Rule 424(B)(3)
Registration No. 333-112603
PROSPECTUS
3,693,794 UNITS
CATSKILL LITIGATION TRUST
This is a prospectus for the distribution by Empire Resorts, Inc. of
3,693,794 of our units to the holders of common stock of Empire Resorts. These
units were originally issued in connection with our formation as part of Empire
Resort's recently completed consolidation with Monticello Raceway Management,
Inc., Monticello Casino Management, LLC, Monticello Raceway Development Company,
LLC and Mohawk Management, LLC. As a condition to closing that consolidation,
each of Catskill Development, L.L.C., Monticello Raceway Development Company and
Mohawk Management assigned to us all of their claims under or related to the
alienation and frustration of their agreements and business relations with the
St. Regis Mohawk Tribe and their rights to any proceeds from any settlement or
award that may arise from any litigation relating to that claim. We were then
required to evidence the prorata beneficial ownership of the interests in the
claims assigned through the issuance of our units. Empire Resorts is
distributing the units because, as part of the terms of the consolidation,
Empire Resorts' common stockholders of record immediately before the
consolidation's closing is to receive for free one unit for each share of common
stock of Empire Resorts then held by them. We will not receive any proceeds as a
result of the distribution of our units registered under this prospectus.
There is currently no trading market for our units. Our units are
not listed on any exchange or a national market and no trading market is
expected to develop.
Our principal executive offices are located at c/o Christiana Bank &
Trust Company, 1314 King Street, Wilmington, Delaware 19801, and our telephone
number there is (302) 888-7400
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THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
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Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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The date of this prospectus is March 5, 2004
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY.............................................................1
RISK FACTORS...................................................................4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS..............................6
USE OF PROCEEDS................................................................6
DIVIDEND POLICY................................................................6
MARKET FOR SECURITIES..........................................................7
SELECTED FINANCIAL DATA........................................................7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.........................................7
PRINCIPAL UNITHOLDERS AND EMPIRE RESORTS......................................10
TRANSFER AGENT................................................................11
PLAN OF DISTRIBUTION..........................................................12
THE LITIGATION TRUST..........................................................12
OUR LITIGATION TRUSTEES.......................................................18
COMPENSATION OF OUR TRUSTEES..................................................19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................20
DESCRIPTION OF OUR UNITS......................................................20
UNITS ELIGIBLE FOR FUTURE SALE................................................20
FEDERAL INCOME TAX CONSEQUENCES...............................................21
LEGAL MATTERS.................................................................22
EXPERTS.......................................................................22
WHERE YOU CAN FIND MORE INFORMATION...........................................22
INDEX TO FINANCIAL STATEMENTS................................................F-1
i
PROSPECTUS SUMMARY
THE LITIGATION TRUST AND OUR LITIGATION CLAIMS
We are a statutory trust created under Delaware law. Our formation
was a condition to the consolidation of Empire Resorts with Monticello Raceway
Management, Monticello Casino Management, Monticello Raceway Development
Company, and Mohawk Management. Also as a condition to that consolidation, each
of Catskill Development, Monticello Raceway Development Company and Mohawk
Management, agreed to assign to us all of their claims under or related to the
alienation and frustration of their agreements and business relations with the
St. Regis Mohawk Tribe. That assignment included rights to any proceeds from any
settlement or award that may arise from any litigation relating to that claim.
Our litigation claims arise from the efforts of each of Catskill Development,
Monticello Raceway Development Company and Mohawk Management to develop with the
St. Regis Mohawk Tribe a gaming casino in Monticello, New York. We spent several
years and substantial funds to develop and obtain required approvals for the
casino. Subsequently, Park Place Entertainment Corporation, the world's largest
gaming corporation and Atlantic City's largest casino operator, entered into an
agreement providing for the St. Regis Mohawk Tribe to commit their future casino
development efforts exclusively to Park Place Entertainment Corporation. That
agreement conflicted with the Mohawk Tribe's agreements with Catskill
Development, Monticello Raceway Development and Mohawk Management. There are two
lawsuits presently pending. The first lawsuit is Catskill Development, L.L.C.,
Mohawk Management, L.L.C., and Monticello Raceway Development Company, L.L.C.,
Plaintiffs. v. Park Place Entertainment Corporation, Defendant. (Civil Action
No. 00CIV8660 (CM)(GAY)) (United States District Court Southern District of New
York). This lawsuit had initially been dismissed on a motion for summary
judgment. However, those rulings have been appealed. In addition, the trial
court vacated the earlier decision granting summary judgment to Park Place
Entertainment, in order to allow additional discovery proceedings. The second
lawsuit is Catskill Development, L.L.C., Mohawk Management, L.L.C., and
Monticello Raceway Development Company, L.L.C., Plaintiffs. against Gary Melius,
Ivan Kaufman, Walter Horn, President R.C. - St. Regis Management Company, et al,
Defendants. (Index No. 891/03) (Supreme Court of the State of New York County of
Sullivan). This lawsuit is in its preliminary stages. Our purposes are the
prosecution of our claims now through the recovery of any settlement or final
judgments and the distribution of the net amount of any such recoveries to our
beneficiaries.
DESCRIPTION OF OUR LINE OF CREDIT
Empire Resorts has provided a line of credit of $2,500,000 to us for
the purpose of paying any and all of our expenses permitted under our
declaration of trust.
OUR TRUSTEES
Joseph E. Bernstein and Paul A. deBary are our litigation trustees.
They have the authority to make all decisions in connection with the prosecution
of our litigation claims, including selecting and supervising existing and any
new counsel, instituting additional lawsuits, drawing on funds from our line of
credit and deciding whether or not to accept any settlement offer.
Christiana Bank & Trust Company is our administrative trustee. The
primary function of the administrative trustee is to fulfill our requirement
under Delaware law to have one trustee with its principal place of business
located within the state of Delaware and to perform certain administrative
functions as set forth in our declaration of trust at the direction of our
litigation trustees.
COMPENSATION OF OUR TRUSTEES
Each litigation trustee is entitled to the following:
o reimbursement of expenses incurred in carrying out our purposes.
o $5,000 per month, to the extent there are funds available.
o 4% to Joseph Bernstein and 1% to Paul deBary of the total
amounts received in any settlement or award, less expenses and
to the extent there are available funds.
Our administrative trustee is entitled to the following:
o reimbursement of expenses incurred in carrying out our purposes.
o Acceptance Fee of $5,000.00;
Includes the first month administration fee
o Monthly Administration Fee of $ 500.00; and
o Custody Fee on any cash or marketable securities, other than on
certain cash balances:
.05 of 1% (5.00 basis points) per annum on the first $10,000,000 of
the account's fair market value; and
.03 of 1% (3.00 basis points) per annum on the balance of the
account's fair market value.
NO EXISTING TRADING MARKET FOR OUR UNITS
There is no current trading market for our units and one is not
likely to develop. We have no current plans to apply to have our units traded on
an exchange or a national market. Even if a market for our units develops, there
would likely be minimal trading, limited liquidity and there can be no assurance
as to the price at which our units would trade at any time and such price could
be subject to rapid and substantial change, depending upon, among other things,
developments regarding our litigation claims. See "Risk Factors."
OUR UNITS ARE HIGHLY SPECULATIVE SECURITIES THAT INVOLVE A HIGH
DEGREE OF RISK. See "Risk Factors."
2
THE OFFERING
Our units being offered for resale under this prospectus consist
entirely of outstanding units held by Empire Resorts.
Units offered by us: None
Units to be distributed by Empire Resorts: 3,693,794
Use of Proceeds:
We will not receive any proceeds
from the distribution of our units
offered by Empire Resorts. Our
units being offered under this
prospectus consist entirely of
units being distributed by Empire
Resorts to its common stockholders.
There will thus be no proceeds from
the distribution of our units
offered by Empire Resorts.
Risk Factors: The ownership of our units involves
a high degree of risk. You should
carefully review and consider "Risk
Factors" beginning on page 4.
3
RISK FACTORS
THE OWNERSHIP OF OUR UNITS INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OF THE OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS. THE RISKS DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING US. ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR THAT WE
CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR US.
WE WILL BE CONTROLLED BY OUR LITIGATION TRUSTEES AND OUR UNITHOLDERS WILL HAVE
NO AUTHORITY REGARDING DECISIONS MADE ON BEHALF OF THE TRUST
All decisions concerning the conduct of our litigation claims,
drawing on funds from our line of credit, distribution of assets and our
termination are to be made by our litigation trustees, in accordance with the
terms of our declaration of trust. Our unitholders will have no control over
these decisions.
OUR UNITHOLDERS WILL ONLY BE ENTITLED TO PROCEEDS OF ANY SETTLEMENT OR AWARD
AFTER THE PAYMENT OF OUR EXPENSES AND REPAYMENT OF OUR LINE OF CREDIT AND WILL
HAVE LIMITED RIGHTS TO BRING SUIT AGAINST US
Our unitholders will only be entitled to the net proceeds from any
settlement or award, if any, of our litigation claims after the payment of our
expenses, the fees of our litigation trustees, any amounts outstanding under our
line of credit and $7,500,000 to Empire Resorts for reimbursement of prior
expenses incurred in connection with our litigation claims. Our unitholders will
not have any right to bring suit against us or any party on our behalf, other
than a suit for nonpayment of the net proceeds of a settlement or award, and
only after there is an affirmative majority vote of all of our unitholders to
bring such suit.
WE MAY NOT BE SUCCESSFUL IN OUR LITIGATION CLAIMS
We presently have two lawsuits pending in connection with our
litigation claims. The first lawsuit is against Park Place Entertainment, the
world's largest gaming conglomerate, which has substantially greater assets than
we do. We expect that Park Place Entertainment will use its substantial assets
to aggressively defend itself in this lawsuit. Our second suit is still in its
preliminary stages. There can be no assurance that we will be successful in
either of these litigations. See "THE LITIGATION TRUST - Our Formation and
Purpose," and "Background of Our Litigation Claims."
OUR LITIGATION TRUSTEES MAY HAVE AN INTEREST IN SETTLING OUR LITIGATION CLAIMS
FOR AMOUNTS THAT WOULD RESULT IN LIMITED OR NO PAYMENTS MADE TO OUR UNITHOLDERS
Our litigation trustees are to receive an aggregate of 5% of any
recovery of an award or settlement. After they are paid that amount and prior to
our unitholders receiving any distributions, Empire Resorts will be paid
$7,500,000 for reimbursement of prior expenses incurred in connection with our
litigation claims. Therefore, there may be instances where our litigation
trustees have an interest in settling our litigation claims for amounts that
could result in limited or no payment made to our unitholders.
4
EVEN IF THERE IS A RECOVERY BASED ON OUR LITIGATION CLAIMS, THERE CAN BE NO
ASSURANCES THAT THERE WILL BE SUFFICIENT FUNDS TO MAKE ANY PAYMENTS TO OUR
UNITHOLDERS
Even if we obtain a settlement or award based on our litigation
claims, there can be no assurance that our unitholders will receive any proceeds
from such settlement or award. Prior to our unitholders receiving any payments,
we are required to pay all of our expenses and set aside a reserve for future
expenses, pay the fees of our litigation trustees, any amounts outstanding under
our line of credit and $7,500,000 to Empire Resorts to reimburse it for prior
expenses incurred in connection with our litigation claims. See "THE LITIGATION
TRUST - Deposits to and Distributions from Our Recovery Account."
IF EMPIRE RESORTS CANNOT MEET ITS OBLIGATIONS UNDER OUR LINE OF CREDIT, WE MAY
NOT HAVE SUFFICIENT FUNDS TO PROSECUTE OUR LITIGATION CLAIMS
Our only existing source of capital to prosecute our litigation
claims is our line of credit provided by Empire Resorts. Empire Resorts is a
holding company and is therefore dependent on its subsidiaries to pay dividends
or make distributions in order to generate internal cash flow and to satisfy its
obligations, including its obligations under our line of credit. In addition,
Empire Resorts has a history of net operating losses. Therefore there can be no
assurance that it will be able to meet its obligations under our line of credit.
If Empire Resorts cannot meet its obligations under our line of credit, we may
not have sufficient funds to prosecute our litigation claims. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-Liquidity and Capital Resources."
OUR LINE OF CREDIT MAY NOT BE SUFFICIENT TO PROSECUTE OUR LITIGATION CLAIMS AND
THEREFORE WE MAY HAVE TO SETTLE, WITHDRAW OR ABANDON OUR LITIGATION CLAIMS OR
TERMINATE OUR TRUST
Our only source of capital to fund the prosecution of our litigation
claims is our line of credit provided by Empire Resorts. If the funds available
under our line of credit are not sufficient and we are unable to obtain
additional financing on acceptable terms or at all, we may be unable to
prosecute our litigation claims.
THERE IS NO TRADING MARKET FOR OUR UNITS, ONE IS NOT LIKELY TO DEVELOP AND IT
MAY BE DIFFICULT TO ESTABLISH A PRICE PER UNIT OF OUR UNITS
There is no current trading market for our units and we do not
intend to seek to have our units traded on an exchange or a national market.
Even if a trading market were to develop, there would likely be minimal trading,
limited liquidity and the price of our units may depend on a number of factors
including, but not limited to, the nature of court decisions and opinions, the
settlement of any of our pending lawsuits and any additional lawsuits and our
ability to fund the prosecution of the pending lawsuits and any additional
lawsuits arising from our litigation claims. Consequently, if a trading market
is established there may be wide fluctuations in the price of our units.
UNITHOLDERS MAY NOT BE ABLE TO ADEQUATELY VALUE OUR UNITS BECAUSE WE MAY NOT BE
ABLE TO DISCLOSE ALL INFORMATION ABOUT OUR LAWSUITS TO OUR UNITHOLDERS
Our ability to disclose details of our litigation claims on a
regular basis may be limited by the inherent nature and rules of judicial
proceedings, including, among other things, proceedings and filings that are
5
sealed by the court, matters involving attorney-client privilege and proceedings
that are conducted on a confidential basis by agreement of the parties. Our
inability to disclose potentially material information may make it difficult to
value our units.
THE LOSS OF SERVICES OF EITHER OF OUR LITIGATION TRUSTEES COULD PREVENT US FROM
SUCCESSFULLY PROSECUTING OUR LITIGATION CLAIMS
Our success depends in large part upon the abilities of our
litigation trustees. Both Messrs. Bernstein and deBary have extensive knowledge
regarding our litigation claims. The loss of services of either of our
litigation trustees could prevent us from successfully prosecuting our
litigation claims.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus are
"forward-looking statements" as that term is defined in the Private Securities
Litigation Reform Act. The words "anticipate", "believes", "estimates",
"expects", "plans", "intends" and similar expressions are meant to identify
these statements as forward-looking statements, but they are not the exclusive
means of identifying them. The forward-looking statements in this prospectus
reflect the current views of our litigation trustees; however, various risks,
uncertainties and contingencies would cause our actual results, performance or
achievements to differ materially from those expressed or implied by these
statements.
We assume no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
For a discussion of important risks of an investment in our units, see the "Risk
Factors" section of this prospectus. In light of the risks and uncertainties
discussed in "Risk Factors" and elsewhere in this prospectus, events referred to
in forward-looking statements in this prospectus might not occur.
USE OF PROCEEDS
We will not receive any proceeds from the distribution of our units
by Empire Resorts. Our units being offered under this prospectus consist
entirely of our units being distributed as a dividend by Empire Resorts to its
common stockholders. There will thus be no proceeds from the distribution of our
units offered by Empire Resorts.
DIVIDEND POLICY
We have never paid a cash dividend on our units and we do not
anticipate paying cash dividends on our units in the foreseeable future.
MARKET FOR SECURITIES
There is no current trading market for our units and we do not
intend to seek to have our units traded on an exchange or a national market.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the financial statements and the notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
6
elsewhere in this prospectus. The balance sheet data as of January 12, 2004 have
been derived from our financial statements, which have been audited by Marcum &
Kliegman LLP, independent auditors.
As of January 12, 2004
----------------------
BALANCE SHEET DATA:
Assets $--
Liabilities $--
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussions in conjunction with our
financial statements and the related notes thereto and other financial
information appearing elsewhere in this prospectus. The following discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the
forward-looking statements as a result of various factors, including those
discussed in "Risk Factors" and elsewhere in this prospectus.
GENERAL
We are a statutory trust created under Delaware law. Our formation
was a condition to the consolidation of Empire Resorts with Monticello Raceway
Management, Monticello Casino Management, Monticello Raceway Development
Company, and Mohawk Management. Also as a condition to that consolidation, each
of Catskill Development, Monticello Raceway Development Company and Mohawk
Management, agreed to assign to us all of their claims under or related to the
alienation and frustration of their agreements and business relations with the
St. Regis Mohawk Tribe. That assignment included rights to any proceeds from any
settlement or award that may arise from any litigation relating to that claim.
Our litigation claims arise from the efforts of each of Catskill Development,
Monticello Raceway Development Company and Mohawk Management to develop with the
St. Regis Mohawk Tribe a gaming casino in Monticello, New York. We spent several
years and substantial funds to develop and obtain required approvals for the
casino. Subsequently, Park Place Entertainment Corporation, the world's largest
gaming corporation and Atlantic City's largest casino operator, entered into an
agreement providing for the St. Regis Mohawk Tribe to commit their future casino
development efforts exclusively to Park Place Entertainment Corporation. That
agreement conflicted with the Mohawk Tribe's agreements with Catskill
Development, Monticello Raceway Development and Mohawk Management. There are two
lawsuits presently pending. The first lawsuit is Catskill Development, L.L.C.,
Mohawk Management, L.L.C., and Monticello Raceway Development Company, L.L.C.,
Plaintiffs. v. Park Place Entertainment Corporation, Defendant. (Civil Action
No. 00CIV8660 (CM)(GAY)) (United States District Court Southern District of New
York). This lawsuit had initially been dismissed on a motion for summary
judgment. However, those rulings have been appealed. In addition, the trial
court vacated the earlier decision granting summary judgment to Park Place
Entertainment, in order to allow additional discovery proceedings. The second
lawsuit is Catskill Development, L.L.C., Mohawk Management, L.L.C., and
Monticello Raceway Development Company, L.L.C., Plaintiffs. against Gary Melius,
Ivan Kaufman, Walter Horn, President R.C. - St. Regis Management Company, et al,
7
Defendants. (Index No. 891/03) (Supreme Court of the State of New York County of
Sullivan). This lawsuit is in its preliminary stages. Our purposes are the
prosecution of our litigation claims through the recovery of any settlement or
final judgments and the distribution of the net amount of any such recoveries to
our beneficiaries.
The administration of our litigation trust will involve the
authentication and payment of fees and expenses for legal and related services
in connection with our litigation claims, reporting and regulatory compliance
and the maintenance of litigation, financial and unitholder records.
Administrative expenses are currently estimated to be approximately $200,000 per
year, including the fees of the litigation and administrative trustees, auditors
and accountants and other support services. Legal fees and other expenses
involved in our litigations claims are impossible to predict with any degree of
accuracy. No assurance can be given that the amounts available to us for the
payment of such expenses under our line of credit will be sufficient to carry
our litigation claims through to a successful conclusion or that alternative
funds will be available for such purpose.
LIQUIDITY AND CAPITAL RESOURCES
Empire Resorts has provided us with an irrevocable line of credit of
up to $2,500,000 to provide funds to pay any and all of our expenses permitted
under our declaration of trust. No interest is payable on amounts advanced under
our line of credit. Amounts outstanding under our line of credit are to be
repaid by us from proceeds received from any settlement or award in connection
with our litigation claims after payment of an amount necessary to pay our
litigation trustees the fees for their services as litigation trustees as set
forth in our declaration of trust. Repayments of amounts outstanding under our
line of credit may be made as a whole or in part from time to time at any time
without notice. We may reborrow any amounts so repaid. Our line of credit shall
remain in full force and effect until our termination.
Empire Resorts is a holding company, owning all the capital stock or
membership interests of certain other entities. Empire Resorts is therefore
dependent on these other entities to pay dividends or make distributions in
order to generate internal cash flow and to satisfy its obligations, including
its obligations under our line of credit. There can be no assurance, however,
that these other entities will generate enough revenue to pay cash dividends or
make cash distributions. In addition, these entities may enter into contracts
that limit or prohibit their ability to pay dividends or make distributions.
Empire Resorts had no net operating revenue during the fiscal year ended
December 31, 2002 and for the nine months ended September 30, 2003 and sustained
net operating losses of approximately $9.5 million and $5.4 million,
respectively, during such periods. Therefore, there can be no assurance that
Empire Resorts will have the ability to meet its obligations under our line of
credit.
8
PRINCIPAL UNITHOLDERS AND EMPIRE RESORTS
Empire Resorts is distributing as a dividend a total of 3,693,794 of
our units under this prospectus to its common stockholders. Our units being
offered under this prospectus were originally issued in connection with the
recently completed consolidation. Our units offered under this prospectus may be
distributed for the account of Empire Resorts. The following table contains
information regarding Empire Resorts and its beneficial ownership of our units
as of January 30, 2004, and as adjusted to give effect to the distribution of
our units described in this prospectus. Upon the distribution of our units
offered under this prospectus, we will have approximately 141 unitholders of
record.
Beneficial Ownership
After Offering(1)
-----------------
Beneficial
Ownership Number of Units
Prior to be distributed Number Percent
Name to Offering in the Offering of Units of Class
---- ----------- ------------------ -------- --------
Empire Resorts, Inc. 3,693,794 3,693,794 0 --
(1) This registration statement also shall cover any additional units which
become issuable in connection with our units registered for resale in this
prospectus by reason of any unit dividend, unit split, recapitalization or other
similar transaction effected without the receipt of consideration which results
in an increase in the number of outstanding units.
The following table sets forth as of January 30, 2004 certain information with
respect to the beneficial ownership (including beneficial ownership of our units
as an Empire Resorts shareholder) of our units of (1) each of our litigation
trustees, and (2) each person known to us to own beneficially five percent or
more of our outstanding units:
Number of Units Percent of Class of Units
Name and Address(1) Beneficially Owned(2) Beneficially Owned(3)
---------------- ------------------ ------------------
Joseph E. Bernstein
6663 Casa Grande Way
Delray Beach, FL 33446 2,408,253(4) 10.61
Paul A. deBary
477 Madison Avenue
New York, New York 10022 250,422(5) 1.1
Monticello Realty, L.L.C. 5,732,261 25.25
Americas Tower Partners 6,599,294 29.07
Robert A. Berman 5,625,429(6) 24.78
9
(1) Unless otherwise indicated, the address of each named holder is c/o
Christiana Bank & Trust Company, 1314 King Street, Wilmington, Delaware
19801.
(2) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities.
(3) Based on 22,702,896 of our units outstanding as of January 30, 2004.
(4) Includes (1) 2,309,753 of our units held by Americas Tower Partners and
(2) 98,500 of our units corresponding to 98,500 shares of Empire Resorts
held in the name of Joseph E. Bernstein on behalf of the JB Trust. Joseph
E. Bernstein beneficially owns a 1% economic interest and 50% voting power
in Americas Tower Partners, and the JB Trust, in which Mr. Bernstein's
mother, Helen Bernstein, is sole trustee and Mr. Bernstein's children are
ultimate beneficiaries, beneficially owns a 49% economic interest, with no
voting rights.
(5) Includes 52,103 of our units corresponding to 52,103 shares of common
stock of Empire Resorts owned directly by Paul A. deBary and 198,319 of
our units held directly by Mr. deBary.
(6) Includes 1,094,004 of our units corresponding to 1,094,004 shares of
common stock owned of Empire Resorts directly by Robert A. Berman and
4,531,425 of our units held directly by Robert A. Berman. Mr. Berman is
the Chief Executive Officer and member of the Board of Directors of Empire
Resorts.
TRANSFER AGENT
We have appointed Continental Stock Transfer & Trust Company, New
York, New York, as Transfer Agent and Registrar for our units.
PLAN OF DISTRIBUTION
We are registering our units offered under this prospectus on behalf
of Empire Resorts. Empire Resorts is distributing our units to its common
stockholders in connection with a dividend of our units declared by Empire
Resorts. Empire Resorts shall bear the cost and expense of such distribution.
THE LITIGATION TRUST
OUR FORMATION AND PURPOSE
We were formed on January 12, 2004 as a condition to closing the
consolidation by Empire Resorts with Monticello Raceway Management, Inc.,
Monticello Casino Management, LLC, Monticello Raceway Development Company, LLC
and Mohawk Management, LLC. Also on January 12, 2004, Empire Resorts, Catskill
Development, L.L.C., Monticello Raceway Management, Mohawk Management, Joseph E.
Bernstein, Paul A. deBary, our litigation trustees, and Christiana Bank & Trust
Company, our administrative trustee, entered into our declaration of trust. Each
of Catskill Development, Monticello Raceway Development and Mohawk Management
assigned to us all of their claims under or related to the alienation and
frustration of their agreements and business relations with the St. Regis Mohawk
Tribe and their rights to any proceeds from any judgment or settlement that may
10
arise from any litigation relating to that claim, including (1) that certain
litigation entitled Catskill Development, L.L.C., Mohawk Management, L.L.C., and
Monticello Raceway Development Company, L.L.C., Plaintiffs. v. Park Place
Entertainment Corporation, Defendant. (Civil Action No. 00CIV8660 (CM)(GAY))
(United States District Court Southern District Of New York) and (2) that
certain litigation entitled Catskill Development, L.L.C., Mohawk Management,
L.L.C., and Monticello Raceway Development Company, L.L.C., Plaintiffs. v. Gary
Melius, Ivan Kaufman, Walter Horn, President R.C. - St. Regis Management
Company, et al, Defendants. (Index No. 891/03) (Supreme Court of the State of
New York County of Sullivan). Our purposes are the prosecution of our litigation
claims through the recovery of any settlements or final judgments thereof and
the distribution of the net amount of any such recoveries to our beneficiaries.
We have retained several law firms to prosecute our litigation claims. The
attorneys retained by us to prosecute our litigation claims are paid based on
hourly rates, subject to certain limitations. In addition, the attorneys
retained by us for the appeal of our litigation claims against Park Place
Entertainment are currently entitled to a $100,000 success fee.
OUR TERMINATION
If at any time our litigation trustees determine, in their absolute
discretion, that our assets are not sufficient to justify our continuance, the
litigation trust may be terminated by our litigation trustees. In addition, the
litigation trust shall terminate on the date that all of our litigation claims
shall have been fully prosecuted to final judgment or dismissal, including all
appeals, and all of our assets shall have been distributed to our beneficiaries.
LINE OF CREDIT
Empire Resorts has provided us with an irrevocable line of credit of
up to $2,500,000 to provide funds to pay any and all of our expenses permitted
under our declaration of trust. No interest is payable on amounts advanced under
our line of credit. Amounts outstanding under our line of credit are to be
repaid by us from amounts of any settlement or award in connection with our
litigation claims after payment of an amount necessary to pay our litigation
trustees the fees for their services as our litigation trustees as set forth in
our declaration of trust. Repayment of amounts outstanding under our line of
credit may be made as a whole or in part from time to time at any time without
notice. We may reborrow any amounts so repaid. Our line of credit shall remain
in full force and effect until termination of the litigation trust.
BACKGROUND OF OUR LITIGATION CLAIMS
In 1996, a group of businessmen formed a coalition with Empire
Resorts and two other entities and commenced negotiations with the St. Regis
Mohawk Tribe about developing a gaming casino on land adjacent to Monticello
Raceway. This coalition then formed three entities to accomplish distinct
aspects of the project:
o Catskill Development was formed to acquire the land on which
the casino would be built and obtain approval for and implement
the transfer of the land to the United States of America in
trust for the St. Regis Mohawk Tribe for off-reservation
gaming.
o Monticello Raceway Development was formed to develop the casino
property, and provide technical expertise for the planning,
design, engineering, and construction of the casino. It would
11
also help the St. Regis Mohawk Tribe in obtaining financing for
the casino undertaking.
o Mohawk Management was formed to manage the casino.
Each party negotiated a separate contract with the St. Regis Mohawk
Tribe to cover its role. Thus, Catskill Development, after acquiring title to
Monticello Raceway and the surrounding property for $10 million, negotiated a
land purchase agreement; Mohawk Management negotiated a gaming facility
management agreement; and Monticello Raceway Development negotiated a gaming
facility development and construction agreement. Each of the land purchase
agreement and gaming facility management agreement were subject to certain
regulatory approvals from the Bureau of Indian Affairs, the National Indian
Gaming Commission and the State of New York.
On August 2, 1996, Catskill Development applied to the Bureau of
Indian Affairs and National Indian Gaming Commission to place 29 acres of land
adjacent to Monticello Raceway in trust status and to approve the land for a
gaming casino. The Bureau of Indian Affairs then spent 3 1/2 years reviewing and
processing the application, finally approving it on April 6, 2000 and
simultaneously requesting that New York State Governor George Pataki concur.
Before the Governor could formally concur or the National Indian
Gaming Commission could approve the casino management agreement, Park Place
Entertainment Corporation, the world's largest gaming corporation and Atlantic
City's largest casino operator, entered into an agreement providing for the St.
Regis Mohawk Tribe to commit their future casino development efforts exclusively
to Park Place Entertainment Corporation, which conflicted with their agreements
with Catskill Development, Monticello Raceway Development and Mohawk Management.
In an agreement executed on April 14, 2000, the St. Regis Mohawk Tribe promised
to work exclusively with Park Place Entertainment Corporation for consideration,
among other things, of $3,000,000 in cash and Park Place Entertainment
Corporation's promise to indemnify the St. Regis Mohawk Tribe against any
litigation that may result. For a new casino project at another location in the
Catskills, Park Place Entertainment Corporation and the St. Regis Mohawk Tribe
agreed to enter into agreements very similar to those between Catskill
Development, Monticello Raceway Development and Mohawk Management and the St.
Regis Mohawk Tribe, substituting Park Place Entertainment Corporation's name for
that of Catskill Development, Monticello Raceway Development and Mohawk
Management.
In response to these events, each of Catskill Development,
Monticello Raceway Development and Mohawk Management brought the litigation
against Park Place Entertainment Corporation, asserting claims under New York
law for intentional interference with contractual relations and interference
with business relations. The trial court subsequently dismissed the claim for
intentional interference with contractual relations on the grounds that the
contracts were subject to certain approvals and granted Park Place Entertainment
Corporation's motion for summary judgment with respect to the interference with
business relations complaint on the grounds that insufficient evidence of
causation or wrongful conduct had been produced, effectively dismissing the
entire case. These court rulings, however, have been appealed. In addition, on
October 7, 2003, after receiving a remand of jurisdiction from the Second
12
Circuit Court of Appeals, the trial court granted the plaintiffs' motion to
vacate the earlier decision granting summary judgment to Park Place
Entertainment Corporation, in order to allow additional discovery proceedings
with respect to evidence that the plaintiffs had not received in connection with
their earlier discovery requests prior to the summary judgment decision.
Separately, on April 11, 2003, each of Catskill Development,
Monticello Raceway Development and Mohawk Management filed the litigation
against Gary Melius, Ivan Kaufman and Walter Horn, each of whom served as an
intermediary between the St. Regis Mohawk Tribe and Park Place Entertainment
Corporation during Park Place Entertainment Corporation's successful effort to
induce the St. Regis Mohawk Tribe to renounce their agreements with Catskill
Development, Monticello Raceway Development and Mohawk Management and commit
their casino efforts exclusively to Park Place Entertainment Corporation. In
this lawsuit, the plaintiffs have alleged that the defendants engaged in a
conspiracy to restrain and interfere with the plaintiffs' efforts to develop a
casino in Monticello, New York with the St. Regis Mohawk Tribe. In addition, the
plaintiffs have alleged that the defendants engaged in a fraud and conspiracy by
withholding material evidence from the plaintiffs in connection with their
lawsuit against Park Place Entertainment Corporation. The plaintiffs are seeking
$2 billion in damages. This lawsuit is still in its preliminary stages.
At this time it is too difficult to determine whether there will be
any judgments or awards based on either the litigation against Park Place
Entertainment Corporation or the litigation against Gary Melius, Ivan Kaufman
and Walter Horn or on any other lawsuit based on our litigation claims.
OUR EXPENSE AND RECOVERY ACCOUNTS
We have established a fund to be maintained by our administrative
trustee which shall consist of two accounts, an expense account and a recovery
account. For this fund, our administrative trustee may establish on our behalf
one or more accounts with banks or brokerage firms in which all or part of our
moneys or investments to be deposited in this fund may be held, invested and
reinvested by our administrative trustee pending disbursement or distribution as
provided in our declaration of trust. Any amount on deposit in this fund that is
not required to be held for present use or distributions is to be accumulated
and retained in this fund and invested and reinvested by our administrative
trustee as directed in the sole discretion of our litigation trustees so as to
obtain a reasonable return on investment with proper regard for the preservation
of the principal and so as to be reasonably available at the times estimated to
be necessary for the purposes of the litigation trust.
DEPOSITS TO AND PAYMENTS OUT OF OUR EXPENSE ACCOUNT
Amounts drawn on our line of credit, amounts transferred from our
recovery account to our expense account as provided in our declaration of trust
and any other amounts received by us, other than amounts received as a recovery
of any settlement or award of our litigation claims, are to be deposited in our
expense account. Amounts in our expense account are to be used to pay necessary
or useful expenses, as determined in the sole and absolute discretion of our
litigation trustees.
Our administrative trustee is to make payments out of our expense
account upon (i) the written direction of one of our litigation trustees as of
the first business day of each calendar quarter to pay the quarterly fees of our
litigation trustees and our administrative trustee, and (ii) written direction
13
signed by one of our litigation trustees with respect to expenses set forth in a
budget (provided that the litigation trustee shall specify in the written
direction the line item of such budget that includes such expense) and by both
of our litigation trustees with respect to all other expenses. Our
administrative trustee has no obligation to verify that the amounts
requisitioned are to be used for the purposes of the litigation trust.
Notwithstanding anything to the contrary in our declaration of trust, our
litigation trustees may, at any time and from time to time, direct our
administrative trustee to pay any expense of our litigation claims or apply to
or for the benefit of our beneficiaries so much or the entire principal of our
expense account, as our litigation trustees, in their sole discretion, may deem
available.
DEPOSITS TO AND DISTRIBUTIONS FROM OUR RECOVERY ACCOUNT
The amount of proceeds received on account of any settlement or
award in connection with our litigation claims shall be deposited in our
recovery account. In the event that we receive any proceeds on account of any
settlement or award, an amount necessary to pay any of our current debts or
other obligations and to provide for our future expenses shall be transferred to
our expense account from our recovery account or applied directly to the
retirement of such debts or other obligations at the direction of our litigation
trustees. Not later than thirty days after the close of each calendar year, if
there have been deposits in our recovery account during such year, or within
thirty days of receipt by our administrative trustee of a notice of termination
of the litigation trust, our administrative trustee shall calculate the balance
in our recovery account at the end of such year or as of the date of such notice
and the amount so calculated shall be withdrawn from our recovery account and
shall be applied and used to make distributions for the purposes of the
litigation trust as follows:
FIRST: An amount necessary to pay our litigation trustees their fees
for their services as litigation trustees.
SECOND: If any amount remains after the above requirements have been
met, $7,500,000 shall be paid to Empire Resorts to reimburse it for prior
expenses incurred in connection with our litigation claims and any amounts
outstanding under our line of credit shall be repaid to Empire Resorts.
THIRD: If any amount remains after the above requirements have been
met, such amount remaining shall be divided among our beneficiaries in
proportion to their ownership of our units as shown on the registration books of
our administrative trustee or transfer agent, as applicable, as of the date that
such distribution is made.
All distributions of the litigation trust are to be made in the sole
discretion of our litigation trustees. In making and scheduling distributions,
neither of our litigation trustees shall have any liability to our
beneficiaries, or to our potential beneficiaries, or to any other person, for
any failure or alleged failure to follow such direction nor shall any of our
litigation trustees be subject to suit by any person that contests the validity
of any action taken under our declaration of trust or seeks to compel or direct
the use, investment or application of amounts in the litigation trust other than
as determined in the discretion of our litigation trustees.
14
RESALE OF OUR UNITS
Our units registered in the Registration Statement of which this
prospectus is a part will be freely transferable by their holders, except for
those holders who may be deemed to be our "affiliates" under applicable federal
securities laws.
NO EXISTING TRADING MARKET FOR OUR UNITS
There is no current trading market for our units and one is not
likely to develop. We have no current plans to apply to have our units traded on
an exchange or a national market. Even if a market for our units develops, there
would likely be minimal trading, limited liquidity and there can be no assurance
as to the price at which our units would trade at any time and such price could
be subject to rapid and substantial change, depending upon, among other things,
developments regarding our litigation claims. See "Risk Factors."
INDEMNIFICATION
We are required to indemnify, to the fullest extent permitted by
law, Empire Resorts, Monticello Raceway Management, Monticello Casino
Management, Monticello Raceway Development, Mohawk Management, our litigation
trustees, our administrative trustee and any of their officers, directors,
stockholders, members, partners, employees, representatives, custodians,
nominees, agents, heirs, successors, assigns or affiliates in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature,
arising out of or relating to the litigation trust, our line of credit, our
litigation claims, or any acts or omissions of our litigation trustees or our
administrative trustee in their capacity or purportedly in their capacity as our
litigation trustees or our administrative trustee, as the case may be, or
actions taken by our litigation trustees or our administrative trustee
(including actions taken by our litigation trustees or our administrative
trustee, as the case may be in their capacity as officers or directors of any
entity that is a party to the consolidation of Empire Resorts with Monticello
Recovery Management, Monticello Casino Management, Monticello Raceway
Development Company and Mohawk Management so long as such actions relate to the
litigation trust including, without limitation, the negotiation of the terms of
the litigation trust and the approval of the establishment of the litigation
trust and related transactions, but otherwise excluding actions taken by our
litigation trustees or our administrative trustee, as the case may be in such
capacities), against any and all losses, liabilities, damages, judgments,
demands, suits, claims, assessments, charges, fines, penalties and other costs
and expenses, including attorneys' fees and expenses and other fees and expenses
associated with the defense of a claim or incurred by such indemnified person in
obtaining indemnification under our declaration of trust, whether or not in a
formal proceeding.
Notwithstanding the preceding paragraph, no indemnification shall
apply in the case of the indemnification of (i) our litigation trustees, if our
unitholders establish in a final judicial determination by clear and convincing
evidence that damages arose as the result of acts or omissions of our litigation
trustees with deliberate intent to injure our unitholders or with reckless
disregard for the best interests of our unitholders, (ii) our administrative
trustee, if it is established in a final judicial determination by clear and
15
convincing evidence that damages arose as a result of its gross negligence or
willful misconduct, or (iii) Empire Resorts or its successors, if it is
established in a final judicial determination by clear and convincing evidence
in an action brought by our litigation trustees or by our unitholders that
damages arose as the result of Empire Resorts' or its successor's material
breach of any of its obligations under our line of credit. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, as applicable, shall not, of
itself, create a presumption that (i) our litigation trustees acted or decided
with deliberate intent to injure our unitholders or with reckless disregard for
the best interests of our unitholders, (ii) our administrative trustee acted
with gross negligence or willful misconduct, or (iii) our litigation trustees or
our unitholders established by clear and convincing evidence that Empire Resorts
or its successor materially breached any of its obligations under our line of
credit.
To the fullest extent permitted by law, expenses (including
attorneys' fees and expenses) incurred by an indemnified person in defending a
civil, criminal, administrative or investigative action, suit or proceeding for
which such indemnified person is entitled to indemnification shall be paid by us
in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking (without bond or security) by or on behalf of such
indemnified person to repay such amount if it shall ultimately be determined
that he or it is not entitled to be indemnified by us as set forth in our
declaration of trust.
We may purchase and maintain insurance to cover our indemnification
obligations and any other liabilities of our litigation trustees and our
administrative trustee. We will use amounts from our expense account (or amounts
from other sources of the litigation trust) to pay for such insurance.
The indemnification and advancement of expenses provided by, or
granted under our declaration of trust shall continue as to a person who has
ceased to be an indemnified person and shall inure to the benefit of the heirs,
executors and administrators of such a person.
REPORTS TO OUR BENEFICIARIES
Our litigation trustees are required to issue annual reports to our
beneficiaries showing our assets and liabilities at the end of each fiscal year
and our receipts and disbursements for the fiscal year then ended. The annual
reports also will describe changes in our assets, significant changes in the
status of our litigation claims during the reporting period and significant
actions taken by our litigation trustees during the period. Our litigation
trustees are also required to distribute to our beneficiaries a special report
if, in the opinion of our litigation trustees, a material event relating to our
assets has occurred.
GOVERNING LAW
Our declaration of trust and the rights of the parties thereunder
are governed by and interpreted in accordance with the laws of the State of
Delaware.
16
OUR LITIGATION TRUSTEES
OUR LITIGATION TRUSTEES AND THEIR AGES ARE AS FOLLOWS:
Name Age
---- ---
Paul A. deBary 57
Joseph E. Bernstein 54
PAUL A. DEBARY has been a member of Empire Resorts' board of
directors since February 2002. He has also been a Managing Director at Marquette
deBary Co., Inc., a New York based broker-dealer since 1997, where he serves as
a financial advisor for state and local government agencies, public and private
corporations and non-profits. Prior to assuming his current position, Mr. deBary
served as Managing Director in the Public Finance Department of Prudential
Securities from 1994 to 1997. He was a partner in the law firm of Hawkins,
Delafield & Wood in New York from 1975 to 1994. Mr. deBary received an AB in
1968, and an MBA and JD in 1971 from Columbia University. He is a member of the
American Bar Association, the New York State Bar Association, the Association of
the Bar of the City of New York and the National Association of Bond Lawyers and
serves a President and as a Director of the Society of Columbia Graduates.
JOSEPH E. BERNSTEIN has been a member of Empire Resorts' board of
directors since 2003 and a managing director of Americas Tower Partners. He
started his career as a corporate tax attorney on Wall Street at Cahill Gordon &
Reindel and as an international tax attorney at Rosenman & Colin. He later
started his own international tax practice. Since the early 1980s, Mr. Bernstein
(along with his brother Ralph, and their partner, Morad Tahbaz, through their
jointly-owned entity, Americas Tower Partners) has been involved in the
development of three million square feet of commercial property in Manhattan,
including Americas Tower, a 50-story office building on Avenue of the Americas
and 46th Street, serving as world headquarters to PriceWaterhouseCoopers and US
headquarters to Israel's largest bank, Bank Hapoalim. Americas Tower Partners is
presently developing AQUARIA Entertainment City, a $375 million tourism project
in Eilat, Israel, and the $100 million Mt. Arbel Resort & Residence Club, with
36 holes of golf designed by Robert Trent Jones II, overlooking the Sea of
Galilee. Mr. Bernstein holds a B.A. in economics from the University of
California at Davis; a B.A. in agricultural business management from the
University of California at Davis; an M.B.A. in Finance from UCLA Graduate
School of Management; a J.D. from the University of California at Davis School
of Law; and, a Master of Laws Degree (L.L.M.) in taxation from the New York
University School of Law.
COMPENSATION OF OUR TRUSTEES
COMPENSATION OF OUR LITIGATION TRUSTEES
Our litigation trustees are entitled to reimbursement of any
expenses incurred in carrying out the purposes of the litigation trust,
including telephone, mail and messenger, travel, conference, meeting, research
and other administrative and office expenses not paid for directly by us and
each of our litigation trustees shall also receive compensation for his services
equal to $5,000 per month in accordance with the terms of our declaration of
trust, to the extent there are funds available. In addition, Joseph Bernstein
17
and Paul deBary shall receive compensation for their services as our litigation
trustees equal to 4% and 1%, respectively, of the total amount deposited into
our recovery account in accordance with the terms of our declaration of trust,
to the extent there are funds available. In the event of the resignation or
death of a litigation trustee, the percentage fees payable to such litigation
trustee, if any, shall be pro rated for time served as a litigation trustee
between the resigned or deceased litigation trustee and his successor litigation
trustee(s) and the amount payable to such resigned or deceased litigation
trustee shall be paid to the litigation trustee or his estate in the case of a
deceased litigation trustee; provided, however, that in the case of the
resignation or death of Joseph Bernstein, the portion of the fee to be pro-rated
shall be equal to 1% of the total amount deposited into our recovery account and
Joseph Bernstein or his estate, as the case may be, shall continue to be
entitled to receive an amount equal to 3% of the total amount deposited into our
recovery account.
COMPENSATION OF OUR ADMINISTRATIVE TRUSTEE
Our administrative trustee is Christiana Bank & Trust Company. The
primary function of our administrative trustee is to fulfill the Delaware law
requirement to have one trustee have its principal place of business located
within the state of Delaware. Our administrative trustee will also perform
certain administrative functions as set forth in our declaration of trust at the
direction of our litigation trustees. Our administrative trustee shall receive
compensation for its services as follows:
o Acceptance Fee..................................$5,000.00;
Includes the first month administration fee
o Monthly Administration Fee.......................$ 500.00; and
o Custody Fee on any cash or marketable securities, other than on
certain cash balances:
o .05 of 1% (5.00 basis points) per annum the first $10,000,000 of the
accounts fair market value; and
o .03 of 1% (3.00 basis points) per annum on the balance of the
accounts fair market value.
Plus: $15 for each DTC or FED eligible trade, if applicable, and
outgoing wire transfers: $20 per transfer.
Out of pocket expenses, including legal fees, which may be incurred
during the set-up and administration of the litigation trust, will be billed at
cost in addition to the above-described fees. In the event that special
administrative services and attention are required due to unusual circumstances,
an additional maintenance fee will be charged to cover time and expenses. In the
event Christiana Bank & Trust Company is no longer acting as our administrative
trustee, the compensation of our administrative trustee shall be as mutually
agreed to by our litigation trustees and our administrative trustee.
18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the event there is a settlement or award with respect to our
litigation claims, Empire Resorts is to be paid $7,500,000 for reimbursement of
prior expenses incurred in connection with our litigation claims prior to our
unitholders receiving any proceeds.
Our litigation trustees are both current members of the Board of
Directors of Empire Resorts. Our litigation trustees will receive compensation
for their services as our litigation trustees. See "COMPENSATION OF THE
TRUSTEES."
DESCRIPTION OF OUR UNITS
Our beneficial interests are represented by our units. We have one
class of units which represent an assignable and transferable beneficial
interest in the net proceeds, if any, to be received by us from the settlements
or awards, if any, of our litigation claims. Our unitholders have no rights to
dividends, interests, liquidation preferences or any other distributions. The
holders of our units have no voting rights.
UNITS ELIGIBLE FOR FUTURE SALE
The 3,693,794 units registered under the Registration Statement of
which this prospectus is a part will be freely tradable. The remaining
19,009,102 outstanding units will be "restricted securities," as that term is
defined in Rule 144 and may only be sold under an effective registration
statement under the Securities Act or in compliance with an applicable exemption
from registration, including Rule 144.
FEDERAL INCOME TAX CONSEQUENCES
THE DISTRIBUTION
Empire Resorts expects that the tax consequences to it and holders
of its common stock from the distribution of our units will be insignificant.
Each of our unitholders will be taxed on the fair market value of
our units received by him or her. The fair market value of our units will be
determined in good faith by the Board of Directors of Empire Resorts. The
distribution will constitute ordinary, dividend income if Empire Resorts has
current earnings and profits for the tax year of the distribution. To the extent
that Empire Resorts does not, the distribution will be treated as a tax-free
return of capital to our unit holders. However, if the fair market of our units
received by a unit holder exceeds his or her tax basis in his or her shares of
Empire Resorts common stock, he or she will recognize capital gain income to the
extent of such excess. Special tax rules apply to corporate holders of Empire
Resorts common stock. Any tax liability to Empire Resorts or its common
stockholders as a result of the distribution is expected to be insignificant.
OWNERSHIP OF OUR UNITS
Each holder of our units will be treated for federal income tax
purposes as the owner of his or her share of our assets. Our unitholders will
therefore be taxed upon the receipt by us of proceeds on account of any
settlement or award in connection with our litigation claims. Such proceeds may
be taxed as ordinary income, although the matter is not free from doubt.
19
Furthermore, certain fees and expenses incurred by us may be treated as
miscellaneous itemized expenses for our unitholders who are individuals,
deductible only to the extent a unitholder's total miscellaneous itemized
deductions exceed 2% of his or her adjusted gross income.
The foregoing discussion is based upon the Internal Revenue Code of
1986, as amended, Treasury regulations, and Internal Revenue Service rulings and
judicial decisions now in effect, all of which are subject to change at any
time, possibly with retroactive effect, by legislative, judicial or
administrative action. In addition, the tax consequences to a particular holder
(including life insurance companies, tax-exempt organizations, financial
institutions, dealers in securities, foreign corporations and nonresident alien
individuals) may be affected by matters not discussed herein.
BECAUSE THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED HEREIN DEPEND
UPON EACH HOLDER'S PARTICULAR TAX STATUS, AND DEPEND FURTHER UPON FEDERAL TAX
LAWS, REGULATIONS, RULINGS AND DECISIONS, WHICH ARE SUBJECT TO CHANGE (WHICH
CHANGES MAY BE RETROACTIVE IN EFFECT), OUR UNITHOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISORS.
LEGAL MATTERS
The legality of our units in this prospectus will be passed upon for
us by Olshan Grundman Frome Rosenzweig & Wolosky LLP, New York, New York.
EXPERTS
Our financial statements as of January 12, 2004 included in this
prospectus have been audited by Marcum & Kliegman LLP, independent auditors and
have been so included in reliance upon the report of Marcum & Kliegman LLP
appearing elsewhere herein, given on the authority of such firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange a registration
statement on Form S-1, including exhibits, schedules and amendments, under the
Securities Act with respect to our units to be sold in this offering. This
prospectus does not contain all of the information included in the registration
statement (including the exhibits to the registration statement). For further
information about us and our units to be distributed in this offering, please
refer to this registration statement, which you may inspect, without charge, at
the public reference facilities of the SEC located at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or online at WWW.SEC.GOV, or obtain at prescribed rates
from the public reference facilities of the SEC at the above address.
You may request, and we will provide, a copy of our filings, at no
cost to you, by writing or telephoning us at the following address:
Catskill Litigation Trust
c/o Christiana Bank & Trust Company
1314 King Street
Wilmington, Delaware 19801
20
This prospectus is part of a registration statement we filed with
the SEC. You should rely only on the information or representations provided in
this prospectus. We have authorized no one to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.
21
INDEX TO FINANCIAL STATEMENTS
CATSKILL LITIGATION TRUST
CONTENTS
- --------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENT
Balance Sheet F-3
NOTES TO FINANCIAL STATEMENT F4-6
F-1
INDEPENDENT AUDITORS' REPORT
To the Trustees
Catskill Litigation Trust
We have audited the accompanying balance sheet of Catskill Litigation Trust as
of January 12, 2004. This financial statement is the responsibility of the
Trustees of the Trust. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit 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
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Catskill Litigation Trust as of
January 12, 2004 in conformity with accounting principles generally accepted in
the United States of America.
/s/ Marcum & Kliegman LLP
New York, New York
January 30, 2004
F-2
Catskill Litigation Trust
Balance Sheet
At January 12, 2004
- --------------------------------------------------------------------------------
ASSETS
ASSETS $ --
- ------ =============
LIABILITIES AND TRUST EQUITY
LIABILITIES $ --
- ----------- =============
COMMITMENTS AND CONTINGENCIES
TRUST EQUITY
Units of beneficial interest - 22,702,896 units authorized --
issued and outstanding --------------
TOTAL LIABILITIES AND TRUST EQUITY $ --
==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
F-3
CATSKILL LITIGATION TRUST
NOTES TO FINANCIAL STATEMENT
- --------------------------------------------------------------------------------
NOTE 1 - THE TRUST
The Catskill Litigation Trust, a Delaware statutory trust (the
"Litigation Trust"), was formed by Empire Resorts, Inc. ("Empire"),
Monticello Raceway Management, Inc., ("MRMI"), Monticello Casino
Management, LLC, Monticello Raceway Development Company, LLC ("MRDC")
and Mohawk Management, LLC ("Mohawk") on January 12, 2004 and
22,702,896 units of beneficial interest were issued to the members and
stockholders of those entities. Also, on January 12, 2004, Empire,
Catskill Development, L.L.C. ("Catskill"), MRMI, Mohawk, Joseph E.
Bernstein, Paul A. deBary (Messrs. Bernstein and deBary are hereinafter
referred to as the "Litigation Trustees") and Christiana Bank and Trust
Company (the "Administrative Trustee") entered into the Declaration of
Trust of Catskill Litigation Trust (the "Declaration of Trust").
Pursuant to the Declaration of Trust, Catskill, MRDC and the Mohawk
assigned to the Trust all of their claims under or related to the
alienation and frustration of their agreements and business relations
with the St. Regis Mohawk Tribe and their rights to any judgment or
settlement that may arise from any litigation relating to two
litigations entitled Catskill Development, L.L.C., Mohawk Management
L.L.C. and Monticello Raceway Development Company L.L.C., Plaintiffs v.
Park Place Entertainment Corporation, Defendant and Catskill
Development, L.L.C., Mohawk Management, L.L.C., Monticello Raceway
Development Company, L.L.C., Plaintiffs v. Gary Melius, Ivan Kaufman,
Walter Horn, President R.C. - St. Regis Management Company, et al,
Defendants (hereinafter referred to as the "Litigation"). If at any
time the Litigation Trustees determine, in their absolute discretion,
that the assets of the Litigation Trust are not sufficient to justify
its continuance, the Litigation Trustees are authorized to terminate
the Litigation Trust. In addition, the Litigation Trust shall terminate
on the date that all litigation has been fully prosecuted to final
judgment or dismissal, including all appeals, and all Litigation Trust
assets have been distributed to the Litigation Trust's beneficiaries.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
the trustees to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-4
INCOME TAXES
For Federal income tax purposes, the Litigation Trust is treated as a
grantor trust. Under the grantor trust rules, each holder of a unit of
beneficial interest is treated as the owner of his or her share of the
Litigation Trust's assets, income and expenses.
NOTE 3 - LINE OF CREDIT
Empire, a related party, has provided the Litigation Trust with a
line-of-credit of up to $2,500,000. The line-of-credit can be utilized
to pay all expenses of the Litigation Trust permitted under the
Declaration of Trust, including but not limited to professional fees
and Litigation and Administrative Trustees fees and expenses. The
line-of-credit is non-interest bearing and is to be repaid from any
amounts received from litigation settlements or awards. The
line-of-credit expires upon the termination of the Litigation Trust.
NOTE 4 - DISTRIBUTIONS
The distribution of any net proceeds from litigation settlements or
awards, after amounts applied to expenses of the Litigation Trust, are
to be made at the sole discretion of the Litigation Trustees and will
be distributed as follows:
First: An amount necessary to pay the Litigation Trustees their fees
arising from litigation settlements or awards. (See Note 5)
Second: If any amounts remain, $7,500,000 shall be paid to Empire to
reimburse it for expenses incurred in connection with the Litigation
prior to the formation of the Litigation Trust and any amounts
outstanding under the line-of-credit.
Third: If any amount remains after the above requirements are met, such
amount remaining shall be divided among the beneficiaries of the
Litigation Trust in proportion to their ownership of Units as of the
date the distribution is made.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Compensation of Litigation Trustees
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Each of the two Litigation Trustees is entitled to annual compensation
of $60,000 plus reimbursement of expenses incurred carrying out the
purpose of the Litigation Trust. In addition, one trustee is entitled
to 4%, and the other 1%, of any litigation settlements or awards.
Compensation of the Administrative Trustee
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The Administrative Trustee is entitled to a $5,000 acceptance fee
(which includes the first month administrative fee) and a monthly
administrative fee of $500. In addition, the Administrative Trustee is
entitled to a custody fee on certain cash balances and marketable
securities of .5% per annum on the first $10,000,000 of fair value and
.3% on the excess and reimbursement for certain fees and expenses.
Expenses Paid by Empire prior to the Formation of the Trust
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As discussed in Note 4, the Trust is obligated to pay to Empire up to
$7,500,000. This amount represents Empire's expenses incurred prior to
F-5
the formation of the Litigation Trust. The amount is payable solely
from the proceeds of litigation settlements or awards.
NOTE 6 - CERTAIN RELATIONSHIPS
The Litigation Trustees are both currently members of the Empire Board
of Directors.
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No one (including any salesman or broker) is authorized to provide oral or
written information about this offering that is not included in this prospectus.
March 5, 2004
CATSKILL LITIGATION TRUST
3,693,794 UNITS
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PROSPECTUS
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