the date they were purchased.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the assets using the straight-line method. Useful
lives range from 4 to 40 years. Equipment held under capital leases is recorded
at the net present value of minimum lease payments at the inception of the lease
and amortized over the shorter of the terms of the leases or estimated useful
lives of the related assets. In connection with the Purchase Agreement, the
Company recognized a non-cash impairment loss for property and equipment in the
amount of approximately $12.9 million during 2001.
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
Reorganization value in excess of amounts allocable to identifiable assets
is amortized on a straight line basis over 15 years. Accumulated amortization at
December 31, 2000 was approximately $100,000. In connection with the Purchase
Agreement, the Company recognized a non-cash impairment loss of approximately
$287,000 for this asset during 2001.
Other Assets
Other assets consists of the following:
(Dollars in thousands)
December 31,
2001 2000
----------------------
Secured letter of credit $615 $689
Promotional gift inventory 263 163
Parking garage deposit 364 378
Security deposits on leases 180 180
Other 371 273
------ ------
Total $1,793 $1,683
====== ======
Income Taxes
Under the asset and liability method of accounting for income taxes,
deferred tax assets and liabilities are recognized for the 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. 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.
Net Income (Loss) Per Common Share
Basic per share amounts are computed by dividing net income (loss) by
average shares outstanding during the year. Diluted per share amounts are
computed by dividing net income (loss) by average shares outstanding plus the
dilutive effect of common share equivalents. The effect of the warrants
outstanding to purchase 1,125,000 shares of common stock were not included in
diluted per share calculations during the twelve month period ended December 31,
2000 since the exercise price of such warrants was greater than the average
price of the Company's common stock during these periods. Since the Company
incurred a net loss for the twelve month periods ended December 31, 2001 and
1999, the effect of common stock equivalents was anti-dilutive. Therefore, basic
and diluted per share amounts are the same for these years.
Year Ended
December 31, 2000
-----------------------------------
Income Shares Per Share
Amounts
Basic EPS:
Net income available to common
shareholders $5,107,000 4,993,965 $1.02
Effect of Dilutive Securities:
Cumulative convertible preferred stock 1,162,000 93,000,000 (0.96)
Diluted EPS:
---------- ---------- ------
Net income available to common
shareholders plus assumed conversions $6,269,000 97,993,965 $0.06
========== ========== ======
Long-lived Assets
Long-lived assets used in operations are evaluated each reporting period
for impairment by comparing the undiscounted cash flows estimated to be
generated by those assets to the assets' carrying amount. In connection with the
purchase agreement, the Company recognized a non-cash impairment loss, net, of
approximately $13.2 million during 2001. An impairment loss was necessary as net
proceeds resulting from the sale of the Four Queens will be less than the
carrying value of the assets to be sold as of December 31, 2001. Approximately
$12.9 million of the impairment loss was related to buildings and equipment and
the remainder was related to the impairment of reorganization value in excess of
amounts allocable to identifiable assets. See Note 13.
Reclassification
Certain 2000 and 1999 amounts have been reclassified to conform with the
2001 presentation. In addition, approximately $608,000 and $760,000 of slot club
"cash back" rewards, previously shown as casino expenses, was reclassified as a
reduction of casino revenues for 2000 and 1999, respectively, pursuant to EITF
00-22 "Accounting for "Points" and Certain Other Time-Based Sales Incentive
Offers, and Offers for Free Products or Services to be Delivered in the Future".
These reclassifications had no effect on the Company's net income (loss).
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant
estimates used by the Company include the estimated useful lives for depreciable
and amortizable assets, the estimated allowance for doubtful accounts
receivable, the estimated valuation allowance for deferred tax assets, and
estimated cash flows used in assessing the recoverability of long-lived assets.
Actual results may differ from those estimates.
Recently Issued Accounting Standards
In June 2001, FASB issued two new pronouncements: SFAS No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS
141 prohibits the use of the pooling-of-interest method for business
combinations initiated after June 30, 2001 and also applies to all business
combinations accounted for by the purchase method that are completed after June
30, 2001. There are also transition provisions that apply to business
combinations completed before July 1, 2001, that were accounted for by the
purchase method. SFAS 142 is effective for fiscal years beginning after December
15, 2001 to all goodwill and other intangible assets recognized in an entity's
statement of financial position at that date, regardless of when those assets
were initially recognized. The new standards are not expected to have a
significant impact on the Company's financial statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 requires one accounting model be
used for long-lived assets to be disposed of by sale and broadens the
presentation of discontinued operations to include more disposal transactions.
The requirements of SFAS No. 144 are effective for fiscal years beginning after
December 15, 2001. The adoption of SFAS No. 144 is not expected to have a
material effect on the Company's financial position or results of operations.
EITF 00-14 "Accounting for Certain Sales Incentives," which is scheduled to
be effective January 1, 2002, focuses on the accounting for, and presentation
of, discounts, coupons, and rebates. EITF 00-14 requires that cash or equivalent
amounts provided or returned to customers as part of a transaction should not be
shown as an expense but should be an offset to the related revenue. The
Company's offers certain incentives to its customers to encourage visitation and
play at the casino. The adoption of EITF 00-14 is not expected to have a
material effect on the Company's financial position or results of operations.
2. Property and Equipment
Property and equipment consists of the following:
(Dollars in thousands)
December 31,
2001 2000
----------------------
Land $2,800 $2,800
Buildings 21,283 30,481
Equipment 14,773 16,696
Construction in progress 63 62
------ ------
38,919 50,039
Less accumulated depreciation
and amortization 15,282 11,342
------ ------
$23,637 $38,697
======= =======
In connection with the Purchase Agreement as discussed in Note 13, the Company
reassessed the carrying value of its property and equipment. The Company
determined, based upon the purchase agreement terms, that the value of property
and equipment was approximately $23.6 million. Based upon the evaluation, the
property and equipment was written down by approximately $12.9 million to
reflect the permanent impairment of value.
3. Accrued Expenses
Accrued expenses consist of the following:
(Dollars in thousands)
December 31,
2001 2000
----------------------
Payroll, benefits and related $1,986 $1,582
Gaming taxes 148 183
Slot club liability 627 601
Outstanding chip and token liability 327 317
Other 936 935
------ ------
$4,024 $3,618
====== ======
4. Spotlight 29 Casino
In November 1993, the Company's subsidiary, Palm Springs East Limited
Partnership ("PSELP"), and the Twenty-Nine Palms Band of Mission Indians (the
"Band") entered into a management contract (the "PSELP Contract"), whereby PSELP
had the exclusive right to manage and operate the Spotlight 29 Casino (the
"Spotlight 29"), located near Palm Springs, California, and owned by the Band.
In March 1995, the Band and PSELP had a dispute regarding, among other
things, the terms of the PSELP Contract. As a result, PSELP lost its management
position, and subsequently wrote off casino development costs of $1,037,000 and
accrued interest and working capital loans of $3,500,000.
On March 29, 1996, PSELP entered into a settlement with the Band that was
approved by the Bankruptcy Court and which received final clearance by the
Bureau of Indian Affairs. Pursuant to the settlement agreement, PSELP received a
promissory note from the Band dated October 8, 1996, in the principal amount of
$9,000,000, which was fully reserved at February 28, 1997 (the "Note").
On October 6, 2000, PSELP entered into a release and settlement agreement
(the "PSELP Agreement") with the Band. Pursuant to the terms of the PSELP
Agreement, the Band is required to pay PSELP an aggregate amount of $3,500,000.
In addition, pursuant to the terms of the PSELP Agreement, PSELP and the Band
agreed to release each other and their respective affiliates from any and all
liability, obligations rights, claims demands, actions or causes of action
relating to the Note.
Payments received from the Band in the amounts of $6,191,418 and $1,172,000
have been recorded in other income for the years 2000 and 1999 respectively.
5. Long-Term Debt
Long-term debt, including capital lease obligations, are as follows:
(Dollars in thousands)
December 31,
2001 2000
----------------------
12.83% New Mortgage Notes $7,104 $8,104
Notes payable - IRS - 155
Notes payable - Other 196 48
Capital leases (see Note 6) 1,987 2,964
------ ------
9,287 11,271
Less current maturities (603) (1,178)
------ ------
$8,684 $10,093
====== =======
Interest on the 12.83% New Mortgage Notes ("Existing Notes") is payable on
February 28 and August 31 of each year. The Company entered into a Third
Supplemental Indenture on October 31, 2000 ("New Notes"), in which New Notes
were exchanged for the Existing Notes in the same principal amount. The New
Notes have the same terms, provisions, and conditions as the Existing Notes,
except that the New Notes are due in full on October 20, 2003. The New Notes are
redeemable by the Company at any time at 100% of par, without premium. The
Company is required to make an offer to purchase all New Notes at 101% upon any
"Change of Control" as defined in the indenture governing the New Notes. The
sale of the Four Queens Casino does not constitute a change in control, as
defined in the indenture and does not require an offer to purchase the Notes at
101% of face. The New Notes are guaranteed by Elsub Management Corporation, Four
Queens, Inc. and Palm Springs East Limited Partnership and are collateralized by
a second deed of trust on and pledge of substantially all the assets of the
Company and the guarantors.
The Note Agreement, among other things, places significant restrictions on
the incurrence of additional indebtedness by the Company, the creation of
additional liens on the collateral securing the New Notes, transactions with
affiliates and payment of certain restricted payments (as defined). In order for
the Company to incur additional indebtedness or make a restricted payment, the
Company must, among other things, meet a specified consolidated fixed charges
coverage ratio and have earned an EBITDA in excess of $0. The Company must also
maintain a minimum amount of consolidated net worth not less than an amount
equal to its consolidated net worth on February 28, 1997, which was $5 million,
less $5 million. At December 31, 2001, the Company was not in compliance with a
requirement pertaining to limitations on restricted payments; however, a waiver
has been obtained from the lender through December 31, 2002.
In June 2001, the Company made an additional principal payment on the Notes
in the amount of $1 million from the Company's operating cash flow.
The Company has two unsecured notes payable to certain vendors as a result
of the bankruptcy. These notes are non-interest bearing and are payable in
quarterly installments of $2,800 through February 2002. The Company also has
several notes for the purchase of slot machines from various slot manufacturers.
Maturities of the Company's long-term debt are as follows:
Year Ending December 31, (In Thousands)
2002 $603
2003 7,214
2004 3
2005 3
2006 4
Thereafter 1,460
-----
$9,287
======
6. Leases
All non-cancelable leases have been classified as capital or operating
leases. At December 31, 2001, the Company had leases for real and personal
property which expire in various years through 2075. Under most leasing
arrangements, the Company pays the taxes, insurance, and the operating expenses
related to the leased property. Certain leases on real property provide for
adjustments of rents based on the cost-of-living index. Buildings and equipment
leased under capital leases, included in property and equipment, are as follows:
(Dollars in thousands)
December 31,
2001 2000
----------------------
Building $1,364 $1,364
Equipment 2,810 4,450
------- -------
4,174 5,814
Less accumulated amortization (2,489) (2,469)
------- -------
$1,685 $3,345
======= ========
Amortization of assets held under capital leases is included with
depreciation and amortization expense in the Consolidated Statements of
Operations.
The following is a schedule of future minimum lease payments for capital
and operating leases (with initial or remaining terms in excess of one year) as
of December 31, 2001:
Capital Operating
Leases Leases
------- ---------
(Dollars in thousands)
Years Ending December 31,
2002 $746 $4,169
2003 332 4,073
2004 223 4,011
2005 223 4,012
2006 223 4,012
Thereafter 6,019 103,111
------ --------
Total minimum lease payments $7,766 $123,388
====== ========
Less: amount representing
interest (at imputed rates
ranging from 5.9%
to 15.0%) 5,779
------
Present value of net
minimum capital lease
payments 1,987
Less: current maturities ( 422)
------
Capital lease obligations,
excluding current maturities $1,565
======
Rent expense recorded under operating leases for the years ended December
31, 2001, 2000 and 1999 was $3,931,000, $3,823,000 and $3,729,000 respectively.
7. Income Taxes
No income tax benefit related to the 2001 income and 2000 and 1999 losses
has been recorded due to the uncertain ability of the Company to utilize its net
operating loss carryforwards.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
December 31,
2001 2000
(Dollars in thousands)
Deferred tax assets:
Accounts receivable, principally
due to allowance for doubtful accounts $ 55 $ 96
Accrued compensation, principally
due to accrual for financial
reporting purposes 335 324
Progressive slot and slot club accruals 218 234
Net operating loss carryforwards 2,691 11,170
General business credit carryforward,
principally due to investment
tax credit generated in prior years 710 632
Income recognized for tax purposes
on investment in partnership 1,111 1,075
Contribution deduction carryforward,
principally due to amounts
not deductible in prior periods 24 18
Plant and equipment, principally due to
differences in depreciation 1,195 -
Reorganization items, principally due
to amounts not currently
deductible for tax purposes - 44
-------- --------
Total gross deferred tax assets 6,339 13,593
Less valuation allowance ( 5,816) ( 8,954)
-------- --------
Net deferred tax assets 523 4,639
-------- --------
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation - (3,508)
Prepaid expenses, principally due to
deduction for tax purposes (281) (321)
Losses recognized for tax purposes on
partnership investments (242) (810)
-------- --------
Total gross deferred tax liabilities ( 523) (4,639)
-------- --------
Net deferred tax asset(liability) $ - $ -
======== ========
Prior to emergence from bankruptcy following the close of business on
February 28, 1997, the Company had a net operating loss carryforward for federal
income tax purposes of approximately $85,000,000. As a result of ownership
changes in prior years, Internal Revenue Code Section 382 ("Section 382")
limited the amount of loss carryforward currently available to offset federal
taxable income. As a result of the bankruptcy and the resulting change in
ownership, only losses generated subsequent to February 28, 1997 can offset
taxable income. As a result, the loss carryforward has significantly decreased
when comparing current year to prior year.
The Company had general business tax credit carryforwards for federal
income tax purposes of approximately $710,000 which are available to reduce
future federal income taxes, if any, through 2016. The credits incurred before
February 28, 1997 may be limited by Section 382 and may not be available for use
in future periods.
8. Benefit Plans
Four Queens makes contributions to several multi-employer pension and
welfare benefit plans covering its union employees. The plans provide defined
benefits to covered employees. Amounts charged to pension cost and contributed
to the plans for the years 2001, 2000 and 1999 totaled $335,683, $389,200 and
$426,000 respectively. While the Company is liable for its share of unfunded
vested benefits, the Company believes the amount, if any, would not be material
to the consolidated financial statements.
On October 1, 1990, the Company instituted a savings plan qualified under
Section 401(k) of the Internal Revenue Code of 1986, as amended. The savings
plan covers substantially all employees who are not covered by a collective
bargaining agreement. Employee contributions to the savings plan are
discretionary. The Company matches and contributes to each employee's account an
amount equal to 25% of the employee's contributions to the savings plan up to a
maximum employee contribution of 8% of each employee's gross compensation. The
Company's contribution was $122,073, $87,200 and $87,000 for 2001, 2000 and
1999, respectively. There were 303, 256 and 152 current employee participants in
the savings plan as of December 31, 2001, 2000 and 1999, respectively.
Effective January 1, 2001, the Board of Directors of the Company approved a
Deferred Compensation Plan for the Four Queens. Participation is limited to four
Four Queens Casino executives. The Deferred Compensation Plan provides that,
upon election, the executive may defer up to 100% of his annual base salary per
year. The Company will match $1, for each $1 deferred, up to 10% of the
executive's annual base salary. Upon a change in control, the Deferred
Compensation Plan calls for immediate vesting and requires the distribution of
all assets held under the Deferred Compensation Plan.
9. Commitments and Contingencies
Riviera Gaming Management-Elsinore, Inc. ("RGME") managed the Four Queens
Casino in accordance with the Management Arrangement among the Company, Four
Queens, Inc. and RGME effective April 1, 1997. RGME received an annual fee of $1
million in equal monthly installments. The arrangement under which RGME managed
the Four Queens Hotel and Casino terminated on December 31, 1999.
The Company and seven other downtown Las Vegas property owners, who
together operate ten casinos, have formed the Fremont Street Experience LLC, a
limited liability company of which the Company owns 17.65%, to develop the
Fremont Street Experience. The Company is liable for a proportionate share of
the project's operating expenses. The Company's allocated share of the operating
costs of the Fremont Street Experience ($600,000 in 2001, 2000 and 1999,
respectively) is expensed as incurred. The Company also shares in certain
marketing cost assessments as approved by the Fremont Street Experience LLC
Board of Directors. The Company's allocated share of the marketing costs of the
Fremont Street Experience were $283,800, $262,900 and $341,700 for 2001, 2000
and 1999, respectively.
The Company is also a party to litigation involving a proposed merger with
R&E Gaming Corp. as discussed in Note 10 below.
The Company is a party to other claims and lawsuits. Management believes
that such matters are either covered by insurance, or if not insured, will not
have a material adverse effect on the financial statements of the Company taken
as a whole.
10. Paulson Litigation
In the first half of 1997, Elsinore and Mr. Allen E. Paulson ("Paulson")
commenced discussions which culminated in an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of September 15, 1997, between Elsinore and
entities controlled by Paulson, namely R&E Gaming Corp. ("R&E") and Elsinore
Acquisition Sub, Inc. ("EAS"), to acquire by merger (the "Merger") the
outstanding Common Stock for $3.16 per share in cash plus an amount of
additional consideration in cash equal to the daily portion of the accrual on
$3.16 at 9.43% compounded annually, from June 1, 1997 to the date immediately
preceding the date such acquisition is consummated. The Merger Agreement
provided for EAS to merge into Elsinore, and Elsinore to become a wholly owned
subsidiary of R&E.
Contemporaneously with the Merger Agreement, R&E executed an Option and
Voting Agreement (the "Option Agreement") with MWV, on behalf of the MWV
Accounts which owned 94.3% of the outstanding Common Stock prior to the
Recapitalization. Under certain conditions and circumstances, the Option
Agreement provided for, among other things: (i) the grant by the MWV Accounts to
R&E of an option to purchase all of their Common Stock; (ii) an obligation by
R&E to purchase all of the MWV Accounts' Common Stock; and (iii) the MWV
Accounts to vote their Common Stock in favor of the Merger Agreement. Elsinore's
shareholders approved the Merger Agreement at a special meeting of shareholders
held on February 4, 1999.
Paulson also entered into discussions with Riviera to acquire a controlling
interest in that company as well. Riviera owns and operates the Riviera Hotel
and Casino in Las Vegas and is the parent corporation of RGME. On September 16,
1997, R&E and Riviera Acquisition Sub, Inc. ("RAS") (another entity controlled
by Paulson) entered into an Agreement and Plan of Merger with Riviera, which
provided for the merger of RAS into Riviera (the "Riviera Merger"), and for
Riviera to become a wholly owned subsidiary of R&E. R&E also entered into an
Option and Voting Agreement with certain Riviera shareholders, including MWV
acting on behalf of the MWV Accounts, containing terms similar to those
described above with respect to the Option Agreement.
The Merger Agreement contained conditions precedent to consummation of the
Merger, including: (i) the Option Agreement being in full force and effect and
MWV having complied in all respects with the terms thereof; (ii) all necessary
approvals from gaming authorities; and (iii) consummation of the Riviera Merger.
On March 20, 1998, Elsinore was notified by R&E, through Paulson, that it
was R&E's position that the Merger Agreement was void and unenforceable against
R&E and EAS, or alternatively, R&E and EAS intended to terminate the Merger
Agreement. R&E alleged, among other things, violations by Elsinore of the Merger
Agreement, violations of law and misrepresentations by MWV in connection with
the Option and Voting Agreement and the non-satisfaction of certain conditions
precedent to completing the merger. The Company denied the allegations and asked
that R&E complete the merger. Thereafter, in April 1998, Paulson, R&E, EAS and
certain other entities filed a lawsuit against eleven defendants, including
Elsinore and MWV (Paulson, et al. v Jeffries & Company et al.). On January 25,
2000, the Court granted Plaintiffs' motion for leave to file a Fourth Amended
Complaint. Plaintiffs' allegations in the Fourth Amended Complaint against the
Company include breach of the Merger Agreement by Elsinore, as well as fraud and
various violations of the federal securities laws in connection with the
proposed merger. Plaintiffs are seeking: (i) unspecified actual damages in
excess of $20 million; (ii) $20 million in exemplary damages; and (iii)
rescission of the Merger Agreement and other relief. The lawsuit was filed in
the United States District Court for the Central District of California.
On March 1, 2000, the Company filed its Answer to the Fourth Amended
Complaint, denying the material allegations thereof. In addition, the Company
alleged various counterclaims against plaintiffs for breach of the Merger
Agreement, fraud and violations of the federal securities laws. The
counterclaims seek specific performance of the Merger Agreement, compensatory
damages, punitive damages and other relief.
By Order dated February 20, 2001, the Court established a discovery cut-off
of November 30, 2001 and a trial date of March 26, 2002. Subsequently, the Court
issued an order continuing the trial to April 9, 2002. The Company is currently
unable to form an opinion as to the amount of its exposure, if any. Although the
Company intends to defend the lawsuit vigorously, there can be no assurance that
it will be successful in such defense or that future operating results will not
be materially adversely affected by the final resolution of the lawsuit.
11. Taxes and Licenses, Other Than Income Taxes
Taxes and licenses, other than income taxes, principally include payroll
taxes, gaming licenses and gross revenue taxes, and are summarized as follows:
Operating Departments
---------------------
(Dollars in thousands)
Food and
Casino Hotel Beverage Other Total
------ ----- -------- ----- -----
2001 $3,757 $ 473 $ 412 $1,063 $5,705
2000 3,825 430 399 1,132 5,786
1999 3,956 456 431 1,136 5,979
12. Supplemental Financial Information
A summary of additions and deductions to the allowance for doubtful
accounts receivable for the years ended December 31, 2001, 1999 and 1998
follows:
(Dollars in thousands)
Balance at Balance
Beginning of At End of
Years Ended Year Additions Deductions Year
- ----------- ------------ --------- ---------- ---------
2001 $282 $ 50 $169 $163
2000 249 216 183 282
1999 219 50 20 249
13. Subsequent Event and Impairment Loss
Prior to December 31, 2001, the Company entered into a sales agency
contract in which the sales agency would provide assistance in locating
potential buyers of the Company or Four Queens. On March 14, 2002, the Company
announced that Four Queens entered into a definitive asset purchase agreement
(the "Purchase Agreement") for the sale of substantially all of Four Queens
Casino's assets, including the hotel and casino, to SummerGate, Inc., a Nevada
corporation, for a purchase price, subject to certain adjustments, of
approximately $22 million, plus the value of cash on hand and the assumption of
certain liabilities. In addition, pursuant to the terms of the asset purchase
agreement, SummerGate, Inc. will offer employment to all Four Queens employees.
The assets of the Four Queens constitute substantially all of the assets of
Elsinore. Upon the consummation of the sale of the Four Queens, Elsinore will
not have an operating asset. The Board of Directors of both Elsinore and the
Four Queens anticipate that, following the sale of the Four Queens, they will
adopt a plan of dissolution and begin the process of winding-up and dissolving
both the Four Queens and Elsinore. Elsinore anticipates that the proceeds from
the sale will be used solely to pay the debts of the Four Queens and Elsinore,
as well as to pay any accrued and unpaid dividends on Elsinore's outstanding 6%
cumulative convertible preferred stock (the "Preferred Stock"), plus the
liquidation preference on the Preferred Stock, if Elsinore is dissolved. At
February 28, 2002, total liabilities of Elsinore were approximately $7.6
million, and total liabilities of the Four Queens were approximately $7.8
million (of which SummerGate, Inc. will assume approximately $4.0 million
pursuant to the terms of the asset purchase agreement). In addition, as of
February 28, 2002, Elsinore had outstanding approximately 50,000,000 shares of
Preferred Stock, with a liquidation preference of approximately $22 million,
including accumulated dividends, and approximately 4,993,965 shares of common
stock (the "Common Stock").
In the event the Four Queens and Elsinore are dissolved, based upon the
total assets of the Four Queens and Elsinore as of March 14, 2002 and assuming
the consummation of the sale, after the payment of the Four Queens' and
Elsinore's debt and the payment of the Preferred Stock's liquidation preference,
including accumulated dividends, there will not be any remaining assets
available for distribution to the holders of Elsinore's Common Stock.
The beneficial owner of a majority of Elsinore's capital stock, who
exercises voting and investment authority over 100% of the Preferred Stock and
approximately 99.6% of Common Stock (on an as-converted basis), delivered a
written consent on March 22, 2002 approving the sale of the Four Queens.
Consummation of the sale is subject to a number of conditions, including
receipt of required regulatory approvals, such as approval of the Nevada Gaming
Commission, and other licensing approvals. There can be no assurance that the
conditions to the sale will be satisfied or that the sale of the Four Queens
will be consummated. If all conditions are satisfied, the sale is expected to be
consummated during the second quarter of 2002.
In connection with the purchase agreement, the Company recognized a
non-cash impairment loss of approximately $13.2 million during 2001. An
impairment loss was necessary as net proceeds resulting from the sale of the
Four Queens will be less than the carrying value of the assets to be sold as of
December 31, 2001. Approximately $12.9 million of the impairment loss was
related to buildings and equipment and the remainder was related to the
impairment of reorganization value in excess of amounts allocable to
identifiable assets.
Elsinore Corporation and Subsidiaries
Selected Quarterly Financial Information (Unaudited)
(Dollars in thousands, except per share amounts)
Year ended December 31, 2001
-----------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
Net revenues $14,584 $14,031 $13,263 $11,936 $53,814
Operating income (loss) 826 9 (622) (13,782) (13,569)
Net income (loss) before
Undeclared dividends
on cumulative
preferred stock 826 9 (622) (13,782) (13,569)
Undeclared dividends
on cumulative
preferred stock 304 303 303 322 1,232
Net income (loss) applicable
to common shares 522 (294) (925) (14,104) (14,801)
Basic and diluted net
income per common
share:
Basic EPS $0.10 ($0.06) ($0.19) ($2.82) ($2.96)
Diluted EPS 0.01 - - - -
Year ended December 31, 2000
-----------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
Net revenues $15,397 $14,338 $13,142 $17,183 $60,060
Operating income (loss) 1,714 638 (13) 3,930 6,269
Net income (loss) before
undeclared dividends
on cumulative
preferred stock 1,714 638 (13) 3,930 6,269
Undeclared dividends
on cumulative
preferred stock 285 288 381 208 1,162
Net income (loss) applicable
to common shares 1,429 350 (394) 3,722 5,107
Basic and diluted net
income per common
share:
Basic EPS $0.29 $0.07 ($0.08) $0.74 $1.02
Diluted EPS 0.02 0.01 - 0.03 0.06
Year ended December 31, 1999
-----------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
Net revenues $14,984 $14,587 $13,319 $13,104 $55,994
Operating income (loss) 1,175 582 (667) (130) 960
Net income (loss) before
undeclared dividends
on cumulative
preferred stock 1,175 562 (649) (128) 960
Undeclared dividends
on cumulative
preferred stock 270 270 270 286 1,096
Net income (loss) applicable
to common shares 905 292 (919) (414) (136)
Basic and diluted net
income per common
share:
Basic EPS $0.18 $0.06 ($0.19) ($0.08) ($0.03)
Diluted EPS 0.01 0.01 - - -
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors and Executive Officers.
The following sets forth the names, ages and positions of each person who
is a director or executive officer of the Company as well as key employees of
the Four Queens Casino. The term of office for each director is one year.
Name Age Position
- ---- --- --------
Directors and Executive Officers
- --------------------------------
John C. "Bruce" Waterfall 64 Chairman of the Board
Philip W. Madow 42 President and Director
S. Barton Jacka 65 Treasurer, Secretary and Director
Donald A. Hinkle 54 Director
Gina L. Contner 36 Executive Director of Finance,
Four Queens Casino
Key Employees of Four Queens Casino
- -----------------------------------
Tjoan T. Tan 43 Executive Director of Casino
Operations, Four Queens Casino
Tina M. Kotula 44 Executive Director Marketing,
Four Queens Casino
John C. "Bruce" Waterfall. Mr. Waterfall joined the Board and has been
Chairman of the Board of Elsinore since February 1997. Mr. Waterfall has been a
professional money manager and analyst for the past 32 years with MWV, of which
he is President and co-founder. Certain investment accounts managed by MWV own
99.6% of the outstanding Common Stock, and Mr. Waterfall exercises sole voting
and investment authority over that Common Stock. Mr. Waterfall also serves as a
director of Darling International, Inc., a public reporting company under the
Securities Exchange Act of 1934, as amended.
Philip W. Madow. Mr. Madow was appointed as President and as a member of
the Board of Directors of Elsinore Corporation in December 2000. He has been
employed with the Four Queens for 15 years, and he previously worked with
Marriott Corporation, Mirage/Las Vegas and was General Manager for the flagship
property of Budget Suites of America. He was appointed as the Four Queens'
President and General Manager in December 2000, and is responsible for daily
operations, after serving as the Four Queens' Acting General Manager since
August 2000. He has also served in numerous capacities at the Four Queens
including Director of Operations and Administration and Vice President of Hotel
Operations since 1983. Mr. Madow has over 24 years of experience in the
hospitality and gaming industry.
S. Barton Jacka. Mr. Jacka has been the Secretary, Treasurer and a member
of the Board of Directors of Elsinore since February 1997. Mr. Jacka is a gaming
consultant and serves as chairman of the gaming compliance committees of several
companies licensed by the Nevada Gaming Authorities. From 1993 to 1996, Mr.
Jacka was with Bally Gaming, Inc. and Bally Gaming International, Inc., first as
Director of Government Affairs and Gaming Compliance and later as Vice
President. He held the position of Director of Corporate Gaming Compliance for
Bally Manufacturing Corporation and then Bally's Casino Resort from 1987 to
1993. Mr. Jacka retired from the position of Chairman of the Nevada State Gaming
Control Board, a position he held from 1985 to 1987, prior to entering the
private sector.
Donald A. Hinkle. Mr. Hinkle has been a member of the Board of Directors of
Elsinore since October 2000. He has 25 years of experience in the gaming
industry and has held various executive positions in the industry. He is a
certified public accountant and has held gaming licenses in both Nevada and
Atlantic City. Since March 2001, Mr. Hinkle has held the position of Assistant
General Manager and Chief Financial Officer for the AVI Hotel and Casino, a
Native American resort and casino in Laughlin, Nevada. He was originally hired
as Director of Finance for the AVI Resort and Casino in May 1999. From March
1993 to September 1998, Mr. Hinkle was the Vice President of Finance and
Administration of Bally Systems.
Gina L. Contner. Ms. Contner joined the Four Queens in August 1996 and
serves as the Four Queens Executive Director of Finance. Ms. Contner has nearly
15 years experience in the gaming industry. From 1993-1996, she held the
position of Financial Controller for the Riviera Hotel & Casino in Las Vegas,
and from 1989-1993, she held the position of Assistant Financial Controller for
the Riviera. Ms. Contner earned her Bachelor of Science in Business
Administration-Accounting degree from the University of Nevada, Las Vegas.
Tjoan T. Tan. Mr. Tan joined the Four Queens in January 1997 and currently
serves as Executive Director of Casino Operations. Mr. Tan is responsible for
all gaming operations including Slots, Table Games and Keno. From March 2000 to
May 2001, Mr. Tan served as the Four Queens' Director of Financial Planning and
Casino Administration, from May 1998 to March 2000, he held the position of
Financial Planning Manager, and from January 1997 to May 1998, he held the
position of Financial Analyst/Special Projects. Mr. Tan was the Casino Trainer
at the Riviera Hotel & Casino from September 1993 to January 1997. Mr. Tan
attended the University of Alabama, Auburn University, and matriculated at
University of Nevada, Las Vegas with a degree in Hotel Administration in 1993.
Tina M. Kotula. Ms. Kotula joined the Four Queens in September 2001 and
serves as the Executive Director of Marketing. Ms. Kotula has 20 years of
experience in the gaming industry. From 1983-1995 she held the positions as
Casino Marketing Manager/Special Events Manager and the Director of Marketing
for the Four Queens Hotel & Casino, from 1995-1996 she held the position of
Director of Marketing/Consultant for the Golden Gate Hotel & Casino, from
1996-1997 she held the position of Players Club Manager at the Fiesta Hotel &
Casino, from 1997-1999 she held the position of Director of Marketing and Casino
Marketing for Boomtown & Silverton Hotel & Casino in Las Vegas, and from
1999-2001 she held the position of Director of Marketing for
Bayer-Brown-Bauserman Advertising and Shonkwiler-Marcoux Advertising in Las
Vegas.
There are no family relationships between any director and executive
officer.
The Company does not have a nominating committee.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than 10% of a registered class of
the Company's equity securities, to file an initial report of ownership on Form
3 and changes in ownership on Form 4 or 5 with the Securities and Exchange
Commission. Such officers, directors and 10% stockholders are also required by
the Commission rules to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for such persons, the Company believes that during 2001, all Section
16(a) filing requirements applicable to its officers, directors and 10%
stockholders were complied with, except for a late Form 3 filing by Gina L.
Contner in March 2002.
Item 11. EXECUTIVE COMPENSATION.
The following table provides certain summary information concerning
compensation paid by the Company to each person who served as Chief Executive
Officer during any part of the year ended December 31, 2001. The table also
includes the next most highly compensated executive officer during 2001.
Long Term
Compensation
Annual Compensation Awards
---------------------------------- ----------
Securities All Other
Name and Underlying Compensa-
Principal Position Year Salary ($) Bonus($) Other($) Options (#) tion ($)
- ------------------ ---- ---------- -------- -------- ----------- ---------
Philip W. Madow 2001 $210,000(3) $75,000 * -0- $24,850(5)
President (1) 2000 145,000 22,500 * -0- -0-
Gina L. Contner 2001 113,000(4) 28,000 * -0- 10,000(6)
Executive Director 2000 96,000 22,500 * -0- 18,500(7)
of Finance,
Four Queens(2)
*Amount did not exceed the lessor of
$50,000 or 10% of annual salary and
bonus.
(1) Mr. Madow assumed his position on December 5, 2000.
(2) Ms. Contner became an executive officer on March 29, 2001.
(3) Includes $26,900 earned as base salary but deferred under the Deferred
Compensation Plan.
(4) Includes $8,800 earned as base salary but deferred under the Deferred
Compensation Plan.
(5) Includes $21,000 of matching funds contributed by the Company under the
Deferred Compensation Plan, $2,600 of matching funds contributed by the
Company under the Company's 401K Plan and $1,250 in life insurance premiums
paid by the Company.
(6) Includes $8,600 of matching funds contributed by the Company under the
Deferred Compensation Plan, $400 of matching funds contributed by the
Company under the Company's 401K Plan and $800 in life insurance premiums
paid by the Company.
(7) Ms. Contner received a one-time bonus in connection with the settlement
between PSELP and the Band.
Stock Options and Similar Rights.
The Company did not grant any restricted stock, stock options or stock
appreciation rights (collectively, "Stock Rights"), during 2001 nor were any
Stock Rights exercised in 2000. As of the Plan Effective Date, all previously
outstanding Stock Rights were canceled.
Employment Agreements.
Philip W. Madow and Gina L. Contner have employment agreements with the
Four Queens.
Under the employment agreements, which became effective on January 1, 2002,
Philip W. Madow and Gina L. Contner are employed by the Four Queens for a period
of one year. The agreements may be renewed annually by Elsinore's Board of
Directors and automatically renew of no action is taken by the Board. Mr. Madow
and Ms. Contner may terminate the agreements at any time without cause by giving
the Four Queens two weeks written notice of such termination. The Four Queens
may terminate the agreements at any time without cause by giving Mr. Madow and
Ms. Contner written notice. If the Four Queens terminates Mr. Madow or Ms.
Contner's employment without cause, the Four Queens must pay one year salary and
COBRA benefits for a period of one year. In the event of a change in ownership
or control, Mr. Madow and Ms. Contner have the option to elect to be employed
with the entity or person having acquired such control or terminate their
respective employment agreement. If Mr. Madow or Ms. Contner terminate their
respective employment agreement upon a change of ownership or control, they are
entitled to one year's base salary and COBRA benefits. "Change of ownership or
control" means that all or substantially all of the assets of Four Queens are
directly, or through transfer of equity interests, transferred or otherwise
disposed of in one or a series of related transactions after (1) the Four Queens
ceases to own directly or indirectly substantially all equity interests in the
Four Queens Hotel and Casino; (2) the Four Queens sells 51% or more of the
assets of Four Queens Hotel and Casino; or (3) Elsinore ceases to own directly
or indirectly at least 51% of all outstanding shares of Four Queens. Mr. Madow's
current annual compensation is $210,000 and Ms. Contner's current annual
compensation is $120,000. Thus, upon consummation of the sale of assets under
the Purchase Agreement, if the executives terminate their employment with Four
Queens, they would be entitled to receive the one year severance compensation
described above.
Incentive Bonus Plan.
Effective January 1, 2001, the Board of Directors of the Company approved
an incentive bonus plan for approximately 30 senior employees of the Four Queens
Casino ("Bonus Plan"). The Bonus Plan provides that if certain targeted earnings
are met, a corresponding amount will be credited towards a bonus pool. Bonuses
are expected to be paid, following annual audited results, in March of the
succeeding year. The distribution of the bonus pool is discretionary. Bonuses
for targets met in 2001 were paid in February 2002.
Deferred Compensation Plan.
Effective January 1, 2001, the Board of Directors of the Company approved a
Deferred Compensation Plan for the Four Queens. Participation is limited to Mr.
Madow and three other Four Queens Casino executives. The Deferred Compensation
Plan provides that, upon election, the executive may defer up to 100% of
executive's annual base salary per year. The Company will match $1, for each $1
deferred, up to 10% of the executive's annual base salary. Upon a change in
control, the Deferred Compensation Plan calls for immediate vesting and requires
the distribution of all assets held under the Deferred Compensation Plan. The
sale of assets under the Purchase Agreement would constitute a change in
control.
Compensation of Directors.
Messrs. Waterfall and Madow receive no compensation from the Company for
serving on the Board and attending Board of Directors meetings. Each of the
other directors receives an annual fee of $25,000 in consideration of his
attendance at each quarterly Board of Directors meeting plus $1,000 for each
additional meeting, including committee meetings, (other than meetings by
telephone conference) at which his attendance is required. All directors receive
reimbursement for reasonable expenses incurred in attending each meeting of the
Board of Directors. Mr. Jacka also receives $10,000 per year in consideration of
serving as an executive officer of the Company.
Compensation Committee Interlocks and Insider Participation.
The Company did not have a compensation committee in 2001. The full Board
of Directors has made all decisions regarding executive officer compensation.
Mr. Madow receives no compensation for serving as the President of the Company,
but received a salary of $210,000 as his position as President and General
Manager of the Four Queens. Separate from his duties as a Director of the
Company, Mr. Jacka receives $68,000 per year for serving as a consultant to the
Company for Gaming Compliance matters.
On September 29, 1998, MWV Accounts contributed $4,641,000, net of $260,000
of expenses, to the capital of Elsinore, which Elsinore used, together with
other funds of Elsinore, to purchase in full all of Elsinore's outstanding 11.5%
First Mortgage Notes due 2000 in the original principal amount of $3,856,000 and
$896,000 of original principal amount 13.5% Second Mortgage Notes of Elsinore
due 2001.
Also on September 29, 1998, the Company issued to the MWV Accounts
50,000,000 shares of Series A Convertible Preferred Stock of the Company in
exchange for the surrender to the Company of $18,000,000 original principal
amount of certain second mortgage notes held by the MWV Accounts. The 50,000,000
shares of Series A Convertible Preferred Stock have: (i) the right to receive
cumulative dividends at the rate of 6% per year; (ii) the right to receive the
amount of $.36 per share, plus all accrued or declared but unpaid dividends on
any shares then held, upon any liquidation, dissolution or winding up of the
Company for an aggregate liquidation preference of $18,000,000; (iii) voting
rights equal to the number of shares of the Company's Common Stock into which
the shares of Preferred Stock may be converted; and (iv) the right to convert
the shares of Preferred Stock into 93,000,000 shares of the Company's Common
Stock.
In addition, Elsinore issued to the MWV Accounts New Mortgage Notes in the
aggregate principal amount of $11,104,000 in exchange for all remaining
outstanding second mortgage notes held by the MWV Accounts in the same aggregate
principal amount, pursuant to an amended indenture governing the New Mortgage
Notes that reduced the interest rate payable thereon from the 13.5% payable
under the old second mortgage notes to the 12.83% payable under the New Mortgage
Notes. The Company's Chairman of the Board, Mr. Waterfall, is the President and
a principal shareholder of MWV, which manages the MWV Accounts.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners.
As of December 31, 2001, the Company had two classes of voting securities,
Common Stock and Series A Convertible Preferred Stock. Series A Convertible
Preferred Stock votes on an as-converted basis, except with respect to the
election of directors for which each share is entitled to one vote for each of
the director positions open. As of December 31, 2001, the beneficial ownership
of Common Stock by each person who is known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock and Series A Convertible
Preferred Stock, is as follows:
Common Stock
------------
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership(1) of Class
- ------------------------------------ ----------------------- --------
John C. "Bruce" Waterfall, who exercises
voting and investment authority over the
Common Stock owned by the MWV Accounts,
as follows (2)(3)(4):
Betje Partners 4,278,690.06 46.1%
Endowment Prime, L.L.C. (f/k/a)
The Common Fund for Non-Profit Organizations 14,836,328.84 77.6
Morgens Waterfall Income Partners, L.P. 2,604,280.86 34.3
MWV Employee Retirement Plan Group Trust 879,022.60 15.1
MWV International, Ltd. 3,898,515.00 78.1
Phoenix Partners, L.P. 12,276,868.62 71.1
Restart Partners, L.P. 10,273,330.56 67.3
Restart Partners II, L.P. 19,677,499.86 79.8
Restart Partners III, L.P. 16,089,026.04 76.3
Restart Partners IV, L.P. 10,135,926.78 67.0
Restart Partners V, L.P. 2,696,949.78 35.1
------------- ------
Total 97,646,439.00 99.6%
============= ======
Preferred Stock
---------------
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership(1) of Class
- ------------------------------------ ----------------------- --------
John C. "Bruce" Waterfall, who exercises
voting and investment authority over the
Preferred Stock owned by the MWV Accounts,
as follows (2)(3)(4):
Betje Partners 2,300,371.00 4.6%
Endowment Prime, L.L.C. (f/k/a)
The Common Fund for Non-Profit Organizations 7,596,894.00 15.2
Morgens Waterfall Income Partners, L.P. 1,400,151.00 2.8
MWV Employee Retirement Plan Group Trust 450,110.00 *
MWV International, Ltd. - *
Phoenix Partners, L.P. 6,600,467.00 13.2
Restart Partners, L.P. 5,523,296.00 11.0
Restart Partners II, L.P. 10,579,301.00 21.2
Restart Partners III, L.P. 8,650,014.00 17.3
Restart Partners IV, L.P. 5,449,423.00 10.9
Restart Partners V, L.P. 1,449,973.00 2.9
------------- ------
Total 50,000,000.00 100.0%
============= ======
*Less than 1% of the outstanding shares
(1) The number of shares beneficially owned and the percentage of shares
beneficially owned are determined in accordance with the rules of the Securities
and Exchange Commission and are based on 4,993,965 shares of Common Stock and
50,000,000 shares of Preferred Stock, which are convertible into 93,000,000
shares of Common Stock outstanding as of December 31, 2001.
(2) The address for Mr. Waterfall and each of the MWV Accounts is 10 East 50th
Street, New York, New York 10022.
(3) The Common Stock table represents shares on an as-converted basis and the
Preferred Stock table represents preferred shares. Pursuant to agreements and
undertakings with the Board and the Commission which were required in order for
the Plan to become effective, Mr. Waterfall is the only individual who exercises
voting and investment power (including dispositive power) with respect to Common
Stock owned by the MWV Accounts. MWV and its affiliates other than Mr. Waterfall
are either investment advisors to, or trustees or general partners of, the MWV
Accounts. Accordingly, for purposes of the relevant Exchange Act rules, they
could also be deemed the beneficial owners of Common Stock held by the MWV
Accounts. The possible attribution of such beneficial ownership of Common Stock,
expressed in number of shares, on an as-converted basis, and percent of the
class, to MWV and those affiliates is as follows: MWV - 9,056,227.66 (89.6%);
Endowment Prime, L.L.C. - 14,836,328.84 (77.6%); MW Capital, L.L.C. -
2,604,280.86 (34.3%); MW Management, L.L.C. - 12,276,868.62 (71.1%); Prime
Group, L.P. -10,273,330.56 (67.3%); Prime Group II, L.P. - 19,677,499.86
(79.8%); Prime Group III, L.P. - 16,089,026.04 (76.3%); Prime Group IV, L.P. -
10,135,926.78 (67.0%); and Prime Group V, L.P. - 2,696,949.78 (35.1%). The
possible attribution of ownership of Preferred Stock, expressed in number of
shares and percent of the class, to MWV and those affiliates is as follows: MWV
- - 2,750,481.00 (5.5%); Endowment Prime, L.L.C. - 7,596,894.00 (15.2%); MW
Capital, L.L.C. 1,400,151.00 (2.8%); MW Management, L.L.C. - 6,600,467.00
(13.2%); Prime Group, L.P. -5,523,296.00 (11.0%); Prime Group II, L.P. -
10,579,301.00 (21.2%); Prime Group III, L.P. - 8,650,014.00 (17.3%); Prime Group
IV, L.P. - 5,449,423.00 (10.9%); and Prime Group V, L.P. - 1,449,973.00 (2.9%).
In view of Mr. Waterfall's possession of sole voting and investment power over
the Common Stock and Preferred Stock on behalf of the MWV Accounts, these
entities disclaim beneficial ownership of Common Stock and Preferred Stock.
(4) The Company has relied on information provided by the MWV Accounts for
beneficial ownership allocation.
Security Ownership of Management
As of December 31, 2001, the beneficial ownership of Common Stock and
Preferred Stock by each of Elsinore's directors, named executive officers and by
its directors and executive officers as a group, as such ownership is known by
Elsinore, is as follows:
Amount and Nature of Percent
Title of Class Name of Beneficial Owner Beneficial Ownership of Class
- -------------- ------------------------ -------------------- --------
Common Stock John C. "Bruce" Waterfall,
Chairman of the Board (1) 97,646,439 (2) 99.6%
Philip W. Madow, President
and Director -0- *
S. Barton Jacka, Secretary,
Treasurer and Director -0- *
Donald A. Hinkle, Director -0- *
Gina L. Contner,
Executive Director of Finance,
Four Queens -0- *
Common Stock Directors and executive
officers as a group (7 persons) 97,646,439 (2) 99.6
Series A John C. "Bruce" Waterfall,
Convertible Chairman of the Board (1)
Preferred 50,000,000 100.0
Series A Directors and executive
Convertible officers as a group (7 persons)
Preferred 50,000,000 100.0
*Less than 1% of class
(1) See note (3) to the table in Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT - Security Ownership of Certain Beneficial
Owners.
(2) See note (1) to the table Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT - Security Ownership of Certain Beneficial
Owners.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
John C. "Bruce" Waterfall, our Chairman of the Board, is the President and
a principal shareholder of MWV, which manages the MWV Accounts. The MWV Accounts
beneficially own 99.6% of our Common Stock (on an as-converted basis, including
the right to convert the 50,000,000 shares of Preferred Stock held by the MWV
Accounts into 93,000,000 shares of Common Stock). The MWV Accounts also hold the
MWV Notes issued by us with outstanding principal and accrued interest of
approximately $7.1 million as of February 28, 2002 with an interest rate of
12.83%. Concurrent with the closing of the sale of assets, a portion of the
proceeds received from the purchaser will be used to repay all of the
outstanding principal and accrued interest outstanding under the MWV Notes. As
of February 28, 2002, the liquidation preference, including accrued and unpaid
dividends, payable to the MWV Accounts as holders of the Preferred Stock was
approximately $22,000,000. Thus, after payment of Four Queens' and our debt, we
expect that the remainder of the proceeds from the sale of assets will be
distributed entirely to the MWV Accounts pursuant to the Preferred Stock
liquidation preference upon the anticipated liquidation of the Company following
sometime after the sale of assets.
Mr. Jacka receives $68,000 per year for serving as a consultant to the
Company for Gaming Compliance matters.
Philip W. Madow and Gina L. Contner have employment agreements with the
Four Queens. In the event of a change in ownership or control, Mr. Madow and Ms.
Contner have the option to elect to be employed with the entity or person having
acquired such control or terminate their respective employment agreement. In the
event the Executives terminate the employment agreement, Executives shall be
entitled to one year's base salary plus COBRA benefits. Thus, upon consummation
of the sale of assets, if the executives terminate their employment with Four
Queens, they would be entitled to receive the one year severance compensation
described above. See discussion under Item 11. EXECUTIVE COMPENSATION -
Employment Agreements.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. and 2. Financial Statements and Schedules
The financial statements and schedules filed as part of this report
are listed in the Index to Consolidated Statements under Item 8.
3. List of exhibits
2.1* First Amended Plan of Reorganization [2.1](5)
2.2* Order Confirming First Amended Plan of Reorganization [2.2](5)
2.3* Bankruptcy Court Order Approving Plan Documentation [2.3](6)
2.4 Asset Purchase Agreement by and between Four Queens, Inc. and
SummerGate, Inc. dated March 14, 2002
3.1* Amended and Restated Articles of Incorporation of Elsinore
Corporation [3.1](7)
3.2* Amended and Restated Bylaws of Elsinore Corporation [3.2](7)
4.1* Certificate of Designations, Preferences and Rights of
Elsinore Corporation Series A Preferred Stock [3.3] (14)
10.1* Sublease, dated May 26, 1964, by and between A.W. Ham, Jr.
and Four Queens, Inc. [10.1](1)
10.2* Amendment of Sublease, dated June 15, 1964, by and between
A.W. Ham, Jr. and Four Queens, Inc. [10.2](1)
10.3* Amendment of Sublease, dated February 25, 1965, by and
between A.W. Ham, Jr. and Four Queens, Inc. [10.3](1)
10.4* Amendment to Lease, dated January 29, 1973, by and between
A.W. Ham, Jr. and Four Queens, Inc. [10.4](1)
10.5* Supplemental Lease, dated January 29, 1973, by and between
A.W. Ham, Jr. and Four Queens, Inc. [10.5](1)
10.6* Lease Agreement, dated April 25, 1972, by and between Bank
of Nevada and Leon H. Rockwell, Jr., as Trustees and Four
Queens, Inc. [10.6](1)
10.7* Lease, dated January 1, 1978, between Finley Company and
Elsinore Corporation [10.7](1)
10.8* Ground Lease, dated October 25, 1983, between Julia E. Albers,
Otto J. Westlake, Guardian, and Four Queens, Inc. [10.8](1)
10.9* Ground Lease, dated October 25, 1983, between Katherine M.
Purkiss and Four Queens, Inc. [10.9](1)
10.10* Ground Lease, dated October 25, 1983, by and between Otto J.
Westlake and Four Queens, Inc. [10.10](1)
10.11* Indenture of Lease, dated March 28, 1984, by and between the
City of Las Vegas and Four Queens, Inc. [10.11](1)
10.12* Lease Indenture, dated May 1, 1970, by and between Thomas L.
Carroll, et al. and Four Queens, Inc. [10.12](1)
10.13* Memorandum Lease, dated January 26, 1973, by and between
President and Board of Trustees of Santa Clara College and
Four Queens, Inc. [10.13](1)
10.14* Agreement, dated April 29, 1992, by and among Four Queens,
Inc., Jeanne Hood, Edward M. Fasulo and Richard A. LeVasseur
[10.28](1)
10.15* Settlement Agreement, dated March 29, 1996, by and between
Palm Springs East Limited Partnership and the 29 Palms Band of
Mission Indians [10.19](7)
10.16* Loan Agreement, dated November 12, 1993, by and among The
Jamestown S'Klallam Tribe and JKT Gaming, Inc. [10.31](3)
10.17* First Amendment to Loan Agreement, dated January 28, 1994, by
and among The Jamestown S'Klallam Tribe and JKT Gaming, Inc.
[10.32](3)
10.18 Intentionally omitted
10.19* Amended and Restated Indenture, dated as of March 3, 1997, by
and among Elsinore Corporation, the Guarantors named therein
and First Trust National Association, as Trustee (the
"Restated Indenture") [10.23](7)
10.20* Waiver of Compliance, dated February 27 and March 3, 1998,
under the Restated Indenture [10.24] (15)
10.21* Pledge Agreement, dated as of October 8, 1993, from Elsinore
Corporation and Elsub Management Corporation to First Trust
National Association [10.7](2)
10.22* Amendment of 1993 Pledge Agreement, dated March 3, 1997
[10.25](7)
10.23* Deed of Trust, Assignment of Rents and Security Agreement,
dated as of October 8, 1993, by and among Four Queens, Inc.,
Land Title of Nevada, Inc. and First Trust National
Association [10.8](2)
10.24* Modification of Subordinated Deed of Trust, dated March 3,
1997, by and between Four Queens, Inc. and First Trust
National Association [10.27](7)
10.25 Intentionally omitted
10.26 Intentionally omitted
10.27* Assignment of Operating Agreements, dated as of October 8,
1993, by Palm Springs East Limited Partnership to First Trust
National Association [10.9](2)
10.28* Assignment of Operating Agreement, dated as of October 8,
1993, by Olympia Gaming Corporation to First Trust National
Association [10.10](2)
10.29* Common Stock Registration Rights Agreement, dated as of
February 28, 1997, among Elsinore Corporation and the Holders
of Registrable Shares referred to therein (incorporated by
reference herein and filed as (i) Exhibit 10.31 to Elsinore
Corporation's Quarterly Report on Form 10-Q for the three
months ended March 31, 1997 and (ii) Exhibit B to Schedule
13D, dated March 10, 1997, by Morgens Waterfall Income
Partners, L.P.; Restart Partners, L.P.; Restart Partners II,
L.P.; Restart Partners III, L.P.; Restart Partners IV, L.P.;
Restart Partners V, L.P.; The Common Fund for Non-Profit
Organizations; MWV Employee Retirement Plan Group Trust; Betje
Partners; Phoenix Partners, L.P.; Morgens, Waterfall,
Vintiadis & Company, Inc.; MW Capital, L.L.C.; Prime Group,
L.P.; Prime Group II, L.P.; Prime Group III, L.P.; Prime Group
IV, L.P.; Prime Group V, L.P.; Prime, Inc.; MW Management,
L.L.C.; John C. "Bruce" Waterfall; and Edwin H. Morgens, with
respect to the Common Stock) [10.33] (15)
10.30* Description of Compensation Plan or Arrangement for Elsinore
Corporation Directors and Executive Officers (filed pursuant
to Item 14(c) of this report) [10.32](8)
10.31* First Amendment to Lease by and among Finley Company, Elsinore
Corporation and Four Queens, Inc. effective May 14, 1997
[10.33] (9)
10.32* Agreement and Plan of Merger by and among R & E Gaming Corp.,
Elsinore Acquisition Sub, Inc. and Elsinore Corporation dated
September 15, 1997 [10.34] (9)
10.33* Option and Voting Agreement by and between R&E Gaming Corp.
and Morgens, Waterfall, Vintiadis & Company, Inc. on behalf of
certain investment accounts, dated September 15, 1997
[10.37] (15)
10.34* Amended Lease Schedule No. 1 to Master Lease Agreement by and
between IGT North America, Inc. and Four Queens, Inc., and PDS
Financial Corporation-Nevada, as assignee of Lessor's
interest, dated November 28, 1994 [10.35](9)
10.35* Master Lease Agreement by and between PDS Financial
Corporation-Nevada and Four Queens, Inc. dated May 1, 1997
[10.36] (9)
10.36* Amendment to Master Lease Agreement by and between PDS
Financial Corporation-Nevada and Four Queens, Inc. dated
August 1, 1997 [10.37](9)
10.37* Warrants to Purchase 1,125,000 Shares of Common Stock of
Elsinore Corporation Issued to Riviera Gaming Management
Corp.-Elsinore [10.38](9)
10.38* Assignment by Richard A. LeVasseur to Four Queens, Inc. dated
July 14, 1992 [10.39](9)
10.39* First Supplemental Amended and Restated Indenture by and among
Elsinore Corporation, the guarantors named therein and First
Trust National Association, as trustee, dated as of September
18, 1997 [10.40](9)
10.40 Intentionally omitted
10.41 Intentionally omitted
10.42* Capital Contribution Agreement by and between Elsinore
Corporation and certain investment accounts named therein,
dated as of September 29, 1998 [10.46] (13)
10.43* First Mortgage Note Purchase Agreement by and between Elsinore
Corporation and the holders (Putnam Diversified Income Trust,
Putnam High Income Convertible and Bond Fund, Putnam Master
Intermediate Income Trust, Putnam Managed High Yield Trust,
and Putnam Manager Trust - PCM Diversified Income Fund),
dated as of September 29, 1998 [10.47] (13)
10.44* Second Mortgage Note Purchase Agreement by and between
Elsinore Corporation and the holders (Paul Voigt, BEA Income
Fund, and BEA Strategic Global Income Fund), dated as of
September 29, 1997. [10.48] (13)
10.45* Exchange Agreement by and between Elsinore Corporation and
certain investment accounts named therein, dated as of
September 29, 1998 [10.49] (14)
10.46* Second Supplemental Indenture among Elsinore Corporation, the
guarantors (Elsub Management Corporation, Four Queens, Inc.,
and Palm Springs East Limited Partnership), and U.S. Bank
Trust National Association, dated as of September 29, 1998
[10.50] (14)
10.47* Series A Preferred Stock Purchase Agreement by and between
Elsinore Corporation and certain investment accounts
named therein, dated as of September 29, 1998 [10.51] (14)
10.48* Registration Rights Agreement by and between Elsinore
Corporation and certain investment accounts named therein,
dated as of September 29, 1998 [10.52] (14)
10.49* Acknowledgment and Confirmation of Pledge Agreement among
Elsinore Corporation, Elsub Management Corporation, Palm
Springs East Limited Partnership, and U.S. Bank Trust National
Association, dated as of September 29, 1998 [10.53] (14)
10.50* Acknowledgment and Confirmation of Guaranty among Elsub
Management Corporation, Four Queens, Inc., Palm Springs East
Limited Partnership, and U.S. Bank Trust National Association,
dated as of September 29, 1998 [10.54] (14)
10.51* Second Modification of Subordinated Deed of Trust by and
between Four Queens, Inc. and U.S. Bank Trust National
Association, dated as of September 29, 1998 [10.55] (14)
10.52* Waiver of Compliance and letters dated November 12 and 13,
1998 [10.56] (12)
10.53* Waiver of Compliance, dated November 6, 1998 under the Second
Supplemental Indenture dated September 29, 1998 and letter
dated November 12, 1998 [10.57] (12)
10.54* Waiver of Compliance dated December 1, 1998 under Amended and
Restated Indenture dated as of March 3, 1997 [10.54](16)
10.55* Waiver of Compliance dated November 12, 1998 under the Amended
and Restated Indenture dated as of March 3, 1997 [10.55](16)
10.56* Waiver of Compliance dated February 22, 2000 under Amended
and Restated Indenture dated as of March 3, 1997 [10.56] (17)
10.57* Release and Settlement Agreement by and among Palm Springs
East, Limited Partnership and the 29 Palms Band of Mission
Indians dated October 5, 2000[10.57] (19)
10.58* Third Supplemental Indenture dated October 31, 2000
[10.58] (20)
10.59* Waiver of Compliance dated January 18, 2001 [10.59](18)
10.60* Executive Employment Agreement by and between Four Queens,
Inc. and Philip W. Madow dated January 30, 2001 [10.60](18)
10.61* Executive Employment Agreement by and between Four Queens,
Inc. and Jake S. Vanderlei dated January 30, 2001 [10.61](18)
10.62* Executive Employment Agreement by and between Four Queens,
Inc. and Gina L. Contner dated January 30, 2001 [10.62](18)
10.63* Deferred Compensation Agreement by and between Four Queens,
Inc. and Philip W. Madow dated January 20, 2001 [10.63](18)
10.64* Deferred Compensation Agreement by and between Four Queens,
Inc. and Jake S. Vanderlei dated January 20, 2001 [10.64](18)
10.65* Deferred Compensation Agreement by and between Four Queens,
Inc. and Gina L. Contner dated January 20, 2001 [10.65](18)
10.66* Waiver of Compliance dated May 8, 2001 [10.66](21)
10.67 Executive Employment Agreement by and between Four Queens,
Inc. and Philip W. Madow dated January 1, 2002
10.68 Executive Employment Agreement by and between Four Queens,
Inc. and Gina L. Contner dated January 1, 2002
10.69 Waiver of Compliance dated March 29, 2002
21.1 Subsidiaries of Elsinore Corporation
*Previously filed with the Securities and Exchange Commission as an exhibit to
the document shown below under the Exhibit Number indicated in brackets and
incorporated herein by reference and made a part hereof:
(1) Annual Report on Form 10-K for the year ended December 31, 1992 (Securities
and Exchange Commission File Number 1-7831)
(2) Current Report on Form 8-K dated October 19, 1993
(3) Annual Report on Form 10-K for the year ended December 31, 1993
(4) Intentionally omitted
(5) Current Report on Form 8-K dated August 8, 1996
(6) Current Report on Form 8-K dated March 14, 1997
(7) Quarterly Report on Form 10-Q for the three months ended March 31, 1997
(8) Quarterly Report on Form 10-Q for the six months ended June 30, 1997
(9) Quarterly Report on Form 10-Q for the nine months ended September 30, 1997
(10) Intentionally omitted
(11) Intentionally omitted
(12) Quarterly Report on Form 10-Q for the nine months ended September 30, 1998
(13) Current Report on Form 8-K dated October 13, 1998
(14) Current Report on Form 8-K dated October 13, 1998
(15) Annual Report on Form 10-K for year end December 31, 1997(15)
(16) Annual Report on Form 10-K for year end December 31, 1998
(17) Annual Report on Form 10-K for year end December 31, 1999
(18) Annual Report on Form 10-K for year end December 31, 2000
(19) Intentionally omitted
(20) Quarterly Report on Form 10Q for the nine months ended September 2000
(21) Quarterly Report on Form 10Q for the three months ended March 31, 2001
(a) Exhibits, other than those incorporated by reference as listed in Item
14(a)(3), appear after the signature page of this report.
(b) Current Report on Form 8-K
(1) Current report on Form 8-K was filed on March 14, 2002, relating to the
sale of the Four Queens Casino.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ELSINORE CORPORATION
(Registrant)
By: /s/Philip W. Madow
PHILIP W. MADOW, President
By: /s/Gina L. Contner
GINA L. CONTNER, Principal Financial
and Accounting Officer
Dated: April 1, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities as indicated on March 29, 2001.
/s/John C. "Bruce" Waterfall /s/Philip W. Madow
John C. "Bruce" Waterfall Philip W. Madow
Chairman of the Board of Directors President
/s/S. Barton Jacka /s/Donald A. Hinkle
S. Barton Jacka Donald A. Hinkle
Secretary, Treasurer and Director Director
EXIBIT 2.4
ASSET PURCHASE AGREEMENT
by and between
FOUR QUEENS, INC., as "Seller"
and
SUMMERGATE, INC., as "Purchaser"
Dated as of March 14, 2002
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS; CONSTRUCTION AND INTERPRETATION
Section 1.1 Definitions.................................................1
Section 1.2 Construction and Interpretation.............................1
ARTICLE II
SALE AND PURCHASE OF THE PURCHASED ASSETS
Section 2.1 Sale and Purchase of the Purchased Assets...................2
Section 2.2 Excluded Assets.............................................4
ARTICLE III
ASSUMPTION OF LIABILITIES
Section 3.1 Assumption of Liabilities...................................5
Section 3.2 Retained Liabilities........................................6
ARTICLE IV
PURCHASE PRICE AND PAYMENT
Section 4.1 Deposit.....................................................6
Section 4.2 Purchase Price and Payment..................................8
Section 4.3 Allocation of Purchase Price................................8
Section 4.4 Purchase Price Adjustment...................................8
Section 4.5 Prorations.................................................10
ARTICLE V
TITLE
Section 5.1 Title Exceptions...........................................10
Section 5.2 Purchaser's Title..........................................11
ARTICLE VI
THE CLOSING; THE CLOSING DATE; ACTION AT CLOSING
Section 6.1 Closing....................................................12
Section 6.2 Seller's Closing Deliverables..............................12
Section 6.3 Purchaser's Closing Deliverables...........................12
Section 6.4 Transfer of Possession.....................................13
Section 6.5 Expenses...................................................14
Section 6.6 Further Assurances.........................................14
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.1 Representations and Warranties of Seller...................14
Section 7.2 Representations and Warranties of Purchaser................24
Section 7.3 Acknowledgement Regarding Tax Treatment....................25
Section 7.4 Release by Purchaser.......................................25
Section 7.5 Continued Validity.........................................25
ARTICLE VIII
COVENANTS
Section 8.1 Operation of the Business..................................26
Section 8.2 Non-Solicitation...........................................28
Section 8.3 Access to Properties and Records...........................29
Section 8.4 Notice of Inaccuracy.......................................29
Section 8.5 ERISA......................................................30
Section 8.6 Labor Agreement Commitments; Employees.....................30
Section 8.7 Assumption of Plans........................................31
Section 8.8 Governmental Permits and Approvals.........................32
Section 8.9 Preparation of Information Statement.......................32
Section 8.10 Consents and Approvals for Assumed Contracts...............32
Section 8.11 Observers..................................................33
Section 8.12 Certificates of Inspection.................................33
Section 8.13 Notices of Governmental Action.............................33
Section 8.14 Nevada Gaming Authorities..................................33
Section 8.15 Consummation of Agreement..................................34
Section 8.16 Continued Efforts for Consents to Assumed Contracts........34
Section 8.17 Substitution...............................................34
Section 8.18 Fremont Street Experience and Elsinore Intellectual
Property Rights...........................................34
Section 8.19 Access to Employee Records.................................34
Section 8.20 Telephone Numbers..........................................34
Section 8.21 Press Releases.............................................34
Section 8.22 Confirmation of Certain Personal Property..................35
Section 8.23 Liabilities Paid at Closing................................35
Section 8.24 Return of Deposits.........................................35
Section 8.25 Casualty Loss and Condemnation.............................35
ARTICLE IX
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
Section 9.1 Licenses...................................................36
Section 9.2 Approval to Transfer Gaming Devices........................36
Section 9.3 Absence of Material Change.................................36
Section 9.4 Representations and Warranties.............................36
Section 9.5 Covenants..................................................36
Section 9.6 Absence of Litigation......................................36
Section 9.7 No Change in Law...........................................36
Section 9.8 Required Consents..........................................37
Section 9.9 Information Statement......................................37
Section 9.10 Seller's Closing Deliverables..............................37
ARTICLE X
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
Section 10.1 Licenses...................................................37
Section 10.2 Approval to Transfer Gaming Devices........................37
Section 10.3 Representations and Warranties.............................37
Section 10.4 Covenants..................................................37
Section 10.5 Absence of Litigation......................................38
Section 10.6 No Change in Law...........................................38
Section 10.7 Required Consents..........................................38
Section 10.8 Information Statement......................................38
Section 10.9 Purchaser's Closing Deliverables...........................38
ARTICLE XI
TERMINATION
Section 11.1 Termination by Mutual Consent..............................38
Section 11.2 Termination by Seller......................................38
Section 11.3 Termination by Purchaser...................................39
Section 11.4 Effect of Termination......................................39
Section 11.5 Termination Fee............................................39
ARTICLE XII
ESCROW
ARTICLE XIII
GENERAL INDEMNIFICATION
Section 13.1 Agreement of Seller to Indemnify Purchaser.................40
Section 13.2 Agreement of Purchaser to Indemnify Seller.................40
Section 13.3 Effect of Closing Over Known Unsatisfied Conditions
or Breached Representations, Warranties or Covenants......41
Section 13.4 Mitigation.................................................41
Section 13.5 Limitations on Indemnification.............................41
Section 13.6 Exclusive Remedy...........................................41
ARTICLE XIV
PROCEDURES FOR INDEMNIFICATION
Section 14.1 Procedures for Indemnification.............................42
Section 14.2 Defense of a Third Party Claim.............................42
Section 14.3 Settlement of Third Party Claims...........................43
ARTICLE XV
LIMITATION OF LIABILITY
Section 15.1 Limitation of Liability....................................43
ARTICLE XVI
DISPUTE RESOLUTION
Section 16.1 Negotiation................................................43
Section 16.2 Mediation..................................................43
Section 16.3 Arbitration................................................44
ARTICLE XVII
MISCELLANEOUS PROVISIONS
Section 17.1 Notices....................................................44
Section 17.2 Construction and Governing Law.............................46
Section 17.3 Counterparts...............................................46
Section 17.4 Integrated Agreement.......................................46
Section 17.5 No Oral Modification.......................................46
Section 17.6 Successors and Assigns; No Third Party Beneficiaries.......46
Section 17.7 Assignment.................................................46
Section 17.8 Partial Invalidity.........................................46
Section 17.9 No Presumption Against the Draftsman.......................46
Section 17.10 Expenses...................................................47
Section 17.11 Guarantee..................................................47
EXHIBITS
EXHIBIT A-1 The Fee Land
EXHIBIT A-2 The Leased Land
EXHIBIT B Form of Assignment and Assumption Agreement
EXHIBIT C Form of Lease Assignment and Assumption Agreement
EXHIBIT D Form of Bill of Sale
EXHIBIT E Form of Fee Land Deed
EXHIBIT F Form of Trademark Assignment Agreement
EXHIBIT G Form of Patent Assignment Agreement
APPENDICES
APPENDIX A Glossary of Defined Terms
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (herein referred to as this "Agreement") is
dated as of March 14, 2002 and is by and between FOUR QUEENS, INC., a Nevada
corporation (herein referred to as "Seller"), and SUMMERGATE, INC., a Nevada
corporation (herein referred to as "Purchaser"). Seller and Purchaser are
sometimes referred to herein individually as a "Party" and collectively as the
"Parties."
RECITALS:
Seller desires to sell that certain land described on Exhibit A-1 (the "Fee
Land"), to assign its interest in leases of that land described on Exhibit A-2
(the "Leased Land," and, together with the Fee Land, the "Land") and to sell the
improvements located thereon, all of which are commonly known as the Four Queens
Hotel and Casino ("Hotel").
Upon the terms and subject to the conditions set forth in this Agreement:
(1) Seller desires to sell and transfer to Purchaser, and Purchaser desires to
purchase from Seller, substantially all of the assets of Seller associated with
the Hotel; and (2) Seller desires to delegate to Purchaser, and Purchaser
desires to assume from Seller, certain liabilities associated with the Hotel.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained in this Agreement and each act done pursuant hereto, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties, intending to be legally bound hereby,
represent, warrant, covenant and agree as follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION AND INTERPRETATION
Section 1.1 Definitions. The capitalized words, terms and phrases used in this
Agreement, including in the preamble and the recitals hereto, shall have the
meanings ascribed to such words, terms and phrases in the "Glossary of Defined
Terms" attached to this Agreement as APPENDIX A.
Section 1.2 Construction and Interpretation. Unless the context of this
Agreement requires otherwise: (a) words of any gender include each other gender;
(b) words using the singular or plural number also include the plural or
singular number, respectively; (c) the words "hereof," "herein," "hereby,"
"hereto" and similar words refer to this entire Agreement and not to any
particular Article, Section, Clause, Exhibit, Schedule or Appendix or any other
subdivision of this Agreement; (d) references to "Article," "Section," "Clause,"
"Exhibit" "Schedule" or "Appendix" are to the Articles, Sections, Clauses,
Exhibits, Schedules and Appendices respectively of this Agreement; (e) the words
"include" or "including" shall be deemed to be followed by the phrases "without
limitation" or "but not limited to" whether or not such words are followed by
such phrases or phrases of like import; (f) references to "this Agreement" or
any other agreement or document shall be construed as a reference to such
agreement or document as amended, modified or supplemented and in effect from
time to time and shall include a reference to any document which amends,
modifies or supplements it; and (g) titles for captions of Sections contained in
this Agreement are inserted only as a matter of convenience and for reference,
and in no way define, limit, extend, describe or otherwise affect the scope or
meaning of this Agreement or the intent of any provision hereof. Each of the
Schedules, Exhibits and Appendices referred to in this Agreement is expressly
made a part hereof. In addition, the disclosures in the Schedules, and those in
any supplement thereto, relate only to the representations and warranties in the
Section of this Agreement to which they expressly relate and not to any other
representation or warranty in this Agreement. In the event of any inconsistency
between the statements in the body of this Agreement and those in the Schedules,
Exhibits or Appendices (other than an exception expressly set forth as such in
the applicable Schedule with respect to a specifically identified representation
or warranty in a specific Section of this Agreement), the statements in the body
of this Agreement will control. Whenever this Agreement refers to actions to be
taken by any Person, or which any Person is prohibited from taking, such
provision shall be applicable whether such action is taken (or not taken)
directly or indirectly by such Person, including actions taken by or on behalf
of any Affiliate of such Person. Whenever any provision of this Agreement refers
to any Person's right to consent to or be satisfied with any action, such
consent or satisfaction shall be in the Person's commercially reasonable
discretion, unless the provision granting such Person the right to consent or be
satisfied limits the Person's consent or satisfaction right in some other
manner. Whenever this Agreement refers to a number of days, such number shall
refer to calendar days unless Business Days are specified. All accounting terms
used herein and not expressly defined herein shall have the meanings given to
them under GAAP.
ARTICLE II
SALE AND PURCHASE OF THE PURCHASED ASSETS
Section 2.1 Sale and Purchase of the Purchased Assets. Upon the terms and
subject to the conditions set forth in this Agreement, at the Closing on the
Closing Date, Seller shall sell, assign, transfer, convey and deliver to
Purchaser, and Purchaser shall purchase from Seller, all of Seller's right,
title, interest and benefit in and to all assets owned by Seller constituting,
or used primarily in connection with, the Hotel (the "Purchased Assets"), except
the assets specifically identified in Section 2.2 (the "Excluded Assets"). The
Purchased Assets shall include, but shall not be limited to, the following:
(a) the Fee Land;
(b) all of Seller's rights and interests arising under or in connection with any
Contracts (other than Shrink-Wrap Licenses) to which Seller is a party and which
relate primarily to the Business (the "Assumed Contracts"), including all of
Seller's interest under those certain leases (collectively, the "Ground Leases",
and each a "Ground Lease") described in Section 2.1(b) of the Disclosure
Schedule, pursuant to which Seller leases the Leased Land, and including any
prepayments made by Seller under such Contracts;
(c) all of Seller's right, title and interest in and to all buildings,
improvements and fixtures owned by Seller and located on the Land, and all
rights appurtenant thereto, if any (together with the Land, the "Premises");
(d) all of Seller's right, title and interest in and to all furniture,
furnishings, fixtures, gaming devices, equipment, appliances, tools, motor
vehicles, supplies, signs and signage, public relations pamphlets and related
supplies, Inventory (other than unopened alcoholic beverages), and all other
tangible personal property used in the ownership, operation and maintenance of
the Hotel (the "Business") conducted by Seller on or with respect to the Hotel
(collectively, the "Personal Property"), including, without limitation, the
property held as of the Closing and listed on the Second Personal Property
Inventory, subject to the rights of lessors under any of the Assumed Contracts;
(e) the name "Four Queens Hotel and Casino" and any variation thereof and all
right, title and interest in and to any and all copyrights, trademarks, trade
names, service marks, patents, trade secrets, displays, symbols, color
arrangements, business methods, designs and logos with respect thereto and/or
relating to and/or used by Seller or Elsinore in the ownership, use and/or
operation of the Business and/or the Purchased Assets, and other names, words or
devices and related applications and registrations, and all goodwill associated
therewith, (collectively, the "Intellectual Property Rights"); provided that the
Intellectual Property Rights shall not include any rights associated with the
name "Elsinore" or "Elsinore Corporation";
(f) all plans and specifications, historical reservation data, advance
reservations, bookings, credit files (including specifically casino credit
files), and other similar files and reports in the possession of Seller,
including, but not limited to, computer records and all other books and records
of Seller used exclusively in the operation of the Business by Seller,
including, but not limited to, all financial statements, customer lists, credit
records and files (including casino files) and all other accounting records (in
whatever form they may exist, including computer disk or tape);
(g) all cash (including, without limitation, cash in the cages, slot machines,
or gaming tables located at the Hotel, and cash in the registration, retail,
restaurant and other non-gaming areas of the Hotel), bank rolls, and all cash
equivalents (collectively "Cash"), all refunds owed to Seller by third parties
in connection with the Business (other than those described in Section 2.2(g)
below), and all gaming chips and tokens;
(h) all manufacturers' or other assignable warranties applicable to any other
items included in the Purchased Assets (the "Warranties");
(i) all interest of Seller or any Affiliate of Seller in Fremont Street
Experience LLC;
(j) all computer hardware used by Seller in the operation of the Business or the
Purchased Assets and computer software owned or licensed (other than pursuant to
a Shrink-Wrap License) by Seller and used in connection with the Business or the
Purchased Assets, to the extent transferable without fees, including, without
limitation, if possessed by Seller, all source codes and data, whether on tape,
disc or other computerized format, and all related user manuals, computer
records, service codes, programs, stored materials and databases, including,
without limitation, all access codes and instructions needed to obtain access to
and to utilize the information contained on such computer records (the "Computer
Software");
(k) to the extent permitted by Law, all transferable licenses (including liquor
licenses), permits, approvals and other authorizations (the "Transferred
Permits");
(l) the accounts receivable, deposits, prepaid expenses, returned checks and
other assets of the type historically accounted for in the categories listed in
Section 2.1(l) of the Disclosure Schedule; and
(m) all of Seller's interests in, and all of Seller's assets associated with,
the Assumed Plans, as well as any Collective Bargaining Agreement.
Section 2.2 Excluded Assets. The assets that constitute Excluded Assets shall
include only:
(a) the consideration delivered to Seller pursuant to this Agreement, and all of
Seller's rights and interests arising under or in connection with this
Agreement;
(b) all formation and organization documents, minute books, stock record books
and all other documents relating to the legal existence of Seller or its
Affiliates, and all income tax returns and records, gaming tax returns
(including supporting schedules) and records and nontransferable licenses,
permits, approvals and other authorizations; provided, however, that copies of
such corporate and tax records and nontransferable licenses, permits, approvals
and other authorizations shall be provided to Purchaser at the Closing as the
request of Purchaser;
(c) all of Seller's interests, claims and choses of action in any past or
current insurance policy or Contract (other than those that may be assigned
pursuant to the assignment of the Assumed Plans), including all rights to
contribution and insurance proceeds in respect of Purchased Assets;
(d) all of Seller's interests in any claims (including cross claims or
counterclaims) relating to any Taxes (including any deposits, refunds, rebates,
credits or other Tax benefits) (other than those that both relate to the
Purchased Assets and arise after the Closing Date);
(e) any amounts due to Seller from Elsinore;
(f) all assets of Elsinore (other than as constitute Intellectual Property
Rights);
(g) all bank accounts of Seller;
(h) the receivables, refunds owed to Seller and other assets of the type
historically accounted for in the categories listed in Section 2.2(h) of the
Disclosure Schedule;
(i) the Contracts listed in Section 2.2(i) of the Disclosure Schedule.
(j) all furniture and computer equipment located in Suite #302 on the Premises;
provided that Purchaser shall permit such furniture and equipment to remain in
Suite #302, and shall permit Seller the exclusive right to occupy and use Suite
#302, for two years following the Closing Date; and
(k) any claims, causes of action or other rights related to any Retained
Liability.
ARTICLE III
ASSUMPTION OF LIABILITIES
Section 3.1 Assumption of Liabilities. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing on the Closing Date,
Purchaser shall assume, shall take subject to, and thereafter shall pay,
satisfy, discharge and perform when due, the following liabilities and
obligations of Seller (the "Assumed Liabilities"):
(a) all current liabilities of the type historically accounted for in the
categories listed in Section 3.1(a)(i) and Section 3.1(a)(ii) of the Disclosure
Schedule (the "Payables");
(b) pursuant to one or more Assignment and Assumption Agreements, all
liabilities and obligations arising after the Closing Date under the Assumed
Contracts and the Transferred Permits (including executory obligations);
(c) pursuant to one or more Lease Assignment and Assumption Agreements, all
liabilities and obligations arising after the Closing Date under the Ground
Leases (including executory obligations);
(d) any liability or obligation of Seller with respect to the Assumed Plans and
the Collective Bargaining Agreements;
(e) any liability or obligation of Seller resulting from the consummation of the
transactions contemplated herein and arising under or related to the WARN Act;
(f) any liability to holders of winning keno tickets for wagers booked by Seller
prior to or at the Closing for events which have not yet occurred by the
Closing, provided that Seller pays to Purchaser the value of such wagers
pursuant to Section 4.5;
(g) all liabilities for purchase money obligations whether structured as debt,
lease or otherwise, to the extent set forth in Section 3.1(g) of the Disclosure
Schedule;
(h) any liability for food, merchandise, rooms, show tickets or other
complementaries issued to third parties for services or goods furnished to the
Business prior to or at the Closing;
(i) any liability for cash or for food, merchandise, rooms, show tickets or
other complementaries, owed to patrons of the Business prior to or at the
Closing, and any liability for points or credits earned by patrons of the
Business prior to or at the Closing, under any slot club or other program
offering awards or other incentives to gamble to patrons of the Business;
(j) all liabilities or obligations for due bill contracts or other "trade-out"
liabilities other than Payables;
(k) any liability for workers' compensation claims made or reopened after the
Closing by employees of the Business; and
(l) except for the Retained Liabilities, all liabilities and obligations arising
out of or in any way related to the ownership or operation of the Business or
the Purchased Assets after the Closing (including any Taxes relating to the
Business or the Purchased Assets after the Closing Date), including prorated
amounts payable by Purchaser pursuant to Section 4.4 arising out of or in any
way related to the Business or the Purchased Assets on or after the Closing
Date.
Section 3.2 Retained Liabilities. Except for the Assumed Liabilities
specifically and expressly assumed by Purchaser pursuant to Section 3.1,
Purchaser shall not assume or become liable on or with respect to any Contract
of Seller or for or with respect to any indebtedness, obligations, commitments
or liabilities of Seller, direct or indirect, known or unknown, or absolute,
vested or contingent, all of which shall be retained by Seller (herein referred
to collectively as the "Retained Liabilities"). Without limiting the generality
of the foregoing, Purchaser shall not assume or become liable for, and the
Retained Liabilities shall include the following:
(a) all liabilities to any federal, state or local Governmental Authority, or to
any special purpose district, for unpaid Taxes of any type or description, or
penalties or interest thereon, arising by reason of the ownership, use and/or
operation of the Purchased Assets prior to or at the Closing Date, or any
sales/use Tax, in each case arising from the implementation and closing of the
transactions contemplated by this Agreement, whether or not imposed on or
measured by income, including any amounts due or which may become due and owing
under NRS 244.335, 244.3352, 360.525 and 612.695;
(b) all liabilities of Seller to the Nevada State Gaming Control Board, the
Nevada Gaming Commission and the City of Las Vegas (collectively, the "Nevada
Gaming Authorities") relating to gaming activities prior to or at the Closing
Date;
(c) all litigation pending with respect to Seller or the Business as of the
Closing Date;
(d) any liability or obligation under any Contract that is not an Assumed
Contract;
(e) any liabilities and obligations of Seller to the extent arising under any
Environmental Law and associated with, related to or arising from any
environmental condition at, in, on or under the Premises on or prior to the
Closing; and
(f) any other liability, obligation or commitment not specifically and expressly
assumed by Purchaser hereunder.
ARTICLE IV
PURCHASE PRICE AND PAYMENT
Section 4.1 Deposit.
(a) Purchaser has already deposited the Unconditional Termination Payment with
UTP Escrow Agent;
(b) Immediately following the execution of this Agreement by both parties,
Purchaser shall deliver to Nevada Title Company ("Escrow Agent"), by wire
transfer of immediately available funds, a deposit (the "Deposit") in the amount
of two hundred thousand dollars ($200,000);
(c) Until the earlier of (a) the Closing Date or (b) the date of the termination
of this Agreement, the Unconditional Termination Payment and the Deposit shall
be held in such joint account and subject to the provisions of this Section
4.1(c). The Unconditional Termination Payment and the Deposit shall be invested
by Escrow Agent and UTP Escrow Agent as mutually directed by Purchaser and
Seller, or, if no such direction is given, the Unconditional Termination Payment
and the Deposit shall be invested in either (a) direct obligations of the United
States of America or any agency thereof, (b) certificates of deposit issued by
any bank organized under the laws of the United States or any state thereof,
provided such bank has capital and surplus aggregating at least Five Hundred
Million Dollars ($500,000,000) or (c) commercial paper given the highest rating
by a nationally recognized credit rating agency.
(d) Withdrawals shall be made from the joint escrow account only with the
written authorization of both Purchaser and Seller and only as provided in this
ARTICLE IV. Each of Purchaser and Seller covenants and agrees to authorize and
to cause to be made all withdrawals required to be made by this ARTICLE IV.
(e) At the Closing, Seller and Purchaser shall direct the UTP Escrow Agent and
the Escrow Agent to pay the Unconditional Termination Payment and the Deposit,
as applicable, plus any interest accrued thereon from the date of deposit (the
"Accrued Interest"), to Seller; provided, however, that Escrow Agent shall
withhold such amount therefrom in escrow as the Parties mutually agree is
necessary to comply with the provisions of NRS 360.525, 612.695 or to which the
Purchased Assets or a portion thereof may be subject pursuant to NRS 244.335 and
244.3352 until such time as Seller furnishes Purchaser and Escrow Agent the
receipts or certificates provided for in said statutes or, if not so provided
for, such evidence as Purchaser may reasonably require to assure Purchaser that
the applicable obligations have been paid. If Seller does not produce such
receipts or certificates within the time periods provided in said statutes, or
if any lien or other claim therefor is asserted against Purchaser or the
Purchased Assets, Escrow Agent shall pay such withheld sums to the appropriate
authority.
(f) In the event that this Agreement is terminated (1) by Purchaser in
accordance with Section 11.3(a) on account of a willful and material breach by
Seller of any representation, warranty or covenant contained in this Agreement,
or (2) by Seller in accordance with Section 11.2(d), Seller and Purchaser shall
promptly direct the UTP Escrow Agent to pay the Unconditional Termination
Payment and any Accrued Interest thereon to Purchaser, and Seller shall have no
claim to, or interest in, the Unconditional Termination Payment and any Accrued
Interest thereon. In the event that this Agreement is terminated for any other
reason, Seller and Purchaser shall promptly direct the Escrow Agent to pay the
Unconditional Termination Payment plus any Accrued Interest thereon to Seller.
(g) In the event that this Agreement is terminated (1) by Purchaser (A) in
accordance with Section 11.3(a) on account of a willful and material breach by
Seller of any representation, warranty or covenant contained in this Agreement
or (B) as a result of the failure to be satisfied of the conditions set forth in
Section 9.3, Section 9.6 or Section 9.7, or (2) by Seller (A) in accordance with
Section 11.2(d) or (B) as a result of the failure to be satisfied of the
conditions set forth in Section 10.5 or Section 10.6, Seller and Purchaser shall
promptly direct the Escrow Agent to pay the Deposit and any Accrued Interest
thereon to Purchaser, and Seller shall have no claim to, or interest in, the
Deposit and any Accrued Interest thereon. In the event that this Agreement is
terminated for any other reason, Seller and Purchaser shall promptly direct the
Escrow Agent to pay the Deposit plus any Accrued Interest thereon to Seller.
(h) Purchaser acknowledges that the retention of the Unconditional Termination
Payment or the Deposit by Seller shall not constitute a measure of Seller's
damages for any claim for breach against Purchaser brought under this Agreement.
Section 4.2 Purchase Price and Payment. In addition to the assumption by
Purchaser of the Assumed Liabilities, Purchaser shall pay to Seller an amount
equal to (i) TWENTY TWO MILLION DOLLARS ($22,000,000) (less the amount paid
under clause (ii)) (the "Cash Portion") plus (ii) the amount required under
Section 4.1(e) plus (iii) the amount of the Cash as of midnight on the Closing
Date (i.e., the midnight immediately after 11:59 p.m. on the Closing Date) minus
(iv) the Estimated Liability Adjustment minus (v) the Estimated Liability
Difference, if any (the "Purchase Price") for the Purchased Assets. At the
Closing, the Purchase Price shall be payable by Purchaser to Seller in
immediately available funds.
Section 4.3 Allocation of Purchase Price. Within ten (10) days after the Closing
Date, Purchaser shall provide to Seller for Seller's review a draft of Internal
Revenue Service Form 8594, or other required forms, if any, related to asset
acquisitions and any required exhibits thereto setting forth the allocation of
the Purchase Price in a manner consistent with Section 1060 of the Code, as
amended, and the Treasury Regulations promulgated thereunder. Within ten (10)
days after receipt of such documents, Seller shall, in writing, either agree or
state their objections. Seller and Purchaser shall negotiate in good faith to
attempt to resolve any objections. If Seller and Purchaser are unable to resolve
Seller's objections, the objections shall be submitted to the Independent
Accounting Firm. The Independent Accounting Firm's determination shall be final
(such determination to be based solely on the written submissions by the
Purchaser and Seller and not on any independent investigation by the accounting
firm). The costs of the Independent Accounting Firm shall be borne equally by
Purchaser and Seller. Seller and Purchaser agree to properly file Form 8594 and
report the purchase price allocation set forth therein for purposes of all U.S.
federal and state and local income and franchise Tax returns.
Section 4.4 Purchase Price Adjustment.
(a) Not less than three (3) Business Days prior to the Closing Date, Seller
shall deliver a notice (the "Purchase Price Notice") to Purchaser which sets
forth (i) the Seller's good faith estimate of the Liability Adjustment (the
"Estimated Liability Adjustment") and the Liability Difference (the "Estimated
Liability Difference") and (ii) based thereon, the calculation of the Purchase
Price. The calculation of the Purchase Price set forth in the Purchase Price
Notice shall be binding on Purchaser and Seller absent manifest error.
(b) Within sixty (60) days after the Closing Date, Seller shall prepare and
deliver (by same day or next day delivery) to Purchaser a statement setting
forth its determination of the Liability Adjustment and the Liability Difference
(the "Initial Liability Statement"), which statement shall set forth in
reasonable detail the basis for such determinations. During the sixty (60) days
after receipt of such statement, Purchaser and its representatives will be
permitted to review Seller's working papers relating to the Initial Liability
Statement.
(c) Purchaser shall notify Seller in writing (the "Notice of Disagreement")
within sixty (60) days after receipt of the Initial Liability Statement if
Purchaser disagrees with Seller's calculation of the Liability Adjustment or the
Liability Difference, which Notice of Disagreement shall set forth in reasonable
detail the basis for such dispute and the U.S. dollar amounts involved and
Purchaser's good faith estimate of the Liability Adjustment or the Liability
Difference. If no Notice of Disagreement is received by Seller within such sixty
(60) day period, then the Initial Liability Statement shall be deemed to have
been accepted by Purchaser, shall become final and binding upon the parties and
shall be the Final Liability Statement.
(d) During the twenty (20) Business Days immediately following the delivery of a
Notice of Disagreement, Seller and Purchaser shall seek in good faith to resolve
any differences which they may have with respect to any matter specified in the
Notice of Disagreement. If at the end of such twenty Business Day period Seller
and Purchaser have been unable to agree upon a Final Liability Statement, Seller
and Purchaser shall submit to the Independent Accounting Firm for review and
resolution any and all matters which remain in dispute with respect to the
Notice of Disagreement. The Independent Accounting Firm shall use commercially
practicable efforts to make a final determination, which shall be binding on the
parties hereto, of the Liability Adjustment and the Liability Difference within
twenty (20) Business Days after any such referral, and such final determination
shall be the Final Liability Statement. This Section is an agreement to
arbitrate as such is defined in Chapter 38 of the Nevada Revised Statutes;
provided, however, that: (a) Sections 38.075, 38.085, 38.095 and 38.145(1)(d) of
such Chapter are hereby waived; and (b) the time periods contained in Sections
38.145(2) and 38.155(1) of such Chapter are hereby shortened to thirty (30)
days. The arbitration is to be performed in Clark County, Nevada. Purchaser and
Seller each consent to the procedure herein set forth and waive any rights
(including any right to a hearing, representation by attorney at such hearing,
or any rights with respect to witnesses, cross-examination, subpoenas and
depositions) they may have under conflicting provisions of the Nevada Uniform
Arbitration Act, Nevada Revised Statutes Subsection 38.015 et seq., as now or
hereafter in effect. The Parties agree that judgment may be entered upon the
decision of the Independent Accounting Firm.
(e) The cost of the Independent Accounting Firm's review and determination shall
be paid by the party which has determined an amount of the sum of the Liability
Adjustment and the Liability Difference that is the greatest amount different
from the amount of such sum on the Final Liability Statement. During the twenty
Business Day review by the Independent Accounting Firm, Purchaser and Seller
will each make available to the Independent Accounting Firm interviews with such
individuals and such information, books and records as may be reasonably
required by the Independent Accounting Firm to make its final determination.
(f) (i) If the Liability Adjustment (as set forth in the Final Liability
Statement) exceeds the Estimated Liability Adjustment, then Seller shall pay to
Purchaser an amount equal to such excess or (ii) if the Estimated Liability
Adjustment exceeds the Liability Adjustment (as set forth in the Final Liability
Statement), then Purchaser shall pay to Seller an amount equal to such excess,
in either case within five (5) Business Days after the Final Liability Statement
becomes final and binding on the parties hereto. If the Liability Adjustment (as
set forth in the Final Liability Statement) is equal to the Estimated Liability
Adjustment, then neither Purchaser nor Seller shall owe any amount to the other
party pursuant to this Section 4.4(f).
(g) (i) If the Liability Difference (as set forth in the Final Liability
Statement) exceeds the Estimated Liability Difference, then Seller shall pay to
Purchaser an amount equal to such excess or (ii) if the Estimated Liability
Difference exceeds the Liability Difference (as set forth in the Final Liability
Statement), then Purchaser shall pay to Seller an amount equal to such excess,
in either case within five (5) Business Days after the Final Liability Statement
becomes final and binding on the parties hereto. If the Liability Difference (as
set forth in the Final Liability Statement) is equal to the Estimated Liability
Difference, then neither Purchaser nor Seller shall owe any amount to the other
party pursuant to this Section 4.4(g).
(h) Purchaser agrees that following the Closing through the date that payment,
if any, is made pursuant to this Section 4.4, it will not take any actions with
respect to any accounting books, records, policy or procedure on which the
Initial Liability Statement or the Final Liability Statement is to be based that
are inconsistent with past practices of the Seller or that would make it
impossible or impracticable to calculate the Liability Adjustment in the manner
and utilizing the methods required hereby.
Section 4.5 Prorations. To the extent not otherwise included in the Final
Liability Statement, real estate taxes and assessments, personal property taxes,
Ground Lease rents and rents and any other receipts attributable to space leases
shall be prorated as of midnight on the Closing Date. Wagers received by Seller
prior to or at the Closing for keno events occurring after the Closing shall be
paid to Purchaser. In lieu of prorating power, gas, water and other utility fees
and charges (other than telephone), the appropriate utilities shall be informed
to take meter readings as close as practicable to the Closing Date, to bill
Seller for service prior to such readings and to bill Purchaser for service
thereafter. Said readings must occur on or before the Closing Date. The
telephone company shall be informed to cancel Seller's service as of the Closing
Date and to transfer service and the telephone numbers of the Business to
Purchaser. The next regular billing of the telephone company after the Closing
Date will be sent to Purchaser. Upon receiving a copy of said bill, Seller shall
pay Purchaser for those charges attributable to calls made before midnight on
the Closing Date. General service charges will be prorated as of the time of the
billing on the basis of the number of days before and after the Closing Date,
respectively. At the Closing, Seller and Purchaser shall estimate or actually
determine the prorations and shall adjust the Purchase Price accordingly.
Prorated amounts are to be paid to the appropriate party promptly on demand when
computed.
ARTICLE V
TITLE
Section 5.1 Title Exceptions.
(a) On the date hereof, Seller will order from Escrow Agent, and deliver to
Purchaser immediately upon receipt, a preliminary title report with respect to
the Premises from Escrow Agent, together with copies of all exceptions to title
appearing in such report and a copy of Seller's existing survey of the Premises,
if any. Within ten (10) days of receipt of the later of said copies and survey
(if any), Purchaser shall notify Seller of any title exceptions to which it
objects ("Disapproved Exceptions"). Purchaser shall be deemed to have approved
all title exceptions except for objections made within the above-mentioned ten
(10) day period, and each shall constitute a "Permitted Exception." Further,
notwithstanding anything to the contrary contained herein, all of the following
shall also constitute Permitted Exceptions (regardless of whether Purchaser
disapproves of them): (i) real estate taxes and assessments, personal property
taxes, water and/or meter charges, sewer taxes, charges or rents, in each case
not yet due and payable; (ii) liens, encumbrances or other matters made, created
or suffered by or on behalf of Purchaser, including, without limitation, liens
arising as a result of any act or omission of Purchaser or Purchaser's agents,
contractors or representatives; (iii) zoning and other land use restrictions and
ordinances; (iv) the Ground Leases; (v) consents previously granted by any
former owner of the Land for the erection of any structure or structures on,
under or above any street or streets on which the Land may abut; (vi) liens for
any unpaid real estate tax, water charge, sewer rent and assessment, provided
Purchaser receives a credit for such sums in an amount sufficient to discharge
such liens at the Closing in accordance with this Agreement; (vii) any liens or
encumbrances as to which the title company will insure, or commit to insure,
Purchaser against loss or forfeiture of title to, or collection from the
Purchased Assets without additional cost to Purchaser, whether by payment,
bonding, indemnity of Seller or otherwise; (viii) any and all Uniform Commercial
Code filings which are more than five (5) years old and which have not been
continued; (ix) the revocable nature of the right, if any, to maintain street
and sidewalk vaults and other vault spaces, coal chutes, excavations, canopies,
marquees and signs; (x) exceptions set forth in Section 5.1(a) of the Disclosure
Schedule, and (xi) any other leases, liens, encumbrances or other exceptions
which are approved by Purchaser pursuant to Section 5.1(b) below. (b) Within
five (5) Business Days after the date Seller receives Purchaser's written notice
of any Disapproved Exception within the time period specified above, Seller
shall notify Purchaser in writing of any Disapproved Exceptions which Seller is
unable or unwilling to cause to be removed or insured against prior to or at the
Closing (the "Unresolved Exceptions"). With respect to any Unresolved Exception,
Purchaser shall elect, by giving written notice to Seller and the Escrow Agent
within five (5) Business Days after receipt of Seller's notice (i) to terminate
this Agreement, or (ii) to waive Purchaser's disapproval of such Unresolved
Exception, in such latter event each such Unresolved Exception shall then be
deemed to be a Permitted Exception. Purchaser's failure to terminate this
Agreement within such five (5) Business Day period shall constitute Purchaser's
agreement to treat such Unresolved Exceptions as Permitted Exceptions.
Section 5.2 Purchaser's Title. This sale is subject to Purchaser being able to
obtain an ALTA extended owner's policy of title insurance (Form B, Rev.
10-17-70) from a company reasonably satisfactory to Purchaser in the amount of
the Purchase Price allocated to the Premises pursuant to Section 4.3 insuring
that Purchaser has fee title to the Fee Land, a valid leasehold interest in the
Leased Land, and fee title to the improvements on the Land, and that the
landlords listed in Section 5.2 of the Disclosure Schedule have fee title to the
Leased Land, subject only to the Permitted Exceptions, agreements subject to
which Purchaser takes the Purchased Assets pursuant to Section 5.1(a), items
arising after the date hereof and approved by Purchaser and items caused by
Purchaser. Said policy shall have attached thereto such endorsements as
Purchaser may require (at Purchaser expense, and for which Purchaser shall have
received a commitment from such title company no later than thirty days after
the date hereof), including, but not limited to, endorsements insuring against
encroachments, violations of covenants and restrictions and mechanic's liens and
insuring contiguity. Liability under such policy shall be reinsured to the
extent, in the form, and from companies satisfactory to Purchaser (to the extent
committed by such companies no later than thirty days after the date hereof).
ARTICLE VI
THE CLOSING; THE CLOSING DATE; ACTION AT CLOSING
Section 6.1 Closing. The Closing shall be as provided in this Section 6.1 and
shall occur at the offices of Lionel Sawyer & Collins, 1700 Bank of America
Plaza, 300 South Fourth Street, Las Vegas, Nevada, 89101, at 10:00 a.m. on the
last Business Day of the calendar month in which Purchaser and all other Persons
required to do so have obtained all licenses and approvals (including, without
limitation, gaming and liquor licenses) to permit Purchaser to lawfully operate
the Business as it is now conducted, but in any event on or before the Outside
Date (the "Closing Date"). Upon the Closing, the Closing shall, for all purposes
under this Agreement, be deemed to have occurred as of the Closing Date. The
matters and deliveries hereafter described in this Section 6.1 shall be deemed
accomplished concurrently. The effective date of the sale of the Purchased
Assets shall be at midnight on the Closing Date and all prorations and
allocations provided for hereunder shall be made as of midnight on the Closing
Date, except as otherwise agreed in writing by the Parties.
Section 6.2 Seller's Closing Deliverables. At the Closing, and concurrently with
the making of the deliveries by Purchaser of the Purchaser's Closing
Deliverables as set forth in Section 6.3, Seller shall deliver, or cause to be
delivered, to Purchaser the following (herein referred to collectively as
"Seller's Closing Deliverables"):
(a) the duly executed Bill(s) of Sale;
(b) the duly executed Assignment and Assumption Agreement(s);
(c) the duly executed Lease Assignment and Assumption Agreement(s);
(d) the duly executed Fee Land Deed;
(e) the duly executed Trademark Assignment Agreements;
(f) the duly executed Patent Assignment Agreement;
(g) title certificates to all vehicles included in the Personal Property;
(h) the certificates and other instruments and documents described in ARTICLE
IX; and
(i) a designation of the representative of Seller described in Section 6.4(e).
Section 6.3 Purchaser's Closing Deliverables. At the Closing, and concurrently
with the making of deliveries by Seller of the Seller's Closing Deliverables to
Purchaser as set forth in Section 6.2, Purchaser shall deliver, or cause to be
delivered, to Seller each and every payment, agreement, certificate, instrument
and other document that is to be executed, delivered and/or performed by
Purchaser pursuant hereto including the following (herein referred to
collectively as "Purchaser's Closing Deliverables"):
(a) payment of the Cash Portion in the manner set forth in Section 4.2;
(b) the duly executed Assignment and Assumption Agreement(s);
(c) the duly executed Lease Assignment and Assumption Agreement(s);
(d) the duly executed Trademark Assignment Agreements;
(e) the duly executed Patent Assignment Agreement;
(f) the certificates, instruments and other documents described in ARTICLE X.
Section 6.4 Transfer of Possession.
(a) Possession of the Purchased Assets shall be delivered to Purchaser as of
midnight on the Closing Date.
(b) To the extent applicable, the transfer of possession shall be pursuant to
the closing memorandum approved by the Nevada Gaming Authorities.
(c) To effectuate the transfer of unopened alcoholic beverages, Purchaser and
Seller shall utilize the services of a licensed alcoholic beverage wholesaler to
purchase alcoholic beverages from Seller and then resell them, at cost, to
Purchaser.
(d) On the Closing Date, authorized representatives of Purchaser and Seller
shall take inventory of (i) all baggage, suitcases, luggage, valises and trunks
of hotel guests checked or left in the care of Seller, (ii) the contents of the
storage room, and (iii) sporting equipment and clothing left in the care of
Seller; provided, however, that no such baggage, suitcases, luggage, valises or
trunks shall be opened. All such baggage and other items shall be sealed in a
manner to be agreed upon by the parties and listed in an inventory prepared and
signed jointly by representatives of Purchaser and Seller on the Closing Date.
Purchaser shall be responsible from and after said date for all baggage and
other items listed in such inventory and, where the seals have been broken, for
the contents thereof. Seller shall be responsible for said contents if the seals
have not been broken and for all luggage or other property of guests not listed
on such inventory. By conveying the Purchased Assets to Purchaser on the Closing
Date, Seller shall be deemed, without further action, to have assigned any
storage, warehouse or innkeepers liens it may have under applicable Law.
(e) Safe deposit boxes in use by customers at the Closing Date will be sealed in
a reasonable manner mutually agreeable to Purchaser and Seller. Representatives
of both Purchaser and Seller shall be given notice and an opportunity to be
present when a seal is broken. Seller will have no further responsibility for
seals broken without the presence of Seller's representative unless such
representative fails to be present after being provided notice pursuant to this
Section 6.4(e). Purchaser will have no responsibility for loss or theft from a
safe deposit box whose seal was broken in the presence of Seller's
representative or without the presence of such representative after giving such
representative notice pursuant to this Section 6.4(e). Seller will make a
representative available within one (1) hour after Purchaser notifies the person
whom Seller will from time to time designate. At the Closing, Seller shall
designate in writing its initial safe deposit representative. All safe deposit
keys, combinations and records shall be delivered to Purchaser at the Closing.
(f) At the Closing, Seller and Purchaser shall perform the following functions
for all motor vehicles that were checked and placed in the care of Seller: (i)
mark all motor vehicles with a sticker or tape; and (ii) prepare an inventory of
such items ("Inventoried Vehicles") indicating the check number applicable
thereto and any damage thereto. Thereafter, Purchaser shall be responsible for
the Inventoried Vehicles except for damage indicated in the inventory and Seller
shall be liable for claims with respect to any other vehicles.
(g) Purchaser and Seller shall confirm the amount of customer front money on
deposit in the cage at the Hotel as of midnight on the Closing Date ("Customer
Front Money"), and identify what Persons are entitled to what portions of such
Customer Front Money. After the Closing, all Customer Front Money shall be kept
in the cage at the Hotel without cost to Purchaser. Purchaser shall distribute
Customer Front Money only to the Persons and only in the amounts determined as
provided in the first sentence of this Section 6.4(g). Seller shall remain
solely responsible and liable for all claims for front money allegedly deposited
at the Hotel prior to the Closing, except for claims in the amounts and from the
Persons identified pursuant to this Section 6.4(g).
Section 6.5 Expenses. Except as expressly set forth herein, transfer taxes and
sales taxes shall be borne by Seller, escrow fees and the Purchaser's title
insurance premiums shall be borne equally by Seller and Purchaser, and Purchaser
shall bear any recording fees, the costs of any survey required to obtain title
insurance, any lender's title insurance premiums and any title policy
endorsements specifically requested by Purchaser.
Section 6.6 Further Assurances. It is the intent of this Agreement that Seller
shall at the Closing convey, or cause to be conveyed, to Purchaser all property
related to the Business or the Purchased Assets or necessary in order to operate
the Business in the manner in which it is currently being operated. Seller and
Purchaser agree that at the Closing and any time thereafter, upon request of
Seller or Purchaser, the other Party shall, and shall cause any of its
Affiliates to, execute, acknowledge and deliver such deeds, assignments,
conveyances, transfers and other instruments and documents and perform such acts
as Seller or Purchaser, as applicable, shall from time to time reasonably
require for the better perfecting, assuring, conveying, assigning, transferring
and confirming unto Purchaser the property and rights herein conveyed or
assigned or intended now or hereafter so to be.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.1 Representations and Warranties of Seller. Except as set forth in the
Disclosure Schedule, Seller represents and warrants for the benefit and reliance
of Purchaser as follows:
(a) Status, Power and Authority. Seller is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Nevada, with all
requisite corporate power and authority to enter into and carry out its
obligations under this Agreement. Seller does not have any subsidiaries.
(b) Due Authorization, Execution and Delivery. Subject to obtaining the majority
shareholder of Elsinore's approval of this Agreement and the transactions
contemplated hereby, the execution, delivery, and performance of this Agreement
by the persons executing the same on behalf of Seller have been duly and validly
authorized.
(c) Legal, Valid, Binding and Enforceable. This Agreement and the other
agreements and instruments contemplated hereby constitute legal, valid and
binding obligations of Seller, enforceable in accordance with their respective
terms.
(d) No Consents. Other than (i) approvals from the Nevada Gaming Authorities and
consents that may be necessary to assign to Purchaser the Assumed Contracts and
the interest of Four Queens Experience Corporation in Fremont Street Experience
LLC as contemplated herein, (ii) the majority shareholder of Elsinore's approval
of this Agreement and the transactions contemplated hereby, and (iii) the
distribution of the Information Statement to each holder of common stock of
Elsinore, no material consent, license, permit, order, approval or authorization
of any Governmental Authority or private party is required in connection with
the execution, delivery and performance of this Agreement by Seller.
(e) No Conflict / No Breach. Assuming receipt of all requisite consents and
approvals in connection with the consummation of the transactions contemplated
hereby, the execution, delivery or performance of this Agreement do not, with or
without the giving of notice and/or the passage of time (a) violate any
provision of Law applicable to Seller, the Purchased Assets or the Business or
which would prevent the consummation of the transactions contemplated by this
Agreement or (b) conflict with or result in the breach or termination of, or
constitute a default under or pursuant to any indenture, mortgage or deed of
trust or any judgment, order, injunction, decree or ruling of any court or
Governmental Authority, or any other agreement or instrument by which Seller,
the Purchased Assets or the Business are bound, or to which any of them are
subject, or which would prevent the consummation of the transactions
contemplated by the Agreement, or (c) result in the creation of any lien, charge
or encumbrance upon any of the Purchased Assets.
(f) Personal Property.
(i) Seller has delivered to Purchaser a true, correct and complete
inventory of all items of tangible Personal Property as of February 15,
2002. The Personal Property as of such date is set forth in Section
7.1(f)(i) of the Disclosure Schedule (the "First Personal Property
Inventory").
(ii) (A) Seller has good title to the tangible Personal Property (other
than Personal Property leased or licensed pursuant to an Assumed Contract)
except as specifically stated herein or in the schedules attached hereto,
and (B) except as set forth in Section 7.1(f)(ii) of the Disclosure
Schedule, the Personal Property will be transferred (subject to the terms
of any applicable leases or licenses) to Purchaser at the Closing free and
clear of all liens, charges, pledges, security interests, claims or other
encumbrances arising by or through Seller.
(g) Ground Leases. The copies of the Ground Leases delivered by Seller to
Purchaser are true, complete and correct.
(h) The Hotel.
(i) Except as noted in Section 7.1(h)(i) of the Disclosure Schedule, none
of the following are applicable to the Purchased Assets: (a) annexation
agreements; (b) claims or agreements relating to property owners or
homeowners association; (c) agreements to which Seller is a party with
state or local authorities relating to contributions to off-site
improvements in connection with the impact of developmental activities or
existing improvements; and (d) environmental impact or other environmental
studies or reports made on behalf of or to the knowledge of Seller in the
past five (5) years, other than those made by or on behalf of Purchaser.
(ii) The Purchased Assets are sufficient to conduct the Business
substantially as currently conducted by Seller and its Affiliates, and
Seller is not currently using any other assets material to the conduct of
Business.
(iii) All water, sewer, electric and telephone facilities and all other
utilities required for the normal use and operation of the Business are
installed at the Hotel and duly connected and are being used by the
Business. Other than with respect to chilled water, such utilities are
subject to standard, nondiscriminatory utilities charges. The utilities
presently connected to the Hotel are adequate to service the needs of the
Business substantially as currently conducted by Seller.
(iv) Except as set forth in Section 7.1(h)(iv) of the Disclosure Schedule,
to Seller's knowledge, the Hotel has been constructed in a good,
workmanlike manner and in compliance with all applicable Laws and with all
applicable covenants, conditions and restrictions, except in each case as
would not have a material adverse effect on the Business. The building and
improvements making up the Hotel have been maintained to the date hereof
and are in good condition except for ordinary wear and tear.
(v) Neither Seller nor any of its Affiliates has received notice of any
condemnation proceedings with respect to the Purchased Assets.
(i) Compliance with Laws. The use of the Purchased Assets by Seller and the
operation of the Business thereat conform in all material respects to any and
all applicable Laws. Without limiting the generality of the foregoing, to the
knowledge of Seller, the use of the Purchased Assets by Seller and the operation
of the Business thereat conform in all material respects to any and all
applicable zoning and buildings ordinances and codes, and health, safety and
fire ordinances, without relying on any variance, non-conforming use or similar
Law. Since January 1, 1998, no notice from any Governmental Authority has been
served relating to the Business or Purchased Assets claiming any current
violation of any such Law, or requiring any work, repairs, construction,
alterations or installation on or in connection with the Business, and Seller
has no knowledge of any ongoing investigation with respect to the foregoing. To
Seller's knowledge, the Premises comply with the Americans With Disabilities Act
and the Occupational Safety and Health Act.
(j) Restaurants. The restaurants owned and operated by Seller on the Premises
have been given a "Grade A" health rating by the Clark County Health Department
as of the date of the most recent inspection.
(k) Licenses and Permits. Seller has delivered to Purchaser true, correct and
complete copies of: (a) all currently valid certificates of occupancy for the
Hotel; (b) any and all certificates from the Las Vegas Department of Building
and Safety relating to the Hotel; and (c) all other current transferable,
assignable or relinquishable permits and licenses, if any, in Seller's
possession relating to the Purchased Assets and/or Business, in each case as
requested by Purchaser.
(l) Drawings, Plans and Specifications. Seller has made available to Purchaser
true, correct and complete copies of all final working drawings, plans and
specifications, as built plans, all change orders and other documents and papers
relating thereto, and all soil tests and other engineering reports that relate
to the Purchased Assets and are in possession of or under the control of Seller
or its Affiliates, all of which are set forth in Section 7.1(l) of the
Disclosure Schedule.
(m) Taxes. Seller has timely filed all Tax returns, reports and declarations
required to be filed in connection with the income, sales, property and all
other aspects of the Business and/or the ownership and operation thereof. All
Taxes shown to be due on such returns, reports and declarations, including any
interest or penalties, have been paid. Seller is not delinquent in the payment
of any tax, estimated tax, assessment or governmental charge. There are no Tax
liens affecting any of the Purchased Assets, except liens for non-delinquent
Taxes.
(n) No Litigation. As of the date hereof, there are no actions, claims, suits or
proceedings pending or, to the best of Seller's knowledge, threatened against
Seller, its Affiliates, the Business or the Purchased Assets in any court or
before any administrative agency which would prevent Seller from completing the
transactions provided for herein or would in any way materially and adversely
affect the operation of the Business.
(o) Assumed Contracts.
(i) Section 7.1(o)(i) of the Disclosure Schedule sets forth a list of each
Assumed Contract (other than Assumed Contracts that, in the aggregate,
provide for payments by Seller of less than $250,000).
(ii) All copies of the Assumed Contracts requested by Purchaser and
delivered by Seller to Purchaser will be, when delivered, true, complete
and correct;
(iii) The material Assumed Contracts are, to Seller's knowledge, in good
standing, valid and enforceable by Seller and are in full force and effect;
and
(iv) To Seller's knowledge, there exists no event of default under any
Assumed Contract, or event which, with notice or lapse of time, or both,
would constitute an event of default under any material Assumed Contract on
the part of Seller or any third party thereunder.
(p) Intellectual Property.
(i) The Intellectual Property Rights are listed in Section 7.1(p)(i) of the
Disclosure Schedule. To Seller's knowledge, no other Intellectual Property
Rights (other than licenses and leases included in the Assumed Contracts
and any Shrink-Wrap Licenses) are used in the Business as it is presently
conducted by Seller.
(ii) Seller is the sole and exclusive owner of the "Four Queens Hotel and
Casino" trademark (the "Four Queens Trademark"), has, to Seller's
knowledge, the sole and exclusive right to use the Four Queens Trademark
and has received no notice from any other party pertaining to Seller's use
of or challenging the right of Seller to use the Four Queens Trademark.
Seller has not granted any licenses or other rights to use the Four Queens
Trademark and has not agreed to grant any such licenses or other rights.
(q) Insurance. Section 7.1(q) of the Disclosure Schedule lists all insurance
policies (including policies providing property, casualty, liability, workers'
compensation, and bond and surety arrangements) under which Seller is an
insured, a named insured or otherwise the principal beneficiary of coverage.
(r) No Orders. No judgment, order, injunction, decree or ruling of any court or
Governmental Authority exists by which Seller, its Affiliates, the Purchased
Assets or the Business are bound, or to which any of them are subject, which in
any manner materially and adversely affects the operation of Business.
(s) Deposits. All deposits by or with Seller, either as security, prepayment of
rent or otherwise, are set forth in Section 7.1(s) of the Disclosure Schedule.
(t) Benefit Plans and Employees.
(i) All pension plans, retirement plans and other employee benefit plans
applicable to any of the employees of the Business (including, without
limitation, any multi-employer contracts or multi-employer pension or other
benefit plans) (collectively, "Benefit Plans") and all Collective
Bargaining Agreements are listed in Section 7.1(t)(i) of the Disclosure
Schedule, and complete and correct copies of such items have been made
available to Purchaser. Seller, its subsidiaries, the Premises and the
Business are in material compliance with all applicable Laws and Collective
Bargaining Agreements respecting employment and employment practices, terms
and conditions of employment, wages and hours, and occupational safety and
health, and Seller is not engaged in any unfair labor practice within the
meaning of Section 8 of the National Labor Relations Act. Seller has no
labor strike, dispute, slowdown or stoppage actually pending or, to
Seller's knowledge, threatened against Seller. No certification or
decertification proceeding is pending or was filed within the past
twenty-four (24) months respecting the employees of the Business and, to
Seller's knowledge, no certification or decertification petition is being
or was circulated among the employees of the Business within the past
twelve months. There are no charges, administrative proceedings or formal
complaints of discrimination (including, but not limited to, discrimination
based upon sex, age, marital status, race, national origin, sexual
preference, disability or veteran status) pending or, to Seller's
knowledge, threatened, or to Seller's knowledge, any investigation pending
or threatened before the Equal Employment Opportunity Commission or any
federal, state or local agency or court except as noted in Section
7.1(t)(i) of the Disclosure Schedule. There have been no audits of the
equal employment opportunity practices of the Business and, to Seller's
knowledge, no act or omission has occurred, and no circumstance exists,
that could give rise to any basis for such an audit.
(ii) Each of the Benefit Plans which is an "employee pension benefit plan,"
as defined in Section 3(2) of ERISA, other than Multi-Employer Plans
(collectively the "Employee Pension Benefit Plans"), is "qualified" within
the meaning of Section 401(a) of the Code, except as disclosed in Section
7.1(t)(ii) of the Disclosure Schedule, and a favorable determination letter
has been issued by the Internal Revenue Service with respect to each such
qualified plan and nothing has occurred, whether by action or failure to
act, which would cause the loss of such qualification. Each Employee
Pension Benefit Plan has been administered in all material respects in
accordance with the requirements of ERISA and, where applicable, Section
401(a) of the Code.
(iii) All material reports and information required to be filed with the
United States Department of Labor, Internal Revenue Service, Pension
Benefit Guaranty Corporation (the "PBGC"), and plan participants and their
beneficiaries with respect to the Benefit Plans which are maintained by
Seller ("Seller Benefit Plans") have been timely filed or delivered by
Seller.
(iv) With respect to each Seller Benefit Plan for which an annual report
has been filed, no material change has occurred with respect to the matters
covered by the annual report since the date thereof, except as indicated in
Section 7.1(t)(iv) of the Disclosure Schedule. The financial statements of
Seller reflect all employee liabilities arising under each such plan, fund,
or arrangement in a manner satisfying the requirements of GAAP.
(v) Since January 1, 1998, Seller has not maintained any Employee Pension
Benefit Plan subject to Title IV of ERISA, except as described in Section
7.1(t)(v) of the Disclosure Schedule.
(vi) Neither Seller nor any Person claiming by or through Seller has
received any notification that any Multi-Employer Plan to which it
contributes is in "reorganization" as defined under Section 4241 of ERISA.
Except as disclosed in Section 7.1(t)(vi) of the Disclosure Schedule, no
Employee Pension Benefit Plan is subject to Title IV of ERISA or to the
requirements of Section 412 of the Code. As of the most recent valuation
date with respect to each such plan, the present value of the accrued
benefits thereunder do not exceed the assets of such plan available to fund
such benefits.
(vii) No Employee Pension Benefit Plan has been terminated, nor have there
been any "reportable events," as that term is defined in Section 4043 of
ERISA, since January 1, 1998. None of the Benefit Plans maintained by
Seller or the Controlled Group (i) has any "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA, whether or
not waived, or (ii) has been terminated in a manner which could result in
the imposition of a lien on the Purchased Assets pursuant to Section 4068
of ERISA.
(viii) Seller has made available to Purchaser a true, correct and complete
list showing (i) the job classifications, number of employees in each job
classification and compensation rate for each job classification, with
respect to all present hourly employees of the Business, and (ii) the name,
job classification, current annual compensation rate (including bonus and
commissions), current base salary rate, accrued bonus, seniority, accrued
sick leave, accrued severance pay and accrued vacation benefits of each
other present employee of the Business. Seller has also delivered to
Purchaser true, correct and complete copies of any employee handbook(s);
and any reports and/or plans prepared or adopted pursuant to the Equal
Employment Opportunity Act of 1972, as amended.
(ix) Except as otherwise provided in this Agreement, the execution and
delivery of this Agreement by Seller and the consummation of the
transactions contemplated hereunder will not result in any obligation or
liability (with respect to accrued benefits or otherwise) of Purchaser to
any Benefit Plan or to any employee or former employee of Seller or the
Business.
(x) For each plan, fund, or arrangement maintained by Seller which is an
employee welfare benefit plan (within the meaning of ERISA Section 3(1)) (a
"Welfare Plan"), the following is true:
(a) each such Welfare Plan intended to meet the requirements for
tax-favored treatment under Subchapter B of Chapter 1 of the Code
meets such requirements;
(b) there is no VEBA maintained with respect to any such Welfare Plan;
(c) there is no disqualified benefit (as such term is defined in Code
Section 4976(b)) which would subject Purchaser to a tax under Code
Section 4976(a);
(d) each such Welfare Plan which is a group health plan (as such term
is defined in Code Section 4980B(g)(2)) complies and has complied, in
all material respects, with the applicable requirements of Code
Section 4980B(f) and the applicable provisions of the Social Security
Act; and
(e) each such Welfare Plan (including any such plan covering former
employees of the Business) may be amended or terminated by Seller on
or at any time before the Closing Date.
(xi) There are no leased employees (as such term is defined in Code Section
414(n)) with respect to the Business who must be taken into account for the
requirements of Code Section 414(n)(3).
(xii) Seller has made available to Purchaser true, correct and complete
copies of (i) the most recent Internal Revenue Service determination letter
relating to each Employee Pension Benefit Plan for which a letter of
determination was obtained, (ii) to the extent required to be filed, the
two (2) most recent Annual Reports (Form 5500 Series) and accompanying
schedules of each Employee Pension Benefit Plan, as filed with the Internal
Revenue Service, (iii) any summary plan descriptions relating to the
Employee Pension Benefit Plans, and (iv) if available, the most recent
certified financial statement or statements of each Employee Pension
Benefit Plan.
(u) Bank Accounts and Safe Deposit Boxes. A true and complete list showing the
names of each bank in which the Business has accounts or safe deposit boxes, and
other boxes and lockers, located inside and outside of the Hotel and containing
elements of the Purchased Assets, a description of the contents of such boxes
and lockers, and the names of all persons authorized to have access thereto are
set forth in Section 7.1(u) of the Disclosure Schedule.
(v) Inventory. As of midnight on the Closing Date, the Inventory included in the
Purchased Assets shall not be less than that normally maintained and in any
event shall be adequate to serve the patrons of the Business.
(w) Financial Statements. Seller has heretofore furnished Purchaser with copies
of the following financial statements of Seller:
(i) Consolidated audited balance sheets as at December 31, 2001;
(ii) Consolidated audited statements of income and consolidated audited
statements of cash flows for the fiscal years ending December 31, 2001;
(iii) A consolidated unaudited balance sheet as at January 31, 2002; and,
(iv) A consolidated unaudited statement of income and a consolidated
unaudited statement of cash flows for the one month period ending January
31, 2002.
Except as noted therein and except for normal year end adjustments with
respect to the unaudited financial statements, all of such financial
statements and all other financial statements provided by Seller to
Purchaser, were prepared in accordance with GAAP and present fairly the
financial position of Seller as of such dates and the results of its
operations and its cash flows for the periods then ended.
(x) Absence of Material Change. Since December 31, 2001, except as reflected in
the financial statements referenced in Section 7.1(w), there has not been:
(i) any material adverse change in the Business' financial condition,
assets or liabilities; or
(ii) any damage, destruction, other casualty loss or forfeiture with
respect to the Purchased Assets (or assets which would, but for such
damage, destruction, loss or forfeiture, comprise part of the Purchased
Assets), whether or not covered by insurance, in excess of $300,000.
(y) Neither Seller nor any Person constituting Seller is or has been a foreign
person or, in the case of corporations, a U.S. real property holding
corporation, as defined in Section 897 of the Code and Seller will deliver to
Purchaser at the Closing affidavit(s) under penalty of perjury and otherwise in
the form and substance necessary to satisfy the requirements under the Code
relating to withholding of a portion of the purchase price, stating the U.S.
taxpayer identification number of each Person constituting Seller and that such
Person is not a foreign person or U.S. real property holding corporation, as the
case may be.
(z) Affiliates of Seller.
(i) Other than Four Queens Experience Corporation, which owns an interest
in Fremont Street Experience LLC, no Person affiliated with Seller has
owned all or any significant portion of the Purchased Assets since February
28, 1997. Since February 28, 1997, Seller has not changed its name or
location.
(ii) Except as noted in Section 7.1(z)(ii) of the Disclosure Schedule, no
officer, director or employee whose annual compensation exceeds Thirty
Thousand Dollars ($80,000) or consultant receiving fees at an annual rate
of Twenty Thousand Dollars ($20,000) of Seller or any of its Affiliates, to
Seller's knowledge (a) owns, directly or indirectly, any interest in, or is
an officer, director, consultant, agent or employee of any Person or
business which is a competitor, lessor, lessee, lender, borrower, customer,
supplier or distributor of Seller or its Affiliates or (b) owns, directly
or indirectly, in whole or in part, any property, asset, permit, license or
secret or confidential information which Seller or its Affiliates is using
or the use of which is necessary or material to the conduct of the
Business. Any such transaction involving Seller or its Affiliates, on the
one hand, and any such Person on the other, which are required in
accordance with GAAP to be reflected in the consolidated financial
statements of Seller has been so reflected.
(aa) Suppliers. Section 7.1(aa) of the Disclosure Schedule sets forth an
accurate and complete list of the ten (10) largest suppliers of Seller in terms
of purchases during the twelve (12) months ending December 31, 2001 and the
approximate total purchases by Seller from each such supplier during such
period. To Seller's knowledge, within the last twelve (12) months, there has
been no change in the business relationship of Seller and such ten (10) largest
suppliers having a material adverse effect on the Business.
(bb) Racebook and Sportsbook. No racebook or sportsbook operations are conducted
by Seller on the Premises, other than those conducted by Leroy's Horse and
Sports Place.
(cc) Investment Company. Seller is not an "investment company" or an "affiliated
person" thereof, as such terms are defined in the Investment Company Act of 1940
as amended, and the rules and regulations thereunder.
(dd) Environmental Matters.
(i) Except as set forth in any environmental report provided to Purchaser
with respect to the Premises, to Seller's knowledge, the Premises, and any
adjoining real property owned by Seller or any Affiliate, if any, are not
in violation of, or subject to any existing, pending or threatened
investigation by any Governmental Authority under, any of the Environmental
Laws except as would not have a material adverse effect on the Business.
(ii) Except as set forth in any environmental report provided to Purchaser
with respect to the Premises, Seller has complied, and shall continue to
comply, in all material respects with all notice and reporting requirements
applicable to the Premises under the Environmental Laws.
(iii) Except as set forth in any environmental report provided to Purchaser
with respect to the Premises, Seller has never installed or used any
underground storage tank (as defined in RCRA) or any above-ground storage
tank for storing or dispensing any hydrocarbon or other Hazardous Substance
on or at the Premises, and to the knowledge of Seller, after due inquiry,
there has never been an underground storage tank installed or used on or at
the Premises for such purposes.
(iv) Seller has provided Purchaser access to true, correct and complete
copies of all environmental site assessments and asbestos surveys with
respect to the Premises in Seller's possession or control, and all such
assessments and surveys are set forth in Section 7.1(dd)(iv) of the
Disclosure Schedule.
(v) All environmental registrations, permits, licenses, certificates and
approvals held by Seller and related to the Premises are set forth in
Section 7.1(dd)(v) of the Disclosure Schedule.
(vi) Seller has not received any notification from any Governmental
Authority of any asserted present or past failure by Seller to comply with
the Environmental Laws.
(ee) Brokers and Finders. Except as set forth in Section 7.1(ee) of the
Disclosure Schedule, Seller has not incurred any obligation or liability to any
party for any broker fees, agent's commissions or finder's fees in connection
with the transactions contemplated hereby.
Section 7.2 Representations and Warranties of Purchaser. Purchaser represents
and warrants for the benefit and reliance of Purchaser as follows:
(a) Status, Power and Authority. Purchaser is a corporation duly organized,
validly existing and in good standing under the Laws of the State of Nevada,
with all requisite corporate power and authority to enter into and carry out its
obligations under this Agreement.
(b) Due Authorization, Execution and Delivery. The execution, delivery, and
performance of this Agreement by the persons executing the same on behalf of
Purchaser have been duly and validly authorized.
(c) Legal, Valid, Binding and Enforceable. This Agreement and the other
agreements and instruments contemplated hereby constitute legal, valid and
binding obligations of Purchaser, enforceable in accordance with their
respective terms.
(d) No Consents. Other than approvals from the Nevada Gaming Authorities and
consents that may be necessary to assign to Purchaser the Assumed Contracts as
contemplated herein, no material consent, license, permit, order, approval or
authorization of any Governmental Authority or private party is required in
connection with the execution, delivery and performance of this Agreement by
Purchaser.
(e) No Conflict / No Breach. Assuming receipt of all requisite consents and
approvals in connection with the consummation of the transactions contemplated
hereby, the execution, delivery or performance of this Agreement do not, with or
without the giving of notice and/or the passage of time (a) violate any
provision of Law applicable to Purchaser or which would prevent the consummation
of the transactions contemplated by this Agreement or (b) conflict with or
result in the breach or termination of, or constitute a default under or
pursuant to any indenture, mortgage or deed of trust or any judgment, order,
injunction, decree or ruling of any court or Governmental Authority, or any
other agreement or instrument by which Purchaser is bound, or to which it is
subject, or which would prevent the consummation of the transactions
contemplated by the Agreement.
(f) Financing. Purchaser has disclosed to Seller its anticipated sources of
financing for the Cash Portion (the "Financing"). At the Closing, Purchaser will
have on hand, or will have completed the Financing or arranged alternative
credit facilities that will provide to it, sufficient funds to enable it to pay
the Cash Portion and to otherwise consummate the transactions contemplated by
this Agreement.
(g) Net Assets. Purchaser owns all of the outstanding capital stock of
Summergate A Inc., a Nevada corporation ("Summergate A") and Summergate B Inc.,
a Nevada Corporation ("Summergate B"). Summergate A and Summergate B have, and
at all times until the Closing Purchaser shall cause Summergate A and Summergate
B to have, in the aggregate, net assets in excess of Four Million Five Hundred
Thousand Dollars ($4,500,000).
(h) Brokers and Finders. Except for the commission of approximately Two Hundred
Twenty Thousand Dollars ($220,000) payable to David Atwell upon the Closing,
Purchaser has not incurred any obligation or liability to any party for any
broker fees, agent's commissions or finder's fees in connection with the
transactions contemplated hereby.
Section 7.3 Acknowledgement Regarding Tax Treatment. Purchaser acknowledges that
Seller is not providing any assurances that Purchaser will receive, and Seller
shall have no liability in the event that Purchaser does not receive, "like kind
exchange" Tax treatment in connection with the transaction contemplated hereby
pursuant to Section 1031 of the Code or other Tax laws.
Section 7.4 Release by Purchaser.
(a) Purchaser, and any Person claiming by, through or under Purchaser, each
hereby fully and irrevocably releases, discharges and waives its rights to
recover from Seller or any Affiliate of Seller, any and all claims that
Purchaser and any Person claiming by, through or under Purchaser, may now have
or hereafter acquire against Seller or any Affiliate of Seller for any cost,
loss, claim, penalty, fine, lien, judgment, liability, damage, expense, action
or cause of action (including, without limitation attorneys' fees and costs),
whether foreseen or unforeseen, direct or indirect, known or unknown, arising
from or related to the existence or presence of Hazardous Substances in, on,
under, or about the Premises or the non-compliance of the Premises with any
Environmental Laws, except to the extent the same results from, constitutes or
arises as a result of any material misrepresentation, breach or default of or
under any of the matters expressly represented and warranted by Seller in this
Agreement prior to the expiration of such representation and warranty ("Excluded
Matters"). Subject to Section 13.6, for purposes of the preceding sentence, any
representation or warranty which contains a materiality or similar limitation
(such as a dollar threshold) shall be read as if it did not contain such
limitation.
(b) With respect to the release set forth herein relating to unknown and
unsuspected claims, Purchaser hereby acknowledges that such waiver and release
is made with the advice of counsel and with full knowledge and understanding of
the consequences and effects of such waiver.
PURCHASER ACKNOWLEDGES AND AGREES THAT THE FOREGOING WAIVER AND RELEASE SHALL
EXTEND TO CLAIMS WHICH WERE NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR AT THE
TIME PURCHASER EXECUTED THIS WAIVER AND RELEASE, WHETHER OR NOT PURCHASER'S
KNOWLEDGE WOULD HAVE MATERIALLY AFFECTED ITS AGREEMENT IN THE FOREGOING
PARAGRAPH WITH SELLER.
Upon consummation of the Closing, the foregoing release shall be deemed to be
restated and made again as of the Closing Date and shall survive the Closing.
Section 7.5 Continued Validity. The representations and warranties contained
herein shall survive the Closing for a period of six months and shall terminate
and be of no further force or effect six months following the Closing Date
(except to the extent a Party has made a claim with respect to such
representations or warranties prior to such expiration, as provided below, in
which case the representations and warranties subject to such proceeding shall
survive until final resolution or settlement of such claim); provided that the
representations and warranties of Seller set forth in (i) Section 7.1(m) and
Section 7.1(t) shall survive for the applicable statute of limitations, (ii)
Section 7.1(f)(ii)(A) shall survive indefinitely, and (iii) Section 7.1(dd)
shall survive for three (3) years. Any claim with respect to the truth, accuracy
or completeness of any representation or warranties of either Party (other than
those referenced in clauses (i), (ii) or (iii) above) must be made in writing,
if at all, prior to six months following the Closing Date and, if not made on or
before such date, shall be void and of no force or effect.
ARTICLE VIII
COVENANTS
Section 8.1 Operation of the Business. Except to the extent set forth in Section
8.1 of the Disclosure Schedule, during the period from the date hereof until the
Closing:
(a) Seller shall operate the Business in the ordinary course and only in the
ordinary course of business in accordance with past practices consistently
applied.
(b) Seller shall not, without the prior written consent of Purchaser (which
consent shall not be unreasonably withheld), enter into any Contract or lease
providing for payments by Seller in excess of $50,000, or any Contracts
providing for payments by Seller in excess of $250,000 in the aggregate, or
modify, extend or terminate any existing material Contract with respect to the
Business, other than in the ordinary course of business. All insurance policies
with respect to the Business shall be maintained in full force and effect.
(c) Seller shall not waive any rights of material value which are included in
the Purchased Assets.
(d) Seller will not enter into advance bookings for any time after fourteen
months from the date hereof. Seller will not enter into any other advance
bookings other than in the ordinary course of business.
(e) Seller shall not sell or otherwise dispose of any Purchased Asset with a
value in excess of $50,000, or any Purchased Assets with an aggregate value in
excess of $250,000, except Inventory used or sold in the ordinary course of
business.
(f) Except as otherwise requested by Purchaser and without making any commitment
on its behalf, Seller shall maintain the Purchased Assets in the ordinary course
of business. Seller shall also use commercially reasonable efforts to keep its
business organization at the Business substantially intact and to preserve for
Purchaser the good will of suppliers, customers and others having business
relations with Seller in connection with the Business or otherwise serving the
Business.
(g) Other than adopting and approving payments under Seller's bonus plan for
2002, Seller shall not adopt or amend any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, plan, fund or other arrangement for the
benefit or welfare of any employee or increase in any manner the compensation or
fringe benefits of any employee or pay any benefit not required by any existing
plan.
(h) Seller shall not make any representation to any employee of Seller that is
inconsistent with or contrary to the provisions of this Agreement.
(i) Seller shall use commercially reasonable efforts to comply in all material
respects with the Laws of the Nevada, and with all such other applicable Laws as
may be required for the conduct of the Business;
(j) No change will be made affecting the banking and safe deposit box
arrangements of the Business without Purchaser's prior written approval.
(k) No indebtedness shall be incurred with respect to the Purchased Assets or
the Business nor shall any lien, mortgage, deed of trust, security interest or
other encumbrance be created or suffered with respect thereto or any portion
thereof, except such as would be repaid by Seller at the Closing.
(l) Seller shall not make any guaranty of any third party obligation, except for
endorsement of checks in the ordinary course of business.
(m) All business and financial records of the Business shall be maintained in
accordance with practices current on the date hereof.
(n) Within twenty (20) days after the end of each month Seller shall provide to
Purchaser a consolidated unaudited balance sheet as of the end of such month and
a consolidated unaudited statement of income and a consolidated unaudited
statement of cash flows for the periods commencing on the first of such month
and on January 1, 2002, and ending as of the end of such month.
(o) At Purchaser's request, Seller shall provide Purchaser with copies of all
material gaming financial reports, if any, filed by Seller with respect to the
Business with the State of Nevada and/or local gaming authorities between the
date hereof and the Closing.
(p) Seller will notify Purchaser in writing of any actual, threatened or pending
claims arising in relation to the conduct of the Business and reasonably
expected to result in a judgment against Seller in excess of $25,000, a lien on
any of the Purchased Assets or the inability to close the transactions
contemplated hereby promptly after Seller learns of any such actual, threatened
or pending claims.
(q) From and after the date hereof, Seller shall, in the event of a spill or
other release of Hazardous Substances on or at the Premises, give Purchaser a
copy of any notice or report filed with any and all Governmental Authorities
relating to such spill or release concurrently with such agency filings. Seller
shall promptly forward to Purchaser copies of all correspondence, orders,
notices, permits, applications or other communications and reports in connection
with any such event or any other matter relating to Environmental Laws as they
may affect the Premises.
(r) Seller shall consult with Purchaser with respect to any renegotiation of any
Collective Bargaining Agreement.
(s) Seller shall not, without Purchaser's prior written approval, enter into any
new Collective Bargaining Agreement with any union, unless such agreement is on
terms substantially similar to agreements entered into between such union and
other hotel and casino properties in downtown Las Vegas, Nevada.
(t) Seller shall not take any action which would require any notification
pursuant to the notice provisions of the WARN Act.
Section 8.2 Non-Solicitation.
(a) From and after the date hereof, until the earlier of the Closing or the
Outside Date (the "No Solicitation Period"), Seller shall not in any way
solicit, accept, negotiate, consider or request other offers or proposals for
the purchase or sale (or change of ultimate ownership in any form) of all or any
portion of the Purchased Assets or the Business (a "Purchase Offer") or enter
into discussions therefor. If Seller receives a Purchase Offer during the No
Solicitation Period, Seller shall immediately notify Purchaser in writing.
(b) Elsinore Corporation, a Nevada corporation, ("Elsinore") hereby represents
and warrants that is the owner of all of the issued and outstanding stock of
Seller. Elsinore further agrees that during the No Solicitation Period, it shall
not in any way solicit, accept, negotiate, consider or request other offers or
proposals for the purchase or sale (or change of ultimate ownership in any form)
of all or any portion of the stock of Seller (a "Stock Purchase Offer") or enter
into discussions therefore. If Elsinore receives a Purchase Offer or Stock
Purchase Offer during the No Solicitation Period, Elsinore shall immediately
notify Purchaser in writing.
(c) Notwithstanding the foregoing, prior to the Closing, Seller and Elsinore
may, directly or indirectly, provide access and furnish information concerning
the Business to any Person pursuant to customary confidentiality agreements, and
may negotiate and participate in discussions and negotiations with such Person
if (1) such Person has submitted an unsolicited bona fide written Purchase Offer
or Stock Purchase Offer, as applicable, to the Boards of Directors of Seller or
Elsinore, (2) such proposal provides for the acquisition for cash and/or
publicly traded securities of substantially all of the Purchased Assets or all
of the outstanding stock of Seller, as applicable, and (3) the Board of
Directors of Seller or Elsinore determines in good faith, after consultation
with its independent financial advisor, that such proposal is financially
superior to the transactions contemplated by this Agreement. A proposal meeting
all of the criteria in the preceding sentence is referred to herein as a
"Superior Proposal." Seller and Elsinore will promptly provide to Purchaser any
non-public information concerning Seller provided to any other party which was
not previously provided to Purchaser. Notwithstanding anything to the contrary
contained in this Agreement, prior to the Closing, the Boards of Directors of
Seller and Elsinore may withdraw or modify their approval of this Agreement or
the transactions contemplated hereby, approve a Superior Proposal, or enter into
an agreement with respect to a Superior Proposal, in each case at any time after
the third Business Day following Purchaser's receipt of written notice from
Seller or Elsinore advising Purchaser that their Board of Directors has received
a Superior Proposal which it intends to accept, specifying the material terms
and conditions of such Superior Proposal, identifying the Person making such
Superior Proposal, but only if Seller or Elsinore shall have caused its
financial and legal advisors to negotiate with Purchaser to make such
adjustments in the terms and conditions of this Agreement as would enable Seller
to proceed with the transactions contemplated herein on such adjusted terms.
Section 8.3 Access to Properties and Records.
(a) During the period from the date hereof to the Closing Date, Purchaser and
Purchaser's counsel, accountants and other representatives shall have full
access during normal business hours, to the Business, the Purchased Assets and
all books, contracts, commitments and records with respect to the Business,
shall be able to consult with any and all of Seller's employees, accountants and
other advisors and consultants regarding the Business and shall be furnished
during such period with all such information concerning the Business and the
Purchased Assets as Purchaser may reasonably request. In connection therewith,
Purchaser and its representatives shall be entitled to make tests and surveys.
Purchaser shall not, however, conduct any on-site investigations or contact any
of Seller's employees without the prior approval, oral or written, of Mr. Phil
Madow, Seller's general manager, which shall not be unreasonably withheld or
delayed. The rights of the Parties pursuant to this Section 8.3(a) are subject
to each Party's obligations pursuant to that certain Confidentiality Agreement
dated May 30, 2001, as amended, by and between Seller and TLC. After the Closing
Date, Purchaser shall provide Seller with access to, upon prior reasonable
written request specifying the need therefor, during regular business hours,
such books and records, and Seller and its representatives shall have the right
to make copies of such books and records.
(b) During the period from the date hereof to the Closing Date, Seller covenants
and agrees to promptly furnish to Purchaser all information and data in Seller's
possession, under Seller's control or to which Seller has access reasonably
requested by Purchaser in order to assist Purchaser to secure the permits,
licenses, approvals and other authorizations contemplated by this Agreement.
(c) Each of Seller and Purchaser shall preserve until the fourth anniversary of
the Closing Date, all books and records possessed or to be possessed by such
Party relating to any of the Purchased Assets or the Assumed Liabilities, except
that either Party may destroy any such books and records in its possession,
provided that (i) such Party provides reasonable written notice to the other
Party stating its intent to do so and offering to transfer such books and
records to the other Party, and (ii) the other Party declines in writing or does
not respond to the notice for a period of 30 days.
(d) After the Closing Date, Purchaser shall provide Seller with access to all
books and records relating to the Purchased Assets and the operation of the
Business prior to the Closing, and to employees of Seller who have been hired by
Purchaser, in each case as is reasonably necessary for Seller to discharge the
Retained Liabilities, comply with all Laws, and otherwise to wind up the affairs
of Seller.
Section 8.4 Notice of Inaccuracy.
(a) Promptly upon either Party becoming aware of the occurrence of, or the
impending or threatened occurrence of, any event which would cause a breach of
any of its own representations or warranties contained in Section 7.1 or Section
7.2, as the case may be, or an inability of such Party to deliver the
certificate to be delivered by it pursuant to Section 9.4, Section 9.5, Section
10.3 or Section 10.4, as the case may be, such Party shall disclose each such
event, in reasonable detail, by means of a written notice thereof to the other
Party and such Party shall use its reasonable commercial efforts to remedy the
same. No disclosure by any Party pursuant to this Section 8.4(a), however, shall
be deemed to amend or supplement the Schedules attached hereto or to prevent or
cure any misrepresentations, breach of warranty, or breach of covenant or to
satisfy any Closing condition.
(b) Each Party shall, promptly upon acquiring knowledge of the occurrence of any
event that would cause the conditions to its obligations set forth in ARTICLE IX
and ARTICLE X, as applicable, to fail to be fulfilled at the Closing, notify the
other Party of such event.
(c) Each Party shall promptly notify the other Party of any action, suit or
proceeding that shall be instituted or overtly threatened against such Party to
restrain, prohibit or otherwise challenge the legality of any transaction
contemplated by this Agreement.
Section 8.5 ERISA. Promptly after execution of this Agreement, Seller shall
request (and furnish to Purchaser when obtained) writings from all
Multi-Employer Plans to which Seller contributes with respect to the Business,
confirming Seller's and its subsidiaries' potential withdrawal liability
("Withdrawal Liability") with respect to each such Multi-Employer Plan as of the
most recent practicable date before the Closing Date.
Section 8.6 Labor Agreement Commitments; Employees.
(a) Purchaser shall offer employment as of the Closing Date to each Represented
Employee, Nonrepresented Employee and employees who are hired after the date
hereof (the "Transferred Employees") (i) in a position comparable to the
position that such Person held with Seller, and (ii) at an initial base salary
at an annual rate of not less than that which the Person was receiving from
Seller immediately prior to the Closing. Each such Person who is a
Nonrepresented Employee (other than Nonrepresented Employees of Seller who are
parties to written employment agreements listed in Section 8.6(a) of the
Disclosure Schedule which are required to be assigned to and assumed by
Purchaser under Section 2.1(b)) shall be employed on an at-will basis. Nothing
in this Section 8.6(a), express or implied, is intended to confer, nor shall
anything herein confer, (a) on any Person other than the Parties and the
respective successors or permitted assigns of the Parties, any rights or
remedies or (b) on any Person hired by Purchaser any right to remain in the
employ of Purchaser or its Affiliates, nor shall anything in this Section 8.6(a)
affect the right of Purchaser or its Affiliates to discharge at any time, with
or without notice or cause, any such Person hired by Purchaser. Provided that
Purchaser has complied with the covenants set forth in this Section 8.6(a),
effective as of the Closing, Seller shall terminate the employment by the
Business of all individuals on its active payroll, on lay-off status, and on
leave of absence.
(b) Purchaser shall not take any action which causes the notice provisions of
the WARN Act to be applicable to the transactions contemplated by this
Agreement.
(c) Effective as of the Closing, Purchaser shall assume from Seller any and all
liabilities and obligations to Transferred Employees of Seller as of the Closing
Date in respect of paid time off accrued on or prior to the Closing Date to the
extent set forth in Section 3.1(a)(ii) of the Disclosure Schedule. Purchaser
shall indemnify and hold harmless Seller and its Affiliates from and against any
and all Losses incurred, suffered by, or claimed against them directly or
indirectly as a result of, or based upon or arising from the foregoing
assumption or the failure by Seller to have paid such amounts to such personnel
upon the termination of their employment with Seller.
(d) Promptly after the execution of this Agreement, Seller shall advise each
union that is party to a Collective Bargaining Agreement of the matters
contemplated hereunder and use its best efforts to secure such union's written
agreement that Purchaser shall be Seller's successor to the Collective
Bargaining Agreement. Upon consummation of the Closing, Purchaser agrees to be
bound by all terms and conditions of the Collective Bargaining Agreement on and
after the Closing Date.
(e) Purchaser will provide continuation health care coverage to all Transferred
Employees and their qualified beneficiaries who incur a qualifying event after
the Closing Date in accordance with and to the extent required under the
continuation health care coverage requirements of Section 4980B of the Code and
Sections 601 through 608 of ERISA ("COBRA"). Seller and its Affiliates will be
responsible for providing continuation coverage and all related notices to the
extent required by law to any employee of Seller or qualified beneficiary who
incurs or incurred a qualifying event under COBRA on or before the Closing Date,
until such time as Seller and its Affiliates no longer maintain any group health
plans, and thereafter Purchaser shall be responsible for all COBRA compliance as
provided in the COBRA regulations.
Section 8.7 Assumption of Plans.
(a) As of the Closing Date, Purchaser will assume sponsorship of the Benefits
Plans listed in Section 8.7(a) of the Disclosure Schedule (the "Assumed Plans")
and will be substituted for Seller as the plan sponsor under the Assumed Plans.
Seller will make any amendments to the Assumed Plans necessary to effect such
substitution and will provide notice of such change to participants,
beneficiaries and persons providing services to the Assumed Plans. As of the
Closing Date, Purchaser will adopt such resolutions and take such other actions
as is necessary to effect assumption of the Assumed Plans.
(b) On or before the Closing Date, Seller will supply Purchaser with (i) all
records concerning participation, vesting, accrual of benefits, payment of
benefits, and elective forms of benefits under the Assumed Plans, and (ii) any
other information reasonably requested by Purchaser that is necessary or
appropriate for the administration of the Assumed Plans.
(c) Seller will file with the appropriate government agency on a timely basis
the annual reports on Form 5500 for any of the Assumed Plans for which a Form
5500 is due for plan years ending on or before the Closing Date. Purchaser will
file with the Internal Revenue Service on a timely basis the annual report on
Form 5500 for any of the Assumed Plans for which a Form 5500 is due for plan
years ending after the Closing Date.
(d) Seller and its Affiliates will retain all obligations and liabilities under
the Benefit Plans maintained or contributed to by Seller or any other entity
that would be treated as a single employer with Seller under ERISA or the Code
other than the Assumed Plans (the "Unassumed Plans"), and neither Purchaser nor
any of its Affiliates will have any liability with respect to the Unassumed
Plans.
(e) With respect to each Multi-Employer Plan to which contributions are required
pursuant to a Collective Bargaining Agreement, Purchaser and Seller agree to
comply with Section 4204 of ERISA to avoid the imposition upon Seller of
Withdrawal Liability because of Seller's complete or partial withdrawal from
such Multi-Employer Plans as a result of the transactions contemplated by this
Agreement. Such compliance shall include, but shall not be limited to, the
provision by the Purchaser of the bond or escrow account required by Section
4204(a)(1)(B) of ERISA, the provision by Seller of the bond or escrow account
required by Section 4204(a)(3)(A) of ERISA under the circumstances described
therein and the secondary liability of Seller under Section 4204(a)(3)(C) of
ERISA, except to the extent each is waived by variance in accordance with
Section 4204(c) of ERISA and the regulations thereunder. Purchaser shall be
responsible for all Withdrawal Liability imposed on or after the Closing Date
with respect to such Multi-Employer Plans.
Section 8.8 Governmental Permits and Approvals. Each of the Parties shall as
promptly as practicable prepare, submit and file (or cause to be prepared,
submitted and filed) all applications, notices and requests for, and shall use
all reasonable efforts to obtain as promptly as practicable, all permits and
approvals of all Governmental Authorities that may be or become necessary on
each of their part, respectively, for their execution and delivery of, and the
performance of their obligations under, this Agreement, and will cooperate fully
with each other in promptly seeking to obtain all such permits and approvals.
The Seller, on the one hand, and Purchaser, on the other hand, shall bear their
own costs and expenses incurred or fees paid to Governmental Authorities to
obtain such approvals and permits.
Section 8.9 Preparation of Information Statement. As promptly as reasonably
practicable after the execution of this Agreement, Seller shall prepare and file
with the SEC, and distribute to the holders of common stock of Elsinore, an
Information Statement with respect to the transactions contemplated hereby
(together with any amendments thereof or supplements thereto, the "Information
Statement"). Each of Seller and Purchaser shall furnish all information
concerning itself to the other as the other may reasonably request in connection
the preparation of the Information Statement. Purchaser agrees promptly to
advise Seller if at any time prior to the distribution of the Information
Statement any information provided by it in the Information Statement is or
becomes incorrect or incomplete in any material respect and to provide Seller
with the information needed to correct such inaccuracy or omission.
Section 8.10 Consents and Approvals for Assumed Contracts.
(a) To the extent that the assignment of any of the Assumed Contracts or the
interest of Four Queens Experience Corporation in Fremont Street Experience LLC
requires the consent of any other party thereto, or shall be subject to any
option in any other Person by virtue of a request for permission to assign, or
by reason of or pursuant to any assignment to Purchaser, this Agreement shall
not constitute a contract to assign the same if any attempted assignment would
constitute a breach thereof or give rise to such an option. Each of the Parties
shall as promptly as practicable prepare, submit and file (or cause to be
prepared, submitted and filed) all applications, notices and requests for, and
shall use all reasonable efforts to obtain as promptly as practicable, all such
consents, and will cooperate fully with each other in promptly seeking to obtain
all such permits and approvals. All such consents shall be in writing and in a
form reasonably acceptable to Purchaser.
(b) If any such consent (other than any consent with respect to any Ground Lease
or any Contract related to an Assumed Plan) is not obtained, or if for any
reason any such assignment is not consummated, then, without limiting any other
rights or remedies Purchaser may have, Seller shall, at Purchaser's request,
cooperate with Purchaser to provide for Purchaser the benefit, monetary or
otherwise, of the Assumed Contract at issue, including, without limitation,
enforcement of any and all rights of Seller against the other party to such
Assumed Contract arising out of any breach or cancellation thereof by such party
or otherwise.
(c) Purchaser shall bear all costs of obtaining and shall make any deposits or
similar payments reasonably requested in connection with obtaining the required
consents of third parties to the assignment, novation or renewal of any Assumed
Contract or Transferred Permit, if the party from whom such consent is required
has refused, and is contractually entitled to refuse, to grant such consent by
reason, in whole or in part, of Purchaser's credit quality. Otherwise, costs of
obtaining such consents shall be borne equally by Purchaser and Seller;
provided, however, that Seller shall not be obligated to commence any litigation
or offer or grant any accommodation (financial or otherwise) to any Person or
incur any other obligation or liability therefor.
Section 8.11 Observers. Subject to any required approval of any Nevada Gaming
Authority, Purchaser shall have the right, prior to Closing, to place its agents
in the Business for the purpose of observing the conduct of the Business.
Purchaser agrees that such agents shall not interfere with the normal operation
of the Business prior to Closing. Notwithstanding the foregoing, prior to the
Closing Date, Purchaser shall not directly or indirectly control, supervise,
direct or interfere with, or attempt to control, supervise, direct or interfere
with, the Business.
Section 8.12 Certificates of Inspection. Prior to the Closing, upon Purchaser's
request, Seller will use its commercially reasonable efforts to deliver to
Purchaser full, correct and complete copies of certificates of inspection
bearing a date not more than thirty (30) days prior to the Closing Date with
respect to the Premises from the Las Vegas Fire Department, the Las Vegas
Department of Building and Safety and the Clark County Health Department.
Section 8.13 Notices of Governmental Action. Prior to the Closing, Seller shall
provide Purchaser with written notice of any zoning proceedings which would
materially and adversely affect the use and operation of the Premises as it is
currently used and operated by Seller, including, but not limited to, any action
which could cause the operation of the Business on any portion of the Purchased
Assets or Business to constitute a non-conforming use.
Section 8.14 Nevada Gaming Authorities. The Parties shall cooperate to prepare a
detailed closing memorandum with respect to the transactions contemplated hereby
and submit it to the Nevada Gaming Authorities with sufficient time to allow
their review and approval prior to the Closing Date.
Section 8.15 Consummation of Agreement. Each of the Parties shall use its
commercially reasonable efforts to perform and fulfill all obligations and
conditions on its part to be performed and fulfilled under this Agreement to the
end that the transactions contemplated by this Agreement shall be fully carried
out.
Section 8.16 Continued Efforts for Consents to Assumed Contracts. If any
consent, approval, novation or waiver necessary for assignment and delegation of
any Assumed Contract or Transferred Permit is not obtained prior to or on the
Closing Date, then, for a period of six (6) months after the Closing Date, each
of Seller and Purchaser shall use their respective commercially reasonable
efforts and shall cooperate with each other to obtain all such consents,
approvals, novations and waivers necessary to assign and delegate to Purchaser
all such Assumed Contracts and Transferred Permits; provided, however, that, in
each such case, neither Seller nor Purchaser shall be obligated to commence any
litigation or offer or grant any accommodation (financial or otherwise) to any
Person or incur any other obligation or liability therefor.
Section 8.17 Substitution. Purchaser shall use all commercially reasonable
efforts to substitute, as of the Closing Date, with respect to each Assumed
Contract (including any guaranties or other credit support with respect thereto)
and Transferred Permit, Purchaser or TLC (or such other Person as may be
acceptable to the obligee thereunder) for the Seller or its Affiliates, as the
case may be, and to cause the Seller and its Affiliates to be forever released
from all liability in respect thereof; provided that in no event shall any
Person other than Purchaser or TLC be required to assume any such obligation. If
such substitution is not accepted by any third party to any such Assumed
Contract, guaranty, letter of credit, bond or other indemnity obligation,
Purchaser shall provide to Seller bonds, letters of credit or other reasonable
assurances of performance reasonably acceptable to Seller to support Seller's
(or an Affiliate of Seller's) performance under each such Assumed Contract,
guaranty, letter of credit, bond or other indemnity obligation.
Section 8.18 Fremont Street Experience and Elsinore Intellectual Property
Rights. At the Closing, Seller shall cause (a) Four Queens Experience
Corporation to transfer its interest in Fremont Street Experience LLC to
Purchaser, and (b) Elsinore to transfer its interest in any Intellectual
Property Rights owned by Elsinore to Purchaser.
Section 8.19 Access to Employee Records. Until Closing, upon written request
from Purchaser, Seller shall provide Purchaser reasonable access to its employee
records to the extent permitted by applicable Law. Notwithstanding the
foregoing, in no event shall Seller be liable to Purchaser for any inaccuracy or
omission contained in such records.
Section 8.20 Telephone Numbers. On or before the Closing Date, Seller shall
arrange for the transfer of the telephone numbers associated with the Business
to Purchaser effective as of the Closing Date.
Section 8.21 Press Releases. Promptly after the execution hereof, the parties
shall jointly issue a press release announcing the execution of this Agreement
to the public. The content and form of such press release shall be mutually
agreed upon by the Parties, which agreement shall not be unreasonably withheld
by either Party. Except as expressly permitted in this Section 8.21 or as
required by applicable Law, prior to the completion of the Closing, neither
Party shall grant interviews, issue any press release or make any similar public
announcement concerning the execution or performance of this Agreement or the
transactions contemplated hereunder unless the content thereof is approved in
advance by Purchaser and Seller. Thereafter, each party may grant interviews and
make public statements regarding the general transactions contemplated hereunder
without the approval of the other party provided the party granting such
interviews and making such public statements does not disclose the terms and
conditions of such transactions.
Section 8.22 Confirmation of Certain Personal Property. Not more than fifteen
(15) days prior to Closing, the parties shall jointly participate in taking a
physical count and inventory of the Personal Property to ensure compliance with
Section 8.1(e) (the "Second Personal Property Inventory").
Section 8.23 Liabilities Paid at Closing. On or before the Closing Date, Seller
shall pay off any liabilities of the type historically accounted for in the
categories listed in Section 3.1(a)(ii) of the Disclosure Schedule that are
required to be paid on or before the Closing Date pursuant to the terms of the
Collective Bargaining Agreements listed in Section 8.23 of the Disclosure
Schedule. In addition, Seller shall be permitted on or before the Closing Date
to pay off any other liabilities of the type historically accounted for in the
categories listed in Section 3.1(a)(ii) of the Disclosure Schedule.
Section 8.24 Return of Deposits. In the event that (i) the Unconditional
Termination Payment and the Deposit are paid to Seller pursuant to Section
4.1(f) and Section 4.1(g), (ii) within one year from the date hereof, Seller
closes a significant financing transaction with the lender disclosed to Seller
pursuant to Section 7.2(f), and (iii) as of the date hereof, Seller has never
been in contact with such lender regarding a potential financing transaction,
then Seller shall pay the Unconditional Termination Payment and the Deposit to
Purchaser promptly after the closing of such financing transaction.
Section 8.25 Casualty Loss and Condemnation. After the date hereof and prior to
the Closing, in the event of, (i) the destruction of, or material damage to, any
material Purchased Asset, or (ii) the condemnation of any material Purchased
Asset, Purchaser, at its option, may by written notice to Seller prior to
Closing request that Seller, and upon any such request, Seller shall (x) pay to
Purchaser, at the Closing, all sums theretofore paid to Seller by third parties
by reason of such condemnation, destruction or damage, and (y) assign to
Purchaser, at the Closing, all of the right, title and interest of Seller in any
to any unpaid awards or other amounts payable by third parties or under Seller's
personal property and casualty insurance policies arising out of such
condemnation, destruction or damage; provided that, upon making such request,
Purchaser shall waive its right to terminate this Agreement pursuant to Section
11.3(d). Except as set forth in the preceding sentence, nothing in this Section
8.25 shall affect the rights of Seller and Purchaser to terminate this Agreement
pursuant to Section 11.2(e) and Section 11.3(d), as applicable.
ARTICLE IX
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligations of Purchaser to consummate at the Closing the purchase of the
Purchased Assets, the assumption of the Assumed Liabilities and the other
transactions contemplated hereby are subject to the fulfillment, prior to or at
the Closing on the Closing Date, of each of the following express conditions
precedent (the "Purchaser's Conditions Precedent"), any or all of which may be
waived by Purchaser in writing:
Section 9.1 Licenses. Purchaser and all other Persons affiliated with Purchaser
required to do so in order to operate the Business in the manner conducted by
Seller as of the date hereof shall have obtained the necessary gaming licenses
and approvals to the assignment of relevant liquor licenses to permit them to
lawfully operate the Business as so contemplated.
Section 9.2 Approval to Transfer Gaming Devices. Seller shall have obtained all
material approvals necessary to transfer all gaming devices constituting a
portion of the Purchased Assets to Purchaser, except as would not have a
material adverse effect on the Business.
Section 9.3 Absence of Material Change. There shall not have occurred any
material adverse change since the date hereof in the Business, the Purchased
Assets or results of operations of the Business, including, without limitation,
a material decrease in revenues, other than as result of the public announcement
of this Agreement and the transactions contemplated hereby.
Section 9.4 Representations and Warranties. Each of the representations and
warranties of Seller set forth in Section 7.1 of this Agreement shall be true
and correct in all material respects on the Closing Date as though made on the
Closing Date, and Seller shall have delivered to Purchaser a certificate or
certificates to such effect, in form and substance reasonably satisfactory to
Purchaser and dated the Closing Date, signed by and on behalf of Seller by its
duly authorized representative.
Section 9.5 Covenants. Seller shall have performed and complied in all material
respects with all of the covenants and agreements on Seller's part to be
performed and complied with as set forth herein and Seller shall have delivered
to Purchaser a certificate or certificates to such effect, in form and substance
reasonably satisfactory to Purchaser and dated the Closing Date, signed by and
on behalf of Seller by its duly authorized representative(s).
Section 9.6 Absence of Litigation. No action or proceeding by any unaffiliated
third party shall have been instituted (or threatened or proposed) before any
court or Governmental Authority to enjoin, restrain, prohibit or otherwise
challenge the legality or validity of the transactions contemplated hereby or to
obtain substantial damages in respect of, or which is related to or arises out
of, this Agreement or the consummation of the transactions contemplated hereby
or thereby.
Section 9.7 No Change in Law. Since the date of this Agreement there shall have
been no change in any applicable Law that makes it illegal for any Party hereto
to perform its obligations hereunder (i) enacted (and not effectively vetoed),
whenever effective, (ii) adopted as a final regulation pursuant to formal rule
making, order-issuing or regulatory authority by any agency, board, commission,
or other administrative, executive, or other regulatory body having jurisdiction
over the Purchased Assets, or (iii) embodied in a final, formal ruling, order or
decision of any judicial body having jurisdiction over the Purchased Assets.
Section 9.8 Required Consents. The Parties shall have received all of the
consents, estoppels and approvals described in Section 9.8 of the Disclosure
Schedule (the "Required Consents") and such consents, estoppels and approvals
shall remain in effect on the Closing Date.
Section 9.9 Information Statement. The Information Statement shall have been
delivered to each holder of common stock of Elsinore at least 20 calendar days
prior to the Closing.
Section 9.10 Seller's Closing Deliverables. At the Closing, and concurrently
with the delivery of the Purchaser's Closing Deliverables, Seller shall have
executed and delivered, or caused to have been delivered, to Purchaser Seller's
Closing Deliverables, each of which shall be in full force and effect and shall
be in form and substance reasonably satisfactory to Purchaser.
ARTICLE X
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
The obligations of Seller to consummate at Closing the sale of the Purchased
Assets, the assignment of the Assumed Liabilities and other transactions
contemplated hereby are subject to the fulfillment, prior to or at the Closing
on the Closing Date, of each of the following express conditions precedent (the
"Seller's Conditions Precedent"), any or all of which may be waived by Seller in
writing:
Section 10.1 Licenses. Purchaser and all other Persons affiliated with Purchaser
required to do so in order to operate the Business in the manner conducted by
Seller as of the date hereof shall have obtained the necessary gaming licenses
and approvals to the assignment of relevant liquor licenses to permit them to
lawfully operate the Business as so contemplated.
Section 10.2 Approval to Transfer Gaming Devices. Seller shall have obtained all
material approvals necessary to transfer all gaming devices constituting a
portion of the Purchased Assets to Purchaser, except as would not have a
material adverse effect on the Business.
Section 10.3 Representations and Warranties. Each of the representations and
warranties of Purchaser contained or referred to herein shall be true and
correct in all material respects on the Closing Date as though made on the
Closing Date and Purchaser shall have delivered to Seller a certificate or
certificates to such effect, in form and substance reasonably satisfactory to
Seller and dated the Closing Date, signed by and on behalf of Purchaser by its
duly authorized representative.
Section 10.4 Covenants. Purchaser shall have performed and complied in all
material respects with all of the covenants and agreements on Purchaser's part
to be performed and complied with as set forth herein and Purchaser shall have
delivered to Seller a certificate or certificates to such effect, in form and
substance reasonably satisfactory to Seller and dated the Closing Date, signed
by and on behalf of Purchaser by its duly authorized representative.
Section 10.5 Absence of Litigation. No action or proceeding by any unaffiliated
third party shall have been instituted (or threatened) before any court or
Governmental Authority to enjoin, restrain, prohibit or otherwise challenge the
legality or validity of the transactions contemplated hereby or to obtain
substantial damages in respect of, or which is related to or arises out of, this
Agreement or the consummation of the transactions contemplated hereby.
Section 10.6 No Change in Law. Since the date of this Agreement there shall have
been no change in any applicable Law that makes it illegal for any Party hereto
to perform its obligations hereunder (i) enacted (and not effectively vetoed),
whenever effective, (ii) adopted as a final regulation pursuant to formal rule
making, order-issuing or regulatory authority by any agency, board, commission,
or other administrative, executive, or other regulatory body having jurisdiction
over the Purchased Assets, or (iii) embodied in a final, formal ruling, order or
decision of any judicial body having jurisdiction over the Purchased Assets.
Section 10.7 Required Consents. The Parties shall have received all of the
Required Consents and such consents and approvals shall remain in effect on the
Closing Date.
Section 10.8 Information Statement. The Information Statement shall have been
delivered to each holder of common stock of Elsinore at least 20 calendar days
prior to the Closing.
Section 10.9 Purchaser's Closing Deliverables. At the Closing, and concurrently
with the delivery by the Seller of the Seller's Closing Deliverables, Purchaser
shall have executed and delivered, or caused to have been executed and
delivered, to Seller the Purchaser's Closing Deliverables, each of which shall
be in full force and effect and shall be in form and substance reasonably
satisfactory to Seller.
ARTICLE XI
TERMINATION
Section 11.1 Termination by Mutual Consent. This Agreement may be terminated
prior to Closing by mutual agreement of Seller and Purchaser. Upon such
termination, this Agreement shall terminate and neither Purchaser nor Seller
shall have any further obligation or liability to the other hereunder.
Section 11.2 Termination by Seller. Seller may terminate this Agreement by
giving written notice to Purchaser at any time prior to the Closing:
(a) in the event Purchaser has breached any representation, warranty, or
covenant contained in this Agreement in any material respect, Seller has
notified Purchaser of the breach, and the breach has continued without cure for
a period of thirty (30) days after the notice of breach;
(b) in the event any of the Seller's Conditions Precedent shall have become
incapable of fulfillment;
(c) if the Closing shall not have occurred on or before the Outside Date;
(d) if the Board of Directors of Seller or Elsinore shall have withdrawn, or
modified or changed in a manner adverse to Purchaser, its approval of this
Agreement or the transactions contemplated hereby in order to approve and permit
Seller or Elsinore to execute a definitive agreement providing for a Superior
Proposal; provided that (1) at least three (3) Business Days prior to
terminating this Agreement pursuant to this Section 11.2(d), Seller or Elsinore,
as applicable, has provided Purchaser with written notice advising Purchaser
that the Board of Directors of Seller or Elsinore, as applicable, has received a
Superior Proposal that it intends to accept, and specifying the material terms
and conditions of such Superior Proposal, (2) Seller shall have caused its
financial and legal advisors to negotiate in good faith with Purchaser to make
such adjustments in the financial terms of a revised Agreement that are equal or
superior to the financial terms of such Superior Proposal, and (3) Seller is not
in material breach of this Agreement; or
(e) in the event there shall have occurred any casualty, damage, injury or other
adverse change to the Purchased Assets which could reasonably be expected to
have a replacement cost in excess of $300,000.
Section 11.3 Termination by Purchaser. In addition, Purchaser may terminate this
Agreement by giving written notice to Seller at any time prior to the Closing:
(a) in the event Seller has breached any representation, warranty, or covenant
contained in this Agreement in any material respect, Purchaser has notified
Seller of the breach, and the breach has continued without cure for a period of
thirty (30) days after the notice of breach or until the Outside Date, whichever
is sooner;
(b) in the event any of the Purchaser's Conditions Precedent shall have become
incapable of fulfillment;
(c) if the Closing shall not have occurred on or before the Outside Date; or
(d) in the event there shall have occurred any casualty, damage, injury or other
adverse change to the Purchased Assets which could reasonably be expected to
have a replacement cost in excess of $300,000.
Section 11.4 Effect of Termination. If any Party terminates this Agreement
pursuant to ARTICLE V or this ARTICLE XI, all rights and obligations of the
Parties hereunder shall terminate without any liability of any Party to any
other Person; provided, however, that the provisions of ARTICLE XIII, ARTICLE
XIV, Section 4.1, Section 8.24, Section 11.5, Section 17.1, Section 17.2 and
Section 17.10 shall survive such termination, and provided further, that no
termination shall relieve any Party from any liability arising from or relating
to such Party's breach of this Agreement at or prior to termination.
Section 11.5 Termination Fee. If this Agreement is terminated by Seller in
accordance with Section 11.2(d), the Seller shall pay to Purchaser (not later
than five (5) Business Days after such termination) an amount equal to five
hundred thousand dollars ($500,000).
ARTICLE XII
Escrow
Concurrently with the execution hereof, Purchaser and Seller shall open an
escrow with Escrow Agent by delivery of a fully executed copy of this Agreement
to Escrow Agent. This Agreement shall constitute joint escrow instructions to
Escrow Agent. In addition, Seller and Purchaser agree to execute and be bound by
such other reasonable and customary escrow instructions as may be necessary or
reasonably required by Escrow Agent or the Parties hereto in order to consummate
the purchase and sale described, provided that such escrow instructions are
consistent with the terms hereof. The Premises shall be conveyed at the Closing
through escrow. The other Purchased Assets shall be conveyed at the Closing
outside of escrow, all in accordance with the terms and provisions of this
Agreement. Seller and Purchaser hereby designate Escrow Agent as the "Reporting
Person" for this transaction pursuant to Section 6045(e) of the Code.
ARTICLE XIII
GENERAL INDEMNIFICATION
Section 13.1 Agreement of Seller to Indemnify Purchaser. Subject to the terms
and conditions of this ARTICLE XIII, after the Closing, Seller hereby agrees to
indemnify, defend and hold harmless Purchaser, its Affiliates, and their
respective directors, officers, employees, agents and representatives from,
against, for and in respect of any and all Losses asserted against, relating to,
imposed upon or incurred by Purchaser by reason of, resulting from, based upon
or arising out of:
(a) Seller's breach of any representation or warranty of Seller contained in or
made pursuant to this Agreement, or the breach by Seller of any covenant or
agreement made in or pursuant to this Agreement;
(b) Seller's ownership or operation of the Business prior to the Closing Date,
other than Losses relating to, imposed by reason of, resulting from, based on or
arising out of the Assumed Liabilities; or
(c) the Retained Liabilities.
Section 13.2 Agreement of Purchaser to Indemnify Seller. Subject to the terms
and conditions of this ARTICLE XIII, after the Closing, Purchaser hereby agrees
to indemnify, defend and hold harmless Seller, its Affiliates, and their
respective directors, officers, employees, agents and representatives from,
against, for, and in respect of any and all Losses asserted against, relating
to, imposed upon or incurred by Seller by reason of, resulting from, based upon
or arising out of:
(a) Purchaser's breach of any representation or warranty of Purchaser contained
in or made pursuant to this Agreement, or the breach by the Purchaser of any
covenant or agreement made in or pursuant to this Agreement;
(b) Purchaser's ownership or operation of the Business on or after the Closing
Date, other than Losses relating to, imposed by reason of, resulting from, based
on or arising out of the Retained Liabilities;
(c) the exercise by Purchaser and/or its agents, employees or contractors of
Purchaser's rights under Section 8.3(a); or
(d) the Assumed Liabilities.
Section 13.3 Effect of Closing Over Known Unsatisfied Conditions or Breached
Representations, Warranties or Covenants. If either Party elects to proceed with
the Closing knowing of any failure to be satisfied of any condition in its favor
or the breach of any representation, warranty or covenant by the other Party,
the condition that is unsatisfied or the representation, warranty or covenant
which is breached at the Closing Date shall be deemed to be irrevocably waived
by such Party, and such Party shall be deemed to fully release and forever
discharge the other Party on account of any and all claims, demands or charges,
known or unknown, with respect to the same.
Section 13.4 Mitigation. The Indemnified Parties shall take all reasonable steps
to mitigate all Losses, including availing themselves of any defenses,
limitations, rights of contribution, claims against third parties and other
rights at law, and shall provide such evidence and documentation of the nature
and extent of any liability as may be reasonably requested by the Indemnitor.
Each Indemnified Party shall act in a commercially reasonable manner in
addressing any liabilities that may provide the basis for an indemnifiable claim
(that is, each Indemnified Party shall respond to such liability in the same
manner that it would respond to such liability in the absence of the
indemnification provided for in this Agreement). Any request for indemnification
of specific costs shall include invoices and supporting documents containing
reasonably detailed information about the costs and/or damages for which
indemnification is being sought.
Section 13.5 Limitations on Indemnification. Any indemnifiable claim shall be
limited to the amount of actual damages sustained by the Indemnified Parties by
reason of such breach or nonperformance, net of (i) any net Tax benefits
realized or realizable by the Indemnified Parties based on the present value
thereof by reason of such Losses, and (ii) the dollar amount of any insurance
proceeds receivable by the Indemnified Parties with respect to such Losses.
Seller shall not be required to indemnify any Person under Section 13.1 except
to the extent that the aggregate of all amounts for which indemnity would
otherwise be payable by Seller exceeds $250,000. For purposes of measuring the
Loss suffered as a result of a breach of representations and warranties in
calculating whether the threshold in the preceding sentence has been met (but
not for purposes of determining whether any representation or warranty has been
breached), any representation or warranty which contains a materiality or
similar limitation (such as a dollar threshold) shall be read as if it did not
contain such limitation. For purposes of indemnification, in no event shall an
individual breach of any representation or warranty be considered until the Loss
relating thereto exceeds $10,000. Sellers' indemnity obligations under Section
13.1 shall be limited, in the aggregate, to $10,000,000.
Section 13.6 Exclusive Remedy. Except in respect of remedies for actual fraud by
a Party, the indemnities set forth in this Agreement shall be the exclusive
remedies of the Parties with respect to each other related to the subject matter
of this Agreement, and each Party waives any other statutory, equitable or
common law remedy which such party would otherwise have for any breach of this
Agreement or with respect to any liability arising from, or related to, the
Business, the Purchased Assets or the Assumed Liabilities.
ARTICLE XIV
PROCEDURES FOR INDEMNIFICATION
Section 14.1 Procedures for Indemnification.
(a) A claim for indemnification hereunder (herein referred to as an
"Indemnification Claim") other than a Third Party Claim shall be made by
Indemnitee by delivery of a written declaration to Indemnitor requesting
indemnification and specifying the basis on which indemnification is sought and
the amount of asserted Losses.
(b) If the Indemnification Claim involves a Third Party Claim, the procedures
set forth in Section 14.2 shall be observed by Indemnitee and Indemnitor.
(c) If the Indemnification Claim involves a matter other than a Third Party
Claim, the Indemnitor shall have ninety (90) days to object to such
Indemnification Claim by delivery of a written notice of such objection to
Indemnitee specifying in reasonable detail the basis for such objection. During
such time, the Indemnified Parties shall make available to Indemnitor all facts
and records within their possession or control relating to such claim. Failure
by Indemnitor to timely so object shall constitute acceptance of the
Indemnification Claim by the Indemnitor and the Claim shall be paid in
accordance with Section 14.1(d).
(d) Upon a final determination of the amount of an Indemnification Claim,
Indemnitor shall pay the amount of such finally determined Indemnification Claim
within ten (10) days of the date such amount is determined.
Section 14.2 Defense of a Third Party Claim. If any claim is made, or suit or
proceeding (including a binding arbitration or an audit by any Taxing authority)
is instituted against an Indemnified Party by any Person other than Indemnitor
that, if prosecuted successfully, would be a matter for which such Indemnified
Party is entitled to indemnification under this Agreement (herein referred to as
a "Third Party Claim"), the obligations and liabilities of the Parties hereunder
with respect to such Third Party Claim shall be subject to the following terms
and conditions:
(a) The Indemnified Party shall give the Indemnitor written notice of any such
claim promptly after receipt by the Indemnified Party of actual notice thereof,
but any failure to do so shall not relieve the Indemnitor from any liability
which it may have except to the extent such failure would prejudice the
Indemnitor. Upon receipt of such notice, Indemnitor shall undertake the defense
thereof by representatives of its own choosing reasonably acceptable to the
Indemnified Party. If, however, the Indemnitor fails or refuses to undertake the
defense of such claim within thirty (30) days after written notice of such claim
has been given to the Indemnitor by the Indemnified Party, or at least five (5)
days before any answer or similar pleading is required, whichever is sooner, the
Indemnified Party shall have the right to undertake the defense and, subject to
Section 14.3, settlement of such claim with counsel of its own choosing. In the
circumstances described in the preceding sentence, the Indemnified Party shall,
promptly upon its determination of the amount of such Loss, make an
Indemnification Claim as specified in Section 14.1.
(b) The Indemnified Parties and the Indemnitor shall cooperate with each other
in all reasonable respects in connection with the defense of any Third Party
Claim including making available records relating to such claim and furnishing,
without expense to the Indemnitor, and providing access to management employees
of the Indemnified Party as may be reasonably necessary for the preparation of
the defense of any such claim or for testimony as witnesses in any proceeding
relating to such claim.
Section 14.3 Settlement of Third Party Claims. No settlement of a Third Party
Claim involving the asserted liability of a Party under this ARTICLE XIV shall
be made without the prior written consent by or on behalf of such Party, unless
such settlement includes a full release of such Party.
ARTICLE XV
LIMITATION OF LIABILITY
Section 15.1 Limitation of Liability. IN NO EVENT WILL EITHER PARTY OR ANY OF
THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS, CONTRACTORS, SUBCONTRACTORS,
VENDORS OR EMPLOYEES HAVE ANY LIABILITY TO THE OTHER PARTY FOR LOSSES WHICH ARE
INCIDENTAL, SPECIAL, CONSEQUENTIAL, INDIRECT OR PUNITIVE. NEITHER PARTY SHALL BE
LIABLE TO THE OTHER PARTY TO THE EXTENT THAT SUCH OTHER PARTY HAS RECEIVED
PAYMENT FOR SUCH A CLAIM FROM ANOTHER SOURCE, AND ANY PAYMENT OBLIGATION PAYABLE
BY A PARTY SHALL BE NET OF ANY TAX BENEFITS OBTAINED BY OR INSURANCE PROCEEDS
AVAILABLE TO THE OTHER PARTY.
ARTICLE XVI
DISPUTE RESOLUTION
Section 16.1 Negotiation. In the event of any dispute or disagreement between
Seller and Purchaser as to the interpretation of any provision of this Agreement
or the performance of obligations hereunder (a "Dispute"), such Dispute, upon
written request of Seller or Purchaser, shall be referred to representatives of
the Parties for decision, each Party being represented by a senior executive
officer (herein referred to as the "Negotiation Representative"). The
Negotiation Representatives shall promptly meet in a good faith effort to
resolve the Dispute.
Section 16.2 Mediation. If the Negotiation Representatives do not agree upon a
resolution within thirty (30) days after reference of the Dispute to them
(unless such period is extended by mutual agreement of the Parties), the Parties
will attempt in good faith to resolve the controversy or claim in accordance
with the Center for Public Resources Model procedure for Mediation of Business
Disputes as in effect at such time. The costs of mediation shall be shared
equally by the Parties. Any settlement reached by mediation shall be resolved in
writing, signed by the Parties and binding on the Parties. The place of any such
mediation shall be in Las Vegas, Nevada.
Section 16.3 Arbitration. If the Dispute has not been resolved pursuant to the
foregoing procedures within sixty (60) days after the first meeting with respect
to the mediation (which period may be extended by mutual agreement), the Dispute
shall be resolved, at the request of either Party, by arbitration conducted in
accordance with the provisions of the Federal Arbitration Act (9 U.S.C. Section
Section 1-16) and in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes as then in effect, by three
neutral arbitrators selected by the Parties as follows. Each Party shall select
a neutral arbitrator, subject to objection of the other Party, and the two
neutral arbitrators chosen by the Parties shall select a third neutral
arbitrator. If the two neutral arbitrators selected by the Parties are unable to
agree on the selection of the third arbitrator, they shall select an arbitrator
according to the procedures established by the Center for Public Resources Rules
for Non-Administered Arbitration of Business Disputes as then in effect. The
arbitration of such Dispute, including the determination of any amount of
damages suffered by any party hereto by reason of the acts or omissions of any
Party, shall be final and binding upon the Parties, except that the arbitrator
shall not be authorized to award punitive damages with respect to any such
Dispute. The arbitrators shall have the power to decide all questions of
arbitrability and of such arbitrators' jurisdiction. No Party shall seek any
punitive damages relating to any matters under, arising out of, in connection
with or relating to this Agreement. The Parties intend that this agreement to
arbitrate be valid, binding, enforceable and irrevocable. The substantive and
procedural Law of the State of Nevada shall apply to any such arbitration
proceedings, and the decision of the arbitrator shall be bound by such Law and
by the terms of this Agreement. The place of any such arbitration shall be Las
Vegas, Nevada. Judgment upon the award rendered by the arbitrators may be
entered by any court having jurisdiction thereof.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
Section 17.1 Notices. Any and all notices and demands by any Party hereto to any
other Party or Escrow Agent, required or desired to be given hereunder shall be
in writing and shall be validly given or made only if deposited in the United
States mail, certified or registered, postage prepaid, return receipt requested,
if made by Federal Express or other similar courier service keeping records of
deliveries and attempted deliveries or when served by telecopy or similar
facsimile transmission. Service by mail or courier shall be conclusively deemed
made on the first Business Day delivery is attempted or upon receipt, whichever
is sooner. Facsimile transmissions received during business hours during a
Business Day shall be deemed made on such Business Day. Facsimile transmissions
received at any other time shall be deemed received on the next Business Day.
The Parties and Escrow Agent may change their address for the purpose of
receiving notices or demands as herein provided by a written notice given in the
manner aforesaid to the others, which notice of change of address shall not
become effective, however, until the actual receipt thereof by the others.
(a) Any notice or demand to Seller shall be addressed to Seller at:
Four Queens, Inc.
202 East Fremont
Las Vegas, Nevada 89101
Attention: Phil Madow
President
Facsimile: 702-387-5120
Four Queens, Inc.
202 East Fremont
Las Vegas, Nevada 89101
Attention: Gina Contner
Assistant Secretary
Facsimile: 702-387-5120
With a copy to:
O'Melveny & Myers LLP
400 South Hope Street, 15th Floor
Los Angeles, California 90071
Attention: C. James Levin, Esq.
Facsimile: 213-430-6407
(b) Any notice or demand to Purchaser shall be addressed to Purchaser at:
SummerGate, Inc.
2550 S. Rainbow Blvd., Suite 200
Las Vegas, Nevada 89146
Attention: Terry L. Caudill
Facsimile: 702-247-6477
With a copy to:
Lionel Sawyer & Collins
300 South Fourth Street
Suite 1700
Las Vegas, Nevada 89101
Attention: Jeffrey P. Zucker
Facsimile: 702-383-8845
(c) Any notice or demand to Escrow Agent shall be addressed to Escrow Agent
at:
Nevada Title Company
3320 West Sahara Ave., Suite 200
Las Vegas, Nevada 89102
Attention: Troy Lochhead
Facsimile: 702-966-5848
Section 17.2 Construction and Governing Law. The internal laws of the State of
Nevada applicable to contracts made and wholly performed therein shall govern
the validity, construction, performance and effect of this Agreement.
Section 17.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
Section 17.4 Integrated Agreement. This Agreement and the other agreements
described herein supersede all prior and contemporaneous agreements, oral and
written, between the Parties hereto with respect to the subject matter hereof.
Section 17.5 No Oral Modification. Neither this Agreement, nor any provision
hereof, may be changed, waived, discharged, supplemented or terminated orally,
but only by an agreement in writing signed by the Party against which the
enforcement of such change, waiver, discharge or termination is sought.
Section 17.6 Successors and Assigns; No Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and assigns. Except as specifically provided in
this Section 17.6, this Agreement is not intended to, and shall not, create any
rights in any Person whomsoever except Purchaser and Seller.
Section 17.7 Assignment. Neither Party shall assign its rights or delegate its
duties under this Agreement without the prior written consent of the other Party
hereto. Notwithstanding the foregoing, Purchaser shall have the right, without
the consent of Seller, to assign its rights and delegate its duties under this
Agreement to an Affiliate of Seller; provided, however, that such assignment
shall not relieve Purchaser or TLC-4Q, Inc. of their obligations and liabilities
hereunder. Purchaser shall not sell or otherwise transfer any material asset
that constitutes a portion of the Purchased Assets to any Affiliate of Purchaser
unless, at the time of such transfer, such Affiliate executes a guarantee of
Purchaser's obligations hereunder in form reasonably satisfactory to Seller.
Section 17.8 Partial Invalidity. If any term, provision, covenant or condition
of this Agreement, or any application thereof, should be held by a court of
competent jurisdiction to be invalid, void or unenforceable, all terms,
provisions, covenants and conditions of this Agreement, and all applications
thereof, not held invalid, void or unenforceable shall continue in full force
and effect and shall in no way be affected, impaired or invalidated thereby,
provided that the invalidity, voidness or unenforceablity of such term,
provision, covenant or condition (after giving effect to the next sentence in
this Section 17.8) does not materially impair the ability of the parties to
consummate the transactions contemplated hereby. In lieu of such invalid, void
or unenforceable term, provision, covenant or condition, there shall be added to
this Agreement a term, provision, covenant or condition that is valid, not void
and enforceable and is as similar to such invalid, void or unenforceable term,
provision, covenant or condition as may be possible.
Section 17.9 No Presumption Against the Draftsman. Each Party having been
represented in the negotiation of this Agreement, and having had ample
opportunity to review the language hereof, there shall be no presumption against
any Party on the ground that such Party was responsible for preparing this
Agreement, any of Seller's Closing Deliverables or any of Purchaser's Closing
Deliverables.
Section 17.10 Expenses. Subject to the provisions of ARTICLE XIV, all expenses
incurred by the Parties hereto in connection with or related to the
authorization, preparation and execution of this Agreement and the Closing of
the transaction contemplated hereby, including fees and expenses of agents,
representatives, counsel and accountants employed by any such Party, shall be
borne solely and entirely by the Party which has incurred the same.
Section 17.11 Guarantee. TLC-4Q, Inc. hereby agrees to cause Purchaser to
fulfill, and additionally guarantees, the timely payment and performance of all
of the obligations of Purchaser under this Agreement.
[THIS SPACE LEFT BLANK INTENTIONALLY.
SIGNATURE PAGES FOLLOW.]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
SUMMERGATE, INC.,
a Nevada corporation
By: /s/ Terry Caudill
Its: President
TLC-4Q, Inc.
a Nevada corporation
By: /s/ Terry Caudill
Its: President
FOUR QUEENS, INC.,
a Nevada corporation
By: /s/ Philip W. Madow
Its: President
The undersigned hereby executes the above Agreement for the sole purpose of
acknowledging its covenants and obligations pursuant to Section 8.2(b).
ELSINORE CORPORATION,
a Nevada corporation
By: /s/ Philip W. Madow
Its: President
The undersigned UTP Escrow Agent acknowledges receipt of the Unconditional
Termination Payment in the amount of Fifty Thousand Dollars ($50,000) and agrees
to perform its obligations as UTP Escrow Agent pursuant to the above Agreement.
MCDONALD, CARANO WILSON
MCCUNE BERGIN FRANKOVICH &
HICKS, LLP,
a Nevada limited liability partnership
By: /s/ Andrew S. Gabriel
Its: Partner
The undersigned Escrow Agent agrees to perform its obligation as Escrow
Agent pursuant to the above Agreement.
NEVADA TITLE COMPANY,
a Nevada corporation
By: /s/ Troy Lochhead
Its: Commercial Escrow Officer
APPENDIX A
to
ASSET PURCHASE AGREEMENT
by and between
FOUR QUEENS, INC., as "Seller"
and
SUMMERGATE, INC., as "Purchaser"
Glossary of Defined Terms
"Accrued Interest" has the meaning ascribed to such term in Section 4.1(e).
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with, such Person. For purposes of this
definition, "control" means the direct or indirect ownership of more than fifty
percent (50%) of the outstanding capital stock or other equity interests having
ordinary voting power.
"Agreement" means this Asset Purchase Agreement, together with all
Schedules, Exhibits, Appendices and other attachments hereto, and all amendments
and supplements hereto and thereto.
"Assignment and Assumption Agreement(s)" means that certain Assignment and
Assumption Agreement(s), the form of which is attached hereto as Exhibit B, to
be executed by Seller and Purchaser and delivered at the Closing on the Closing
Date providing for, among other matters, the assignment by Seller, and the
assumption by Purchaser, of the Transferred Permits and the Assumed Contracts.
"Assumed Contract(s)" has the meaning ascribed to such term in Section
2.1(b).
"Assumed Liabilities" has the meaning ascribed to such term in Section 3.1.
"Assumed Plans" has the meaning ascribed to such term in Section 8.7(a).
"Benefit Plans" has the meaning ascribed to such term in Section 7.1(t)(i).
"Bill(s) of Sale" means that certain Bill(s) of Sale, the form of which is
attached hereto as Exhibit D, to be executed by Seller and delivered at the
Closing on the Closing Date providing for the sale, assignment, transfer and
conveyance of the Purchased Assets from Seller to Purchaser.
"Business" has the meaning ascribed to such term in Section 2.1(d).
"Business Day" means any day other than a Saturday, Sunday or other day
upon which banks in the State of Nevada are authorized or required to be closed.
"Cash" has the meaning ascribed to such term in Section 2.1(g).
"Cash Portion" has the meaning ascribed to such term in Section 4.2.
"Closing" means the proceedings pursuant to which the sale of the Purchased
Assets is consummated.
"Closing Date" has the meaning ascribed to such term in Section 6.1.
"COBRA" has the meaning ascribed to such term in Section 8.6(e).
"Code" means the Internal Revenue Code of 1986, as amended, and as the same
may be further amended from time to time, or any successor law, and the rules
and regulations promulgated thereunder. Any reference to any specific provision
of the Code also shall be deemed to refer to any successor provision thereto.
"Collective Bargaining Agreement" means any collective bargaining agreement
with respect to the Business.
"Computer Software" has the meaning ascribed to such term in Section
2.1(j).
"Contract" means any binding contract, agreement, arrangement, guaranty,
letter of credit, bond, indemnity obligations, commitment, franchise, indenture,
instrument, lease or license.
"Controlled Group" means Seller and the other organizations of a controlled
group of organizations (within the meaning of Sections 414(b), (c), (m) or (o)
of the Code) of which Seller is a member.
"Controlled Group Plans" means the Benefit Plans adopted by the Controlled
Group that are applicable to the employees of the Business.
"Customer Front Money" has the meaning ascribed to such term in Section
6.4(g).
"Deposit" has the meaning ascribed to such term in Section 4.1(b).
"Disapproved Exceptions" has the meaning ascribed to such term in Section
5.1(a).
"Disclosure Schedule" means the Disclosure Schedule to this Agreement which
sets forth certain information called for by this Agreement and certain
exceptions to the representations and warranties made by the Seller in this
Agreement.
"Dispute" has the meaning ascribed to such term in Section 16.1.
"Elsinore" has the meaning ascribed to such term in Section 8.2(b).
"Employee Pension Benefit Plans" has the meaning ascribed to such term in
Section 7.1(t)(ii).
"Environmental Law(s)" means any federal, state or local law, statute,
ordinance, rule or regulation or order pertaining to health or the protection of
the environment, including, but not limited to: RCRA; the Clean Air Act, as now
or hereafter amended (42 U.S.C. Section 7401 et. seq.); the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as now or
hereafter amended (42 U.S.C. Section 9601 et. seq.); the Emergency Planning and
Community Right-to-Know Act of 1986, as now or hereafter amended (42 U.S.C.
Section 11001 et. seq.); the Federal Hazardous Substances Act, as now or
hereafter amended (15 U.S.C. Section 1261 et. seq.); the Federal Insecticide,
Fungicide, and Rodenticide Act, as now or hereafter amended (7 U.S.C. Section
136 et. seq.); the Federal Water Pollution Control Act, as now or hereafter
amended (33 U.S.C. Section 1251 et. seq.); the Hazardous Materials
Transportation Act, as now or hereafter amended (49 U.S.C. Section 1801 et.
seq.); the Occupational Safety and Health Act of 1970, as now or hereafter
amended (29 U.S.C. Section 651 et. seq.); (the Toxic Substances Control Act, as
now or hereafter amended (15 U.S.C. Section 2601 et. seq.); Nev. Rev. Stat. chs.
444, 445A, 445B, 459, 477, 590 and 618, each as now or hereafter amended; the
Uniform Fire Code, as now or hereafter adopted in Nevada; and the regulations,
rules and orders promulgated under each of them.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"Escrow Agent" has the meaning ascribed to such term in Section 4.1(b).
"Estimated Liability Adjustment" has the meaning ascribed to such term in
Section 4.4(a).
"Estimated Liability Difference" has the meaning ascribed to such term in
Section 4.4(a).
"Excluded Assets" has the meaning ascribed to such term in Section 2.1.
"Excluded Matters" has the meaning ascribed to such term in Section 7.4(a).
"Fee Land" has the meaning ascribed to such term in the recitals.
"Fee Land Deed" means that certain grant, bargain and sale deed conveying
the Fee Land to Purchaser, the form of which is attached hereto as Exhibit E, to
be executed by Seller in favor of Purchaser and delivered at the Closing on the
Closing Date.
"Final Liability Statement" means the determination of the Liability
Adjustment that is final and binding on the Parties, either through agreement of
the Parties or through the action of the Independent Accounting Firm in the
manner set forth in Section 4.4(d).
"Financing" has the meaning ascribed to such term in Section 7.2(f).
"First Personal Property Inventory" has the meaning ascribed to such term in
Section 7.1(f)(i).
"Four Queens Trademark" has the meaning ascribed to such term in Section
7.1(p)(ii).
"GAAP" means generally accepted accounting principles in the United States
of America, which shall include official interpretations thereof by the
Financial Accounting Standards Board and its successors, consistently applied.
"Governmental Authority" means the federal government of the United States,
the government of any state of the United States or any political subdivision
thereof, and any Person exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government and any other
governmental entity, instrumentality, agency, authority or commission.
"Ground Lease" has the meaning ascribed to such term in Section 2.1(b).
"Hazardous Substances" means one or more of the chemicals, substances,
materials, mixtures, compounds, hydrocarbons, pollutants and wastes classified
or regulated under the Environmental Laws.
"Hotel" has the meaning ascribed to such term in the recitals.
"Indemnification Claim" has the meaning ascribed to such term in Section
14.1(a).
"Indemnified Party(ies)" means an Indemnitee, its Affiliates, and their
respective directors, officers, employees, agents and representatives.
"Indemnitee" means the Party seeking indemnification under ARTICLE XIII of
the Agreement.
"Indemnitor" means the Party against whom indemnity is sought under ARTICLE
XIII of the Agreement.
"Independent Accounting Firm" means (i) an independent certified public
accounting firm in the United States of national recognition mutually acceptable
to Seller and Purchaser or (ii) if Seller and Purchaser are unable to agree upon
such a firm within five (5) days, then each Party shall select one such firm and
those two firms shall select a third firm, in which case "Independent Accounting
Firm" shall mean such third firm.
"Information Statement" has the meaning ascribed to such term in Section
8.9.
"Initial Deposit" has the meaning ascribed to such term in Section 4.1(b).
"Initial Liability Statement" has the meaning ascribed to such term in
Section 4.4(b).
"Intellectual Property Rights" has the meaning ascribed to such term in
Section 2.1(e).
"Inventoried Vehicles" has the meaning ascribed to such term in Section
6.4(f).
"Inventory" means all inventories maintained in connection with the
Business, including, but not limited to, liquor, food and beverage, linen,
uniforms, utensils, chinaware, glassware, silverware and office supplies.
"Land" has the meaning ascribed to such term in the recitals hereto.
"Law(s)" means any law, statute, act, decree, ordinance, rule, writ,
injunction, directive (to the extent having the force of law), order (unilateral
or consensual), final nonappealable judgment directly applicable to the relevant
Party, treaty, code or regulation (including any of the foregoing relating to
health or safety matters), any Environmental Law or any interpretation of any of
the foregoing, as enacted, issued or promulgated by any Governmental Authority,
including all amendments, modifications, extensions, replacements or
reenactments thereof or thereto.
"Lease Assignment and Assumption Agreement(s)" means those certain Lease
Assignment and Assumption Agreement(s), the form of which is attached hereto as
Exhibit C, to be executed by Seller and Purchaser and delivered at the Closing
on the Closing Date providing for, among other matters, the assignment by
Seller, and the assumption by Purchaser, of the Ground Leases.
"Leased Land" has the meaning ascribed to such term in the recitals hereto.
"Liability Adjustment" means, as of the Closing, an amount equal to the
liabilities of the type historically accounted for in the categories listed in
Section 3.1(a)(ii) of the Disclosure Schedule, calculated in the same manner and
using the same policies and methods as the corresponding line items on any
applicable prior date on which such values were calculated and set forth herein.
"Liability Difference" means the amount, if any, by which (x) the Minimum
Asset Amount exceeds (y) the value as of the Closing of (i) the assets of the
type historically accounted for in the categories listed in Section 2.1(l) of
the Disclosure Schedule (other than the asset described as "Deposit - Garage")
minus (ii) the liabilities of the type historically accounted for in the
categories listed in Section 3.1(a)(i) of the Disclosure Schedule. In each case,
the values of the assets and liabilities shall be calculated in the same manner
and using the same policies and methods as the corresponding line items on any
applicable prior date on which such values were calculated and set forth herein.
"Loss(es)" means any and all assessments, judgments, damages (including
natural resource damage), penalties, interest, fines, investigations,
liabilities (including strict liability), reasonable costs and expenses of
investigation and defense of any claim.
"Minimum Asset Amount" means the value (whether a positive or negative
number) as of December 31, 2001 of (i) the assets of the type historically
accounted for in the categories listed in Section 2.1(l) of the Disclosure
Schedule (other than the asset described as "Deposit - Garage") minus (ii) the
liabilities of the type historically accounted for in the categories listed in
Section 3.1(a)(i) of the Disclosure Schedule minus (iii) $250,000. In each case,
the values of the assets and liabilities shall be calculated in the same manner
and using the same policies and methods as the corresponding line items on any
applicable prior date on which such values were calculated and set forth herein.
"Multi-Employer Plan" means a "multi-employer plan" as defined in Section
4001(a)(3) of ERISA.
"Negotiation Representative" has the meaning ascribed to such term in
Section 16.1.
"Nevada Gaming Authorities" has the meaning ascribed to such term in
Section 3.2(b).
"Nonrepresented Employee" means any employee of Seller employed in the
Business who is not a Represented Employee.
"No Solicitation Period" has the meaning ascribed to such term in Section
8.2(a).
"Notice of Disagreement" has the meaning ascribed to such term in Section
4.4(c).
"Outside Date" means May 7, 2002.
"Party(ies)" has the meaning ascribed to such term in the preamble hereto.
"Patent Assignment Agreement" means that certain Patent Assignment
Agreement, the form of which is attached hereto as Exhibit G, to be executed by
Seller in favor of Purchaser and delivered at the Closing on the Closing Date.
"Payables" has the meaning ascribed to such term in Section 3.1(a).
"PBGC" has the meaning ascribed to such term in Section 7.1(t)(iii).
"Permitted Exception" has the meaning ascribed to such term in Section
5.1(a).
"Person" means any individual natural person or any artificial person
including any corporation, general or limited partnership, joint venture,
association, unincorporated organization, trust, business trust, limited
liability company or partnership, Governmental Authority or other entity.
"Personal Property" has the meaning ascribed to such term in Section
2.1(d).
"Premises" has the meaning ascribed to such term in Section 2.1(c).
"Purchaser" means SummerGate, Inc., a Nevada corporation.
"Purchased Assets" has the meaning ascribed to such term in Section 2.1.
"Purchase Offer" has the meaning ascribed to such term in Section 8.2(a).
"Purchase Price" has the meaning ascribed to such term in Section 4.2.
"Purchase Price Notice" has the meaning ascribed to such term in Section
4.4(a).
"Purchaser's Closing Deliverables" has the meaning ascribed to such term in
Section 6.3.
"Purchaser's Conditions Precedent" has the meaning ascribed to such term in
ARTICLE IX.
"Required Consents" has the meaning ascribed to such term in Section 9.8.
"Retained Liabilities" has the meaning ascribed to such term in Section
3.2.
"RCRA" means the Resource Conservation and Recovery Act of 1976, as now or
hereafter amended, 42 U.S.C. Section 6901 et. seq., and the rules, regulations
and orders promulgated thereunder.
"Represented Employee" means any employee of Seller who is represented by a
union and employed in the Business.
"Second Personal Property Inventory" has the meaning ascribed to such term
in Section 8.22.
"Seller" means Four Queens, Inc., a Nevada corporation.
"Seller Benefit Plans" has the meaning ascribed to such term in Section
7.1(t)(iii).
"Seller's Closing Deliverables" has the meaning ascribed to such term in
Section 6.2.
"Seller's Conditions Precedent" has the meaning ascribed to such term in
ARTICLE X.
"Shrink-Wrap License" means any non-assignable, non-exclusive,
non-negotiable object code license for standard, general purpose, off-the-shelf
software products generally available to the public.
"Stock Purchase Offer" has the meaning ascribed to such term in Section
8.2(b).
"Summergate A" has the meaning ascribed to such term in Section 7.2(g).
"Summergate B" has the meaning ascribed to such term in Section 7.2(g).
"Superior Proposal" has the meaning ascribed to such term in Section
8.2(c).
"Tax(es)" means any tax, charge, impost, tariff, duty or fee of any kind
charged, imposed or levied, directly or indirectly, by any Governmental
Authority including any value-added tax, sales tax, stamp duty, import duty,
withholding tax (whether on income, dividends, interest payments, fees,
equipment rentals or otherwise), tax on foreign currency loans or foreign
exchange transactions, excise tax, franchise tax, transfer tax, property tax,
unemployment tax or social security tax including any interest, penalties or
other additions thereon.
"Third Party Claim" has the meaning ascribed to such term in Section 14.2.
"TLC" means TLC Enterprises, a Nevada corporation.
"Trademark Assignment Agreements" means those certain Trademark Assignment
Agreements, the form of which is attached hereto as Exhibit F, to be executed by
each of Seller and Elsinore in favor of Purchaser and delivered at the Closing
on the Closing Date.
"Transferred Employees" has the meaning ascribed to such term in Section
8.6(a).
"Transferred Permit(s)" has the meaning ascribed to such term in Section
2.1(k).
"Unassumed Plans" has the meaning ascribed to such term in Section 8.7(d).
"Unconditional Termination Payment" means the deposit of Fifty Thousand
Dollars ($50,000) made by Purchaser to the UTP Escrow Agent.
"Unresolved Exceptions" has the meaning ascribed to such term in Section
5.1(b).
"UTP Escrow Agent" means McDonald Carano Wilson McCune Bergin Frankovich &
Hicks, LLP.
"VEBA" means a voluntary employee's beneficiary association providing for
the payment of life, sickness, accident or other benefits to employees or their
dependents.
"WARN Act" means the Worker Adjustment and Retraining Notification Act, 29
U.S.C. Section 2101, et. seq. and as the same may be amended from time to time,
or any successor law, and the rules and regulations promulgated thereunder.
"Warranties" has the meaning ascribed to such term in Section 2.1(h).
"Welfare Plan" has the meaning ascribed to such term in Section 7.1(t)(x).
"Withdrawal Liability" has the meaning ascribed to such term in Section
8.5.
EXHIBIT 10.67
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Executive Agreement") is made and entered
into as of the 1st day of January, 2002 by and between Four Queens, Inc., a
Nevada corporation and wholly-owned subsidiary of Elsinore Corporation
("Elsinore"), with its principal offices located at 202 Fremont Street, Las
Vegas, Nevada 89101 (hereinafter referred to as the "COMPANY"), and Philip W.
Madow (hereinafter referred to as "EXECUTIVE").
WHEREAS, EXECUTIVE possesses considerable knowledge and expertise relating to
the management of gaming properties and hotels and casinos; and
WHEREAS, the COMPANY desires to avail itself of such knowledge and expertise by
employing EXECUTIVE, and EXECUTIVE desires to accept such employment with the
COMPANY, under the terms and conditions hereinafter stated in this Executive
Agreement;
NOW, THEREFORE, in consideration of EXECUTIVE'S employment with the COMPANY, the
mutual covenants and obligations hereinafter set forth, and for other good and
valuable consideration, the receipt and value of which is hereby acknowledged,
the parties agree as follows:
SECTION 1. Term of Executive Agreement
EXECUTIVE'S employment with the COMPANY under this Executive Agreement commenced
on January 1, 2002 and shall continue until the close of business on December
31, 2002, unless terminated earlier as provided herein. The Term of this
Executive Agreement may be renewed annually by the COMPANY's sole shareholder,
Elsinore's Board of Directors. "Term" is defined to mean the current term of the
Executive Agreement or any subsequent term approved by Elsinore's Board of
Directors.
SECTION 2. Duties of Employee
2.1 Throughout the term of this Executive Agreement, EXECUTIVE shall be employed
as President and General Manager for the Four Queens Hotel & Casino. EXECUTIVE
agrees to devote his full time efforts to his position with the COMPANY.
2.2 EXECUTIVE agrees to observe and comply with the rules and regulations as
adopted by the COMPANY, either orally or in writing, regarding performance of
his duties. The COMPANY shall have the power to direct, control and supervise
the manner of and the time in which EXECUTIVE shall perform his duties for the
COMPANY.
2.3 EXECUTIVE agrees that he will, at all times faithfully and industriously and
to the best of his ability, experience and talents, perform all of the duties
that may be required under this Executive Agreement. Such duties shall be
rendered primarily at the office of the COMPANY in Las Vegas, Nevada; although
EXECUTIVE may be required to travel at the sole expense of the COMPANY to such
places as may be required to conduct business on behalf of the COMPANY. However,
such travel must be at reasonable times, and shall be required in such a way as
not to impose a burden upon EXECUTIVE.
SECTION 3. Compensation
3.1 Base Salary:
During the term of this Executive Agreement, EXECUTIVE shall receive from the
COMPANY an annual base salary of Two Hundred Ten Thousand Dollars ($210,000.00)
("Base Salary"), less legally required deductions, payable in biweekly
installments, or at any other intervals mutually agreed upon in writing by the
parties. Such Base Salary shall be reviewed no less than annually for increase
at the discretion of the COMPANY.
3.2. Other Compensation:
EXECUTIVE may receive, in addition to his base salary, other compensation
pursuant to incentive and/or bonus programs which the COMPANY may, in its sole
discretion, establish from time to time.
3.3. Other Benefits.
EXECUTIVE shall be permitted during the Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program (collectively "Health Benefits"), deferred compensation plan, or
pension plan or similar benefit plan of the COMPANY, which may be available
generally to other senior executives and managers of the COMPANY.
3.4 Business and Travel Expenses:
Subject to such policies applicable to senior executives generally, as may from
time to time be established by the Board of Directors, the COMPANY shall pay or
reimburse the EXECUTIVE for all reasonable expenses actually incurred or paid by
the EXECUTIVE during the Term in the performance of EXECUTIVE'S services under
the Agreement, upon presentation of expense statements or vouchers or such other
supporting information as it may require.
3.5 Vacation:
The EXECUTIVE shall be entitled to four weeks of vacation per each twelve-month
period following the EXECUTIVE'S anniversary date. The EXECUTIVE will accrue at
a rate of 1 2/3 day per month. The EXECUTIVE may carry forward up to one week of
unused vacation accrued in the twelve-month period to the next twelve-month
period, unless otherwise approved in writing by the COMPANY's Board of
Directors.
SECTION 4: Illness or Disability of Employee
If during the Term, the EXECUTIVE becomes physically or mentally disabled,
whether totally or partially, so that the EXECUTIVE is unable to substantially
perform his services thereunder for (a) a period of three consecutive months or
(b) for shorter periods aggregating 100 days during any twelve month period the
COMPANY may at any time after the last day of the three consecutive months of
disability or the day on which the shorter periods of disability equal an
aggregate of 100 days, by written notice to the EXECUTIVE, terminate the Term of
the EXECUTIVE'S employment thereunder.
SECTION 5: Termination of Executive Agreement
This Executive Agreement may be terminated before the expiration date set forth
in Section 1 of this Executive Agreement as follows:
5.1 Termination Without Cause:
a) EXECUTIVE may terminate this Executive Agreement at any time without cause
by giving the COMPANY two weeks written notice of such termination. Upon
such termination, the COMPANY shall have no further obligations to the
EXECUTIVE; provided however, that if the EXECUTIVE provides two weeks
written notice, the EXECUTIVE shall be entitled to payment for any earned
and accrued but unused vacation.
b) The COMPANY may terminate this Executive Agreement at any time without
cause by giving the EXECUTIVE written notice. If the COMPANY terminates the
EXECUTIVE'S employment without cause, COMPANY shall pay EXECUTIVE one (1)
year salary, less standard withholdings and deductions, payable in biweekly
installments. COMPANY shall also pay for EXECUTIVE's COBRA benefits for a
period of one (1) year. The EXECUTIVE shall receive payment for any earned
and accrued but unused vacation up through the date of notice of
termination.
5.2 Termination For Cause:
The COMPANY may, at any time, immediately terminate this Executive Agreement and
all of its obligations hereunder for cause by giving EXECUTIVE written notice of
the termination. The term "for cause" shall mean any one or more of the
following: (i) EXECUTIVE'S material breach of this Executive Agreement; (ii)
EXECUTIVE'S negligent or willful misperformance of his duties; (iii) EXECUTIVE'S
conviction of a felony or any other crime involving moral turpitude or
dishonesty which, in the good faith opinion of the COMPANY would impair
EXECUTIVE'S ability to perform his duties or harm the COMPANY'S business
reputation; (iv) EXECUTIVE'S failure or refusal to comply with the COMPANY
policies, standards or regulations; (v) EXECUTIVE'S unauthorized disclosure of
the COMPANY'S or Elsinore's trade secrets and/or other confidential business
information. The COMPANY, in its sole discretion, shall decide whether the "for
cause" definition has been satisfied.
5.3 Termination by Non-Renewal of Executive Agreement
In the event this Executive Agreement expires at the end of the Term without
renewal by Elsinore's Board of Directors and EXECUTIVE was not terminated until
after the beginning of the next calendar year, EXECUTIVE shall be entitled to
the Base Salary, less standard withholdings and deductions, payable in biweekly
installments, for the remainder of said calendar year. COMPANY shall pay for
EXECUTIVE's COBRA benefits for that same period. The EXECUTIVE shall receive
payment for any earned and accrued but unused vacation up through the expiration
of the Term.
5.4 Termination Upon Disability
If this Executive Agreement is terminated as a result of EXECUTIVE's disability,
as determined under Section 4, COMPANY will pay EXECUTIVE his Base Salary
through the remainder of the Term.
5.5 Termination by Change of Ownership or Control
In the event of a change in ownership or control of COMPANY as hereinafter
defined. EXECUTIVE shall have two options: (1) elect to be employed with the
entity or person having acquired such control; or (2) terminate this Executive
Employment Agreement. In the event EXECUTIVE accepts the second option,
EXECUTIVE shall be entitled to one (1) year's Base Salary, less standard
withholdings and deductions, payable in biweekly installments. COMPANY shall
also pay for EXECUTIVE'S COBRA benefits for a period of one (1) year. EXECUTIVE
must exercise either of the two foregoing options by the time the change in
control or ownership becomes effective.
For purposes of this Agreement, a "Change of Ownership or Control" shall mean
the following: all or substantially all of the assets of the COMPANY are
directly or through transfer of equity interests transferred or otherwise
disposed of in one or a series of related transactions after which (1) the
COMPANY ceases to own directly or indirectly substantially all equity interests
of in Four Queens Hotel and Casino; or (2) Elsinore ceases to own directly or
indirectly at least fifty-one percent (51%) of all outstanding shares of
COMPANY. For purposes of the Executive Agreement, the parties understand and
agree that any transfer of ownership between or among funds managed by Morgens,
Waterfall, Vintiadis & the COMPANY, Inc. shall not constitute a "Change of
Ownership or Control."
5.6 Termination by Death:
If the EXECUTIVE dies during the Term, this Agreement shall terminate and the
COMPANY shall have no further obligations under this Agreement.
SECTION 6. Records Of The COMPANY
EXECUTIVE acknowledges and agrees that all books, records, reports, accounts,
documents or other information of any kind relating in any manner to the
COMPANY'S business or to any clients, customers, suppliers, distributors or
third parties doing business with the COMPANY, whether prepared or paid for by
EXECUTIVE or otherwise, coming into EXECUTIVE'S possession, shall be the
exclusive property of the COMPANY and shall be returned immediately to the
COMPANY upon termination of employment for any reason, or at the COMPANY'S
request at any time.
SECTION 7. Notice
Any notices hereunder shall be in writing and shall be effective upon personal
delivery or five (5) days after deposit in the U.S. mail, registered or
certified, return receipt requested, postage prepaid, addressed to the parties
at the following addresses or to such other address(es) as the party to receive
such notice shall designate in writing:
If to EXECUTIVE: PHILIP W. MADOW
Last known address on file with COMPANY
If to the COMPANY: ELSINORE CORPORATION
Attn: Chairman of the Board
202 Fremont Street
Las Vegas, NV 89101
SECTION 8. Governing Law
This Executive Agreement shall be governed by, interpreted under, and construed
and enforced in accordance with the laws of the State of Nevada, without regard
to its principles of conflicts of laws. The exclusive forum for adjudication of
any matter pertaining to this Executive Agreement shall be the federal and state
courts located in Clark County, Nevada.
SECTION 9. Severability
If any clause or provision of this Executive Agreement is adjudged invalid or
unenforceable by any court of competent jurisdiction or by operation of any
applicable law, it shall not affect the validity of any other clause or
provision, which shall remain in full force and effect. If a court of competent
jurisdiction finds that any Sections of this Executive Agreement or any portions
thereof are invalid or unenforceable, the court may modify the Sections, or any
portion thereof, to make them enforceable.
SECTION 10. Assignment
The parties agree that in the event of a change of ownership or control, the
COMPANY may assign this Executive Agreement to the person or entity acquiring
ownership or control should EXECUTIVE elect the first option under section 5.5.
EXECUTIVE acknowledges and agrees that the duties and obligations of EXECUTIVE
under this Executive Agreement are personal and are not assignable or delegable
by the EXECUTIVE.
SECTION 11. Attorneys' Fees
In the event any lawsuit is commenced in relation to this Executive Agreement,
each party to the action shall pay its own attorneys' fees and costs of suit.
SECTION 12. Confidentiality
The existence of this Executive Agreement and its terms are confidential and
shall not be disclosed by EXECUTIVE or the COMPANY, except as may be required
pursuant to a Change in Ownership or Control, by law or to enforce the
provisions hereof.
SECTION 13. Waiver
No course of dealing or delay between the parties shall operate as a waiver of
the rights of any party to this Executive Agreement. No default, covenant, or
condition of this Executive Agreement may be waived other than in writing.
SECTION 14. Captions and Headings
The Captions and Headings in this Executive Agreement are inserted only as a
matter of convenience and for reference, and in no way define, limit or describe
the scope of this Executive Agreement or the intent of any provision herein.
SECTION 15. Miscellaneous
All references to payment or sums of money in this Executive Agreement shall
mean United States currency only.
SECTION 16. Entire Executive Agreement
The parties acknowledge and agree that this Executive Agreement constitutes the
entire understanding and agreement of the parties concerning the subject matter
hereof, and supersedes all prior Executive Agreements, both oral and written. It
is also understood and agreed by both parties that the terms and provisions of
this Executive Agreement are contractual and not merely recital. Both EXECUTIVE
and the COMPANY further understand and agree that unless reduced to a writing
and signed by both parties, no amendments, revisions, modifications or
extensions to this Executive Agreement will be binding and/or enforceable upon
either party.
SECTION 17. Warranty
The Officer of the COMPANY signing this Executive Agreement warrants that he/he
is authorized and has the power and authority to sign this Executive Agreement
on behalf of the COMPANY.
DATED this 28th day of December, 2001.
ELSINORE CORPORATION EXECUTIVE EMPLOYEE:
Philip W. Madow
By: /s/S. Barton Jacka /s/Philip W. Madow
S. Barton Jacka Philip W. Madow
Its: Secretary/Treasurer
EXHIBIT 10.68
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Executive Agreement") is made and entered
into as of the 1st day of January, 2002 by and between Four Queens, Inc., a
Nevada corporation and wholly-owned subsidiary of Elsinore Corporation
("Elsinore"), with its principal offices located at 202 Fremont Street, Las
Vegas, Nevada 89101 (hereinafter referred to as the "COMPANY"), and Gina L.
Contner (hereinafter referred to as "EXECUTIVE").
WHEREAS, EXECUTIVE possesses considerable knowledge and expertise relating to
the management of gaming properties and hotels and casinos; and
WHEREAS, the COMPANY desires to avail itself of such knowledge and expertise by
employing EXECUTIVE, and EXECUTIVE desires to accept such employment with the
COMPANY, under the terms and conditions hereinafter stated in this Executive
Agreement;
NOW, THEREFORE, in consideration of EXECUTIVE'S employment with the COMPANY, the
mutual covenants and obligations hereinafter set forth, and for other good and
valuable consideration, the receipt and value of which is hereby acknowledged,
the parties agree as follows:
SECTION 1. Term of Executive Agreement
EXECUTIVE'S employment with the COMPANY under this Executive Agreement commenced
on January 1, 2002 and shall continue until the close of business on December
31, 2002, unless terminated earlier as provided herein. The Term of this
Executive Employment Agreement may be renewed annually by the COMPANY's sole
shareholder, Elsinore and its Board of Directors. "Term" is defined to mean the
current term of the Executive Agreement or any subsequent term approved by
Elsinore's Board of Directors.
SECTION 2. Duties of Employee
2.1 Throughout the term of this Executive Agreement, EXECUTIVE shall be employed
as Executive Director of Finance for the Four Queens Hotel & Casino. EXECUTIVE
agrees to devote her full time efforts to her position with the COMPANY.
2.2 EXECUTIVE agrees to observe and comply with the rules and regulations as
adopted by the COMPANY, either orally or in writing, regarding performance of
her duties. The COMPANY shall have the power to direct, control and supervise
the manner of and the time in which EXECUTIVE shall perform her duties for the
COMPANY.
2.3 EXECUTIVE agrees that she will, at all times faithfully and industriously
and to the best of her ability, experience and talents, perform all of the
duties that may be required under this Executive Agreement. Such duties shall be
rendered primarily at the office of the COMPANY in Las Vegas, Nevada; although
EXECUTIVE may be required to travel at the sole expense of the COMPANY to such
places as may be required to conduct business on behalf of the COMPANY. However,
such travel must be at reasonable times, and shall be required in such a way as
not to impose a burden upon EXECUTIVE.
SECTION 3. Compensation
3.1 Base Salary:
During the term of this Executive Agreement, EXECUTIVE shall receive from the
COMPANY an annual base salary of One Hundred Twenty Thousand Dollars,
($120,000.00) ("Base Salary"), less legally required deductions, payable in
biweekly installments, or at any other intervals mutually agreed upon in writing
by the parties. Such Base Salary shall be reviewed no less than annually for
increase at the discretion of the COMPANY.
3.2 Other Compensation:
EXECUTIVE may receive, in addition to his base salary, other compensation
pursuant to incentive and/or bonus programs which the COMPANY may, in its sole
discretion, establish from time to time.
3.3 Other Benefits.
EXECUTIVE shall be permitted during the Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program (collectively "Health Benefits"), deferred compensation plan, or
pension plan or similar benefit plan of the COMPANY, which may be available
generally to other senior executives and managers of the COMPANY.
3.4 Business and Travel Expenses:
Subject to such policies applicable to senior executives generally, as may from
time to time be established by the Board of Directors, the COMPANY shall pay or
reimburse the EXECUTIVE for all reasonable expenses actually incurred or paid by
the EXECUTIVE during the Term in the performance of EXECUTIVE'S services under
the Agreement, upon presentation of expense statements or vouchers or such other
supporting information as it may require.
3.5 Vacation:
The EXECUTIVE shall be entitled to four weeks of vacation per each twelve-month
period following the EXECUTIVE'S anniversary date. The EXECUTIVE will accrue at
a rate of 1 2/3 day per month. The EXECUTIVE may carry forward up to one week of
unused vacation accrued in the twelve-month period to the next twelve-month
period, unless otherwise approved in writing by the General Manager COMPANY.
SECTION 4: Illness or Disability of Employee
If during the Term, the EXECUTIVE becomes physically or mentally disabled,
whether totally or partially, so that the EXECUTIVE is unable to substantially
perform his services thereunder for (a) a period of three consecutive months or
(b) for shorter periods aggregating 100 days during any twelve month period the
COMPANY may at any time after the last day of the three consecutive months of
disability or the day on which the shorter periods of disability equal an
aggregate of 100 days, by written notice to the EXECUTIVE, terminate the Term of
the EXECUTIVE'S employment thereunder.
SECTION 5: Termination of Executive Agreement
This Executive Agreement may be terminated before the expiration date set forth
in Section 1 of this Executive Agreement as follows:
5.1 Termination Without Cause:
a) EXECUTIVE may terminate this Executive Agreement at any time without cause
by giving the COMPANY two weeks written notice of such termination. Upon
such termination, the COMPANY shall have no further obligations to the
EXECUTIVE; provided however, that if the EXECUTIVE provides two weeks
written notice, the EXECUTIVE shall be entitled to payment for any earned
and accrued but unused vacation.
b) The COMPANY may terminate this Executive Agreement at any time without
cause by giving the EXECUTIVE written notice. If the COMPANY terminates the
EXECUTIVE'S employment without cause, COMPANY shall pay EXECUTIVE one (1)
year salary, less standard withholdings and deductions, payable in biweekly
installments. COMPANY shall also pay for EXECUTIVE's COBRA benefits for a
period of one (1) year. The EXECUTIVE shall receive payment for any earned
and accrued but unused vacation up through the date of notice of
termination.
5.2 Termination For Cause:
The COMPANY may, at any time, immediately terminate this Executive Agreement and
all of its obligations hereunder for cause by giving EXECUTIVE written notice of
the termination. The term "for cause" shall mean any one or more of the
following: (i) EXECUTIVE'S material breach of this Executive Agreement; (ii)
EXECUTIVE'S negligent or willful misperformance of his duties; (iii) EXECUTIVE'S
conviction of a felony or any other crime involving moral turpitude or
dishonesty which, in the good faith opinion of the COMPANY would impair
EXECUTIVE'S ability to perform his duties or harm the COMPANY'S business
reputation; (iv) EXECUTIVE'S failure or refusal to comply with the COMPANY
policies, standards or regulations; (v) EXECUTIVE'S unauthorized disclosure of
the COMPANY'S or Elsinore's trade secrets and/or other confidential business
information. The COMPANY, in its sole discretion, shall decide whether the "for
cause" definition has been satisfied.
5.6 Termination by Non-Renewal of Executive Agreement
In the event this Executive Agreement expires at the end of the Term without
renewal by COMPANY's Board of Directors and EXECUTIVE was not terminated until
after the beginning of the next calendar year, EXECUTIVE shall be entitled to
the Base Salary, less standard withholdings and deductions, payable in biweekly
installments, for the remainder of said calendar year. COMPANY shall pay for
EXECUTIVE's COBRA benefits for that same period. The EXECUTIVE shall receive
payment for any earned and accrued but unused vacation up through the expiration
of the Term.
5.7 Termination Upon Disability
If this Executive Agreement is terminated as a result of EXECUTIVE's disability,
as determined under Section 4, COMPANY will pay EXECUTIVE his Base Salary
through the remainder of the Term.
5.8 Termination by Change of Ownership or Control
In the event of a change in ownership or control of COMPANY as hereinafter
defined. EXECUTIVE shall have two options: (1) elect to be employed with the
entity or person having acquired such control; or (2) terminate this Executive
Employment Agreement. In the event EXECUTIVE accepts the second option,
EXECUTIVE shall be entitled to one (1) year's Base Salary, less standard
withholdings and deductions, payable in biweekly installments. COMPANY shall
also pay for EXECUTIVE'S COBRA benefits for a period of one (1) year. EXECUTIVE
must exercise either of the two foregoing options by the time the change in
control or ownership becomes effective.
For purposes of this Agreement, a "Change of Ownership or Control" shall mean
the following: all or substantially all of the assets of the COMPANY are
directly or through transfer of equity interests transferred or otherwise
disposed of in one or a series of related transactions after which (1) the
COMPANY ceases to own directly or indirectly substantially all equity interests
in Four Queens Hotel and Casino; or (2) Elsinore ceases to own directly or
indirectly at least fifty-one percent (51%) of all outstanding shares of
COMPANY. For purposes of the Executive Agreement, the parties understand and
agree that any transfer of ownership between or among funds managed by Morgens,
Waterfall, Vintiadis & the COMPANY, Inc. shall not constitute a "Change of
Ownership or Control."
5.6 Termination by Death:
If the EXECUTIVE dies during the Term, this Agreement shall terminate and the
COMPANY shall have no further obligations under this Agreement.
SECTION 6. Records Of The COMPANY
EXECUTIVE acknowledges and agrees that all books, records, reports, accounts,
documents or other information of any kind relating in any manner to the
COMPANY'S business or to any clients, customers, suppliers, distributors or
third parties doing business with the COMPANY, whether prepared or paid for by
EXECUTIVE or otherwise, coming into EXECUTIVE'S possession, shall be the
exclusive property of the COMPANY and shall be returned immediately to the
COMPANY upon termination of employment for any reason, or at the COMPANY'S
request at any time.
SECTION 7. Notice
Any notices hereunder shall be in writing and shall be effective upon personal
delivery or five (5) days after deposit in the U.S. mail, registered or
certified, return receipt requested, postage prepaid, addressed to the parties
at the following addresses or to such other address(es) as the party to receive
such notice shall designate in writing:
If to EXECUTIVE: GINA CONTNER
Last known address on file with COMPANY
If to the COMPANY: FOUR QUEENS, INC.
Attn: President / General Manager
202 Fremont Street
Las Vegas, Nevada 89101
SECTION 8. Governing Law
This Executive Agreement shall be governed by, interpreted under, and construed
and enforced in accordance with the laws of the State of Nevada, without regard
to its principles of conflicts of laws. The exclusive forum for adjudication of
any matter pertaining to this Executive Agreement shall be the federal and state
courts located in Clark County, Nevada.
SECTION 9. Severability
If any clause or provision of this Executive Agreement is adjudged invalid or
unenforceable by any court of competent jurisdiction or by operation of any
applicable law, it shall not affect the validity of any other clause or
provision, which shall remain in full force and effect. If a court of competent
jurisdiction finds that any Sections of this Executive Agreement or any portions
thereof are invalid or unenforceable, the court may modify the Sections, or any
portion thereof, to make them enforceable.
SECTION 10. Assignment
The parties agree that in the event of a change of ownership or control, the
COMPANY may assign this Executive Agreement to the person or entity acquiring
ownership or control should EXECUTIVE elect the first option under section 5.5.
EXECUTIVE acknowledges and agrees that the duties and obligations of EXECUTIVE
under this Executive Agreement are personal and are not assignable or delegable
by the EXECUTIVE.
SECTION 11. Attorneys' Fees
In the event any lawsuit is commenced in relation to this Executive Agreement,
each party to the action shall pay its own attorneys' fees and costs of suit.
SECTION 12. Confidentiality
The existence of this Executive Agreement and its terms are confidential and
shall not be disclosed by EXECUTIVE or the COMPANY, except as may be required
pursuant to a Change in Ownership or Control, by law or to enforce the
provisions hereof.
SECTION 13. Waiver
No course of dealing or delay between the parties shall operate as a waiver of
the rights of any party to this Executive Agreement. No default, covenant, or
condition of this Executive Agreement may be waived other than in writing.
SECTION 14. Captions and Headings
The Captions and Headings in this Executive Agreement are inserted only as a
matter of convenience and for reference, and in no way define, limit or describe
the scope of this Executive Agreement or the intent of any provision herein.
SECTION 15. Miscellaneous
All references to payment or sums of money in this Executive Agreement shall
mean United States currency only.
SECTION 16. Entire Executive Agreement
The parties acknowledge and agree that this Executive Agreement constitutes the
entire understanding and agreement of the parties concerning the subject matter
hereof, and supersedes all prior Executive Agreements, both oral and written. It
is also understood and agreed by both parties that the terms and provisions of
this Executive Agreement are contractual and not merely recital. Both EXECUTIVE
and the COMPANY further understand and agree that unless reduced to a writing
and signed by both parties, no amendments, revisions, modifications or
extensions to this Executive Agreement will be binding and/or enforceable upon
either party.
SECTION 17. Warranty
The Officer of the COMPANY signing this Executive Agreement warrants that he/he
is authorized and has the power and authority to sign this Executive Agreement
on behalf of the COMPANY.
DATED this 1st day of January, 2002.
FOUR QUEENS, INC. EXECUTIVE EMPLOYEE:
Gina L. Contner
By: /s/Philip. W. Madow /s/Gina L. Contner
Philip W. Madow Gina L. Contner
Its: President
EXHIBIT 10.69
MORGENS, WATERFALL, VINTIADIS & COMPANY, INC.
WAIVER OF COMPLIANCE
March 29, 2002
To: Elsinore Corporation
202 Fremont Street
Las Vegas, Nevada 89101
Attn: Gina L. Contner
Re: 12.83% Notes due 2003 of Elsinore Corporation
CUSIP No. 290308AD7
In the Original Principal Amount of $11,104,000
Reference is made to that certain Amended and Restated Indenture dated as
of March 3, 1997, as amended by that certain First Supplemental Amended and
Restated Indenture dated as of September 18, 1997, that certain Second
Supplemental Amended and Restated Indenture dated as of September 29, 1998, and
that certain Third Supplemental Amended and Restated Indenture dated as of
October 31, 2000 (as so amended, the "Indenture"), by and among Elsinore
Corporation (the "Company"), the guarantors named therein, and U.S. Bank Trust
National Association, as trustee (the "Trustee"), regarding the 12.83% Notes due
2003 of the Company, in original aggregate principal amount of $11,104,000 (the
"Notes").
The undersigned hereby:
(i) certifies that it is the beneficial holder of the above referenced
Notes (the "Noteholder"), in the original aggregate principal amount of
$11,104,000 (the "Principal Amount"), which Principal Amount is, on the date
hereof, on deposit in the account of Morgan Stanley & Co., Inc. ("Morgan
Stanley") with the Depository Trust Company ("DTC");
(ii) pursuant to Sections 7.12 and 10.2 of the Indenture, waives compliance
by the Company, as of March 31, 2002, with Section 5.3(2)(u) of the Indenture
pertaining to limitations on restricted payments (the "Restricted Payments");
and
(iii) in connection with such waiver, agrees to take no action with respect
to the Principal Amount, including, but not limited to, providing or requesting
(or instructing Morgan Stanley or DTC to do the same) the Trustee to provide a
notice of any Default based upon the Ratio under Section 7.1(4) of the
Indenture, prior to December 31, 2002.
This waiver shall be effective upon delivery to the Company. All
capitalized words not defined herein are used as defined in the Indenture.
Sincerely,
/s/ Joann McNiff
Joann McNiff
General Counsel
EXHIBIT 21.1
SUBSIDIARIES OF ELSINORE CORPORATION
AS OF 12/31/01
STATE OF
CORPORATION OR
NAME ORGANIZATION D.B.A.
ELSINORE CORP. NEVADA ELSINORE CORP.
FOUR QUEENS, INC. NEVADA FOUR QUEENS HOTEL & CASINO
PINNACLE GAMING CORP. NEVADA ELSINORE MANUFACTURING CORP.
ELSUB MANAGEMENT CORP. NEVADA ELSUB MANAGEMENT CORP.
PALM SPRINGS EAST L.P. NEVADA PALM SPRINGS EAST L.P.
OLYMPIA GAMING CORP. NEVADA OLYMPIA GAMING CORP.
FOUR QUEENS EXPERIENCE CORP. NEVADA FOUR QUEENS EXPERIENCE CORP.
EAGLE GAMING, INC. NEVADA EAGLE GAMING, INC.
ELSINORE TAHOE, INC. NEVADA ELSINORE TAHOE, INC.
ELSUB CORPORATION NEW JERSEY ELSUB CORPORATION
ELSINORE OF NEW JERSEY, INC. NEW JERSEY ELSINORE OF NEW JERSEY, INC.
ELSINORE OF ATLANTIC CITY, NEW JERSEY ELSINORE OF ATLANTIC CITY,
L.P. L.P.
ELSINORE SHORE ASSOCIATES NEW JERSEY ELSINORE SHORE ASSOCIATES
ELSINORE FINANCE COMPANY NEW JERSEY ELSINORE FINANCE COMPANY