Filed Pursuant to Rule 424(b)(1)
Registration No. 333-87206
[LOGO]
RESORTS INTERNATIONAL
HOTEL AND CASINO, INC.
OFFER TO EXCHANGE ALL OUTSTANDING 11 1/2% FIRST MORTGAGE NOTES DUE 2009
($180,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
FOR
11 1/2% FIRST MORTGAGE NOTES DUE 2009
REGISTERED UNDER THE SECURITIES ACT OF 1933
IRREVOCABLY AND UNCONDITIONALLY GUARANTEED ON A SENIOR BASIS
BY
RESORTS INTERNATIONAL HOTEL, INC.
AND
NEW PIER OPERATING COMPANY, INC.
TERMS OF EXCHANGE OFFER
... Expires 5:00 p.m., Eastern Standard time, July 1, 2002, unless extended
... Subject to customary conditions which may be waived by us
... All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged
... You may withdraw tender of your original notes at any time before the
expiration of the exchange offer
... The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes
... We will not receive any proceeds from the exchange offer
... The terms of the notes to be issued are substantially similar to the
outstanding notes, except for certain transfer restrictions and
registration rights relating to the outstanding notes
... If you fail to tender your original notes, you will continue to hold
unregistered securities and it may be difficult for you to transfer them
... The exchange notes will not be listed on any securities exchange
----------------
CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 18 OF THIS PROSPECTUS
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES TO BE DISTRIBUTED IN THE
EXCHANGE OFFER, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is June 3, 2002.
TABLE OF CONTENTS
PAGE
----
Summary.............................................................................. 1
Risk Factors......................................................................... 18
Forward Looking Statements........................................................... 28
Use of Proceeds...................................................................... 29
Capitalization....................................................................... 31
Ratio of Earnings to Fixed Charges................................................... 32
Selected Financial Data.............................................................. 33
Pro Forma Unaudited Condensed Consolidated Statement of Operations................... 36
Management's Discussion and Analysis of Financial Condition and Results of Operations 40
Business............................................................................. 48
Government Regulation and Other Factors.............................................. 60
Management........................................................................... 63
Certain Transactions and Relationships............................................... 72
Security Ownership................................................................... 75
The Exchange Offer................................................................... 78
Description of the Exchange Notes.................................................... 89
Material U.S. Federal Income Tax Considerations...................................... 144
Plan of Distribution................................................................. 148
Legal Matters........................................................................ 148
Experts.............................................................................. 148
Change in Independent Auditors....................................................... 149
Where You Can Find Additional Information............................................ 149
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT OR
ADDITIONAL INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT
INFORMATION, YOU SHOULD NOT RELY ON IT. THIS PROSPECTUS MAY ONLY BE USED WHERE
IT IS LEGAL TO PARTICIPATE IN THIS EXCHANGE OFFER. YOU SHOULD ASSUME THAT THE
INFORMATION APPEARING IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE ON THE
FRONT COVER OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT RESORTS INTERNATIONAL HOTEL AND CASINO, INC. AND ITS SUBSIDIARIES THAT IS
NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS. WE WILL PROVIDE THESE
DOCUMENTS WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED
UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON TO: JOSEPH A. D'AMATO, VICE
PRESIDENT, RESORTS INTERNATIONAL HOTEL AND CASINO, INC, 1133 BOARDWALK,
ATLANTIC CITY, NEW JERSEY 08401, TELEPHONE: (609) 344-6000. IN ORDER TO ENSURE
TIMELY DELIVERY OF DOCUMENTS, ANY REQUEST SHOULD BE MADE NO LESS THAN FIVE
BUSINESS DAYS PRIOR TO THE EXPIRATION OF THE EXCHANGE OFFER.
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Each broker-dealer that receives registered notes for its own account in
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of those notes. The letter of transmittal
accompanying this prospectus states that by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act. A participating
broker-dealer may use this prospectus in connection with resales of notes
received in exchange for the outstanding notes where those notes were acquired
by the broker-dealer as a result of market-making activities or other trading
activities. We have agreed that, starting on the date of this prospectus and
ending on the close of business on the day that is 180 days following the date
of this prospectus, we will make this prospectus available to any broker-dealer
for use in connection with any of those resales. See "Plan of Distribution."
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SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. BECAUSE THIS IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE MAKING YOUR DECISION TO PARTICIPATE
IN THE EXCHANGE OFFER. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY,
INCLUDING THE "FORWARD LOOKING STATEMENTS" AND "RISK FACTORS" SECTIONS AND OUR
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE FINANCIAL
STATEMENTS. IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE REQUIRES, "RESORTS
INTERNATIONAL HOTEL AND CASINO, INC.," "THE COMPANY," "WE," "US" AND "OUR"
REFER TO RESORTS INTERNATIONAL HOTEL AND CASINO, INC. AND OUR SUBSIDIARIES.
RESORTS ATLANTIC CITY
We own and operate Resorts, a casino hotel in Atlantic City, New Jersey.
Resorts commenced operations in May 1978 as the first casino hotel in Atlantic
City. Resorts is situated on the Boardwalk of Atlantic City adjacent to and
adjoined by a crosswalk to the Trump Taj Mahal Casino Resort. We focus on
providing a high quality gaming, lodging, dining and entertainment experience
to our core customer base of low- to mid-level slot players and mid-level table
game players. Our gaming floor is approximately 85,000 square feet and is
comprised of approximately 2,570 slot machines and 70 table games. Our hotel
facilities are currently comprised of two hotel towers, the recently renovated
15-story Ocean Tower consisting of 479 hotel rooms and suites and the
nine-story Atlantic City Tower consisting of 166 hotel rooms.
Colony Investors IV, L.P., an affiliate of Colony Capital, LLC, acquired
Resorts for a total purchase price of $144.8 million in April 2001, referred to
herein as the Acquisition. In early 2000, prior to the Acquisition, our new
management team joined us. Under our new management and equity sponsorship, we
have implemented a number of programs that have generated increases in our
Adjusted EBITDA. Our Adjusted EBITDA has improved from $24.3 million for the
year ended December 31, 2000 to $30.8 million for the combined year ended
December 31, 2001, while our Adjusted EBITDA margin has increased from 9.9% for
the year ended December 31, 2000 to 12.7% for the same combined period in 2001.
See "Summary Financial Data." We have initiated additional programs over the
past year that we believe will lead to further increases in our Adjusted EBITDA.
THE EXPANSION
In July 2002, we plan to begin the construction process of building a new
27-story hotel tower with approximately 400 hotel rooms and suites on the site
of our existing Atlantic City Tower and a corresponding expansion of our gaming
floor. The expansion is budgeted to cost approximately $115.5 million, which
includes $85.0 million of hard construction costs, $7.2 million of soft
construction costs, $14.8 million of other costs (including FF&E and gaming
equipment) and $8.5 million for contingencies arising in connection with the
construction. At an average of approximately 528 square feet, we believe our
newly constructed standard rooms will be significantly larger than the average
standard hotel room in Atlantic City. Following the completion of construction,
and subject to the approval of the New Jersey Casino Control Commission, or the
NJCCC, we plan to have approximately 99,000 square feet of gaming space and
approximately 3,140 slot machines. In addition, we plan to relocate and expand
our lobby and porte cochere areas creating a central arrival area for guests of
both towers. During the construction period, the Ocean Tower and approximately
90% of our gaming floor are expected to remain fully operational. Additionally,
the area of our gaming space and the number of our slot machines during
construction and upon completion of the new hotel tower is subject to the
approval of the NJCCC. We expect the expansion to be completed approximately 24
months from commencement.
The expansion is a key component in continuing our strategy of growing
our core customer base. We believe that there is a significant disparity in the
quality of amenities currently offered by our two existing hotel towers which
constrains our ability to attract and retain higher-margin, mid-level slot
players and mid-level table game players. Rooms in the Ocean Tower, a classic
hotel structure constructed in the 1920's and completely renovated in 1999, are
competitive with the hotel rooms offered by other facilities in the Atlantic
City market. In contrast, the Atlantic City Tower was built in the 1960's as a
motel and consequently has smaller corridors, thinner walls and smaller
bathrooms than the hotel rooms offered by the other casino hotels in the
Atlantic City market. Based on an analysis of the players we track, we believe
the Ocean Tower has historically generated a win per occupied room greater than
twice that generated by the Atlantic City Tower.
We believe the opening of our new hotel tower will increase both our
gaming revenues and significantly expand our operating margins for the
following reasons:
. We believe that customers tend to play longer and spend more of their
budgeted gaming dollars at the casino hotel in which they stay.
Correspondingly, we believe that our new hotel rooms and suites will
encourage patrons to stay with us, increase their length of play and
spend more of their gaming dollars at our casino, contributing to an
increased average win per customer.
. The new hotel rooms will be among the largest in the Atlantic City
market, which we believe will allow us to shift our customer mix to
the higher-margin, mid- to high-level slot player and the higher end
of our core customer base of table game players.
. We believe our fixed costs will only marginally increase following
the expansion. Consequently, we believe we will generate higher
margins from our new hotel rooms and suites and additional slot
machines.
BUSINESS STRATEGY
Our business strategy is to:
CAPITALIZE ON RECENT SUCCESSFUL INITIATIVES. Our senior management team
joined us early in 2000 and has since significantly improved the operating
performance of Resorts, primarily by marketing value driven programs to our
core customer base, implementing cost-cutting initiatives and expanding our
casino floor where possible. We are beginning to realize the benefits of these
programs and we believe that we will continue to realize these benefits in 2002.
INCREASE OPERATING LEVERAGE AND EFFICIENCIES. We believe the expansion
will improve operating efficiencies by substantially increasing the number of
high quality hotel rooms and suites we offer while only marginally increasing
our operating expenses. We believe the expansion will allow us to increase the
average length of stay of our customers and attract higher-margin, higher-level
customers.
INVEST IN STATE-OF-THE-ART SLOT MACHINES. We are committed to offering
our customers the latest themed slot machines and gaming technology. We believe
this focus is critical to retaining mid-level slot players, who we believe are
more knowledgeable and sophisticated than players in other gaming segments. In
connection with the expansion, we plan to add approximately 570
state-of-the-art slot machines to our gaming floor.
DEVELOP AND EXPAND OUR CORE CUSTOMER BASE. We primarily focus on
developing and expanding our mid-level slot customer base, with a secondary
focus on our mid- to high-level table game customer base. We continue to refine
our bus promotion strategy to target only the most profitable bus markets. We
believe that our recent success is the result of marketing initiatives focused
on building player loyalty through more efficient use
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of player information. We believe the primary means of attracting new players
will be our ability to offer high quality hotel rooms and suites.
FOCUS ON CUSTOMER SERVICE. We continue to emphasize the importance of
creating a culture focused on customer service. Each employee is extensively
trained in their respective functional area to respond immediately to customer
needs. Employee compensation at all levels is performance-based, with customer
satisfaction being a key basis of evaluation. We believe this promotes an
environment in which all employees feel a sense of commitment to customer
service.
ATLANTIC CITY MARKET
The Atlantic City market has demonstrated continued and steady growth,
despite several recessions and the recent proliferation of new gaming
jurisdictions, including Delaware and Connecticut. Compound annual growth in
total gaming revenue has averaged 3.3% since 1990. Slot play has become
increasingly popular with Atlantic City gaming patrons. This trend is evidenced
by the 14.3% increase in the number of slot machines in the Atlantic City
market since 1996 as compared to the 10.3% decrease in the number of table
games. From 1996 to 2001, slot revenues in the Atlantic City market increased
from 68.7% of total casino revenues to 72.8% of total casino revenues.
We believe that the Atlantic City market's overall hotel room and suite
inventory is significantly constrained as evidenced by the market's five year
average occupancy rate of approximately 90%. At this
occupancy rate, there are limited rooms to offer to cash customers and
convention-related business. In addition, in 2000, the Atlantic City market had
a ratio of gaming revenues to hotel rooms of 377,034:1, while the Las Vegas
market (comprised of downtown, the strip and the Boulder strip) had a
corresponding ratio of 48,918:1. We believe the lack of available rooms,
especially during the summer months and on weekends, has hampered the growth of
the Atlantic City market. We believe the Atlantic City market has responded,
and will continue to respond, favorably to increased hotel room and suite
capacity and that gaming operators that have constructed hotel room and suite
additions experienced higher operating margins in the two years following the
completion of such additions. We believe that gaming operators who experienced
growth in gross operating profits, as a result of hotel room and suite
additions, include the Atlantic City Tropicana, Caesars Atlantic City, Hilton
and Harrah's Atlantic City. Furthermore, we believe the low amount of
additional hotel room and suite capacity developed since 1998 has constrained
the growth of the Atlantic City market.
Significant private and public investment in the Atlantic City market has
been made over the past few years, including construction of the $268.0 million
Atlantic City Convention Center, renovation of the entrance to the Atlantic
City Expressway, the recently completed $330.0 million Atlantic City Tunnel
project connecting the Atlantic City Expressway to the Marina District, the
construction of a minor league baseball stadium and the refurbishment of the
Boardwalk Convention Center Hall into a special events venue. In addition, an
enhancement project of North Carolina Avenue has been undertaken that will
improve traffic flow in Atlantic City and allow North Carolina Avenue to serve
as the primary thoroughfare from the Marina District to the Boardwalk, thereby
promoting traffic flow to Resorts' entrance, which is located on North Carolina
Avenue. Further, Cordish Co. recently announced a $76.0 million development
project of an approximate 300,000 square foot retail and entertainment complex
adjacent to the Atlantic City Convention Center.
Several gaming operators have announced new development or expansion
projects which we believe will attract new, higher-margin customers and help to
alleviate hotel room and suite inventory constraints. The most significant
addition to the Atlantic City market will be the completion by Boyd Gaming
Corporation and MGM Grand, Inc. of a resort complex located in the Marina
District to be named the "Borgata." We believe the Borgata will attract a
younger gaming customer and will increase the size and profitability of the
overall market.
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In addition, we believe the Borgata will be Atlantic City's first
destination-based resort and will drive additional traffic to the Boardwalk due
to the longer estimated length of stay of the Borgata's target customers. In
addition to the construction of the Borgata, several Atlantic City properties
have announced or are currently undergoing renovations, including the Atlantic
City Tropicana, Harrah's Atlantic City, Claridge Casino and Hotel, Sands Casino
Hotel and Showboat Casino & Hotel.
MANAGEMENT
Our casino benefits from a management team with over 65 years of
collective executive management experience in the Atlantic City market with
nationally known gaming companies. This collective experience includes
oversight of all aspects of gaming operations, including executive oversight of
slot and table game operations, marketing, hospitality, finance and audit,
human resources and management of information systems. Nicholas L. Ribis is a
minority owner of Resorts and currently serves as our Vice Chairman. He
previously served as President of Trump Hotels and Casino Resorts. Audrey S.
Oswell joined Resorts in February 2000 as President and Chief Operating
Officer. She previously served as President and Chief Operating Officer of
Caesars Atlantic City. Joseph A. D'Amato joined Resorts in August 2000 as Chief
Financial Officer and Senior Vice President of Finance. He previously served as
Chief Financial Officer and acting Chief Operating Officer of Trump Marina.
Additionally, each member of our senior management has successfully completed
one or more casino renovations and/or room additions with other casino hotels
in the Atlantic City market. We believe this collective experience will allow
us to complete the expansion on time, within our construction budget and in a
manner that is minimally disruptive to our current operations.
ORGANIZATIONAL CHART
The diagram below shows our corporate structure.
[FLOW CHART]
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(1)RIH owns and operates Resorts.
(2)New Pier owns an approximate 5.5 acre Atlantic Ocean pier site, two acres of
which contained the former Steeplechase Pier.
Colony Investors IV, L.P., an affiliate of Colony Capital, LLC, or Colony
Capital, and Nicholas L. Ribis, acquired Resorts International Hotel, Inc.,
which owns and operates Resorts, through CRH and RIHC for a total purchase
price of $144.8 million in April 2001. Colony Capital is a private,
international investment firm that focuses primarily on real estate-related
assets and operating companies with a strategic dependence on such assets.
Colony Capital's five discretionary real estate investment funds represent
total assets of over $6.0 billion.
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Colony Capital is led by Thomas J. Barrack, Jr., who was a principal at Robert
M. Bass Group before forming Colony Capital in 1991. Colony Capital has offices
in Los Angeles, New York, Kohala Coast in Hawaii, Singapore, Seoul, Tokyo and
Paris. In connection with the closing of the offering of the original notes,
our parent's existing stockholders purchased $35.0 million of our parent's
equity. Our parent subsequently contributed the proceeds of the equity sale to
us prior to the closing of the offering of the original notes.
CORPORATE INFORMATION
Our principal executive offices are located at 1133 Boardwalk, Atlantic
City, New Jersey 08401, and our telephone number is (609) 344-6000. Our website
is located at www.resortsac.com. Our website is not intended to be part of this
prospectus.
This prospectus contains references to our trademark Resorts Atlantic
City, among others. All other trademarks or trade names referred to in this
prospectus are the property of their respective owners.
THE EXCHANGE OFFER
You are entitled to exchange your notes for exchange notes which have
been registered under the Securities Act of 1933, as amended, or the Securities
Act. The terms of exchange notes will be substantially similar to the terms of
the notes you currently hold, except that the exchange notes will be registered
under the Securities Act and will not have registration rights, will not
contain transfer restrictions and will not provide for increased interest for
certain periods. As a result of this registration, and only if you participate
in the exchange offer and exchange your notes for exchange notes, we believe
that you may resell the exchange notes without complying with the registration
and prospectus delivery provisions of the Securities Act. Following the
exchange offer, any notes held by you that are not exchanged will continue to
have the existing restrictions on their transfer and, except in certain
circumstances, we will have no further obligation to register your notes under
the Securities Act. You should be aware that your notes are fully and
unconditionally guaranteed by our subsidiaries, Resorts International Hotel,
Inc., or RIH, and New Pier Operating Company, Inc., or New Pier. RIH and New
Pier are collectively referred to in this prospectus as the Guarantors. The
exchange notes will also have the benefit of these guarantees.
Resorts International Hotel and Casino, Inc. and the Guarantors entered
into a registration rights agreement dated March 22, 2002 with Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, CIBC World Markets
Corp., Deutsche Banc Alex. Brown Inc. and Jefferies & Company, Inc., the
initial purchasers of the original notes. Under this agreement, we must deliver
this prospectus to you and file a registration statement with the Securities
and Exchange Commission, or the SEC, to register the exchange notes. You should
read the discussion under "--Summary of the Exchange Offer" for further
information regarding the exchange offer and resales of the exchange notes. You
should also read the discussions under "--Summary of the Terms of the Exchange
Notes" and "Description of the Exchange Notes" for further information
regarding the exchange notes.
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SUMMARY OF THE EXCHANGE OFFER
IN THIS SUMMARY AND THE SUMMARY OF THE EXCHANGE NOTES, REFERENCES TO
"WE," "US," "OUR" AND "OURS" MEAN RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
ONLY AND NOT ANY OF ITS SUBSIDIARIES.
Securities offered........ We are offering $180,000,000 in aggregate
principal amount of our 11 1/2% First Mortgage
Notes due 2009 in exchange for an equal aggregate
principal amount of our original 11 1/2% First
Mortgage Notes due 2009, on a one for one basis.
The terms of the exchange notes will be
substantially similar to the original notes you
hold, except that these exchange notes will be
registered under the Securities Act and will not
have registration rights, will not contain
transfer restrictions and will not provide for
increased interest for certain future periods.
Registration rights
agreement............... At the time we sold investors the original notes,
we entered into a registration rights agreement
which requires us to make this exchange offer.
After the exchange offer is complete, you will no
longer be entitled to exchange your original notes
for registered notes. We may, in limited
circumstances, be required to file a shelf
registration statement under the Securities Act
with respect to your original notes if you do not
accept our exchange offer. We do not currently
expect to have to file a shelf registration
statement.
If either an exchange offer registration statement
or a shelf registration statement, if required, is
not completed within certain time periods, we will
be required to pay penalty interest on the
original notes.
Exchange offer............ We are offering to exchange $1,000 principal
amount of exchange notes for each $1,000 principal
amount of original notes. In order to be
exchanged, your notes must be properly tendered
and accepted. All original notes that are validly
tendered and not withdrawn will be exchanged.
Ability to resell exchange
notes................... Based on an interpretation by the staff of the SEC
set forth in no-action letters issued to third
parties, including "Exxon Capital Holdings
Corporation" (available May 13, 1988), "Morgan
Stanley & Co. Incorporated" (available June 5,
1991), "Mary Kay Cosmetics, Inc." (available June
5, 1991) and "Warnaco, Inc." (available October
11, 1991), we believe that exchange notes issued
in the exchange offer may be offered for resale,
resold and otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act if:
. the exchange notes issued in the exchange
offer are being acquired in the ordinary
course of your business;
. you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to participate
in the distribution of exchange notes issued
to you in the exchange offer;
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. you are not a broker-dealer who purchased
original notes directly from us for resale
pursuant to Rule 144A or any other available
exemption under the Securities Act; and
. you are not our "affiliate" (as defined under
the Securities Act).
If this belief is inaccurate and you transfer any
exchange notes issued to you in the exchange offer
without delivering a prospectus which meets the
requirements of the Securities Act or without an
exemption from these requirements, you may incur
liability under the Securities Act. We do not
assume any liability if you do and we will not
indemnify you.
If you are a broker-dealer and wish to exchange
original notes that you received as a result of
market-making or other trading activities, you
must agree to deliver a prospectus which meets the
requirements of the Securities Act in connection
with the sale of exchange notes you receive in
this exchange offer. Under the registration rights
agreement, our obligation to make available a
prospectus for use by broker-dealers for this type
of resale of the exchange notes you receive in the
exchange offer ends on December 2, 2002.
People excluded from the
exchange offer.......... You may not participate in the exchange offer if
you are:
. a holder of original notes in any jurisdiction
in which the exchange offer is not, or your
acceptance will not be, legal under the
applicable securities or blue sky laws of that
jurisdiction; or
. a holder of original notes who is an affiliate
of ours or our subsidiaries.
Consequences of failure to
exchange your notes..... If you do not exchange your original notes for
exchange notes in the exchange offer, your
original notes will continue to have restrictions
on transfer contained in the original notes and in
the indenture governing the original notes. In
general, your original notes may not be offered or
sold unless registered under the Securities Act or
pursuant to an exemption from, or in a transaction
not governed by, the Securities Act and applicable
state securities laws. We have no current plans to
register your original notes under the Securities
Act (except for the requirement to file a shelf
registration statement in limited circumstances).
Expiration date........... The exchange offer expires at 5:00 p.m., Eastern
Standard time, on July 1, 2002, unless we extend
the offer.
Conditions to the exchange
offer................... The exchange offer has certain customary
conditions that may be waived by us. There is no
minimum amount of original notes that must be
tendered to complete the exchange offer.
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Procedures for tendering your
notes................. The original notes were issued in the form of
global notes which were deposited with the
Depositary Trust Company, or DTC. Holders of the
original notes own certificateless interests in
the global notes evidenced by records in
book-entry form maintained by DTC.
If you are a holder of an original note in
book-entry form and you wish to tender such note
for an exchange note pursuant to the exchange
offer, you must transmit to Deutsche Bank Trust
Company Americas, as exchange agent, on or prior
to the expiration date,
either:
. a properly completed and duly executed letter
of transmittal, which accompanies this
prospectus, or a facsimile of the letter of
transmittal, including all other documents
required by the letter of transmittal, to the
exchange agent at the address set forth on the
cover page of the letter of transmittal; or
. a computer-generated message, in which you
acknowledge and agree to be bound by the terms
of the letter of transmittal, transmitted by
means of the Automated Tender Offer Program,
or ATOP, system of DTC and received by the
exchange agent;
and, either:
. a timely confirmation of book-entry transfer
of your original notes into the exchange
agent's account at DTC pursuant to the
procedure for book-entry transfers described
in this prospectus under the heading "The
Exchange Offer--Procedure for Tendering," must
be received by the exchange agent on, or prior
to, the expiration date; or
. the documents necessary for compliance with
the guaranteed delivery procedures described
below.
Under certain circumstances, if you are a holder
of original notes in book-entry form, you are
entitled to receive certificated notes in exchange
for your book-entry notes. You can find a
description of these circumstances in this
prospectus under the heading "Description of the
Exchange Notes--Form of Notes." However, as of
this date, no certificated notes are issued and
outstanding. If you acquire certificated notes
prior to the expiration date, you must tender them
in accordance with the procedures described in
this prospectus under the heading "Exchange
Offer--Procedure for Tendering."
Withdrawal rights......... You may withdraw the tender of your original notes
at any time prior to 5:00 p.m., Eastern Standard
time, on the expiration date.
Special procedures for
beneficial owners....... If:
. you beneficially own original notes and your
name does not appear on a security position of
DTC as the holder of such notes,
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. these notes are registered in the name of a
broker, dealer, commercial bank, trust company
or other nominee, and
. you wish to tender your original notes in the
exchange offer,
please promptly contact the registered holder as
soon as possible and instruct it to tender on your
behalf and comply with our instructions set forth
elsewhere in this prospectus. If you wish to
tender on your own behalf you must, prior to
executing the letter of transmittal and delivering
your outstanding notes, either make appropriate
arrangements to register ownership of the original
notes in your name or obtain a properly completed
bond power from the registered holder. The
transfer of record ownership may take considerable
time.
Guaranteed delivery
procedures.............. If you wish to tender your original notes and the
procedure for book-entry transfer cannot be
completed on a timely basis, you must tender your
notes according to the guaranteed delivery
procedures described in this prospectus under the
heading "The Exchange Offer-- Guaranteed Delivery
Procedures."
Material U.S. federal
income tax considerations The exchange of notes is not a taxable exchange
for U.S. federal income tax purposes. You will not
recognize any taxable gain or loss or any interest
income as a result of the exchange. For additional
information regarding federal income tax
considerations, you should read the discussion in
this prospectus under the heading "Material U.S.
Federal Income Tax Considerations."
Use of proceeds........... We will not receive any proceeds from the issuance
of the exchange notes in the exchange offer. We
will pay all expenses incidental to the exchange
offer.
Exchange agent............ Deutsche Bank Trust Company Americas is serving as
exchange agent in connection with exchange offer.
The exchange agent can be reached at P.O. Box
292737, Nashville, TN 37229-2737, the telephone
number for the exchange agent is (800) 735-7777,
and the facsimile number for the exchange agent is
(615) 835-3701.
Please review the information contained in this prospectus under the
heading "The Exchange Offer" for more detailed information concerning the
exchange offer.
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SUMMARY OF THE TERMS OF THE EXCHANGE NOTES
THE EXCHANGE NOTES TO BE ISSUED TO YOU IN THE EXCHANGE OFFER WILL
EVIDENCE THE SAME OBLIGATIONS AS THE NOTES YOU CURRENTLY HOLD. THE INDENTURE
THAT CURRENTLY GOVERNS YOUR ORIGINAL NOTES IS THE SAME INDENTURE THAT WILL
GOVERN THE EXCHANGE NOTES. THE TERMS OF THE EXCHANGE NOTES WILL BE
SUBSTANTIALLY SIMILAR TO THE ORIGINAL NOTES, EXCEPT THAT THERE WILL BE NO
LEGENDS ON THE EXCHANGE NOTES RESTRICTING THEIR TRANSFER AND THE EXCHANGE NOTES
WILL BE REGISTERED UNDER THE SECURITIES ACT INSTEAD OF HAVING REGISTRATION
RIGHTS. A MORE DETAILED DESCRIPTION OF THE INDENTURE CAN BE FOUND UNDER THE
SECTION HEADED "DESCRIPTION OF THE EXCHANGE NOTES."
Issuer.................... Resorts International Hotel and Casino, Inc.
Exchange notes............ $180,000,000 in aggregate principal amount of
11 1/2% First Mortgage Notes due 2009.
Maturity.................. March 15, 2009.
Interest rate and payment
dates................... The exchange notes will accrue interest from the
last interest payment date on which interest was
paid on the original notes surrendered in exchange
therefor or, if no interest has been paid on the
original notes, from March 22, 2002 at the rate of
11 1/2% per year. Interest on the exchange notes
will be payable on each March 15 and September 15,
commencing September 15, 2002.
Security.................. The exchange notes will be secured by first
priority liens on substantially all of our
existing assets, including, among other things,
all of our owned real and personal property,
equipment, related general intangibles, all of the
equity interests now owned or hereafter acquired
by us or any of the Guarantors and certain of our
after acquired property. However, the exchange
notes will not be secured by our accounts
receivables, inventory, gaming license, certain of
our furniture, fixtures and equipment and certain
other property. In addition, the exchange notes
will be secured by a pledge of at least $89.0
million of the net proceeds of the original notes
and a $10.0 million capital contribution from our
parent, both of which were deposited with and are
held by the Trustee in segregated accounts.
Guarantees................ Each of our subsidiaries existing on the issue
date of the original notes, collectively the
Guarantors, will fully and unconditionally
guarantee the exchange notes on a senior secured
basis. Future subsidiaries also may be required to
guarantee the exchange notes on a senior secured
basis. See "Description of the Exchange
Notes--Guarantees."
Ranking................... The exchange notes will be senior secured
obligations of ours and will effectively rank
senior to all of our existing and future unsecured
indebtedness to the extent of the collateral. Our
obligations under the exchange notes will be
unconditionally guaranteed on a senior basis,
jointly and severally, by each of our existing
subsidiaries. The guarantees will be senior
secured obligations of the Guarantors and will
effectively rank senior in right of payment with
all of the Guarantors' existing and future
unsecured indebtedness to the extent of the
collateral held by such Guarantors.
10
Optional redemption....... We may redeem the exchange notes, in whole or in
part, at any time on or after March 15, 2007, at
the redemption prices set forth in this prospectus.
Public equity
offering optional
redemption.............. On or before March 15, 2005, we may redeem up to
35% of the aggregate principal amount of the
exchange notes with the net proceeds of certain
equity offerings at 111.5% of the principal amount
thereof, plus accrued interest, if at least 65% of
the originally listed aggregate principal amount
of the exchange notes remains outstanding. See
"Description of the Exchange Notes--Optional
Redemption."
Gaming redemption......... The notes offered hereby will be subject to
mandatory disposition and redemption requirements
following certain determinations by the New Jersey
Casino Control Commission. See "Description of the
Exchange Notes--Gaming Redemption."
Change of control......... Upon certain change of control events, each holder
of exchange notes may require us to repurchase all
or a portion of its exchange notes at a purchase
price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest thereon,
if any, to the date of purchase. See "Description
of the Exchange Notes--Certain Covenants--Change
of Control."
Certain covenants......... The indenture governing the exchange notes
contains covenants that, among other things, will
limit our ability and the ability of certain of
our subsidiaries to:
. pay dividends on, redeem or repurchase our or
their capital stock,
. make investments,
. incur additional indebtedness,
. permit payment of or restrict dividends by
certain of our subsidiaries,
. enter into sale leaseback transactions,
. sell assets,
. guarantee indebtedness,
. create certain liens,
. engage in transactions with affiliates, and
. consolidate, merge or transfer all or
substantially all our assets and the assets of
our subsidiaries on a consolidated basis.
These covenants are subject to important
exceptions and qualifications, see "Description of
the Exchange Notes--Certain Covenants" in this
prospectus.
Use of proceeds........... We will not receive any cash proceeds from the
issuance of the exchange notes in connection with
the exchange offer.
Disbursement agreement.... Approximately $99.4 million of the net proceeds of
the note original offering and concurrent capital
contribution from our parent was deposited in the
accounts described below. These accounts are
security for our obligations under the exchange
notes. The funds in the accounts will be disbursed
in accordance with the terms of the Disbursement
Agreement.
11
CONSTRUCTION
DISBURSEMENT ACCOUNT $89.4 million of the net proceeds of the original
offering was deposited in a construction
disbursement account, pending disbursement for the
development, construction and opening of our new
hotel tower, upon satisfaction of certain
conditions to be set forth in the construction
disbursement agreement. Pending disbursement, the
proceeds will be invested in government securities
or certain types of cash equivalents. See
"Description of the Exchange Notes--Escrowed
Funds--Disbursement Accounts--Construction
Disbursement Account."
LIQUIDITY
DISBURSEMENT ACCOUNT Concurrently with the closing of the original
offering, $10.0 million, which we received from
our parent as an equity contribution, was
deposited in a liquidity disbursement account,
pending disbursement if our Adjusted Consolidated
EBITDA for any four fiscal quarter period ending
on or prior to December 31, 2004 is less than
$28.0 million. Amounts released from the liquidity
disbursement account shall be used in the ordinary
course of business by us and our subsidiaries.
Pending disbursement, the amount in the liquidity
disbursement account will be invested in
government securities or certain types of cash
equivalents. At the end of the measurement period
referred to above, we will be permitted to secure
a release of any unutilized amount in the
liquidity disbursement account for use in our and
our subsidiaries businesses or to fund a dividend
to our parent's to return such unutilized amount
to our parent's stockholders. See "Description of
the Exchange Notes--Escrowed Funds--Disbursement
Accounts--Liquidity Disbursement Account."
Original issue discount... The original notes were issued with original issue
discount, or OID, for U.S. federal income tax
purposes. In general, the amount of OID with
respect to a note equals the amount that the
note's stated redemption price at maturity exceeds
its issue price. U.S. Holders generally must
include OID in gross income for U.S. federal
income tax purposes on an annual basis under a
constant yield accrual method, regardless of their
regular method of tax accounting. As a result,
U.S. Holders will include OID in income in advance
of the receipt of cash attributable to such
income. See "Material U.S. Federal Income Tax
Considerations."
Delivery and form......... The exchange notes will be issued in global bearer
form and deposited and held by Deutsche Bank Trust
Company Americas, as book-entry depositary.
Beneficial interests in the global notes are
referred to as "Book-Entry Interests." The
Book-Entry Interests will be shown on, and
transfers thereof will be effected only through,
records maintained in book-entry form by DTC and
its participants. Ownership of the Book-Entry
Interests is limited to participants that have
accounts with DTC, or indirect participants that
may hold interests through participants. Except as
set forth under "Description of the Exchange
Notes--Description of Book-Entry System,"
participants and indirect participants are not
entitled to receive physical delivery of exchange
notes in definitive form or to have exchange notes
issued and registered
12
in their names and are not considered holders of
exchange notes under the indenture. Definitive
securities in bearer form will not be issued. See
"Description of the Exchange Notes--Description of
Book-Entry System."
Risk Factors.............. See "Risk Factors" for a discussion of factors you
should carefully consider before deciding to
invest in the exchange notes.
Please review the information contained in this prospectus under the
heading "Description of the Exchange Notes" for more detailed information
concerning the exchange notes.
13
SUMMARY FINANCIAL DATA
SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth the summary financial data of Resorts
International Hotel and Casino, Inc., or RIHC, and its Predecessor, Resorts
International Hotel, Inc., or RIH, as of and for each of the periods indicated.
The summary financial data of RIH as of December 31, 2000 and 1999 and for each
of the two years in the period then ended are derived from RIH's financial
statements, which have been audited by Arthur Andersen LLP. The summary
financial data of RIH for the period from January 1, 2001 to April 24, 2001
(pre-acquisition period) are derived from RIH's financial statements, which
have been audited by Ernst & Young LLP. The summary financial data of RIHC as
of December 31, 2001 and for the period from April 25, 2001 to December 31,
2001 (post-acquisition period) are derived from RIHC's financial statements,
which have been audited by Ernst & Young LLP. The summary financial data of RIH
as of March 31, 2001 and for the three month period then ended is derived from
RIH's financial statements, which have not been audited. The summary financial
data of RIHC as of March 31, 2002 and for the three month period then ended is
derived from RIHC's financial statements, which have not been audited. The
summary financial data is not necessarily indicative of our future results of
operations or financial condition, and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements, including the notes thereto,
appearing elsewhere in this prospectus.
14
UNAUDITED THREE MONTHS
YEAR ENDED DECEMBER 31, PERIOD FROM PERIOD FROM ENDED MARCH 31,
-------------------------- JANUARY 1, 2001 APRIL 25, 2001 TO ------------------------
TO APRIL 24, DECEMBER 31,
1999 2000 2001 2001 2001 2002
------------- ------------- --------------- ----------------- ------------- -----------
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) (SUCCESSOR)
($ IN THOUSANDS)
REVENUES:
Casino............................... $210,758 $224,259 $68,220 $ 156,999 $52,054 $ 58,084
Lodging.............................. 15,160 16,412 3,996 10,083 3,083 3,174
Food and beverage.................... 25,512 26,039 6,977 17,880 5,386 5,766
Other................................ 8,076 4,973 1,523 4,168 1,106 1,289
Less casino promotional allowances... (26,632) (25,288) (7,510) (18,908) (5,826) (6,538)
-------- -------- ------- --------- ------- ---------
Total net revenues................ 232,874 246,395 73,206 170,222 55,803 61,775
COSTS AND EXPENSES:
Casino............................... 141,803 146,324 42,234 96,403 33,104 35,330
Lodging.............................. 2,929 4,186 913 1,970 656 427
Food and beverage.................... 15,401 14,716 3,639 9,124 2,791 2,829
Other operating...................... 28,762 25,668 8,293 16,680 6,612 6,167
Selling, general and administrative.. 35,568 37,727 10,532 21,817 8,078 9,601
Depreciation and amortization........ 16,737 17,034 5,325 5,412 4,376 1,527
Preopening........................... 5,398 -- -- -- -- --
-------- -------- ------- --------- ------- ---------
Total costs and expenses.......... 246,598 245,655 70,936 151,406 55,617 55,881
-------- -------- ------- --------- ------- ---------
Operating income (loss).............. (13,724) 740 2,270 18,816 186 5,894
Interest expense, net................ (19,639) (23,146) (7,163) (5,625) (5,696) (2,231)
Other expenses....................... -- -- -- (408) -- (33)
-------- -------- ------- --------- ------- ---------
Income (loss) before income taxes
and extraordinary item.............. (33,363) (22,406) (4,893) 12,783 (5,510) 3,630
Provision for income taxes........... -- -- -- 5,046 -- (1,452)
-------- -------- ------- --------- ------- ---------
Net income (loss) before
extraordinary item............... $(33,363) $(22,406) $(4,893) $ 7,737 $(5,510) $ 2,178
======== ======== ======= ========= ======= =========
Extraordinary loss on
extinguishment of debt, net of
income tax benefit of $1,182........ -- -- -- -- -- (2,196)
-------- -------- ------- --------- ------- ---------
Net income (loss)................. $(33,363) $(22,406) $(4,893) $ 7,737 $(5,510) $ (18)
======== ======== ======= ========= ======= =========
OTHER OPERATING DATA:
Net cash provided by (used in)
operating activities................ $(20,443) $ (3,742) $ 8,838 $ 5,845 $ 9,198 $ 8,056
Net cash used in investing activities (44,652) (14,296) (2,561) (110,239) (1,599) (100,287)
Net cash provided by (used in)
financing activities................ 56,279 24,950 (234) 119,757 (235) 105,625
EBITDA (1)........................... 3,013 17,774 7,595 23,820 4,562 5,225
Adjusted EBITDA (1).................. 16,504 24,347 6,973 23,820 4,562 7,421
Capital Expenditures (2)............. 41,906 11,692 1,229 11,577 932 1,665
15
DECEMBER 31, UNAUDITED
--------------------------------------- MARCH 31,
1999 2000 2001 2002
------------- ------------- ----------- -------------
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (PREDECESSOR)
($ IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents $ 14,541 $ 21,453 $ 15,363 $ 28,757
Total assets............. 417,251 410,971 179,144 294,734
Long-term debt, net...... 272,374 278,337 88,502 176,820
Stockholder's equity..... 79,901 57,495 50,767 85,632
UNAUDITED THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- ------------------------
1999 2000 2001 2001 2002
------------- ------------- ----------- ------------- -----------
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) (SUCCESSOR)
($ IN THOUSANDS, EXCEPT PER UNIT DATA)
OPERATING STATISTICS:
Table games drop............................. $ 454,820 $ 466,978 $ 449,779 $104,132 $104,962
Hold %....................................... 13.6% 14.9% 14.4% 15.2% 17.0%
Table games units............................ 69 69 73 73 73
Win per unit per day......................... $ 2,456 $ 2,763 $ 2,434 $ 2,412 $ 2,733
Slot handle.................................. $1,683,519 $1,924,629 $2,171,288 $475,473 $589,914
Hold %....................................... 8.7% 7.9% 7.2% 7.5% 6.7%
Slot units (3)............................... 2,033 2,298 2,538 2,411 2,566
Win per unit per day......................... $ 197 $ 181 $ 170 $ 164 $ 170
Gaming square footage, including simulcasting 75,713 76,454 81,852 78,442 85,306
Room inventory............................... 651 644 644 644 645
- --------
(1)EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. Adjusted EBITDA is defined as earnings before interest, taxes,
depreciation, amortization, management fees, pre-opening expenses,
extraordinary items and recurring expense adjustments.
AdjustedEBITDA is defined as follows:
UNAUDITED THREE MONTHS
YEAR ENDED DECEMBER 31, PERIOD FROM PERIOD FROM ENDED MARCH 31,
--------------------------- JANUARY 1, 2001 APRIL 25, 2001 TO -------------------------
TO APRIL 24, DECEMBER 31,
1999 2000 2001 2001 2001 2002
------------- ------------- --------------- ----------------- ------------- -----------
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) (SUCCESSOR)
($ IN THOUSANDS)
EBITDA.............. $ 3,013 $17,774 $7,595 $23,820 $4,562 $5,225
Management fees..... 8,093 6,573 -- -- -- --
Pre-opening expenses 5,398 -- -- -- -- --
Extraordinary items. -- -- -- -- -- 2,196
Recurring expense
adjustments....... -- -- (622) -- -- --
------- ------- ------ ------- ------ ------
Adjusted EBITDA..... $16,504 $24,347 $6,973 $23,820 $4,562 $7,421
======= ======= ====== ======= ====== ======
Recurring expense adjustments consist of pro forma adjustments for lease
payments of $400,000 for certain of our undeveloped real property under a
lease agreement and contractual professional services of approximately
$222,000 to reflect contractual amounts as if the agreements commenced at
the beginning of the year. EBITDA and Adjusted EBITDA are provided because
they are measures of financial performance commonly used as indicators of a
company's historical ability to service debt. EBITDA and Adjusted EBITDA are
presented to enhance an investor's understanding of our operating results.
They should not be construed as alternatives to operating income as an
indicator of operating performance. They should also not be construed as
alternatives to cash flows from operating activities as a measure of
liquidity determined in accordance with Generally Accepted Accounting
Principles (GAAP). We may calculate EBITDA and Adjusted EBITDA differently
from other companies. For further information, see our financial statements
and related notes elsewhere in this prospectus.
(FOOTNOTES CONTINUED ON NEXT PAGE)
16
(2)Of the capital expenditures shown, $36.1 million in fiscal year 1999 and
$2.6 million in fiscal year 2000 related to a major renovation to the
facility, including the casino floor and hotel public areas; $3.5 million in
fiscal year 2000 was for construction of a bus waiting center and related
casino floor improvements; and $5.6 million during 2001 was for the
conversion of Club 1133. The remaining capital expenditures were recurring
capital expenditures related to the maintenance of the facility, including
the periodic purchase of new gaming equipment.
(3)During fiscal year 1999, RIH renovated a major portion of the public areas
of the facility, including parts of the casino floor. As a result of the
renovation, there was a net reduction of 220 (9.8%) slot units on the casino
floor until completion of the bus waiting center in December 2000.
17
RISK FACTORS
INVESTING IN THE EXCHANGE NOTES ISSUED IN THE EXCHANGE OFFER INVOLVES
SIGNIFICANT RISKS. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND
OTHER INFORMATION IN THIS PROSPECTUS IN EVALUATING THE EXCHANGE OFFER. SEE
"FORWARD LOOKING STATEMENTS."
RISKS RELATING TO THE EXCHANGE NOTES
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE EXCHANGE NOTES.
We are a highly leveraged company. Assuming the original note offering
and the equity purchase had been completed on December 31, 2001 and the
proceeds from the original note offering were used as described by this
prospectus, we would have had total long-term indebtedness of $177.0 million,
stockholder's equity of $83.6 million and a debt to equity ratio of 2.1 to 1.0,
as of December 31, 2001.
Our substantial indebtedness could interfere with our ability to grow and
could have important consequences to you. For example, it could:
. make it more difficult for us to satisfy our obligations with respect
to the exchange notes;
. require us to dedicate a substantial portion of our cash flow from
operations to required payments on indebtedness, thereby reducing the
availability of cash flow for working capital, capital expenditures
and other general business activities;
. limit our ability to obtain additional financing in the future for
working capital, capital expenditures and other general business
activities;
. limit our flexibility in planning for, or reacting to, changes in our
business and industry;
. increase our vulnerability to general adverse economic and industry
conditions; and
. place us at a competitive disadvantage against our less leveraged
competitors.
If we do not generate sufficient cash from our operations to make the
scheduled payments on the exchange notes or to meet our other obligations, we
will need to take one or more actions including the refinancing of our debt,
obtaining additional financing, selling assets, obtaining additional equity
capital, or reducing or delaying capital expenditures. We cannot assure you
that we will be able to refinance any of our indebtedness on commercially
reasonable terms or at all. Our inability to generate sufficient cash flow or
refinance our indebtedness on commercially reasonable terms could have a
material adverse effect on our financial condition, results of operations and
ability to satisfy our obligations under the exchange notes. Additionally, the
indenture governing the exchange notes will allow us to incur additional
indebtedness if we meet certain financial ratios.
RESTRICTIONS CONTAINED IN THE INDENTURE COULD LIMIT OUR ABILITY TO RESPOND TO
CHANGING MARKET AND ECONOMIC CONDITIONS.
The indenture governing the exchange notes imposes restrictions on us.
Among other things, the covenants may restrict our ability to borrow money,
incur liens, invest in securities and effect a consolidation, merger or sale of
substantially all of our assets. These covenants may adversely affect our
ability to respond to changing market and economic conditions. Although the
indenture provides for certain exceptions that are intended to allow us to
operate without undue restraint, we cannot assure you that these covenants will
not adversely affect our ability to finance future operations or capital needs
or to engage in other activities that may be beneficial to holders of the
exchange notes. We may also incur other debt that contain additional restricted
covenants that could impair our ability to operate. A breach of any of these
covenants would result in a default under the indenture. See "Description of
the Exchange Notes--Certain Covenants."
18
IF WE BECOME THE SUBJECT OF BANKRUPTCY PROCEEDINGS, THE TRUSTEE MAY BE UNABLE
TO FORECLOSE UPON THE COLLATERAL IN A TIMELY FASHION OR AT ALL.
The exchange notes will be secured by a first priority lien on
substantially all of our assets other than:
. our accounts receivables;
. inventory;
. gaming licenses;
. certain of our furniture, fixtures and equipment; and
. certain other property.
Under New Jersey gaming laws, the trustee under the indenture governing
the exchange notes could be precluded from or otherwise limited or delayed in
exercising powers of attorney or selling collateral at a foreclosure sale,
including slot machines, since only persons licensed by the New Jersey gaming
authorities may have slot machines in their possession. In addition, the
trustee may encounter difficulty in selling collateral due to various legal
restrictions, including requirements that the purchaser or the operator of the
gaming facility be licensed by state authorities or that prior approval of a
sale or disposition of collateral be obtained. If the trustee sought to
operate, or retain an operator for, our casino, the trustee or its agents would
be required to be licensed under New Jersey gaming laws in order to conduct
gaming operations in our casino. Since potential purchasers who wish to operate
our casino must satisfy such requirements, the number of potential purchasers
in a sale of our casino could be less than in the sale of other types of
facilities. Additionally, these requirements may delay the sale of and may
adversely affect the price paid for the collateral.
In addition to gaming law restrictions, the ability of the trustee to
repossess and dispose of collateral will be subject to the procedural and other
restrictions of state real estate and commercial law.
Moreover, the right of the trustee to repossess and dispose of the
collateral following an event of default is likely to be significantly impaired
by applicable bankruptcy laws if a proceeding under the United States
Bankruptcy Code were to be commenced by or against us prior to the trustee's
repossessing and disposing of the collateral. Under the Bankruptcy Code, a
secured creditor is prohibited from repossessing its security from a debtor in
a bankruptcy case, or from disposing of a security repossessed from such
debtor, without bankruptcy court approval. Moreover, the Bankruptcy Code
permits the debtor in certain circumstances to continue to retain and to use
collateral owned as of the date of the bankruptcy filing even though the debtor
is in default under the applicable debt instruments provided the secured
creditor is given "adequate protection." The meaning of the term "adequate
protection" may vary according to circumstances. In view of the lack of a
precise definition of the term "adequate protection" under the Bankruptcy Code
and the broad discretionary powers of a bankruptcy court, it is impossible to
predict how long payments under the exchange notes could be delayed following
commencement of a bankruptcy case, whether or when the trustee could repossess
or dispose of the collateral or whether or to what extent holders would be
compensated for any delay in payment or loss of value of the collateral through
the requirement of "adequate protection."
PROCEEDS FROM ANY SALE OF THE COLLATERAL UPON FORECLOSURE MAY BE INSUFFICIENT
TO REPAY THE EXCHANGE NOTES IN FULL.
Our obligation to make payments on the exchange notes is secured only by
the collateral described in this prospectus. We cannot assure you that this
collateral will be sufficient to repay interest, principal and premium, if any,
in respect of the exchange notes at the time of any such foreclosure and sale.
We have not obtained any valuations of the collateral for purposes of this
exchange offer and can make no representation as to its value. Certain of our
assets are excluded from your collateral. The exclusion of these assets may
diminish the value of the collateral securing the exchange notes to potential
purchasers in a foreclosure sale.
19
If a bankruptcy court were to determine that the value of the collateral
is not sufficient to repay all amounts due on the exchange notes, the holders
of the exchange notes would be undersecured to the extent of any such
deficiency. If the holders of the exchange notes were undersecured, the trustee
may be entitled to a deficiency judgment under certain circumstances after
application of any proceeds from any foreclosure sale. There can be no
assurance, however, that the trustee would successfully obtain a deficiency
judgment, and we cannot predict what the amount of such judgment would be. In
addition, we might not be able to satisfy any such judgment. Applicable federal
bankruptcy law does not permit the payment and/or accrual of interest, costs
and attorneys' fees to the holders of unsecured or undersecured pre-petition
claims against the debtor during the debtor's bankruptcy case.
WE ARE A HOLDING COMPANY AND THE VALIDITY OF THE GUARANTEES BY OUR SUBSIDIARIES
AND THE SECURITY INTERESTS IN THEIR ASSETS MAY BE LIMITED BY FRAUDULENT
CONVEYANCE LAWS.
We are a holding company with no material assets other than the stock of
our subsidiaries. Accordingly, our cash flow and ability to pay our debts
depend upon our subsidiaries' cash flows and their payment of funds to us. Our
subsidiaries as of the issue date have guaranteed our obligations with respect
to the original notes. The ability of the holders of the exchange notes or the
trustee to enforce the guarantees or realize upon the collateral securing the
guarantees may be limited by certain fraudulent conveyance laws. Various
fraudulent conveyance laws have been enacted for the protection of creditors
and may be utilized in a court of competent jurisdiction to avoid any security
interest in the collateral granted to the trustee by us or any of our
subsidiaries or to subordinate our obligations under the exchange notes or the
guarantee of any subsidiary guarantor. The specific requirements for
establishing a fraudulent conveyance vary depending on applicable law of the
jurisdiction which is being applied. Generally fraudulent conveyance laws
require a court to find that:
(i) a subsidiary guarantor incurred indebtedness in connection with
the notes (including the guarantees thereof) or granted a security
interest in the collateral with the intent of hindering, delaying or
defrauding current or future creditors of the subsidiary guarantor; or
(ii) a subsidiary guarantor received less than reasonably
equivalent value or fair consideration for incurring the indebtedness in
connection with the notes (including the guarantees thereof) or for
granting a security interest in the collateral and the subsidiary
guarantor:
(a) was insolvent at the time of the incurrence of the
indebtedness in connection with the notes (including the
guarantees) or the granting of the security interest in the
collateral,
(b) was rendered insolvent by reason of incurring the
indebtedness in connection with the notes (including the
guarantees) or the granting of a security interest in the
collateral,
(c) was engaged or about to engage in a business transaction
for which its assets constituted unreasonably small capital or
(d) intended to incur, or believed that it would incur,
debts beyond its ability to pay such debts as they matured,
such court could, subject to applicable statutes of limitations, with respect
to a subsidiary guarantor, avoid in whole or in part the security interest
granted in the collateral and/or subordinate claims with respect to the notes
(including the guarantees thereof) to all other debts of the subsidiary
guarantor. There can be no assurances that, after payment of such other debts,
there would be sufficient assets to pay such subordinated claims with respect
to the exchange notes and the guarantees.
The measure for insolvency for purposes of the foregoing will vary
depending upon the law being applied in any such proceeding. Generally,
however, an entity will be considered insolvent if the sum of its respective
debt was greater than the fair saleable value of all of its property at a fair
market valuation or if the present fair saleable value of its assets is less
than the amount that will be required to pay its probable liability on its
existing debts, as they become absolute and mature. See "Description of the
Exchange Notes--Guarantees."
20
Our subsidiaries' abilities to make any payments to us will depend on
their earnings, the terms of their indebtedness, business and tax
considerations, legal and regulatory restrictions and economic conditions.
These payments may not be adequate to pay interest and principal on the
exchange notes when due. In addition, their ability to make payments to us
depends on applicable law and debt instruments to which they or we may become
parties, which may include requirements to maintain minimum levels of working
capital and other assets.
SOME PERSONS WHO PROVIDE SERVICES OR MATERIALS IN CONNECTION WITH OUR HOTEL
TOWER MAY HAVE A LIEN ON THE PROJECT WITH PRIORITY OVER THE LIENS GRANTED TO
SECURE THE EXCHANGE NOTES.
New Jersey law provides architects, engineers, contractors,
subcontractors, suppliers and others with mechanics' liens on the real property
being improved by their services or materials in order to secure their right to
be paid. Following compliance with applicable New Jersey law, such parties may
foreclose on their mechanics' liens if they are not paid in full. The priority
of all mechanics' liens arising out of a construction project relates back to
the date on which the construction of the project commenced. Parties who
provide services or materials in connection with our hotel tower, including
parties providing services or materials prior to this exchange offer, after
this exchange offer and/or near the end of the construction period, may have a
lien on the project senior in priority to the lien granted to secure the
exchange notes.
We cannot assure you that enforceable mechanics' liens will not be senior
to the lien granted to secure the exchange notes. Other than the payment and
performance bond obtained by our construction manager, Perini Building Company,
Inc., and certain payment and performance bonds obtained by our subcontractors,
neither we nor the trustee under the indenture governing the exchange notes has
obtained or will obtain payment or performance collateral to satisfy any such
mechanics' liens, nor have we or the trustee obtained title insurance
protection against such mechanics' liens.
THE ARCHITECT FOR THE EXPANSION MAY HAVE CERTAIN CONFLICTS OF INTEREST WITH
RESPECT TO CERTIFICATIONS IT MUST MAKE UNDER THE DISBURSEMENT AGREEMENT.
The disbursement agreement will require that the architect for the
expansion make certain certifications to us to obtain the release of funds from
the construction disbursement account. See "Description of the Exchange
Notes--Escrowed Funds--Disbursement Accounts--Construction Disbursement
Account." If the architect does not make the required certifications, we will
not be permitted to obtain the release of funds from the construction
disbursement account and the architect may receive only a small portion of the
fees it would have received had the expansion been completed.
We intend to retain Bergman, Walls & Associates, or Bergman, as the chief
architect for the expansion project and anticipate paying Bergman approximately
$4.5 million in fees for services under the contract. As architect for the
expansion, Bergman, or another architect suitable to the Trustee, may have a
conflict of interest with respect to the required certification as the amount
of fees it will receive is dependent on such certification.
AS A SECURED LENDER, YOU MAY BE SUBJECT TO CLAIMS AND LIABILITIES UNDER SOME
ENVIRONMENTAL LAWS AND REGULATIONS.
Lenders that hold a security interest in real property may be held liable
under environmental laws for the costs of remediating or preventing releases or
threatened releases of hazardous substances at the mortgaged property. Lenders
that neither foreclose on nor participate in the management of a mortgaged
property must carefully adhere to federal and state rules to avoid liability.
In this regard, the collateral agent, the trustee or the holders of the
exchange notes would need to evaluate the impact of these potential liabilities
before determining to foreclose on the mortgaged properties securing the
exchange notes and exercising other available remedies. In addition, the
collateral agent or the trustee, as the case may be, may decline to foreclose
upon the mortgaged properties or exercise remedies available to the extent that
they do not receive indemnification to their
21
satisfaction from the holders of the exchange notes. See "Description of the
Exchange Notes--Ranking and Security."
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon the occurrence of certain change of control events, we will be
required to offer to purchase all outstanding exchange notes at a purchase
price equal to 101% of the principal amount of the exchange notes, plus accrued
but unpaid interest, if any. We may not have sufficient funds to pay the
purchase price for all exchange notes tendered by holders upon a change of
control offer. Our failure to purchase all validly tendered notes would result
in an event of default under the indenture. See "Description of the Exchange
Notes--Certain Covenants--Change of Control."
AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THE EXCHANGE NOTES.
The exchange notes are new securities for which there is currently no
market. Consequently, the exchange notes may be relatively illiquid, and you
may be unable to sell your exchange notes. We do not intend to apply for
listing of the exchange notes on any securities exchange or for the inclusion
of the exchange notes in any automated quotation system. Accordingly, we cannot
assure you that a liquid market for the exchange notes will develop.
THE EXCHANGE NOTES WILL BE ISSUED WITH ORIGINAL ISSUE DISCOUNT.
The exchange notes will be issued with original issue discount, or OID,
for U.S. federal income tax purposes. In general, the amount of OID with
respect to a note equals the amount that the note's stated redemption price at
maturity exceeds its issue price. As a result, U.S. Holders, as defined for
U.S. federal income tax purposes, will include OID in income in advance of the
receipt of cash attributable to such income. See "Material U.S. Federal Income
Tax Considerations."
If a bankruptcy case is commenced by or against us under the United
States Bankruptcy Code, the claim of an exchange note holder may be limited to
an amount equal to the sum of (1) the issue price of the note, (2) accrued and
unpaid interest thereon through the date of the bankruptcy filing and (3) that
portion of the OID deemed to have accrued from the issue date through the date
of the bankruptcy filing. Any OID deemed not to have accrued as of the date of
any such bankruptcy filing would constitute "unmatured interest" and would not
be an allowed claim under the Bankruptcy Code. Accordingly, the holder's claim
would likely be less than the stated redemption price at maturity of the
exchange note.
FAILURE TO EXCHANGE ORIGINAL NOTES MAY RESTRICT FUTURE TRANSFER
Untendered original notes that are not exchanged for exchange notes
pursuant to the exchange offer will remain restricted securities. Original
notes will continue to be subject to the following restrictions on transfer:
(i) original notes may be resold only if registered pursuant to the
Securities Act, if an exemption from registration is available
thereunder, or if neither such registration nor such exemption is
required by law,
(ii) original notes will bear a legend restricting transfer in the
absence of registration or an exemption therefrom, and
(iii) a holder of original notes who desires to sell or otherwise
dispose of all or any part of its original notes under an exemption from
registration under the Securities Act, if requested by us, must deliver
to us an opinion of independent counsel experienced in Securities Act
matters, reasonably satisfactory in form and substance to us, that such
exemption is available.
22
RISKS RELATING TO THE EXPANSION
OUR CONSTRUCTION PLANS ARE NOT FINALIZED.
Although we anticipate the expansion to take substantially the form
described herein, construction plans have not been completed and are subject to
change. Any such change may result in some or all of the expansion being
completed in a manner substantially different from that described herein or not
at all. See "Business--The Expansion."
WE COULD ENCOUNTER PROBLEMS DURING CONSTRUCTION THAT COULD DELAY CONSTRUCTION
OR SUBSTANTIALLY INCREASE THE CONSTRUCTION COSTS REQUIRED TO BUILD THE NEW
HOTEL TOWER.
Our construction budget contemplates that our new hotel tower will cost
approximately $115.5 million. However, this estimate is based on our
preliminary plans and any change in these plans could result in a higher cost.
The price and schedule of the construction may be increased or delayed if:
. contingencies arise that were not accounted for in our preliminary
plans;
. the plans and specifications for our project change, or the project
is otherwise delayed;
. the project encounters geological, environmental, excavation or other
unforeseen problems; or
. other unforeseen contingencies occur during construction.
Possible contingencies include, but are not limited to, delays in receipt
of governmental approvals, changes in laws or regulations applicable to the
project, private legal challenges, shortages of materials or skilled labor,
labor disputes or work stoppages, natural disasters, construction scheduling
problems and weather interferences. If any of these events occur, there could
be cost overruns or delays in the construction or opening of our new hotel
tower. It is possible that we may change budget and construction plans we have
developed for this project for competitive or other reasons.
OUR OPERATIONS MAY BE NEGATIVELY AFFECTED BY THE EXPANSION.
During construction, customers may be hesitant to patronize our existing
facility. Because the new hotel tower is being built on the site of our
existing Atlantic City Tower, our operating results may be negatively affected
by the closing of certain restaurants and gaming areas during construction, the
loss of use of the Atlantic City Tower hotel rooms and any hesitancy of our
customers to patronize Resorts during construction. Additionally, during the
construction of the new hotel tower, subject to the approval of the New Jersey
Casino Control Commission, or the NJCCC, we will reconfigure our gaming space,
which will result in a net loss of approximately 160 slot machines, which may
have a negative impact on our operating results.
WE MAY NOT HAVE SUFFICIENT FUNDING TO COMPLETE THE CONSTRUCTION PROJECT.
We intend to enter into equipment financing to finance the purchase of
furniture, fixtures and equipment for the new hotel tower. We do not have
sufficient funds to complete the expansion project in the absence of the
equipment financing. We cannot guarantee that we will be able to obtain the
equipment financing nor are we able to guarantee the terms upon which we will
obtain such financing. In the event we do not enter into equipment financing,
the construction project could be delayed indefinitely.
CONSTRUCTION OF THE NEW HOTEL TOWER MUST BE COMPLETED WITHIN THE TIMEFRAME
ESTABLISHED BY THE NEW JERSEY CASINO CONTROL COMMISSION OR WE WILL REQUIRE
FURTHER REGULATORY RELIEF.
The New Jersey Casino Control Act, or the NJCCA, requires that all casino
hotels have a minimum of 500 hotel rooms to operate a casino and establishes
criteria for determining the maximum size of a hotel's
23
gaming space based on that hotel's number of guest rooms. In connection with
our construction, we will demolish the existing Atlantic City Tower. As a
result of the demolition we will have less than 500 rooms and our gaming space
will exceed the square footage permitted under the applicable provisions of the
NJCCA. On February 27, 2002, the NJCCC granted us an exemption from the
applicable provisions of the NJCCA allowing us to go below 500 rooms and
allowing us to maintain our present casino room square footage, for two years
from the date the rooms in the Atlantic City Tower are no longer available for
use by patrons. If the new hotel tower is not opened prior to the expiration of
this two-year time period, the NJCCC could require us to close all or a portion
of our casino and institute proceedings to revoke our gaming license or permit
an extension of time to complete construction.
WE MAY NOT BE ABLE TO SATISFY THE REQUIRED CONDITIONS FOR FINAL PLAN SITE
APPROVAL FROM THE CITY OF ATLANTIC CITY.
Our final plan site approval granted by the City of Atlantic City is
subject to certain conditions, including the vacation of air rights over
Mansion Avenue, which adjoins the project site. We cannot guarantee that we
will satisfy the required conditions of our final plan site approval. If we
fail to satisfy the specified conditions, we will have to petition the Atlantic
City Planning Board to amend our final plan site approval. This petition
process may delay the construction project and we cannot guarantee that our
amended petition will be approved.
RISKS RELATING TO OUR BUSINESS AND INDUSTRY
OUR LIQUIDITY MAY BE INSUFFICIENT DURING THE CONSTRUCTION PERIOD.
We are currently seeking to obtain a $10.0 million revolving credit
facility to provide us with additional liquidity during the construction of the
new hotel tower. Otherwise, our sources of liquidity will be our working
capital cash balance, approximately $10.0 million of additional equity that has
been deposited in an escrow account which will be made available to us under
certain circumstances and our cash flow from operations. We cannot assure you
that we will enter into a new credit facility or will have access to additional
or supplemental sources of cash flow. It is possible that the construction of
the new hotel tower will interfere with the operations of Resorts to a greater
degree than is currently anticipated or that our customers will avoid
patronizing Resorts during construction of the new hotel tower. Additionally,
delays in construction could make the expansion more expensive and prolong the
period during which our revenues are adversely impacted. A material reduction
in revenue from Resorts beyond what is currently anticipated or greater
expenses than anticipated could strain our financial resources, whether or not
we enter into a new credit facility.
WE MAY NOT BE ABLE TO IMPLEMENT OUR BUSINESS STRATEGY.
The success of our business model depends in large part on our ability to
implement our business strategies. Our expansion project reflects our strategy
to: increase operating leverage and efficiencies, target a customer base of
mid- to high-level slot players and mid-level table game players, and focus on
customer services. In the event we have misjudged the benefits of the expansion
or the extent of demand in the Atlantic City market, our financial performance,
results of operations and ability to satisfy our obligations under the exchange
notes could be adversely affected.
WE HAVE A HISTORY OF NET LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE.
Although we reported net income of $7.7 million for the post-acquisition
period of April 25, 2001 to December 31, 2001, we have a history of net losses
and there can be no assurances that we will not continue to report net losses
for the foreseeable future, which could impact our ability to meet our payment
obligations with respect to the exchange notes. We reported net losses of $33.4
million, $22.4 million and $4.9 million for the years ended December 31, 1999,
2000 and for the period from January 1, 2001 to April 24, 2001 (pre-acquisition
period), respectively. Factors resulting from the expansion, including possible
loss of customers and hotel room
24
and suite capacity and other factors, may negatively affect our results of
operations to varying degrees in future periods. Additionally, because the
casino business is dependent on discretionary spending, any worsening in
general economic conditions is likely to impact casinos, including ours,
disproportionately.
WE COULD LOSE CERTAIN OF OUR LEASED PROPERTY.
We have an option to purchase certain real property, a portion of which
is immediately adjacent to the Resorts facility. We currently lease a portion
of that property and use the land as a parking lot. The option and lease expire
in April 2003, although we may extend the option and lease until April 2005. If
we do not exercise either the option to purchase or to extend the option term,
we will lose use of the optioned property that we currently lease. In the event
the option and lease expire, we will not be able to control the use of the land
adjacent to Resorts. Additionally, in the event we elect to purchase this
property, we may not realize any of the expected benefits.
See "Business--Properties."
WE COULD INCUR LOSSES THAT WOULD NOT BE COVERED BY INSURANCE.
Although we have agreed in the indenture governing the exchange notes to
maintain insurance customary and appropriate for our business, we cannot assure
you that our insurance will be available or adequate to cover all loss and
damage to which our business or our assets might be subjected. Any losses we
incur that are not covered by insurance may decrease our future operating
income, require us to fund replacements or repairs and reduce the funds
available for payments of our obligations on the exchange notes.
UNDER NEW JERSEY GAMING LAWS, YOU MAY BE REQUIRED TO SUBMIT TO A BACKGROUND
INVESTIGATION REGARDING YOUR SUITABILITY AS AN EXCHANGE NOTE HOLDER, WHICH
COULD DELAY ANY APPLICATION FOR LICENSES, PERMITS OR OTHER AUTHORIZATIONS.
Except as to banking or other licensed lending institutions and certain
institutional investors, RIH is required by the New Jersey Casino Control Act,
or the NJCCA, to establish by clear and convincing evidence the integrity of
all financial backers, investors, mortgagees and note holders or other evidence
of indebtedness, either in effect or proposed, which bear any relation to
Resorts, or the Financial Source Qualification Requirement. The NJCCA defines a
"security" as any instrument evidencing a direct or indirect beneficial
ownership or creditor interest in a corporation including, but not limited to,
mortgagees, security agreements and notes. We are required by the NJCCA to
establish by clear and convincing evidence that holders, direct or indirect and
beneficial or otherwise, of its securities, including the exchange note
holders, are financially stable, responsible, and possess good character,
honesty and integrity, or the Qualification Requirement. However, we are
permitted by the NJCCA to seek and the New Jersey Casino Control Commission, or
the NJCCC, has historically granted, a waiver of the Qualification Requirement
with respect to any note holder whose beneficial interest or ownership of the
notes does not exceed 15% of the $180.0 million offering, assuming said holder
is not significantly involved in the activities of RIH, does not have the
ability to control us or elect one or more of our directors and there is no
showing of cause to believe that the note holder may be found to be
unqualified. If the beneficial interest or ownership of any exchange note
holder exceeds 15% of the $180.0 million offering, the holder will be subject
to the Qualification Requirement. However, we are permitted to seek and the
NJCCC has historically granted a waiver of the Qualification Requirement if
such holder, or an Institutional Holder, is any of the following:
. a retirement fund administered by a public agency for the exclusive
benefit of federal, state, or local public employees;
. an investment company registered under the Investment Company Act of
1940;
. a collective investment trust organized by banks under Part Nine of
the Rules of the Comptroller of the Currency;
25
. a closed end investment trust; a chartered or licensed life insurance
company or property and casualty insurance company; an investment
advisor registered under The Investment Advisors Act of 1940; or
. such other person as the NJCCC may determine to be an institutional
investor.
In addition, there must be no showing of cause to believe that the
Institutional Holder may be found to be unqualified and the beneficial interest
or ownership of the exchange notes by such Institutional Holder may not exceed
the lesser of 20% of our outstanding debt or 50% of the $180.0 million offering
unless the NJCCC, for good cause shown, grants a petition approving a higher
percentage. Such Institutional Holder must, if requested, provide the NJCCC
with a certified statement that the exchange notes are being purchased for
investment purposes only and the holder has no intention of influencing or
affecting our affairs, RIH or any other holding or intermediary company of RIH.
Moreover, the holder must also state that (a) if it subsequently determines to
influence or affect the affairs of the issuer, it shall provide to the NJCCC
not less than 30 days notice of such intent and shall file with the NJCCC an
application for qualification before taking any action that may influence or
affect the affairs of the issuer, and (b) that it recognizes that it is subject
to the jurisdiction of the NJCCC. If such waiver of the Qualification
Requirement is obtained, the holder will also be exempt from the Financial
Source Qualification Requirement. Although the Institutional Holder who obtains
a waiver will not be permitted to influence or affect our affairs or the
affairs of RIH or any holding or intermediary company of RIH, the Institutional
Holder will be permitted to vote on matters put to the vote of the note holders
as a class.
WE FACE SUBSTANTIAL COMPETITION IN THE HOTEL AND CASINO INDUSTRY.
Competition in the Atlantic City gaming market is intense. Certain of our
current and future competitors have or may have greater gaming experience than
us and/or greater financial resources.
Currently, there are 12 casino hotels located in Atlantic City, including
Resorts, all of which compete for patrons. Moreover, substantial new expansion
and development activity has recently been announced and there are several
other sites on the Boardwalk and in the Marina District on which casino hotels
could be built in the future, with various applications for casino licenses
filed and announcements made with respect to these applications. Such
expansions and announcements of future projects will intensify the competition
in the Atlantic City market.
Moreover, we compete, or will compete, with facilities in the
northeastern and mid-Atlantic regions of the United States in which casino
gaming or other forms of wagering are currently, or in the future may be,
authorized. New York has recently passed a law which would increase Native
American gaming in New York. In addition, we face competition from nearby
Native American gaming facilities in Connecticut which operate under less
stringent regulatory requirements than those imposed on state-licensed casinos.
As such, these Native American gaming facilities have a competitive advantage
in our market. Furthermore, increases in the popularity of, and competition
from, internet and other account wagering gaming services, which allow their
customers to wager on a wide variety of sporting events and play Las
Vegas-style casino games from home, could have a material adverse affect on our
business, financial condition, operating results and prospects. To an extent,
we also face competition from gaming facilities nationwide, including
land-based, cruise line, riverboat and dockside casinos.
LOCAL ECONOMIC AND COMPETITIVE CONDITIONS, AS WELL AS OTHER CONDITIONS AND
CIRCUMSTANCES BEYOND OUR CONTROL, ADVERSELY AFFECT OUR BUSINESS.
Of the 12 casino hotels in the Atlantic City market, we are one of three
single property casino hotels. Because we are a single property casino company,
we are entirely dependent upon our Atlantic City casino for all of our cash
flow and are subject to greater risks than a geographically diversified gaming
company. These greater risks include those caused by any of the risks described
in this section, including, but not limited to:
. local economic and competitive conditions;
26
. changes in local and state governmental laws and regulations;
. road closure or road construction on primary access routes;
. adverse weather, natural and other disasters in the Mid-Atlantic
region; or
. a decline in the number of residents near or visitors to Atlantic
City.
These and other factors put us at a competitive disadvantage against
those affiliated casino hotels that have an ability to spread operating costs
across multiple facilities and could adversely affect our ability to generate
sufficient cash flow to make payments on the notes.
THE RATE OF TAXATION ON GAMING PROFITS MAY INCREASE IN THE FUTURE.
From time to time, various legislators have proposed the imposition of a
federal tax on gross gaming revenues. We cannot assure you that such a tax will
not be imposed in the future.
Casinos in Atlantic City pay for licenses as well as special taxes to the
City and State. New Jersey taxes annual gaming revenues at the rate of 8.0%.
New Jersey also levies an annual investment alternative tax of 2.5% on annual
gaming revenues in addition to normal federal and state income taxes. This 2.5%
obligation, however, can be satisfied by purchasing certain bonds or making
certain investments in the amount of 1.25% of annual gaming revenues.
However, these taxes and fees are subject to increases at any time. The
introduction of new taxes or an increase in the rates of existing taxes could
have a material adverse effect on our business and our ability to satisfy our
obligations under the exchange notes.
IF WE CANNOT RETAIN OUR KEY PERSONNEL, WE WILL NOT BE ABLE TO SUCCESSFULLY
MANAGE AND OPERATE THE FACILITY AND WE MAY NOT BE ABLE TO MEET OUR STRATEGIC
OBJECTIVES.
Our continued success depends, in part, upon key managerial personnel, as
well as our ability to attract and retain additional highly qualified personnel
with gaming industry experience and qualifications to obtain the requisite
licenses. We compete for such personnel with other casinos in Atlantic City and
nationwide. There can be no assurance that we will be successful in retaining
our current personnel or in hiring or retaining qualified personnel in the
future.
THE GAMING INDUSTRY IS HIGHLY REGULATED, AND WE MUST ADHERE TO VARIOUS
REGULATIONS AND MAINTAIN OUR LICENSES TO CONTINUE OUR OPERATIONS.
The ownership, management and operation of gaming facilities are subject
to extensive federal, state, provincial and/or local laws, regulations and
ordinances, which are administered by the relevant regulatory agency or
agencies in each jurisdiction. We are required to obtain and hold various
licenses, permits and approvals in New Jersey, and the failure to obtain or
retain any of these licenses, permits and approvals in New Jersey, such as our
gaming license, could have a material adverse effect on our ability to operate
the casino. Generally, regulatory authorities have broad discretion in
granting, conditioning, renewing, suspending and revoking licenses, permits and
approvals. For a summary of New Jersey gaming regulations that affect our
business, see "Government Regulation and Other Factors."
27
FORWARD LOOKING STATEMENTS
This prospectus contains forward looking statements that are subject to
risks and uncertainties. In portions of this prospectus, the words
"anticipates," "believes," "estimates," "seeks," "expects," "plans," "intends"
and similar expressions, as they relate to us or our management, are intended
to identify forward looking statements. Although we believe that the
expectations reflected in such forward looking statements are reasonable, and
have based these expectations on our beliefs as well as assumptions we have
made, such expectations may prove to be incorrect. You should be aware that
these forward looking statements are subject to risks and uncertainties,
including financial, regulatory, environmental, industry growth and trend
projections, that could cause actual events or results to differ materially
from those expressed or implied by the statements. The most important factors
that could prevent us from achieving our stated goals include, but are not
limited to:
. the risks associated with development and construction activities;
. our failure to obtain or renew required licenses or permits;
. leverage and debt service;
. the limitation, conditioning, revocation or suspension of any of our
gaming licenses or permits;
. a finding of unsuitability or denial by regulatory authorities of any
of our officers, directors, key employees or security holders
required to be found suitable;
. dependence on existing management;
. increased competition in Atlantic City or the opening of new gaming
jurisdictions, including in Native American lands;
. a decline in the public acceptance of gaming;
. increases in or new taxes or fees imposed on gaming revenues or
gaming devices;
. adverse economic conditions in our key markets; and
. severe or unusual weather in our key markets.
For a discussion of certain of these factors, see "Risk Factors."
Prospective investors are urged to carefully consider these factors in
connection with the forward looking statements. All subsequent written and oral
forward looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by our cautionary statements.
The forward looking statements included herein are made only as of the
date of this prospectus. We do not intend, and undertake no obligation, to
update these forward looking statements.
28
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange of the original
notes for exchange notes. In consideration for issuing the exchange notes as
contemplated in this prospectus, we will receive in exchange original notes in
like principal amount, which will be cancelled and accordingly will not result
in any increase in our indebtedness.
Our net proceeds from the placement of the original notes were
approximately $168.8 million after deducting estimated fees and expenses. The
net proceeds, together with $25.0 million of new equity and $12.8 million of
financing from the Casino Reinvestment Development Authority:
. are being used to finance the cost to develop, construct and equip
our new hotel tower; and
. were used to repay an aggregate of approximately $96.4 million of
outstanding indebtedness, as of March 15, 2002 which includes (1)
borrowings totaling approximately $74.7 million, under our $90.0
million senior credit facility, plus prepayment penalties of $1.1
million and accrued interest of $1.7 million, and (2) our parent's
$18.0 million aggregate principal amount of subordinated notes, plus
accrued interest of $0.9 million.
$89.4 million of the net proceeds were deposited into a construction
disbursement account. Additionally, $10.0 million of new equity was deposited
into a liquidity disbursement account to be used under certain circumstances to
provide us with additional liquidity.
The following table sets forth the sources and uses of funds from the
offering of the original notes and related financings, as of March 15, 2002:
ANTICIPATED SOURCES OF FUNDS ANTICIPATED USES OF FUNDS
---------------------------- -------------------------
($ IN MILLIONS)
11 1/2% First Mortgage Notes, net of Development Project Hard Costs (5) $ 85.0
discount (1)....................... $175.8 Development Project Soft Costs (5) 7.2
CRDA Funds (2)...................... 12.8 FF&E Costs (5).................... 14.8
New Equity (3)...................... 35.0 Construction Contingency.......... 8.5
FF&E Financing (4).................. 14.8 Liquidity Disbursement Account (6) 10.0
Repay Senior Credit Facility (7).. 77.5
Repay Parent's Subordinated Notes. 18.9
Transaction Costs................. 7.0
Working Capital................... 9.5
------ ------
TOTAL SOURCES.................... $238.4 TOTAL USES.................... $238.4
====== ======
- --------
(1)The original notes were sold at 97.686% of their aggregate principal amount.
Approximately $89.4 million of the net proceeds of the original note
offering was deposited into a construction disbursement account for use in
our expansion project pending their use, such funds will be invested in
government securities or certain cash equivalents.
(2)The New Jersey Casino Reinvestment Development Authority, the CRDA, will
reimburse our construction expenses for the construction of our new hotel
tower in the amount of $9.8 million through 2003. In addition Resorts will
receive an additional $2.7 million in the aggregate from 2004 through 2008
as further reimbursement for construction expenses. To date, the CRDA has
given us $1.5 million which we will apply to the hotel construction project.
The CRDA will make an additional $1.5 million available to us for expenses
incurred in connection with public improvements relating to the construction
of the new hotel tower.
(3)In connection with the closing of the original note offering, our parent's
existing stockholders purchased $35.0 million of our parent's equity. Our
parent subsequently contributed the proceeds of such sale to us on the
closing of the original note offering.
(FOOTNOTES CONTINUED ON NEXT PAGE)
29
(4)We intend to enter into financing of approximately $20.0 million for
furniture, fixtures and equipment, which we expect to be able to obtain
after the exchange offer is consummated. We plan to use $14.8 million of
this financing to purchase furniture, fixtures and equipment for our new
hotel tower and gaming equipment. However, we have not entered into any
binding arrangements for such financing and there can be no assurances that
any such financing will be obtained.
(5)Development Project Hard Costs include the cost of materials and labor to
build the new hotel tower, the construction manager's fee and related
insurance costs. Development Project Soft Costs include fees for architects,
engineers, consultants, attorneys, government appraisers, one professional
and certain other insurance costs. FF&E Costs include the cost of certain
furniture, fixtures and equipment for our new hotel tower and gaming
equipment. These costs are based on preliminary plans and are subject to
change.
(6)$10.0 million was deposited into a segregated account. The funds will be
used for working capital in the event that our Adjusted Consolidated EBITDA
for any four fiscal quarter period ending on or prior to December 31, 2004
is less than $28.0 million. At the end of the measurement period referred to
in the previous sentence, we will be permitted to secure a release of any
unutilized amount in the liquidity disbursement account for use in our
business or to fund a dividend to our parent to return such unutilized
amount to our parent's stockholders. See "Description of the Exchange
Notes--Escrowed Funds--Disbursement Accounts--Liquidity Disbursement
Account."
(7)Prior to the completion of the original note offering, we repaid all amounts
outstanding under our revolving credit facility, approximately $3.0 million
as of March 1, 2002, with available cash.
30
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization as of December 31, 2001. In the "As Adjusted" column, we
have made adjustments to give effect to the sale of the outstanding notes, a
$35.0 million equity contribution from our parent's existing stockholders, $1.5
million in currently available CRDA funds and the use of these proceeds,
including the repayment of amounts outstanding under our revolving credit
facility assuming that the sale of the outstanding notes, equity contribution
and related application of the proceeds had occurred on December 31, 2001.
You should read this table in conjunction with our consolidated financial
statements and accompanying notes contained elsewhere in this prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Use of Proceeds," and the notes to our consolidated financial
statements and unaudited pro forma financial information included elsewhere in
this prospectus for additional information.
DECEMBER 31, 2001
--------------------
ACTUAL AS ADJUSTED
-------- -----------
($ IN THOUSANDS)
Cash and cash equivalents(1).............................................. $ 15,363 $ 22,174
======== ========
Disbursement accounts(2).................................................. -- $ 99,400
======== ========
Total debt (including short-term debt)
Revolving credit facility(3)........................................... $ 4,000 $ --
Term loans............................................................. 74,700 --
Other notes payable.................................................... 2,013 2,013
Notes offered hereby, net of discount.................................. -- 175,800
Notes payable to affiliates............................................ 18,018 --
-------- --------
Total debt (including short-term debt)................................. 98,731 177,813
Stockholder's equity
Common Stock, $.01 par value; authorized 10,000 shares, 100 shares are
outstanding actual and 100 shares are outstanding as adjusted........ -- --
Capital in excess of par(4)............................................ 42,879 77,879
Retained earnings(5)................................................... 7,737 5,580
Accumulated other comprehensive income................................. 151 151
-------- --------
Total stockholder's equity......................................... 50,767 83,610
-------- --------
Total capitalization................................................... $149,498 $261,423
======== ========
- --------
(1)A portion of the unrestricted cash and cash equivalents is required for the
day-to-day operations of Resorts, which includes approximately $10.0 million
of currency and coin on-hand for casino and hotel operations.
(2)Approximately $89.4 million was deposited into a construction disbursement
account and approximately $10.0 million was deposited into a liquidity
disbursement account. Following the delivery of financial statements for the
four fiscal period ending on December 31, 2004, we will be permitted to
secure a release of any unutilized amount in the liquidity disbursement
account for use in our business or to fund a dividend to our parent to
return such unutilized amount to our parent's stockholders. Pending
disbursement, the proceeds will be invested in government securities or
certain types of cash equivalents. See "Description of the Exchange
Notes--Escrowed Funds--Disbursement Accounts."
(3)On March 19, 2002, we repaid all amounts outstanding under our revolving
credit facility with available cash.
(4)Capital in excess of par is adjusted to reflect the $35.0 million equity
contribution from our parent.
(5)Retained earnings is adjusted to reflect the write-off of the deferred
finance charges on our term loans and the costs incurred in prepayment of
the term loans, net of income taxes.
31
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods indicated
is as follows:
UNAUDITED THREE MONTHS
ENDED MARCH 31, PERIOD FROM PERIOD FROM YEAR ENDED DECEMBER 31,
------------------------- APRIL 25, 2001 TO JANUARY 1, 2001 -----------------------------------------
2002 2001 DECEMBER 31, 2001 TO APRIL 24, 2001 2000 1999 1998
----------- ------------- ----------------- ----------------- ------------- ------------- -------------
(SUCCESSOR) (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)
Ratio of Earnings
to Fixed
Charges......... 2.31 0.11 2.80 0.38 0.11 -- 0.72
==== ==== ==== ==== ==== == ====
1997
-------------
(PREDECESSOR)
Ratio of Earnings
to Fixed
Charges......... 0.85
====
For this ratio, earnings consist of income (loss) before income taxes
plus fixed charges. Fixed charges consist of interest expensed and capitalized,
plus the portion of rent expense under operating leases deemed by us to be
representative of the interest factor. For the year ended December 31, 1999,
earnings were inadequate to cover fixed charges by $9,311. Assuming the closing
of the offering of the original notes and application of the related proceeds
had occurred on April 25, 2001, the fixed charge ratio for the period from
April 25, 2001 to December 31, 2001 would have been 1.24:1.
32
SELECTED FINANCIAL DATA
The following table sets forth the selected financial data of Resorts
International Hotel and Casino Inc., or RIHC, and its Predecessor, Resorts
International Hotel, Inc., or RIH, as of and for each of the periods indicated.
The selected financial data of RIH as of December 31, 2000, 1999, 1998, and
1997 and for each of the years then ended are derived from RIH's financial
statements, which have been audited by Arthur Andersen LLP. The selected
financial data of RIH for the period from January 1, 2001 to April 24, 2001
(pre-acquisition period) are derived from RIH's financial statements, which
have been audited by Ernst & Young LLP. The selected financial data of RIHC as
of December 31, 2001 and for the period from April 25, 2001 to December 31,
2001 (post-acquisition period) are derived from RIHC's financial statements,
which have been audited by Ernst & Young LLP, and are included elsewhere in
this prospectus. The selected financial data of RIH as of March 31, 2001 and
for the three month period then ended is derived from RIH's financial
statements, which have not been audited. The selected financial data of RIHC as
of March 31, 2002 and for the three month period then ended is derived from
RIHC's financial statements, which have not been audited.
YEAR ENDED DECEMBER 31, PERIOD FROM PERIOD FROM
------------------------------------------------------ JANUARY 1, 2001 APRIL 25, 2001 TO
1997 1998 1999 2000 TO APRIL 24, 2001 DECEMBER 31, 2001
------------- ------------- ------------- ------------- ----------------- -----------------
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
REVENUES: ($ IN THOUSANDS)
Casino.................... $227,574 $219,854 $210,758 $224,259 $68,220 $156,999
Lodging................... 16,514 16,148 15,160 16,412 3,996 10,083
Food and beverage......... 27,085 26,692 25,512 26,039 6,977 17,880
Other..................... 11,344 11,460 8,076 4,973 1,523 4,168
Less casino promotional
allowances............... (28,465) (28,295) (26,632) (25,288) (7,510) (18,908)
-------- -------- -------- -------- ------- --------
Total net revenues..... 254,052 245,859 232,874 246,395 73,206 170,222
COSTS AND EXPENSES:
Casino.................... $136,977 $131,673 $141,803 $146,324 $42,234 $ 96,403
Lodging................... 3,036 3,454 2,929 4,186 913 1,970
Food and beverage......... 15,973 16,638 15,401 14,716 3,639 9,124
Other operating........... 33,045 30,509 28,762 25,668 8,293 16,680
Selling, general and
administrative........... 37,988 37,513 35,568 37,727 10,532 21,817
Depreciation and
amortization............. 14,452 14,722 16,737 17,034 5,325 5,412
Preopening................ -- -- 5,398 -- -- --
-------- -------- -------- -------- ------- --------
Total costs and
expenses.............. 241,471 234,509 246,598 245,655 70,936 151,406
-------- -------- -------- -------- ------- --------
Operating income (loss)... 12,581 11,350 (13,724) 740 2,270 18,816
Interest expense, net..... (15,509) (16,861) (19,639) (23,146) (7,163) (5,625)
Other expenses............ -- -- -- -- -- (408)
-------- -------- -------- -------- ------- --------
Income (loss) before
income taxes and
extraordinary item....... (2,928) (5,511) (33,363) (22,406) (4,893) 12,783
Provision for income -- -- -- -- -- 5,046
taxes................... -------- -------- -------- -------- ------- --------
Net income (loss) before
extraordinary item..... $ (2,928) $ (5,511) $(33,363) $(22,406) $(4,893) $ 7,737
======== ======== ======== ======== ======= ========
Extraordinary item........ (2,957) -- -- -- -- --
-------- -------- -------- -------- ------- --------
Net income (loss)...... $ (5,885) $ (5,511) $(33,363) $(22,406) $(4,893) $ 7,737
======== ======== ======== ======== ======= ========
UNAUDITED THREE MONTHS
ENDED MARCH 31,
------------------------
2001 2002
------------- -----------
(PREDECESSOR) (SUCCESSOR)
REVENUES:
Casino.................... $52,054 $58,084
Lodging................... 3,083 3,174
Food and beverage......... 5,386 5,766
Other..................... 1,106 1,289
Less casino promotional
allowances............... (5,826) (6,538)
------- -------
Total net revenues..... 55,803 61,775
COSTS AND EXPENSES:
Casino.................... $33,104 $35,330
Lodging................... 656 427
Food and beverage......... 2,791 2,829
Other operating........... 6,612 6,167
Selling, general and
administrative........... 8,078 9,601
Depreciation and
amortization............. 4,376 1,527
Preopening................ -- --
------- -------
Total costs and
expenses.............. 55,617 55,881
------- -------
Operating income (loss)... 186 5,894
Interest expense, net..... (5,696) (2,231)
Other expenses............ -- (33)
------- -------
Income (loss) before
income taxes and
extraordinary item....... (5,510) 3,630
Provision for income -- (1,452)
taxes................... ------- -------
Net income (loss) before
extraordinary item..... $(5,510) $ 2,178
======= =======
Extraordinary item........ -- $(2,196)
------- -------
Net income (loss)...... $(5,510) $ (18)
======= =======
33
DECEMBER 31,
-------------------------------------------------------------------
UNAUDITED
MARCH 31,
1997 1998 1999 2000 2001 2002
------------- ------------- ------------- ------------- ----------- -----------
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
BALANCE SHEET DATA: ($ IN THOUSANDS)
Cash and cash equivalents $ 43,250 $ 23,357 $ 14,541 $ 21,453 $ 15,363 $ 28,757
Total assets............. 391,589 386,622 417,251 410,971 179,144 294,734
Long-term debt, net...... 205,925 205,940 272,374 278,337 88,502 176,820
Stockholder's equity..... 119,148 113,637 79,901 57,495 50,767 85,632
YEAR ENDED DECEMBER 31,
------------------------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, APRIL 25,
2001 TO 2001 TO
APRIL 24, DECEMBER 31,
1997 1998 1999 2000 2001 2001
------------- ------------- ------------- ------------- ------------- ------------
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
($ IN THOUSANDS)
OTHER OPERATING DATA:
Net cash provided by (used
in) operating activities. $ 14,967 $ 10,419 $(20,443) $ (3,742) $ 8,838 $ 5,845
Net cash used in investing
activities............... (22,861) (24,792) (44,652) (14,296) (2,561) (110,239)
Net cash provided by (used
in) financing activities. 29,502 (5,520) 56,279 24,950 (234) 119,757
EBITDA (1)................ 24,076 26,072 3,013 17,774 7,595 23,820
Adjusted EBITDA (1)....... 36,005 34,743 16,504 24,347 6,973 23,820
Capital expenditures (2).. 19,739 21,837 41,906 11,692 1,229 11,577
UNAUDITED THREE MONTHS
ENDED MARCH 31,
------------------------
2001 2002
------------- -----------
(PREDECESSOR) (SUCCESSOR)
OTHER OPERATING DATA:
Net cash provided by (used
in) operating activities. $ 9,198 $ 8,056
Net cash used in investing
activities............... (1,599) (100,287)
Net cash provided by (used
in) financing activities. (235) 105,625
EBITDA (1)................ 4,562 5,225
Adjusted EBITDA (1)....... 4,562 7,421
Capital expenditures (2).. 932 1,665
- --------
(1)EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. Adjusted EBITDA is defined as earnings before interest, taxes,
depreciation, amortization, management fees, pre-opening expenses,
extraordinary items and recurring expense adjustments.
Adjusted EBITDA is defined as follows:
PERIOD FROM
YEAR ENDED DECEMBER 31, PERIOD FROM APRIL 25, 2001
------------------------------------------------------- JANUARY 1, 2001 TO DECEMBER 31,
1997 1998 1999 2000 TO APRIL 24, 2001 2001
------------- ------------- ------------- ------------- ----------------- ---------------
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR)
($ IN THOUSANDS)
EBITDA.............. $24,076 $26,072 $ 3,013 $17,774 $7,595 $23,820
Management fees..... 8,972 8,671 8,093 6,573 -- --
Pre-opening expenses -- -- 5,398 -- -- --
Extraordinary items. 2,957 -- -- -- -- --
Recurring expense
adjustments........ -- -- -- -- (622) --
------- ------- ------- ------- ------ -------
Adjusted EBITDA..... $36,005 $34,743 $16,504 $24,347 $6,973 $23,820
======= ======= ======= ======= ====== =======
UNAUDITED THREE MONTHS
ENDED MARCH 31,
-------------------------
2001 2002
------------- -----------
(PREDECESSOR) (SUCCESSOR)
EBITDA.............. $4,562 $5,225
Management fees..... -- --
Pre-opening expenses -- --
Extraordinary items. -- 2,196
Recurring expense
adjustments........ -- --
------ ------
Adjusted EBITDA..... $4,562 $7,421
====== ======
Recurring expense adjustments consist of proforma adjustments for lease
payments of $400,000 for certain of our undeveloped real property under a
lease agreement and contractual professional services of approximately
$222,000 to reflect contractual amounts as if the agreements commenced at
the beginning of the year. EBITDA and Adjusted EBITDA are provided because
they are measures of financial performance commonly used as indicators of a
company's historical ability to service debt. EBITDA and Adjusted EBITDA are
presented to enhance an investor's understanding of our operating results.
They should not be construed as alternatives to operating income as an
indicator of operating performance. They should also not be construed as
alternatives to cash flows from operating activities as a measure of
liquidity determined in accordance with Generally Accepted Accounting
Principles (GAAP). We may calculate EBITDA and Adjusted EBITDA differently
from other companies. For further information, see our financial statements
and related notes elsewhere in this prospectus.
(FOOTNOTES CONTINUED ON NEXT PAGE)
34
(2)Of the capital expenditures shown, $10.9 million in fiscal year 1997 was for
acquisition of land; $1.3 million in fiscal year 1997, $9.9 million in
fiscal year 1998, $36.1 million in fiscal year 1999 and $2.6 million in
fiscal year 2000 related to a major renovation to the facility, including
the casino floor and hotel public areas; $3.5 million in fiscal year 2000
was for construction of a bus waiting center and related casino floor
improvements; and $5.6 million during 2001 was for the conversion of Club
1133. The remaining capital expenditures were recurring capital expenditures
related to the maintenance of the facility, including the periodic purchase
of new gaming equipment.
35
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Our pro forma condensed consolidated statement of operations for the year
ended December 31, 2001 give effect to: (a) the consummation of an acquisition,
or the Acquisition, pursuant to a Purchase Agreement dated as of October 30,
2000, or the Purchase Agreement, with Sun International North America, Inc., or
SINA, and GGRI, Inc., or GGRI, to acquire all of the capital stock of Resorts
International Hotel, Inc., or RIH, the Warehouse Assets (as defined in the
Purchase Agreement), and all of the capital stock of New Pier Operating
Company, Inc. for total consideration of approximately $144.8 million and (b)
the financing, or the Acquisition Financing, for the Acquisition, consisting
of: (1) proceeds of $42.5 million from the issuance of common stock, (2)
borrowings under a credit agreement, or the Credit Facility, which includes
$80.0 million in term loans, or the Term Loans, and a $10.0 million revolving
credit facility, or the Revolving Credit Facility, (3) a $17.5 million note
issued by Colony RIH Holdings, Inc., or CRH, our parent company, to SINA, or
the Seller Note, and (4) RIH's available cash. The pro forma condensed
consolidated statement of operations give effect to the transactions as if they
occurred at the beginning of the period presented. The historical condensed
consolidated statement of operations for the year ended December 31, 2001
includes a combination of the following: (i) our consolidated accounts for the
period January 1, 2001 to April 24, 2001 and (ii) our consolidated accounts for
the period April 25, 2001 to December 31, 2001. The pro forma condensed
consolidated statement of operations should be read in conjunction with the our
audited financial statements and those notes thereto appearing elsewhere in
this prospectus. The pro forma condensed consolidated statement of operations
are not necessarily indicative of the results that would have been reported had
such transactions actually occurred on the dates specified, nor are they
indicative of our future results.
The pro forma adjustments are based upon available information and upon
certain assumptions that we believe are reasonable under the circumstances.
36
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
ADJUSTMENTS FOR
THE EFFECT OF
HISTORICAL THE ACQUISITION PRO FORMA
---------- --------------- ---------
($ IN THOUSANDS)
Revenues:
Gaming.............................. $225,219 $ -- $225,219
Rooms............................... 14,079 -- 14,079
Food and beverage................... 24,857 -- 24,857
Other............................... 5,691 -- 5,691
-------- ------- --------
Gross revenues......................... 269,846 -- 269,846
Less: promotional allowances........... (26,418) -- (26,418)
-------- ------- --------
Total net revenues.............. 243,428 -- 243,428
Cost and expenses:
Gaming.............................. 138,637 -- 138,637
Rooms............................... 2,883 -- 2,883
Food and beverage................... 12,763 -- 12,763
Other............................... 24,973 -- 24,973
Selling, general and administrative. 32,349 622 (a) 32,971
Depreciation and amortization....... 10,737 (3,123)(b) 7,614
-------- ------- --------
Total costs and expenses............... 222,342 (2,501) 219,841
Operating income....................... 21,086 2,501 23,587
Other income (expense)
Interest and other income........... 1,104 -- 1,104
Interest expense.................... (13,892) (3,696)(c) (9,923)
7,665 (d)
Other (expense) income.............. (408) -- (408)
-------- ------- --------
Income (loss) before income taxes...... 7,890 6,470 14,360
Income tax provision................... (5,046) (698)(e) (5,744)
-------- ------- --------
Net income (loss)...................... $ 2,844 $ 5,772 $ 8,616
======== ======= ========
SEE THE ACCOMPANYING NOTES TO THE PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
37
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
CRH was formed under the laws of the State of Delaware on March 7, 2001
by affiliates of Colony Capital, LLC, or Colony Capital. We were formed by
affiliates of Colony Capital under the laws of the State of Delaware on October
24, 2000. Pursuant to the terms of a Securities Purchase Agreement with Colony
Capital, we became a wholly owned subsidiary of CRH on April 25, 2001. CRH and
we have not conducted business other than in connection with the Purchase
Agreement.
RIH was formed under the laws of the State of New Jersey and is engaged
in the ownership and operation of a casino hotel in Atlantic City, New Jersey.
As of the date of the Acquisition, RIH became our wholly owned subsidiary and
continued its current business operations.
The pro forma condensed consolidated statement of operations for the year
ended December 31, 2001 presents adjustments to selling, general and
administrative expenses relative to contractual changes in arrangements
pursuant to the Acquisition, reductions in depreciation and amortization as the
result of the recognition of the fair market value of property and equipment
and the associated reduction of goodwill, changes to interest expense as a
result of the Acquisition Financing, and the related effect of the foregoing
adjustments on the provision for income taxes. The changes in arrangements
resulting in adjustments to selling, general and administrative expenses
include primarily the elimination of SINA management fees, additional rent paid
to SINA for certain undeveloped real estate property not acquired by us and
additional stand-alone contractual costs resulting from the transaction. The
changes to interest expense reflect: (a) additional interest expense on the
Term Loans, Credit Facility and the Seller Note, (b) elimination of interest
expense on RIH's former revolving credit agreement and senior subordinated
unsecured notes that were cancelled in connection with the Acquisition, (c)
amortization of deferred financing costs associated with the Acquisition
Financing and (d) elimination of amortization of deferred financing costs
associated with the former revolving credit agreement and senior subordinated
unsecured notes.
As discussed in Note 2 of our financial statements for the year ended
December 31, 2000, RIH did not record an impairment charge under the provisions
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets," although SINA, RIH's parent did, because RIH measured the
recoverability of its long-lived assets on the undiscounted cash flows of RIH
on a stand-alone basis, whereas SINA measured its impairment in RIH long-lived
assets based on asset held for sale criteria. Accordingly, the following pro
forma information reflects a reduction in depreciation and amortization
resulting from a reduction in the carrying value of fixed assets and goodwill
to reflect the fact that the purchase price allocated to fixed assets and
goodwill was less than the carrying value of those assets on RIH's books prior
to the acquisition.
38
ADJUSTMENTS TO THE PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001
(a)To record additional lease payments of $400,000 to SINA for certain
undeveloped real estate under a Lease Agreement, dated April 25,
2001, and additional stand-alone contractual professional expenses of
approximately $222,000.
(b)To recognize the decrease in depreciation and amortization expense of
approximately $3.1 million related to: (1) the reduction in value of
property and equipment to reflect the fair market value and (2) the
elimination of the former goodwill.
(c)To recognize additional interest expense of approximately $3.3
million related to the borrowing of $82.0 million under the Credit
Facilities and a $17.5 million Seller Note. To recognize the
additional interest expense of approximately $406,000 related to the
amortization of deferred financing costs incurred with the Credit
Facilities.
(d)To eliminate interest expense of approximately $7.5 million related
to RIH's former revolving credit agreement and senior subordinated
unsecured notes that were cancelled in connection with the
Acquisition. To recognize a reduction in interest expense of
approximately $25,000 related to the amortization of the premium
recorded on RIH's former senior subordinated unsecured notes. To
recognize the decrease of approximately $178,000 of amortization
expense related to RIH's former debt issuance costs.
(e)To recognize the effect of the foregoing adjustments (excluding the
adjustments we believe will have no effect on income taxes) on the
provision for income taxes, based on our effective tax rate.
39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This document contains forward looking statements and information that
are based on the beliefs of management as well as assumptions made by and
information currently available to us. When used in this document, the words
"anticipates," "believes," "estimates," "seeks," "operates," "plans," "intends"
and similar expressions, as they relate to our management or us, are intended
to identify forward looking statements. Such statements reflect our current
views with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in this prospectus. For
a more detailed description of these risks, please see "Risk Factors" and
"Forward Looking Statements."
The financial information contained in "--Results of Operations" and
"--Liquidity" provides a comparison of the combination of RIHC and RIH in the
current year to that of RIH in the prior year. RIHC is a successor company to
RIH and accordingly is on a different basis of accounting than RIH; however, we
believe amounts included in revenue and certain costs and expenses are
comparable.
Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that offset the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We base
our estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
OVERVIEW
Colony RIH Holdings, Inc., or CRH, our parent company, was formed at the
direction of Colony Investors IV, L.P., or Colony IV, and an affiliate of
Colony Capital, LLC, or Colony Capital, of Los Angeles, California, on March 7,
2001. CRH is owned by Colony IV, Colony RIH Voteco, LLC, another affiliate of
Colony Capital, and Nicholas L. Ribis, our Director, Vice President and
Secretary. We are a wholly owned subsidiary of CRH and were formed at the
direction of Colony IV on October 24, 2000. Resorts International Hotels, Inc.,
or RIH, is our wholly owned subsidiary. RIH owns and operates Resorts Atlantic
City, a casino hotel in Atlantic City, New Jersey.
RIH ACQUISITION
We entered into a Purchase Agreement with Sun International North
America, Inc., or SINA, and GGRI, Inc., dated as of October 30, 2000. Pursuant
to the Purchase Agreement, we acquired all of the capital stock of RIH, all of
the capital stock of New Pier Operating Company, Inc., or New Pier, and certain
related assets, on April 25, 2001. The acquisition of the capital stock of RIH,
the capital stock of New Pier and the assets is referred to herein as the
"Acquisition."
RENOVATION OF RESORTS
Several significant events have affected the operating results of Resorts
since 1999. Prior to our purchase of Resorts, SINA implemented a substantial
renovation of the Ocean Tower, casino floor, hotel porte cochere and lobby
area. The renovation adversely impacted gaming operations for much of 1999 as
large portions of the gaming floor were closed during the renovation period
from February 1999 through June 1999. Although the renovation significantly
improved the facility's appearance and functionality, several factors relating
to the renovation, such as the decommissioning of gaming space, adversely
impacted Resorts'
40
performance in 1999. SINA was only partially successful in regaining the
customers lost during this period. SINA also raised slot hold percentages well
above Atlantic City market averages during this period which when combined with
unfocused marketing resulted in a significant drop in overall slot revenue.
MANAGEMENT INITIATIVES
Our management team joined Resorts in February 2000 and subsequently put
into practice a number of successful initiatives that ultimately took effect
between six and twelve months after their implementation and we believe we will
continue to realize the benefits of these initiatives in 2002. Such initiatives
included: shifting marketing focus to mid-level slot customers and mid- to
high-level table game customers, completely reengineering our customer
database, lowering slot hold percentages to market norms, implementing direct
marketing programs and a new slot club, discontinuing several unsuccessful
promotions, adding a new bus center and expanding our gaming floor. The results
of such initiatives are reflected in the significant improvement in our
operating results beginning in the third quarter of 2000 to present.
THE EXPANSION
In July 2002, we plan to begin the construction process of building a new
27-story hotel tower with approximately 400 hotel rooms and suites and a
corresponding expansion of our gaming floor. Following completion of
construction and subject to the approval of the New Jersey Casino Control
Commission, or the NJCCC, we plan to have approximately 99,000 square feet of
gaming space and approximately 3,140 slot machines. In addition, we plan to
relocate and expand our lobby and porte cochere areas. We expect that the
expansion will be completed approximately 24 months from commencement. The
expansion is budgeted to cost approximately $115.5 million, which includes
$85.0 million of hard construction costs, $7.2 million of soft construction
costs, $14.8 million of other costs (including FF&E and gaming equipment) and
$8.5 million for contingencies arising in connection with the construction.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2002 AND 2001
REVENUES. Gaming revenues were $58.1 million for the three months ended
March 31, 2002, an increase of $6.0 million, or 11.5%, from gaming revenues for
the comparable 2001 period of $52.1 million.
Slot revenues were $39.4 million for the three months ended March 31,
2002, an increase of $3.8 million, or 10.7%, from the comparable 2001 period of
$35.6 million. This increase was due to an increase in slot handle, or dollar
amounts wagered, of $114.4 million, or 24.1%, to $589.9 million, partially
offset by a decrease in the net slot hold percentage to 6.7% for the three
months ended March 31, 2002 from 7.5% for the comparable 2001 period.
Table game revenues were $17.9 million for the three months ended March
31, 2002, an increase of $2.1 million, or 13.3%, from table game revenues for
the comparable 2001 period of $15.8 million. This increase is attributable to a
higher net table game hold percentage of 17.0% for the three months ended March
31, 2002 as compared to 15.2% for the comparable 2001 period.
Simulcast revenues were $0.8 million for the three months ended March 31,
2002, an increase of $0.1 million, or 14.3%, from simulcast revenues of $0.7
million for the comparable 2001 period.
Lodging revenues were $3.2 million for the three months ended March 31,
2002, an increase of $0.1 million, or 3.2%, from the comparable 2001 period of
$3.1 million. Room revenues decreased due to a lower average room rate of
$64.40 for the three months ended March 31, 2002, a decrease of $2.38, or 3.6%,
41
from the comparable 2001 period of $66.78. The decrease in average room rate is
attributable to a decline in the complimentary room rate of $2.78, or 4.3%, to
$61.66 for the three months ended March 31, 2002 from $64.44 for the comparable
2001 period. For the same period, the average cash room rate increased $14.64,
or 19.3%, to $90.60 in 2002 from $75.96 in 2001. The occupancy rate was 88.5%
for the three months ended March 31, 2002 as compared to 84.5% for the
comparable period in 2001.
Food and beverage revenues were $5.8 million for the three months ended
March 31, 2002 an increase of $0.4 million, or 7.4%, from the comparable 2001
period of $5.4 million.
Other revenues, which include revenues from entertainment and other
miscellaneous items, were $1.3 million for the three months ended March 31,
2002, an increase of $0.2 million, or 18.2%, from the comparable 2001 period of
$1.1 million. Entertainment revenues were $0.6 million for the three months
ended March 31, 2002, an increase of $0.2 million, or 50.0%, from the
comparable 2001 period, due to an increase in the number of headliner acts from
the comparable 2001 period.
GAMING COSTS AND EXPENSES. Gaming costs and expenses were $35.3 million
for the three months ended March 31, 2002, an increase of $2.2 million, or
6.6%, from the comparable 2001 period of $33.1 million. This increase is
primarily due to increased promotional and marketing expenses as RIH adjusted
its marketing strategy to target more profitable segments of the gaming market
and the growth in slot revenues.
Lodging expenses were $0.4 million for the three months ended March 31,
2002, a decrease of $0.3 million, or 42.9%, from the comparable period of 2001
of $0.7 million. RIH allocates the departmental costs of providing
complimentary services to casino patrons to gaming costs and expenses. In 2002,
RIH's complimentary occupancy percentage was 80.1% compared to 67.3% in 2001
resulting in a higher allocation of costs, and, therefore, lowered lodging
expenses.
Selling, general and administrative costs were $9.6 million for the three
months ended March 31, 2002, an increase of $1.5 million, or 18.5%, from
expenses for the comparable 2001 period of $8.1 million. This increase is due
to higher wages and related costs, rents, advertising and other miscellaneous
corporate expenses.
Depreciation and amortization expenses were $1.5 million for the three
months ended March 31, 2002, versus $4.4 million for the comparable 2001
period. This decrease of $2.9 million, or 65.9%, is due to the reduction in the
basis of assets as a result of the Acquisition.
Interest expense was $2.5 million for the three months ended March 31,
2002, a decrease of $3.6 million, or 59.0%, from the comparable period of 2001
of $6.1 million. This decline is attributable to the reduction in RIH's debt
due to the Acquisition. Prior to the March 22, 2002 sale of the First Mortgage
Notes, the Company's long-term debt was $88.4 million compared to $278.4
million at March 31, 2001.
The extraordinary loss on extinguishment of debt includes a $2.4 million
write-off of deferred debt issuance costs and a $1.1 million prepayment penalty
resulting from the repayment of the Credit Facility.
COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND 2000
REVENUES. Gaming revenues were $225.2 million, an increase of $0.9, or
0.4%, from gaming revenues for the comparable 2000 period of $224.3 million.
Slot revenues were $157.3 million for the year ended December 31, 2001,
an increase of $5.3 million, or 3.5%, from the comparable 2000 period. Slot
handle for 2001, or the dollar amounts wagered, increased $246.7 million, or
12.8%, while the 2001 net slot hold declined to 7.2% from the 2000 net slot
hold of 7.9%. In 2001, RIH benefited from the continuation of its effective
marketing programs commenced in 2000 and from new marketing initiatives started
in 2001. The decline in the net slot hold results from RIH maintaining its
competitive position within the Atlantic City market.
42
Table game revenues were $64.8 million for the year ended December 31,
2001, a decline of $4.8 million, or 6.9%, from $69.6 million from the
comparable 2000 period. This decrease resulted from a decline in the net table
game hold to 14.4% for the year ended December 31, 2001, from 14.9% for the
comparable 2000 period, and a decline in the dollar amount of chips purchased
of $17.2 million, or 3.7%, to $449.8 million for the year ended December 31,
2001 from the comparable 2000 period of $467.0.
Simulcast revenues were $3.1 million for the year ended December 31,
2001, an increase of $367,000, or 13.6%, from the comparable 2000 period.
Lodging revenues were $14.1 million for the year ended December 31, 2001,
a decrease of $2.3 million, or 14.2%, from the comparable 2000 period. Lodging
revenues declined as the average room rate decreased $11.76, or 14.6%, from the
comparable 2000 period. This is attributable to our decision to decrease the
complimentary room rate to be more competitive within the Atlantic City
marketplace for preferred gaming guests. Overall room occupancy for 2001
remained flat at 89.0% compared to the 2000 period.
Food and beverage revenues declined $1.2 million, or 4.5%, for the year
ended December 31, 2001, from the comparable 2000 period. The average guest
check remained relatively constant between the periods, and the number of
covers declined in the 2001 period by 74,000, or 4.8%, from the comparable 2000
period. This decline resulted from our decisions to both limit days and hours
of operations of certain restaurants.
Other revenues including entertainment and miscellaneous items were $5.7
million for the year ended December 31, 2001, an increase of $700,000, or
14.4%, over the comparable 2000 period. The increase is attributable to higher
entertainment revenues due to the offering of more headliner acts targeted to
our gaming patron.
GAMING COSTS AND EXPENSES. Gaming costs and expenses were $138.6 million
for the year ended December 31, 2001, a decrease of $7.7 million, or 5.3%, from
the comparable 2000 period. This decrease is principally attributable to
reduced promotional marketing costs.
Lodging costs and expenses were $2.9 million for the year ended December
31, 2001, a decrease of $1.3 million, or 31.1%, from the comparable 2000
period. This decrease is primarily due to reduced promotional expenses and
operating efficiencies.
Food and beverage costs were $12.8 million for the year ended December
31, 2001, a decline of $2.0 million, or 13.3%, from the comparable 2000 period.
This decrease is caused by lower food and beverage product cost associated with
reduced revenues and operating efficiencies.
Selling, general and administrative expenses were $32.3 million for the
year ended December 31, 2001, a decrease of $5.4 million, or 14.3%, from the
comparable 2000 period. This reduction is caused by the elimination of
management fees as of October 1, 2000 and lower real estate taxes.
Depreciation and amortization expenses were $10.7 million for the year
ended December 31, 2001, a decrease of $6.3 million, or 37.1%, from the
comparable 2000 period. This decrease is due to the reduction in the basis of
the assets as a result of the Acquisition.
Interest expense, net of amortization and interest income, was $12.8
million for the year ended December 31, 2001, a decrease of $10.3 million, or
44.6%, from the comparable 2000 period. This reduction is attributable to a
lower level of debt as a result of the Acquisition and a reduced effective
interest rate on borrowings.
43
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999
REVENUES. Gaming revenues were $224.3 million for the year ended
December 31, 2000, an increase of $13.5 million, or 6.4%, from gaming revenues
for the comparable 1999 period of $210.8 million. All sources of gaming
revenues showed increases for this period.
Slot revenues were $152.0 million for the year ended December 31, 2000,
an increase of $5.3 million, or 3.6%, from the comparable 1999 period. This was
due to an increase in slot handle, or dollar amounts wagered, of $241.1
million, or 14.3%, to $1,924.6 million, partially offset by a decrease in the
net slot hold percentage to 7.9% for the year ended December 31, 2000 from 8.7%
for the comparable 1999 period. In 2000, RIH instituted several effective
marketing initiatives that had a favorable impact on slot revenues.
Table game revenues were $69.6 million for the year ended December 31,
2000, an increase of $7.6 million, or 12.3%, from table game revenues of $62.0
million for the comparable 1999 period. This increase resulted from an increase
in the net table game hold percentage to 14.9% for the year ended December 31,
2000, from 13.6% for the comparable 1999 period and higher table game drop, or
the dollar amount of chips purchased, of $12.2 million, or 2.7%, to $467.0
million for the year ended December 31, 2000, from $454.8 million for the
comparable 1999 period.
Simulcast revenues were $2.7 million for the year ended December 31,
2000, an increase of $700,000, or 36.0%, from the comparable 1999 period.
Lodging revenues were $16.4 million for the year ended December 31, 2000,
an increase of $1.2 million, or 7.9%, from the comparable 1999 period. Lodging
revenues increased due to higher occupancy and average room rate. Room
occupancy was 87.2% for the year ended December 31, 2000, an increase of 3.5%
over the comparable 1999 period. The average room rate was $80.77 for the year
ended December 31, 2000, an increase of $3.25, or 4.2%, over the comparable
1999 period. The higher occupancy resulted from increased emphasis on using the
hotel to support gaming operations.
Other revenues including entertainment and miscellaneous items were $5.0
million for the year ended December 31, 2000, a decrease of $3.1 million, or
38.3%, from the comparable 1999 period. Entertainment revenues were $1.5
million for the year ended December 31, 2000, a decrease of $3.5 million from
the comparable 1999 period due to a reduction in the number of headliner acts
from the prior year.
GAMING COSTS AND EXPENSES. Gaming costs and expenses were $146.3 million
for the year ended December 31, 2000, an increase of $4.5 million, or 3.2%,
from the comparable 1999 period. This increase represents higher costs
attributable to increased gaming revenues compared to the prior year,
principally labor costs and casino win tax.
Lodging costs and expenses were $4.2 million for the year ended December
31, 2000, an increase of $1.3 million, or 44.8%, from the comparable 1999
period. This increase is directly attributable to increased occupancy compared
to the prior year.
Selling, general and administrative costs were $37.7 million for the year
ended December 31, 2000, an increase of $2.1 million, or 5.9%, from expenses of
$35.6 million for the comparable 1999 period. This increase is a result of
increased promotional marketing expenditures.
Interest expense, net of amortization and interest income, was $23.1
million for the year ended December 31, 2000, an increase of $3.5 million, or
17.9%, from the comparable 1999 period. This increase is directly attributable
to a higher level of advances from SINA's credit facility.
LIQUIDITY
Our principal source of liquidity is cash flow from operations. For the
three months ended March 31, 2002, cash flow from operations approximated $8.1
million, compared to $9.2 million in the same period for the prior year.
44
At March 31, 2002, our cash and cash equivalents were $28.8 million as
compared to $15.4 million at December 31, 2001. Additionally, at March 31,
2002, we had a restricted cash balance of $99.4 million. Of the restricted
cash, $89.4 million has been deposited in a construction disbursement account
to be disbursed for the construction of the new hotel tower, and $10.0 million
has been deposited in a liquidity disbursement account to be used for working
capital in the event our Adjusted Consolidated EBITDA for any four fiscal
quarters ending on or prior to December 31, 2004 is less than $28.0 million. At
the end of the measurement period referred to in the previous sentence, we will
be permitted to secure a release of any unutilized amount in the liquidity
disbursement account for use in our business or to fund a dividend to our
parent to return such unutilized amount to our parent's stockholders. See
"Description of the Exchange Notes--Escrowed Funds--Disbursement
Accounts--Liquidity Disbursement Account." A portion of the unrestricted cash
and cash equivalents is required for the day-to-day operations of Resorts
Atlantic City, which includes approximately $10.0 million of currency and coin
on-hand for casino and hotel operations. This amount varies by days of the
week, holidays, and seasons.
For the year ended December 31, 2001, cash flow from operations
approximated $14.7 million, compared to cash used by operations of $3.7 million
for the comparable 2000 period. Since April 25, 2001, we also had available for
our use a five-year term revolving credit facility of $10.0 million, of which
$4.0 million was borrowed as of December 31, 2001. We repaid the outstanding
balance under our revolving credit facility with available cash on March 19,
2002.
We expended $12.8 million in capital expenditures in the aggregate for
the year ended December 31, 2001, including the purchase of additional slot
machines, ordinary maintenance, other property improvements, $5.6 million to
convert Club 1133 into a slot parlor with 257 slot machines (which was
completed June 30, 2001), and $1.4 million for development plans for a new
hotel tower.
Our cash and cash equivalents at December 31, 2001, were $15.4 million as
compared to $21.5 million at December 31, 2000. This decrease is attributable
to our continued emphasis on improving our competitive slot position including
the opening of a new slot area and the purchase of slot machines, no mandatory
principle payments in 2000, payment in 2000 of certain interest expense on our
indebtedness by our previous parent company, and the payment of income taxes in
2001. A portion of the unrestricted cash and cash equivalents is required for
the day-to-day operations of Resorts, which includes approximately $10.0
million of currency and coin on-hand for casino and hotel operations. This
amount varies by days of the week, holidays, and seasons. Due to the change in
debt following our acquisition of RIH, our long-term debt decreased from $278.3
million at December 31, 2000 to $88.5 million at December 31, 2001. Our total
debt at December 31, 2001 primarily consisted of $74.7 million of borrowings
under our senior credit facility, and $18.0 million in subordinate notes issued
to SINA by our parent company. We used a portion of the proceeds of the
original note offering to repay all of our outstanding senior notes and
subordinated notes.
In connection with the closing of the original note offering, our
parent's existing stockholders purchased $35.0 million of our parent's equity.
Our parent subsequently contributed the proceeds of the equity sale to us prior
to the closing of the original note offering.
Following the exchange offer, we intend to enter into a $20.0 million
equipment note. We intend to use $14.8 million of the equipment note to
purchase furniture, fixtures and equipment for our new hotel tower and gaming
equipment, which is sometimes referred to herein as the FF&E facility, and a
$10.0 million revolving credit facility. We expect that the equipment note will
be for a five year term and that the equipment note will require us to pay the
principal in equal monthly amounts over the term of the exchange note, and will
be collateralized by the equipment purchased, including hotel furniture and
fixtures installed in the new hotel tower. We expect that the revolving credit
facility will provide a line of credit up to $10.0 million. We are currently
negotiating the terms of the equipment note and revolving credit facility with
potential lenders, however there can be no assurances that we will enter into
the equipment note or revolving credit facility.
The New Jersey Casino Reinvestment Development Authority, or the CRDA,
will reimburse our construction expenses for the construction of our new hotel
tower in the amount of $9.8 million through 2003.
45
Additionally, we will receive an additional $2.7 million payable at the rate of
approximately $500,000 per year for the years 2004 through 2008 for
reimbursements of expenses relating to the construction of the new hotel tower.
Further, approximately $1.5 million was given to us through the CRDA which we
will apply to the hotel construction project. The CRDA will make an additional
$1.5 million available to us for expenses incurred in connection with public
improvements relating to the construction of the new hotel tower. See
"Government Regulation and Other Factors."
We believe that our existing cash and projected operating cash flows will
be sufficient to meet the cash requirements of our existing operations,
including maintenance, capital improvements and debt service requirements, for
the next twelve months and the foreseeable future thereafter. We currently
believe that cash requirements of our existing operations beyond the next
twelve months and the foreseeable future thereafter will consist of costs
relating to construction of the new hotel tower, debt service requirements and
capital improvements and replacements in the ordinary course of business, which
we expect to be met by the proceeds of the original note offering, existing
cash, cash flows from operations, the equipment note and our new revolving
credit facility.
CAPITAL EXPENDITURES AND RESOURCES
In November 2002, we will begin construction of a new, 27-story hotel
tower on the site of the existing 166 room Atlantic City Tower at a cost of
approximately $115.5 million. The expansion will add approximately 400 hotel
rooms and suites. Subject to the approval of the New Jersey Casino Control
Commission, the project will add approximately 14,000 square feet of additional
gaming space, and 570 slot machines. From the proceeds of the sale of the
original notes, $89.4 million has been deposited in a construction disbursement
account for use in constructing the hotel tower. Additionally, the New Jersey
Casino Reinvestment Development Authority ("CRDA") will reimburse our
construction costs in the amount of $9.8 million through 2003 and an additional
$2.7 million in the aggregate from 2004 through 2008. The CRDA will also make
an additional $1.5 million available for expenses incurred in connection with
public improvements relating to the construction of the new hotel tower. We
intend to enter into a $20.0 million furniture, fixture and equipment facility
and a $10.0 million revolving credit facility. We intend to use $14.8 million
of the equipment note to purchase furniture, fixtures and equipment for the new
hotel tower and gaming equipment. We are currently negotiating the terms of the
equipment note and revolving credit facility with potential lenders, however
there can be no assurances that we will enter into the equipment note or
revolving credit facility. It is anticipated that the pre-construction process
will start as soon as July 1, 2002 and the construction of the new hotel tower
will start as soon as November 1, 2002. This project is subject to many
variables, including financing, regulatory and governmental approvals and
typical delays associated with construction. No assurances can be given as to
when this expansion project will commence or if the project will be completed.
Through March 31, 2002, we have expended approximately $1.5 million on costs
relating to the construction of the new hotel tower. For the three months ended
March 31, 2002, we have expended $1.7 million on capital improvements and
replacements including the purchases of slot machines and related equipment,
computer upgrades and other facility improvements. For the remainder of 2002,
we expect capital project spending (in addition to the tower) to total
approximately $8.0 million, to include renovations of the casino floor and
related areas, purchases of slot machines and associated equipment, the
purchase of computer equipment and system upgrades and various facility
improvements.
In 2001, we invested $12.8 million in capital expenditures, which
included $5.6 million for the conversion of a closed nightclub into a slot
parlor with 257 slot machines, additional slot machines to maintain a current
product offering, normal property maintenance, and development costs for the
new hotel tower.
In 2000, we invested $11.7 million in capital expenditures, which
included $3.5 million for the construction of a nine-bay bus transportation
center. Other capital expenditures included the purchase of approximately 280
slot machines, computer equipment and upgrades to key systems.
In 1999, we invested $41.9 million in capital expenditures, including
completing the renovation of Resorts. The construction included extensive
renovations to the casino floor, hotel lobby, guestrooms and suites,
46
room corridors, restaurants, the hotel porte cochere and public areas. In
addition, three new restaurants were created, replacing two older restaurants
and a VIP player lounge was constructed. We also purchased 343 slot machines
and leased 257 slot machines. Other expenditures consisted of various building
improvement projects and computer upgrades.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited financial information on
a quarterly basis for the Company:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------- ------------- ------------- -------------
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)
($ IN THOUSANDS)
2000
Revenues............... $ 54,562 $65,185 $71,506 $55,142
Operating income (loss) (4,894) 1,455 5,167 (988)
Net income (loss)...... $(10,612) $(4,133) $(1,496) $(6,165)
PERIOD FROM
PERIOD FROM APRIL 25,
FIRST APRIL 1, 2001 2001 TO JUNE THIRD FOURTH
QUARTER TO APRIL 24, 2001 30, 2001 QUARTER QUARTER
------------- ----------------- ---------------- ----------- -----------
(PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (SUCCESSOR) (SUCCESSOR)
($ IN THOUSANDS)
2001
Revenues............... $55,803 $17,403 $45,447 $68,853 $55,922
Operating income (loss) 186 2,084 5,285 11,410 2,121
Net income (loss)...... $(5,510) $ 617 $ 2,138 $ 5,443 $ 156
FIRST
QUARTER
----------------
(SUCCESSOR)
($ IN THOUSANDS)
2002
Revenues............... $61,775
Operating income (loss) 5,894
Net income (loss)...... $ 2,178
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. The First Mortgage Notes have a fixed, 11 1/2% per
annum rate. Our interest rate risk is therefore deemed immaterial.
47
BUSINESS
OVERVIEW
We own and operate Resorts, a casino hotel in Atlantic City, New Jersey,
where we offer casino gaming and other amenities through ownership of an
operating subsidiary. We plan to construct a new hotel tower to expand our
hotel accommodations and gaming facilities.
Resorts commenced operations in May 1978 as the first casino hotel opened
in Atlantic City. This was accomplished by the conversion of the former Haddon
Hall Hotel, a classic hotel structure originally built in the early 1900's,
into a casino hotel. Resorts is currently situated on 11.0 acres of land with
approximately 310 feet of Boardwalk frontage overlooking the Atlantic Ocean.
Resorts currently consists of two hotel towers, the 15-story Ocean Tower and
the nine-story Atlantic City Tower. In addition to the casino facilities
described below, the casino hotel complex has 645 hotel rooms and suites, a
1,400-seat theater, six restaurants, a VIP slot and table player lounge, an
indoor swimming pool, a lounge, a health club and leased retail shops. The
complex also has approximately 28,500 square feet of convention facilities,
including six large meeting rooms and a 12,000 square foot ballroom.
Resorts is situated on the Boardwalk of Atlantic City, along with ten of
Atlantic City's twelve casinos. Resorts sits at the northern end of the
Boardwalk adjacent to the Trump Taj Mahal Casino Resort, which is also adjoined
by the Showboat Hotel and Casino. These three properties have a total of
approximately 2,700 hotel rooms and approximately 347,000 square feet of gaming
space in close proximity to each other. An enclosed pedestrian bridge between
Resorts and the Trump Taj Mahal Casino Resort allows patrons of both hotels to
move between both casinos without exposure to the weather and readily partake
in events at both casino hotels. A similar enclosed pedestrian bridge connects
the Showboat to the Taj Mahal, allowing patrons to walk under cover among all
three casino hotels. The remaining nine Atlantic City casino hotels are located
approximately one-half mile to one and one-half miles to the south on the
Boardwalk or in the Marina District of Atlantic City.
In June 1999, a renovation of Resorts was completed, which included
extensive renovations to the casino floor, hotel lobby, hotel rooms and suites
and room corridors in the Ocean Tower, restaurants, the hotel porte cochere and
public areas and the addition of a new VIP player lounge and three new
restaurants. The total cost of the 1999 renovation was approximately $50.0
million.
FACILITIES OVERVIEW
GAMING FLOOR. Resorts has a casino of approximately 85,000 square feet,
including a simulcast and pari-mutuel betting facility of approximately 16,500
square feet. There are approximately 2,570 slot machines, including the 257
slot machines we added on June 30, 2001 to the portion of our gaming area
directly adjacent to the Boardwalk, and, for simulcast pari-mutuel betting,
five betting windows and five customer-operated terminals. The gaming areas
contain approximately 70 table games that consist of blackjack tables, roulette
tables, craps tables, and other specialty games that include Caribbean Stud,
Baccarat, Mini-Baccarat, Let It Ride, Three-Card Poker, Pai Gow Poker, Big Six
and Spanish Twenty-One.
In December 2000, we completed the addition of a new, $3.5 million
nine-bay bus center, which dramatically improved the appearance and convenience
of the bus waiting area. The entrance from the new bus center leads patrons
directly into the casino, significantly improving the performance of the slot
machines located in the immediate area of the bus center. We believe this
addition has been extremely well received by our guests. Furthermore, the
relocation of the bus waiting area allowed the casino floor to be expanded to
include approximately 85 additional slot machines.
We continually monitor the configuration of the casino floor and the
games we offer to patrons with a view towards enhancing customer service and
offering the latest gaming products and technology as they are
48
approved by the New Jersey Casino Control Commission, or the NJCCC. We also
actively monitor customer trends and preferences toward newer, themed slot
games and are committed to meeting these demands with our mix of slot machines.
Additionally, we will adjust the amount and type of table games on our gaming
floor in anticipation of seasonal changes or special events.
MEETING ROOMS, RESTAURANTS AND OTHER AMENITIES. Resorts' meeting room
facilities consist of a large banquet room with five breakout rooms. In the
aggregate, these rooms have the ability to accommodate approximately 2,600
people in 28,500 square feet of space. Meeting rooms range in size from 450 to
12,028 square feet. Although we believe our meeting room facilities are
competitive with those offered by other operators in the market, our ability to
attract convention and other large meeting traffic is constrained by our
limited number and quality of hotel rooms and suites. We believe the increase
in number and improved quality of hotel rooms and suites resulting from the
expansion will allow us to significantly improve our marketability to
conventions, which tend to draw higher margin customers.
We believe the quality of our restaurants gives us a significant
competitive advantage over other casinos in Atlantic City, as we feature
several restaurants catering to differing customer tastes and price points. Our
restaurants include: Capriccio, Asian Spice, Camelot Steakhouse, Beach Ball
Deli, Breadsticks and the Boardwalk Buffet, an all-you-can-eat breakfast, lunch
and dinner buffet.
With a capacity to seat 1,400 patrons in approximately 18,000 square feet
of space, the primary purpose of our Superstar Theater is to attract patrons to
the casino. Our theater is used to enhance our casino's image as an
entertainment facility offering some of the best entertainment in Atlantic
City. Recent acts which we believe target our core customer base include Tom
Jones, Aretha Franklin, Gladys Knight, Regis Philbin and The Temptations.
We have a full service salon and spa which offers an array of beauty and
body treatments from massages to makeovers. We also have a gym facility and
indoor/outdoor pool which is open year-round.
PARKING. We own a parking garage that is connected to Resorts by an
enclosed walkway. During the construction of our new hotel tower, the enclosed
walkway will be closed, although alternative access to the casino will be
provided from the parking garage. This garage is used for patrons' self-parking
and accommodates approximately 700 vehicles. We also own additional adjacent
properties consisting of approximately 3.5 acres, which provide parking for
approximately 300 vehicles. In addition, we lease approximately 4.4 acres
adjoining Resorts from Sun International North America, Inc. which is currently
used to provide additional uncovered self-parking for approximately 400
vehicles and valet parking for approximately 415 vehicles.
THE EXPANSION
RATIONALE FOR THE EXPANSION. In July 2002, we plan to begin the
construction process of building a new 27-story hotel tower with approximately
400 hotel rooms and suites on the site of our existing Atlantic City Tower and
a corresponding expansion of our gaming floor. The expansion is budgeted to
cost approximately $115.5 million, which includes $85.0 million of hard
construction costs, $7.2 million of soft construction costs, $14.8 million of
other costs (including FF&E and gaming equipment) and $8.5 million for
contingencies arising in connection with the construction. See "Use of
Proceeds." We plan to offer among the highest quality hotel rooms and suites in
the Atlantic City market which we believe will attract customers for longer
stays. Following the completion of construction, and subject to the approval of
the New Jersey Casino Control Commission, or the NJCCC, we plan to have
approximately 99,000 square feet of gaming space and approximately 3,140 slot
machines. In addition, we plan to relocate and expand our lobby and porte
cochere areas creating a central arrival area for guests of both towers. During
the construction period, the Ocean Tower and approximately 90% of our gaming
floor are expected to remain fully operational. Additionally, the area of our
gaming space and the number of our slot machines during construction and upon
completion of the new hotel tower is subject to the approval of the NJCCC. We
expect that the expansion will be completed approximately 24 months from
commencement.
49
The expansion is a key component in continuing our strategy of growing
our core customer base. We believe that there currently is a significant
disparity in the quality of amenities currently offered by our two existing
hotel towers, which constrains our ability to attract and retain higher-margin,
mid-level slot players and mid-level table game players. We classify our
customers according to their gaming budget. We define a low-level slot player
as a gaming customer who is willing to gamble less than $400 per sitting, a
mid-level slot player as a customer who is willing to gamble $400 to $1,000 per
sitting and a high-level slot player as a customer who is willing to gamble
more than $1,000 per sitting. We define a low-level table game player as a
customer who is willing to gamble less than $5,000 per visit, a mid-level table
game player as a customer who is willing to gamble $5,000 to $25,000 per visit,
a high-level table game player as a customer who is willing to gamble $25,000
to $100,000 per visit and a premium table game player as a customer who is
willing to gamble more than $100,000 per visit.
Rooms in the Ocean Tower, a classic hotel structure constructed in the
1920's and completely renovated in 1999, are competitive with the hotel rooms
offered by other facilities in the Atlantic City market. In contrast, the
Atlantic City Tower was built in the 1960's as a motel and consequently has
smaller corridors, thinner walls and smaller bathrooms than the hotel rooms
offered by the other casino hotels in the Atlantic City market. Based on an
analysis of the players we track, we believe the Ocean Tower has historically
generated a win per occupied room greater than twice that generated by the
Atlantic City Tower.
We believe the completion and opening of our new hotel tower will
increase both our top-line revenues and significantly expand our operating
margins for the following reasons:
. We believe that customers tend to play longer and spend more of their
budgeted gaming dollars at the casino hotel in which they stay.
Correspondingly, we believe that our new hotel rooms and suites will
encourage patrons to stay with us, increase their length of play and
spend more of their gaming dollars at our casino, contributing to an
increased average win per customer.
. The new hotel rooms will be among the largest in the Atlantic City
market, which we believe will allow us to shift our customer mix to
the higher-margin, mid- to high-level slot player and the higher end
of our core customer base of table game players.
. We believe our fixed costs will only marginally increase following
the expansion. Consequently, we believe we will generate higher
margins from our new hotel rooms and suites and additional slot
machines.
DESIGN AND CONSTRUCTION TEAM. We have assembled what we believe to be a
highly qualified team to design and construct our new hotel tower. Our design
and construction team includes:
. We retained Perini Building Company, Inc., or Perini, as construction
manager and contractor for our new hotel tower. Perini is the
wholly-owned subsidiary of the publicly-traded Perini Corporation.
Perini has extensive experience and expertise in the construction of
major hotel and resort developments, as well as themed casinos and
entertainment venues. Perini is a recognized leader in the
construction of casino hotel complexes throughout the United States
with more than one million square feet of casino space and 30,000
hotel rooms completed to date. Perini provides general contracting
and construction management services. Perini maintains a network of
strategically located national offices. Perini has extensive
experience with casino projects nationwide and in Atlantic City,
including the Trump Taj Mahal Casino Resort, Showboat Hotel and
Casino and Harrah's Marina Hotel in Atlantic City; the Paris-Las
Vegas Resort in Las Vegas; and the Mohegan Sun Resort in Connecticut.
. We intend to retain, and are currently negotiating a contract with,
the partnership of Bergman, Walls & Associates, Ltd. as the
architects for our new hotel tower. Bergman was founded in 1994 as an
architectural firm specializing in resort design. While maintaining a
specialty in the hospitality industry with an emphasis on casinos,
the firm has worked extensively in the commercial, retail,
educational and religious arenas, as well as, a number of pro bono
projects.
50
Bergman is a full-service organization offering design, programming,
theming, construction management, model building, rendering, and
document control services to its clients. Bergman has worked all over
the world, including South America, Europe, Australia and the United
States. Bergman has experience with casino projects in Atlantic City,
Las Vegas and Detroit. Bergman's previous projects include the Golden
Nugget Atlantic City, currently the Hilton, in Atlantic City;
Paris-Las Vegas Casino Resort, Caesars Palace High Limit Casino and
The Mirage in Las Vegas; and the MGM Grand Detroit Interim Casino in
Detroit.
. Michael Branigan, Construction Consultant, is managing project
development and construction of our new hotel tower. Mr. Branigan was
formerly an employee of Colony Capital and managed several
construction projects for Colony Capital. Mr. Branigan has over 20
years of experience in the construction industry. His recently
completed projects include 610 Park Avenue, the Stanhope Hotel and
The Inn at 57th Street in New York City; The L'Ermitage Hotel in Los
Angeles; and The Orchid at Mauna Lani in Hawaii.
CONSTRUCTION SCHEDULE. We anticipate the construction of our new hotel
tower will be completed approximately 24 months following the closing of the
original note offering. Our construction schedule consists of the following
stages, some of which may occur simultaneously:
. finalizing project design drawings, plans and specifications by the
architect, which we anticipate will take approximately two months;
. application for permits, which we anticipate will take approximately
one and one-half months;
. utility relocation, which we anticipate will take approximately one
and one-half months;
. demolition and evacuation of the existing Atlantic City Tower, which
we anticipate will take approximately two months; and
. the construction, which we anticipate will take approximately 18
months.
CONSTRUCTION CONTRACT. In March 2002, we entered into an agreement with
Perini Building Company, Inc., or Perini, as construction manager and
contractor, providing for the construction by Perini of our new 27-story hotel
tower and expansion of certain of our existing facilities, including our gaming
floor. Perini's responsibilities pursuant to the agreement will include
demolition, site development, excavation and construction. In performing these
services, Perini will engage various subcontractors to perform portions of the
work.
The agreement, based upon The American Institute of Architects', or the
AIA, Form A121, with certain modifications, provides that Perini will perform
the work as specified in the project design drawings, plans and specifications
developed as of the date of the agreement and subject to other assumptions, for
a guaranteed maximum price of approximately $89.1 million. The agreement also
provides that the guaranteed maximum price will be finalized by amendment to
the agreement when the construction documents have been sufficiently completed
by the architect to enable Perini to procure accurate subcontractor pricing.
The guaranteed maximum price will thereafter be subject to adjustment based
upon changes in the scope of work requested by us and change orders issued
during the progress of the work. We cannot assure you that the final guaranteed
maximum price, or the ultimate construction costs, will be consistent with the
current budget.
The project design drawings, plans and specifications have not been
completed at this time, nor have construction drawings (which will constitute
the basis for the hiring of subcontractors) been commenced. We anticipate that
the project design drawings, plans and specifications and construction drawings
will be sufficiently completed to enable Perini to procure accurate
subcontractor pricing within 120 days from the closing of the original note
offering.
51
The agreement provides that Perini's performance of the work will be
supported by a payment and performance bond in the amount of the guaranteed
maximum price, which bond will be obtained by Perini. The agreement also
requires that Perini provide comprehensive public liability insurance,
including contractual liability coverage.
The project is presently budgeted to cost approximately $115.5 million,
which includes $85.0 million of hard construction costs, $7.2 million of soft
construction costs (including fees for architects, engineers, consultants,
attorneys, and government appraisers and insurance costs), $14.8 million of
other costs (including FF&E and gaming equipment) and $8.5 million for
contingencies arising in connection with the construction work. We believe the
project and construction budgets are reasonable and the agreement will include
certain incentives designed to put downward pressure on actual construction
costs; however, given the risks inherent in the construction process, it is
possible that construction costs could be significantly higher than presently
anticipated. If construction costs do exceed the amounts set forth in the
present construction budget, potential sources to pay such excess include:
(i)a contingency of approximately $4.1 million included within the
guaranteed maximum price (although that contingency will first be
available to Perini to cover its own unanticipated cost overruns);
(ii)our contingency of approximately $4.4 million included within the
project budget;
(iii)liquidated damages available under the agreement as a result of
completion delays caused by or otherwise the responsibility of Perini;
(iv)casualty and/or general liability insurance proceeds;
(v)performance bond proceeds;
(vi)Perini, to the extent of its liability under the agreement; and
(vii)other third parties to the extent of their liability to us under any
agreements with us.
We deposited $89.4 million of the net proceeds from the original note
offering into a construction disbursement account for disbursement. The
disbursement agreement establishes conditions for the sequencing of funding
construction costs and procedures for approving construction change orders and
amendments to the construction budget and schedule. The conditions under the
disbursement agreement generally provide that funds will be disbursed to us
only if we certify that there are sufficient available funds to complete the
project.
ARCHITECTURAL AGREEMENT. We intend to enter into an agreement with
Bergman, Walls & Associates, Ltd., for the provision of certain architectural
and structural, mechanical and electrical engineering services for the project.
These services will include preparing the design development documents and
construction documents, as well as assisting us during the bidding phase and
providing certain administrative services during the construction phase of the
project. The architect will not be responsible for interior design. As
compensation for the architect's basic services as well as engineering and
consulting services, we anticipate that the agreement will provide for a fee of
approximately $4.5 million payable monthly based upon percentage of completion,
together with reimbursement of certain expenses. We believe that the agreement
will also provide that, upon our request, the architect will furnish additional
services in connection with the project for an additional fee to be based upon
the architect's hourly rates.
BUSINESS STRATEGY
Our business strategy is to:
CAPITALIZE ON RECENT SUCCESSFUL INITIATIVES. Our senior management team
joined us early in 2000 and has since significantly improved the operating
performance of Resorts, primarily by marketing value driven programs to our
core customer base, implementing several cost-cutting initiatives and expanding
our casino floor where possible. We are beginning to realize the benefits of
these programs and we believe that we will continue to realize these benefits
in 2002.
52
INCREASE OPERATING LEVERAGE AND EFFICIENCIES. We believe the expansion
will improve operating efficiencies by substantially increasing the number of
high quality hotel rooms and suites we offer while only marginally increasing
our operating expenses. We believe the expansion will allow us to increase the
average length of stay of our customers and attract higher-margin, higher-level
customers.
INVEST IN STATE-OF-THE-ART SLOT MACHINES. We are committed to offering
our customers the latest themed slot machines and gaming technology. We believe
this focus is critical to retaining mid-level slot players, who we believe are
more knowledgeable and sophisticated than players in other gaming segments. In
connection with the expansion, we plan to add approximately 570
state-of-the-art slot machines to our gaming floor.
DEVELOP AND EXPAND OUR CORE CUSTOMER BASE. We primarily focus on
developing and expanding our mid- to high-level slot customer base, with a
secondary focus on our mid- to high-level table game customer base. We continue
to refine our bus promotion strategy to target only the most profitable bus
markets. We believe that our recent success is the result of marketing
initiatives focused on building player loyalty through more efficient use of
player information. We believe the primary means of attracting new players will
be our ability to offer high quality hotel rooms and suites.
FOCUS ON CUSTOMER SERVICE. We continue to emphasize the importance of
creating a culture focused on customer service. Each employee is extensively
trained in their respective functional area to respond immediately to customer
needs. Employee compensation at all levels is performance-based, with customer
satisfaction being a key basis of evaluation. We believe this promotes an
environment in which all employees feel a sense of commitment to customer
service.
MARKETING OVERVIEW
Our marketing programs target middle- and higher-income customers who
have the propensity to game. Our reengineered customer database identifies and
targets value-added, high-income repeat gaming customers and uses sophisticated
player tracking systems to determine the value of customers and provide
programs conducive to their level of play.
We promote Resorts through radio, outdoor and print advertising and
direct mailings. The vast majority of future marketing efforts will seek to
increase Resorts' market share of drive-in slot players. Management believes
drive-in players tend to be higher-income slot customers than customers who
travel by bus and tend to spend more of their time in the casino where they are
staying.
We have identified our primary market as the 200-mile radius from
Atlantic City, which includes all of New Jersey, New York City, Philadelphia
and Baltimore, and our secondary market as the 200 plus-mile radius from
Atlantic City, which includes Washington, D.C. The primary market receives the
heaviest allocation of marketing resources, with strategically targeted efforts
in key outer market areas.
ATLANTIC CITY MARKET
We believe Atlantic City's strategic location, combined with its core
demographics and steady market growth, makes it a compelling gaming market.
Atlantic City is located along the most densely populated area of the United
States, the New York-Philadelphia-Baltimore-Washington, D.C. corridor.
The Atlantic City market has demonstrated continued and steady growth,
despite several recessions and the recent proliferation of new gaming
jurisdictions, including Delaware and Connecticut. Compound annual growth in
total gaming revenue has averaged 3.3% since 1990. We directly compete with 11
casino hotels in Atlantic City. The Atlantic City market, as of December 31,
2001, contained approximately 11,500 hotel rooms and suites and 1.23 million
square feet of gaming area, including simulcast betting and poker rooms.
53
According to the Gaming Observer, Atlantic City hosted approximately 31.3
million visitors in 2001, a 5.7% decrease over 2000, which tallied
approximately 33.2 million visitors. In addition, these visitors spent over
$4.3 billion in the local economy and kept the 11,478 rooms in the Atlantic
City market 92.4% occupied.
The table below showing Atlantic City visitation statistics indicates
these figures are generally in line with historical patterns.
GAMING % %
REVENUE INCREASE NUMBER INCREASE
($ IN OVER PRIOR OF HOTEL OVER PRIOR OCCUPANCY %
YEAR BILLIONS) YEAR ROOMS YEAR HOTEL
- ---- --------- ---------- -------- ---------- -----------
1995 $3.7 -- 9,260 -- 91.2%
1996 3.8 2.7% 10,280 11.0% 89.7
1997 3.9 2.6 10,987 6.9 87.5
1998 4.0 2.6 11,947 8.7 87.3
1999 4.2 5.0 11,847 (0.8) 89.6
2000 4.3 2.4 11,452 (3.3) 91.5
2001 4.3 0.0 11,478 0.2 92.4
- --------
Data Source: For gaming revenue data, the source is the New Jersey Casino
Control Commission; and for hotel room and occupancy data, the source is the
Atlantic City Convention Center.
We believe that the Atlantic City market's overall hotel room and suite
inventory is currently, significantly constrained. At the occupancy rates
indicated in the table above, there are limited rooms to offer to cash
customers and convention-related business. In addition, in 2000, the Atlantic
City market had a ratio of gaming revenues to hotel rooms of 377,034:1, while
the Las Vegas market (comprised of downtown, the strip and the Boulder strip)
had a similar ratio of 48,918:1. We believe the lack of available rooms,
especially during the summer months and on weekends, has hampered the growth of
the Atlantic City market. We believe the Atlantic City market has responded,
and will continue to respond, favorably to increased hotel room and suite
capacity and that gaming operators that have constructed hotel room and suite
additions have experienced higher operating margins following completion of
such additions. We believe that gaming operators who experienced growth in
gross operating profit, in part as a result of hotel room and suite additions,
include:
. The Atlantic City Tropicana, which added over 600 hotel rooms in 1996
and experienced an increase in its operating profit margin from 18.0%
in 1997 to 24.1% in 2000;
. Caesars Atlantic City, which added over 500 hotel rooms in 1997 and
experienced an increase in its operating profit margin from 27.3% in
1998 to 29.9% in 2000;
. Atlantic City Hilton, which added over 275 hotel rooms in 1997 and
experienced an increase in its operating profit margin from 13.0% in
1998 to 20.2% in 2000; and
. Harrah's Atlantic City, which added over 400 hotel rooms in 1997 and
experienced an increase in its operating profit margin from 28.5% in
1998 to 34.5% in 2000.
- --------
Data Source: New Jersey Casino Control Commission
The other casino hotels in Atlantic City that did not undertake room expansion
projects during this time period experienced average operating profit margins
of 20.8% in 1997, 21.5% in 1998, 20.1% in 1999 and 21.1% in 2000. Furthermore,
we believe the low amount of additional hotel room and suite capacity developed
since 1998 has constrained the growth of the Atlantic City market.
The Atlantic City market has a strong "locals" component, which includes
gaming patrons that generally live within 150 miles of Atlantic City. As a
result of this close vicinity, we believe the Atlantic City customer
tends to frequent the casinos in the market more than customers in
destination-based markets such as Las Vegas. We believe the Atlantic City
customer tends to be more sophisticated and sensitive to changes in slot hold
percentage than customers in other gaming jurisdictions. Additionally, we
believe that the locals component of
54
the Atlantic City market results in a more stable stream of cash flows that is
less susceptible to economic downturns than that of destination-based markets.
Slot play has become increasingly popular with Atlantic City gaming
patrons. This popularity is partially due to technological improvements such as
bill and coupon acceptors, video poker and themed slot machines that have
increased convenience and entertainment value. Additionally, slot machines tend
to generate higher margins than table games, and Atlantic City gaming operators
have correspondingly increased the number of slot machines in favor of table
games on their gaming floors. This trend is evidenced by the 14.3% increase in
the number of slot machines in the Atlantic City market since 1996 as compared
to the 10.3% decrease in the number of table games. From 1996 to 2001, slot
revenues increased from 68.7% of total casino revenues in the Atlantic City
market to 72.8% of total casino revenues in 2001.
We believe that Atlantic City gaming operators, including Resorts, have
become increasingly focused on improving quality of revenues in recent years.
This trend is evidenced by the market's reduced reliance on promotional
expenses and allowances, such as bus packages and customer give-away
promotions. Although such promotions can drive top-line growth, we believe they
result in lower operating margins as they are generally matched by competitors.
Significant private and public investment in the Atlantic City market has
been made over the past few years. In 1984, the New Jersey State Legislature
created the Casino Reinvestment Development Authority, or CRDA, a state agency
that effectively levies a 1.25% tax on gross gaming revenues and oversees the
expenditure of such funds to rebuild Atlantic City through an organized master
plan. See "Government Regulation and Other Factors." Some of the most
significant improvements to Atlantic City as a result of this initiative
include:
. the $268.0 million Atlantic City Convention Center;
. the $84.0 million renovation of the entrance to the Atlantic City
Expressway;
. the recently completed $330.0 million Atlantic City Tunnel project
connecting the Atlantic City Expressway to the Marina District;
. $225.0 million in CRDA housing;
. the construction of a $14.5 million minor league baseball stadium; and
. the $90.0 million refurbishment of the Boardwalk Convention Center
Hall into a special events venue.
Additionally, the CRDA has undertaken an enhancement project of North
Carolina Avenue, which will allow for improved traffic flow in Atlantic City.
Upon completion, North Carolina Avenue will serve as the primary thoroughfare
from the Marina District to the Boardwalk, thereby promoting traffic flow to
Resorts' entrance, which is located on North Carolina Avenue. Recently, Cordish
Co., or Cordish, announced the development of an approximate 300,000 square
foot retail and entertainment complex adjacent to the Atlantic City Convention
Center. The project's estimated cost is $76.0 million and is scheduled to be
completed in Summer 2003. Cordish has entered into a final development
agreement with CRDA who owns the property and will assist in financing the
project.
Several gaming operators have announced new development or expansion
projects which we believe will attract new, higher-margin customers and
alleviate hotel room and suite inventory constraints. The most significant
addition to the Atlantic City market will be the completion by Boyd Gaming
Corporation and MGM Grand, Inc. of a resort complex located in the Marina
District to be named the "Borgata." We believe the Borgata will attract a
younger gaming customer and will increase the size and profitability of the
overall market. In addition, we believe the Borgata will be Atlantic City's
first destination-based resort and will drive additional traffic to the
Boardwalk due to the longer estimated length of stay of the Borgata's target
customers. In addition
55
to the construction of the Borgata, several Atlantic City Properties have
announced or are currently undergoing renovations, including:
. The Atlantic City Tropicana's $225.0 million expansion that will
include construction of an additional 502 hotel rooms and a 200,000
square foot retail, dining and entertainment complex;
. Harrah's Atlantic City's $113.0 million construction project of an
additional hotel tower with 452 rooms and parking garage scheduled to
be completed by April 2002 and $80.0 million construction project of
a 19,500 square foot lobby/entrance and 28,000 square foot gaming
space with an additional 950 slot machines scheduled to be completed
Summer 2002;
. Claridge Casino and Hotel's $25.0 million renovation plan that
includes upgrading slot machines, renovating hotel rooms and building
a connector to Bally's Park Place;
. Sands Casino Hotel commenced conversion of a recently acquired
structure into hotel suites which is scheduled to be completed June
2002; and
. Showboat Casino & Hotel's plan to construct an additional 544-room
tower to be completed Fall 2003.
COMPETITION
GENERAL. Competition in the Atlantic City market remains intense. At the
present time, there are 12 casino hotels located in Atlantic City, including
Resorts, all of which compete for patrons. We believe competition in the
Atlantic City market centers on hotel and casino facilities and related
amenities; ease of access and parking facilities; services and promotions
provided to patrons; and entertainment.
Substantial new expansion and development activity has recently been
completed or has been announced in Atlantic City, which intensifies the
pressure in the Atlantic City market. See "--Atlantic City Market."
COMPETING JURISDICTIONS. Resorts also competes, or will compete, with
facilities in the northeastern and mid-Atlantic regions of the United States at
which casino gaming or other forms of wagering are currently, or in the future
may be, authorized. To a minimal extent, Resorts faces competition from gaming
facilities nationwide. Moreover, Resorts also faces competition from various
forms of internet gambling.
Resorts also faces competition from casino facilities in a number of
states operated by federally recognized Native American tribes. Pursuant to the
Indian Gaming Regulatory Act of 1988, or the IGRA, any state that permits
casino-style gaming (even if only for limited charity purposes) is required to
negotiate gaming compacts with federally recognized Native American tribes.
Under the IGRA, Native American tribes enjoy comparative freedom from
regulation and taxation of gaming operations, which provides them with an
advantage over their competitors, including Resorts.
There are currently two gaming properties in Connecticut that compete
directly with Atlantic City for gaming patrons, Foxwoods Resort and Casino and
the Mohegan Sun Resort. Foxwoods currently offers 24-hour gaming and has
approximately 6,400 slot machines, 350 table games, over 1,400 rooms and
suites, 21 food and beverage outlets, 18 retail shops, entertainment and a
year-round golf course. Also, a high-speed ferry operates seasonally between
New York City and Foxwoods. Plans for a high-speed train linking Foxwoods to
the interstate highway and an airport outside Providence, Rhode Island, have
also been announced.
The other, the Mohegan Sun Resort in Uncasville, Connecticut, located 10
miles from Foxwoods, has approximately 3,000 slot machines and 190 table games,
off-track horse betting, bingo, 20 food and beverage
56
outlets and retail shops. The Mohegan Sun Resort is in the midst of a 4.0
million square-foot expansion entailing the construction of a 115,000
square-foot casino, a 10,000-seat arena, a 34-story hotel tower with 1,200
rooms, 12 new restaurants and two parking garages that will accommodate up to
6,500 vehicles. The project is expected to be completed in Spring 2002.
In July 1993, the Oneida Nation opened Turning Stone, a casino featuring
24-hour table gaming and electronic gaming machines near Syracuse, New York. In
October 1997, the Oneida Nation opened a hotel which included expanded gaming
facilities and constructed a golf course and convention center at Turning
Stone. Construction of a new 24,000 square foot clubhouse for the Oneida
Nation's golf course is expected to commence in Summer 2001 and to be completed
in May 2002.
Other Native American nations are seeking federal recognition and land
and negotiating gaming compacts in New York, Rhode Island, Connecticut and
other states on the Eastern seaboard, which could further increase competition
for gaming customers.
New York State recently enacted legislation authorizing the New York
Lottery to install and operate video lottery terminals at certain horse
racetracks located throughout the State. The legislation also authorizes the
Governor to enter into six tribal/State gaming compacts with Native American
tribes which will provide for the creation and operation of Native American
gaming facilities in certain areas of the State, including three compacts
providing for gaming facilities in the Catskills region of New York. This
legislation has recently been challenged in the New York State courts as being
unconstitutional in violation of the New York Constitution, which prohibits
commercialized gambling.
In April 2000, the St. Regis Mohawks announced that Park Place
Entertainment Corporation would build and manage a tribal casino in the
Catskill Mountains. In May 2000, Park Place Entertainment Corporation agreed to
purchase Kutshers Resort for the new St. Regis Mohawks' casino site. In April
2001, a New York State court ruling invalidating compacts allowing Indian
casinos in New York put the future of the proposed casino and Turning Stone in
doubt. New York State officials plan to appeal the decision. The potential
casino is located just 65 miles northwest of New York City and would compete
directly with Atlantic City casinos for patrons.
In the event the New York law is upheld, the Seneca Nation plans to
negotiate with New York State to open a casino in Western New York. Approval of
the proposed casino would be contingent upon the purchase of additional
property that is declared reservation property by the federal government.
However, a recent ruling by the federal Interior Department may allow the
Seneca Nation to transform its bingo halls into casino-type operations without
having to negotiate with New York State.
Legislation permitting other forms of casino gaming has been proposed,
from time to time, in various states, including those bordering the state of
New Jersey. Six states have presently legalized riverboat gambling while others
are considering its approval, including Delaware. To the extent that legalized
gaming becomes more prevalent in New Jersey or other jurisdictions near
Atlantic City, competition will intensify. In addition, legislation has from
time to time been introduced in the New Jersey State Legislature relating to
types of statewide legalized gaming such as video games with small wagers.
GAMING CREDIT POLICY
Resorts extends credit to selected gaming customers, primarily in order
to compete with other casino hotels in Atlantic City that also extend credit to
customers. Credit play represented 25% of table game volume at Resorts in 2001,
25% in 2000 and 25% in 1999. The credit play percentage of table game volume
for the Atlantic City industry was 21% in 2001, 23% in 2000 and 24% in 1999.
RIH's gaming receivables, net of allowance for uncollectible amounts, were $5.2
million as of December 31, 2001, $6.9 million as of December 31, 2000 and $4.8
million as of December 31, 1999. The collectibility of gaming receivables has
an effect on results of operations and management believes that overall
collections have been satisfactory. Atlantic City gaming debts
57
are enforceable under the laws of New Jersey and certain other states, although
it is not clear whether other states will honor this policy or enforce
judgments rendered by the courts of New Jersey with respect to such debts.
SECURITY CONTROLS
Gaming at Resorts is conducted by trained personnel and supervised by
RIH. Prior to employment, all casino personnel must be licensed under the
NJCCA. Security checks are made to determine, among other matters, that job
applicants for key positions have had no criminal ties or associations. RIH
employs extensive security and internal controls at its casino. Security at
Resorts utilizes closed circuit video cameras to monitor the casino floor and
money counting areas. The count is observed daily by representatives of NJCCC.
SEASONAL FACTORS
RIH's business activities are affected by seasonal factors that influence
New Jersey tourism. Higher revenues and earnings are typically realized during
the middle third of the year.
EMPLOYEES
As of December 31, 2001, we had approximately 3,000 employees, including
approximately 800 casino employees, 800 food and beverage employees, 200
security employees, 150 administrative support employees, 370 hotel employees,
425 marketing and entertainment employees, 115 facilities employees, 45 parking
employees and a senior management team of approximately 12 members. All of our
employees have completed our customer service program during which they were
taught to function on the highest level of service and professionalism within
their specific segment. Following the completion of the expansion, we expect to
have approximately 3,200 employees.
We believe that our employee relations are satisfactory. Approximately
1,300 of our employees are represented by unions. Of these employees,
approximately 1,000 are represented by the Hotel Employees and Restaurant
Employees International Union Local 54, whose contract was renewed in September
1999 for a term of five years. There are several union contracts covering other
union employees.
All of our casino employees and certain of our hotel employees must be
licensed under the New Jersey Casino Control Act, on NJCCA. Casino employees
are those employees whose work requires access to the casino, the casino
simulcasting facility or restricted casino areas.
PROPERTIES
CASINO, HOTEL AND RELATED PROPERTIES. Our core real estate assets
consist of developed land and land available for development in Atlantic City
which we either own, lease and/or have an option to purchase.
Land used in the operation of the casino hotel consists of approximately
11.0 acres and is owned in fee simple, except for approximately 1.2 acres of
the Resorts site which are leased pursuant to 4.0 ground leases expiring from
2056 through 2067. The 11.0 acres includes approximately 6.0 acres under the
Resorts building complex, approximately 3.5 acres of parking lots available for
future expansion and approximately 1.0 acre in front of the casino hotel which
is utilized for patron valet and related services.
We also own an approximate 5.5 acre Atlantic Ocean pier site, 2.0 acres
of which contained the former Steeplechase Pier. The pier has been removed and
we have current federal and state permits to construct a new pier on a portion
of the 5.5 acre site, although no decision has been made at this time to
develop this location. Atlantic City amended its zoning ordinances to permit
casinos, hotel rooms and ancillary amusements on five of the City's pier sites,
including our site.
58
We have an option to purchase approximately 10.0 acres of real property
immediately adjacent to the Resorts site and approximately 2.0 acres of real
property located in the Atlantic City metropolitan area pursuant to the Option
Agreement, as of April 25, 2001, with SINA, for a total purchase price of $40.0
million. The Option Agreement has a two-year term, which term may be extended
for two additional one-year terms upon the payment of a $2.5 million extension
fee payable upon each extension. The initial term of the Option Agreement
expires in April 2003. Portions of the option property are zoned for casino
hotel use and are available for future expansion. Some of the leased option
property is currently utilized as a surface parking lot. Pursuant to the terms
of the lease agreement, portions of the option property are leased for a term
of two years contemporaneous with the terms of the Option Agreement. The lease
agreement is automatically extended for a concurrent term upon the extension of
the Option Agreement.
OTHER PROPERTIES. We also own land adjacent to Delaware Avenue in
Atlantic City, a portion of which we utilize for a warehouse operation
servicing Resorts.
LEGAL PROCEEDINGS
Various legal proceedings are now pending against us. Management
considers all such proceedings to be ordinary litigation incident to the
operation of its business. Management believes that the resolution of these
claims will not, individually or in the aggregate, have a material adverse
effect on its financial condition or results of operations.
From time to time, we may be involved in routine administrative
proceedings involving alleged violations of certain provisions of the NJCCA.
However, management believes that the final outcome of these proceedings will
not, either individually or in the aggregate, have a material adverse effect on
us or on our ability to otherwise retain or renew any casino or other licenses
required under the NJCCA, although no assurances can be given.
59
GOVERNMENT REGULATION AND OTHER FACTORS
REGULATION AND GAMING TAXES AND FEES
GENERAL. Our operations in Atlantic City are subject to regulation under
the New Jersey Casino Control Act, or NJCCA, which authorizes the establishment
of casinos in Atlantic City, provides for licensing, regulation and taxation of
casinos and created the New Jersey Casino Control Commission, or NJCCC, and the
Division of Gaming Enforcement to administer the NJCCA. In general, the
provisions of the NJCCA concern:
. the ability, character and financial stability and integrity of
casino operators, their officers, directors and employees and others
financially interested in a casino;
. the nature and suitability of hotel and casino facilities, operating
methods and conditions; and
. financial and accounting practices.
Gaming operations are subject to a number of restrictions relating to the
rules of games, type of games, credit play, size of hotel and casino
operations, hours of operation, persons who may be employed, companies which
may do business with casinos, the maintenance of accounting and cash control
procedures, security and other aspects of the business.
There were significant regulatory changes in recent years. In addition to
the approval of new games, the NJCCA was amended to allow casinos to expand
their casino floors before building the requisite number of hotel rooms,
subject to approval of the NJCCC. This amendment was designed to encourage
hotel room construction by giving casino licensees an incentive and an added
ability to generate cash flow to finance hotel construction. Previous law only
allowed for casino expansion if a casino built new hotel rooms first. In
addition, the maximum casino square footage has been increased from 50,000
square feet to 60,000 square feet for the first 500 qualifying rooms and the
current law allows for an additional 10,000 square feet for each additional 100
qualifying rooms over 500, up to a maximum of 200,000 square feet. Future costs
of regulation have been reduced as new legislation no longer requires hotel
employees to be registered, extends the term for casino and casino key employee
license renewals from two years to four years and allows greater efficiency by
either reducing or eliminating the time permitted to allow the NJCCC to approve
internal controls, patron complimentary programs and the movement of gaming
equipment.
CASINO LICENSE. A casino license is initially issued for a term of one
year and must be renewed annually by action of the NJCCC for the first two
renewal periods succeeding the initial issuance of a casino license. The NJCCC
may renew a casino license for a period of four years, although the NJCCC may
reopen licensing hearings at any time. A license is not transferable and may be
conditioned, revoked or suspended at any time upon proper action by the NJCCC.
The NJCCA also requires an operations certificate, which, in effect, has a term
coextensive with that of a casino license.
In January 2000, our license was renewed until January 31, 2004.
RESTRICTIONS ON OWNERSHIP OF EQUITY AND DEBT SECURITIES. The NJCCA
imposes certain restrictions upon the ownership of securities issued by a
corporation that holds a casino license or is a holding, intermediary or
subsidiary company of a corporate licensee, or collectively, a Holding Company.
For example, the sale, assignment, transfer, pledge or other disposition of any
security issued by a corporation, which holds a casino license, is conditional,
and shall be ineffective if disapproved by the NJCCC. If the NJCCC finds that
an individual owner or holder of any securities of a corporate licensee or its
Holding Company must be qualified and is not qualified under the NJCCA, the
NJCCC has the right to propose any necessary remedial action. In the case of
corporate holding companies and affiliates whose securities are publicly
traded, the NJCCC may require divestiture of the security held by any
disqualified holder who is required to be qualified under the NJCCA.
60
In the event that entities or persons required to be qualified refuse or
fail to qualify and fail to divest themselves of such security interest, the
NJCCC has the right to take any necessary action, including the revocation or
suspension of the casino license. If any security holder of the licensee or its
holding company or affiliate who is required to be qualified is found
disqualified, it will be unlawful for the security holder to:
. receive any dividends or interest upon any such securities;
. exercise, directly or through any trustee or nominee, any right
conferred by such securities; or
. receive any remuneration in any form from the corporate licensee for
services rendered or otherwise.
Colony RIH Holdings, Inc.'s, or CRH's, amended and restated certificate of
incorporation and our certificate of incorporation provide that all securities
of CRH and our securities are held subject to the condition that if the holder
thereof is found to be disqualified by the NJCCC pursuant to the provisions of
the NJCCA, then CRH or we, as the case may be, have the absolute right to
repurchase at the lesser of the market price or the purchase price, any
security, share or other interest in the corporation.
REMEDIES. In the event that it is determined that a licensee has
violated the NJCCA, or if a security holder of the licensee required to be
qualified is found disqualified but does not dispose of his securities in the
licensee or holding company, under certain circumstances the licensee could be
subject to fines or have its license suspended or revoked.
The NJCCA provides for the mandatory appointment of a conservator to
operate the casino and hotel facility if a license is revoked or not renewed
and permits the appointment of a conservator if a license is suspended for a
period in excess of 120 days. If a conservator is appointed, the suspended or
former licensee is entitled to a "fair rate of return out of net earnings, if
any, during the period of the conservatorship, taking into consideration that
which amounts to a fair rate of return in the casino or hotel industry." Under
certain circumstances, upon the revocation of a license or failure to renew,
the conservator, after approval by the NJCCC and consultation with the former
licensee, may sell, assign, convey or otherwise dispose of all of the property
of the casino hotel. In such cases, the former licensee is entitled to a
summary review of such proposed sale by the NJCCC and creditors of the former
licensee and other parties in interest are entitled to prior written notice of
the sale.
LICENSE FEES, TAXES AND INVESTMENT OBLIGATIONS. The NJCCA provides for
casino license renewal fees, other fees based upon the cost of maintaining
control and regulatory activities and various license fees for the various
classes of employees. In addition, a casino licensee is subject annually to a
tax of 8% of gross revenue, as defined under the NJCCA, and license fees of
$500 for every slot machine for use or in use in a casino as of the first of
July each year. Also, the NJCCA has been amended to create an Atlantic City
fund, or the AC Fund, for economic development projects other than the
construction and renovation of casino hotels. Beginning with fiscal year
1999/2000 and for the following three fiscal years, an amount equal to the
average amount paid into the AC Fund for the previous four fiscal years shall
be contributed to the AC Fund. Each licensee's share of the amount to be
contributed to the AC Fund is based upon its percentage of the total industry
gross revenue for the relevant fiscal year. After eight years, the casino
licensee's requirement to contribute to this fund ceases.
61
The following table summarizes, for the periods shown, the fees, taxes
and contributions assessed upon us by the NJCCC.
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1999 2000 2001
------- ------- -------
($ IN THOUSANDS)
Gaming tax....................................... $17,701 $18,904 $19,433
License, investigation, inspection and other fees 3,603 3,891 4,348
Contribution to AC Fund.......................... 307 453 206
------- ------- -------
Total......................................... $21,611 $23,248 $23,987
======= ======= =======
The amended NJCCA requires a licensee to satisfy its investment
obligation by purchasing bonds to be issued by the CRDA or by making other
investments authorized by the CRDA, in an amount equal to 1.25% of a
licensee's gross revenue. If the investment obligation is not satisfied, then
the licensee will be subject to an investment alternative tax of 2.5% of gross
revenue. Licensees are required to make quarterly deposits with the CRDA
against their current year investment obligations. RIH's investment obligations
amounted to $3.0 million for 2001, $2.6 million for 2000 and $2.7 million for
1999, and have been satisfied by deposits made with the CRDA. At December 31,
2001, RIH held $5.0 million face amount of bonds issued by the CRDA and had
$21.8 million on deposit with the CRDA. The CRDA bonds issued through 2000 have
interest rates ranging from 3.5% to 7.0% and have repayment terms of between 20
and 50 years.
CRDA FUNDS. The CRDA is a public body of the State of New Jersey
established pursuant to an amendment of the NJCCA. Resorts has entered into a
Credit Agreement with CRDA pursuant to the NJCCA and the rules and regulations
governing the CRDA. In accordance with CRDA Resolution 97-90, adopted on April
15, 1997, the expansion was determined to be an "approved project" in
accordance with the NJCCA and the rules and regulations governing the CRDA. As
such, through 2008, Resorts will receive funds from the CRDA's Atlantic City
Fund and South Jersey Fund of $12.4 million in reimbursement payments for
approved invoices connected to the construction of the hotel tower. We expect
to receive approximately $9.8 million of these funds during the construction
process.
Pursuant to the rules and regulations governing the CRDA, funds deposited
by Resorts are deposited into several accounts. One of which is the Atlantic
City Housing Fund which finances improving Atlantic City housing. As a result
of recent appropriations from this dedicated account, Resorts received a lump
sum payment of $1.5 million representing Resorts' share of donations made to
the Atlantic City Housing Fund. Resorts will utilize these funds for the
projects as they are not restricted to housing use.
Additionally, in exchange for pledging a portion of the proceeds from
Resorts' South Jersey Fund to enhance the credit on recently issued CRDA Bonds,
the CRDA has agreed to make an amount of up to $1.5 million available to
Resorts to fund public improvements, as approved by the CRDA. We intend to
dedicate these funds, as approved by the CRDA to public improvement in and
around the project.
62
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information as of December 31, 2001 about each of
RIH's directors and executive officers. The directors and executive officers of
RIH are as follows:
NAME AGE POSITION
- ---- --- --------
Thomas J. Barrack, Jr.(1) 54 Director
Nicholas L. Ribis(2) 56 Director
Robert L. Clifford 77 Director
Audrey S. Oswell 44 Chief Operating Officer, President and Treasurer
Joseph A. D'Amato(3) 54 Senior Vice President, Chief Financial Officer, and Secretary
Nicholas R. Amato 61 Senior Vice President and General Counsel
Alan J. Rivin 48 Senior Vice President-Hotel Operations
Rosalind Krause 40 Senior Vice President-Casino Operations
John A. Pasqualoni 55 Senior Vice President Slot Operations
Joseph P. Weis 47 Vice President Financial Administration/CIO
- --------
(1)Mr. Barrack also serves as our Director, President and Treasurer.
(2)Mr. Ribis also serves as our Vice Chairman, Vice President and Secretary.
(3)Mr. D'Amato also serves as our Vice President.
THOMAS J. BARRACK, JR. serves as our and RIH's director. He has held this
position with us and RIH since October 2000 and April 2001, respectively,
excluding the period from June 13, 2001 to August 22, 2001 when he did not
serve as director of RIH. He also serves as our President and Treasurer. He has
held these positions with us since October 2000. Mr. Barrack also serves as
director, President and Treasurer of CRH. He has held these positions with CRH
since March 2001. Mr. Barrack is also the sole member of Colony RIH Voteco,
LLC. Mr. Barrack serves as director of Continental Airlines, Inc., Public
Storage, Inc. and Kennedy-Wilson, Inc., all publicly traded companies, and
First Republic Bank, a private company. Mr. Barrack has served as Chairman and
Chief Executive Officer of each of Colony Capital, LLC and Colony Advisors, LLC
since 1992 and 1991, respectively. Colony Capital, LLC and Colony Advisors, LLC
are international real estate investment and management firms.
NICHOLAS L. RIBIS serves as both our and RIH's director. He also serves
as our Vice Chairman, Vice President and Secretary. He has held these positions
with us and RIH since October 2000 and April 2001, respectively. Mr. Ribis also
serves as director, Vice President and Secretary of CRH. He has held these
positions with CRH since March 2001. Mr. Ribis served as President, Chief
Executive Officer and director of Trump Hotels and Casino Resorts from 1995 to
2000. Trump Hotels and Casino Resorts engages in investments in real estate and
gaming facilities. From January 1993 to January 1995, Mr. Ribis was Chairman of
the Casino Association of New Jersey, and has served for seven years on the
board of trustees of the CRDA.
ROBERT L. CLIFFORD serves as director and sole member of the audit
committee of RIH. He has held these positions since October 16, 2001. Mr.
Clifford has served and continues to serve as counsel to McElroy, Deutsch &
Mulvaney since January 1995. Mr. Clifford served as an Associate Justice on the
New Jersey Supreme Court from 1973 until his retirement in 1994. Mr. Clifford
served as director of the Bank of the Somerset Hills from January 1998 to
August 2000.
AUDREY S. OSWELL serves as Chief Operating Officer, President and
Treasurer of RIH. Prior to joining RIH, Ms. Oswell served as President and
Chief Operating Officer of Caesars Atlantic City, from January 1999 to February
2000, which also included responsibility for the Sheraton Atlantic City
Convention Center Hotel and the management of Dover Downs Slots. Ms. Oswell
began her career in the Finance Department of Caesars
63
Atlantic City in 1979, holding various positions in the Finance and Marketing
Departments, including Senior Vice President/Marketing and Executive Vice
President/General Manager before being appointed President and Chief Operating
Officer. Ms Oswell holds a Masters of Business Administration degree in
Marketing from Drexel University and a Bachelor of Arts degree from Temple
University.
JOSEPH A. D'AMATO serves as our Vice President and as the Chief Financial
Officer, Senior Vice President and Secretary of RIH. He has held these
positions with us and RIH since October 2000 and August 2000, respectively. Mr.
D'Amato also serves as Vice President of CRH. He has held this position with
CRH since March 2001. Prior to August 2000, Mr. D'Amato served as the acting
Chief Operating Officer, from May 2000 until August 2000, and Chief Financial
Officer, from November 1999 until August 2000, of Trump Marina. Mr. D'Amato
also served as the Chief Operating Officer, from July 1997 until November 1999,
and Chief Financial Officer, from April 1997 until July 1997, of Trump Indiana
Inc. From January 1997 until March 1997, Mr. D'Amato served as Vice President
of the Atlantic City Hilton. Mr. D'Amato is a certified public accountant in
New Jersey and Pennsylvania.
NICHOLAS R. AMATO serves as the Senior Vice President and General Counsel
of RIH. He has held these positions since April 2001. From January 1999 until
April 2001, Mr. Amato served as the Senior Vice President of Development at
Trump Hotels and Casino Resorts. From December 1994 to December 1996, Mr. Amato
was the President of the Casino Association of New Jersey. From November 1991
to November 1994, Mr. Amato was the Executive Director of the CRDA.
ALAN J. RIVIN serves as the Senior Vice President-Hotel Operations of
RIH. He has held this position since March 2000. In this capacity, Mr. Rivin
has responsibility for all aspects of hotel operations including food and
beverage, front office, facilities, security, housekeeping and the health spa.
In addition, the divisions retail operations and valet parking report directly
to Mr. Rivin. From January 1998 to March 2000, Mr. Rivin served as the Vice
President Hotel/Food and Beverage Operations at Caesars Atlantic City. Mr.
Rivin joined Caesars Atlantic City in February 1979 as Assistant Food and
Beverage Director. Over the next 21 years, he held increasingly responsible
positions including Food and Beverage Director, Assistant Vice President of
Food and Beverage, Vice President Hotel Operations until he was named Vice
President Hotel/Food & Beverage Operations in 1998.
ROSALIND KRAUSE serves as the Senior Vice President-Casino Operations of
RIH. She has held this position since July 2001. From March 2000 to July 2001,
Ms. Krause was the Vice President Casino Operations/Marketing of RIH. From
April 1988 to March 2000, Ms. Krause was employed at Caesars Atlantic City as
the Vice President of Casino Operations/Marketing Services. In 1988, Ms. Krause
joined Caesars Atlantic City as a Table Game Pit Manager. During the next 12
years, Ms. Krause held numerous management positions including Director of VIP
Services, Assistant Vice President of Casino Marketing and Vice President
Casino Services.
JOHN A. PASQUALONI serves as the Senior Vice President of Slot Operations
of RIH. He has held this position since October 2000 after serving as a
consultant for several months. In this capacity, Mr. Pasqualoni has
responsibility for floor layout design, machine percentaging, product
marketing, guest services and training all department personnel. From March
1998 until June 1999, Mr. Pasqualoni served as a principal at Top Gun Gaming, a
table game and slot machine development company. From September 1994 until
March 1998, Mr. Pasqualoni served as the Vice President of Casino Marketing and
Slot Operations at Foxwood's Resort Casino. Mr. Pasqualoni served as the
Executive Vice President of Slot Operations, from March 1989 until January
1993, at the Trump Plaza Hotel Casino.
JOSEPH P. WEIS serves as the Vice President Financial Administration/CIO
of RIH. He has held this position since November 2000. From June to November
2000, Mr. Weis was the Vice President of Information Technology of RIH. Prior
to joining RIH, Mr. Weis spent sixteen years with the Caesars World
organization, serving most recently as Vice President of Finance and
Information Systems for Caesars Atlantic City. In addition, Mr. Weis served as
acting Chief Financial Officer for Caesars Atlantic City's transition to Park
Place
64
Entertainment. Mr. Weis has also held the positions of Chief Information
Officer and Special Projects Director at Caesars Atlantic City and Director of
Internal Audit for Caesars World, Inc. Mr. Weis is a certified public
accountant in New Jersey.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We are the wholly-owned subsidiary of CRH. No officer, director, or any
other person other than CRH owns any shares of our common stock. We have no
outstanding options or convertible securities. RIH is our wholly owned
subsidiary. RIH owns and operates Resorts. See "Certain Transactions and
Relationships" and "Security Ownership" for information regarding CRH.
EXECUTIVE COMPENSATION
The following table presents certain summary information concerning
compensation paid or accrued for services rendered in all capacities for the
two fiscal years ended December 31, 2001 and 2000, to the Vice Chairman of RIH
and each of the four other most highly compensated executive officers of RIH,
including stock options granted in CRH's class A common stock, par value $.01
per share (the "Class A Common"), and class B common stock, par value $.01 per
share (the "Class B Common," collectively, the "CRH Common Stock").
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION AWARDS
---------------------------------
ANNUAL COMPENSATION SECURITIES UNDERLYING OPTIONS (#)
------------------------- ---------------------------------
CLASS A CLASS B ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMMON STOCK COMMON STOCK COMPENSATION ($)
- --------------------------- ---- ---------- --------- ------------ ------------ ----------------
Nicholas L. Ribis................... 2001 $ 39,928 $300,000 1,105 22,368 $460,126.90(1)
Vice Chairman 2000 -- -- -- -- --
Audrey S. Oswell.................... 2001 600,018 300,000 205 4,153 605,484.96(2)
President, Chief Operating Officer 2000 496,168 75,000 -- -- 796.80(3)
and Treasurer
Joseph A. D'Amato................... 2001 220,779 75,000 171 3,459 4,475.38(4)
Senior Vice President of Finance, 2000 70,292 30,080 -- -- 80.88(5)
Chief Financial Officer and
Secretary
Nicholas R. Amato................... 2001 126,931 65,000 77 1,556 43,125.22(6)
Senior Vice President and General 2000 -- -- -- -- --
Counsel
Alan J. Rivin....................... 2001 202,322 65,000 77 1,556 54,038.01(7)
Senior Vice President-Hotel 2000 161,549 30,000 -- -- 392.83(8)
Operations
- --------
(1)Consists of $460,000 in consulting fees and a one time transaction bonus and
$126.90 in life insurance premiums.
(2)Consists of a $600,000 retention bonus paid by Sun International North
America, Inc., $3,400 in matching contributions to Ms. Oswell's 401K plan
and $2,084.96 in life insurance premiums.
(3)Consists of life insurance premiums.
(4)Consists of $3,400 in matching contributions to Mr. D'Amato's 401K plan and
$1,075 in life insurance premiums.
(5)Consists of life insurance premiums.
(6)Consists of $42,094 in reimbursement of relocation and living expenses and
$1,031.22 in life insurance premiums.
(7)Consists of a $50,000 retention bonus paid by Sun International North
America, Inc., $3,400 in matching contributions to Mr. Rivin's 401K plan and
$638.01 in life insurance premiums.
(8)Consists of $76.93 in matching contributions to Mr. Rivin's 401K plan and
$315.90 in life insurance premiums.
65
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2001
The following table sets forth summary information concerning individual
grants of stock options in CRH Common Stock made during the fiscal year ended
December 31, 2001, to each of the executive officers named in the Summary
Compensation Table.
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
PERCENTAGE OF TOTAL VALUE AT ASSUMED
NUMBER OF SECURITIES OPTIONS GRANTED TO ANNUAL RATES OF STOCK
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE PRICE PRICE APPRECIATION FOR
GRANTED (#) FISCAL YEAR ($/SHARE) OPTION TERM
-------------------- ------------------- --------------- ---------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B EXPIRATION
NAME COMMON COMMON COMMON COMMON COMMON COMMON DATE 5%($) 10%($)
---- ------- ------- ------- ------- ------- ------- ---------- ---------- ----------
Nicholas L. Ribis (1) 830 16,778 46.4 46.4 $0.0475 $100.00 04/24/2011 $1,055,184 $2,674,044
275 5,590 15.4 15.4 0.0475 100.00 04/24/2011 351,560 890,923
Audrey S. Oswell (2). 205 4,153 11.5 11.5 0.0475 100.00 09/30/2011 261,186 661,897
Joseph A. D'Amato (3) 171 3,459 9.6 9.6 0.0475 100.00 09/30/2011 217,540 551,288
Nicholas R. Amato (4) 77 1,556 4.3 4.3 0.0475 100.00 09/30/2011 97,858 247,992
Alan J. Rivin (5).... 77 1,556 4.3 4.3 0.0475 100.00 09/30/2011 97,858 247,992
- --------
(1)On April 25, 2001, CRH granted Mr. Ribis an option to purchase 1,105 shares
of Class A Common stock and 22,368 shares of Class B Common stock
(collectively, the "Option Shares"), of which approximately 50% of the
Option Shares vested on April 25, 2001 and approximately 25% of the Option
Shares vest on each of April 25, 2002, 2003, 2004, 2005 and 2006. In
addition, approximately 25% of the Option Shares vest on each of April 25,
2002, 2003, 2004, 2005 and 2006 provided CRH achieves the applicable
performance targets established by CRH's Board of Directors for that fiscal
year.
(2)On October 1, 2001, CRH granted Ms. Oswell an option to purchase 205 shares
of Class A Common stock and 4,153 shares of Class B Common stock
(collectively, the "Option Shares"), of which approximately 20% of the
Option Shares vested on December 31, 2001 and approximately 20% of the
Option Shares vest on each of December 31, 2002, 2003, 2004, and 2005
provided CRH achieves the applicable performance targets established by
CRH's Board of Directors for that fiscal year. Notwithstanding the
foregoing, in the event the CRH fails to meet the applicable performance
target for any fiscal year (a "Shortfall Year"), but it achieves more than
100% of its applicable performance target for the fiscal year immediately
following the Shortfall Year and the excess is at least the amount of the
shortfall in the Shortfall Year, then the Option Shares that would have
vested in the Shortfall Year if the performance target had been satisfied
shall vest retroactively as if the performance targets in the Shortfall Year
had been satisfied.
(3)On October 1, 2001, CRH granted Mr. D'Amato an option to purchase 171 shares
of Class A Common stock and 3,459 shares of Class B Common stock
(collectively, the "Option Shares"), of which approximately 20% of the
Option Shares vested on December 31, 2001 and approximately 20% of the
Option Shares vest on each of December 31, 2002, 2003, 2004, and 2005
provided CRH achieves the applicable performance targets established by
CRH's Board of Directors for that fiscal year.
Notwithstanding the foregoing, in the event the CRH fails to meet the
applicable performance target for any fiscal year (a "Shortfall Year"), but
it achieves more than 100% of its applicable performance target for the
fiscal year immediately following the Shortfall Year and the excess is at
least the amount of the shortfall in the Shortfall Year, then the Option
Shares that would have vested in the Shortfall Year if the performance
target had been satisfied shall vest retroactively as if the performance
targets in the Shortfall Year had been satisfied.
(4)On October 1, 2001, CRH granted Mr. Amato and Mr. Rivin options to purchase
77 shares of Class A Common stock and 1,556 shares of Class B Common stock
(collectively, the "Option Shares"), of which approximately 20% of the
Option Shares vested on December 31, 2001 and approximately 20% of the
Option Shares vest on each of December 31, 2002, 2003, 2004, and 2005
provided CRH achieves the applicable performance targets established by
CRH's Board of Directors for that fiscal year.
66
Notwithstanding the foregoing, in the event the CRH fails to meet the
applicable performance target for any fiscal year (a "Shortfall Year"), but
it achieves more than 100% of its applicable performance target for the
fiscal year immediately following the Shortfall Year and the excess is at
least the amount of the shortfall in the Shortfall Year, then the Option
Shares that would have vested in the Shortfall Year if the performance
target had been satisfied shall vest retroactively as if the performance
targets in the Shortfall Year had been satisfied.
(5)In the event of any merger, reorganization, consolidation, recapitalization,
a sale of substantially all of CRH's assets or other change in corporate
structure by reason of any stock dividend, stock split, reverse stock split
or other change affecting the Class A Common or Class B Common stock
(including any change in circumstances which results in or would result in
any substantial dilution or enlargement of the rights granted to, or
available for, participants in the plan) an equitable substitution or
proportionate adjustment shall be made in the kind, number, and option price
of the shares of Class A Common or Class B Common stock.
AGGREGATED OPTION EXERCISES AND OPTION VALUE AS OF DECEMBER 31, 2001
The following table sets forth information regarding the value of the
unexercised options in CRH Common Stock held by each of the executive officers
named in the Summary Compensation Table as of December 31, 2001, based on the
market value of CRH Common Stock on that date.
NUMBER OF SECURITIES OF
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL THE-MONEYOPTIONS AT
YEAR END (#) FISCAL YEAR END ($)(1)
------------------------- -------------------------
SHARES ACQUIRED
ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- --------------- ----------- ------------- ----------- ------------- ------- -------- -------
NAME CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS. B CLASS A CLASS B CLASS A
- ---- ------- ------- ------- ------- ----------- ------------- ----------- ------------- ------- -------- -------
Nicholas L. Ribis -- -- -- -- 555 11,188 550 11,180 -- $111,880 $29
Audrey S. Oswell. -- -- -- -- 41 831 164 3,322 -- $ 8,310 $ 9
Joseph A. D'Amato -- -- -- -- 34 692 137 2,767 -- $ 6,920 $ 7
Nicholas R. Amato -- -- -- -- 15 311 62 1,245 -- $ 3,110 $ 3
Alan J. Rivin.... -- -- -- -- 15 311 62 1,245 -- $ 3,110 $ 3
--------
NAME CLASS B
- ---- --------
Nicholas L. Ribis $111,800
Audrey S. Oswell. $ 33,220
Joseph A. D'Amato $ 27,670
Nicholas R. Amato $ 12,450
Alan J. Rivin.... $ 12,450
- --------
(1)Based upon stock valuations of $0.0523 per share of Class A Common stock and
$110 per share of Class B Common stock on December 31, 2001.
EMPLOYMENT AGREEMENTS
RIH entered into an employment agreement with Audrey S. Oswell on October
1, 2001. Ms. Oswell is currently serving as RIH's Chief Operating Officer,
President and Treasurer. The current term of this agreement expires on October
1, 2004, and shall automatically renew for one year terms unless terminated by
either party. RIH currently pays Ms. Oswell an annual base salary of $600,000.
Ms. Oswell is eligible to receive an annual bonus of 50% of her annual base
salary in the event that RIH achieves annual budget and other business plan
targets determined by the board. The agreement provides for a guaranteed annual
bonus of $300,000 in 2001. Under this agreement, Ms. Oswell is entitled to a
monthly automobile allowance of $2,000 and RIH will pay all insurance premiums
on such automobile. The following termination benefits are provided by this
agreement:
. if Ms. Oswell is terminated for "Cause," as defined in the agreement,
she will receive no additional compensation or termination benefits
other than accrued and unpaid base salary, accrued and unused
vacation pay and any other benefits to which she is entitled to under
any applicable employee benefit plan or program or by reason of
applicable law;
. if Ms. Oswell is terminated "Without Cause," as defined in the
agreement, she will receive "Accrued Benefits," as defined in the
agreement, a lump sum payment equal to the lesser of 18 months of her
base salary or an amount equal to her base salary for the remainder
of the unexpired term, provided such amount is not less than six
months of her base salary, her medical and dental
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benefits until she is enrolled in the medical plans of her new
employer or the term of the agreement expires and a prorated portion
of her annual bonus subject to restrictions;
. if Ms. Oswell "voluntarily terminates" her employment, as defined in
the agreement, or is terminated by reason of death or disability, she
will receive no additional compensation or termination benefits other
than accrued and unpaid base salary, accrued and unused vacation pay,
Accrued Benefits and, if not for voluntary resignation, a prorated
portion of her annual bonus subject to restrictions;
. if Ms. Oswell voluntarily resigns within three months after a "Change
of Control," as defined in the agreement, she will receive a lump sum
payment equal to the greater of one year of her base salary or an
amount equal to her base salary for the remainder of the unexpired
term, but in no event exceeding 18 months of her base salary, and
medical and dental benefits for 18 months; and
. if Ms. Oswell is terminated "Without Cause" within six months after a
Change of Control, she will receive a lump sum payment equal to the
greater of her base salary or an amount equal to her base salary for
the remainder of the 18 months' unexpired term, but in no event
exceeding 24 months of her base salary, and medical and dental
benefits for 18 months.
This agreement also entitles Ms. Oswell to participate in RIH's other standard
benefit programs and contains customary confidentiality and competition
provisions.
RIH entered into an employment agreement with Joseph A. D'Amato on
October 1, 2001. Mr. D'Amato is currently serving as RIH's Senior Vice
President, Chief Financial Officer and Secretary. The current term of this
agreement expires on October 1, 2003, and shall automatically renew for one
year terms unless terminated by either party. RIH currently pays Mr. D'Amato an
annual base salary of $240,000. Mr. D'Amato is also eligible to participate in
RIH's bonus program in the event that RIH achieves annual budget and other
business plan targets determined by the board. The following termination
benefits are provided by this agreement:
. if Mr. D'Amato is terminated for "Cause," as defined in the
agreement, he will receive no additional compensation or termination
benefits other than accrued but unpaid base salary, accrued and
unused vacation pay and any other "Accrued Benefits," as defined in
the agreement;
. if Mr. D'Amato is terminated other than for "Cause," he will receive
a lump sum payment equal to six months of his base salary, Accrued
Benefits and medical benefits for the lesser of the period of time
for which he is not enrolled in a subsequent employer's medical
benefits plan or six months from the date of his termination;
provided, however, that if such termination occurs within six months
after a "Change in Control," as defined in the agreement, Mr. D'Amato
will receive a lump sum payment equal to the greater of six months'
base salary or base salary for the remainder of the unexpired term,
but in no event exceeding 12 months' base salary; and
. if Mr. D'Amato voluntarily resigns or is terminated by reason of
death or disability, he will receive Accrued Benefits.
This agreement also entitles Mr. D'Amato to participate in RIH's other standard
benefit programs and contains customary confidentiality and competition
provisions.
RIH entered into an employment agreement with Nicholas R. Amato on
October 1, 2001. Mr. Amato is currently serving as RIH's Senior Vice President
and General Counsel. The current term of this agreement expires on October 1,
2003, and shall automatically renew for one year terms unless terminated by
either party. RIH currently pays Mr. Amato an annual base salary of $200,000.
Mr. Amato is also eligible to participate in RIH's bonus program in the event
that RIH achieves annual budget and other business plan targets determined by
the board. This agreement also entitles Mr. Amato to participate in RIH's other
standard benefit programs and contains customary confidentiality and
competition provisions.
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RIH entered into an employment agreement with Alan J. Rivin on October 1,
2001. Mr. Rivin is currently serving as RIH's Senior Vice President-Hotel
Operations. The current term of this agreement expires on October 1, 2003, and
shall automatically renew for one year terms unless terminated by either party.
RIH currently pays Mr. Rivin an annual base salary of $210,000. Mr. Rivin is
eligible to participate in RIH's bonus program in the event that RIH achieves
annual budget and other business plan targets determined by the board. This
agreement also entitles Mr. Rivin to participate in RIH's other standard
benefit programs and contains customary confidentiality and competition
provisions.
RIH entered into an employment agreement with Rosalind Krause on October
1, 2001. Ms. Krause is currently serving as RIH's Senior Vice President-Casino
Operations. The current term of this agreement expires on October 1, 2003, and
shall automatically renew for one year terms unless terminated by either party.
RIH currently pays Ms. Krause an annual base salary of $185,000. Ms. Krause is
eligible to participate in RIH's bonus program in the event that RIH achieves
annual budget and other business plan targets determined by the board. This
agreement also entitles Ms. Krause to participate in RIH's other standard
benefit programs and contains customary confidentiality and competition
provisions.
RIH entered into an employment agreement with John A. Pasqualoni on
October 1, 2001. Mr. Pasqualoni is currently serving as RIH's Senior Vice
President of Slot Operations. The current term of this agreement expires on
October 1, 2003. RIH currently pays Mr. Pasqualoni an annual base salary of
$185,000. Mr. Pasqualoni is eligible to participate in RIH's bonus program.
This agreement also entitles Mr. Pasqualoni to participate in RIH's other
standard benefit programs and contains customary confidentiality and
competition provisions.
The following termination benefits are provided to Mr. Amato, Mr. Rivin,
Ms. Krause and Mr. Pasqualoni pursuant to their employment agreements:
. if the employee is terminated for "Cause," as defined in the
agreement, the employee will receive no additional compensation or
termination benefits other than accrued but unpaid base salary,
accrued and unused vacation pay and any other "Accrued Benefits," as
defined in the agreement;
. if the employee is terminated other than for "Cause," the employee
will receive a lump sum payment equal to six months of the employee's
base salary, Accrued Benefits and medical benefits for the lesser of
the period of time for which the employee is not enrolled in a
subsequent employer's medical benefits plan or six months from the
date of the employee's termination;
. if the employee voluntarily resigns or is terminated by reason of
death or disability, the employee will receive Accrued Benefits.
RIH entered into an employment agreement with Joseph P. Weis on June 5,
2000. Mr. Weis is currently serving as RIH's Vice President Financial
Administration/CIO. The current term of this agreement expires on June 5, 2002.
RIH currently pays Mr. Weis an annual base salary of $165,000. Mr. Weis is
eligible to participate in RIH's bonus program.
The following termination benefits are provided by this agreement:
. if the employee either "voluntarily terminates" his employment or is
terminated for "cause," as defined in the agreement, the employee
will receive no additional compensation or termination benefits other
than accrued but unpaid base salary and accrued and unused vacation
pay; and
. if the employee is terminated other than for "cause," the employee
will receive a lump sum payment equal to six months of the employee's
base salary and medical benefits for the lesser of the period of time
for which the employee is not enrolled in a subsequent employer's
medical benefits plan or six months from the date of the employee's
termination.
69
This agreement also entitles Mr. Weis to participate in RIH's other standard
benefit programs and contains customary confidentiality and competition
provisions.
Options were awarded in 2001 to Audrey S. Oswell, Joseph A. D'Amato,
Nicholas R. Amato, Alan J. Rivin, Rosalind Krause and John A. Pasqualoni
pursuant to their respective employment agreements.
VICE CHAIRMAN'S AGREEMENT. We and CRH entered into a Vice Chairman's
Agreement with Nicholas L. Ribis on April 25, 2001, as amended. Mr. Ribis is
currently serving as our and RIH's director. He also serves as director of CRH.
The current term of this agreement expires on April 25, 2006. We currently pay
Mr. Ribis annual consulting fees of $240,000 and an annual base salary of
$60,000. Mr. Ribis is entitled to an annual bonus based upon achievement of our
annual budget and business plan targets approved by our board of directors. The
agreement provides for a minimum guaranteed annual bonus of $300,000 in 2001.
Mr. Ribis received a one-time transaction bonus payment of $300,000 during the
second quarter of 2001. Under this agreement, CRH agreed to grant Mr. Ribis an
option to purchase 1,105 shares of its class A common stock at a price of
$0.0475 per share and 22,368 shares of its class B common stock at $100 per
share, of which 555 shares of class A common stock and 11,188 shares of class B
common stock vested on April 25, 2001 and 55 shares of class A common stock and
1,118 shares of class B common stock vest on each of April 25, 2002, 2003,
2004, 2005, and 2006. Additionally, 55 shares of class A common stock and 1,118
shares of class B common stock vest on each of April 25, 2002, 2003, 2004,
2005, and 2006, subject to our satisfying the performance targets established
for Mr. Ribis' annual bonus. Upon termination of this agreement under certain
circumstances, CRH shall have the right to purchase and Mr. Ribis shall have
the right to sell, any shares of capital stock of CRH held by Mr. Ribis. The
agreement also contains customary confidentiality and competition provisions.
The agreement includes the following termination benefits:
. If Mr. Ribis is terminated without "cause," as defined in the
agreement, dies or becomes disabled or Mr. Ribis terminates his
services for "good reason," as defined in the agreement, he will be
entitled to receive his salary for a period of 12 months following
the date of termination and the portion of his annual bonus accrued
in the year of termination. The options that would vest in the
two-year period following the date of termination shall immediately
vest and shall be exercisable for a period of 90 days following the
date of termination.
. If Mr. Ribis is terminated for "cause," as defined in the agreement
or Mr. Ribis terminates his services "without good reason," he will
receive no additional compensation and all outstanding but
unexercised options shall be cancelled.
The options issued to Mr. Ribis will be accounted for under the fair
value method of accounting on the date the shares become vested and will be
reflected as compensation expense over the life of the agreement. Further, the
common shares purchased by Mr. Ribis will be classified separately from
stockholders' equity as "Redeemable common stock" in our balance sheet to
reflect the rights granted Mr. Ribis to require CRH to repurchase his shares
upon termination of the agreement under certain circumstances.
DIRECTOR COMPENSATION. As director of RIH, Robert L. Clifford is
entitled to an annual retainer fee of $25,000. Mr. Clifford is also entitled to
a fee of $2,000 per board meeting which he attends and $350 per hour fee for
other services as may be required from time to time by the Company.
EMPLOYEE BENEFIT PLANS
2001 OMNIBUS STOCK INCENTIVE PLAN. Our parent company is CRH. We have no
outstanding options or convertible securities. Our parent's board of directors
and stockholders approved the 2001 Omnibus Stock Incentive Plan as of April 25,
2001. As of December 31, 2001, our parent has a total of 2,131 shares of its
class A common stock and 43,122 shares of its class B common stock reserved for
issuance under the plan. As of December 31, 2001, our parent has outstanding
vested options to purchase an aggregate of 690 shares of our
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class A common stock at a exercise price of $0.0475 per share and 13,955 shares
of our class B common stock at a exercise price of $100 per share.
The plan provides for the grant to eligible persons of: options to
purchase our common stock that qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or the
Code; options to purchase our common stock that do not qualify as incentive
stock options under the Code; restricted and deferred stock awards which are
subject to certain transferability restrictions that lapse after specified
periods; and awards of shares of common stock in the form of stock appreciation
rights and performance shares.
Our and our parent's employees, directors, officers, and certain
consultants and advisors, are eligible to participate in the plan. Under
present law, incentive stock options may only be granted to employees. Our
parent's board, or a committee of the board, may administer the plan, and has
the authority to: select plan participants; determine the nature and extent of
the awards made to each plan participant; determine the number of shares of
common stock to be covered by each award; determine the duration of the period
and vesting schedule for each award; determine the restrictions applicable and
conditions under which restrictions shall lapse; determine performance goals
for each award of performance shares; prescribe the form of agreements
evidencing awards made under the plan; and make all other decisions relating to
the administration of the plan.
Under the plan, the administrator also determines the option's exercise
price per share of common stock at the time of grant. Except in the case of any
incentive stock options, the exercise price may be less than 100% of the fair
market value of a share of our common stock on the day the administrator grants
the option. The options are generally granted for a ten-year term, but may
terminate earlier if the participant's employment with us terminates before the
end of the ten-year period. If a plan participant who holds an incentive stock
option also owns, or is deemed to own, more than 10% of the combined voting
power of all of our classes of stock, the option period shall not exceed five
years, and the exercise price of the option may not be less than 110% of the
fair market value on the grant date.
Under our standard agreement covering stock option grants, if we undergo
a change in control, then without any action by the administrator of the plan,
all outstanding options may become immediately exercisable in full. Under the
standard agreement, a change of control will be deemed to have occurred, among
other events, upon:
. disposition of all or substantially all of our assets;
. stockholder approval of a plan of liquidation or dissolution of our
company; and
. a merger, consolidation, or other business combination, unless
. prior to an initial public offering, an unrelated party does not
own, directly or indirectly, 50% or more of the total voting power
of the new entity, or
. subsequent to an initial public offering of our company, we or our
affiliates control the new entity.
Under our standard agreement covering stock option grants, if we
terminate an employee for cause, the unexercised portion of such employee's
option shall lapse and be immediately canceled as of the date of termination.
If an employee voluntarily terminates employment with us, the unexercised
portion of such employee's options, to the extent vested, shall remain
exercisable for 90 days after termination, at which time all of such employee's
options shall lapse and be canceled.
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CERTAIN TRANSACTIONS AND RELATIONSHIPS
PURCHASE AGREEMENT
We entered into a Purchase Agreement with Sun International North
America, Inc., or SINA, and GGRI, Inc., dated as of October 30, 2000. Pursuant
to the Purchase Agreement, we acquired all of the capital stock of Resorts
International Hotel, Inc., or RIH, certain assets used in connection with RIH's
business and all of the capital stock of New Pier Operating Company, Inc., or
New Pier, on April 25, 2001 in exchange for approximately $127.3 million in
cash and a $17.5 million note issued by Colony RIH Holdings, Inc., or CRH, our
parent company, to SINA. The acquisition of the capital stock of RIH, the
capital stock of New Pier and the assets is referred to in this prospectus as
the "Acquisition." As a result of the Acquisition, RIH and New Pier became our
direct wholly owned subsidiaries.
OPTION AGREEMENT
Simultaneously with the closing of the Acquisition, we entered into an
Option Agreement, dated April 25, 2001, which gives us the right to acquire
certain undeveloped real estate, adjacent to Resorts, owned by SINA for a
purchase price of $40.0 million. The Option Agreement has a two-year term,
which term may be extended for two additional one-year terms upon the payment
of a $2.5 million extension fee, payable upon each extension. We currently
lease the property subject to the Option Agreement from SINA pursuant to a
Lease Agreement, dated April 25, 2001, with a term concurrent with the term of
the Option Agreement.
FINANCING AGREEMENTS
CRH financed the Acquisition and paid related fees and expenses with:
. proceeds from the issuance of common stock to Colony IV, Voteco and
Mr. Ribis, totaling approximately $42.5 million,
. a $17.5 million note issued by CRH to SINA,
. borrowings totaling approximately $82.0 million by us, guaranteed by
CRH, under a $90.0 million credit facility, and
. RIH's available cash, totaling approximately $7.8 million.
The note issued by CRH to SINA paid interest at a rate of 12.5% per
annum. The interest was payable semi-annually, 50% in cash and 50% in
additional subordinated notes with the principal due April 25, 2008. The credit
facility was comprised of term loans and a revolving credit facility. The
principal lender under the credit facility was Merrill Lynch Capital
Corporation and assignments by lenders were restricted by gaming law
requirements. The loans under the credit facility were secured by substantially
all of our, CRH's and, directly or indirectly, RIH's assets, including a pledge
of all of our and RIH's capital stock, mortgages on all material real property
owned or leased by us or RIH and our or RIH's accounts receivable, inventory,
equipment and intangibles. The maturity date for the revolving credit facility
was April 25, 2006 and the maturity date for the term loans was the last
business day of either December 2005 or March 2007. The principal balance of
the term loans were reducible on a quarterly basis, commencing June 29, 2001.
Interest on borrowings outstanding were either at LIBOR or an alternative base
rate, plus an applicable margin in each case. The applicable margins were
calculated based on our leverage ratio, as defined in the credit agreement. The
credit facility contained a number of covenants that, among other things,
restricted our and RIH's, and our respective subsidiaries, ability to incur
additional indebtedness, create liens on assets, dispose of assets, make
investments, loans, or advances, engage in mergers or consolidations, pay
dividends, engage in certain transactions with affiliates, change their
respective line of business and otherwise restrict certain corporate
activities. In addition, under the credit facility, we and our subsidiaries
were required to maintain specified financial ratios, satisfy specified
financial tests, including interest coverage and leverage tests, and limit
capital expenditures. The credit facility contained events of default customary
for facilities of this nature.
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During the period from April 25, 2001 to December 31, 2001, we paid
approximately $320,000 for fees and expenses incurred by affiliates of Colony
Capital, our principal stockholder, and our directors.
We used approximately $18.9 million of the proceeds of the original note
offering to repay our parent's subordinated notes in full and $77.5 million of
the credit facility, plus accrued interest and prepayment penalties thereon.
TRANSFER RESTRICTION AGREEMENT
Shares of CRH's class A common stock held by Colony RIH Voteco, LLC, or
Voteco, a beneficial owner of more than 5% of the outstanding class A common
stock, are subject to a Transfer Restriction Agreement, dated April 25, 2001,
by and among Voteco, Mr. Barrack, a Board director and sole member of Voteco,
and Colony IV, a beneficial owner of more than 5% of the outstanding class B
common stock. The Transfer Restriction Agreement provides, among other things,
that:
. Colony IV has the right to acquire shares of class A common stock
from Voteco on each occasion that shares of class B common stock held
by Colony IV would be transferred to a proposed purchaser who, in
connection with such proposed sale, has obtained all licenses,
permits, registrations, authorizations, consents, from, and has made
all filings, notices or declarations required to be made with, all
gaming authorities under all applicable gaming laws; and
. Voteco will not transfer ownership of shares of class A common stock
owned by it except pursuant to such option of Colony IV.
Colony IV required Voteco and Mr. Barrack to enter into the Transfer
Restriction Agreement to restrict the ability of Voteco and Mr. Barrack,
without the assent of Colony IV, to obtain personal benefit from any control
premium or price appreciation associated with the shares of class A common
stock or to transfer control of RIH to a third party. The per share exercise
price of Colony IV's option under the Transfer Restriction Agreement has been
set to reimburse Voteco for its original cost of acquiring shares of class A
common stock on April 25, 2001, plus interest accruing at a rate of 6% per year
on the original purchase price.
STOCK PURCHASE TRANSACTIONS
On April 25, 2001, in connection with the acquisition of Resorts Atlantic
City (the "Acquisition"), a casino hotel in Atlantic City, New Jersey, by RIHC,
pursuant to a Purchase Agreement, dated October 30, 2000, by and between RIHC,
Sun International North America, Inc. and GGRI, Inc., Mr. Ribis, a Board
director, acquired 1,050 shares of class A common stock at a price of $0.0475
per share and 21,250 shares of class B common stock of CRH at a price of $100
per share for $2,125,050 in cash. Concurrently, Voteco acquired 19,950 shares
of class A common stock at a price of $0.0475 per share for $950 in cash and
Colony IV acquired 403,740 shares of class B common stock at a price of $100
per share for $40,374,000 in cash and 100 shares of RIHC Common stock.
On March 22, 2002, in connection with the sale by RIHC of $180.0 million
aggregate principal amount of 111/2% First Mortgage Notes due 2009, Mr. Ribis
acquired 865 shares of class A common stock at a price of $0.0475 per share and
17,500 shares of class B common stock at a price of $100 per share for
$1,750,041.09 in cash. Concurrently, Voteco acquired 16,430 shares of class A
common stock at a price of $0.0475 per share for $780.43 in cash and Colony IV
acquired 332,492 shares of class B common stock at a price of $100 per share
for $33,249,200 in cash. Our parent subsequently contributed the proceeds of
the equity sale to us prior to the closing of the original note offering.
SHAREHOLDERS AGREEMENT
On April 25, 2001, CRH, Voteco, Colony IV and Mr. Ribis, entered into a
Shareholders Agreement. Pursuant to the terms of the Shareholders Agreement,
Mr. Ribis and any other future employee shareholder, or an
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Employee Shareholder, will be prohibited from transferring any shares of CRH's
capital stock prior to the initial public offering of CRH's common stock. In
the event Mr. Ribis or any Employee Shareholder proposes to transfer any shares
of CRH's capital stock, CRH, then Voteco and Colony IV have a right of first
offer on such transfer. In the event that Colony IV or Voteco sell their
respective holdings or a substantial portion of their respective holdings of
CRH's capital stock, Mr. Ribis and other Qualified Shareholders, as defined in
the Shareholders Agreement, have the right to participate in the sale on the
same terms.
All holders of CRH's common stock who are party to the Shareholders
Agreement have "piggyback" registration rights. If CRH registers any of its
equity securities, the investors may require CRH to include all or a portion of
their registrable securities in the registration and in any related
underwriting. In an underwritten offering, the managing underwriter, if any, of
any such offering, has the right, subject to certain conditions, to limit the
number of registrable securities. In general, CRH will bear all fees, costs and
expenses of any such registrations, other than underwriting discounts and
commissions.
VICE CHAIRMAN'S AGREEMENT
CRH and RIHC entered into a Vice Chairman Agreement with Mr. Ribis on
April 25, 2001, as amended. See "Management--Employment Agreements."
INDEMNIFICATION AGREEMENT
The directors and certain executive officers of CRH will enter into an
Indemnification Agreement. Under the Indemnification Agreement, CRH shall
indemnify to the fullest extent permitted by law, against all expenses,
liability and loss reasonably incurred or suffered by the director or executive
officer in connection with any action, suit or proceeding (other than an action
by or in the right of CRH) in which the director or executive officer is or was
a party, is threatened to be made a party to or is involved in by reason of his
or her position with CRH or his or her serving at the request of CRH as an
officer or director of another enterprise.
MCELROY, DEUTSCH & MULVANEY
McElroy, Deutsch & Mulvaney provides legal services to RIH. Mr. Clifford,
a director of RIH, is counsel to McElroy, Deutsch & Mulvaney.
NOTE PURCHASE
In addition, the holder of our parent's subordinated notes, Sun
International North America, Inc. (or one of its affiliates), purchased
approximately $5.0 million aggregate principal amount of the original notes.
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SECURITY OWNERSHIP
We are the wholly owned subsidiary of CRH. We have no outstanding options
or convertible securities. Resorts International Hotel and Casino, Inc., or
RIH, is our wholly owned subsidiary. RIH owns and operates Resorts Atlantic
City, a casino hotel in Atlantic City, New Jersey.
On Aril 25, 2001, Colony RIH Holdings, Inc., or CRH, our parent company,
issued class A common stock, par value $.01 per share, and class B common
stock, par value $.01 per share, or collectively CRH Common Stock, in
connection with the organizational structure put in place to consummate the
Acquisition. CRH issued the following:
. 19,950 shares of its class A common stock at a cash price of $0.0475
to Colony RIH Voteco, LLC, or Voteco, for a total purchase price of
$950 in cash;
. 403,740 shares of its class B common stock at a cash price of $100
per share to Colony Investors IV, L.P., or Colony IV, for a total
purchase price of $40,374,000 in cash; and
. 1,050 shares of its class A common stock at a cash price of $0.0475
and 21,250 shares of its class B common stock at a cash price of $100
per share to Nicholas L. Ribis, who serves as our Vice Chairman of
the Board of Directors and head of its Operating Committee, for a
total purchase price of $2,125,050 in cash in addition, CRH granted
Mr. Ribis options to purchase 1,105 shares of class A common stock at
a price of $0.0475 per share and 22,368 shares of class B common
stock at a price of $100 per share.
On October 1, 2001, CRH granted options to purchase CRH Common Stock, to
certain executive officers of RIH. CRH granted the following to the individuals
indicated:
. Audrey S. Oswell options to purchase 205 shares of class A common
stock at a price of $0.0475 per share and 4,153 shares of class B
common stock at a price of $100 per share;
. Joseph A. D'Amato options to purchase 171 shares of class A common
stock at a price of $0.0475 per share and 3,459 shares of class B
common stock at a price of $100 per share;
. Nicholas R. Amato, Rosalind Krause and Alan J. Rivin options to
purchase 77 shares of class A common stock at a price of $0.0475 per
share and 1,556 shares of class B common stock at a price of $100 per
share.
On March 22, 2002, CRH issued CRH Common Stock in connection with the
financing of the new hotel tower. CRH issued the following:
. 16,430 shares of class A common stock to Voteco at a cash price of
$0.0475 per share for a total purchase price of $780.43 in cash;
. 332,492 shares of class B common stock to Colony IV at a cash price
of $100 per share for a total purchase price of $33,249,200 in cash;
and
. 865 shares of class A common stock at a cash price of $0.0475 per
share and 17,500 shares of class B common stock to Mr. Ribis at a
cash price of $100 per share for a total purchase price of
$1,750,041.09 in cash.
Holders of class A common stock are entitled to one vote per share in all
matters to be voted on by stockholders of CRH. Holders of class B common stock
have no vote, except as otherwise expressly required by law.
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The table below sets forth information regarding beneficial ownership of
CRH's Common Stock as of March 22, 2002, by:
. each shareholder who beneficially owns more than 5% of the
outstanding shares of class A common stock or class B common stock;
. each of CRH's and RIH's directors;
. each of CRH's and RIH's named executive officers; and
. all of the above directors and named executive officers as a group.
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. The number of shares
outstanding used in calculating the percentage of beneficial ownership for each
listed person includes the shares underlying options held by such persons that
are exercisable within 60 days of March 22, 2002, but excludes shares
underlying options held by any other person. Percentage of beneficial ownership
is based on 38,295 shares of class A common stock and 774,982 shares of class B
common stock outstanding as of March 22, 2002. Except as indicated in the
footnotes to this table and subject to applicable community property laws, the
persons named in the table have sole voting and investment power with respect
to all shares of common stock listed as beneficially owned by them.
SHARES OF SHARES OF SHARES OF SHARES OF
CLASS A CLASS A CLASS B CLASS B
COMMON COMMON COMMON COMMON
STOCK STOCK STOCK STOCK
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNED OWNED OWNED OWNED
------------ ------------ ------------ ------------
NAMES (1) NUMBER PERCENT NUMBER PERCENT
- --------- ------------ ------------ ------------ ------------
Colony Investors IV, L.P. (2)(3).............................. -- -- 736,232 95%
Colony RIH Voteco, LLC (2)(3)................................. 36,380 95% -- --
Thomas J. Barrack, Jr. (2)(4)................................. 36,380 95 -- --
Nicholas L. Ribis (5)......................................... 2,580 6.6 52,174 6.6
Robert L. Clifford............................................ -- -- -- --
Audrey S. Oswell (6).......................................... 41 * 831 *
Joseph A. D'Amato (7)......................................... 34 * 692 *
Nicholas R. Amato (8)......................................... 15 * 311 *
Alan J. Rivin (9)............................................. 15 * 311 *
All directors and named named executive officers as a group (7
persons) (4)................................................ 39,065 100% 790,551 100%
- --------
* Less than one percent of the outstanding shares of common stock.
(1)Except as otherwise indicated, the address for each of CRH's and RIH's named
executive officers and directors is 1133 Boardwalk, Atlantic City, New
Jersey 08401.
(2)The address of each of Colony Investors IV, L.P., or Colony IV, Mr. Barrack
and Colony RIH Voteco, LLC, or Voteco, is 1999 Avenue of the Stars, Suite
1200, Los Angeles, California 90067. Mr. Barrack is the sole member of
Voteco.
(3)Pursuant to the Transfer Restriction Agreement, dated April 25, 2001, Colony
IV has the right to acquire such shares on each occasion that shares of
class B common stock held by Colony IV would be transferred to a proposed
purchaser who, in connection with such proposed transfer, has obtained all
licenses, registrations, authorizations, consents, waivers, orders, findings
of suitability or other approvals required to be obtained from, and has made
all filings, notices or declarations required to be made with, all gaming
authorities under all applicable gaming laws. In such event, Colony IV shall
have an option to purchase from Voteco the number of shares of class A
common stock equal to the product of the number of shares of class A common
stock held by Voteco and the fraction whose numerator is the number of
shares of class B
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
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common stock proposed to be sold by Colony IV in the Approved Sale, as
defined in the agreement, and whose denominator is the number of shares of
class B common stock held by Colony IV.
(4)Mr. Barrack is the Manager of Voteco, and thereby may be deemed to have
beneficial ownership of class A common stock owned of record by Voteco. Mr.
Barrack has disclaimed beneficial ownership of such shares of class A common
stock.
(5)Includes vested options to acquire 665 shares of class A common stock and
13,424 shares of class B common stock.
(6)Includes vested options to acquire 41 shares of class A common stock and 831
shares of class B common stock.
(7)Includes vested options to acquire 34 shares of class A common stock and 692
shares of class B common stock.
(8)Includes vested options to acquire 15 shares of class A common stock and 311
shares of class B common stock.
(9)Includes vested options to acquire 15 shares of class A common stock and 311
shares of class B common stock.
77
THE EXCHANGE OFFER
GENERAL
In connection with the sale of the original notes we entered into a
Registration Rights Agreement dated as of March 22, 2002, or the Registration
Rights Agreement, pursuant to which we have agreed, for the benefit of the
holders of the original notes,
(1) to file with the Securities and Exchange Commission, or the
Commission, a registration statement, or the Exchange Offer Registration
Statement, under the Securities Act relating to an exchange offer
pursuant to which notes substantially similar to the original notes, or
the exchange notes and, together with the original notes, the Notes,
would be offered in exchange for the original notes tendered at the
option of the holders thereof; and
(2) to use our best efforts to cause the Exchange Offer
Registration Statement to become effective as soon as practicable
thereafter; and
(3) complete the exchange offer not later than 240 days from the
issue date of the original notes.
We have further agreed to commence the exchange offer promptly after the
Exchange Offer Registration Statement has become effective, hold the offer open
for at least 20 business days and exchange the original notes validly tendered
and not withdrawn before the expiration of the exchange offer for exchange
notes.
Under existing Commission interpretations, the exchange notes will in
general be freely transferable after the exchange offer without further
registration under the Securities Act, except that broker-dealers receiving
exchange notes in the exchange offer, or Participating Broker-Dealers, will be
subject to a prospectus delivery requirement with respect to resales of those
exchange notes. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the exchange notes (other than a resale of exchange notes received in
exchange for original notes constituting an unsold allotment from the sale of
the original notes) by delivery of the prospectus contained in the Exchange
Offer Registration Statement. Under the Registration Rights Agreement, we are
required to allow Participating Broker-Dealers and other persons, if any,
subject to similar prospectus delivery requirements to use the prospectus
contained in the Exchange Offer Registration Statement in connection with the
resale of such exchange notes. The Exchange Offer Registration Statement will
be kept effective to permit resales of exchange notes acquired by
broker-dealers pursuant to the exchange offer for a period ending on the
earlier of 180 days after the exchange offer has been consummated or such
earlier time as such broker-dealers cease to own any exchange notes. Each
holder of original notes who wishes to exchange such original notes for
exchange notes in the exchange offer will be required to represent that:
(1) any exchange notes to be received by it will be acquired in the
ordinary course of its business,
(2) that at the time of the commencement of the exchange offer it
has no arrangement with any person to participate in the distribution
(within the meaning of the Securities Act) of the exchange notes, and
(3) that it is not an affiliate of Resorts International Hotel and
Casino, Inc. or its subsidiaries.
If,
(1) prior to completion of the exchange offer, existing Commission
interpretations or applicable laws changed such that the exchange notes
would not be transferable without restriction under the Securities Act,
(2) the exchange offer has not been completed within 240 days
following the issue date of the Old Notes or
(3) the exchange offer is not available to all holders of the
original notes,
we will, in lieu of (or, in the case of clause (3), in addition to) completing
the exchange offer, file and use our reasonable best efforts to cause a
registration statement, or the Shelf Registration Statement, under the
Securities
78
Act relating to a shelf registration of the original notes for resale by
holders, or the Resale Registration, to become effective on or prior to the
applicable date set forth in the Registration Rights Agreement, or the Resale
Registration Filing Deadline, and to remain effective until the earlier of two
years following the date the Resale Registration is declared effective or such
time as there are no longer any Registrable Securities outstanding (as that
term is defined in the Registration Rights Agreement). We will, in the event of
the Resale Registration, provide to the holders of the applicable original
notes copies of the prospectus that is a part of the registration statement
filed in connection with the Resale Registration, notify such holders when the
Resale Registration for the applicable original notes has become effective and
take certain other actions as are required to permit unrestricted resales of
the applicable original notes. A holder of original notes that sells such
original notes pursuant to the Resale Registration generally would be required
to be named as a selling noteholder in the related prospectus and to deliver a
prospectus to purchasers, would be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and would be
bound by the provisions of the Registration Rights Agreement that are
applicable to such a holder (including certain indemnification obligations).
Notwithstanding the foregoing, as required by the New Jersey Casino
Control Commission, or the NJCCC, the Exchange Offer Registration Statement
must be filed with the Commission within 30 days of the closing of the original
note offering and we are obligated to use our best efforts to cause the
Commission to declare the Exchange Offer Registration Statement effective
within 90 days of the closing of the offering. We have had a dialogue with the
NJCCC and the New Jersey Division of Gaming Enforcement, or the NJDGE,
regarding the 30 day filing requirement and the NJDGE has not moved before the
NJCCC to enforce the 30 day filing requirement and we have agreed to file the
Exchange Offer Registration Statement at the earliest practicable date.
If,
(1) the exchange offer has not been completed within 240 days after
the effective date of the Issue Date,
(2) a Resale Registration has not become effective within 240 days
after the Issue Date, or
(3) any registration statement required by the Registration Rights
Agreement is filed and becomes effective but shall thereafter cease to be
effective (except as specifically permitted therein) without being
succeeded immediately by an additional effective registration statement
(any such event referred to in clauses (1) through (3), a "Registration
Default" and each period during which a Registration Default has occurred and
is continuing, a "Registration Default Period"), then the per annum interest
rate on the original notes will increase by 0.25% per annum for the first 90
days, or portion thereof, of the Registration Default Period and by an
additional 0.25% per annum for each subsequent 90-day period, or portion
thereof, during the Registration Default Period, up to a maximum amount of
1.00%. Following the Registration Default Period, the interest rate will be
reduced to the rate otherwise in effect.
In the event the exchange offer is consummated, we will not be required
to file a Shelf Registration Statement relating to any outstanding original
notes other than those held by persons not eligible to participate in the
exchange offer, and the interest rate on such original notes will remain at its
initial level of 11 1/2%. The exchange offer shall be deemed to have been
consummated upon the earlier to occur of:
(1) we have exchanged exchange notes for all outstanding original
notes (other than original notes held by persons not eligible to
participate in the exchange offer) pursuant to the exchange offer and
(2) we have exchanged, pursuant to the exchange offer, exchange
notes for all original notes that have been tendered and not withdrawn on
the Expiration Date.
Upon consummation, holders of original notes seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act. See "Risk Factors--Failure
to exchange outstanding notes may restrict future transfer."
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept all original
notes validly tendered prior to 5:00 p.m., Eastern Standard time, on
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July 1, 2002. We will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding original notes
accepted in the exchange offer. Holders may tender some or all of their
original notes pursuant to the exchange offer in denominations of $1,000 and
thereafter in integral multiples of $1,000 thereof.
As of the date of this prospectus, $180.0 million aggregate principal
amount of the original notes is outstanding. In connection with the issuance of
the original notes, we arranged for the original notes initially purchased by
qualified institutional buyers, institutional accredited investors and certain
non-U.S. persons in transactions outside the United States to be issued and
transferable in book-entry form through the facilities of DTC, acting as
depositary. The exchange notes will also be issuable and transferable in
book-entry form through DTC.
This prospectus, together with the accompanying letter of transmittal, is
being sent to all registered holders as of May 24, 2002.
We shall be deemed to have accepted validly tendered original notes when,
as and if we have given oral or written notice thereof to the Exchange Agent.
See "--Exchange Agent." The Exchange Agent will act as agent for the tendering
holders of original notes for the purpose of receiving exchange notes from us
and delivering exchange notes to such holders. If any tendered original notes
are not accepted for exchange because of an invalid tender or the occurrence of
certain other events set forth herein, certificates for any such unaccepted
original notes will be returned, without cost, to the tendering holder thereof
as promptly as practicable after the Expiration Date.
Holders of original notes who tender in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
original notes pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the exchange
offer. See "--Fees and Expenses."
EXPIRATION DATES; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m. Eastern Standard time on
July 1, 2002 unless we, in our sole discretion, extend the exchange offer, in
which case the term "Expiration Date" shall mean the latest date to which the
exchange offer is extended.
In order to extend the Expiration Date, we will notify the Exchange Agent
of any extension by oral or written notice and by timely public announcement.
Unless otherwise required by applicable law or regulation, the public
announcement will be made by a release to the Dow Jones News Service. Such
announcement may state that we are extending the exchange offer for a specified
period of time.
We reserve the right to:
(1) delay acceptance of any original notes,
(2) extend the exchange offer,
(3) terminate the exchange offer and to refuse to accept original
notes not previously accepted, if any of the conditions set forth herein
under "--Conditions to the Exchange Offer" shall have occurred and shall
not have been waived by us (if permitted to be waived by us), or
(4) amend the terms of the exchange offer in any manner deemed by
us to be advantageous to the holders of the original notes.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof. If the
exchange offer is amended in a manner determined by us to constitute a material
change, we will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the original notes of such amendment.
Without limiting the manner by which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the exchange offer, we will have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
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INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from March 22, 2002, payable
semiannually on March 15 and September 15 of each year commencing on September
15, 2002, at the rate of 11 1/2% per annum. Holders of original notes whose
original notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the original notes
accrued from March 22, 2002 until the date of the issuance of the exchange
notes. Consequently, holders who exchange their original notes for exchange
notes will receive the same interest payment on September 15, 2002 (the first
interest payment date with respect to the original notes and the exchange
notes) that they would have received had they not accepted the exchange offer.
PROCEDURE FOR TENDERING ORIGINAL NOTES
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the original notes
held as Book-Entry Interests (as defined in "Description of the Exchange
Notes--Form of Notes") by causing DTC to transfer such original notes into the
Exchange Agent's account in accordance with DTC's procedure for such transfer.
Although delivery of original notes may be effected through book-entry transfer
into the Exchange Agent's account at DTC, either by
(1) the letter of transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, or
(2) a computer-generated message transmitted by means of the
Automated Tender Offer Program, or ATOP, system of DTC and received by
the Exchange Agent and forming a part of a confirmation of book-entry
transfer in which the holder of original notes acknowledges and agrees to
be bound by the terms of the letter of transmittal,
must, in any case, be transmitted to and received or confirmed by the Exchange
Agent at its addresses set forth herein under "--Exchange Agent" prior to 5:00
p.m., Eastern Standard time, on the Expiration Date. DELIVERY OF DOCUMENTS TO
DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
To tender in the exchange offer, a holder of Certificated Notes (as
defined below under the heading "Description of the Exchange Notes--Form of
Notes") must complete, sign and date the letter of transmittal, or a facsimile
thereof, have the signatures thereon guaranteed if required by the letter of
transmittal, and mail or otherwise deliver such letter of transmittal or such
facsimile, together with the original notes and any other required documents,
to the Exchange Agent prior to 5:00 p.m., Eastern Standard time, on the
Expiration Date.
The tender by a holder of original notes will constitute an agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth herein and in the letter of transmittal.
Delivery of all documents must be made to the Exchange Agent at its
address set forth in this prospectus. Holders may also requests that their
respective brokers, dealers, commercial banks, trust companies or nominees
effect such tender for such holders.
The method of delivery of original notes and the letters of transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the holders. Instead of delivery by mail, it is recommended that
holders use an overnight or hand delivery service. In all cases, sufficient
time should be allowed to assure timely delivery. No letter of transmittal or
original notes should be sent to us.
Only a holder of original notes may tender such original notes in the
exchange offer. The term "holder" with respect to the exchange offer means any
person in whose name original notes are registered on our books or any other
person who has obtained a properly completed bond power from the registered
holder, or any person whose original notes are held of record by DTC who
desires to deliver such original notes by book entry transfer at DTC.
81
Any beneficial holder whose original notes are registered in the name of
his broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on his behalf. If such beneficial holder
wishes to tender on his own behalf, such beneficial holder must, prior to
completing and executing the letter of transmittal and delivering his original
notes, either make appropriate arrangements to register ownership of the
original notes in such holder's name or obtain a properly completed bond power
from the registered holder. The transfer of record ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office of correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act, or an "Eligible Institution", unless the
original notes tendered pursuant thereto are tendered
(1) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
letter of transmittal or
(2) for the account of an Eligible Institution.
If the letter of transmittal is signed by a person other than the
registered holder of any original notes listed therein, such original notes
must be endorsed or accompanied by appropriate bond powers which authorize such
person to tender the original notes on behalf of the registered holder, in
either case signed as the name of the registered holder or holders appears on
the original notes.
If the letter of transmittal or any original notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
us, evidence satisfactory to us of their authority to so act must be submitted
with the letter of transmittal.
All the questions as to the validity, form, eligibility, including time
of receipt, acceptance and withdrawal of the tendered original notes will be
determined by us in our sole discretion, which determinations will be final and
binding. We reserve the absolute right to reject any and all original notes not
validly tendered or any original notes that our acceptance of which would, in
the opinion of our counsel, be unlawful. We also reserve the absolute right to
waive any irregularities or conditions of tender as to particular original
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. Unless waived any defects or irregularities in
connection with tenders of original notes must be cured within such time as we
shall determine. Neither we, the Exchange Agent nor any other person shall be
under any duty to give notification of defects or irregularities with respect
to tenders of original notes nor shall any of them incur any liability for
failure to give such notification. Tenders of original notes will not be deemed
to have been made until such irregularities have been cured or waived. Any
original notes received by the Exchange Agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived
will be returned without cost by the Exchange Agent to the tendering holder of
such original notes unless otherwise provided in the letter of transmittal, as
soon as practicable following the Expiration Date.
In addition, we reserve the right in our sole discretion to
(1) purchase or make offers for any original notes that remain
outstanding subsequent to the Expiration Date, or, as set forth under
"--Conditions to the Exchange Offer," to terminate the exchange offer and
(2) to the extent permitted by applicable law, purchase original
notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers may differ from the
terms of the exchange offer.
82
By tendering, each holder of original notes will represent to us that
among other things, the exchange notes acquired pursuant to the exchange offer
are being obtained in the ordinary course of business of the person receiving
such exchange notes, whether or not such person is the holder, that neither the
holder nor any other person has an arrangement or understanding with any person
to participate in the distribution of the exchange notes and that neither the
holder nor any such other person is our affiliate within the meaning of Rule
405 under the Securities Act.
GUARANTEED DELIVERY PROCEDURE
NOTES HELD THROUGH DTC. DTC participants holding notes through DTC who
wish to cause the original notes to be tendered, but who cannot transmit their
acceptance through ATOP prior to the Expiration Date, may cause a tender to be
effected if:
(1) guaranteed delivery is made by or through a firm or other
entity identified in Rule 17Ad-15 under the Exchange Act, including:
(a) a bank;
(b) a broker, dealer, municipal securities dealer, municipal
securities broker, government securities dealer or government securities
broker;
(c) a credit union;
(d) a national securities exchange, registered securities
association or clearing agency; or
(e) a savings institution that is a participant in a Securities
Transfer Association recognized program;
(2) prior to the Expiration Date, the Exchange Agent receives from
any of the above institutions a properly completed and duly executed
Notice of Guaranteed Delivery, by mail, hand delivery, facsimile
transmission or overnight courier, substantially in the form provided
with this prospectus; and
(3) book-entry confirmation and an agent's message in connection
therewith are received by the Exchange Agent within five business days
after the date of the execution of the Notice of Guaranteed Delivery.
NOTES HELD BY HOLDERS. Holders who wish to tender their original notes
and
(1) whose original notes are not immediately available,
(2) who cannot deliver their original notes, the letter of
transmittal, or any other required documents to the Exchange Agent prior
to the Expiration Date, or
(3) who cannot complete the procedure for book-entry transfer on a
timely basis, may effect a tender if:
(a) the tender is made by or through any of the above listed
institutions, an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice
of Guaranteed Delivery, by facsimile transmission, mail or hand delivery,
setting forth the name and address of the holder of the original notes,
the certificate number or numbers of such original notes and the
principal amount of original notes tendered, stating that the tender is
being made thereby, and guaranteeing that, within five business days
after the Expiration Date, the letter of transmittal, or facsimile
thereof, together with the certificate(s) representing the original notes
to be tendered in proper form for transfer and any other documents
required by the letter of transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed letter of transmittal, or
facsimile thereof, together with the certificate(s) representing all
tendered original notes in proper form for transfer, or
83
confirmation of a book-entry transfer into the Exchange Agent's account
at DTC of original notes delivered electronically, and all other
documents required by the letter of transmittal are received by the
Exchange Agent within five business days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of original notes may be
withdrawn at any time prior to 5:00 p.m., Eastern Standard time, on the
Expiration Date.
NOTES HELD THROUGH DTC. DTC participants holding original notes who have
transmitted their acceptances through ATOP may, prior to 5:00 p.m., Eastern
Standard time, on the expiration date, withdraw the instruction given thereby
by delivering to the exchange agent, at its address set forth under "--Exchange
Agent," a written, telegraphic or facsimile notice of withdrawal of such
instruction. Such notice of withdrawal must contain the name and number of the
DTC participant, the principal amount due at the stated maturity of original
notes to which such withdrawal relates and the signature of the DTC
participant. Receipt of such written notice of withdrawal by the Exchange Agent
effectuates a withdrawal.
NOTES HELD BY HOLDERS. To withdraw a tender of original notes in the
exchange offer, a written or facsimile transmission notice of withdrawal must
be received by the Exchange Agent at its address set forth in this prospectus
prior to 5:00 p.m., Eastern Standard time, on the Expiration Date. Any such
notice of withdrawal must:
(1) specify the name of the person having deposited the original
notes to be withdrawn, or the Depositor,
(2) identify the original notes to be withdrawn, including the
certificate number or numbers and principal amount of such original notes,
(3) be signed by the holder of such original notes in the same
manner as the original signature on the letter of transmittal by which
such original notes were tendered, including any required signature
guarantees, or be accompanied by documents of transfers sufficient to
permit the Trustee with respect to the original notes to register the
transfer of such original notes into the name of the holder of such
original notes withdrawing the tender and
(4) specify the name in which any such original notes are to be
registered, if different from that of the holder of such original notes.
All signatures on a notice of withdrawal must be guaranteed by a
recognized participant in the Securities Transfer Agents Medallion Program, the
New York Stock Exchange Medallion Signature Program or the Stock Exchange
Medallion Program; provided, however, that signatures on the notice of
withdrawal need not be guaranteed if the original notes being withdrawn are
held for the account of any of the institutions above under the heading
"--Guaranteed Delivery Procedures."
A withdrawal of an instruction or a withdrawal of a tender must be
executed by a DTC participant or a holder of original notes, as the case may
be, in the same manner as the person's name appears on its transmission through
ATOP or letter of transmittal, as the case may be, to which such withdrawal
relates. If a notice of withdrawal is signed by a trustee, partner, executor,
administrator, guardian, attorney-in-fact, agent, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person must
so indicate when signing and must submit with the revocation appropriate
evidence of authority to execute the notice of withdrawal. A DTC participant or
a holder may withdraw an instruction or a tender, as the case may be, only if
such withdrawal complies with the provisions of this prospectus.
A withdrawal of a tender of original notes by a DTC participant or a
holder, as the case may be, may be rescinded only by a new transmission of an
acceptance though ATOP or execution and delivery of a new letter of
transmittal, as the case may be, in accordance with the procedures described
herein.
84
All questions as to the validity, form and eligibility, including time of
receipt, for such withdrawal notices will be determined by us, which
determination shall be final and binding on all parties. Any original notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer and no exchange notes will be issued with respect thereto unless
the original notes so withdrawn are validly tendered. Any original notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn original notes may be tendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or issue exchange notes for, any original
notes not therefore accepted for exchange, and may terminate or amend the
exchange offer as provided herein before the acceptance of such original notes
if:
(1) any action or proceeding is instituted or threatened in any
court or by or before any governmental agency with respect to the
exchange offer, which, in our judgment, might materially impair our
ability to proceed with the exchange offer or
(2) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute rule or regulation is interpreted
by the staff of the Commission or court of competent jurisdiction in a
manner, which, in our judgment, might materially impair our ability to
proceed with the exchange offer.
If we determine that we may terminate the exchange offer, as set forth
above, we may
(1) refuse to accept any original notes and return any original
notes that have been tendered to the holders thereof,
(2) extend the exchange offer and retain all original notes
tendered prior to the expiration of the exchange offer, subject to the
rights of such holders of tendered original notes to withdraw their
tendered original notes, or
(3) waive such termination event with respect to the exchange offer
and accept all properly tendered original notes that have not been
withdrawn.
If such waiver constitutes a material change in the exchange offer, we
will disclose such change by means of a supplement to this prospectus that will
be distributed to each registered holder of original notes and we will extend
the exchange offer for a period of not less than five business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders of the original notes, if the exchange offer would otherwise
expire during such period.
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EXCHANGE AGENT
Deutsche Bank Trust Company Americas has been appointed as "Exchange
Agent" for the exchange offer. Questions and requests for assistance and
requests for additional copies of this prospectus or of the letter of
transmittal should be directed to the Exchange Agent addressed as follows:
BY HAND:
Deutsche Bank Trust Company Americas
C/O The Depository Trust Clearing Corporation
55 Water Street, 1st Floor
Jeanette Park Entrance
New York, NY 10041
BY MAIL:
DB Services Tennessee, Inc.
Reorganization Unit
P.O. Box 292737
Nashville, TN 37229-2737
Fax: (615) 835-3701
BY OVERNIGHT MAIL OR COURIER:
DB Services Tennessee, Inc.
Corporate Trust & Agency Services
Reorganization Unit
648 Grassmere Park Road
Nashville, TN 37211
Confirm by Telephone
(615) 835-3572
Information (800) 735-7777
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FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the exchange offer will be
borne by us. The principal solicitation for tenders pursuant to the exchange
offer is being made by mail. Additional solicitations may be made by our
officers and regular employees and our affiliates in person, by telegraph or
telephone.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We, however, will pay the
Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. We may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this prospectus, letters of transmittal and related
documents to the beneficial owners of the original notes and in handling or
forwarding tenders for exchange.
The expenses to be incurred in connection with the exchange offer,
including fees and expenses of the Exchange Agent and Trustee and accounting
and legal fees, will be paid by us.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
original notes pursuant to the exchange offer. If, however, certificates
representing exchange notes or original notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered
holder of the original notes tendered, or if tendered original notes are
registered in the name of any person other than the person signing the letter
of transmittal, or if a transfer tax is imposed for any reason other than the
exchange of original notes pursuant to the exchange offer, then the amount of
any such transfer taxes, whether imposed on the registered holder or any other
person, will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the letter
of transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
FEDERAL INCOME TAX CONSEQUENCES
An exchanging Holder will not recognize any gain or loss in respect of an
exchange of an original note for a New Note, and such Holder's basis and
holding period in the New Note will be the same as such Holder's basis and
holding period in the original note. The exchange offer will result in no U.S.
federal income tax consequences to a non-exchanging Holder.
APPRAISAL RIGHTS
Holders of original notes will not have dissenters' rights or appraisal
rights in connection with the exchange offer.
OTHER
Participation in the exchange offer is voluntary, and holders should
carefully consider whether to accept the terms and conditions of this offer.
Holders of original notes are urged to consult their financial and tax advisors
in making their own decisions on what action to take.
As a result of the making of this exchange offer, and upon acceptance for
exchange of all validly tendered original notes according to the terms of this
exchange offer, we will have fulfilled a covenant contained in the terms of the
original notes and the registration agreement. Holders of the original notes
who do not tender their certificates in the exchange offer will continue to
hold those certificates and will be entitled to all the rights, and limitations
applicable to the original notes under the indenture, except for any rights
under the registration agreement which by their terms terminate or cease to
have further effect as a result of the making of this exchange offer. See
"Description of the Exchange Notes."
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All untendered original notes will continue to be subject to the
restrictions on transfer set forth in the Indenture. In general, the original
notes may not be reoffered, resold or otherwise transferred in the U.S. unless
registered under the Securities Act or unless an exemption from the Securities
Act registration requirements is available. Except under certain limited
circumstances, we do not intend to register the original notes under the
Securities Act.
In addition, any holder of original notes who tenders in the exchange
offer for the purpose of participating in a distribution of the exchange notes
may be deemed to have received restricted securities. If so, that holder will
be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
To the extent that original notes are tendered and accepted in the exchange
offer, the trading market, if any, for the original notes could be adversely
affected.
We may in the future seek to acquire untendered original notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plan to acquire any original notes that are
not tendered in the exchange offer.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The exchange notes, like the original notes, will be issued pursuant to
an Indenture (the "Indenture") among the Company, the Guarantors and Deutsche
Bank Trust Company Americas (formerly Bankers Trust Company), as trustee (the
"Trustee"). The Indenture, Collateral Documents and Registration Rights
Agreement have been filed as exhibits to the registration statement of which
this prospectus is a part. Unless otherwise indicated, the description set
forth below applies to both the original notes and the exchange notes. The
terms of the notes include those stated in the Indenture and those made part of
the Indenture by reference to the TIA. The notes are subject to all such terms,
and Holders of notes are referred to the Indenture and the TIA for a statement
thereof.
The following summary of the material provisions of the Indenture does
not purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. The
definitions of certain terms used in this section are set forth below
under "--Certain Definitions." For purposes of this summary, the term "Company"
refers only to Resorts International Hotel and Casino, Inc. and not to any of
its Subsidiaries.
As of the Issue Date, none of the Company's Subsidiaries will be
Unrestricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The notes will be limited in aggregate principal amount to $180.0 million
and will mature on March 15, 2009.
The notes will accrue interest at the rate of 11 1/2% per annum, which
will be payable semi-annually in arrears on March 15 and September 15,
commencing on September 15, 2002, to Holders of record on the immediately
preceding March 1 and September 1. Interest on the notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from March 22, 2002. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
Principal, premium, if any, interest and Liquidated Damages, if any, on
the notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders of the notes at their respective addresses set forth in the
register of Holders of notes; PROVIDED that all payments of principal, premium,
interest and Liquidated Damages with respect to notes the Holders of which have
given wire transfer instructions to the Company will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's
office or agency in New York City will be the office of the Trustee maintained
for such purpose.
The notes will be issued in denominations of $1,000 and integral
multiples thereof.
RANKING AND SECURITY
The notes will be senior secured obligations of the Company and will
effectively rank senior to all of the Company's existing and future unsecured
Indebtedness to the extent of the Collateral granted by the Company.
Our obligations under the notes will be unconditionally guaranteed on a
senior basis, jointly and severally, by each of our existing Subsidiaries. The
Guarantees will be senior secured obligations of the Guarantors and will
effectively rank senior to all of the Guarantors' existing and future unsecured
Indebtedness to the extent of the Collateral granted by such Guarantors.
89
The Indenture will permit the Company and the Guarantors to incur
additional Indebtedness which ranks equal in right of payment with the notes.
See "--Incurrence of Indebtedness and Issuance of Preferred Equity Interests."
Pursuant to the Collateral Documents, the notes and the Guarantees will
be secured by a first priority Lien on the Collateral. The Company and each of
the Guarantors will assign, grant and pledge as collateral to the Trustee for
the benefit of the Trustee and the Holders of the notes a first priority Lien
on each of the following items or types of Collateral (other than to the extent
constituting Excluded Assets):
. all right, title and interest (including, without limitation, fee and
leasehold estates) of the Company and the Guarantors in and to any
and all parcels of real property located in Atlantic City, New Jersey
now owned (including, without limitation, fee and leasehold estates
with respect thereto), together with all easements, hereditaments and
appurtenances relating thereto, the RIH Hotel, the Expansion Project
and all other improvements, accessions, alterations, replacements and
repairs thereto and all leases and rents and other income, issues or
profits derived from the foregoing interests whether now owned or
hereafter acquired;
. all right, title and interest of the Company and the Guarantors in
and to any and all equipment, machinery, furniture, furnishings and
fixtures relating to, located at and/or utilized in connection with
the RIH Hotel, together with all additions, accessions, improvements,
alterations, replacements and repairs thereto whether now owned or
hereafter acquired;
. all Equity Interests whether now owned or hereafter acquired by the
Company or any of the Guarantors;
. all right, title and interest of the Company and the Guarantors in
and to any and all intellectual property whether now owned or
hereafter acquired including, without limitation, any trademarks,
service marks, patents, copyrights, trade secrets and other
proprietary information relating to and/or utilized in connection
with any and all of the foregoing;
. all right, title and interest of the Company and the Guarantors in
and to any and all general intangibles and contract rights relating
to any and all of the foregoing whether now owned or hereafter
acquired including, without limitation, all material agreements,
licenses and permits entered into by, or granted to, the Company and
the Guarantors in connection with the development, construction,
maintenance, ownership and operation of the RIH Hotel; and
. all right, title and interest of the Company and the Guarantors in
and to any and all proceeds and products of any and all of the
foregoing including, without limitation, proceeds of insurance,
condemnation awards, tax refunds and other similar property or claims
with respect to any and all of the foregoing.
The notes will also be secured by a pledge of:
. not less than $89.0 million of the net proceeds of the original note
offering and certain other amounts, accordingly $89.4 million of the
net proceeds of the original note offering was deposited with and is
held by the Trustee in a segregated account (the "Construction
Disbursement Account"); and
. $10.0 million of the proceeds of an equity contribution from
Holdings, which was deposited with and is held by the Trustee
initially in a segregated account (the "Liquidity Disbursement
Account;" together with the Construction Disbursement Account, the
"Disbursement Accounts").
The Trustee was granted a first priority perfected security interest in the
amounts in the Disbursement Accounts. Amounts in the Disbursement Accounts can
be disbursed as described below.
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Property now owned or hereafter acquired by the Company or any of its
Subsidiaries not listed above will not constitute Collateral, including the
following whether now owned or hereafter acquired (collectively, the "Excluded
Assets"):
. all right, title and interest of the Company and the Guarantors in
and to billboard leases and an option to purchase the Option Property
and, so long as any Indebtedness (other than Indebtedness in respect
of the notes) permitted under the Indenture is secured by the Option
Property, the Option Property;
. all right, title and interest of the Company and the Guarantors in
and to any and all Receivables, Inventory and commercial tort claims,
. all right, title and interest of the Company and the Guarantors in
and to any and all Gaming Licenses;
. all right, title and interest of the Company and the Guarantors in
and to any and all property subject to the FF&E Financing, Capital
Lease Obligations and Purchase Money Indebtedness permitted under
clauses (4), (5) and (10) of the definition of "Permitted
Indebtedness" to the extent described below;
. all right, title and interest of the Company and the Guarantors in
and to any and all interest on CRDA investments and cash, Cash
Equivalents and securities except as expressly provided to be part of
the Collateral under the preceding paragraph and deposit accounts,
including funds released by the Disbursement Agent to the Company
from the Disbursement Accounts pursuant to the terms of the
Disbursement Agreement;
. all right, title and interest of the Company and the Guarantors in
and to any and all improvements in and to any parcel of real property
constituting Collateral (other than any improvement of real property
comprising the RIH Hotel) to the extent such improvements are
constructed with the proceeds of any Indebtedness permitted to be
incurred pursuant to the covenant "--Incurrence of Indebtedness and
Issuance of Preferred Equity Interests" (other than Permitted
Indebtedness) and such improvements are collateral securing the
obligations in respect of such Indebtedness;
. all right, title and interest of the Company or any of its
Subsidiaries to thermal energy production facility improvements
provided under the contract to be entered into between the Company or
any of its Subsidiaries and Marina Energy, LLC or similar contracts
entered into in the ordinary course of business from time to time
relating to such facilities (the "Energy Arrangement"); and
. all right, title and interest of the Company and the Guarantors in
and to any and all proceeds and products of any and all of the
foregoing, including, without limitation, proceeds of insurance,
condemnation awards, tax refunds and other similar property or claims
with respect to any and all of the foregoing.
The personal property Collateral will be pledged pursuant to a security
agreement by and among the Company, the Guarantors and the Trustee (the
"Security Agreement"). The real property Collateral will be secured pursuant to
mortgages and leasehold mortgages (collectively, the "Mortgages") made in favor
of the Trustee, as mortgagee and assignee.
The Liens of the Trustee on the Collateral will be of first priority
(subject to certain customary exclusions and encumbrances permitted by the
Collateral Documents, which encumbrances will not in any case adversely affect
the value or use of the Collateral subject thereto or interfere with the
ordinary conduct of the business of the Company or the Guarantors).
The collateral release provisions of the Indenture permit the release
from the Lien of the Collateral Documents of items of Collateral that are the
subject of an Asset Sale and in other circumstances upon compliance with
certain conditions. The Indenture permits the release from the Lien of the
Collateral Documents
91
of Collateral without the substitution of additional Collateral under certain
circumstances, as described under "--Certain Covenants--Asset Sales." The
Collateral will also be released as security for the notes and the Guarantees
upon the release of any Guarantor as described in the last paragraph under
"Guarantees" below. See "--Possession, Use and Release of Collateral."
As indicated above, the Indenture will permit the Company and the
Guarantors to create Liens arising pursuant to certain Purchase Money
Obligations and Capital Lease Obligations (including the FF&E Financing), and
the notes and the Guarantees will also be effectively subordinated to such
Purchase Money Obligations and Capital Lease Obligations and other obligations
secured by such Liens to the extent of any property serving as collateral for
such Purchase Money Obligations or subject to such Capital Leases. See the
definition of "Permitted Liens" under "--Certain Definitions." As a result, the
proceeds of the property subject to such Liens are available to pay obligations
in respect of the notes, if at all, only after such Purchase Money Obligations
and Capital Lease Obligations have been paid in full. In addition, certain of
the Company's and the Guarantors' intangible property that may be significant
to their operations, such as computer software licenses, are by their terms not
encumberable and, accordingly, are not included in the property subject to the
Lien of the Collateral Documents so long as the prohibition on encumberability
exists.
If an Event of Default occurs under the Indenture, the Trustee, on behalf
of the Holders of the notes at the written direction of the majority of
Holders, in addition to any rights or remedies available to it under the
Indenture, may take such actions as it deems advisable to protect and enforce
its rights in the Collateral, including, without limitation, the institution of
foreclosure proceedings in accordance with the Collateral Documents and
applicable law.
The ability of the Holders of the notes to operate the casino facilities
of the Company after any foreclosure on the Collateral is subject to (x)
restrictions under the New Jersey Casino Control Act (the "Casino Control
Act"), including, but limited to, the prior approval of the New Jersey Casino
Control Commission (the "CCC"), and (y) such other restrictions as may be
applicable under the laws of other jurisdictions. See "Government Regulation
and Other Factors." If the Trustee or Collateral Agent takes possession of or
otherwise acquires the RIH Hotel, it would be required to obtain a license
under the Casino Control Act and an entity licensed under the Casino Control
Act would be required to be retained to operate such casino facilities. Because
potential bidders must satisfy licensing requirements, the number of potential
bidders in a foreclosure sale will be less than in foreclosure of other types
of facilities and such requirements may delay the sale of, and may adversely
affect the sale price for, the RIH Hotel and other Collateral.
The proceeds received by the Trustee from any foreclosure will be applied
by the Trustee, first, to pay the expenses of such foreclosure and fees and
other amounts then payable to the Trustee under the Indenture and the
Collateral Documents, and thereafter, to pay the principal of, premium, if any,
and accrued interest on the notes.
The amount realized by the Trustee in respect of the Collateral in the
event of a liquidation will depend upon market and economic conditions, the
availability of buyers, certain existing Liens and similar factors.
Accordingly, the Company cannot assure you that proceeds of any sale of the
Collateral pursuant to the Indenture and the related Collateral Documents
following an Event of Default would be sufficient to satisfy, or would not be
substantially less than, amounts due under the notes. See "Risk Factors--If we
become the subject of bankruptcy proceedings, the trustee may be unable to
foreclose upon the collateral in a timely fashion or at all." If the proceeds
of any of the Collateral were not sufficient to repay all amounts due on the
notes, the Holders of the notes (to the extent not repaid from the proceeds of
the sale of the Collateral) would have only an unsecured claim against the
remaining property of the Company and the Guarantors.
By its nature, some or all of the Collateral will be illiquid and may
have no readily ascertainable market value. Likewise, there can be no assurance
that the Collateral will be saleable or, if saleable, that there will not be
substantial delays in its liquidation. To the extent that Liens, rights or
easements granted to third parties
92
encumber property located on property owned by the Company or the Guarantors,
such third parties have or may exercise rights and remedies with respect to the
property subject to such Liens that could adversely affect the value of the
Collateral and the ability of the Trustee or the Holders of the notes to
realize or foreclose on Collateral.
ESCROWED FUNDS--DISBURSEMENT ACCOUNTS
CONSTRUCTION DISBURSEMENT ACCOUNT
The Company and/or its Subsidiaries deposited $89.4 million of the net
proceeds of the Offering and additional amounts required to be deposited by the
disbursement agreement between the Company and Bankers Trust Company as Trustee
and Disbursement Agent (the "Disbursement Agreement") into the Construction
Disbursement Account, which shall be maintained by the Trustee until disbursed
in accordance with the terms of the Disbursement Agreement. The Disbursement
Agent shall hold and invest these funds in Government Securities or Cash
Equivalents that will be held in the Construction Disbursement Account until
the funds are needed to pay for the development, construction, acquisitions,
equipping and opening of the Expansion Project and, in the case of Trust
Monies, certain other purposes. Any interest income on the funds deposited in
the Construction Disbursement Account shall be disbursed by the Disbursement
Agent into any account specified by the Company for use in any manner permitted
by the Indenture. All of the funds and securities in the Construction
Disbursement Account are pledged to the Trustee for the benefit of the Holders.
Subject to certain exceptions set forth in the Disbursement Agreement, the
Disbursement Agent will authorize the disbursement of funds from the
Construction Disbursement Account for the Expansion Project only upon the
satisfaction of certain disbursement conditions set forth in the Disbursement
Agreement. These conditions include the requirement that the Company or RIH
deliver to the Disbursement Agent an Officer's Certificate certifying:
. the purposes to which the requested funds will be applied;
. that the construction performed to date is substantially in
accordance with the Plans, as amended from time to time in accordance
with the provisions of the Disbursement Agreement, and the requested
disbursement is appropriate in light of the Construction Disbursement
Budget;
. that the Company does not have any knowledge, notice or claim of any
mechanics' liens filed against the Expansion Project which have not
been insured or otherwise bonded over;
. that the Construction Disbursement Budget sets forth the anticipated
costs of completing the Expansion Project, and that there are funds
available within the Construction Disbursement Account allocated to
the Expansion Project, together with amounts committed from the CRDA
and the FF&E Financing to complete the construction of each component
of the Expansion Project;
. that no Default or Event of Default exists and that the Company is in
compliance in all material respects with each representation,
warranty and covenant contained in the Collateral Documents and the
Indenture; and
. that all permits and approvals necessary as of the date of the
requested funds have been obtained and are in full force and effect.
In addition, the Company or RIH will be obligated to deliver an Officer's
Certificate setting forth the following to secure a disbursement: copies of
appropriate Lien waivers executed and delivered by each contractor,
subcontractor, materialman or other person performing services or supplying
materials in connection with the construction of the Expansion Project and such
disbursement (the effectiveness of which may be conditioned on the actual
receipt of the funds to be disbursed). Upon the completion of the Expansion
Project, the Company will provide to the Trustee a title report dated on or
about the date of completion of the Expansion Project showing no Liens other
than Permitted Liens.
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If any funds remain in the Construction Disbursement Account upon the
completion of the Expansion Project as described and determined in the
Disbursement Agreement and there is no Event of Default under the Indenture,
the Disbursement Agent will disburse the remaining funds, together with any
interest earned thereon, relating to the Expansion Project into any account
specified by the Company in writing for use in any manner permitted by the
Indenture. Such disbursed funds will not constitute Collateral.
LIQUIDITY DISBURSEMENT ACCOUNT
The Company deposited $10.0 million of the proceeds of an equity
contribution from Holdings (such amount, the "Additional Equity Contribution")
into the Liquidity Disbursement Account, which shall be maintained by the
Trustee until disbursed in accordance with the terms of the Disbursement
Agreement. The Disbursement Agent shall hold and invest these funds in
Government Securities or Cash Equivalents that will be held in the Liquidity
Disbursement Account until the funds are disbursed to the Company in the manner
described below. All of the funds and securities in the Liquidity Disbursement
Account are pledged to the Trustee for the benefit of the Holders. The
Disbursement Agent will authorize the disbursement of funds from the Liquidity
Disbursement Account only upon delivery to the Trustee of an Officers'
Certificate showing that the Adjusted Consolidated EBITDA of the Company for
any four fiscal quarter period ending on or prior to December 31, 2004 is less
than $28.0 million. Within five business days of the required date of delivery
of financial statements under the Indenture, the Company shall be required to
deliver to the Disbursement Agent an Officers' Certificate stating whether or
not the Adjusted Consolidated EBITDA of the Company is less than $28.0 million.
To the extent that such Officers' Certificate shows an Adjusted Consolidated
EBITDA of the Company of $28.0 million or more, the Additional Liquidity
Contribution shall be retained in the Liquidity Disbursement Account until such
time as it is permitted to be released pursuant to the terms of the
Disbursement Agreement. The amount to be released from the Liquidity
Disbursement Account (such amount, the "Released Amount") shall be equal to the
difference between $28.0 million and the Adjusted Consolidated EBITDA for such
four fiscal quarter period. So long as no Default or Event of Default shall
exist, such amount shall be released to the Company for use in the ordinary
course of business of the Company and its Subsidiaries.
If any funds remain in the Liquidity Disbursement Account after the
delivery of financial statements for the four fiscal quarter period ending on
December 31, 2004 and after making any disbursements required by the preceding
paragraph and there is no Default or Event of Default, the Disbursement Agent
will disburse the remaining funds, together with any interest earned thereon,
(the "Remaining Funds") into any account specified by the Company in writing
for use in any manner permitted by the Indenture including the making of a
dividend to Holdings. See "--Certain Covenants--Restricted Payments." Such
disbursed funds will not constitute Collateral.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Trustee to repossess and dispose of the Collateral upon
the occurrence of an Event of Default is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or
against the Company prior to the Trustee having repossessed and disposed of the
Collateral. Under the Bankruptcy Code, a secured creditor is prohibited from
repossessing its security from a debtor in a bankruptcy case, or from disposing
of security repossessed from such debtor, without bankruptcy court approval.
Moreover, the Bankruptcy Code permits the debtor in certain circumstances to
continue to retain and to use collateral owned as of the date of the bankruptcy
filing (and the proceeds, products, offspring, rents or profits of such
collateral to the extent provided by the Collateral Documents and by applicable
non-bankruptcy law) even though the debtor is in default under the applicable
debt instruments; PROVIDED, that the secured creditor is given "adequate
protection." The meaning of the term "adequate protection" may vary according
to circumstances. In view of the lack of a precise definition of the term
"adequate protection" and the broad discretionary powers of a bankruptcy court,
it is impossible to predict how long payments under the notes could be delayed
following commencement of a bankruptcy case, whether or when the Trustee could
repossess or dispose of the Collateral or whether or to what extent Holders
would be compensated for any delay in payment or loss of value of the
Collateral through the requirement of "adequate protection." Furthermore, if a
bankruptcy court determines the value of the Collateral is not sufficient to
repay all amounts due on the notes, the Holders would hold secured claims to
the extent of the value of the Collateral to which the Holders are entitled,
and would hold unsecured
94
claims with respect to such shortfall. Applicable federal bankruptcy laws do
not permit the payment and/or accrual of post-petition interest, costs and
attorneys' fees during a debtor's bankruptcy case unless the claims are
oversecured or the debtor is solvent at the time of reorganization. In
addition, if the Company becomes the subject of a bankruptcy case, the
bankruptcy court, among other things, may avoid certain transfers made by the
entity that is the subject of the bankruptcy filing, including, without
limitation, transfers held to be fraudulent conveyances or preferences.
GUARANTEES
The Company's payment obligations under the notes will be unconditionally
guaranteed on a joint and several senior secured basis (the "Guarantees"), by
each of the Guarantors. The obligations of each Guarantor under its Guarantee,
and the grant by each Guarantor of Liens on the Collateral of such Guarantor to
secure its obligations under its Guarantee, will be subject to various laws for
the protection of creditors, including in the case of the Guarantors, without
limitation, laws governing fraudulent conveyances and transfers. To the extent
that the obligations of each Guarantor under its Guarantee, or the Lien granted
by such Guarantor on its Collateral, were held to be unenforceable as a
fraudulent conveyance or transfer or for other reasons, the Holders of notes
would cease to have any direct claim against such Guarantor, cease to have any
Lien on the property of such Guarantor, or both, as appropriate. In an attempt
to avoid this result, the Guarantees will provide that the obligations of each
Guarantor thereunder will be limited to the maximum amount as will not
constitute a fraudulent conveyance or fraudulent transfer under applicable law.
Such amount could be substantially less than the obligations on the notes. In
addition, any limitation on the amounts payable by a Guarantor under its
Guarantee pursuant to such provision will result in a corresponding limitation
on the ability of the Trustee to realize upon the Collateral pledged by such
Guarantor.
OPTIONAL REDEMPTION
The Company may redeem the notes at any time on or after March 15, 2007,
in whole or in part, upon not less than 30 nor more than 60 days' notice, at
the redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the applicable redemption date, if redeemed after March 15 of each of the
years indicated below:
PERCENTAGE
DATE ----------
2007.............................................. 106.0%
2008.............................................. 103.0%
2009.............................................. 100.0%
In addition, on or prior to March 15, 2005, the Company may, at its
option on any one or more occasion, redeem up to 35% of the aggregate principal
amount of notes issued under the Indenture, with the proceeds of one or more
Equity Offerings resulting in gross proceeds to the Company of not less than
$20.0 million, at a redemption price equal to 111.5% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of redemption; PROVIDED that (x) at least 65% of the
aggregate principal amount of notes originally issued under the Indenture would
remain outstanding immediately after giving effect to any such redemption and
(y) the Company make such redemption not more than 60 days after the
consummation of any such Equity Offering.
GAMING REDEMPTION
Notwithstanding any other provision of the Indenture, if any Gaming
Authority requires that a Holder or beneficial owner of notes must be licensed,
qualified or found suitable under any applicable Gaming Law and such Holder or
beneficial owner fails to apply for a license, qualification or finding of
suitability within 30 days after being requested to do so by such Gaming
Authority, or such lesser period as may be required by such Gaming Authority,
or if such Holder or the beneficial owner is notified by such Gaming Authority
that such Holder or beneficial owner will not be so licensed, qualified or
found suitable the Holder or beneficial owner, as the case may be, will be
required to dispose of its notes within 30 days, or such lesser period as may
be required
95
by the Gaming Authority, and the Company will have the right to redeem the
notes of the Holder or beneficial owner, subject to the approval of any Gaming
Authority, at the lesser of:
(1) the principal amount thereof plus accrued interest up to the
date of notice from the Gaming Authority that such Holder will not be
licensed or qualified;
(2) the price at which such Holder or beneficial owner acquired
such notes; and
(3) Fair Market Value of such notes.
Immediately upon a determination by any Gaming Authority that a Holder or
beneficial owner of notes will not be licensed, qualified or found suitable by
such Gaming Authority, such Holder or beneficial owner will have no further
rights with respect to the notes:
(1) to receive any interest or dividends with respect to the notes;
(2) to exercise, directly or through any trustee or nominee, any
right conferred by the notes; or
(3) receive any remuneration in any form for services rendered or
otherwise.
Under the Indenture, the Company will not be required to pay or reimburse
any Holder or beneficial owner of notes who is required to apply for such
license, qualification or finding of suitability for the costs of the licensor
or investigation for such qualification or finding of suitability. Such expense
will, therefore, be the obligation of such Holder or beneficial owner. See
"--Gaming Laws."
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the notes but may be required to offer to purchase the
notes, pursuant to a Change of Control Offer, an Asset Sale Offer or an Event
of Loss Offer. See "--Certain Covenants--Change of Control," "--Certain
Covenants--Asset Sales," and "--Certain Covenants--Events of Loss."
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time (other than
in connection with a required gaming redemption), the Trustee will select notes
for redemption:
(1) in compliance with the requirements of the principal national
securities exchange, if any, on which the notes are listed; or,
(2) if the notes are not so listed, on a PRO RATA basis, by lot or
by such method as the Trustee deems fair and appropriate;
PROVIDED that (x) no notes of $1,000 or less will be redeemed in part and (y)
if a partial redemption is made with the proceeds of an Equity Offering, the
Trustee will select the notes only on a PRO RATA basis or on as nearly a PRO
RATA basis as is practicable (subject to DTC procedures) unless such method is
otherwise prohibited.
Notices of redemption will be mailed by first class mail at least 30 but
not more than 60 days (unless another notice period shall be required by
applicable law or by order of any Gaming Authority) before the redemption date
to each Holder of notes to be redeemed at its registered address. Notices of
redemption may not be conditional. If any note is to be redeemed in part only,
the notice of redemption that relates to such note will state the portion of
the principal amount thereof to be redeemed. A new note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original note. Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on notes or portions of them called
for redemption.
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CERTAIN COVENANTS
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder of notes will have the right to require the Company to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount of such notes, plus accrued and unpaid interest and Liquidated Damages,
if any, thereon (the "Change of Control Payment") to the date of repurchase.
Within 30 days following any Change of Control, the Company will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase notes on the Change of Control
Purchase Date (as defined) pursuant to the procedures required by the Indenture
and described in such notice.
The Change of Control Offer will remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Change of Control Offer
Period"). No later than five Business Days after the termination of the Change
of Control Offer Period (the "Change of Control Purchase Date") the Company
will purchase all notes tendered in response to the Change of Control Offer.
Payment for any notes so purchased will be made in the same manner as interest
payments are made.
If the Change of Control Purchase Date is on or after an interest record
date and on or before the related interest payment date, any accrued and unpaid
interest will be paid to the person in whose name a note is registered at the
close of business on such record date, and no additional interest will be
payable to Holders who tender notes pursuant to the Change of Control Offer.
On the Change of Control Purchase Date, the Company will, to the extent
lawful:
(1) accept for payment all notes or portions thereof properly
tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the Trustee the notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of notes or portions thereof being purchased by the
Company.
The paying agent will promptly mail to each Holder of notes so tendered
the Change of Control Payment for such notes, and the Trustee, upon delivery of
an Officer's Certificate from the Company will promptly authenticate and mail
(or cause to be transferred by book-entry) to each Holder a new note equal in
principal amount to any unpurchased portion of the notes surrendered, if any;
PROVIDED that each such new note will be in a principal amount of $1,000 or an
integral multiple thereof.
The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Purchase Date.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations or Gaming Laws conflict
with the Change of Control provisions of the Indenture, the Company shall
comply with the applicable securities laws and regulations or Gaming Laws and
shall not be deemed to have breached their obligations under the Change of
Control provisions by virtue thereof.
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The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the notes to require that the
Company repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, engage in an Asset Sale unless:
(1) the Company (or the Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the property or Equity Interests sold or otherwise
disposed of in such Asset Sale;
(2) at least 80% of the consideration therefor received by the
Company or such Subsidiary is in the form of cash or Cash Equivalents;
PROVIDED that:
(a) the amount of any liabilities (as shown on the Company's
or such Subsidiary's most recent balance sheet or in the notes
thereto, excluding contingent liabilities and trade payables) of
the Company or any Subsidiary (other than liabilities that are by
their terms subordinated to the notes or any Guarantee thereof)
that are assumed by the transferee of any such property; and
(b) any securities, notes or other obligations received by
the Company or any such Subsidiary from such transferee that are
substantially contemporaneously (subject to ordinary settlement
periods) converted by the Company or such Subsidiary into cash (to
the extent of the cash received in that conversion) will be deemed
to be cash for purposes of this provision;
(3) if such Asset Sale involves the disposition of Collateral, the
Company or such Subsidiary has complied with the provisions described
under ''--Possession, Use and Release of Collateral'' and the Net
Proceeds thereof shall be paid directly by the purchaser of the
Collateral to the Trustee for deposit into the Collateral Account, and,
if any property other than cash or Cash Equivalents is included in such
Net Proceeds, such property shall be made subject to the Lien of the
Indenture and the applicable Collateral Documents; and
(4) the Company or such Subsidiary, as the case may be, applies the
Net Proceeds as provided in the following paragraph.
The Company may, at its option, apply any such Net Proceeds within 365
days of the related Asset Sale to either:
(a) in the case of Net Proceeds of property other than Collateral,
the retirement or permanent reduction of Indebtedness permitted to be
incurred under clause (1) of the definition of Permitted Indebtedness or
(b) in the case of Net Proceeds (whether or not relating to
Collateral) the acquisition of another business or the acquisition of
other long-term property, in each case, in the same or a similar line of
business as the Company or any of its Subsidiaries was engaged in on the
Issue Date or any reasonable extensions or expansions thereof
("Replacement Assets"); PROVIDED, that any Replacement Assets acquired
with any Net Proceeds of Collateral shall be owned by the Company or by
the Guarantor that made the Asset Sale and shall not be subject to any
Liens other than Permitted Liens (and the Company or such Guarantor, as
the case may be, shall execute and deliver to the Trustee such Collateral
Documents or other instruments as shall be reasonably necessary to cause
such Replacement Assets to become subject to a Lien in favor of the
Trustee, for the benefit of the Holders of the notes, securing its
obligations under the notes or its Guarantee, as the case may be, and
otherwise shall comply with the provisions of the Indenture applicable to
After-Acquired Property).
If the Company does not use any portion of the Net Proceeds as described
above within 365 days, such unused portion of the Net Proceeds period shall
constitute "Excess Proceeds" subject to disposition as provided
98
below. When the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company will be required to make an offer to all Holders of notes (an "Asset
Sale Offer") to purchase the maximum principal amount of notes that may be
purchased out of the aggregate amount of Excess Proceeds. The offer price of
any Asset Sale Offer will be equal to 100% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase, and will be payable in cash in accordance with the procedures
set forth in the Indenture. To the extent that the aggregate amount of notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
remaining Excess Proceeds shall be released to the Company and may be used free
and clear of the Lien of the Collateral Documents for general corporate
purposes. Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
All Net Proceeds of any Collateral in respect of any Asset Sale shall,
pending their application in accordance with this covenant or the release
thereof in accordance with the provisions described under "--Possession, Use
and Release of Collateral" and "--Use of Trust Monies," be deposited in the
Collateral Account under the Indenture.
The Asset Sale Offer will remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Asset Sale Offer Period"). No later
than five Business Days after the termination of the Asset Sale Offer Period
(the "Asset Sale Purchase Date"), the Company will purchase, on a pro rata
basis to the extent necessary, the principal amount of notes required to be
purchased pursuant to this covenant (the "Asset Sale Offer Amount") or, if less
than the Asset Sale Offer Amount has been tendered, all notes tendered in
response to the Asset Sale Offer. Payment for any notes so purchased will be
made in the same manner as interest payments are made.
If the Asset Sale Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest will be paid to the person in whose name a note is registered at the
close of business on such record date, and no additional interest will be
payable to Holders who tender notes pursuant to the Asset Sale Offer.
On or before the Asset Sale Purchase Date, the Company will, to the
extent lawful, accept for payment, on a PRO RATA basis to the extent necessary,
the Asset Sale Offer Amount of notes or portions thereof tendered pursuant to
the Asset Sale Offer, or if less than the Asset Sale Offer Amount has been
tendered, all notes tendered, and will deliver to the Trustee an Officers'
Certificate stating that such notes or portions thereof were accepted for
payment by the Company in accordance with the terms of this covenant. The
Company, the Depositary or the paying agent, as the case may be, will promptly
(but in any case not later than five days after the Asset Sale Purchase Date)
mail or deliver to each tendering Holder an amount equal to the purchase price
of the notes tendered by such Holder and accepted by the Company for purchase,
and the Company will promptly issue a new note, and the Trustee, upon delivery
of an Officers' Certificate from the Company, will authenticate and mail or
deliver such new note to such Holder, in a principal amount equal to any
unpurchased portion of the note surrendered. Any note not so accepted will be
promptly mailed or delivered by the Company to the Holder thereof. The Company
will publicly announce the results of the Asset Sale Offer on the Asset Sale
Purchase Date.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the notes as a result of an Asset Sale. To the extent that the
provisions of any securities laws or regulations or Gaming Laws conflict with
the Asset Sale provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and Gaming Laws and shall not be
deemed to have breached its obligations under the Asset Sales provisions by
virtue thereof.
EVENTS OF LOSS
In the event of an Event of Loss with respect to any Collateral with a
Fair Market Value (or replacement cost, if greater) in excess of $1.0 million,
the Company or the affected Guarantor, as the case may be, will apply the Net
Loss Proceeds from such Event of Loss to the rebuilding, repair, replacement or
construction of improvements to the affected property (the "Subject Property"),
with no concurrent obligation to make any
99
purchase of any notes; PROVIDED, HOWEVER, that the Company delivers to the
Trustee within 90 days of such Event of Loss:
(1) a written opinion from a reputable contractor (as determined in
good faith by the Company) that the Subject Property can be rebuilt,
repaired, replaced or constructed and operating within 365 days from the
date of such certification; and
(2) an Officers' Certificate certifying that the Company or the
affected Guarantor has available from Net Loss Proceeds (including
amounts collectible from the applicable insurance carrier) or other
sources sufficient funds to complete the rebuilding, repair, replacement
or construction described in clause (1) above (in the case of the
Expansion Project) or otherwise.
Any Net Loss Proceeds that are not reinvested or not permitted to be
reinvested as provided in the first sentence of this covenant will be deemed
"Excess Loss Proceeds." Within 10 days following the date that the aggregate
amount of Excess Loss Proceeds received by the Company or the applicable
Guarantor exceeds $10.0 million, the Company will make an offer (an "Event of
Loss Offer") to all Holders of notes with the proceeds of Events of Loss to
purchase the maximum principal amount of notes that may be purchased out of the
Excess Loss Proceeds. The offer price in any Event of Loss Offer will be equal
to 100% of principal amount plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase, and will be payable in cash. If any
Excess Loss Proceeds remain after consummation of an Event of Loss Offer, the
Company may use such Excess Loss Proceeds for any purpose not otherwise
prohibited by the Indenture and the Collateral Documents. If the aggregate
principal amount of notes tendered pursuant to an Event of Loss exceeds the
Excess Loss Proceeds, the Trustee will select the notes to be purchased on a
PRO RATA basis based on the principal amount of notes tendered. Upon completion
of any such Event of Loss Offer, the amount of Excess Loss Proceeds shall be
reset at zero.
Prior to the date on which the Expansion Project is completed, the Net
Loss Proceeds will be deposited into the Construction Disbursement Account, in
which the Trustee will be granted a first priority perfected security interest,
subject to Permitted Liens only; PROVIDED, HOWEVER, that any such Net Loss
Proceeds will be disbursed in a manner consistent with the Plans and the
Construction Disbursement Budget. All other Net Loss Proceeds of any Collateral
shall, pending their application in accordance with this covenant or the
release thereof in accordance with the provisions described under "-- Use of
Trust Monies," be deposited in the Collateral Account under the Indenture.
Pending their final application, all Net Loss Proceeds will be invested in Cash
Equivalents held in an account in which the Trustee has a first priority
perfected security interest, subject to Permitted Liens only, for the ratable
benefit of the Holders of notes. These pledged funds and securities will be
released to the Company to pay for or reimburse the Company and Guarantors for
the actual cost of a permitted use of Net Loss Proceeds as provided above, or
the Event of Loss Offer, pursuant to the terms of the Collateral Documents. The
Company or the applicable Guarantor will grant to the Trustee, on behalf of the
Holders of notes, a first priority perfected security interest, subject to
Permitted Liens only, in any property rebuilt, repaired, replaced or
constructed with such Net Loss Proceeds on the terms set forth in the Indenture
in accordance with the Indenture and the Collateral Documents.
In the event of an Event of Loss pursuant to clause (3) of the definition
of "Event of Loss" with respect to any property that have a Fair Market Value
(or replacement cost, if greater) in excess of $10.0 million, the Company or
the affected Guarantor, as the case may be, will be required to receive
consideration:
(1) at least equal to the Fair Market Value of the property subject
to the Event of Loss and
(2) with respect to any "Event of Loss" of any portion of the
Expansion Project, at least 90% of which is in the form of Cash
Equivalents.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the notes as a result of an Event of Loss. To the extent that the
provisions of any securities laws or regulations conflict with the Event of
Loss provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the Event of Loss provisions by virtue thereof.
100
EXPANSION PROJECT
The Indenture provides that prior to making a change to the Plans
relating to the Expansion Project that is materially different from certain
minimum facilities ("Minimum Facilities") set forth below, the Company shall
obtain the prior written consent of the Holders of a majority in principal
amount of the notes then outstanding. The Minimum Facilities are as follows:
(1) construction of a new hotel tower of at least 26 stories with
not less than 345 rooms of each not less than approximately 510 square
feet and 35 suites of each not less than approximately 900 square feet;
(2) enlargement of the gaming floor of the casino by not less than
12,000 square feet; and
(3) relocation and expansion of the existing lobby and porte
cochere areas substantially in accordance with the Plans.
The Indenture provides that the Company shall not implement a change to
the Plans that would cause budgeted construction and development costs to
exceed $115.5 million, unless the Company and/or any of its Subsidiaries
deposits into the Construction Disbursement Account the amount of such budgeted
excess from sources other than borrowing under a Revolving Credit Facility
pursuant to clause (1) of the definition of "Permitted Indebtedness."
The Indenture provides that the Company will cause the construction of
the Expansion Project to be undertaken with reasonable diligence and continuity.
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on account
of the Company's or any of its Subsidiaries' Equity Interests other than
dividends or distributions payable in Equity Interests (other than
Disqualified Equity Interests) of the Company or dividends or
distributions payable to the Company or any Subsidiary of the Company
(and, if such Subsidiary is not a Wholly Owned Subsidiary, to the other
equity holders of such Subsidiary on a PRO RATA basis or on a basis that
results in the receipt by the Company or a Subsidiary of dividends or
distributions of greater value than it would receive on a PRO RATA basis);
(2) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent of the
Company or Subsidiary of the Company (other than any such Equity
Interests owned by the Company or any Wholly Owned Subsidiary of the
Company that is a Guarantor);
(3) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, any Indebtedness
that is subordinated to the notes; or
(4) make any Investment (other than Permitted Investments);
(all such payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as "Restricted Payments"), unless, at the time
of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default will have occurred and be
continuing or would occur as a consequence thereof;
101
(b) the Company would, at the time of such Restricted Payment and
after giving PRO FORMA effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Equity Interests";
and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Subsidiaries
after the Issue Date (including those permitted by the following
paragraph unless noted), is less than the sum of:
(i) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from January 1, 2002
to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of
such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit); plus
(ii) to the extent not included in the amount described in
clause (i) above, 100% of the aggregate net cash proceeds
(excluding the net cash proceeds from the Equity Contribution and
the Additional Equity Contribution) received after the Issue Date
by the Company from the issue or sale of, or from additional
capital contributions in respect of, Equity Interests of the
Company or of debt securities of the Company or any Guarantor that
have been converted into, or canceled in exchange for, Equity
Interests of the Company or of any direct or indirect parent of
the Company or from the issue or sale of convertible or
exchangeable Disqualified Equity Interests that has been converted
into or exchanged for such Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Equity Interests or debt
securities that have been converted into Disqualified Equity
Interests), plus the aggregate net cash proceeds received by the
Company upon any such conversion or exchange; plus
(iii) to the extent that an Investment in an Unrestricted
Subsidiary was treated as a Restricted Payment after the Issue
Date, an amount equal to the Fair Market Value of the equity
investment in such Unrestricted Subsidiary owned by the Company or
any Subsidiary at the time of redesignation as a Subsidiary; plus
(iv) without duplication of amounts in clause (iii) above
and without giving effect to the last sentence of the definition
of "Permitted Investments," to the extent that any Investment
(other than Permitted Investments) that was made after the Issue
Date is sold for cash or otherwise liquidated or repaid for cash,
the amount of net cash proceeds received with respect to such
Investment not in excess of the original amount of such Investment.
The foregoing provisions will not prohibit the following Restricted
Payments:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indenture;
(2) the making of any Investment (other than Permitted Investments):
(a) in exchange for Equity Interests of the Company (other
than Disqualified Equity Interests); or
(b) out of the net cash proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of, or
from substantially concurrent additional cash capital
contributions (excluding the Equity Contribution) in respect of
Equity Interests of the Company (other than Disqualified Equity
Interests);
102
(3) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any direct or indirect parent of
the Company:
(a) in exchange for other Equity Interests of the Company
(other than any Disqualified Equity Interests);
(b) out of the net cash proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of, or
from substantially concurrent additional cash capital
contributions in respect of, other Equity Interests of the Company
(other than any Disqualified Equity Interests); and
(c) to the extent required by any Gaming Authority or, if
determined in the good faith judgment of the Board of Directors of
the Company, to prevent the loss or to secure the grant or
establishment of any Gaming License or other right to conduct
gaming operations; PROVIDED that the aggregate price paid for all
such redeemed, repurchased, retired or acquired Equity Interests
shall not exceed $2.0 million;
(4) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net cash proceeds from either:
(a) an incurrence of Permitted Refinancing Indebtedness or
(b) the substantially concurrent sale (other than to a
Subsidiary of the Company) of, or from substantially concurrent
additional capital contributions in respect of, Equity Interests
of the Company (other than Disqualified Equity Interests);
(5) the repurchase, redemption or other acquisition or retirement
for value, directly or indirectly, of any Equity Interest of the Company
(or any of its direct or indirect parents) or any Subsidiary held by any
current or former employees of the Company (or any of its Subsidiaries)
(or their heirs or estates) pursuant to any management equity
subscription agreement, stock option agreement or similar written
agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $1.0 million in any twelve month period;
(6) the declaration and payment of dividends to holders of the
Company's Disqualified Equity Interests, in each case with respect to
Equity Interests issued in compliance with the covenant described under
"Incurrence of Indebtedness and Issuance of Preferred Equity Interests:"
(7) repurchases of Equity Interests deemed to occur upon exercise
of Equity Interest options if such Equity Interests represent a portion
of the exercise price of such options;
(8) the declaration and payment of dividends to pay out-of-pocket
expenses of Holdings, for administrative, legal and accounting services,
whether internal or provided by third parties (including Affiliates to
the extent permitted under the covenant described under "Transactions
with Affiliates" below), incurred in the ordinary course of business for
professional services, or to pay franchise fees and similar costs;
(9) the declaration and payment of dividends to pay taxes of
Holdings, the Company and the Company's Subsidiaries as part of a
consolidated, combined or unitary tax filing group or of the separate
operations of Holdings which are actually due and payable arising from
the ownership of the Equity Interests of the Company by Holdings (not to
exceed in any event the amount of tax that the Company and its
Subsidiaries would otherwise pay if not part of such filing group);
(10) without duplication of the Restricted Payments permitted to be
made in clauses (3)(b) and (5) above, the declaration and payment of
dividends to Holdings to enable it to make the payments set forth in
clauses (3)(b) or (5) above; and
103
(11) subsequent to:
(a) the delivery of financial statements for the four fiscal
quarter period ending on December 31, 2004 and
(b) any release of funds required to be made to the Company
if the Company's Adjusted Consolidated EBITDA is less than $28.0
million,
the declaration and payment of dividends to Holdings in the amount
of the Remaining Funds.
PROVIDED, HOWEVER, that in the case of each of clauses (2), (3)(a), (4), (6)
and (11) no Default shall have occurred and be continuing or would arise
therefrom.
In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (c) of the second
preceding paragraph, amounts expended pursuant to clauses (1), (2)(b), (3)(b)
and (4)(b) shall be included in such calculation, and amounts expended pursuant
to clauses (2)(a), (3)(a), 3(c), (4)(a) and (5) through (11) shall be excluded
from such calculation; PROVIDED, that clauses (6), (8) and (9) shall only be
excluded to the extent that the amounts thereunder were expenses deducted in
connection with the calculation of Net Income.
The Board of Directors may designate (a "Designation") any Subsidiary of
the Company to be an Unrestricted Subsidiary if such Designation would not
cause a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Subsidiaries in the Subsidiary so designated
will be deemed to be Restricted Payments at the time of such Designation and
will reduce the amount available for Restricted Payments under the first
paragraph of this covenant. All such outstanding Investments will be deemed to
constitute Investments in an amount equal to the Fair Market Value of such
Investments at the time of such Designation. Such Designation will only be
permitted if such Restricted Payment would be permitted at such time and if
such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
Upon such Designation as an Unrestricted Subsidiary, such Subsidiary shall no
longer constitute a Guarantor.
The amount of all Restricted Payments (other than cash) will be the Fair
Market Value on the date of the Restricted Payment of the property proposed to
be transferred by the Company or such Subsidiary, as the case may be, pursuant
to the Restricted Payment.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED EQUITY INTERESTS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (other than
Permitted Indebtedness) and the Company will not issue any Disqualified Equity
Interests and will not permit any of its Subsidiaries to issue any Preferred
Equity Interests or Disqualified Equity Interests; PROVIDED, HOWEVER, that the
Company may incur Indebtedness or issue Disqualified Equity Interests and the
Company's Subsidiaries that are Guarantors may incur Indebtedness if:
(1) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or Disqualified Equity Interests are issued
would have been at least 2.0 to 1.0, determined on a PRO FORMA basis
(including a PRO FORMA application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred or Disqualified Equity
Interests had been issued, as the case may be, at the beginning of such
four-quarter period; and
(2) no Default or Event of Default will have occurred and be
continuing or would occur as a consequence thereof.
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LIMITATION ON LIENS
The Company shall not and shall not cause or permit any of its
Subsidiaries to directly or indirectly create, incur, assume or suffer to exist
any Lien on any property now owned or hereafter acquired, or on any income or
profits therefrom, or assign or convey any right to receive income therefrom,
except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction
on the ability of any Subsidiary to:
(1) (a) pay dividends or make any other distributions to the
Company or any of its Subsidiaries
(x) on its Equity Interests or
(y) with respect to any other interest or participation in,
or measured by, its profits, or
(b) pay any Indebtedness owed to the Company or any of its
Subsidiaries;
(2) make loans or advances to the Company or any of its
Subsidiaries; or
(3) transfer any of its properties to the Company or any of its
Subsidiaries
except for such encumbrances or restrictions existing under or by reason of:
(a) the Revolving Credit Facility (so long as it expressly permits
payments to the Company under all circumstances to enable the Company to
make timely payments of all amounts due under or in respect of the
Indenture, the notes and the Collateral Documents);
(b) Existing Indebtedness and any documents or agreements entered
into pursuant thereto or securing obligations thereunder, all as in
effect on the Issue Date;
(c) the Indenture, the notes, the Guarantees and the Collateral
Documents;
(d) applicable law;
(e) by reason of customary non-assignment provisions in leases and
licenses entered into in the ordinary course of business and consistent
with past practices;
(f) Purchase Money Obligations or Capital Lease Obligations for
FF&E acquired or leased with FF&E Financing or under contractual
obligations relating to property subject to Permitted Liens that impose
restrictions of the nature described in clause (3) above on the property
so acquired;
(g) any restriction or encumbrance contained in contracts for sale
of property permitted by the Indenture in respect of the property being
sold pursuant to such contract;
(h) Permitted Refinancing Indebtedness; PROVIDED that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive taken as a whole than
those contained in the agreements governing the Indebtedness being
refinanced (as determined by the Company in good faith, which
determination shall be conclusive absent manifest error);
(i) restrictions imposed by Gaming Authorities on the payment of
dividends by entities holding Gaming Licenses;
(j) Liens on the property of a person acquired at the time of
acquisition of such person to the extent such Liens are not incurred or
created in contemplation of the acquisition and only impose restrictions
of the nature described in clause (3) above on the property so acquired;
PROVIDED such acquired property is not intended or required to constitute
Collateral; and
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(k) contracts with customers entered into in the ordinary course of
business in the nature of restrictions on cash or other deposits, which
restrictions are imposed by such customers.
Nothing contained in the foregoing covenant entitled "Dividend and Other
Payment Restrictions Affecting Subsidiaries" shall prevent the Company or any
Subsidiary of the Company from creating, incurring, assuming or suffering to
exist any Liens permitted by the covenant entitled "Limitation on Liens."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of
its properties to, or purchase any property from, or enter into or make any
contract, agreement, loan, advance or guarantee with, or for the benefit of,
any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less
favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated person; and
(2) the Company delivers to the Trustee the following:
(a) with respect to any Affiliate Transaction entered into
after the Issue Date involving aggregate consideration in excess
of $1.0 million, a resolution of the Board of Directors set forth
in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (1) above and that such Affiliate
Transaction has been approved by a majority of the disinterested
members of the Board of Directors and
(b) with respect to any Affiliate Transaction involving
aggregate consideration in excess of $5.0 million, an opinion as
to the fairness to the Company or such Subsidiary of such
Affiliate Transaction from a financial point of view issued by an
independent accounting, appraisal or investment banking firm of
national standing;
PROVIDED that the following will not be deemed to be Affiliate Transactions:
(a) any employment-related agreement (including noncompetition and
confidentiality agreements) entered into by the Company or any of its
Subsidiaries in the ordinary course of business and consistent with the
past practice of the Company or such Subsidiary;
(b) transactions between or among the Company and/or its Wholly
Owned Subsidiaries;
(c) dividends by the Company or one of its Subsidiaries permitted
by the covenant entitled "Restricted Payments;"
(d) reasonable fees and compensation paid to, and indemnity
provided on behalf of, officers, directors, employees, agents or
consultants of the Company or any of its Subsidiaries as determined in
good faith by the Board of Directors of the Company;
(e) any sale or other issuance of Equity Interests (other than
Disqualified Equity Interests) of the Company;
(f) tax sharing agreements with Holdings so long as any payments
made pursuant to such agreements are permitted by clause (9) of the
second paragraph of the covenant entitled "Restricted Payments;" and
(g) registration right under applicable securities laws under
agreements in effect on the Issue Date and reasonable similar agreements
entered into from time to time after the Issue Date.
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In addition to the aforementioned exceptions:
(x) any licensing agreement relating to intellectual property any
Restricted Payments (other than dividends) and Permitted Investments need
only satisfy the requirement of clauses (1) and (2)(a) above and
(y) payments by the Company or any Guarantor to Colony Capital, LLC
or any of its Affiliates as reimbursement for all reasonable
out-of-pocket expenses actually incurred in connection with its direct or
indirect ownership of the Company or its Restricted and Unrestricted
Subsidiaries or the management, operation, construction, and expansion of
the RIH Hotel need only satisfy the requirement of clause (1) above.
LIMITATIONS ON USE OF PROCEEDS
The Company and/or its Subsidiaries will deposit not less than $89.0
million of the net proceeds of the Offering into the Construction Disbursement
Account. The funds in the Construction Disbursement Account will be invested in
either:
(x) Government Securities having maturities of less than twelve
months or
(y) Cash Equivalents of the type described in clauses (1) and (2)
and, if limited to the investments described in clauses (1) and (2),
clause (6) of the definition thereof.
All funds in the Construction Disbursement Account will be disbursed only
in accordance with the Disbursement Agreement.
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, enter into any sale and leaseback transaction;
PROVIDED, HOWEVER, that the Company and its Subsidiaries may enter into a sale
and leaseback transaction if:
(1) the Company could have:
(a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction
under clause (1) of the first paragraph of the covenant entitled
"--Incurrence of Indebtedness and Issuance of Preferred Equity
Interests" and
(b) incurred a Lien to secure such Indebtedness pursuant to
the covenant entitled "--Limitation on Liens;"
(2) the gross cash proceeds of the sale and leaseback transaction
are at least equal to the Fair Market Value of the property that is the
subject of such sale and leaseback transaction; and
(3) the transfer of property in such sale and leaseback transaction
is permitted by, and the Company applies the proceeds of such transaction
in compliance with, the covenant entitled "--Asset Sales."
The Trustee will receive an Officer's Certificate from the Company with
respect to its satisfaction of the conditions set forth in (1), (2) and (3)
above.
LINE OF BUSINESS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, engage in any business or investment activities other
than a Permitted Business. Neither the Company nor any of its Subsidiaries may
conduct a Permitted Business in any gaming jurisdiction in which the Company or
such Subsidiary is not licensed on the Issue Date if the Holders of the notes
would be required to be licensed as a
107
result thereof; PROVIDED, HOWEVER, that the provisions described in this
sentence will not prohibit the Company or any of its Subsidiaries from
conducting a Permitted Business in any jurisdiction that does not require the
licensing or qualification of all the Holders, but reserves the discretionary
right to require the licensing or qualification of any Holder. The Company will
not, and will not permit any of its Subsidiaries to, engage in any business,
development or investment activity other than at the RIH Hotel or in
conjunction therewith until the Expansion Project is complete.
INSURANCE
The Indenture provides that until the notes have been paid in full, the
Company will, and will cause its Subsidiaries to, maintain insurance with
carriers against such risks and in such amounts as are customarily carried by
similar businesses with such deductibles, retentions, self-insured amounts
coinsurance provisions as are customarily carried by similar businesses of
similar size, including, without limitation, property and casualty. Customary
insurance coverage will be deemed to include, without limitation, the following:
(1) workers' compensation insurance to the extent required to
comply with all applicable state, territorial or United States laws and
regulations, or the laws and regulations of any other applicable
jurisdiction;
(2) comprehensive general liability insurance;
(3) umbrella or excess liability insurance providing excess
liability coverages over and above the foregoing underlying insurance
policies;
(4) business interruption insurance at all times, and
(5) property insurance protecting the property against losses or
damages as is customarily covered by an "all-risk" policy or a property
policy covering "special" causes or loss for a business of similar type
and size; PROVIDED, HOWEVER, that such insurance will provide coverage of
not less than the lesser of:
(a) 120% of the outstanding principal amount of the notes
plus accrued and unpaid interest or
(b) 100% of actual replacement value (as determined at each
policy renewal based on recognized means) of any improvements
customarily insured consistent with industry standards and, in
each case, with a deductible no greater than 2% or such greater
amount as is available on commercially reasonable terms (other
than earthquake or flood insurance, for which the deductible may
be up to 10% of such replacement value).
All insurance required by this covenant (except workers' compensation and
property insurance relating to property not constituting Collateral) will name
the Company and the Trustee as additional insureds or loss payees, as the case
may be, with losses in excess of $1.0 million payable jointly to the Company
and the Trustee (unless a Default or Event of Default has occurred and is then
continuing, in which case all losses are payable solely to the Trustee), with
no recourse against the Trustee for the payment of premiums, deductibles,
commissions or club calls, and for at least 30 days' notice of cancellation.
All such insurance policies will be issued by carriers having an A.M. Best &
Company, Inc. rating of A or higher and a financial size category of not less
than X or, if such carrier is not rated by A.M. Best & Company, Inc., having
the financial stability and size deemed appropriate by an opinion from a
reputable insurance broker. The Company will deliver to the Trustee on the
Issue Date and each anniversary thereafter a certificate of an insurance agent
describing the insurance policies obtained by the Company and its Subsidiaries,
together with an Officers' Certificate stating that such policies comply with
this covenant and the related applicable provisions of the Collateral Documents.
108
ADDITIONAL GUARANTEES
The Indenture provides that if the Company or any of its Subsidiaries
acquires or creates another Subsidiary after the date of the Indenture, then
that newly acquired or created Subsidiary must become a Guarantor and execute a
supplemental indenture and deliver an opinion of counsel to the Trustee within
five business days of the date on which it was acquired or created; PROVIDED
that:
(i) non-Wholly Owned Subsidiaries created or acquired in compliance
with the covenant entitled "Restricted Payments" and
(ii) Subsidiaries having property with a Fair Market Value of not
more than $25,000
shall not be required to be Guarantors.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the SEC, so long as any notes are outstanding, the Company will
furnish to the Trustee and all Holders of notes:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K
if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and, with respect to the annual information only, a report
thereon by the Company's and the Subsidiaries' certified independent
accountants and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if the Company were required to file such reports, in
each case
(x) prior to the consummation of the Exchange Offer, within
30 days following the time periods specified in the SEC's rules
and regulations and
(y) following the consummation of the Exchange Offer, within
the time periods specified in the SEC's rules and regulations.
In addition, following the consummation of the Exchange Offer, whether or
not required by the rules and regulations of the SEC, the Company and the
Guarantors will file a copy of all such information and reports with the SEC
for public availability within the time periods specified in the SEC's rules
and regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company and the Guarantors have agreed that, for so
long as any notes are not freely transferable under the Securities Act, they
will furnish to the Trustee, Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company will not, directly or indirectly,
in a single transaction or series of related transactions, consolidate or merge
with or into, or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of the property of the Company and its Subsidiaries
taken as a whole, in one or more related transactions, to another person unless:
(1) the Company is the surviving corporation, or the entity or the
person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made (such surviving
corporation, entity or transferee person, the "Surviving Entity"), is a
corporation, limited liability
109
company or partnership organized or existing under the laws of the United
States, any state thereof or the District of Columbia;
(2) the Surviving Entity assumes all the obligations of the Company
under the notes, the Indenture and the Collateral Documents pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee;
(3) the Surviving Entity causes such amendments, supplements or
other instruments to be filed and recorded in such jurisdictions as may
be required by applicable law to preserve and protect the Lien of the
Collateral Documents on the Collateral owned by or transferred to the
Surviving Entity, together with such financing statements as may be
required to perfect any security interests in such Collateral which may
be perfected by the filing of a financing statement under the Uniform
Commercial Code of the relevant states;
(4) the Collateral owned by or transferred to the Surviving Entity
shall:
(a) continue to constitute Collateral under the Indenture
and the Collateral Documents,
(b) be subject to the Lien in favor of the Trustee for the
benefit of the Holders of the notes, and
(c) not be subject to any Lien other than Permitted Liens;
(5) the property of the person which is merged or consolidated with
or into the Surviving Entity, to the extent that they are property of the
types which would constitute Collateral under the Collateral Documents,
shall be treated as After-Acquired Property and the Surviving Entity
shall take such action as may be reasonably necessary to cause such
property to be made subject to the Lien of the Collateral Documents in
the manner and to the extent required in the Indenture;
(6) immediately after giving PRO FORMA effect to such transaction,
no Default or Event of Default exists;
(7) the Company or the person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such
sale, assignment, transfer, lease, conveyance or other disposition will
have been made will, at the time of such transaction and after giving PRO
FORMA effect thereto as if such transaction had occurred at the beginning
of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the covenant "Incurrence of Indebtedness and Issuance of
Preferred Equity Interests;" PROVIDED that this clause (7) shall not be
applicable if the sole purpose of such transaction (as determined by the
Board of Directors of the Company evidenced by a Board Resolution) is to
change the state of incorporation of the Company and such person (if
other than the Company) is, prior to such transaction, a "shell" person
formed solely for the purpose of such transaction;
(8) immediately after such transaction, the Company or the
Surviving Entity, as applicable, holds all permits required for operation
of the business of, and such entity is controlled by a person or entity
(or has retained a person or entity which is) experienced in, operating
casino hotels or otherwise holds all permits (including those required
from Gaming Authorities) to operate its business; and
(9) the Company will have delivered to the Trustee an Officers'
Certificate and an opinion of counsel addressed to the Trustee, each
stating that such consolidation, merger, sale, assignment, transfer,
lease, conveyance or disposition and such supplemental indenture, if any,
comply with this Indenture and that such supplemental indenture is
enforceable.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the
property of the Company in accordance with the foregoing requirements, the
successor person formed by such consolidation or into which the Company is
merged or to
110
which such sale, assignment, transfer, lease, conveyance or other disposition
is made shall succeed to, and be substituted for, and may exercise every right
and power of the Company under the notes and the Indenture with the same effect
as if such successor or person had been named as the Company in the notes and
the Indenture, and, except in the case of a lease, the predecessor person shall
be relieved of all obligations and covenants under the notes and the Indenture
and the Collateral Documents.
In addition, the Indenture provides that no Guarantor may consolidate
with or merge with or into (whether or not such Guarantor is the surviving
person), another corporation or other person, whether or not affiliated with
such Guarantor, unless:
(1) the person formed by or surviving any such consolidation or
merger (if other than such Guarantor) assumes all the obligations of such
Guarantor under the notes, the Indenture, the Registration Rights
Agreement and the Collateral Documents pursuant to a supplemental
indenture and other agreements in form and substance reasonably
satisfactory to the Trustee;
(2) immediately after giving effect to such transaction, no Default
or Event of Default exists;
(3) the Company would be permitted, immediately after giving effect
to such transaction, to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant "Incurrence
of Indebtedness and Issuance of Preferred Equity Interests;"
(4) such transaction will not result in the loss or suspension or
material impairment of any material Gaming License;
(5) the Collateral owned by such Guarantor or surviving person, as
the case may be,
(a) shall be subject to a Lien in favor of the Trustee for
the benefit of the Holders of the notes; and
(b) shall not be subject to any Lien, other than Permitted
Liens; and
(6) the property of the person which is merged or consolidated with
or into such Guarantor, to the extent that they are property of the types
which would constitute Collateral under the Collateral Documents, shall
be treated as After-Acquired Property and such Guarantor or the surviving
person, as the case may be, shall take such actions as may be necessary
to cause such property to be made subject to the Lien of the Collateral
Documents in the manner and to the extent required by the Indenture;
PROVIDED that the provisions of clauses (1) and (3) above shall not apply to
the merger of two or more Guarantors with and into each other or the merger of
any Guarantor into the Company.
The Indenture provides that, except to the extent this "Merger,
Consolidation or Sale of Assets" covenant applies, in the event of:
(a) a sale or other disposition of all or substantially all of the
property of any Guarantor, by way of merger, consolidation or otherwise;
or
(b) a sale or other disposition of all of the Equity Interests of
any Guarantor, in each case to a person which is not the Company or a
Subsidiary or an Affiliate of the Company;
then such Guarantor (in the event of a sale or other disposition, by way of
such a merger, consolidation or otherwise, of all of the Equity Interests of
such Guarantor) or the person acquiring the property (in the event of a sale or
other disposition of all or substantially all of the property of such
Guarantor) will be released and relieved of any obligations under its
Guarantee, the Indenture and the Collateral Documents; PROVIDED that:
(1) the Net Proceeds of such sale or other disposition are applied
in accordance with the provisions of the Indenture described under
"--Asset Sales;" and
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(2) all obligations of such Guarantor under all of its guarantees
of, and under all of its pledges of property or other Liens which secure,
Indebtedness of the Company or any of its Subsidiaries, shall also
terminate.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the notes;
(2) default in payment when due of the principal of or premium, if
any, on the notes;
(3) (a) default in the payment of principal of, premium, if any,
and interest, or Liquidated Damages, if any, on notes required to be
purchased with respect to a Change of Control Offer, Asset Sale Offer or
Event of Loss Offer, when such payment would be due and payable under the
provisions of the Indenture; and
(b) failure to perform or comply with the provisions
described under the subclauses "--Certain Covenants--Merger,
Consolidation or Sale of Assets" or "--Certain
Covenants--Restricted Payments," but only if the failure under the
latter subclause is not able to be cured and is caused by a
Restricted Payment described in the first set of clauses (1)
through (3) of the first paragraph of the covenant entitled
"--Certain Covenants--Restricted Payments";
(4) failure by:
(a) the Company or any of the Guarantors for 45 days after
notice thereof given as described below to comply with any of the
other agreements in the Indenture, the notes or the Guarantees not
set forth in clause (3) above; or
(b) the Company or any of the Guarantors for 30 days after
notice thereof given as described below to comply with any of the
agreements in the Disbursement Agreement or any other Collateral
Document;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the Issue Date, which default:
(a) is caused by a failure to pay principal of such
Indebtedness at final maturity (a "Payment Default"), or
(b) results in the acceleration of such Indebtedness prior
to its final maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more;
(6) failure by the Company, any Guarantor or any of the Company's
Significant Subsidiaries to pay final judgments aggregating in excess of
$5.0 million, which judgments are not paid, discharged or stayed for a
period of 60 days (net of applicable insurance coverage which is
acknowledged in writing by the insurer);
(7) failure by the Company or any Guarantor for 60 days following
the notice thereof, to be in material compliance with any representation
or warranty in any material respect in the Collateral Documents or in any
certificates delivered in connection therewith, the repudiation by the
Company or any Guarantor of any of its obligations under the Collateral
Documents or the unenforceability or invalidity of the Collateral
Documents against the Company or any Guarantor for any reason;
112
(8) any revocation, suspension, expiration without any previous or
concurrent renewal, or loss of any Gaming License (other than a liquor
license) of the Company or any of its Subsidiaries (other than any
voluntary relinquishment of any such Gaming License if such
relinquishment, in the reasonable good faith judgment of the Board of
Directors of the Company, evidenced by a resolution of such Board, is
both desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and would not in any material respect
reasonably be expected to impair the Company's ability to pay principal
and interest on the notes or to materially impair the value of the
Collateral) that results in the cessation or suspension for a period of
more than 90 consecutive days of any material gaming operations of the
Company or any Subsidiary;
(9) the cessation or suspension of any material gaming operations
of the Company or any of its Subsidiaries, taken as a whole, for more
than 90 consecutive days (other than as a result of a casualty loss or if
the Company or one of its Subsidiaries has received the proceeds of its
business interruption insurance until such proceeds have been expended);
(10) except as permitted by the Indenture, any Guarantee is held in
any judicial proceeding to be unenforceable or invalid or ceases for any
reason to be in full force and effect or any Guarantor, or any person
acting on behalf of any Guarantor, denies or disaffirms its obligations
under its Guarantee; and
(11) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries or any group of
Subsidiaries that, taken together, would constitute a Significant
Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company or any Gaming Subsidiary,
all outstanding notes will become due and payable without further action or
notice. In addition to acceleration of the notes, if an Event of Default occurs
and is continuing, the Trustee will have the right to exercise remedies with
respect to the Collateral, such as foreclosure, as are available under the
Indenture, the Collateral Documents and at law. Holders of the notes may not
enforce the Indenture or the notes or exercise remedies with respect to the
Collateral except as expressly provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
notes may direct the Trustee in writing in its exercise of any trust or power.
The Trustee may withhold from Holders of the notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by written notice to the Trustee may on behalf of the Holders of
all of the notes waive any existing Default or Event of Default and its
consequences under the Indenture, the notes, the Guarantees and the Collateral
Documents, except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
The Company is required to deliver to the Trustee annually an Officer's
Certificate regarding compliance with the Indenture, and the Company is
required upon becoming aware of any Default or Event of Default, to deliver to
the Trustee a statement specifying such Default or Event of Default.
POSSESSION, USE AND RELEASE OF COLLATERAL
The Indenture provides that, unless an Event of Default shall have
occurred and be continuing, the Company and the Guarantors will have the right
to remain in possession and retain exclusive control of the Collateral (other
than any cash, securities, obligations and Cash Equivalents constituting part
of the Collateral and deposited with the Trustee and other than as set forth in
the Collateral Documents), to freely operate the Collateral and to collect,
invest and dispose of any income thereon.
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RELEASE OF COLLATERAL FROM LIEN OF COLLATERAL DOCUMENTS UPON SATISFACTION
OF CONDITIONS. The Company and the Guarantors, as the case may be, will have
the right to obtain a release of items of Collateral from the Lien of the
Collateral Documents (other than certain Trust Monies) (the "Released
Collateral") subject to a sale or disposition, and the Trustee will release the
Released Collateral (as defined below) from the Lien of the relevant Collateral
Document and reconvey the Released Collateral to the Company or any such
Guarantor upon compliance with the condition that the Company deliver to the
Trustee the following:
(a) a written notice from the Company requesting the release of
Released Collateral,
(i) specifically describing the proposed Released Collateral,
(ii) specifying the Fair Market Value of such Released
Collateral on a date within 60 days of such notice (the "Valuation
Date"),
(iii) stating that such Released Collateral is to be sold
and that the consideration to be received in respect of the
Released Collateral is at least equal to the Fair Market Value of
the Released Collateral and is also to be made Collateral subject
to the Collateral Documents,
(iv) stating that the release of such Released Collateral
will not impair the value of the remaining Collateral or interfere
with the Trustee's ability to realize such value and will not
impair the maintenance and operation of the remaining Collateral,
(v) confirming the sale of, or an agreement to sell, such
Released Collateral is a bona fide sale to a person that is not an
Affiliate to the Company or, in the event that such sale is to a
person that is an Affiliate, confirming that such sale is made in
compliance with the provisions set forth under "Certain
Covenants--Affiliate Transactions," and
(vi) certifying that if the sale of such Released Collateral
constitutes an Asset Sale, such Asset Sale complies with the terms
and conditions of the Indenture with respect thereto, including,
without limitation, the provisions set forth under "Certain
Conditions--Asset Sales;"
(b) an Officers' Certificate of the Company stating that:
(i) such sale covers only the Released Collateral or such
other assets subject to the sale or disposition,
(ii) all Net Proceeds, if any, from the sale of any of the
Released Collateral will be applied pursuant to the provisions of
the Indenture in respect of Asset Sales,
(iii) there is no Default or Event of Default in effect or
continuing on the date thereof or the Valuation Date,
(iv) the release of the Collateral will not result in a
Default or Event of Default under the Indenture, and
(v) all conditions precedent in the Indenture relating to
the release in question have been complied with; and
(c) all documentation required by the TIA, if any, prior to the
release of the Released Collateral by the Trustee and, in the event that
there is to be a substitution of property for the Released Collateral
subject to the Asset Sale, all documentation necessary to effect the
substitution of such new Collateral and to subject such new Collateral to
the Lien of the relevant Collateral Documents.
The Indenture provides that the Company and the Guarantors also shall be
entitled, subject to compliance with the conditions set forth therein, to
obtain the release of Collateral which has been taken by eminent domain,
condemnation or in similar circumstances.
The Indenture provides that the Company and the Guarantors shall be
entitled to obtain a full release of all of the Collateral following legal
defeasance or covenant defeasance of the Indenture as described below under
"--Legal Defeasance and Covenant Defeasance."
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The Indenture will provide that, upon the release of any Guarantor from
its obligations under the Indenture and its Guarantee as described in the last
paragraph under "--Guarantees," such Guarantor shall be entitled to obtain the
release of all of its Collateral.
UNCONDITIONAL RELEASE OF COLLATERAL FROM LIEN OF COLLATERAL
DOCUMENTS. Notwithstanding the provisions of "--Release of Collateral from
Lien of Collateral Documents Upon Satisfaction of Conditions" above, so long as
no Default or Event of Default shall have occurred and be continuing or would
result therefrom, the Company and the Guarantors may, among other things,
release from the Lien of the Collateral Documents (and upon the written request
of the Company, the Trustee will confirm in writing any such release) items of
Collateral without any consent by the Trustee, conduct ordinary course
activities with respect to Collateral, including:
(a) selling or otherwise disposing of, in any transaction or series
of related transactions, any property subject to the Lien of the
Collateral Documents which has become worn out, defective or obsolete or
is not used or useful in the operation of our business or that of any of
the Guarantors and which has an aggregate Fair Market Value of $100,000
or less except for such property that is sold or otherwise disposed of in
connection with the Energy Arrangement which may be sold without regard
to a maximum aggregate amount;
(b) selling or otherwise disposing of, in any transaction or series
of related transactions, any property (including the Warehouse Assets)
subject to the Lien of the Collateral Documents which has become worn out
or obsolete and which is replaced by property of substantially equivalent
or greater value which becomes subject to the Lien of the Collateral
Documents as After-Acquired Property;
(c) abandoning, terminating, canceling, releasing or making
alterations in or substitutions of any leases or contracts subject to the
Lien of the Indenture or any of the Collateral Documents;
(d) surrendering or modifying any franchise, license or permit
subject to the Lien of the Indenture or any of the Collateral Documents
which it may own or under which it may be operating;
(e) altering, repairing, replacing, changing the location or
position of and adding to its structures, machinery, systems, equipment,
fixtures and appurtenances;
(f) demolishing, dismantling, tearing down, scrapping or abandoning
any Collateral if, as conclusively determined (absent manifest error) by
the Board of Directors of the Company in its good faith opinion, such
demolition, dismantling, tearing down, scrapping or abandonment is in the
best interest of the Company;
(g) granting a nonexclusive license of any intellectual property;
and
(h) abandoning intellectual property which has become obsolete and
not used in the business.
USE OF TRUST MONIES
All Trust Monies (including, without limitation, all Net Proceeds and all
Net Loss Proceeds under the covenants entitled "Asset Sales" and "Events of
Loss" required to be deposited with the Trustee) shall be held by the Trustee
as a part of the Collateral securing the notes and, so long as no Event of
Default shall have occurred and be continuing, may either:
(1) be released as contemplated by "--Certain Covenants --Asset
Sales" if such Trust Monies represent Net Proceeds of Collateral in
respect of an Asset Sale; or
(2) at the written direction of the Company be applied by the
Trustee from time to time to the payment of interest on any Notes and to
the payment of the principal of, premium, if any, interest and Liquidated
Damages on any notes on any Interest Payment Date at maturity or upon
redemption or retirement, or to the purchase of notes upon tender or in
the open market or otherwise, in each case in compliance with the
Indenture.
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The Company may also withdraw Trust Monies constituting Net Loss Proceeds
to repair or replace the relevant Collateral or provide substitute Collateral,
subject to certain conditions set forth in the Indenture.
The Trustee shall be entitled to apply any Trust Monies to cure any Event
of Default. Trust Monies deposited with the Trustee shall be invested in Cash
Equivalents pursuant to the written direction of the Company and, so long as no
Default or Event of Default shall have occurred and be continuing, the Company
shall be entitled to be paid, free from the Lien of the Collateral Documents,
any interest or dividends accrued, earned or paid on such Cash Equivalents.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS,
MEMBERS, PARTNERS AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator,
member, partner or stockholder of the Company or any of its Subsidiaries, as
such, will have any liability for any obligations of the Company under the
notes, the Guarantees, the Indenture, the Registration Rights Agreement or the
Collateral Documents or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of notes by accepting a note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
SEC that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive payments
in respect of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on such notes when such payments are due from
the trust referred to below;
(2) the Company's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed,
lost or stolen notes and the maintenance of an office or agency for
payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company released with respect to certain covenants
that are described in the Indenture ("Covenant Defeasance") and thereafter any
failure or omission to comply or default in complying with such obligations
will not constitute a Default or Event of Default with respect to the notes.
In the event Covenant Defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "--Events of Default" will no longer constitute an Event of
Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(1) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest and Liquidated Damages, if any, on the outstanding
notes on the stated maturity or on the applicable redemption date, as the
case
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may be, and the Company must specify whether the notes are being defeased
to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Company will have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that:
(a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or
(b) since the Issue Date, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel will confirm that,
the Holders of the outstanding notes will not recognize income,
gain or loss for federal income tax purposes as a result of such
Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company will have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance
had not occurred;
(4) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company,
the Guarantors or any of the Company's Subsidiaries is a party or by
which the Company, the Guarantors or any of the Company's Subsidiaries is
bound;
(5) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 123rd day following the deposit, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(6) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company, and
(7) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel (subject to customary assumptions
and exceptions), each stating that all conditions precedent relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of
notes) as to all outstanding notes when either:
(1) all such notes theretofore authenticated and delivered (except
lost, stolen or destroyed notes which have been replaced or paid and
notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee
for cancellation; or
(2) (a) all such notes not theretofore delivered to the Trustee for
cancellation have or will (upon the mailing of a notice or notices
deposited with the Trustee together with irrevocable instructions to mail
such notice or notices to Holders of the notes) become due and payable
and the Company has irrevocably deposited or caused to be deposited with
the Trustee as trust funds in the trust for the purpose an amount of
money sufficient to pay and discharge the entire indebtedness on the
notes not
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theretofore delivered to the Trustee for cancellation, for principal,
premium, if any, and accrued interest to the date of such deposit;
(b) the Company has paid all sums payable by it under the
Indenture; and
(c) the Company has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of the notes at
maturity or the redemption date, as the case may be.
In addition, the Company must deliver to the Trustee an Officers' Certificate
and an opinion of counsel stating that all conditions precedent to satisfaction
and discharge have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the notes, the Guarantees, or the Collateral Documents may be amended or
supplemented with the consent of the Holders of at least a majority in
aggregate principal amount of the notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, notes), and any existing default or compliance with any
provision of the Indenture, the notes, the Guarantees, or the Collateral
Documents may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding notes (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may
not with respect to the notes held by a non-consenting holder:
(1) reduce the principal amount of notes whose Holders must consent
to an amendment, supplement or waiver of the Indenture, notes,
Guarantees, the Registration Rights Agreement or Collateral Documents;
(2) reduce the principal of or change the fixed maturity of any
note or alter the provisions with respect to the redemption of the notes
(other than the covenants described above under the captions "--Certain
Covenants--Change of Control," "--Certain Covenants--Asset Sales" or
"--Certain Covenants--Events of Loss");
(3) reduce the rate of or change the time for payment of interest
on any note;
(4) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest or Liquidated Damages on the notes
(except a rescission of acceleration of the notes by the Holders of at
least a majority in aggregate principal amount of the notes and a waiver
of the payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the
notes;
(6) make any change in the provisions of the Indenture, notes,
Guarantees or Collateral Documents relating to waivers of past Defaults
or the rights of Holders of notes to receive payments of principal of or
premium, if any, or interest or Liquidated Damages, if any, on the notes;
(7) waive a redemption payment with respect to any note (other than
a payment required by one of the covenants described above under the
caption "--Optional Redemption");
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(8) following an event or circumstance which may give rise to the
requirement to make an offer as required by the covenants described above
under the capitons "--Certain Covenants--Change of Control;" "--Certain
Covenants--Asset Sales;" or "--Certain Covenants--Events of Loss;" modify
the provisions of any such covenant (or related definition) in the
Indenture requiring the Company to make an offer to purchase in a manner
materially adverse to the Holders of notes affected thereby;
(9) release any Guarantor from any of its obligations under its
Guarantee or the Indenture, except in accordance with terms of the
Indenture; or
(10) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any Holder of
notes, the Company and the Trustee may, from time to time, amend or supplement
the Indenture, the notes, the Guarantees, the Registration Rights Agreement or
the Collateral Documents to:
(1) cure any ambiguity, defect or inconsistency;
(2) provide for uncertificated notes in addition to or in place of
certificated notes;
(3) comply with any rules of any depositary for the notes;
(4) provide for the assumption of the Company's or any Guarantor's
obligations to Holders of notes in the case of a merger or consolidation
or sale of all or substantially all of the Company's or any Guarantor's
property;
(5) make any change that would provide any additional benefit or
rights to the Holders or that does not adversely affect the rights of any
Holder;
(6) comply with requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the TIA; or
(7) provide for the release of a Guarantor pursuant to the terms of
the Indenture.
In addition to the foregoing and except as provided under "--Possession,
Use and Release of Collateral," no portion of the Collateral may be released
from the Lien of the Collateral Documents without the consent of the Holders of
at least 75% in aggregate principal amount of the then outstanding notes.
GAMING LAWS
Except as to banking or other licensed lending institutions and certain
institutional investors, RIH is required by the Casino Control Act to establish
by clear and convincing evidence the integrity of all financial backers,
investors, mortgagees and holders of notes or other evidence of indebtedness,
either in effect or proposed, which bear any relation to the RIH Hotel (the
"Financial Source Qualification Requirement"). The Casino Control Act defines a
"security" as any instrument evidencing a direct or indirect beneficial
ownership or creditor interest in a corporation including, but not limited to,
mortgagees, security agreements and notes. The Company is required by the
Casino Control Act to establish by clear and convincing evidence that holders,
direct or indirect and beneficial or otherwise, of its securities, including
the Holders of the notes, are financially stable, responsible, and possess good
character, honesty and integrity (the "Qualification Requirement"). However,
the Company is permitted by the Casino Control Act to seek, and the CCC has
historically granted, a waiver of the Qualification Requirement with respect to
any Holder of the notes whose beneficial interest or ownership of the notes
does not exceed 15% of the $180.0 million offering, assuming said Holder is not
significantly involved in the activities of RIH, does not have the ability to
control the Company or elect one or more directors of the Company, and there is
no showing of cause to believe that such holder may be found to be unqualified.
If the beneficial interest or ownership of any Holder of the notes exceeds 15%
of the $180.0 million offering, the Holder will be subject to the Qualification
Requirement. However, the Company is permitted to seek and the
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CCC has historically to granted a waiver of the Qualification Requirement if
such Holder (an "Institutional Holder") is any of the following:
. a retirement fund administered by a public agency for the exclusive
benefit of federal, state, or local public employees;
. an investment company registered under the Investment Company Act of
1940;
. a collective investment trust organized by banks under Part Nine of
the Rules of the Comptroller of the Currency;
. a closed end investment trust;
. a chartered or licensed life insurance company or property and
casualty insurance company;
. an investment advisor registered under The Investment Advisors Act of
1940; or
. such other person as the CCC may determine to be an institutional
investor.
In addition, there must be no showing of cause to believe that the
Institutional Holder may be found to be unqualified and the beneficial interest
or ownership of the notes by such Institutional Holder may not exceed the
lesser of 20% of the Company's outstanding debt or 50% of the $180.0 million
offering unless the NJCCC, for good cause shown, grants a petition approving a
higher percentage. Such Institutional Holder must, if requested, provide the
CCC with a certified statement that the notes are being purchased for
investment purposes only and the Holder has no intention of influencing or
affecting the affairs of the Company, RIH or any other holding or intermediary
company of RIH. Moreover, the Holder must also state that:
(a) if such Holder subsequently determines to influence or affect
the affairs of such persons, the Holder shall provide to the NJCCC, an
application for qualification before taking any action that may influence
or affect the affairs of such persons, and
(b) the Holder recognizes that it is subject to the jurisdiction of
the NJCCC.
If such waiver of the Qualification Requirement is obtained, the Holder
will also be exempt from the Financial Source Qualification Requirement.
Although the Institutional Holder who obtains a waiver will not be permitted to
influence or affect our affairs or the affairs of RIH or any holding or
intermediary company of RIH, the Institutional Holder will be permitted to vote
on matters put to the vote of the note holders as a class.
The Indenture provides that if the CCC requires that a Holder (whether
the record or beneficial owner) qualify under the Casino Control Act and if
such Holder does not so qualify, then such Holder must dispose of his interest
in the notes within 30 days after receipt of notice of such finding, or within
such earlier time as the CCC may require, or the Company may redeem such notes.
If any Holder is found unqualified by the CCC, it is unlawful for the Holder
(1) to receive any interest upon the notes,
(2) to exercise, directly or through any trustee or nominee, any
right conferred by the notes, or
(3) to receive any remuneration, in any form, from RIH (including
the Company, the Guarantors or the Trustee) for services rendered or
otherwise.
See "--Gaming Redemption."
The Indenture further requires the Trustee to request from DTC, a list of
participants and the extent of their participation in the issue to the NJCCC
(1) within 30 days of the consummation of the financing transaction
with the actual sale of the notes,
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(2) within 30 days of the completion of the Exchange Offer for the
notes,
(3) annually, within 10 days after the anniversary date of the
first interest payment on the notes, and
(4) any other time the NJCCC requests.
The Indenture also requires the Trustee to provide to such Gaming
Authorities copies of all written communications from the Trustee to the
Holders, notice of any default under the notes, certain other information
concerning the Trustee's enforcement of rights under the Indenture and other
matters respecting the security for the notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; HOWEVER, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue or resign.
The Holders of a majority in principal amount of the then outstanding
notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
will occur (which will not be cured or waived), the Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of notes, unless such Holder will have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense in writing.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"ADJUSTED CONSOLIDATED EBITDA" means, for any period, Consolidated EBITDA
for such period, plus the Released Amount for such period.
"AFFILIATE" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any person, will mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that, for
purposes of the covenant described under "--Certain Covenants--Affiliate
Transactions" only, beneficial ownership of 10% or more of the voting
securities of a person will be deemed to be control.
"AFTER-ACQUIRED PROPERTY" means any property (including Equity Interests)
relating to the RIH Hotel acquired after the Issue Date.
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"ASSET SALE" means any direct or indirect sale, conveyance, transfer,
lease or other disposition (including, without limitation, any merger,
consolidation or sale and leaseback transaction) to any person other than the
Company or a Subsidiary, in one transaction or a series of related
transactions, of:
(1) any Equity Interest of any Subsidiary (excluding minimum
issuances of directors' qualifying shares);
(2) the property of the Company or any of its Subsidiaries which
constitute substantially all of an operation unit or line of business of
the Company or any of its Subsidiaries; or
(3) any other property of the Company or any of its Subsidiaries
outside of the ordinary course of business;
PROVIDED that notwithstanding the foregoing, the term "Asset Sale" will not
include:
(a) the sale, lease, conveyance, disposition or other transfer of
all or substantially all of the property of the Company and its
Subsidiaries, as permitted pursuant to the covenant entitled "Merger,
Consolidation or Sale of Assets;"
(b) the sale or lease of equipment, inventory, accounts receivable
or other property in the ordinary course of business and to the extent
that such sales or leases are not part of the sale of the business in
which such equipment was used or in which such inventory or accounts
receivable arose;
(c) sales of property that has become worn out, obsolete or damaged
or otherwise unsuitable for use in connection with the business of the
Company or any Subsidiary;
(d) any transaction or series of related transactions involving
assets with a Fair Market Value not in excess of $100,000;
(e) the surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind;
(f) the grant in the ordinary course of business of any
non-exclusive license of patents, trademarks, registrations therefor and
other similar intellectual property;
(g) an exchange of Warehouse Assets for other warehouse assets,
provided that the Company effecting such exchange receives at least
substantially equivalent value (including Equity Interests in the person
owning such Warehouse Assets) in such exchange for the property disposed
of;
(h) the making of any Restricted Payments permitted by the covenant
described under "Restricted Payments" or the making of any Permitted
Investment; or
(i) any sale, conveyance, transfer, lease or other disposition
occasioned by an Event of Loss.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction, including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or
managers (or the equivalent governing body), or any authorized committee of the
Board of Directors or managers (or the equivalent governing body) of the
Company.
"BUSINESS DAY" means any day other than a Legal Holiday.
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"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CASH EQUIVALENTS" means:
(1) securities issued or directly and fully guaranteed or insured
by the United States or any agency or instrumentality thereof (PROVIDED
that the full faith and credit of the United States is pledged in support
thereof) having maturities not more than 12 months from the date of
acquisition;
(2) U.S. dollar denominated (or foreign currency fully hedged)
(a) time deposits, money-market deposits on accounts,
certificates of deposit, Eurodollar time deposits or Eurodollar
certificates of deposit and bankers' acceptance of
(i) any domestic commercial bank of recognized
standing having capital and surplus in excess of $500.0
million or
(ii) any domestic commercial bank whose short-term
commercial paper rating from S&P is at least A-1 or the
equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank being an "Approved
Lender"), in each case with maturities of not more than 12
months from the date of acquisition, and
(b) overnight bank deposits and federal funds transactions
with a bank meeting the qualifications specified in clauses (a)(i)
or (a)(ii) above;
(3) commercial paper and variable or fixed rate notes issued by any
Approved Lender (or by the parent company thereof) or any variable rate
notes issued by, or guaranteed by, any domestic corporation rated A-2 (or
the equivalent thereof) or better by S&P or P-2 (or the equivalent
thereof) or better by Moody's and maturing within 12 months of the date
of acquisition;
(4) repurchase agreements with a term of not more than 60 days with
a bank or trust company or recognized securities dealer having capital
and surplus in excess of $500.0 million for underlying securities of the
types described in subparagraphs (1), (2), or (3) above and having, on
the date of purchase thereof, a Fair Market Value of at least 100% of the
amount of repurchase obligations;
(5) investments in securities with maturities of 12 months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof; and
(6) interests in money market mutual funds at least 95% of the
property of which are of the types described in subparagraphs (1) through
(5) hereof, inclusive.
"CHANGE OF CONTROL" means such time as:
(1) a "person" or "group" (within the meaning of Sections 13(d) of
the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right
to acquire, whether such right is exercisable immediately or only after
the passage of time, other than any of the Permitted Holders, has become,
directly or indirectly, the "beneficial owner," of 35% or more of the
voting power of the Equity Interests of the Company, PROVIDED that the
Permitted Holders do not, directly or indirectly, beneficially own a
greater percentage of the voting power of the Equity Interests of the
Company; or
(2) during any period of two consecutive calendar years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election
by the Board of Directors of the Company or whose nomination for election
by the stockholders of the Company was approved by a vote of a majority
of the directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election was
previously so
123
approved) cease for any reason to constitute a majority of the directors
of the Company, as the case may be, then in office; or
(3) the adoption of a plan of liquidation or dissolution of the
Company.
"COLLATERAL" means, collectively, all of the property described in the
third paragraph under "Ranking and Security," together with all other property
that is from time to time subject to the Lien of the Collateral Documents.
"COLLATERAL ACCOUNT" means the collateral account established pursuant to
the Disbursement Agreement and the Indenture.
"COLLATERAL DOCUMENTS" means, collectively, the Mortgages, the Security
Agreement, the Disbursement Agreement and all other mortgages, deeds of trust,
pledge agreements, collateral assignments, security agreements, fiduciary
transfers, debentures, fiduciary assignments or other instruments evidencing or
creating any security interests in favor of the Trustee in all or any portion
of the Collateral, in each case, as amended, amended and restated, extended,
renewed, supplemented or otherwise modified from time to time, in accordance
with the terms thereof and the Indenture.
"CONSOLIDATED EBITDA" means, with respect to the Company for any period,
the sum of, without duplication:
(1) the Consolidated Net Income for such period; PLUS
(2) provision for taxes based on income or profits of the Company
and its Subsidiaries for such period, to the extent that such provision
for taxes was deducted in computing such Consolidated Net Income; PLUS
(3) consolidated interest expense of the Company and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net of the effect
of all payments made or received pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated
Net Income; PLUS
(4) consolidated depreciation, amortization (including amortization
of goodwill and other intangibles but excluding amortization of prepaid
cash expenses that were paid in a prior period) and other non-cash items
(excluding any such non-cash expense to the extent that it represents an
accrual of or reserve for cash items in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of the Company
and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; PLUS
(5) pre-opening costs incurred in connection with the Expansion
Project that are required by GAAP to be charged as an expense prior to or
upon opening, to the extent that such expenses were deducted in computing
such Consolidated Net Income; MINUS
(6) non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges
of, a Subsidiary of the Company will be added to Consolidated Net Income to
compute Consolidated EBITDA only to the extent (and in the same proportion)
that the Net Income of such Subsidiary was included in calculating the
Consolidated Net Income of the Company.
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"CONSOLIDATED NET INCOME" means, with respect to any person for any
period, the aggregate of the Net Income of the Company and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED that:
(1) the Net Income (but not loss) of any person that is not a
Subsidiary or that is accounted for by the equity method of accounting
will be included only to the extent of the amount of dividends or
distributions paid in cash to the Company or a Wholly Owned Subsidiary
thereof that is a Guarantor;
(2) the Net Income of any Subsidiary will be excluded to the extent
that the declaration or payment of dividends or similar distributions by
that Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been
obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Subsidiary or its
stockholders;
(3) the Net Income of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles
shall be excluded;
(5) any net gain or loss realized in connection with any Asset
Sale, or the disposition of any securities by the Company or any of its
Subsidiaries or the extinguishment of any Indebtedness of the Company or
any of its Subsidiaries shall be excluded; and
(6) any extraordinary gain or loss shall be excluded.
"CONSTRUCTION DISBURSEMENT BUDGET" means itemized schedules setting forth
on a line item basis all of the costs (including financing costs) estimated to
be incurred in connection with the financing, design, development, construction
and equipping of the Expansion Project, as such schedules are delivered to the
Disbursement Agent on the Issue Date as amended from time to time in accordance
with the terms of the Disbursement Agreement.
"CONTESTED COLLATERAL LIEN CONDITIONS" shall mean the following
conditions:
(1) any proceeding instituted contesting such Lien shall
conclusively operate to stay the sale or forfeiture of any portion of the
Collateral on account of such Lien;
(2) at the option and upon request of the Trustee, the Company or
any Guarantor, as applicable, shall maintain cash reserves in an amount
sufficient to pay and discharge such Lien and the Trustee's reasonable
estimate of all interest and penalties related thereto; and
(3) such Lien shall in all respects be subject and subordinate in
priority to the Lien and security interest created and evidenced by the
Collateral Documents, except if and to the extent that the law or
regulation creating, permitting or authorizing such Lien provides that
such Lien is or must be superior to the Lien and security interest
created and evidenced by the Collateral Documents.
"DEFAULT" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"DEPOSITARY" means, with respect to the notes issuable or issued in whole
or in part in global form, the person specified in the Indenture as the
Depositary with respect to the notes, until a successor will have been
appointed and become such Depositary pursuant to the applicable provision of
the Indenture, and, thereafter, "Depositary" will mean or include such
successor.
"DIRECTLY OR INDIRECTLY" when used in connection with a restriction
applicable to the Company or any Subsidiary shall not refer to any action taken
by an Unrestricted Subsidiary.
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"DISQUALIFIED EQUITY INTEREST" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable, at the option of the
holder thereof, in whole or in part, or exchangeable into Indebtedness on or
prior to 91 days after the maturity date of the notes; PROVIDED, HOWEVER, that
any Equity Interest that would not constitute Disqualified Equity Interests but
for provisions thereof giving holders thereof the right to require the issuer
to purchase or redeem such Equity Interests upon the occurrence of an "asset
sale" or "change of control" occurring prior to 91 days after the maturity date
of the notes shall not constitute Disqualified Equity Interests if:
(1) the "asset sale" or "change of control" provisions applicable to such
Equity Interest are not more favorable in any material respect (as to the
conditions giving rise to such obligation to purchase or redeem) to the holders
of such Equity Interests than the terms applicable to the notes and described
under the captions "--Certain Covenants--Change of Control" and "--Certain
Covenants--Asset Sales;" and
(2) any such requirement only becomes operative after compliance with
such terms applicable to the notes, including the purchase of any notes
tendered in respect of any Change of Control Offer or Asset Sale Offer, as the
case may be.
"EQUITY CONTRIBUTION" means the $25.0 million of proceeds to be received
from the sale of Equity Interests of Holdings on or prior to the Issue Date.
"EQUITY INTEREST" in any person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of
or interests in (however designated) corporate stock or other equity
participations, including membership interests and partnership interests,
whether general or limited, in such person, including any Preferred Equity
Interests and any right or interest which is classified as equity in accordance
with GAAP.
"EQUITY OFFERING" means an underwritten public offering pursuant to a
registration statement filed with the SEC in accordance with the Securities Act
of
(1) Equity Interests (other than Disqualified Equity Interests) of
the Company, or
(2) Equity Interests (other than Disqualified Equity Interests) of
the Company's parent or indirect parent corporation to the extent that
the cash proceeds therefrom are contributed to the equity capital of the
Company or are used to purchase Equity Interests (other than Disqualified
Equity Interests) of the Company.
"EVENT OF LOSS" means, with respect to any property, any
(1) loss, destruction or damage of such property,
(2) condemnation, seizure or taking by exercise of the power of
eminent domain or otherwise of such property, or confiscation of such
property or the requisition of the use of such property, or
(3) settlement in lieu of clause (2) above.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE OFFER" means the offer that may be made by the Company pursuant
to the Registration Rights Agreement to exchange Series B notes for Series A
notes issued in the Offering.
"EXISTING INDEBTEDNESS" means the Indebtedness of the Company and its
Subsidiaries in existence on the Issue Date, until such amounts are repaid.
126
"EXPANSION PROJECT" means the construction and expansion of the RIH Hotel
in accordance with the Plans (as defined in the Disbursement Agreement).
"FAIR MARKET VALUE" means, with respect to any property, the price (after
taking into account any liabilities relating to such property) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; PROVIDED, HOWEVER, that the Fair Market
Value of any such property shall be determined in each case by the Board of
Directors of the Company, or the Guarantor that is the owner of such property,
in good faith, which determination shall be conclusive absent manifest error,
and as evidenced by a resolution by the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee.
"FF&E" means machinery, furniture, fixtures or equipment used in the
ordinary course of business of the Company and its Subsidiaries.
"FF&E FINANCING" means the incurrence of Indebtedness, the proceeds of
which are utilized solely to finance the acquisition of (or entry into a
capital lease by the Company or one of its Subsidiaries with respect to) FF&E
in connection with the Expansion Project.
"FIXED CHARGES" means, with respect to the Company for any period, the
sum, without duplication, of:
(1) the consolidated interest expense incurred by such person and
its Subsidiaries for such period, whether paid or accrued, including,
without limitation, amortization of original issue discount, non-cash
interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to the
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and the net effect of all payments (if any) pursuant to
Hedging Obligations;
(2) the consolidated interest incurred by such person and its
Subsidiaries that was capitalized during such period;
(3) any interest expense on Indebtedness of another person that is
guaranteed by such person or one of its Subsidiaries or secured by a Lien
on property of such person or one of its Subsidiaries (whether or not
such guarantee or Lien is called upon);
(4) the product of
(a) all cash dividend payments (and non-cash dividend
payments in the case of a person that is a Subsidiary) on any
series of Preferred Equity Interests of such person payable to a
party other than the Company or a Wholly Owned Subsidiary, times
(b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such person,
expressed as a decimal, on a consolidated basis and in accordance
with GAAP; and
(5) the product of
(a) all dividend payments or accruals on any series of
Disqualified Equity Interests of such person payable to a party,
times
(b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such person,
expressed as a decimal, on a consolidated basis and in accordance
with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to the Company for any
period, the ratio of the Consolidated EBITDA of such person and its
Subsidiaries for such period to the Fixed Charges of such person
127
and its Subsidiaries for such period. In the event that the Company or any of
its Subsidiaries incurs, assumes, guarantees, defeases or redeems any
Indebtedness or issues, repurchases or redeems Preferred Equity Interests
subsequent to the commencement of the four-quarter reference period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be
calculated giving PRO FORMA effect to such incurrence, assumption, guarantee,
defeasance or redemption of Indebtedness, or such issuance or redemption of
Preferred Equity Interests (including a PRO FORMA application of the proceeds
of such Indebtedness or Preferred Equity Interests), as if the same had
occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the Company or any of its
Subsidiaries, including through mergers or consolidations and including
any related financing transactions, during the four- quarter reference
period or subsequent to such reference period and on or prior to the
Calculation Date will be deemed to have occurred on the first day of the
four-quarter reference period;
(2) the Consolidated EBITDA attributable to operations or
businesses disposed of prior to the Calculation Date will be excluded;
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, will be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the referent person or any of its Subsidiaries following
the Calculation Date;
(4) all PRO FORMA adjustments shall be made in accordance with and
to the extent they would be permitted by Regulation S-X of the SEC under
the Securities Act; and
(5) if any Indebtedness incurred bears a floating rate of interest
and is being given PRO FORMA effect, the interest rate on such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the rate for the entire period (taking into
account any agreement under which Hedging Obligations relating to
interest are outstanding applicable to such Indebtedness if such
agreement under which such Hedging Obligations are outstanding has a
remaining term at the date of determination in excess of 12 months).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"GAMING AUTHORITY" means the New Jersey Casino Control Commission, New
Jersey Division of Gaming Enforcement or any other governmental agency which
regulates gaming in a jurisdiction in which the Company or any of its
Subsidiaries conducts gaming activities.
"GAMING LAW" means any law relating to gaming or gaming activities
established by any Gaming Authority.
"GAMING LICENSES" means every material license, material franchise, or
other material authorization required to own, lease, operate or otherwise
conduct or manage gaming in any state or jurisdiction where the Company, RIH or
its Subsidiaries conduct business, and any applicable liquor licenses.
"GAMING SUBSIDIARY" means any Subsidiary that holds a License or is
otherwise involved in a material respect in the gaming business.
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"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for deposit or collection in the ordinary course of business and
indemnity obligations arising in favor of officers, directors or employees of
the guarantor under corporation statutes, charter and bylaw provisions or by
contract or under contracts entered into with suppliers and customers in the
ordinary course of business of the guarantor), direct or indirect, in any
manner (including, without limitation, letters of credit and reimbursement
agreements in respect thereof), of all or any part of any Indebtedness.
"GUARANTORS" means, collectively, RIH, New Pier Operating Company, Inc.,
a New Jersey corporation, and their respective successors and any other
Subsidiary that executes a Guarantee in accordance with the provisions of the
Indenture, and their respective successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any person, the obligations
of such person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements and
(2) other agreements or arrangements, in each case designed to
protect such person against fluctuations in interest rates, currency
rates and the prices of commodities actually at that time used in the
ordinary course of business of such person.
"HOLDER" means a person in whose name a note is registered on the
Registrar's books.
"HOLDINGS" means Colony RIH Holdings, Inc., a Delaware corporation.
"INDEBTEDNESS" means, with respect to any person, any indebtedness of
such person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of bankers' acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase
price of any property;
(6) representing any Hedging Obligations.
In addition, the term "Indebtedness" includes:
(1) all Indebtedness of others secured by a Lien on any property of
the specified person (whether or not such Indebtedness is assumed by the
specified person) (with the amount of such Indebtedness being deemed to
be the lesser of the Fair Market Value of such property and the amount of
the Indebtedness secured by such Lien);
(2) to the extent not otherwise included, the guarantee by the
specified person of any Indebtedness of any other person; and
(3) the liquidation preference and any mandatory redemption payment
obligations in respect of any Disqualified Equity Interests of the
Company or any Preferred Equity Interests of any Subsidiary.
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For purposes of computing the outstanding amount of Indebtedness,
(a) the amount of any Indebtedness in respect of any letter of
credit shall be equal to the undrawn amount of such letter of credit,
(b) the amount of any Indebtedness defeased in accordance with the
terms thereof shall be zero regardless of the amount of such Indebtedness
that would appear on a balance sheet prepared in accordance with GAAP, and
(c) the amount of any other Indebtedness shall be the outstanding
principal amount (or in the case of any discount Indebtedness the
accreted value) of such Indebtedness.
"INTEREST PAYMENT DATE" means each March 15 and September 15, commencing
September 15, 2002.
"INVENTORY" shall include all food, beverages, hotel operating supplies
(including linens), china, glassware, flatware, and silverware, tobacco,
property sold in retail shops, marketing gifts, fuel, uniforms, slot operating
parts, property (other than real property) held for sale or lease in the
ordinary course of business and items consumed in the business of the Company
and its Subsidiaries.
"INVESTMENTS" means, with respect to any person, all investments by such
person in other persons (including Affiliates) in the form of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any of its Subsidiaries sells or otherwise disposes of any
Equity Interests of any direct or indirect Subsidiary of the Company such that,
after giving effect to any such sale or disposition, such person is no longer a
Subsidiary of the Company, the Company will be deemed to have made an
Investment on the date of any such sale or disposition equal to the Fair Market
Value of the Company's Investments in such Subsidiary that were not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Certain Covenants--Restricted
Payments." The acquisition (other than pursuant to clause (2) of the second
paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments") by the Company or any of its Subsidiaries of
100% of the Equity Interests of an Acquired Person that holds an Investment in
a Subject Person. The amount of the Investment in the Subject Person shall be
deemed to be an Investment in the Subject Person (but without duplication of
the Investment in the Acquired Person) equal to that portion of the cost of the
Investment in the Acquired Person allocated between the Acquired Person and the
Subject Person by reference to their respective relative Fair Market Values.
The amount of any Investment shall be the original cost of such Investment,
plus the cost of all additions thereto, and minus the amount of any portion of
such Investment repaid to such person in cash as a repayment of principal or a
return of capital, as the case may be, but without any other adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"ISSUE DATE" means the date on which the notes are issued under the
Indenture.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest will accrue
for the intervening period.
"LIEN" means, with respect to any property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
property, whether or not filed, recorded or otherwise perfected under
applicable law (including, without limitation, any conditional sale or other
title retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or
130
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"LIQUIDATED DAMAGES" means all liquidated damages then owing pursuant to
the Registration Rights Agreement.
"LOSS" means any loss or damage to any property or any loss of any
property by means of any condemnation, eminent domain or similar proceeding.
"MOODY'S" means Moody's Investors Services, Inc. and its successors.
"NET INCOME" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP and before any reduction in
respect of dividends on Preferred Equity Interests.
"NET LOSS PROCEEDS" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Event of Loss, including,
without limitation, insurance proceeds from condemnation awards or damages
awarded by any judgment, net of the direct costs in recovery of such Net Loss
Proceeds (including, without limitation, legal, accounting, appraisal and
insurance adjuster fees and any relocation expenses incurred as a result
thereof), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the property that was the subject of such Event of Loss,
and any taxes attributable to such Event of Loss paid or payable as a result
thereof.
"NET PROCEEDS" means the aggregate cash proceeds received by the Company
or any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees and expenses, and sales and brokerage commissions)
and any relocation expenses incurred as a result thereof, taxes paid or payable
by the Company or any of its Subsidiaries as a result thereof (after taking
into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than the notes or the Guarantees) secured by a Lien on the property that
was the subject of such Asset Sale and any reserve for indemnifications or any
reserve for adjustment in respect of the sale price of such property
established in accordance with GAAP.
"OFFERING" means the offering of the original notes by the Company.
"OFFICER" means, with respect to any person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such person.
"OFFICERS' CERTIFICATE" means, with respect to any person, a certificate
signed by two Officers or by an Officer and an Assistant Secretary of such
person and otherwise complying with the applicable requirements of the
Indenture.
"OPTION PROPERTY" means those parcels of land identified as "Premises" in
that certain Option Agreement, dated April 25, 2001, by and between Colony RIH
Acquisitions, Inc. and Sun International North America, Inc.
"PERMITTED ACQUIRED INVESTMENTS" means any Investment by any Acquired
Person in another person (the "Subject Person") made prior to the time:
(1) the Acquired Person became a Subsidiary;
131
(2) the Acquired Person merged into or consolidated with a
Subsidiary; or
(3) another Subsidiary merged into or was consolidated with the
Acquired Person (in a transaction in which the Acquired Person became a
Subsidiary);
PROVIDED, that such Investment in the Subject Person was not made in
anticipation of any such transaction and was outstanding prior to such
transaction; PROVIDED, FURTHER, that the book value of such Investments
(excluding all Permitted Investments (other than those referred to in clause
(4) of the definition thereof)) do not exceed 5% of the consolidated assets (as
determined in accordance with GAAP) of the Acquired Person immediately prior to
the Acquired Person becoming a Restricted Subsidiary.
"PERMITTED BUSINESS" means the gaming business and other businesses
necessary for, incident to, connected with, arising out of, or developed or
operated to permit or facilitate the conduct or pursuit of the gaming business
(including developing and operating lodging facilities, restaurants, sports or
entertainment facilities, transportation services or other related activities
or enterprises and any additions or improvements thereto) and potential
opportunities in the gaming business.
"PERMITTED HOLDERS" means Colony Investors IV, L.P. and any Affiliates
thereof and Thomas J. Barrack, Jr., Nicholas L. Ribis, Colony RIH Voteco, LLC,
Colony GP IV, Inc., Colony Capital IV, L.P. and any investment fund,
partnership or other person sponsored by or formed at the direction of Colony
Capital LLC, a Delaware limited liability company, or any successor
organization (unless such investment fund, partnership or other person is not
managed by a person that is an Affiliate or Related Person of any of the
foregoing). As used herein, the term "RELATED PERSON" means:
(a) any controlling stockholder, 80% (or more) directly or
indirectly owned Subsidiary, or immediate family member (in the case of
an individual), of any Permitted Holder, or (b) any trust, corporation,
partnership or other entity if
(x) the beneficiaries, stockholders, partners, members, owners or
other persons beneficially owning (as defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act) in the aggregate 80% or more of the voting
stock of such trust, corporation, partnership or entity consist of any
one or more Permitted Holders or such other Permitted Holders referred to
in clause (a), or
(y) a general partner or managing member or person otherwise
controlling or having the power to direct or cause the direction of the
management and policies of such trust, corporation, partnership or entity
is any one or more of the Permitted Holders or such other persons
referred to in clause (a).
"PERMITTED INDEBTEDNESS" means, without duplication, each of the
following:
(1) the incurrence by the Company or any Guarantor of Indebtedness
under any Revolving Credit Facility in an aggregate principal amount at
any time outstanding not to exceed an amount equal to $10.0 million;
(2) Existing Indebtedness;
(3) Indebtedness represented by the notes and the Guarantees and
Indebtedness incurred to effect a Legal Defeasance or Covenant Defeasance
in compliance with the provisions of the Indenture;
(4) the incurrence by the Company or any of the Guarantors of FF&E
Financing; PROVIDED, HOWEVER, that,
(a) the principal amount of such Indebtedness does not
exceed the cost (including sales and excise taxes, installation
and delivery charges and other direct costs of, and other direct
expenses paid or charged in connection with, such purchase) of the
FF&E purchased or leased with the proceeds thereof,
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(b) no Indebtedness incurred under the notes is utilized for
the purchase or lease of such FF&E, and
(c) the aggregate principal amount of such Indebtedness,
including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to
this clause, does not exceed $15.0 million outstanding at any time;
(5) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations or Purchase Money
Obligations other than in respect of the FF&E Financing, in each case
incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property used in the
business of the Company or such Subsidiary, in an aggregate principal
amount not to exceed $5.0 million at any time outstanding;
(6) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease,
repurchase or retire or refund, Indebtedness that was permitted by the
Indenture to be incurred;
(7) the incurrence by the Company or any of the Guarantors of
intercompany Indebtedness between the Company and any of the Guarantors
or between or among any Wholly Owned Subsidiaries; PROVIDED, HOWEVER,
that,
(a) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a person other
than the Company or a Wholly Owned Subsidiary, and
(b) any sale or other transfer of any such Indebtedness to a
person that is neither the Company nor a Wholly Owned Subsidiary
will be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Subsidiary, as the case may be, not
permitted pursuant to this clause (7);
(8) the incurrence by the Company or any of the Guarantors of
Hedging Obligations;
(9) Indebtedness of the Company or any of the Guarantors solely in
respect of bankers' acceptances, letters of credit and performance bonds
or similar arrangements, all in the ordinary course of business;
(10) the incurrence by the Company or any Guarantor of Indebtedness
represented by Capital Lease Obligations or Purchase Money Obligations
incurred for the purpose of financing all or any part of the purchase
price of the Option Property, in an aggregate principal amount not to
exceed the lesser of $30.0 million at any time outstanding or 80% of the
Fair Market Value of the Option Property as determined by an independent
appraisal firm of national standing;
(11) guarantees by Company or any of its Subsidiaries of
Indebtedness of the Company or a Guarantor otherwise permitted to be
incurred under the Indenture; PROVIDED that such person would have been
itself permitted to incur the Indebtedness; and
(12) the incurrence by the Company or any Guarantor of Indebtedness
represented by Capital Lease Obligations incurred for the purpose of
financing all or a portion of the Energy Arrangement in an aggregate
principal amount not to exceed $10.0 million.
Notwithstanding any other provision of this definition, Indebtedness or
Preferred Equity Interests of any person which is outstanding at the time such
person becomes a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company shall be deemed to
have been incurred at the time such person becomes such a Subsidiary of the
Company or is merged with or into or consolidated with the Company or a
Subsidiary of the Company, as applicable.
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For purposes of determining compliance with the "Incurrence of
Indebtedness and Issuance of Preferred Equity Interests" covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (1) through (12)
above or is entitled to be incurred pursuant to the Fixed Charge Coverage Ratio
provisions of such covenant, the Company shall, in its sole discretion,
classify such item of Indebtedness in any manner that complies with such
covenant. Accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms, and the payment of dividends on Disqualified
Equity Interests in the form of additional shares of the same class of
Disqualified Equity Interests will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Equity Interests for purposes of
the "Incurrence of Indebtedness and Issuance of Preferred Equity Interests"
covenant.
"PERMITTED INVESTMENTS" means:
(1) any Investments in the Company or in a Wholly Owned Subsidiary
of the Company that is a Guarantor and that is engaged in the same or a
similar line of business as the Company and its Subsidiaries were engaged
in on the Issue Date and reasonable extensions or expansions thereof;
(2) any Investments in cash and Cash Equivalents;
(3) Investments by the Company or any Subsidiary of the Company in
a person (such person, an "Acquired Person") if as a result of such
Investment:
(a) such person becomes a Wholly Owned Subsidiary of the
Company that is a Guarantor and that is engaged in the same or a
similar line of business as the Company and its Subsidiaries were
engaged in on the Issue Date and reasonable extensions or
expansions thereof, or
(b) such person is merged or consolidated with or into, or
transfers or conveys substantially all of its property to, or is
liquidated into, the Company or a Wholly Owned Subsidiary of the
Company that is a Guarantor and that is engaged in the same or a
similar line of business as the Company and its Subsidiaries were
engaged in on the Issue Date and reasonable extensions or
expansions thereof;
(4) Permitted Acquired Investments;
(5) Investments made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant entitled "Asset Sales;"
(6) loans or advances to officers and employees of the Company or
any Subsidiary in an aggregate amount not exceeding $250,000 at any one
time outstanding;
(7) Investments in the form of intercompany Indebtedness to the
extent permitted under the covenant entitled "Incurrence of Indebtedness
and Issuance of Preferred Equity Interests;"
(8) Hedging Obligations, PROVIDED that such Hedging Obligations
constitute Indebtedness permitted by the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Equity Interests;"
(9) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, suppliers and customers, in each
case arising in the ordinary course of business;
(10) Investments consisting of:
(a) Receivables created or acquired in the ordinary course
of business and payable or dischargeable in accordance with
customary terms,
(b) endorsements of negotiable instruments for collection in
the ordinary course of business and
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(c) lease, utility and other similar deposits in the
ordinary course of business;
(11) Investments in persons to the extent such entities are created
to hold the Warehouse Assets (or such property exchanged therefor) and
Investments in Wholly Owned Subsidiaries or other persons acquired in
connection with the exchange of Warehouse Assets for other warehouse
assets and related property but only so long as relating to Warehouse
Assets and related property;
(12) Investments required to be made in order to comply with the
rules and regulations of Gaming Authorities and/or Gaming Laws,
including, but not limited to, Investments made by RIH in connection with
its annual investment alternative tax obligation; and
(13) Investments in any of the notes, so long as such Investment
does not cause any Holder to own more 15% of the aggregate principal
amount of the notes outstanding.
"PERMITTED LIENS" means:
(1) inchoate Liens for taxes, assessments or governmental charges
or levies not yet due and payable or delinquent and Liens for taxes,
assessments or governmental charges or levies, which
(i) are being contested in good faith by appropriate
proceedings for which adequate reserves have been established in
accordance with GAAP, which proceedings (or orders entered in
connection with such proceedings) have the effect of preventing
the forfeiture or sale of the property subject to any such Lien, or
(ii) in the case of any such charge or claim which has or
may become a Lien against any of the Collateral, such Lien and the
contest thereof shall satisfy the Contested Collateral Lien
Conditions;
(2) Liens in respect of property of the Company or any Subsidiary
imposed by law, which were incurred in the ordinary course of business
and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's, landlord's and mechanics' liens and other
similar Liens arising in the ordinary course of business, and
(i) which do not in the aggregate materially detract from
the value of the property of the Company and its Subsidiaries,
taken as a whole, and do not materially impair the use thereof in
the operation of the business of the Company and its Subsidiaries,
taken as a whole,
(ii) which are being contested in good faith by appropriate
proceedings for which adequate reserves have been established in
accordance with GAAP, which proceedings (or orders entered in
connection with such proceedings) have the effect of preventing
the forfeiture or sale of the property subject to any such Lien,
and
(iii) in the case of any such Lien which has or may become a
Lien against any of the Collateral, such Lien and the contest
thereof shall satisfy the Contested Collateral Lien Conditions;
(3) Liens existing on the Issue Date to the extent identified in
the Collateral Documents;
(4) easements, rights-of-way, restrictions (including zoning
restrictions), covenants, encroachments, protrusions and other similar
charges or encumbrances, and minor title deficiencies on or with respect
to any Real Property, in each case whether now or hereafter in existence,
not
(i) securing Indebtedness,
(ii) individually or in the aggregate materially impairing
the value or marketability of such Real Property and
(iii) individually or in the aggregate materially
interfering with the conduct of the business of the Company or any
Subsidiary at such Real Property;
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(5) Liens on property arising out of judgments or awards not
resulting in a Default and in respect of which the Company or any
Subsidiary shall in good faith be prosecuting an appeal or proceedings
for review in respect of which there shall be secured a subsisting stay
of execution pending such appeal or proceedings;
(6) Liens (other than any Lien imposed by the United States
Employee Retirement Income Security Act of 1974, as amended)
(i) imposed by law or deposits made in connection therewith
in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social
security or public utility obligations,
(ii) incurred in the ordinary course of business to secure
the performance of tenders, statutory obligations (other than
excise taxes), surety, stay, customs and appeal bonds, statutory
bonds, bids, leases, government contracts, trade contracts,
performance and return of money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed
money) or
(iii) arising by virtue of deposits made in the ordinary
course of business to secure liability for premiums to insurance
carriers; PROVIDED that
(x) with respect to clauses (i), (ii) and (iii)
hereof, such Liens are amounts not yet due and payable or
delinquent or, to the extent such amounts are so due and
payable, such amounts are being contested in good faith by
appropriate proceedings for which adequate reserves have
been established in accordance with GAAP, which proceedings
or orders entered in connection with such proceedings have
the effect of preventing the forfeiture or sale of the
property subject to any such Lien,
(y) to the extent such Liens are not imposed by law,
such Liens shall in no event encumber any property other
than cash and Cash Equivalents, and
(z) in the case of any such Lien against any of the
Collateral, such Lien and the contest thereof shall satisfy
the Contested Collateral Lien Conditions;
(7) leases, subleases, franchise agreements, licenses, occupancy or
concession agreements with respect to the properties of the Company or
any Subsidiary, in each case entered into in the ordinary course of the
Company's or any Subsidiary's business, so long as such leases,
subleases, franchise agreements, licenses, occupancy or concession
agreements are subordinate in all respects to the Liens granted and
evidenced by the Collateral Documents and do not, individually or in the
aggregate, interfere in any material respect with the ordinary conduct of
the business of the Company or any Subsidiary and materially impair the
use (for its intended purposes) or the value of the property subject
thereto;
(8) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
the Company or any Subsidiary in the ordinary course of business in
accordance with the past practices of the Company or any Subsidiary;
(9) Liens arising pursuant to Purchase Money Obligations or Capital
Lease Obligations incurred pursuant to clauses (4), (5), (10) and (12) of
the definition of "Permitted Indebtedness;" PROVIDED that
(i) the Indebtedness secured by any such Lien (including
refinancings thereof) does not exceed 100% of the cost of the
property being acquired or leased at the time of the incurrence of
such Indebtedness, and
(ii) any such Liens attach only to the property being
financed pursuant to such Purchase Money Obligations or Capital
Lease Obligations and do not encumber any other property of the
Company or any Subsidiary (it being understood that all
Indebtedness to a single lender shall be considered to be a single
Purchase Money Obligation, whether drawn at one time or from time
to time);
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(10) bankers' Liens, rights of setoff and other similar Liens
existing solely with respect to cash and Cash Equivalents not
constituting Collateral on deposit in one or more accounts maintained by
the Company or any Subsidiary, in each case granted in the ordinary
course of business in favor of the bank or banks with which such accounts
are maintained, securing amounts owing to such bank with respect to cash
management and operating account arrangements, including those involving
pooled accounts and netting arrangements; PROVIDED that in no case shall
any such Liens secure (either directly or indirectly) the repayment of
any Indebtedness;
(11) Liens securing obligations under the Indenture, the notes, the
Guarantees and the Collateral Documents;
(12) licenses of the patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade
names, copyrights, trade secrets, know-how and processes, granted by the
Company or any Subsidiary in the ordinary course of business and not
interfering in any material respect with the ordinary conduct of the
business of the Company or any Subsidiary;
(13) Liens arising under applicable Gaming Laws, PROVIDED that no
such Lien constitutes a Lien securing repayment of Indebtedness;
(14) Liens on property of a person at the time the person becomes a
Subsidiary; PROVIDED that:
(i) any Indebtedness that is secured by such Liens is
permitted to be incurred pursuant to the covenant "Incurrence of
Indebtedness and Issuance of Preferred Equity Interests," and
(ii) such Liens are not incurred in connection with, or in
contemplation or anticipation of, the acquisition of such person
and do not attach to any other property of the Company or any of
its Subsidiaries;
(15) Liens on property not constituting Collateral securing
unsubordinated Indebtedness (other than Permitted Indebtedness but
including Permitted Indebtedness specified in clause (1) and, to the
extent related thereto, clause (6) of the definition of "Permitted
Indebtedness") permitted to be incurred pursuant to the covenant
"Incurrence of Indebtedness and Issuance of Preferred Equity Interests";
and
(16) maintenance, operation, servicing and improvement licenses
relating to the Energy Arrangement;
PROVIDED, HOWEVER, that no Liens shall be permitted to exist, directly or
indirectly, on any Securities Collateral (as defined in the Security Agreement)
constituting Collateral.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness and
Disqualified Equity Interests of the Company or any Indebtedness of its
Subsidiaries issued in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund, Indebtedness of the
Company or any of its Subsidiaries incurred pursuant to the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Equity Interests"
(excluding Permitted Indebtedness other than Permitted Indebtedness set forth
in clauses (2), (3) or (10) of the definition thereof); PROVIDED that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if applicable) of the Indebtedness or the liquidation
preference of the Disqualified Equity Interest so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of premium, if
any, and reasonable expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;
137
(3) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of
payment to, the notes on terms at least as favorable to the Holders of
notes as those contained in the documentation governing the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness or Disqualified Equity Interest is incurred
either by the Company or by the Subsidiary that is the obligor on the
Indebtedness or Disqualified Equity Interest being extended, refinanced,
renewed, replaced, defeased or refunded;
PROVIDED, that Preferred Equity Interests may only be refinanced with other
Preferred Equity Interests.
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the property of any such entity, subdivision or business).
"PLANS" shall have the meaning assigned to such term in the Disbursement
Agreement.
"PREFERRED EQUITY INTEREST," in any person, means an Equity Interest of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of property upon any
voluntary or involuntary liquidation or dissolution of such person, over Equity
Interests of any other class in such person.
"PROPERTY" shall mean any right, title or interest in or to property or
assets of any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible and including all contract rights, Real Property
interests, trademarks, trade names, equipment and proceeds of the foregoing and
Equity Interests or other ownership interests of any person.
"PURCHASE MONEY OBLIGATIONS" of any person means any obligations of such
person to any seller or any other person incurred or assumed to finance the
purchase, or the cost of construction or improvement, of real or personal
property to be used in the business of such person or any of its Subsidiaries
in an amount that is not more than 100% of the cost, or Fair Market Value, as
appropriate, of such property, and incurred within 135 days after the date of
such acquisition (excluding accounts payable to trade creditors incurred in the
ordinary course of business).
"REAL PROPERTY" shall mean all right, title and interest of the Company
or any Subsidiary (including, without limitation, any leasehold estate) in and
to a parcel of real property owned or operated by the Company or any
Subsidiary, whether by lease, license or other use or occupancy agreement,
together with, in each case, all improvements and appurtenant fixtures,
equipment, personal property, easements and other property and rights
incidental to the ownership, lease or operation thereof or thereon.
"RECEIVABLES" shall include all receivables, including all casino
receivables (markers, instruments, notes and checks) both undeposited and
returned, hotel receivables, credit card receivables, interest receivable
including interest on CRDA investments, and progressive jackpot receivables
(wide area progressives or multiple casinos linked progressives).
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the Issue Date, by and among the Company and the other parties
named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.
"RESTRICTED SUBSIDIARY" means any Subsidiary other than the Unrestricted
Subsidiaries.
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"REVOLVING CREDIT FACILITY" means one or more revolving lines of credit
providing for working capital and other ordinary course financing.
"RIH" means Resorts International Hotel, Inc., a New Jersey corporation.
"RIH HOTEL" means the Resorts Atlantic City hotel and casino and the
related parking facilities (other than any facility located on the Option
Property) located at 1133 Boardwalk, Atlantic City, New Jersey 08401 and shall,
upon completion thereof, include the Expansion Project.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY AGREEMENT" means the Security Agreement, dated as of the Issue
Date, by and among the Company and the other parties named on the signature
pages thereof, as such agreement may be amended, modified or supplemented from
time to time.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"significant subsidiary" as defined in Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"SUBSIDIARY" means, with respect to any person,
(1) any corporation, limited liability company, association or
other business entity of which more than 50% of the total voting power of
shares of Equity Interests entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by such person or one or more of the other Subsidiaries of
such person (or a combination thereof) and
(2) any partnership
(a) the sole general partner or the managing general partner
of which is such person or a Subsidiary of such person or
(b) the only general partners of which are such person or
one or more Subsidiaries of such person (or any combination
thereof).
Unrestricted Subsidiaries will not be included in the definition of
"Subsidiary" for any purposes of the Indenture (except, as the context may
otherwise require, for purposes of the definition of "Unrestricted Subsidiary").
"S&P" means Standard & Poor's Financial Information Services and its
successors.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which the Indenture is qualified
under the TIA.
"TRUST MONIES" means all cash and Cash Equivalents received by the
Trustee:
(1) upon the release of Collateral from the Lien of the Indenture
or the Collateral Documents, including all Net Proceeds and Net Loss
Proceeds in respect of Collateral;
(2) together with any Government Securities held in the
Disbursement Accounts pursuant to the Disbursement Agreement;
(3) pursuant to the Collateral Documents or the Indenture; or
139
(4) as proceeds of any sale or other disposition of all or any part
of the Collateral by or on behalf of the Trustee or any collection,
recovery, receipt, appropriation or other realization of or from all or
any part of the Collateral pursuant to the Indenture or any of the
Collateral Documents or otherwise;
PROVIDED, HOWEVER, that Trust Monies shall in no event include any property
deposited with the Trustee for any redemption, legal defeasance or covenant
defeasance of notes, for the satisfaction and discharge of the Indenture or to
pay the purchase price of notes pursuant to a Change of Control Offer, Asset
Sale Offer or Event of Loss Offer.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company (other than
the Subsidiaries operating the RIH Hotel) that is designated by the Board of
Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but
only to the extent that such Subsidiary on the date of Designation:
(1) has no Indebtedness other than Indebtedness for which neither
the Company nor any other Subsidiary is liable nor has guaranteed or
otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Subsidiaries except:
(a) Indebtedness which will either be repaid on the date of
Designation,
(b) Indebtedness consisting solely of a pledge of the Equity
Interests of the Unrestricted Subsidiary which pledge is recourse
solely to the pledged Equity Interests and
(c) Indebtedness which is permitted as a Restricted Payment
or Permitted Investment; and
(2) is not party to any agreement, contract, arrangement or
understanding with the Company or any Subsidiary of the Company unless
the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Subsidiary than those that
might be obtained at the time from persons who are not Affiliates of the
Company.
Any such Designation by the Board of Directors will be evidenced to the Trustee
by filing with the Trustee a certified copy of the Board Resolution giving
effect to such Designation and an Officers' Certificate certifying that such
Designation complied with the foregoing conditions and was permitted by the
covenant entitled "--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary will be
deemed to be incurred by a Subsidiary of the Company as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Equity
Interests," the Company will be in default of such covenant). The Board of
Directors may at any time designate any Unrestricted Subsidiary to be a
Subsidiary; PROVIDED that such Designation will be deemed to be an incurrence
of Indebtedness by a Subsidiary of the Company of any outstanding Indebtedness
of such Unrestricted Subsidiary and such Designation will only be permitted if:
(a) such Indebtedness is permitted under the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Equity Interests,"
and
(b) no Default or Event of Default would be in existence following
such Designation.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking
fund, serial maturity or other required payment of principal,
including payment at final maturity, in respect thereof, by
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(b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of
such payment, by
(2) the then outstanding principal amount of such Indebtedness.
"WAREHOUSE ASSETS" shall mean all right, title and interest of the
Company in and to the parcels of land located at 117 N. Delaware, Atlantic
City, New Jersey, 122 N. New Jersey Ave., Atlantic City, New Jersey and 113-15
N. Delaware Ave., Atlantic City, New Jersey, together with all existing strips,
gores, easements, rights-of-way, privileges, appurtenances, development rights
and other rights pertaining thereto and located thereon.
"WHOLLY OWNED SUBSIDIARY" of any person means a Subsidiary of such person
all of the outstanding Equity Interests or other ownership interests of which
(other than directors' qualifying shares) will at the time be owned by such
person or by one or more Wholly Owned Subsidiaries of such person. Unrestricted
Subsidiaries will not be included in the definition of "Wholly Owned
Subsidiary" for any purposes of the Indenture (except, as the context may
otherwise require, for purposes of the definition of "Unrestricted Subsidiary").
DESCRIPTION OF BOOK-ENTRY SYSTEM
FORM OF NOTES
Except as described in the next paragraph, the exchange notes initially
will be represented by one or more global certificates in definitive fully
registered book-entry form, or the Global Notes. The Global Notes will be
deposited upon issuance with, or on behalf of, The Depository Trust Company,
New York, New York, or DTC, and registered in the name of a nominee of DTC.
THE GLOBAL NOTES
We expect that pursuant to procedures established by DTC:
. upon the issuance of the Global Notes, DTC or its custodian will
credit, on its internal system, the principal amount of notes of the
individual beneficial interests represented by such global securities
to the respective accounts of persons who have accounts with such
depository; and
. ownership of beneficial interests in the Global Notes will be shown
on, and the transfer of such ownership will be effected only through,
records maintained by DTC or its nominee (with respect to interests
of participants) and the records of participants (with respect to
interests of persons other than participants).
Ownership of beneficial interests in the Global Notes will be limited to
persons who have accounts with DTC, or participants, or persons who hold
interests through participants.
So long as DTC, or its nominee, is the registered owner or holder of the
notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the notes represented by such Global Notes for all purposes
under the indenture governing the notes. No beneficial owner of an interest in
any of the Global Notes will be able to transfer that interest except in
accordance with DTC's procedures, in addition to those provided for under the
indenture with respect to the notes.
Payments of the principal of, premium (if any) and interest on the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of us, the Trustee or any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment of
principal, premium (if any) or interest (including Liquidated Damages, if any)
in respect of the Global Notes, will credit participants' accounts
141
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of the Global Notes as shown on the records of DTC or
its nominee. We also expect that payments by participants to owners of
beneficial interests in the Global Notes held through such participants will be
governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules and will be settled in clearinghouse funds. If
a holder requires physical delivery of a Certificated Security for any reason,
including to sell notes to persons in states which require physical delivery of
the notes, or to pledge such securities, such holder must transfer its interest
in the Global Notes in accordance with the normal procedures of DTC and the
procedures set forth in the indenture governing the notes.
DTC has advised us that it will take action permitted to be taken by a
holder of notes (including the presentation of notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in the Global Notes are credited and only in respect of such
portion of the aggregate principal amount of notes as to which such participant
or participants has or have given such direction. However, if there is an event
of default under the indenture governing the notes, DTC will exchange the
Global Notes for Certificated Securities, which it will distribute to its
participants.
DTC has advised us as follows: DTC is a:
(1) limited purpose trust company organized under the laws of the
State of New York,
(2) a banking organization within the meaning of the New York
Banking Law,
(3) a member of the Federal Reserve System,
(4) a "clearing corporation" within the meaning of the Uniform
Commercial Code and
(5) a "Clearing Agency" registered pursuant to the provisions of
17A of the Securities Exchange Act of 1934.
DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and other organizations. Indirect access to the DTC system is
available to others, such as banks, brokers, dealers and trust companies, that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly, or indirect participants.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of DTC,
it is under no obligation to perform such procedures, and such procedures may
be discontinued at any time. Neither the Trustee nor we will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED NOTES
The Global Notes will be exchanged for notes of like tenor and an equal
aggregate principal amount, in authorized denominations and in definitive form,
a Certificate Note, if
(1) DTC notifies us that it is unwilling or unable to continue as
Depositary or we determine that DTC is unable to continue as Depositary
and we fail to appoint a successor Depositary within 90 days,
142
(2) we provide for such exchange pursuant to the terms of the
Indenture,
(3) we determine that such notes shall no longer be represented by
Global Notes and execute and deliver to the Trustee instructions to such
effect or
(4) an Event of Default or event which, with notice or lapse of
time or both, would constitute an Event of Default with respect to the
notes, and which entitles the holders of the notes to accelerate the
notes' maturity, shall have occurred and be continuing.
Such Certificated Notes shall be registered in such name or names as DTC
shall instruct the Trustee. It is expected that such instructions may be based
upon directions received by DTC from Participants or Indirect Participants with
respect to ownership of beneficial interests in Global Notes. Upon any such
issuance, the Trustee is required to register such definitive notes in the name
of such person or persons (or the nominee of any thereof) and cause the same to
be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC
or any Participant or Indirect Participant in identifying the beneficial owners
of the related notes and each such person may conclusively rely on, and shall
be protected in relying on, instructions from DTC for all purposes (including
with respect to the registration and delivery, and the respective principal
amounts, of the notes to be issued).
143
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes certain U.S. federal income
tax consequences relevant to the exchange offer and the ownership and
disposition of the exchange notes. This discussion only deals with holders of
original notes that hold the original notes and the exchange notes as capital
assets within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended, or the Code, and that acquire the exchange notes pursuant to the
exchange offer and purchased their original notes for cash at original issue.
This discussion does not address the U.S. federal income tax consequences that
may be relevant to a particular holder subject to special treatment under
certain U.S. federal income tax laws (for example, persons subject to the
alternative minimum tax provisions of the Code). Also, this discussion is not
intended to be wholly applicable to all categories of investors, some of which,
such as dealers in securities or foreign currency, banks, trusts, insurance
companies, tax-exempt organizations (employment, charitable or other), persons
that hold exchange notes as part of a hedging or conversion transaction or a
straddle, persons deemed to sell exchange notes under the constructive sale
provisions of the Code, persons that have a functional currency other than the
U.S. dollar and investors in pass-through entities, may be subject to special
rules.
This discussion is based on the Code, the final, temporary and proposed
Treasury regulations promulgated thereunder, administrative pronouncements and
judicial decisions, all as in effect on the date hereof and all of which are
subject to change, possibly with retroactive effect. We have not requested, and
will not request, a ruling from the U.S. Internal Revenue Service, or the IRS,
with respect to any of the U.S. federal income tax consequences described
below. There can be no assurance that the IRS will not disagree with or
challenge any of the conclusions set forth herein.
Holders of original notes considering exchanging original notes for the
exchange notes or otherwise acquiring exchange notes should consult their own
tax advisors concerning the application of U.S. federal income tax laws, as
well as the laws of any state, local or foreign taxing jurisdiction, to their
particular situations.
U.S. HOLDERS
The following discussion is limited to persons that are U.S. Holders. For
these purposes, "U.S. Holder" means the beneficial owner of an exchange note
that for U.S. federal income tax purposes is:
(i) an individual who is a citizen or resident of the United States,
(ii) a corporation or other entity taxable as a corporation that is
created or organized under the laws of the United States or any political
subdivision thereof or therein,
(iii) an estate the income of which is subject to U.S. federal
income tax regardless of its source,
(iv) a trust subject to the primary supervision of a United States
court and the control of one or more U.S. persons, or
(v) a person whose worldwide income or gain is otherwise subject to
U.S. Federal income tax on a net income basis.
EXCHANGE OFFER. The exchange of original notes for exchange notes
pursuant to the exchange offer should not constitute a taxable event for U.S.
federal income tax purposes. As a result,
(i) a U.S. Holder of original notes should not recognize taxable
gain or loss as a result of the exchange of original notes for exchange
notes pursuant to the exchange offer,
(ii) the holding period of the exchange notes should include the
holding period of the original notes surrendered in exchange therefor, and
(iii) a U.S. Holder's adjusted tax basis and adjusted issue price
in the exchange notes should be the same as such U.S. Holder's adjusted
tax basis and adjusted issue price in the original notes surrendered in
exchange therefor.
144
STATED INTEREST. A U.S. Holder must generally include stated interest on
an exchange note in its ordinary income at the time such interest is received
or accrued, in accordance with such U.S. Holder's method of accounting for U.S.
Federal income tax purposes.
ORIGINAL ISSUE DISCOUNT. The exchange notes will be treated as issued on
the date the original notes were issued at a discount from their stated
redemption price at maturity (I.E., the face amount of the note). For U.S.
federal income tax purposes, the amount that an exchange note's stated
redemption price at maturity exceeds its issue price constitutes original issue
discount, or OID. The original issue price of the exchange notes will equal the
first price at which a substantial amount of the original notes were sold
(excluding sales to persons or organizations acting as underwriters, placement
agents or wholesalers).
U.S. Holders generally must include OID in gross income for U.S. federal
income tax purposes on an annual basis under a constant yield accrual method,
regardless of their regular method of tax accounting. As a result, U.S. Holders
will include OID in income in advance of the receipt of cash attributable to
such income. However, U.S. Holders of the exchange notes generally will not be
required to include separately in income cash payments received on such
exchange notes, to the extent such payments constitute payments of OID that
were previously accrued and included in income.
The amount of OID includible in income by a U.S. Holder of an exchange
note is the sum of the "daily portions" of OID with respect to the exchange
note for each day during the taxable year, or portion thereof, in which such
U.S. Holder holds such exchange note. A daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the OID
that accrued in such period. The "accrual period" of an exchange note may be of
any length and may vary in length over the term of the exchange note, provided
that each accrual period is no longer than one year and each scheduled payment
of principal or interest occurs either on the first or last day of an accrual
period. The amount of OID that accrues with respect to any accrual period is
the product of the exchange notes' "adjusted issue price" at the beginning of
such accrual period and its yield to maturity (determined on the basis of
compounding at the close of each accrual period and properly adjusted for the
length of such period) less any qualified stated interest allocable to the
accrual period. The "adjusted issue price" of an exchange note at the start of
any accrual period is equal to its issue price, increased by OID previously
includible in income for each prior accrual period and decreased by any
payments made on such note (other than payments of qualified stated interest).
SALE, EXCHANGE OR REDEMPTION OF NOTES. Upon the sale, exchange or
redemption of an exchange note, a U.S. Holder generally will recognize taxable
gain or loss equal to the difference between (i) the amount realized on such
disposition and (ii) such U.S. Holder's adjusted tax basis in the exchange
note. Notwithstanding the foregoing, any amounts realized in connection with
any sale, exchange or redemption with respect to accrued interest not
previously included in income will be treated as ordinary interest income. A
U.S. Holder's adjusted tax basis in an exchange note generally will equal the
cost of such exchange note, increased by any accrued OID, less any principal
payments received by such holder.
CONTINGENT PAYMENTS. In certain circumstances, we may be obligated to
pay you amounts in excess of the stated interest and principal payable on the
exchange notes. The obligation to make such payments, including Liquidated
Damages and redemption premiums payable in certain circumstances, may implicate
the provisions of Treasury regulations relating to "contingent payment debt
instruments." If the exchange notes were deemed to be contingent payment debt
instruments, U.S. Holders might, among other things, be required to treat any
gain recognized on the sale or other disposition of an exchange note as
ordinary income, subject to tax at the maximum federal rate of 38.6%, rather
than as capital gain which may be subject to tax at a maximum federal rate of
20%. The regulations applicable to contingent payment debt instruments have not
been the subject of authoritative interpretation and therefore the scope of the
regulations is not certain. We urge you to consult with your tax advisor
regarding the possible application of the contingent payment debt instrument
rules to the exchange notes.
145
INFORMATION REPORTING AND BACKUP WITHHOLDING. A U.S. Holder of exchange
notes may be subject to backup withholding, currently at a rate of 30% but
subject to gradual reduction to 28% by year 2006 (the "Applicable Backup
Withholding Rate"), with respect to "reportable payments," which includes
interest (including OID) and principal paid on or the gross proceeds of a sale,
exchange or redemption of the exchange notes. The payor of any reportable
payments will be required to deduct and withhold the Applicable Backup
Withholding Rate from such payments if (i) the payee fails to establish that it
is entitled to an exemption, (ii) the payee fails to furnish its correct
Taxpayer Identification Number ("TIN") to the payor in the prescribed manner,
(iii) the IRS notifies the payor that the TIN furnished by the payee is
incorrect, (iv) the payee has failed properly to report the receipt of
reportable payments and the IRS has notified the payor that backup withholding
is required or (v) the payee fails to certify under penalties of perjury that
such payee is not subject to backup withholding. If any one of these events
occurs with respect to a U.S. Holder of notes, the Company or its paying or
other withholding agent will be required to withhold the Applicable Backup
Withholding Rate from any payments of principal and interest (including OID) on
the exchange notes held by such U.S. Holder.
Any amount withheld from a payment to a U.S. Holder under the backup
withholding rules will be allowed as a refund or credit against such holder's
U.S. federal income tax liability, so long as the required information is
provided to the IRS. The Company, its paying agent or other withholding agent
generally will report to a U.S. Holder of exchange notes and to the IRS the
amount of any reportable payments made in respect of the exchnage notes for
each calendar year and the amount of tax withheld, if any, with respect to such
payments.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a beneficial owner of an exchange note that is not a
U.S. Holder (a "Non-U.S. Holder").
INTEREST. Subject to the discussion of backup withholding below,
payments of interest (including OID) on an exchange note to a Non-U.S. Holder
generally will not be subject to U.S. federal income or withholding tax,
provided that (i) the holder does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the Company
that are entitled to vote, (ii) the holder is not (a) a controlled foreign
corporation that is related to the Company through stock ownership or (b) a
bank receiving interest on a loan entered into in the ordinary course of
business, (iii) such interest is not effectively connected with the conduct by
the Non-U.S. Holder of a trade or business within the United States and (iv)
the Company or its paying agent receives appropriate documentation establishing
that the Non-U.S. Holder is not a U.S. person.
A Non-U.S. Holder that does not qualify for exemption from withholding
under the preceding paragraph generally will be subject to withholding of U.S.
federal income tax at a 30% rate (or lower applicable treaty rate) on payments
of interest (including OID) on the exchange notes.
If interest (including OID) on the exhange notes is effectively connected
with the conduct by an Non-U.S. Holder of a trade or business within the United
States, such interest will be subject to U.S. Federal income tax on a net
income basis at the rate applicable to U.S. persons generally (and, with
respect to corporate holders, may also be subject to a 30% branch profits tax).
If interest is subject to U.S. federal income tax on a net income basis in
accordance with these rules, such payments will not be subject to U.S.
withholding tax so long as the relevant Non-U.S. Holder provides the Company or
its paying agent with the appropriate documentation.
SALE, EXCHANGE OR REDEMPTION OF NOTES. Subject to the discussion of
backup withholding, any gain realized by a Non-U.S. Holder on the sale,
exchange or redemption of an exchange note generally will not be subject to
U.S. federal income tax, unless (i) such gain is effectively connected with the
conduct by such Non-U.S. Holder of a trade or business within the United
States, (ii) the Non-U.S. Holder is an individual who is present in the United
States for 183 days or more in the taxable year of disposition and certain
other conditions are satisfied or (iii) the Non-U.S. Holder is subject to tax
pursuant to the provisions of U.S. federal income tax law applicable to certain
expatriates.
146
INFORMATION REPORTING AND BACKUP WITHHOLDING. Backup withholding and
information reporting generally will not apply to interest payments made to a
Non-U.S. Holder in respect of the exchange notes if such Non-U.S. Holder
furnishes the Company or its paying agent with appropriate documentation of
such holder's non-U.S. status.
The payment of proceeds from a Non-U.S. Holder's disposition of exchange
notes to or through the U.S. office of any broker, domestic or foreign, will be
subject to information reporting and possible backup withholding unless such
holder certifies as to its non-U.S. status under penalties of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that such holder is a U.S. person or that the conditions of an
exemption are not, in fact, satisfied. The payment of the proceeds from a
Non-U.S. Holder's disposition of an exchange note to or through a non-U.S.
office of either a U.S. broker or a non-U.S. broker that is a U.S.-related
person will be subject to information reporting, but not backup withholding,
unless such broker has documentary evidence in its files that such Non-U.S.
Holder is not a U.S. person and the broker has no knowledge to the contrary, or
the Non-U.S. Holder establishes an exemption. For this purpose, a "U.S.-related
person" is (i) a controlled foreign corporation for U.S. federal income tax
purposes, (ii) a foreign person 50% or more of whose gross income from all
sources for the three-year period ending with the close of its taxable year
preceding payment (or for such part of the period that the broker has been in
existence) is derived from activities that are effectively connected with the
conduct of a U.S. trade or business or (iii) a foreign partnership that is
either engaged in the conduct of a trade or business in the United States or of
which 50% or more of its income or capital interests are held by U.S. persons.
Neither information reporting nor backup withholding will apply to a payment of
the proceeds of a Non-U.S. Holder's disposition of exchange notes by or through
a non-U.S. office of a non-U.S. broker that is not a U.S.-related person.
Copies of any information returns filed with the IRS may be made available by
the IRS, under the provisions of a specific treaty or agreement, to the taxing
authorities of the country in which the non-U.S. Holder resides.
Any amounts withheld under the backup withholding rules from a payment to
a Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
You are urged to consult your own tax advisor with respect to the
application to your particular situation of U.S. federal income tax laws, as
well as the laws of any state, local or foreign taxing jurisdiction.
147
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for original notes where such original notes were acquired as a result
of market-making activities or other trading activities. We have agreed to keep
the registration statement effective from the time the exchange notes are first
issued and ending on the earlier of 180 days after the exchange offer is
completed or the time when such broker-dealers no longer own any original
notes. In addition, we agreed that, for a period of 180 days from March 15,
2002, the date of the offering memorandum distributed in connection with the
sale of the original notes, we would not, without the prior written consent of
Merrill Lynch, offer, sell, contract to sell or otherwise dispose of any
securities substantially similar to the notes other than in connection with
this exchange offer.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of exchange notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. Additionally, any such broker-dealer receiving exchange notes
from us must deliver a prospectus meeting the requirements of the Securities
Act in connection with resales of such exchange notes. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incident to this exchange offer, other
than the expenses of counsel for the holders of the original notes and
commissions or concessions of any brokers or dealers. We have also agreed to
indemnify the holders of the original notes, including any broker-dealers,
against various liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the issuance of the exchange notes
will be passed upon for us by Willkie Farr & Gallagher, New York, New York, and
Wilentz Goldman & Spitzer, P.A., Woodbridge, New Jersey.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule as of December 31, 2001 and for the period
from April 25, 2001 to December 31, 2001 and the financial statements of
Resorts International Hotel, Inc. (Predecessor) for the period from January 1,
2001 to April 24, 2001, as set forth in their report. We've included these
financial statements and schedule in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
The financial statements of Resorts International Hotel, Inc. as of
December 31, 2000 and 1999 and, for each of the two years in the period then
ended, included in this prospectus, have been audited by Arthur Andersen LLP,
as stated in their report appearing herein.
148
CHANGE IN INDEPENDENT ACCOUNTANTS
In April 2001, we engaged Ernst & Young LLP as our independent
accountants. The decision to engage Ernst & Young LLP as our independent
accountants was not approved by our board of directors. Prior to April 2001, we
had not consulted with Ernst & Young LLP on items that involved accounting
principles.
From October 1997 to April 2001, RIH retained Arthur Andersen, LLP as its
principal accountants. Arthur Andersen, LLP audited the financial statements of
RIH for the years ended December 31, 1997 through 2000. The audit reports of
Arthur Andersen, LLP did not contain an adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope
accounting principles. RIH did not have any disagreement with Arthur Andersen,
LLP on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures, with respect to the financial
statements they audited, which disagreement, if not resolved to the
satisfaction of Arthur Andersen, LLP would have caused Arthur Andersen, LLP to
make reference to the matter of the disagreement in their reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement with the Securities and Exchange
Commission, or the SEC, under the Securities Act. This registration statement
covers the exchange notes that we will issue to you if you exchange your
original notes for exchange notes in this exchange offer. This prospectus,
which is a part of the registration statement, does not contain all of the
information included in the registration statement and you should refer to the
registration statement and its exhibits to read additional information not
included in this prospectus. This prospectus is a summary of information and
any statements made in this prospectus as to the contents of any contract,
agreement or other document are not necessarily complete. If we have filed such
contract, agreement or other document as an exhibit to the registration
statement, we urge you to read the exhibit carefully for a more complete
understanding of the document or the matter involved. We qualify all of our
statements by reference to the complete documents.
We file reports, proxy statements and other information with the SEC as
required by the Securities Exchange Act of 1934, as amended. The registration
statement and its exhibits and schedules, together with other reports and
materials we file with the SEC, may be read at no cost to you and copied at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C, 20549.
You may call the SEC at 1-800-SEC-0330 for further information on its public
reference room. You may review our electronically filed reports and proxy
statement on SEC's world wide web site at http://www.sec.gov.
We will furnish to holders of the original notes and the exchange notes,
upon request, annual reports on Form 10-K, which will include a description of
our business and annual audited consolidated financial statements, and interim
reports, which will include unaudited interim consolidated financial
information. These financial statements and financial information will be
prepared in conformity with U.S. GAAP and the annual financial statements.
While any notes remain outstanding, we will make available, upon request, to
any holder and any prospective purchaser of any notes the information required
pursuant to Rule 144A(d)(4) under the Securities Act during any period in which
we are not subject to Section 13 or 15(d) of the Exchange Act. Any such request
should be directed to: Resorts International Hotel and Casino, Inc., 1133
Boardwalk, Atlantic City, NJ 08401, Attention: Joseph A. D'Amato. We maintain a
world wide web site at http://www.resortsac.com. Our web site is not a part of
this prospectus and disclosure statement.
Each purchaser of the notes from the initial purchasers will be furnished
with a copy of this prospectus and any related amendments or supplements. Each
person receiving this prospectus acknowledges that:
(a) he has been afforded an opportunity to request from us, and to
review and has received, all additional information considered by him to
be necessary to verify the accuracy and completeness of the information
herein,
149
(b) he has not relied on the initial purchasers or any person
affiliated or associated with the initial purchasers in connection with
his investigation of the accuracy of such information or his investment
decision, and
(c) he understands that except as provided pursuant to (a) above,
no person has been authorized to give any information or to make any
representation concerning the notes offered hereby other than those
contained herein and, if given or made, such other information or
representation should not be relied upon as having been authorized by us
or the initial purchasers.
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RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
INDEX TO FINANCIAL STATEMENTS
HISTORICAL UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
Condensed Consolidated Balance Sheets at March 31, 2002 (Successor) and December 31, 2001
(Predecessor).................................................................................. F-2
Condensed Consolidated Statements of Operations for the three month period ended March 31,
2002 (Successor) and March 31, 2001 (Predecessor).............................................. F-3
Condensed Consolidated Statements of Cash Flows for the three month period ended March 31,
2002 (Successor) and March 31, 2001 (Predecessor).............................................. F-4
Notes to Condensed Consolidated Financial Statements............................................. F-5
HISTORICAL AUDITED CONSOLIDATED FINANCIAL STATEMENTS
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
Reports of Independent Auditors.................................................................. F-8
Consolidated Balance Sheets at December 31, 2001 and 2000 (Predecessor).......................... F-10
Consolidated Statements of Operations for the period from April 25, 2001 to December 31, 2001,
the period from January 1, 2001 to April 24, 2001 (Predecessor) and the years ended December
31, 2000 and 1999 (Predecessor)................................................................ F-11
Consolidated Statements of Cash Flows for the period from April 25, 2001 to December 31, 2001,
the period from January 1, 2001 to April 24, 2001 (Predecessor) and the years ended
December 31, 2000 and 1999 (Predecessor)....................................................... F-12
Consolidated Statements of Changes of Shareholder's Equity for the period from April 25, 2001 to
December 31, 2001 and the period from January 1, 2001 to April 24, 2001 (Predecessor) and the
years ended December 31, 2000 and 1999 (Predecessor)........................................... F-13
Notes to Consolidated Financial Statements....................................................... F-14
Financial Statement Schedule--Schedule II Valuation and Qualifying Accounts...................... F-26
F-1
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2002 2001
--------- ------------
(SUCCESSOR) (PREDECESSOR)
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents.................................................. $ 28,757 $ 15,363
Receivables, net........................................................... 7,369 8,273
Inventories................................................................ 1,355 1,536
Prepaid expenses........................................................... 2,224 2,818
Deferred income taxes...................................................... 2,524 2,524
-------- --------
Total current assets................................................... 42,229 30,514
Property and equipment, net................................................... 126,078 126,139
Other assets (including $99,400 and $0 of restricted cash and cash equivalents
in 2002 and 2001)........................................................... 126,427 22,491
-------- --------
Total assets........................................................ $294,734 $179,144
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Current maturities of long-term debt....................................... $ 832 $ 10,229
Accounts payable........................................................... 6,478 5,746
Accrued interest payable................................................... 575 324
Accrued interest payable to affiliates..................................... -- 953
Accrued expenses and other current liabilities............................. 23,048 21,274
-------- --------
Total current liabilities.............................................. 30,933 38,526
-------- --------
Notes payable to affiliates, net of unamortized discounts..................... -- 18,018
Long-term debt................................................................ 176,820 70,484
Deferred income taxes......................................................... 1,349 1,349
-------- --------
Total liabilities...................................................... 209,102 128,377
Shareholder's equity
Common stock ($0.01 par value, 100 shares issued and outstanding).......... -- --
Capital in excess of par................................................... 77,913 42,879
Retained earnings.......................................................... 7,719 7,737
Accumulated other comprehensive income..................................... -- 151
-------- --------
Total shareholder's equity............................................. 85,632 50,767
-------- --------
Total liabilities and shareholder's equity.......................... $294,734 $179,144
======== ========
SEE ACCOMPANYING NOTES.
F-2
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------------
2002 2001
----------- -------------
(SUCCESSOR) (PREDECESSOR)
Revenues
Casino............................................... $58,084 $52,054
Lodging.............................................. 3,174 3,083
Food and beverage.................................... 5,766 5,386
Other................................................ 1,289 1,106
Less: promotional allowances......................... (6,538) (5,826)
------- -------
Total net revenue................................ 61,775 55,803
Costs and expenses
Casino............................................... 35,330 33,104
Lodging.............................................. 427 656
Food and beverage.................................... 2,829 2,791
Other operating...................................... 6,167 6,612
Selling, general and administrative.................. 9,601 8,078
Depreciation and amortization........................ 1,527 4,376
------- -------
Total costs and expenses......................... 55,881 55,617
======= =======
Income from operations........................... 5,894 186
Interest income......................................... 230 392
Interest expense........................................ (2,461) (6,088)
Other expense........................................... (33) --
Income (loss) before income taxes and extraordinary
item............................................... 3,630 (5,510)
Provision for income taxes.............................. (1,452) --
------- -------
Income (loss) before extraordinary item.............. 2,178 (5,510)
Extraordinary loss on extinguishment of debt, net of
income tax benefit of $1,182.......................... (2,196) --
------- -------
Net loss......................................... $ (18) $(5,510)
======= =======
SEE ACCOMPANYING NOTES.
F-3
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------------
2002 2001
----------- -------------
(SUCCESSOR) (PREDECESSOR)
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net loss to net cash
provided by operating activities--
Net loss......................................... $ (18) $(5,510)
Adjustments to reconcile net loss to
net cash provided by operating
activities--
Extraordinary loss on
extinguishment of debt...................... 2,196 --
Depreciation and amortization................. 2,012 4,146
Amortization of debt premiums,
discounts and issuance costs................ 183 159
Provision for doubtful receivables............ 377 446
Provision for discount on CRDA
obligations, net of amortization............ (482) 226
Stock option costs............................ 34 --
Net decrease in receivables................... 527 242
Net decrease in inventories and
prepaid expenses............................ 624 78
Net (increase) decrease in
deferred charges and other assets........... (293) 85
Net increase in accounts payable
and accrued expenses........................ 3,598 1,758
Net increase (decrease) in
interest payable............................ (702) 7,568
--------- -------
Net cash provided by operating
activities.............................. 8,056 9,198
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cash and cash
equivalents--restricted............................ (99,400) --
Purchases of property and equipment.................. (1,665) (932)
CRDA deposits........................................ (714) (667)
CRDA refunds......................................... 1,492
--------- -------
Net cash used in investing
activities.............................. (100,287) (1,599)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings............................. 180,835 --
Payments to secure borrowings........................ (7,293) --
Proceeds from the issuance of common stock........... 35,000 --
Advances from (repayments to) affiliates............. (18,018) --
Prepayment penalty on long-term debt................. (1,094) --
Debt repayments...................................... (83,907) (235)
Other................................................ 102 --
--------- -------
Net cash provided by (used in)
financing activities.................... 105,625 (235)
--------- -------
Net increase in cash and cash equivalents............... 13,394 7,364
Cash and cash equivalents at beginning of
period................................................ 15,363 21,453
--------- -------
Cash and cash equivalents at end of period.............. $ 28,757 $28,817
========= =======
SEE ACCOMPANYING NOTES.
F-4
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation--Colony RIH Holding, Inc., a
Delaware corporation ("CRH"), owns 100% of the outstanding common stock of
Resorts International Hotel and Casino, Inc. ("RIHC"), a Delaware corporation
("CRA", the "Company," or the "Successor"). RIHC, through its wholly owned
subsidiary Resorts International Hotel, Inc., a New Jersey corporation ("RIH",
or the "Predecessor"), owns and operates Resorts Atlantic City, a casino/hotel
located in Atlantic City, NJ.
CRH was formed at the direction of Colony Investors IV, L.P. ("Colony
IV"), a Delaware limited partnership, under the laws of the State of Delaware
on March 7, 2001. RIHC was formed at the direction of Colony IV on October 24,
2000.
RIHC, Sun International North America, Inc., a Delaware corporation
("SINA"), and GGRI, Inc., a Delaware corporation ("GGRI"), entered into a
purchase agreement, dated as of October 30, 2000, as amended (the "Purchase
Agreement"). Pursuant to the Purchase Agreement, RIHC acquired all of the
capital stock of RIH, the Warehouse Assets (as defined in the Purchase
Agreement) and all of the capital stock of New Pier Operating Company, Inc., a
New Jersey corporation (collectively, the "Acquisition") on April 25, 2001 for
approximately $144.8 million.
The Acquisition has been accounted for using the purchase method, and
accordingly, the aggregate purchase price, including transaction fees and
expenses, has been allocated based on the preliminary estimated fair value of
the assets acquired and liabilities assumed. As a result, the condensed
consolidated financial statements for the period subsequent to the Acquisition
are presented on a different basis of accounting than those for the periods
prior to the Acquisition and, therefore, are not directly comparable.
On March 22, 2002, RIHC sold $180.0 million aggregate principal amount of
11 1/2% First Mortgage Notes (the "First Mortgage Notes") at a price of 97.686%
yielding $175.8 million. Concurrent with the sale of the notes, CRH issued
17,295 shares of class A common stock at a cash price of $0.0475 and 349,992
shares of class B common stock at a price of $100 to our existing shareholders
for a total price of approximately $35.0 million. The proceeds from the sale of
the First Mortgage Notes and issuance of stock were used to retire existing
debt and will be used to finance the cost to develop, construct, and equip a
new hotel tower. Additionally, $10.0 million of the proceeds from the issuance
of stock has been deposited in a liquidity disbursement account to be used for
working capital in the event RIHC's Adjusted Consolidated EBITDA for any four
fiscal quarters ending on or prior to December 31, 2004 is less than $28.0
million. Of the proceeds, $99.4 million is considered restricted cash under the
terms of the debt offering and is included in other assets on the Condensed
Consolidated Balance Sheet as of March 31, 2002.
The condensed consolidated financial statements include the accounts of
RIHC and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated. The Predecessor's financial statements
include the accounts of RIH.
In June 2001, Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142") was issued. This
Statement addresses how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements. The Company adopted SFAS No. 142 on January 1, 2002. Adjusting the
statement of operations for the quarter ending March 31, 2001, to reflect the
adoption of SFAS No. 142 by excluding amortization of goodwill totaling
$660,000 would have resulted in a net loss of $4.9 million for the quarter
ended March 31, 2001.
F-5
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
fair presentation have been included. The casino industry in Atlantic City is
seasonal in nature; accordingly, operating results for the three-month period
ended March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information refer to the consolidated financial statements
and footnotes thereto included in CRH's annual report on Form 10-K for the year
ended December 31, 2001.
2. EFFECTS OF ACQUISITION FINANCING
CRH financed the Acquisition and paid related fees and expenses with; (i)
proceeds of $42.5 million from the issuance of common stock, (ii) a $17.5
million note issued by CRH to SINA (the "Seller Note"), (iii) borrowings by
RIHC, guaranteed by CRH under a $90 million credit agreement (the "Credit
Facility") and (iv) RIH's available cash.
Prior to the Acquisition, RIHC conducted no business other than in
connection with the Purchase Agreement and the Credit Facility.
In connection with the Acquisition for $144.8 million, RIHC acquired
assets with a fair value of $173.9 million and assumed liabilities of $29.1
million.
The pro forma unaudited results of operations for the three months ended
March 31, 2001, assuming consummation of the Acquisition and issuance of the
Company's Common Stock, Seller Note, and Credit Facility as of January 1, 2001
are as follows (in thousands):
Revenue........................................... $55,803
Net income........................................ 250
3. LONG TERM DEBT
On March 22, 2002, RIHC sold $180.0 million aggregate principal amount of
11 1/2% First Mortgage Notes at a price of 97.686% yielding $175.8 million.
Interest on the First Mortgage Notes is payable on March 15 and September 15 of
each year and the First Mortgage Notes are due in full on March 15, 2009.
The First Mortgage Notes contain certain covenants that, among other
things, will limit our ability and the ability of our subsidiaries to pay
dividends on, redeem or repurchase our or their capital stock, make
investments, incur additional indebtedness, permit payment of or restrict
dividends by certain of our subsidiaries, enter into sale leaseback
transactions, sell assets, guarantee indebtedness, create certain liens, engage
in transactions with affiliates, and consolidate, merge or transfer all or
substantially all our assets and the assets of our subsidiaries on a
consolidated basis.
F-6
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
In conjunction with the Acquisition, RIHC borrowed $82.0 million under an
Amended and Restated Credit Agreement, dated April 25, 2001, from the lenders
named therein (the "Credit Facility"). The Credit Facility was comprised of
$80.0 million in term loans (Term Loan A for $25.0 million and Term Loan B for
$55.0 million) and a $10.0 million revolving credit facility. Principal
payments on the term loans were being paid quarterly, commencing on June 29,
2001. Interest on borrowings outstanding was either at LIBOR or an alternative
base rate, plus an applicable margin in each case. The outstanding balance on
the Credit Facility was repaid with the proceeds from the sale of the First
Mortgage Notes. Additionally, the Company terminated its existing interest rate
collar agreements and received $102,000 in cash upon termination of these
agreements.
In conjunction with the Acquisition, CRH also issued a $17.5 million note
to SINA (the "Seller Note"). The Seller Note was subordinated to the term loans
under the Credit Facility and had a 7-year term. This loan had interest at
12.5% per annum of which 6.25% was payable in cash and 6.25% was paid in kind.
There was no amortization of principal on this loan. The Seller Note was repaid
with the proceeds from the sale of the First Mortgage Notes.
In connection with the repayment of the Credit Facility and the Seller
Note, the Company recorded an extraordinary loss, net of tax, of $2.2 million
related to pre-payment penalties and the write-off of deferred financing costs
associated with the Credit Facility.
F-7
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Resorts International Hotel and Casino, Inc.
We have audited the accompanying consolidated balance sheet of Resorts
International Hotel and Casino, Inc. ("the Company") as of December 31, 2001,
and the related consolidated statements of operations, shareholders' equity,
and cash flows for the period from April 25, 2001 to December 31, 2001
(post-acquisition period) and the consolidated statements of operations,
shareholders' equity, and cash flows of Resorts International Hotel, Inc.
(Predecessor) for the period from January 1, 2001 to April 24, 2001
(pre-acquisition period). Our audits also included the financial statement
schedule listed in the Index to Financial Statements. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Resorts International Hotel and Casino, Inc. at December 31, 2001, and the
consolidated results of its operations and its cash flows for the
post-acquisition period from April 25, 2001 to December 31, 2001 in conformity
with accounting principles generally accepted in the United States. Further, in
our opinion, the aforementioned Predecessor consolidated financial statements
present fairly, in all material respects, the consolidated results of
operations and cash flows of Resorts International Hotel, Inc. for the
pre-acquisition period from January 1, 2001 to April 24, 2001 in conformity
with accounting principles generally accepted in the United States. Also, in
our opinion, the related 2001 financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 1, 2002, except for
Note 16, as to which the date
is March 29, 2002
F-8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Resorts International Hotel, Inc.:
We have audited the accompanying balance sheet of Resorts International
Hotel, Inc. (a New Jersey corporation) as of December 31, 2000 and the related
statements of operations, shareholder's equity and cash flow for each of the
two years in the period ended December 31, 2000. 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. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Resorts
International Hotel, Inc. as of December 31, 2000 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements, and in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Roseland, New Jersey
January 19, 2001
F-9
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
------------------------
2001 2000
----------- -------------
(SUCCESSOR) (PREDECESSOR)
ASSETS
Current assets
Cash and cash equivalents..................................................... $ 15,363 $ 21,453
Receivables, net.............................................................. 8,273 9,142
Inventories................................................................... 1,536 2,006
Prepaid expenses and other current assets..................................... 2,818 1,934
Deferred income taxes......................................................... 2,524 --
-------- --------
Total current assets.......................................................... 30,514 34,535
Property and equipment, net...................................................... 126,139 257,778
Deferred charges and other assets................................................ 22,491 23,567
Goodwill, net of amortization.................................................... -- 95,091
-------- --------
Total assets..................................................................... $179,144 $410,971
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Current maturities of long-term debt.......................................... $ 10,229 $ 581
Accounts payable.............................................................. 5,746 5,405
Accrued interest payable...................................................... 324 1,648
Accrued interest payable to affiliates........................................ 953 5,300
Accrued expenses and other current liabilities................................ 21,274 26,748
-------- --------
Total current liabilities........................................................ 38,526 39,682
Notes payable to affiliates, net of unamortized discounts........................ 18,018 199,337
Long-term debt, less current portion............................................. 70,484 79,000
Deferred income taxes............................................................ 1,349 35,457
-------- --------
Total liabilities................................................................ 128,377 353,476
Shareholder's equity
Common stock:
RIHC--$.01 par value, 10,000 shares authorized, 100 shares issued and
outstanding............................................................. -- --
RIH--$1 par value, 1,000,000 shares issued and outstanding................ -- 1,000
Capital in excess of par......................................................... 42,879 123,660
Retained earnings (accumulated deficit).......................................... 7,737 (67,165)
Accumulated other comprehensive income........................................... 151 --
-------- --------
Total shareholder's equity....................................................... 50,767 57,495
-------- --------
Total liabilities and shareholder's equity....................................... $179,144 $410,971
======== ========
SEE ACCOMPANYING NOTES.
F-10
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
PERIOD FROM PERIOD FROM
APRIL 25, JANUARY 1,
2001 TO 2001 TO YEAR ENDED DECEMBER 31,
DECEMBER 31, APRIL 24, -----------------------
2001 2001 2000 1999
------------ ------------- ------------- -------------
(SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)
Revenue:
Casino............................... $156,999 $68,220 $224,259 $210,758
Lodging.............................. 10,083 3,996 16,412 15,160
Food and beverage.................... 17,880 6,977 26,039 25,512
Other................................ 4,168 1,523 4,973 8,076
Less: promotional allowances......... (18,908) (7,510) (25,288) (26,632)
-------- ------- -------- --------
Total net revenue.................... 170,222 73,206 246,395 232,874
-------- ------- -------- --------
Costs and expenses:
Casino............................... 96,403 42,234 146,324 141,803
Lodging.............................. 1,970 913 4,186 2,929
Food and beverage.................... 9,124 3,639 14,716 15,401
Other operating...................... 16,680 8,293 25,668 28,762
Selling, general, and administrative. 21,817 10,532 37,727 35,568
Depreciation and amortization........ 5,412 5,325 17,034 16,737
Preopening........................... -- -- -- 5,398
-------- ------- -------- --------
Total costs and expenses............. 151,406 70,936 245,655 246,598
-------- ------- -------- --------
Income (loss) from operations........... 18,816 2,270 740 (13,724)
Interest income......................... 594 510 1,557 1,360
Interest expense........................ (6,219) (7,673) (24,703) (20,999)
Other expense........................... (408) -- -- --
-------- ------- -------- --------
Income (loss) before income taxes....... 12,783 (4,893) (22,406) (33,363)
Provision for income taxes.............. 5,046 -- -- --
-------- ------- -------- --------
Net income (loss)....................... $ 7,737 $(4,893) $(22,406) $(33,363)
======== ======= ======== ========
SEE ACCOMPANYING NOTES.
F-11
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
PERIOD FROM PERIOD FROM
APRIL 25, JANUARY 1,
2001 TO 2001 TO
DECEMBER 31, APRIL 24, YEAR ENDED DECEMBER 31,
2001 2001 2000 1999
------------ ------------- ------------- -------------
(SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................................... $ 7,737 $(4,893) $(22,406) $(33,363)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 4,752 5,038 16,218 16,137
Amortization of debt premiums, discounts and
issuance costs........................................ 340 203 606 428
Provision for doubtful receivables...................... 1,038 517 1,160 1,465
Provision for discount on CRDA obligations, net of
amortization.......................................... 660 287 799 587
Paid in kind interest on Seller Note.................... 518 -- -- --
Stock compensation costs................................ 88 -- -- --
Net loss on dispositions of property and equipment...... -- -- 716 --
Changes in operating assets and liabilities:
Net (increase) decrease in receivables.............. (2,407) 684 (3,782) (2,621)
Net (increase) decrease in inventories and
prepaid expenses and other current assets......... 731 (1,600) 568 (1,323)
Net (increase) decrease in deferred charges and
other assets...................................... (1,218) 65 (198) (19)
Net increase (decrease) in accounts payable
and accrued expenses.............................. (6,869) 2,837 2,577 (1,734)
Net increase in interest payable to affiliates...... 475 5,700 -- --
--------- ------- -------- --------
Net cash provided by (used in) operating activities........ 5,845 8,838 (3,742) (20,443)
--------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment........................ (11,577) (1,229) (11,692) (41,906)
Purchase of RIH, net of cash acquired...................... (97,004) -- -- --
CRDA deposits and bond purchases........................... (1,658) (1,332) (2,604) (2,746)
--------- ------- -------- --------
Net cash used in investing activities...................... (110,239) (2,561) (14,296) (44,652)
--------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings................................... 92,084 -- 6,000 73,000
Redemption of affiliated notes............................. -- -- -- (6,717)
Payments to secure borrowings.............................. (2,810) -- -- --
Proceeds from the issuance of common stock................. 42,500 -- -- --
Advances from (to) affiliates.............................. -- -- 20,842 (8,011)
Debt repayments............................................ (12,017) (234) (1,892) (1,993)
--------- ------- -------- --------
Net cash provided by (used in) financing activities........ 119,757 (234) 24,950 56,279
--------- ------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 15,363 6,043 6,912 (8,816)
Cash and cash equivalents at beginning of period........... -- 21,453 14,541 23,357
--------- ------- -------- --------
Cash and cash equivalents at end of period................. $ 15,363 $27,496 $ 21,453 $ 14,541
========= ======= ======== ========
SEE ACCOMPANYING NOTES.
F-12
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
RETAINED ACCUMULATED
CAPITAL IN EARNINGS OTHER TOTAL
COMMON EXCESS OF (ACCUMULATED COMPREHENSIVE SHAREHOLDER'S
STOCK PAR DEFICIT) INCOME EQUITY
------ ---------- ------------ ------------- -------------
PREDECESSOR:
Balance at December 31, 1998................ $1,000 $124,033 $(11,396) $ -- $113,637
Net loss.................................... -- -- (33,363) -- (33,363)
Adjustment to capital in excess of par...... -- (373) -- -- (373)
------ -------- -------- ---- --------
Balance at December 31, 1999................ 1,000 123,660 (44,759) -- 79,901
Net loss.................................... -- -- (22,406) -- (22,406)
------ -------- -------- ---- --------
Balance at December 31, 2000................ 1,000 123,660 (67,165) -- 57,495
Net loss for the period from January 1, 2001
to April 24, 2001......................... -- -- (4,893) -- (4,893)
------ -------- -------- ---- --------
Balance at April 24, 2001................... $1,000 $123,660 $(72,058) $ -- $ 52,602
====== ======== ======== ==== ========
SUCCESSOR:
Issuance of common stock to acquire RIH..... $ -- $ 42,500 $ -- $ -- $ 42,500
Stock options granted to employees and
consultants............................... -- 379 -- -- 379
Net income from April 25, 2001 to
December 31, 2001......................... -- -- 7,737 -- 7,737
Increase in fair value of hedges............ -- -- -- 151 151
--------
Comprehensive income........................ -- -- -- -- 7,888
------ -------- -------- ---- --------
Balance at December 31, 2001................ $ -- $ 42,879 $ 7,737 $151 $ 50,767
====== ======== ======== ==== ========
SEE ACCOMPANYING NOTES.
F-13
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. BASIS OF PRESENTATION AND CONSOLIDATION
Colony RIH Holdings, Inc., a Delaware corporation ("CRH"), owns 100% of
the outstanding common stock of Colony RIH Acquisitions, Inc. ("CRA"), a
Delaware corporation ("CRA", the "Company", or the "Successor"). RIHC, through
its wholly owned subsidiary Resorts International Hotel, Inc., a New Jersey
corporation ("RIH", or the "Predecessor"), owns and operates Resorts Atlantic
City, a casino/hotel located in Atlantic City, NJ. Colony RIH Acquisitions,
Inc. and Resorts International Hotels, Inc. are referred to collectively as
"The Companies". Subsequent to year-end, CRA changed its name to Resorts
International Hotel and Casino, Inc. ("RIHC").
CRH was formed at the direction of Colony Investors IV, L.P. ("Colony
IV"), a Delaware limited partnership, under the laws of the State of Delaware
on March 7, 2001. RIHC was formed at the direction of Colony IV on October 24,
2000.
RIHC, Sun International North America, Inc., a Delaware corporation
("SINA"), and GGRI, Inc., a Delaware corporation ("GGRI"), entered into a
purchase agreement, dated October 30, 2000, as amended (the "Purchase
Agreement"). Pursuant to the Purchase Agreement, RIHC acquired all of the
capital stock of RIH, the Warehouse Assets (as defined in the Purchase
Agreement) and all of the capital stock of New Pier Operating Company, Inc., a
New Jersey corporation (collectively, the "Acquisition") on April 25, 2001 for
approximately $144,800.
The consolidated financial statements include the accounts of RIHC and
its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated. The Predecessor's financial statements
include the accounts of RIH.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Allowances for doubtful accounts arising from casino, hotel and other
services, which are based upon a specific review of certain outstanding
receivables. In determining the amounts of the allowances, certain estimates
and assumptions are made, and actual results may differ from those assumptions.
CASH EQUIVALENTS
Short-term money market securities purchased with original maturities of
three months or less are considered to be cash equivalents. The carrying value
of cash equivalents approximates fair value due to the short-term maturity of
these instruments.
INVENTORIES
Inventories of provisions, supplies and spare parts are valued at the
lower of cost (first-in, first-out) or market.
F-14
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over their
estimated useful lives reported below using the straight-line method. Interest
costs incurred during the construction period are capitalized in accordance
with Statement of Financial Accounting Standards No. 34, "Capitalization of
Interest Costs."
Hotels and other buildings.................................. 35 - 40 years
Furniture, fixtures and equipment........................... 2 - 5 years
The provisions of Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets" requires, among other
things, that an entity review its long-lived assets and certain intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of an asset may not be fully recoverable.
As a result of SINA entering into the agreement to sell RIH (see Note 1)
at a purchase price less than the carrying value of RIH's net assets, SINA
recorded a loss of $229,200 in the fourth quarter of 2000 to reflect the write
down of net assets held for sale. The Predecessor did not record an impairment
charge because the Predecessor evaluated the recoverability of its long-lived
assets on a standalone, held for use basis and the Predecessor's estimate of
future undiscounted cash flows was in excess of its carrying value for
long-lived assets.
GOODWILL
Goodwill for the Predecessor was amortized on a straight-line basis over
40 years. Amortization of goodwill included in the accompanying statements of
operations amounted to $836, $2,641 and $2,643 in the 2001 Predecessor period,
2000 and 1999, respectively.
INCOME TAXES
Prior to the Acquisition discussed in Note 1, RIH's taxable income (loss)
was included in the consolidated Federal income tax returns of SINA. Although
RIH was a member of a consolidated group for Federal income tax purposes, RIH
calculated its income tax provision on a separate return basis for financial
reporting purposes. Certain indentures described in Note 9 provide for a tax
sharing agreement between RIH and SINA which limited RIH's tax payments to SINA
to reimbursements of cash payments made by SINA for income or alternative
minimum taxes arising from the earnings or operations of RIH.
RIHC follows the provisions of SFAS 109, "Accounting for Income Taxes".
Accordingly, deferred tax assets and liabilities are calculated as the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities. These differences are affected by the tax rate for the
year in which they are expected to be recovered or settled. A valuation
allowance is recognized, if necessary, to account for the likelihood that these
differences will not be realized in the future. Note 12 further addresses the
components of the deferred tax assets and liabilities.
REVENUE RECOGNITION
Gaming revenue is recorded as the net win from gaming activities, which
represents the difference between amounts wagered and amounts won by patrons.
Revenues from hotel and related services and from theater ticket sales are
recognized at the time the related service is performed.
F-15
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROMOTIONAL ALLOWANCES
The retail value of hotel accommodations, food, beverage and other
services provided to customers without charge is included in gross revenues and
deducted as promotional allowances. The estimated departmental costs of
providing such promotional allowances are included in gaming costs and expenses
as follows:
PERIOD FROM PERIOD FROM
APRIL 25, 2001 TO JANUARY 1, 2001
DECEMBER 31, TO APRIL 24, YEAR ENDED DECEMBER 31,
2001 2001 2000 1999
----------------- --------------- ------------- -------------
(SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)
Rooms.................. $ 6,646 $2,760 $ 8,407 $ 5,536
Food and beverage...... 11,224 4,823 15,502 14,634
Entertainment and other 2,099 941 3,181 6,704
------- ------ ------- -------
$19,969 $8,524 $27,090 $26,874
======= ====== ======= =======
PRE-OPENING EXPENSES
In the first quarter of 1999, RIH adopted Statement of Position 98-5,
which states that all pre-opening expenses will be charged to expense as they
are incurred. RIH incurred $5,398 in pre-opening expenses related to the
opening of the renovated casino during 1999.
STOCK BASED COMPENSATION
The Companies have elected to follow Accounting Principles Board Number
25, "Accounting For Stock Issued to Employees", and related interpretations in
accounting for employee stock options. The effect of applying the fair value
method proscribed by Financial Accounting Standards Board Statement Number 123
would result in net income that is not materially different from the amount
reported in the accompanying statement of operations. Pro forma results of
operations may not be representative of the effects on pro forma results of
operations for future periods.
Equity instruments issued to non-employees in exchange for goods or
services are accounted for using the fair value method and expense is recorded
based on the value determined.
DERIVATIVES
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended ("SFAS 133"). The Companies
adopted SFAS 133 on January 1, 2001. The adoption of SFAS 133 did not have a
material effect on earnings or the financial position of RIH.
On the date a derivative instrument is entered into, the Company
designates the derivative as (i) a fair value hedge, (ii) a cash flow hedge, or
(iii) a risk management instrument not eligible for hedge accounting. The
Company recognizes all derivatives on the balance sheet at fair value. All
derivatives in which the Company was engaged as of December 31, 2001 were
classified as hedges for financial accounting purposes; accordingly, the fair
value of the hedge is reported as a direct component of other comprehensive
income.
F-16
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RIHC uses interest rate collar agreements to manage its exposure to
fluctuations in interest rates on its variable rate debt. At December 31, 2001,
the Company had two interest rate collar agreements outstanding with an
aggregate notional principal amount of $26,966, related weighted average
maximum and minimum rates of 5.5% and 2.69%, respectively, and a termination
date of November 13, 2004 and December 12, 2004. The aggregate unrealized net
gain for such interest rate collar agreements was $151 for the period ended
December 31, 2001 and is reported as a component of prepaid expenses and other
current assets on the consolidated balance sheet.
RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been
reclassified to conform to their current period presentation.
NEW ACCOUNTING PRONOUNCEMENTS
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 volume
based cash rebates or refunds be shown as a reduction of revenues effective for
quarters ending after February 15, 2001. RIH adopted the consensus provisions
of EITF 00-22 in the first quarter of 2001. To be consistent with the 2001
presentation, approximately $11,568 and $10,257 of cash rebates and refunds,
previously shown as casino expenses, were reclassified as a reduction of casino
revenues for the year ended December 31, 2000 and 1999, respectively.
3. ACQUISITION
RIHC, SINA, and GGRI entered into the Purchase Agreement on October 30,
2000. Pursuant to the Purchase Agreement, RIHC acquired all of the capital
stock of RIH, the Warehouse Assets (as defined in the Purchase Agreement) and
all of the capital stock of New Pier Operating Company, Inc., a New Jersey
corporation (collectively, the "Acquisition") on April 25, 2001 for
approximately $144,800.
The Acquisition has been accounted for using the purchase method, and
accordingly, the aggregate purchase price, including transaction fees and
expenses, has been allocated based on the estimated fair value of the assets
acquired and liabilities assumed. As a result, the consolidated financial
statements for the period subsequent to the Acquisition are presented on a
different basis of accounting than those for the periods prior to the
Acquisition and, therefore, are not directly comparable.
CRH financed the Acquisition and paid related fees and expenses with: (i)
proceeds of $42.5 million from the issuance of common stock, (ii) a $17.5
million note issued by CRH to SINA (the "Seller Note"), (iii) borrowings by
RIHC, guaranteed by CRH under a $90 million credit agreement (the "Credit
Facility") and (iv) RIH's available cash.
Prior to the Acquisition, RIHC conducted no business other than in
connection with the Purchase Agreement and the Credit Facility.
In connection with the Acquisition for approximately $144,800, RIHC
acquired assets with a fair value of $173,900 and assumed liabilities of
$29,100.
F-17
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITION (CONTINUED)
The pro forma unaudited results of operations for the year ended December
31, 2001 and December 31, 2000, assuming consummation of the Acquisition and
issuance of RIHC's common stock, Seller Note and Credit Facility as of the
beginning of the periods presented are as follows:
YEAR ENDED DECEMBER 31,
2001 2000
-------- --------
Total net revenues.......................................... $243,428 $246,395
Net income.................................................. $ 8,616 $ 3,085
4. RECEIVABLES
Components of receivables were as follows at December 31:
2001 2000
----------- -------------
(SUCCESSOR) (PREDECESSOR)
Gaming...................................................... $ 9,013 $ 9,787
Less: allowance for doubtful accounts....................... (3,793) (2,892)
------- -------
5,220 6,895
Non-gaming:
Hotel and related........................................ 398 379
Other.................................................... 2,756 1,902
------- -------
3,154 2,281
Less: allowance for doubtful accounts....................... (101) (34)
------- -------
3,053 2,247
------- -------
Receivables, net............................................ $ 8,273 $ 9,142
======= =======
5. PROPERTY AND EQUIPMENT
Components of property and equipment were as follows at December 31:
2001 2000
----------- -------------
(SUCCESSOR) (PREDECESSOR)
Land and land rights........................................ $ 36,886 $ 83,147
Land improvements........................................... -- 1,028
Hotels and other buildings.................................. 71,829 170,821
Furniture, fixtures and equipment........................... 12,800 42,008
Construction in progress.................................... 9,090 1,478
-------- --------
130,605 298,482
Less-accumulated depreciation............................... (4,466) (40,704)
-------- --------
Net property and equipment.................................. $126,139 $257,778
======== ========
F-18
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. DEFERRED CHARGES AND OTHER ASSETS
Components of deferred charges and other assets were as follows at
December 31:
2001 2000
----------- -------------
(SUCCESSOR) (PREDECESSOR)
CRDA deposits, bonds and other investments, net........... $18,535 $18,413
Debt issuance costs, net.................................. 2,471 4,677
Other..................................................... 1,485 477
------- -------
$22,491 $23,567
======= =======
The New Jersey Casino Control Act, as amended, requires RIH to purchase
bonds issued by the Casino Reinvestment Development Authority (CRDA) or make
other investments authorized by the CRDA, in an amount equal to 1.25% of RIH's
gross gaming revenue, as defined.
The CRDA bonds have interest rates ranging from 3.5% to 7.0% and have
repayment terms of between 20 and 50 years. The Companies record charges to
expense to reflect the below-market interest rate payable on the bonds it may
have to purchase to fulfill its investment obligation at the date the
obligation arises. The charges for the period from April 25, 2001 to December
31, 2001, the period from January 1, 2001 to April 24, 2001, and for the years
ended December 31, 2000 and 1999 for discounts on obligations arising in those
years were $660, $287, $816 and $601, respectively. The discount on CRDA bonds
purchased is amortized to interest income over the life of the bonds using the
effective interest method.
From time to time RIH has donated certain funds it has had on deposit
with the CRDA in return for either relief from its obligation to purchase CRDA
bonds or credits against future CRDA deposits. At December 31, 2001, RIH owned
$4,967 face value of bonds issued by the CRDA and had $21,808 on deposit with
the CRDA.
Debt issuance costs consist of amounts incurred in connection with
obtaining long-term debt. The costs are amortized over the contractual life of
the loan and amortization is included in interest expense.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Components of accrued expenses and other current liabilities were as
follows at December 31:
2001 2000
----------- -------------
(SUCCESSOR) (PREDECESSOR)
Insurance and related costs............................... $ 1,715 $ 1,339
Payroll................................................... 8,099 7,548
Unredeemed chip liability................................. 1,136 1,170
Due to affiliates......................................... - 7,893
Other..................................................... 10,324 8,798
------- -------
$21,274 $26,748
======= =======
8. NOTES PAYABLE TO AFFILIATES
In conjunction with the acquisition, CRH issued a $17.5 million note to
SINA (the "Seller Note"). The Seller Note is subordinate to the term loans and
has a 7-year term. The loan bears interest at 12.5% per annum of which 6.25% is
payable in cash and 6.25% is payable in kind. There is no amortization of
principal on this loan.
F-19
RESORT INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO FINANCIAL CONSOLIDATED STATEMENT--(CONTINUED)
8. NOTES PAYABLE TO AFFILIATES (CONTINUED)
Principal is due in full on April 25, 2008. In conjunction with the
acquisition, CRA issued a note to RIHC with terms that mirror the Seller Note.
In February 1999, SIHL and SINA (the "Issuers") issued $200,000 principal
amount of 9% Senior Subordinated Notes due 2007 (the "Senior Notes") which,
after costs, resulted in net proceeds of approximately $194,000. These proceeds
were loaned to the Predecessor in exchange for a $200,000 promissory note (the
"Predecessor Note") with terms that mirror the terms of the Senior Notes, and
the Predecessor's guarantee of the Senior Notes. The outstanding balance on the
Predecessor Notes was $199,337 at December 31, 2000. Interest on both the
Senior Notes and the Predecessor Note was payable on March 15 and September 15
in each year. These payments commenced September 15, 1997 with an interest
payment of $9,550. The Predecessor Notes were repaid as a part of the
Acquisition (see Note 1).
9. LONG-TERM DEBT
Long-term debt is summarized as follows at December 31:
2001 2000
----------- -------------
(SUCCESSOR) (PREDECESSOR)
Revolving credit facility................................. $ 4,000 $ --
Term loans................................................ 74,700 --
Other notes payable....................................... 2,013 581
Other financing........................................... -- 79,000
------- -------
80,713 79,581
Less: current portion..................................... 10,229 581
------- -------
$70,484 $79,000
======= =======
In conjunction with the Acquisition, RIHC borrowed $82,000 under an
Amended and Restated Credit Agreement, dated April 25, 2001, from the lenders
named therein (the "Credit Facility"). The Credit Facility is comprised of
$80,000 in term loans (Term Loan A for $25,000 and Term Loan B for $55,000) and
a $10,000 revolving credit facility. The loans under the Credit Facility are
secured by substantially all of the assets of CRH, RIHC and RIH and all of the
capital stock of RIHC and RIH. The revolving credit facility will mature on
April 25, 2006, Term Loan A will mature on the last business day of December
2005, and Term Loan B will mature on the last business day of March 2007. The
principal payments of the Term Loans are being paid on a quarterly basis, which
commenced on June 29, 2001. Interest on borrowings outstanding shall be either
at LIBOR or an alternative base rate, plus an applicable margin in each case.
In the future the applicable margins may be changed, based on RIHC's leverage
ratio, as defined in the credit agreement. As of December 31, 2001, the Company
had $20,000 outstanding on Term Loan A, and $54,700 outstanding on Term Loan B,
and $4,000 outstanding on the Revolving Credit Facility.
The Credit Facility and Seller Note contain a number of covenants that,
among other things, restrict the ability of CRH, RIHC, and their subsidiaries,
to incur additional indebtedness, create liens on assets, dispose of assets,
make investments, loans, or advances, engage in mergers or consolidations, pay
dividends, engage in certain transactions with affiliates, change their
respective line of business and otherwise restrict certain corporate
activities. In addition, under the Credit Facility, RIHC, and its subsidiaries,
are required to maintain specified financial ratios, satisfy specified
financial tests, including interest coverage and leverage tests, and are
limited on capital expenditures. The Credit Facility contains events of default
customary for facilities of this nature. At December 31, 2001, the Company and
its subsidiaries were in compliance with all financial covenants.
F-20
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
On August 17, 2001, the Company financed the purchase of $2,100 of gaming
equipment. The agreement is for three years with monthly payments of principal
and interest with an annual interest rate equal to LIBOR plus 3.25%. As of
December 31, 2001, the outstanding balance was $1,795.
During August 1999, SIHL entered into a term credit facility (the "SIHL
Facility") with a syndicate of banks led by The Bank of Nova Scotia and Societe
General under which RIH is a borrower along with SIHL and Sun International
Bahamas Limited, a wholly owned subsidiary of SIHL. Through December 31, 2000,
funds borrowed on the SIHL Facility by RIH amounted to $79,000. Funds borrowed
on the facility were repaid at the Acquisition (see Note 1) and RIH is no
longer a party to the SIHL Facility.
Due to the interest rates and terms thereof, the carrying values of the
Company's long-term debt approximates their fair values as of December 31, 2001
and 2000.
10. RELATED PARTY TRANSACTIONS
The Predecessor recorded the following expenses from SINA and its other
subsidiaries for the following periods:
YEAR ENDED
DECEMBER 31,
2000 1999
------- -------
Expenses:
Interest and amortization of discounts on notes payable to SINA........... $18,075 $16,598
Interest and amortization of premiums on notes payable to other affiliate. -- 393
Management fee............................................................ 6,573 8,093
Marketing services........................................................ 1,210 1,690
Amortization of debt issuance costs....................................... 531 390
Property rentals from SINA................................................ 244 325
Billboard rental from affiliate........................................... 38 50
------- -------
$26,671 $27,539
======= =======
SINA charged RIH a management fee of three percent of gross revenues for
administrative and other services. In addition to the management fee, charges
for insurance costs were allocated to RIH based on relative amounts of
operating revenue, payroll, property value, or other appropriate measures. The
management fee and other charges were discontinued as of October 1, 2000 in
connection with the Purchase Agreement discussed in Note 1.
In connection with the Acquisition discussed in Note 1, RIH was not
liable for payment of related party balances, including borrowings from SIHL or
SINA.
During the period from April 25, 2001 to December 31, 2001, the Company
paid approximately $320 for fees and expenses incurred by affiliates of Colony
Capital, our principal stockholder, and our directors.
11. RETIREMENT PLANS
RIH has a defined contribution plan in which substantially all non-union
employees are eligible to participate. Employees of certain other affiliated
companies are also eligible to participate in this plan. Contributions are made
to the plan based on a percentage of eligible employee contributions.
Contribution
F-21
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. RETIREMENT PLANS (CONTINUED)
expense for this plan was $436, $209, $665 and $676 for the period from April
25, 2001 to December 31, 2001, the period from January 1, 2001 to April 24,
2001, and for the years ended December 31, 2000 and 1999, respectively.
Union employees are covered by various multi-employer pension plans to
which contributions are made by RIH and other unrelated employers. RIH's
pension expense for these plans was $1,009, $437, $1,192 and $1,216 for the
period from April 25, 2001 to December 31, 2001, the period from January 1,
2001 to April 24, 2001, and for the years ended December 31, 2000 and 1999,
respectively.
12. INCOME TAXES
Income tax expense is comprised of the following for the period from
April 25, 2001 to December 31, 2001:
(SUCCESSOR)
Current :
Federal.................................................. $5,830
State.................................................... --
------
5,830
Deferred:
Federal.................................................. (784)
State.................................................... --
------
(784)
------
$5,046
======
The components of the deferred tax liabilities were as follows at
December 31:
2001 2000
----------- -------------
(SUCCESSOR) (PREDECESSOR)
Deferred tax liabilities:
Basis differences on property and equipment.............. $(1,730) $(44,300)
Other.................................................... -- (1,500)
------- --------
Total deferred tax liabilities....................... (1,730) (45,800)
Deferred tax assets:
NOL carryforwards........................................ 5,302 86,800
Book reserves not yet deductible for tax................. 1,812 11,900
Tax credit carryforwards................................. -- 800
Other.................................................... 1,289 6,900
------- --------
Total deferred tax assets............................ 8,403 106,400
Valuation allowance for deferred tax assets.............. (5,498) (96,057)
------- --------
Deferred tax assets, net of valuation allowance.......... 2,905 10,343
------- --------
Net deferred tax assets (liabilities)....................... $ 1,175 $(35,457)
======= ========
F-22
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES (CONTINUED)
The effective income tax rate varies from the statutory Federal income
tax rate as a result of the following factors:
PERIOD FROM PERIOD FROM
APRIL 25, 2001 JANUARY 1, 2001
TO DECEMBER 31, TO APRIL 24, YEAR ENDED DECEMBER 31,
2001 2001 2000 1999
--------------- --------------- ------------- -------------
(SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)
Statutory Federal income tax rate........... 35.0% 35.0% 35.0% 35.0%
Non-deductible items and other miscellaneous
matters................................... 4.5% (25.6)% (28.0%) (32.2%)
Nondeductible provisions and expenses....... -- (9.4)% (7.0%) (2.8%)
---- ----- ----- -----
Effective tax rate.......................... 39.5% 0.0% 0.0% 0.0%
==== ===== ===== =====
At December 31, 2001, the Company has a state net operating loss
carryforward of approximately $90,500. The carryforward will expire as follows:
2004, $27,200; 2005, $2,400; 2006, $40,200; and 2007, $20,700. The Company has
reported a full valuation allowance against the carryforward because it does
not expect to realize the tax benefit.
13. COMMON STOCK AND STOCK BASED COMPENSATION
In connection with the acquisition discussed in Note 3, CRH established
the 2001 Omnibus Stock Incentive Plan (the "Plan"). Awards denominated or
payable in shares or options to purchase shares of CRH's common stock may be
granted to officers and other key employees and consultants of CRH and its
subsidiaries. The Plan permits the granting of up to 2,131 shares of Class A
Common Stock and 43,122 shares of Class B Common Stock. The Board of Directors
has sole discretion concerning administration of the Plan, including the
determination of award goals, individuals to receive awards, types of awards,
the terms and conditions of the awards, and the time at which awards will be
granted. The Board of Directors may terminate the Plan at any time.
The exercise price for awards issued under the Plan is determined by the
Board of Directors and is generally equal to the fair market value of the
underlying common stock at the date of the grant. During the period from April
25, 2001 to December 31, 2001, the Company granted 1,789 options to purchase
Class A common shares and 36,204 options to purchase Class B common shares. All
of the Class A options were granted with an exercise price of $.0475 per share
and all of the Class B common shares were granted with an exercise price of
$100.00 per share. These exercise prices were determined to be the fair market
value of the common stock on the date of grant.
Of the options granted during the period ended December 31, 2001, 555
options to purchase Class A common shares and 11,188 options to purchase Class
B common shares were granted to an independent contractor and were immediately
vested as a part of the closing of the Acquisition. The fair value of these
options was approximately $291 on the Acquisition date, and this amount has
been recorded as a part of the cost of the Acquisition.
An additional 550 options to purchase Class A common shares and 11,180
options to purchase Class B common shares were also issued to an independent
contractor on the Acquisition date. A portion of these options (275 Class A and
5,590 Class B) vest in equal installments (55 Class A and 1,118 Class B) from
April 2002 to April 2006, and a portion of these options (275 Class A and 5,590
Class B) vest upon the Company meeting specified performance targets. All of
these options may be put back to the Company or called by the Company in
F-23
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMON STOCK AND STOCK BASED COMPENSATION (CONTINUED)
certain circumstances as defined in the agreement; accordingly, for financial
accounting purposes, these awards are re-measured at the end of each reporting
period using the fair value method and changes in fair value are recorded as
compensation expense until the options are exercised.
The remaining Class A options (684) and Class B options (13,836) were
granted to employees during the period. These options vest only if the Company
meets specified annual performance targets. The Company met the financial
targets for the period ended December 31, 2001; accordingly, 135 Class A
options and 2,767 Class B options became vested on that date. All of these
options may be called by the Company in certain circumstances as defined in the
agreement. For financial accounting purposes, these awards are re-measured at
the end of each reporting period using the intrinsic value method and changes
in intrinsic value are recorded as compensation expense at the end of each
reporting period until the options are exercised.
Compensation expense recognized on all stock option awards for the period
from April 25, 2001 to December 31, 2001 was approximately $88.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow disclosures were as follows:
PERIOD FROM PERIOD FROM
APRIL 25, 2001 TO JANUARY 1, 2001
DECEMBER 31, TO APRIL 24, YEAR ENDED DECEMBER 31,
2001 2001 2000 1999
----------------- --------------- ------------- -------------
(SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)
Non-cash investment and financing transactions:
Adjustment to capital in excess of par............. $ -- $ -- $ -- $ 373
Refinancing of obligations under capital leases.... $ -- $ -- $ -- $1,444
Property and equipment acquired under capital lease
obligations...................................... $ 299 $ -- $1,417 $ 814
Note payable issued in connection with Acquisitions $17,500 $ -- $ -- $ --
15. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Companies are a defendant in certain litigation. In the opinion of
management, based upon advice of counsel, the aggregate liability, if any,
arising from such litigation will not have a material adverse effect on the
financial position, results of operations, or liquidity of the Company.
LICENSE RENEWAL
On January 19, 2000, the New Jersey Casino Control Commission (the "CCC")
renewed RIH's license to operate its casino hotel complex in Atlantic City. A
casino license is not transferable, and must be renewed every four years by
filing an application, which must be acted upon by the CCC no later than 30
days prior to the expiration of the license there in force.
F-24
RESORTS INTERNATIONAL HOTEL AND CASINO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
COMMITMENTS
The Company leases land, office space and certain equipment under
noncancelable operating lease arrangements. These leases expire in various
years. Rent expense under these lease agreements for the period from April 25,
2001 to December 31, 2001, the period from January 1, 2001 to April 24, 2001,
and for the years ended December 31, 2000, and 1999 was approximately $3,100,
$433, $1,400 and $975, respectively. Future minimum lease payments under
noncancelable operating leases consist of the following at December 31, 2001:
2002........................................................ $ 3,809
2003........................................................ 2,409
2004........................................................ 2,088
2005........................................................ 2,088
2006 and thereafter......................................... 24,872
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Total....................................................... $35,266
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16. SUBSEQUENT EVENT
On March 22, 2002, RIHC sold $180,000 aggregate principal amount of
11 1/2% First Mortgage Notes at a price of 97.686% yielding $175,800. Interest
on the First Mortgage Notes is payable on March 15th and September 15th of each
year. The First Mortgage Notes are due in March 2009. The proceeds from the
First Mortgage Notes were used to repay amounts outstanding under the Credit
Facility (see Note 9) and the Seller Note (see Note 8) and will be used to
finance the cost to develop, construct, and equip a new hotel tower.
On March 22, 2002, CRH issued 17,295 shares of class A common stock at a
cash price of $0.0475 and 349,992 shares of class B common stock at a price of
$100 to our existing shareholders for a total price of approximately $35.0
million. Of this amount, $10.0 million has been deposited in a liquidity
disbursement account to be used for working capital in the event RIHC's
Adjusted Consolidated EBITDA for any four fiscal quarter period ending on or
prior to December 31, 2004 is less than $28.0 million.
On March 22, 2002, in conjunction with repayment of the Credit Facility,
CRH terminated its two outstanding interest rate collar agreements (see Note 2).
RIHC has no independent assets or operations and owns 100 percent of RIH
and New Pier Operating Company, Inc. RIH and New Pier Operating Company, Inc.
guarantee the First Mortgage Notes pursuant to the terms of the Indenture. The
guarantees are full and unconditional and joint and several. New Pier Operating
Company owns certain land and has no operating activities. There are no
significant restrictions on the ability of RIHC to obtain funds from the
guarantors by dividend or by loan.
F-25
SCHEDULE II
RESORTS INTERNATIONAL HOTEL, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
CHARGED
BALANCE AT TO COSTS OTHER BALANCE
BEGINNING AND CHANGES AT END OF
OF PERIOD EXPENSES (DEDUCTIONS) PERIOD
---------- -------- ------------ ---------
PREDECESSOR:
Year ended December 31, 1999
Allowances for doubtful accounts............ $ 2,402 $1,465 $(1,251)(a) $ 2,616
Valuation allowance for CRDA investments.... $12,725 $ 601 $(3,349)(b) $ 9,977
Year ended December 31, 2000
Allowances for doubtful accounts............ $ 2,616 $1,160 $ (850)(a) $ 2,926
Valuation allowance for CRDA investments.... $ 9,977 $ 816 $ (13) $10,780
Period from January 1, 2001 to April 24, 2001
Allowances for doubtful accounts............ $ 2,926 $ 517 $ 4 $ 3,447
Valuation allowance for CRDA investments.... $10,780 $ 287 $ (7) $11,060
SUCCESSOR:
Period from April 25, 2001 to December 31, 2001
Allowances for doubtful accounts............ $ 3,447 $1,038 $ (591)(a) $ 3,894
Valuation allowance for CRDA investments.... $11,060 $ 660 $(1,827)(c) $ 9,893
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(a)Write-off uncollectible amounts.
(b)Includes the write-off of $3,336 of Vermont Plaza Bonds.
(c)Includes the write-off of $991 of CRDA Convention Center Hotel Bonds.
F-26
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$180,000,000
[LOGO]
RESORTS INTERNATIONAL
HOTEL AND CASINO, INC.
11 1/2% FIRST MORTGAGE NOTES DUE 2009
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PROSPECTUS
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JUNE 3, 2002
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