As filed with the Securities and Exchange Commission on April 30, 2002
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CIRCUS AND ELDORADO JOINT VENTURE SILVER LEGACY CAPITAL CORP.
(Exact name of registrants as specified in their charters)
Nevada 7011 88-0310787
Nevada (Primary Standard 71-0868362
(State or other Industrial (I.R.S. Employer
jurisdiction Classification Code Identification Numbers)
of incorporation or Number)
organization)
407 North Virginia Street
Reno, Nevada 89501
(800) 687-7733
(Address, including zip code, telephone number, including area code, of
registrants' principal executive offices)
-----------------
Gary L. Carano
Chief Executive Officer
407 North Virginia Street
Reno, Nevada 89501
(800) 687-7733
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of all communications to:
Howell J. Reeves
Wolf, Block, Schorr and Solis-Cohen LLP
1650 Arch Street, 22nd Floor
Philadelphia, Pennsylvania 19103
(215) 977-2000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_] _
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Proposed
Amount maximum maximum
Title of each class of to be offering price aggregate Amount of
securities to be registered registered per Note(1) offering price(1) registration fee
- -------------------------------------------------------------------------------------------------------
10 1/8% Series B Mortgage Notes due 2012 $160,000,000 100% $160,000,000 $14,720
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- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell or offer these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 30, 2002
PROSPECTUS
[LOGO] Crest of Silver Legacy CIRCUS AND ELDORADO JOINT VENTURE
[LOGO] Logo of Silver Legacy SILVER LEGACY CAPITAL CORP.
Offer to Exchange
their 10 1/8% Mortgage Notes due 2012,
Which Have Been Registered Under
the Securities Act of 1933, for any and all of
their Outstanding 10 1/8% Mortgage Notes due 2012
-----------------
The Exchange Notes
. The terms of the notes Circus and Eldorado Joint Venture and Silver
Legacy Capital Corp. are issuing will be substantially identical to the
outstanding notes that they issued on March 5, 2002, except for the
elimination of some transfer restrictions, registration rights and
liquidated damages provisions relating to the outstanding notes.
. Interest on the notes will accrue at the rate of 10 1/8% per year,
payable semi-annually in cash in arrears on each March 1 and September 1,
beginning September 1, 2002, and the notes will mature on March 1, 2012.
. The notes will be senior secured obligations and will rank equally with
all of our existing and future senior indebtedness and senior to all of
our existing and future subordinated indebtedness. The notes will
effectively rank junior to our senior secured credit facility to the
extent of the value of the property securing that indebtedness.
. The notes will be secured by a security interest in substantially all of
our existing and future assets which will be subordinate to the security
interest securing our obligations under our senior secured credit
facility. Subject to the approval of the Nevada gaming authorities, each
of our joint venture partners will execute a pledge of all of its
partnership interests in Circus and Eldorado Joint Venture to secure the
notes.
. The notes will be redeemable on or after March 1, 2007. In addition, we
may redeem up to 35% of the notes before March 1, 2005 with the net cash
proceeds from specified equity offerings.
Material Terms of the Exchange Offer
. The exchange offer expires at 5:00 p.m., New York City time, on
, 2002, unless extended.
. Our completion of the exchange offer is subject to customary conditions,
which we may waive.
. Upon our completion of the exchange offer, all outstanding notes that are
validly tendered and not withdrawn will be exchanged for an equal
principal amount of notes that are registered under the Securities Act of
1933.
. Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
. The exchange of registered notes for outstanding notes will not be a
taxable exchange for U.S. Federal income tax purposes.
. We will not receive any proceeds from the exchange offer.
For a discussion of factors that you should consider before participating
in this exchange offer, see "Risk Factors" beginning on page 10 of this
prospectus.
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Neither the Securities and Exchange Commission, the Nevada Gaming
Commission, the Nevada State Gaming Control Board, nor any state securities
commission or other gaming authority, has passed on the adequacy or accuracy of
this prospectus or the investment merits of the notes offered hereby. Any
representation to the contrary is a criminal offense.
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The date of this prospectus is , 2002.
We have not authorized any dealer, salesman or other person to give any
information or to make any representation other than those contained or
incorporated by reference in this prospectus. You must not rely upon any
information or representation not contained or incorporated by reference in
this prospectus as if we had authorized it. This prospectus does not constitute
an offer to sell or the solicitation of an offer to buy any securities other
than the registered securities to which it relates, nor does this prospectus
constitute an offer to sell or the solicitation of an offer to buy securities
in any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
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TABLE OF CONTENTS
Summary.............................................................................. 1
Risk Factors......................................................................... 10
Forward-Looking Statements........................................................... 23
Use of Proceeds...................................................................... 24
Capitalization....................................................................... 25
Selected Financial Information....................................................... 26
Management's Discussion and Analysis of Financial Condition and Results of Operations 28
Business............................................................................. 34
Regulation and Licensing............................................................. 43
Management........................................................................... 49
Security Ownership of Certain Beneficial Owners and Management....................... 55
Certain Relationships and Related Transactions....................................... 57
Description of Other Indebtedness.................................................... 59
The Partnership Agreement............................................................ 62
The Exchange Offer................................................................... 67
Description of the Notes............................................................. 79
Certain Federal Tax Consequences..................................................... 123
Plan of Distribution................................................................. 126
Legal Matters........................................................................ 127
Experts.............................................................................. 127
Available Information................................................................ 127
Index to Consolidated Financial Statements........................................... F-1
i
SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all the information that may be important to you. You
should read this entire prospectus, including the consolidated financial data
and related notes, before making an investment decision. The terms "we," "our,"
"us" and "Issuers," as used in this prospectus, refer to Circus and Eldorado
Joint Venture and Silver Legacy Capital Corp. as a combined entity, except
where it is clear that the terms mean only Circus and Eldorado Joint Venture or
Silver Legacy Capital Corp. When we use the term "Partnership" it refers only
to Circus and Eldorado Joint Venture, and when we use the term "Capital" it
refers only to Silver Legacy Capital Corp. The term "Silver Legacy" refers to
the Silver Legacy Resort Casino. References to the Circus Circus Hotel and
Casino refer to the hotel-casino by that name located in Reno, Nevada. When we
use the term "Reno market" we are referring to the Reno and Sparks areas as
delineated by the Nevada Gaming Control Board. The term "old notes" refers to
our outstanding 10 1/8 Mortgage Notes due 2012 that we issued on March 5, 2002
and that have not been registered under the Securities Act of 1933. The term
"exchange notes" refers to the 10 1/8% Mortgage Notes due 2012 offered by this
prospectus. The term "notes" refers to the old notes and the exchange notes
collectively.
Silver Legacy
Overview
Circus and Eldorado Joint Venture, a Nevada general partnership which is a
joint venture between affiliates of Mandalay Resort Group and Eldorado Resorts
LLC, owns and operates the Silver Legacy Resort Casino, a premier nineteenth
century silver mining themed hotel-casino and entertainment complex in Reno,
Nevada. Silver Legacy is among the largest hotel-casinos in the Reno market. We
have established Silver Legacy as a "must see" destination resort for Reno
visitors by creating an exciting, luxurious atmosphere. We offer a dynamic
gaming environment and a wide variety of amenities delivered with special
attention to personal service to appeal to our multiple customer segments,
including preferred casino players.
Silver Legacy opened in July 1995, with a capital investment of over $360
million, and is strategically located on two city blocks in downtown Reno
directly off Interstate 80, the principal highway connecting Reno with San
Francisco, Sacramento and other cities in northern California. The casino and
entertainment areas at Silver Legacy are seamlessly connected to the Eldorado
Hotel & Casino and the Circus Circus Hotel and Casino by 200-foot wide skyway
corridors, comprising the heart of the Reno market's prime gaming area and room
base. As of December 31, 2001, Silver Legacy offered the following features and
amenities:
. an approximately 87,300 square-foot casino with 2,112 slot and video
poker machines, 82 table games, a keno lounge and a race and sports book;
. a 37-story hotel tower with 1,710 guest rooms, including 145 player spa
suites and eight penthouse suites;
. six dining venues, including an award-winning steakhouse and a
multi-cuisine buffet;
. approximately 90,000 square feet of meeting, convention and entertainment
space, including the approximately 40,000 square-foot City Center
Pavilion, located on an adjacent special events plaza owned by our
affiliates;
. Catch a Rising Star, a 220-seat, nationally recognized comedy club;
. a 10-story parking facility capable of accommodating approximately 1,800
vehicles; and
. additional amenities including four bars and lounges, custom retail
shops, a spa/exercise facility, a video arcade and an outdoor swimming
pool/sundeck.
1
We carefully target our marketing programs to five segments of the gaming
market: free and independent travelers, preferred casino customers, convention
groups, local patrons and wholesale/specialty groups. We attract our target
customers through newspaper, radio, television and direct mail campaigns
locally and in northern California, the Pacific northwest and other regional
travel markets. Silver Legacy utilizes a broad special events calendar along
with our guest development program, including selective casino credit, to
attract and retain our target customers. In addition, we utilize our hotel
rooms, restaurants and other amenities to offer complimentaries to a broad
spectrum of established casino guests. "Club Legacy," Silver Legacy's players
club, offers customers exciting special events and tournaments and convenient
ways of earning complimentaries. The convention and wholesale/specialty market
segments contribute to our hotel occupancy during slower mid-week periods. For
the twelve months ended December 31, 2001, our average occupancy rate was 83.4%
compared to 76.9% for the Reno market.
Competitive Strengths
Silver Legacy offers our guests a fully integrated gaming, lodging, dining
and entertainment experience in a convenient downtown Reno location. We believe
the quality of our amenities enables us to attract multiple customer segments
from the local area, northern California, the Pacific northwest and other
regional travel markets.
Premier "Must See" Resort Casino. We believe Silver Legacy is a "must see"
attraction for Reno visitors and residents as the only major newly-constructed
hotel-casino in the Reno market since 1978. A uniquely themed mega-resort, the
property's design is inspired by Nevada's rich mining heritage and the legend
of Sam Fairchild, a fictitious silver baron who "struck it rich" on the site of
the casino. Silver Legacy's opulent interior showcases a casino built around
Sam Fairchild's famed 120-foot tall mining rig, which appears to mine for
silver. The rig is situated beneath a 180-foot diameter dome, which is a
distinctive landmark on the Reno skyline. The interior surface of the dome
features dynamic sound and laser light shows, providing visitors with a unique
experience when they are in the casino.
Center of Tri-Property Destination Resort. Silver Legacy, together with the
Eldorado and Circus properties, comprises the heart of the Reno market's prime
gaming area and room base, providing the most extensive variety of gaming,
lodging, dining and entertainment amenities in the Reno area. As of December
31, 2001, the tri-property complex offered 4,099 rooms, 20 restaurants, 5,534
slot machines, 233 table games and parking to accommodate over 6,000 vehicles,
representing approximately 27% of the Reno market's total room base and 24% of
the Reno market's total slot machine and table games. We believe that the
centralized location and critical mass of these three properties, together with
the seamless connections between the facilities, provide Silver Legacy with
significant advantages over other freestanding hotel-casinos in the Reno market.
Headliner Entertainment and Premium Dining. Our customers are attracted to
Silver Legacy's entertainment and award-winning cuisine. Each year,
approximately 50 nights of headliner entertainment are scheduled in our
1,600-seat Grande Exposition Hall or the 3,400-seat City Center Pavilion,
making Silver Legacy the leading entertainment venue in the Reno market.
Entertainers who appeared during 2001 include Jay Leno, Chicago, Michael Bolton
and George Carlin. Recent enhancements include the opening of Rum Bullions
Island Bar, a tropical-themed bar and lounge with nightly entertainment, and
the expansion of our race and sports book, including a new sports-themed bar.
Quality Personal Service. We are committed to providing our customers with
a high level of personal service, which we believe is an integral part of
fostering customer loyalty and generating repeat business. We continually
strive to instill in each employee a dedication to superior service designed to
exceed our guests' expectations.
2
Experienced Management Team. Silver Legacy has an experienced management
team with an average of more than 20 years of experience in the Reno gaming
market. All of our senior management have been with Silver Legacy since its
opening in July 1995. We also benefit from the expertise of our joint venture
partners and the leadership they provide through our executive committee, which
includes senior executives from Eldorado Resorts LLC and Mandalay Resort Group.
Reno Market
The Reno market is the eighth largest gaming market in the United States,
generating approximately $1.0 billion of gaming revenues for the twelve months
ended December 31, 2001. As of December 31, 2001, the Reno market featured
approximately 15,459 hotel rooms, 23,386 slot machines and 676 table games. For
the twelve months ended December 31, 2001, the Reno market had an estimated
76.9% average hotel occupancy rate.
Reno is the second largest metropolitan area in Nevada, with a population of
approximately 340,000 according to the most recently available U.S. Census
data, and is located at the base of the Sierra Nevada Mountains along
Interstate 80, approximately 135 miles east of Sacramento, California and 225
miles east of San Francisco, California. Reno is a destination resort market
that primarily attracts "drive-in" visitors by offering gaming as well as
numerous other summer and winter recreational activities. Management believes
that approximately two-thirds of visitors to the Reno market arrive by some
form of ground transportation. Popular special events include the National
Championship Air Races, the Reno-Tahoe Open PGA tour event and Hot August
Nights, a vintage car event. In addition, the National Bowling Stadium, located
one block from Silver Legacy, is the largest bowling complex in North America
and has been selected to host multi-month tournaments in Reno two out of every
three years through 2009, of which 2002 is a non-tournament year. According to
the Reno-Sparks Convention & Visitors Authority, the greater Reno area
attracted an estimated 5.2 million visitors for the twelve months ended June
30, 2001 and 2000.
-----------------
Our executive offices are located at the Silver Legacy Resort Casino at 407
North Virginia Street, Reno, Nevada 89501, and our telephone number is (800)
687-7733
3
Summary of the Exchange Offer
The Exchange Offer.......... We are offering to exchange $1,000 principal
amount of our exchange notes for each $1,000
principal amount of old notes. As of the date of
this prospectus, $160 million in aggregate
principal amount of old notes are outstanding.
We have registered the exchange notes under the
Securities Act of 1933 and they are substantially
identical to the old notes, except for the
elimination of some transfer restrictions,
registration rights and liquidated damages
provisions relating to the old notes.
Accrued Interest on the
Exchange Notes and the Old
Notes..................... Interest on the exchange notes will accrue from
the last interest payment date on which interest
was paid on the old notes or, if no interest was
paid on the old notes, from the date of issuance
of the old notes, which was on March 5, 2002.
Holders whose old notes are accepted for exchange
will be deemed to have waived the right to
receive any interest accrued on the old notes.
No Minimum Condition........ We are not conditioning the exchange offer on the
tender of any minimum principal amount of old
notes.
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, on , 2002, unless we
decide to extend the exchange offer.
Withdrawal Rights........... You may withdraw your tender at any time prior to
5:00 p.m., New York City time, on the expiration
date.
Conditions to the Exchange
Offer..................... The exchange offer is subject to customary
conditions, which we may waive. We currently
anticipate that each of the conditions will be
satisfied and that we will not need to waive any
conditions. We reserve the right to terminate or
amend the exchange offer at any time before the
expiration date if any of the conditions occurs.
For additional information, see the section "The
Exchange Offer--Certain Conditions to the
Exchange Offer."
Procedures for Tendering Old
Notes..................... If you are a holder of old notes who wishes to
accept the exchange offer, you must:
. complete, sign and date the accompanying
letter of transmittal, or a facsimile of the
letter of transmittal, and mail or otherwise
deliver the letter of transmittal, together
with your old notes, to the exchange agent at
the address set forth in the section "The
Exchange Offer--Exchange Agent"; or
. arrange for The Depository Trust Company to
transmit certain required information,
including an agent's message forming part of
a book-entry transfer in which you agree to
be bound by the terms of the letter of
transmittal, to the exchange agent in
connection with a book-entry transfer.
4
By tendering your old notes in either manner, you
will be representing among other things, that:
. the exchange notes you receive pursuant to
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 the exchange notes
issued to you in the exchange offer; and
. you are not an "affiliate" of ours.
Special Procedures for
Beneficial Owners......... If you beneficially own old notes registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and you wish to
tender your old notes in the exchange offer, you
should contact the registered holder promptly and
instruct it to tender on your behalf. If you wish
to tender on your own behalf, you must, prior to
completing and executing the letter of
transmittal and delivering your old notes, either
arrange to have your old notes registered in your
name or obtain a properly completed bond power
from the registered holder. The transfer of
registered ownership may take considerable time.
Guaranteed Delivery
Procedures................ If you wish to tender your old notes and time
will not permit your required documents to reach
the exchange agent by the expiration date, or the
procedures for book-entry transfer cannot be
completed on time, you may tender your old notes
according to the guaranteed delivery procedures
described in the section "The Exchange
Offer--Procedures for Tendering Old Notes."
Acceptance of Old Notes and
Delivery of Exchange
Notes.................... We will accept for exchange all old notes which
are properly tendered in the exchange offer prior
to 5:00 p.m., New York City time, on the
expiration date. The exchange notes issued in the
exchange offer will be delivered promptly
following the expiration date. For additional
information, see the section "The Exchange
Offer--Acceptance of Old Notes for Exchange;
Delivery of Exchange Notes."
Use of Proceeds............. We will not receive any proceeds from the
issuance of exchange notes in the exchange offer.
We will pay for our expenses incident to the
exchange offer.
Federal Income Tax
Consequences.............. The exchange of exchange notes for old notes in
the exchange offer will not be a taxable event
for federal income tax purposes. For additional
information, see the section "Material Federal
Income Tax Consequences of the Exchange."
Effect on Holders of Old
Notes..................... As a result of this exchange offer, we will have
fulfilled a covenant contained in the
registration rights agreement dated as of March
5, 2002 among Circus and Eldorado Joint Venture
and Silver Legacy Capital Corp. as issuers and
Banc of America Securities LLC as
5
representative for the initial purchasers named
in the agreement and, accordingly, there will be
no increase in the interest rate on the old
notes. If you do not tender your old notes in the
exchange offer:
. you will continue to hold the old notes and
will be entitled to all the rights and
limitations applicable to the old notes under
the indenture governing the notes, except for
any rights under the registration rights
agreement that terminate as a result of the
completion of the exchange offer; and
. you will not have any further registration or
exchange rights and your old notes will
continue to be subject to restrictions on
transfer. Accordingly, the trading market for
untendered old notes could be adversely
affected.
Exchange Agent.............. The Bank of New York is serving as exchange agent
in connection with the exchange offer.
Summary of the Exchange Notes
Issuers..................... Circus and Eldorado Joint Venture, a Nevada
general partnership, and Silver Legacy Capital
Corp., a Nevada corporation wholly owned by
Circus and Eldorado Joint Venture. Neither of our
joint venture partners nor their parent companies
will be responsible for our obligations under the
exchange notes.
Total Amount of Exchange
Notes Offered............. $160 million in principal amount of 10 1/8%
mortgage notes due 2012.
Maturity.................... March 1, 2012.
Interest.................... 10 1/8% per year.
Interest Payment Dates...... March 1 and September 1, beginning September 1,
2002.
Optional Redemption......... We will have the right to redeem some or all of
the notes on or after March 1, 2007 at the
redemption prices described in the section
"Description of the Notes -- Optional Redemption."
Prior to March 1, 2005, we may redeem up to 35%
of the notes with the net cash proceeds from
specified equity offerings at the redemption
price described in the section "Description of
the Notes -- Optional Redemption." We may,
however, only make these redemptions if at least
$104 million aggregate principal amount of the
notes remains outstanding after the redemptions.
Regulatory Redemption....... The notes will be subject to redemption
requirements imposed by gaming laws and
regulations of the State of Nevada and other
gaming authorities that have jurisdiction over
our gaming activities or those of our partners or
their respective parents or other affiliates. See
"Description of the Notes -- Gaming Redemption."
Change of Control........... If a change of control event occurs, each holder
of notes may require us to repurchase all or a
portion of the holder's notes at a purchase
6
price equal to 101% of the principal amount of
the notes, plus accrued interest. See
"Description of the Notes -- Repurchase at the
Option of Holders -- Change of Control."
Certain Covenants........... The indenture governing the notes, among other
things, limits our ability to:
. incur additional debt;
. create liens or other encumbrances;
. pay dividends or make other restricted
payments;
. prepay subordinated indebtedness;
. make investments, loans or other guarantees;
. sell or otherwise dispose of a portion of our
assets; or
. make acquisitions or merge or consolidate
with another entity.
These covenants are subject to a number of
important qualifications and exceptions which are
described in the section "Description of the
Notes -- Additional Covenants."
Use of proceeds............. We will not receive any cash proceeds from the
exchange offer.
Risk Factors
See the section "Risk Factors" in this prospectus for a discussion of the
factors you should carefully consider before deciding to invest in the notes,
including factors affecting forward-looking statements.
7
Summary Financial Information
The following table sets forth our summary financial information for the
five fiscal years ended December 31, 1997, 1998, 1999, 2000 and 2001, which
have been derived from our audited consolidated financial statements. This
summary financial information 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," "Selected Financial Information" and our consolidated financial
statements and related notes contained elsewhere in this prospectus.
Fiscal Year Ended December 31,
------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(Dollars in thousands, except operating data)
Income Statement Data:
Operating revenues
Casino............................................................. $ 99,192 $ 97,207 $105,284 $109,641 $ 98,374
Rooms.............................................................. 35,008 36,472 36,877 37,936 37,835
Food and beverage.................................................. 32,475 33,088 35,632 36,832 35,558
Other.............................................................. 6,179 7,380 7,748 8,786 7,508
-------- -------- -------- -------- --------
Gross revenues....................................................... 172,854 174,147 185,541 193,195 179,275
Less: promotional allowances....................................... (13,044) (13,829) (15,193) (15,706) (14,598)
-------- -------- -------- -------- --------
Net operating revenues............................................... 159,810 160,318 170,348 177,489 164,677
-------- -------- -------- -------- --------
Operating expenses
Casino............................................................. 43,114 43,736 46,724 48,723 45,820
Rooms.............................................................. 12,582 12,559 12,634 12,867 12,166
Food and beverage.................................................. 23,445 24,137 26,101 26,188 25,019
Other operating expenses........................................... 4,922 5,944 6,327 7,248 5,927
Selling, general and administrative................................ 27,390 27,773 28,482 29,719 29,207
Depreciation and amortization...................................... 17,601 17,583 17,824 15,500 12,082
Write-off of debt issuance costs................................... -- -- -- -- 370
Loss on sale of assets............................................. 43 53 1 1 4
-------- -------- -------- -------- --------
Total operating expenses........................................... 129,097 131,785 138,093 140,246 130,595
-------- -------- -------- -------- --------
Operating income................................................... 30,713 28,533 32,255 37,243 34,082
-------- -------- -------- -------- --------
Other (income) expense
Insurance settlement proceeds...................................... -- -- -- -- (225)
Interest income.................................................... (38) (149) (162) (248) (112)
Interest expense, net(1)........................................... 21,036 18,733 16,334 15,721 13,299
Interest rate swap, income(2)...................................... -- -- -- -- (327)
-------- -------- -------- -------- --------
Total other (income) expense......................................... 20,998 18,584 16,172 15,473 12,635
-------- -------- -------- -------- --------
Net income before cumulative effect of change in accounting principle 9,715 9,949 16,083 21,770 21,447
Cumulative effect of change in accounting principle(2)............... -- -- -- -- (327)
-------- -------- -------- -------- --------
Net income(3)........................................................ $ 9,715 $ 9,949 $ 16,083 $ 21,770 $ 21,120
======== ======== ======== ======== ========
Other Financial Data:
EBITDA(4)............................................................ $ 48,357 $ 46,169 $ 50,080 $ 52,744 $ 46,538
Capital expenditures................................................. 4,323 4,808 4,902 4,158 4,180
Ratio of earnings to fixed charges(5)................................ 1.5x 1.5x 2.0x 2.4x 2.6x
Operating Data(6):
Number of hotel rooms................................................ 1,709 1,710 1,710 1,710 1,710
Average daily room rate.............................................. $ 58.94 $ 60.70 $ 60.99 $ 62.99 $ 66.35
Daily occupancy rate................................................. 88.3% 89.0% 89.7% 88.9% 83.4%
Number of slot machines.............................................. 2,266 2,264 2,207 2,237 2,177
Slot machine win per unit per day.................................... $ 82.05 $ 78.10 $ 86.72 $ 90.29 $ 83.25
Number of table games................................................ 87 83 81 79 82
Table game win per unit per day...................................... $ 935 $ 988 $ 1,113 $ 1,143 $ 1,003
(Footnotes on following page)
8
Fiscal Year
Ended
December 31,
2001
-------------
(Dollars
in thousands)
Pro Forma Data(7):
EBITDA(4)............................... $46,538
Cash interest expense................... 17,583
Ratio of EBITDA to cash interest expense 2.6x
Ratio of total debt to EBITDA........... 4.0x
As of December 31, 2001
-----------------------
Actual As Adjusted(8)
-------- --------------
(Dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents $ 12,256 $ 10,000
Total assets............. 303,169 307,711
Total debt............... 145,000 187,047
Partners' equity......... 145,407 107,902
- --------
(1) Interest expense is net of the effect of all payments made or received
pursuant to hedging obligations.
(2) In accordance with SFAS 133, Accounting for Derivative Instruments and
Hedging Activities, we are required to record all derivatives as assets or
liabilities measured at fair value with the change in fair value recognized
in earnings. On January 1, 2001, we recorded a liability of $0.3 million
for the fair value of our interest rate swaps at that date, with a
corresponding cumulative effect adjustment in the income statement. All of
our interest rate swaps matured on October 29, 2001.
(3) Circus and Eldorado Joint Venture is not subject to income taxes, as the
partners include their respective shares of partnership taxable income in
their income tax returns. Therefore, a provision for income taxes is not
included in our summary financial information. Circus and Eldorado Joint
Venture's governing documents require the partnership to make distributions
to its partners in an amount equal to the maximum marginal federal income
tax rate applicable to any partner multiplied by the income of the
partnership for the applicable period. See "The Partnership Agreement."
(4) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, loss on sale of assets, other non-recurring charges and
cumulative effect of change in accounting principle. EBITDA is presented as
a supplemental disclosure because management believes that it is a widely
used measure of operating performance in the gaming industry. EBITDA should
not be construed as an alternative to operating income or net income (as
determined in accordance with generally accepted accounting principles, or
GAAP), as an indicator of cash flows or a measure of liquidity. All
companies do not calculate EBITDA in the same manner. As a result, EBITDA
as presented here may not be comparable to similarly titled measures
presented by other companies.
(5) The ratio of earnings to fixed charges has been computed as earnings
divided by fixed charges. Earnings represent net income plus fixed charges.
Fixed charges represent interest expense, whether expensed or capitalized,
the interest component of rent expense and amortization of debt issuance
costs.
(6) Operating data are averages for the respective periods.
(7) Pro forma data give effect to our issuance of the old notes, the senior
secured credit facility we entered into on March 5, 2002 and the
application of the net proceeds therefrom, as if such transactions occurred
on January 1, 2001. See "Use of Proceeds."
(8) As adjusted to give effect to our issuance of the old notes, the senior
secured credit facility we entered into on March 5, 2002 and the
application of the net proceeds therefrom and the write-off of unamortized
deferred financing fees associated with our prior credit facility as if
such transactions had occurred on December 31, 2001.
9
RISK FACTORS
You should carefully consider the following factors in addition to the other
information set forth in this prospectus before making an investment in the
exchange notes.
Risks Related to our Business
We face substantial competition in the hotel and casino industry.
The hotel and casino industry is very competitive. We compete for customers
primarily on the basis of location, range and pricing of amenities and overall
atmosphere. Of the 34 casinos currently operating in the Reno market, we
compete principally with the eight other hotel-casinos that, like the Silver
Legacy Resort Casino, each generate at least $36 million in annual gaming
revenues, including the Circus Circus Hotel and Casino and the Eldorado Hotel &
Casino.
According to statistics published by the Reno-Sparks Convention & Visitors
Authority, there were approximately 15,459 hotel rooms and approximately 4,616
motel rooms in the Reno area at December 31, 2001. Although no hotel-casino
projects are currently under construction in the Reno area, we cannot predict
the extent to which new casino projects will be undertaken or the extent to
which current hotel capacity may be expanded in the near future. There can be
no assurance that any growth in Reno's room base or gaming capacity will not
adversely affect our financial condition or results of operations. See
"Business -- Reno Market; Competition."
A substantial number of customers travel to both Reno and Lake Tahoe during
their visits. Consequently, we believe that the Reno market's visitation is
influenced, to some degree, by the visitation of the Lake Tahoe market. While
we do not anticipate a decline in the popularity of either Reno or Lake Tahoe
as tourist destination areas in the foreseeable future, any such decline could
adversely affect our operations.
Reno casinos, including our own, also compete with Native American gaming in
California and the northwestern United States. We also compete with
hotel-casinos located in Las Vegas, Nevada and the Lake Tahoe area. To a lesser
extent, we compete with hotel-casinos in other parts of the United States and
with dockside gaming facilities, riverboat casinos, state-sponsored lotteries,
on-and-off track pari-mutuel wagering, Internet gaming, card clubs, riverboat
casinos and other forms of legalized gaming. Land-based, dockside or riverboat
casino gaming, other than that conducted on Native American-owned land, is
currently legal in nine states and gaming on Native American-owned land is
legal in at least 29 states, including California, Washington and Oregon.
Management believes the Reno market draws over 50% of its visitors from
California. California allows other non-casino style gaming, including
pari-mutuel wagering, a state-sponsored lottery, card clubs, bingo and
off-track betting. Certain constituencies have proposed ballot initiatives
which are currently pending in California that would legalize casino-style
gaming generally. As a result, there can be no assurance that casino-style
gaming in California will not be expanded beyond the currently legal Native
American gaming. Any such expansion could have a material adverse effect on our
operations.
The competitive impact on Nevada gaming establishments, in general, and our
operations, in particular, from the continued growth of gaming outside Nevada
cannot be determined at this time. We believe that the further expansion of
casino gaming in markets close to Nevada, such as California, and to a lesser
extent Washington and Oregon, could have a material adverse affect on our
operations depending on the nature, location and scope of those operations.
10
Native American gaming in California could have a material adverse effect on
the Reno market, in general, and on our operations, in particular.
On March 7, 2000, California voters approved Proposition 1A which amended
the California constitution and legalized "Nevada-style" gaming on Native
American reservations. The passage of this amendment has allowed the expansion
of existing Native American gaming operations, as well as the opening of new
Native American gaming facilities. Additionally, numerous tribes have announced
that they intend to open gaming facilities. This proliferation of gaming in
California could have a material adverse effect on the hotel-casinos and gaming
operations in the Reno market, including the Silver Legacy Resort Casino.
There are approximately 107 federally recognized Native American tribes in
California. In order to conduct gaming operations in California, a Native
American tribe is required to enter into a compact with the state. As of
December 31, 2001, the State of California had entered into compacts with
approximately 60 tribes.
Each Native American tribe in California is limited to a maximum of 2,000
slot machines and there may not be more than two gaming facilities on any one
reservation. Under the governor of California's interpretation of the compacts,
all Native American tribes in California are permitted to operate a total of
approximately 45,000 slot machines. However, there remains substantial
uncertainty as to the total number of slot machines authorized by the compacts
and it is possible that the approximately 45,000-machine limit will increase
and, if so, the increase may be substantial. In addition to allowing the
expansion of slot machines, the compacts allow for the expansion of other
casino-style games, including blackjack and poker. Further, there can be no
assurance that the existing compacts will not be renegotiated to permit more
slot machines than are permitted by the existing compacts as they are currently
interpreted.
Most existing Native American gaming facilities in northern California are
modest compared to Reno market casinos. However, there are several more
significant Native American casinos that currently compete with the Reno
market, including:
. the Cache Creek Indian Bingo & Casino in Brooks, California,
approximately 58 miles northwest of Sacramento; and
. the Jackson Rancheria Casino, Hotel and Conference Center in Jackson,
California, approximately 59 miles southeast of Sacramento.
In addition to the existing gaming facilities, numerous Native American
tribes have announced that they are in the process of developing or are
considering establishing large-scale hotel and gaming facilities in northern
California, including two which have entered into development and management
agreements with established gaming operators. Station Casinos, Inc. has entered
into agreements with the United Auburn Indian Community to develop and manage a
gaming and entertainment facility on a proposed 49-acre site approximately 21
miles northeast of Sacramento. The United States Interior Department's Bureau
of Indian Affairs has approved the application of the United Auburn Indian
Community to take the 49-acre site into trust for the planned casino
development. Lakes Gaming Inc. has entered into agreements with the Shingle
Springs Rancheria to develop and manage a large-scale hotel-casino
approximately 35 miles southeast of Sacramento. Other tribes are at various
stages of planning new or expanded facilities in northern California, such as
the Buena Vista Rancheria of Me-Wuk Indians, on land located approximately 50
miles southeast of Sacramento, and the Lytton Band of Pomo Indians, on land
located approximately 21 miles northeast of San Francisco.
Our operations have been adversely impacted by the growth in Native American
gaming in California that has occurred to date. The competitive impact on the
Reno market, in general, and our operations, in particular, from the continued
growth of gaming establishments in northern California remains uncertain. There
can be no assurances as to the extent of any new or expanded facilities that
may commence operations. We believe, however, that the continued expansion of
Native American gaming in northern California could have a material adverse
impact on the Reno gaming market and our gaming operations.
11
The terrorist attacks of September 11, 2001 have adversely impacted our
operations and these attacks, as well as any security alerts and/or similar
attacks that may occur, could have a material adverse effect on our future
operations.
The terrorist attacks on the World Trade Center in New York City and the
Pentagon outside Washington, D.C. which occurred on September 11, 2001 had a
pronounced impact on our operating results during the weeks immediately
following the attacks. Silver Legacy's hotel occupancy, gaming volume and
customer traffic declined significantly during the post-September 11 portion of
our third quarter compared with the levels we experienced prior to September
11. In response to the effects of the terrorist attacks, we took several steps
to mitigate the impact on our operations and financial position, including
reducing staff to correspond with reduced business levels and discretionary
spending. During the fourth quarter of 2001, the weekend business at Silver
Legacy returned to near-normal levels, in terms of customer traffic, and
midweek business improved, although we have yet to achieve the midweek levels
we experienced during the corresponding periods of the prior year. Because our
operations during the fourth quarter of 2001 were impacted by a number of
factors, including an economy that was already weakening before September 11
and increased competition from Native American casinos in northern California,
we cannot measure the precise impact the September 11 attacks had on our fourth
quarter results of operations, although we believe the negative effect the
attacks had on the economy magnified market downtrends we experienced
throughout 2001 and continued to depress gaming volume and hotel occupancy
during the remainder of 2001. We cannot predict the extent to which the events
of September 11 will continue to directly or indirectly impact our future
operating results, and we cannot predict the extent to which any future
security alerts and/or additional terrorist attacks such as those that occurred
on September 11 may impact our future operations.
Our substantial indebtedness could adversely affect our financial results and
prevent us from fulfilling our obligations under the notes.
We have a significant amount of indebtedness. The amount of our total
indebtedness at December 31, 2001, as adjusted at that date to give effect to
the issuance of the old notes and the application of the net proceeds and the
other transactions set forth in the section "Use of Proceeds," would have been
approximately $185 million. See "Capitalization."
Our significant indebtedness could have important consequences to you, such
as:
. limiting our ability to satisfy our obligations with respect to the notes;
. limiting our ability to obtain additional financing to fund our working
capital requirements, capital expenditures, debt service, general
corporate or other obligations, including our obligations with respect to
the notes;
. limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a significant portion of these funds to
make principal and interest payments on our indebtedness;
. increasing our interest expense if there is a rise in interest rates,
because a portion of our borrowings are and will be under our senior
secured credit facility and, as such, we will have interest rate periods
with short-term durations (typically 30 to 180 days) that require ongoing
refunding at the then current rates of interest;
. causing our failure to comply with the financial and restrictive
covenants contained in the indenture and agreements governing the notes,
our senior secured credit facility and our other indebtedness which could
cause a default under those instruments and which, if not cured or
waived, could have a material adverse effect on us;
. placing us at a competitive disadvantage to our competitors who are not
as highly leveraged; and
. increasing our vulnerability and limiting our ability to react to
changing market conditions, changes in our industry and economic
downturns.
12
In addition, we have the capacity to issue additional indebtedness,
including the ability to incur additional indebtedness under our senior secured
revolving credit facility, subject to the limitations imposed by the covenants
in the senior secured credit facility and the indenture governing the notes.
Moreover, we may be able to incur additional debt in the future. The indenture
governing the notes and our senior secured credit facility contain financial
and other restrictive covenants, but do not fully prohibit us from incurring
additional debt. If new debt is added to our current level of indebtedness,
related risks that we and you now face could increase.
If we do not generate sufficient cash from our operations to make scheduled
payments on the 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 and our ability to take one or more of these
actions may be limited by the financial and other restrictive covenants
contained in the agreements and indenture governing our indebtedness. We cannot
assure you that our business will generate cash flow or that we will be able to
obtain funding sufficient to satisfy our debt service requirements.
Our senior secured credit facility and the indenture governing the notes
contain covenants that restrict our ability to engage in certain transactions.
Our senior secured credit facility and the indenture governing the notes
impose operating and financial restrictions on us. The restrictions imposed
under our senior secured credit facility and/or the indenture include, among
other things, limitations on our ability to:
. incur additional debt;
. create liens or other encumbrances;
. pay dividends or make other restricted payments;
. prepay subordinated indebtedness;
. make investments, loans or other guarantees;
. sell or otherwise dispose of a portion of our assets; or
. make acquisitions or merge or consolidate with another entity.
In addition, under our senior secured credit facility, we are required to
satisfy certain financial covenants, including maintaining certain debt to
earnings and earnings to fixed charges ratios. Our ability to comply with these
provisions may be affected by general economic conditions, industry conditions
and other events beyond our control. We cannot assure you that we will be able
to comply with these covenants. If we fail to comply with a financial covenant
or other restriction contained in our senior secured credit facility, the
indenture or any future financing agreements, an event of default could occur.
An event of default could result in acceleration of some or all of our
indebtedness and the inability to borrow additional funds under our senior
secured credit facility. We would not have, and are not certain we would be
able to obtain, sufficient funds to repay our indebtedness if it is
accelerated, including our payments on the notes.
Servicing our debt will require a significant amount of cash, and our ability
to generate sufficient cash will depend on many factors, some of which are
beyond our control.
Our ability to make payments on and refinance our indebtedness and to fund
our capital expenditures will depend on our ability to generate cash flow and
secure financing in the future. Our ability to generate cash flow will depend
upon:
. our future operating performance;
. the demand for services we provide;
13
. general economic conditions;
. competition; and
. legislative and regulatory factors affecting our operations and business.
Some of these factors are beyond our control. In addition, the ability to
borrow funds under our senior secured credit facility in the future will depend
on our meeting the financial covenants in the senior secured credit facility.
Our senior secured credit facility includes a term portion that amortizes over
five years. We cannot assure you that our business will generate cash flow from
operations or that future borrowings will be available to us under our senior
secured credit facility or otherwise in an amount sufficient to enable us to
pay our indebtedness, including the notes, or to fund other liquidity needs. As
a result, we may need to refinance all or a portion of our indebtedness,
including the notes, on or before maturity. We cannot assure you that we will
be able to refinance any of our indebtedness on favorable terms, or at all. Any
inability to generate sufficient cash flow or refinance our indebtedness on
favorable terms could have a material adverse effect on our financial condition.
Because we are entirely dependent upon the Silver Legacy Resort Casino for all
of our cash flow, we are subject to greater risks than a gaming company that is
geographically or otherwise diversified.
We are entirely dependent upon the Silver Legacy Resort Casino for all of
our cash flow. Therefore, we are subject to greater degrees of risk than a
gaming company that is geographically or otherwise diverse. The risks to which
we will have a greater degree of exposure include the following:
. local economic and competitive conditions;
. inaccessibility due to weather conditions, road construction or closure
of primary access routes;
. changes in local and state governmental laws and regulations, including
gaming laws and regulations;
. natural and other disasters;
. a decline in the number of residents near, or visitors to, the Silver
Legacy Resort Casino; and
. a decrease in gaming activities at the Silver Legacy Resort Casino.
Any of the factors outlined above could adversely affect our ability to
generate sufficient cash flow to make payments on the notes pursuant to the
indenture or with respect to our other debt.
Our operations may be negatively affected by general economic conditions.
Our operations during fiscal 2001 were adversely affected by a number of
factors, including the overall decline in the U.S. economy and increases in
gasoline prices and electric power costs. Any adverse change in general
economic conditions can adversely affect consumer spending, which can have a
negative impact on our ability to generate revenues from our operations.
Increases in gasoline prices can adversely affect our operations because most
of our patrons travel to Reno by car or on airlines that may pass on increases
in fuel costs to their passengers in the form of higher ticket prices. We are a
large consumer of electricity. Consequently, an increase in the cost of
electric power will increase our operating costs and, depending on the extent
of any increase, could adversely affect our results of operations. We cannot be
sure that any or all of these factors will not continue to adversely affect us
or that such factors will not have a greater adverse impact on our results of
operations in the future.
Shortages of electrical power in Reno or in areas of California where many of
our customers reside could adversely impact our operations.
During the past year, areas of California have experienced mandated periods
without electrical power, commonly referred to as "blackouts," necessitated by
power shortages. Elimination of California's power
14
shortages, which have resulted in substantial rate increases over the past year
and occasional blackouts, require longer-term solutions which will be
complicated by continued population growth in the southwestern United States,
including California and Nevada. Further rate increases and/or blackouts,
should they occur in California and/or Nevada, could have a material adverse
effect on Reno-area hotels and casinos, including our operations.
The hotel-casinos in the Reno market are highly dependent on surrounding market
areas.
Management believes that visitors from California, Washington and Oregon
account for approximately two-thirds of the visitors to the Reno market. We are
primarily dependent upon the gaming activities of customers visiting the Reno
market from these areas for our revenues. A decline in the economies of any one
or more of these areas, or a decline in the number of gaming customers
traveling to Reno from these areas for any reason, including increased
competition, such as Native American gaming in California, Washington and
Oregon, could have a material adverse effect on our results of operations.
The hotel-casinos in the Reno market have been subject to seasonal variations
and quarterly fluctuations in operating results.
Historically, hotel-casino operations in the Reno market have been subject
to seasonal variations. Traditionally, the strongest operating results have
occurred in the third quarter and the weakest results have occurred during the
period from November through February when weather conditions have adversely
affected operating results. Excessive snowfall during the winter months can
make travel to the Reno area more difficult. This often results in significant
declines in traffic on major highways, particularly on routes to and from
northern California, and causes a downturn in customer volume. Furthermore,
management believes that approximately two-thirds of visitors to the Reno
market arrive by some form of ground transportation. Therefore, even normal
winter weather may cause our revenues and cash flows to be adversely affected.
We expect the highest level of customer visits to occur during the summer
months, because of the more favorable weather conditions. A poor summer season,
due to any reason, including events outside our control, would adversely affect
our business. Congestion on the roads leading to Reno, common during the peak
summer season, holidays and other times, may discourage potential customers
from traveling to our hotel-casino, particularly if road construction is in
process. See "Business -- Seasonality."
Significant conflicts of interest may arise in the performance of the duties of
the members of our executive committee and our executive officers.
The Silver Legacy Resort Casino is situated between the Circus Circus Hotel
and Casino, which is wholly owned by Mandalay Resort Group, and the Eldorado
Hotel & Casino, which is wholly owned by Eldorado Resorts LLC. Our partners are
a wholly owned subsidiary of Mandalay Resort Group and a 96%-owned subsidiary
of Eldorado Resorts LLC, and their respective personnel who participate in
decisions that affect the Silver Legacy Resort Casino may be deemed to be in a
conflict of interest position, to the extent they participate in decisions
relating to the Silver Legacy Resort Casino that affect, or may be perceived to
affect, the Circus Circus Hotel and Casino and/or the Eldorado Hotel & Casino.
The potential for these conflicts of interest may be exacerbated by the design
of the Silver Legacy Resort Casino, which connects its casino and core
entertainment center with the Circus and Eldorado properties by enclosed
skyways.
Each member of the executive committee of Circus and Eldorado Joint Venture
is currently an employee of, and/or holds an executive position with, Mandalay
Resort Group or Eldorado Resorts LLC or one of their affiliates, and each of
our executive officers had a similar relationship before assuming his present
position with Circus and Eldorado Joint Venture. Accordingly, these individuals
may be deemed to be in a conflict of interest position with respect to business
decisions they make that affect, or may be perceived to affect, the Circus or
Eldorado properties. Furthermore, a conflict of interest may be deemed to exist
by reason of the access any of these individuals has to information or business
opportunities that may be useful to the Eldorado or Circus
15
properties. No specific procedures for resolving these conflicts of interest
have been developed and there can be no assurance that effective procedures for
addressing these matters can be developed. See "Management" and "Certain
Relationships and Related Transactions."
Our partnership agreement contains a buy-sell provision which, if exercised by
either of our partners, could adversely affect our management and operations.
Our partnership agreement contains a buy-sell provision pursuant to which
either of our partners may elect to offer to purchase the entire interest of
our other partner on or after July 1, 2005. If either partner makes such an
offer, our partnership agreement requires the other partner to either sell its
partnership interest or purchase the partnership interest of the offering
partner, in each case at the price proposed by the offering partner. An
election by either of our partners to exercise its buy-sell right, which would
result in the buy-out of one of our partners, could adversely effect the
continuity of our management as well as any existing affiliate arrangements and
agreements with the partner who had been bought out.
We are subject to extensive state and local regulation, and licensing and
gaming authorities have significant control over our operations, which could
have an adverse effect on our business.
The ownership and operation of casino gaming facilities are subject to
extensive state and local regulation. Circus and Eldorado Joint Venture
currently holds all state and local licenses and related approvals necessary to
conduct its present gaming operations. Circus and Eldorado Joint Venture is
required by the State of Nevada, as well as the applicable local authorities,
to comply with all applicable gaming laws and regulations and to maintain its
various licenses and registrations, findings of suitability, permits and
approvals in good standing. The gaming authorities in Nevada may deny, limit,
condition, suspend or revoke a gaming license or related approval for
violations of applicable gaming laws and regulations and may impose substantial
fines and take other actions, any one of which could have a significant adverse
effect on our business, financial condition, and results of operations. If
additional gaming laws or regulations are adopted, these regulations could
impose restrictions or costs that could have a significant adverse effect on
us. See "Regulation and Licensing."
The Nevada Gaming Commission may, in its discretion, require the holder of
any securities that we issue, including the notes, to file applications, be
investigated, and be found suitable to own our securities if it has reason to
believe that the security ownership would be inconsistent with the declared
policies of the State of Nevada. Further, the costs of any investigation
conducted by the Nevada Gaming Commission under these circumstances must be
paid by the applicant and refusal or failure to pay these charges may
constitute grounds for a finding that the applicant is unsuitable to own the
securities. If the Nevada Gaming Commission determines that a person is
unsuitable to own our securities, then, under the Nevada Gaming Control Act and
the regulations promulgated under this Act, we can be sanctioned, including the
loss of our approvals, if, without the prior approval of the Nevada Gaming
Commission, we:
. pay to the unsuitable person any dividend, interest or any distribution
whatsoever;
. recognize any voting right by the unsuitable person in connection with
the securities;
. pay the unsuitable person remuneration in any form; or
. make any payment to the unsuitable person including any principal,
redemption, conversion, exchange, liquidation or similar payment.
We may not make a public offering of our securities without prior approval
of the Nevada Gaming Commission if we intend to use the securities or proceeds
from the offering to:
. construct, acquire or finance gaming properties in Nevada; or
. retire or extend obligations incurred for these purposes or for similar
transactions.
16
The registration and issuance of the exchange notes require prior review and
approval by the Nevada Gaming Commission.
If the Nevada gaming authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with us, we would have to sever all relationships with that
person. Furthermore, the Nevada Gaming Commission may require us to terminate
the employment of any person who refuses to file appropriate applications.
Either result could materially adversely affect our gaming operations.
On April 28, 1999, the National Gambling Impact Study Commission established
by the United States Congress to conduct a comprehensive study of the social
and economic impact of gaming in the United States voted to recommend that the
expansion of gambling be curtailed. In June 1999, the commission issued a final
report of its findings and conclusions, together with recommendations for
legislative and administrative actions, including a recommendation to restrict
legal gaming to those at least 21 years of age. Any additional regulation of
the gaming industry which may result from the commission's report may have an
adverse effect on the gaming industry, including our operations. See
"Regulation and Licensing."
Because we own real property, we are subject to extensive environmental
regulation, which creates uncertainty regarding future environmental
expenditures and liabilities.
We have incurred and may continue to incur costs to comply with
environmental requirements, such as those relating to the discharges to air,
water and land, the handling and disposal of solid and hazardous waste, and the
cleanup of properties affected by hazardous substances. Under these and other
environmental requirements, we, as an owner of the property on which the Silver
Legacy Resort Casino is situated, may be required to investigate and clean up
hazardous or toxic substances or chemical releases at that property. As an
owner or operator, we could also be held responsible to a governmental entity
or third parties for property damage, personal injury and for investigation and
cleanup costs incurred by them in connection with the contamination. These laws
typically impose cleanup responsibility and liability without regard to whether
the owner or operator knew of or caused the presence of the contaminants and
the liability under those laws has been interpreted to be joint and several
unless the harm is divisible and there is a reasonable basis for allocation of
the responsibility. The costs of investigation, remediation or removal of those
substances may be substantial, and the presence of those substances, or the
failure to remediate a property properly, may adversely affect our ability to
rent or otherwise utilize our property. In addition, environmental requirements
address the impacts of development on wetlands.
Petroleum and chlorinated solvent contamination of soil and groundwater is
known to exist at and in the vicinity of the Silver Legacy Resort Casino. No
action in regard to these contaminants is currently required of us, however we
are required to pay assessments averaging approximately $450 annually in
contribution to a Washoe County special assessment district which is
undertaking community wide remediation of groundwater solvent contamination.
These assessments may increase in the future. State law exempts property owners
who did not cause or contribute to the solvent contamination from civil and
criminal liability for the cost of remediation and any related damages, except
to the extent of unpaid assessments. This provision would not be effective to
shield us from liability under federal laws.
The Silver Legacy Resort Casino site was previously required to be cleaned
up under environmental laws to address petroleum contamination from leaking
underground storage tanks and other sources. At the conclusion of that cleanup,
with the permission of the relevant regulatory county authority, certain
contaminated soils were permitted to remain in place. The Washoe County
District Health Department issued a "no further action" letter with respect to
that cleanup on February 20, 1996. The possibility exists that additional
contamination, as yet unknown, may exist on the Silver Legacy Resort Casino
site. Although we believe that any remaining contamination arose from
activities of prior owners or occupants, or from offsite sources and not as a
result of any of our actions or operations, we cannot make any assurances that
we will not incur expenditures for environmental investigations or remediation
in the future.
17
An earthquake could adversely affect our business.
The Reno area has been, and may in the future be, subject to earthquakes.
Depending upon its magnitude, an earthquake could severely damage the Silver
Legacy Resort Casino, which could adversely affect our business and operations.
We currently maintain earthquake insurance for the Silver Legacy Resort Casino
and the resulting business interruption. However, there is no assurance that
our coverage will be sufficient if there is a major earthquake. In addition,
upon the expiration of our current policies, which expire July 28, 2002, we
cannot assure that adequate coverage will be available at economically
justifiable rates, if at all.
We rely on our key personnel.
Our future success will depend upon, among other things, our ability to keep
our senior executives and highly qualified employees. We compete with other
potential employers for employees, and we may not succeed in hiring or
retaining the executives and other employees that we need. We do not have
employment contracts with any of our senior executives and we do not maintain
key-man insurance policies for any of our executives. A sudden loss of or
inability to replace key employees could have a material adverse effect on our
financial condition and results of operation.
We may face difficulties in attracting and retaining qualified employees for
our casino.
The operation of our business requires qualified executives, managers and
skilled employees with gaming industry experience and qualifications who are
able to obtain the requisite licenses and approval from the Nevada Gaming
Commission. Currently, there is a shortage of skilled labor in the Reno area
and the continued growth of Native American gaming in northern California may
make it more difficult for us to attract qualified individuals in the future.
While we believe that the Silver Legacy Resort Casino will continue to be able
to attract and retain qualified employees, shortages of skilled labor will make
it increasingly difficult and expensive to attract and retain the services of a
satisfactory number of qualified employees, and we may incur higher costs than
expected as a result.
There is uncertainty concerning our continued use of Arthur Andersen LLP as our
outside auditors.
Arthur Andersen LLP are our auditors and the auditors of our historical
financial information included in this prospectus. Due to the recent indictment
of Arthur Andersen, there exists significant uncertainty concerning our
continued use of Arthur Andersen LLP as our auditors. The New Jersey Casino
Control Commission has issued a temporary prohibitory order barring New Jersey
licensed casinos and their parent firms from using Arthur Andersen LLP. While
we are not licensed by the New Jersey Casino Control Commission, we cannot
assure you that Nevada regulators will not undertake similar actions. For the
foregoing and other reasons, we are uncertain as to whether it will be
necessary for us to secure the services of another auditing firm to provide us
with audits on an ongoing basis and, potentially, to re-audit our historical
financial information. We have not determined to engage another firm at this
time. We do not know what impact the situation will have on our ability to
comply with any future filing obligations in respect of the notes, including
any future filing required by the registration rights agreement we entered into
in connection with the issuance of the old notes. Furthermore, relief which may
be available under the federal securities laws against auditing firms may not
be available as a practical matter against Arthur Andersen LLP should it cease
to operate or become financially impaired.
18
Risks Related to the Offering
Although the notes are senior secured obligations, they are effectively
subordinated to our senior secured credit facility to the extent of the
property securing that indebtedness and in the event of a default and
foreclosure, there may not be sufficient collateral available to satisfy our
obligations under our senior secured credit facility and the notes.
The notes are secured by a lien on the Silver Legacy Resort Casino and other
related assets, constituting most of our assets. The liens securing the notes
are subordinated to the liens securing our senior secured credit facility
pursuant to which we may incur up to $40.0 million of debt. In the event there
is a default and foreclosure on the collateral, the proceeds from the sale of
collateral may not be sufficient to satisfy our obligations under the notes.
This is because proceeds from the sale of the collateral would be distributed
first to satisfy our outstanding obligations under our senior secured credit
facility before they would be available for payment to holders of the notes.
The holders of the notes will not receive any proceeds from the sale of
collateral unless and until all indebtedness under our senior secured credit
facility is repaid in full.
We did not prepare any appraisals of the collateral in connection with the
issuance of the notes. By its nature, some or all of the collateral is illiquid
and may have no readily ascertainable value. Accordingly, we cannot assure you
that all the collateral will be able to be sold or that there will be
sufficient funds available to repay the notes after payment in full of debt
outstanding under our senior secured credit facility.
In addition, the trustee for the notes and the agent for our senior secured
credit facility entered into an intercreditor agreement under which the lenders
under our senior secured credit facility have the exclusive right to dispose
of, release or foreclose on or otherwise deal with the collateral securing our
senior secured credit facility and the notes. As a result, the holders of the
notes do not have the ability to make those decisions or in any way ensure that
sufficient collateral is securing the obligations owed by us to the holders of
the notes. See "Description of Other Indebtedness -- Intercreditor Agreement."
The collateral securing the notes may be subject to other security rights in
addition to those under our senior secured credit facility.
The indenture governing the notes permits liens in addition to those under
our senior secured credit facility and any permitted refinancing of that
facility. Furthermore, landlords', warehousemens' and materialmens' liens and
some tax liens and liens of some lenders, such as purchase money lenders, may,
as a matter of law, have priority over the liens granted in the collateral to
the trustee for the notes. We cannot assure you that the collateral is not and
will not become subject to other security rights, in addition to those under
our senior secured credit facility and any permitted refinancing of that
facility and those permitted by the terms of the notes, which will have
priority over the security rights granted to the trustee for the benefit of the
holders of the notes.
In the event we default on the payment of the notes, any resulting foreclosure
sale of the Silver Legacy Resort Casino may be hindered by applicable gaming
laws and regulations or by bankruptcy laws.
The notes are secured by a lien on the Silver Legacy Resort Casino and other
related assets, constituting most of our assets. In any foreclosure sale of the
Silver Legacy Resort Casino or the gaming equipment constituting collateral
securing the notes, the purchaser or the operator of the facility and/or such
gaming equipment would need to be licensed in order to operate the facility
under the Nevada gaming laws and regulations. If the trustee is unable, or
chooses not, to sell the Silver Legacy Resort Casino, the trustee would not be
permitted to continue gaming operations at the Silver Legacy Resort Casino
unless it retained an entity licensed under the Nevada gaming laws in order to
conduct gaming operations at the facility. Because potential bidders who wish
to operate the facility as a casino must satisfy these requirements, the number
of potential bidders in a foreclosure sale could be less than in foreclosures
of other types of facilities and these requirements might delay the sale of,
and adversely affect the sales price for, the Silver Legacy Resort Casino. The
ability to take possession and dispose of the collateral securing the notes
upon acceleration of the notes is likely to be
19
significantly impaired or delayed by applicable bankruptcy law if a bankruptcy
case is commenced by or against us prior to a taking of possession or
disposition of the collateral securing the notes by the trustee for the benefit
of the holders of the notes.
If the liens that secure the notes are held to be invalid or unenforceable or
are limited in accordance with their terms, the notes will be unsecured.
Our obligations on the notes are secured by a lien on substantially all of
our existing and future assets, other than certain licenses which may not be
pledged under applicable law. This lien is junior to the lien securing our
obligations under our senior secured credit facility and any permitted
refinancing of that facility. Our creditors could challenge these liens as
fraudulent conveyances or on other grounds. We cannot assure you that a court
would not conclude that the liens constitute fraudulent conveyances. In the
event that a court declares these liens to be void, any claim you may make
against us for amounts payable on the notes will be unsecured.
Our intercreditor agreement could subject the holders of the notes to certain
risks including the inability of the holders of the notes to control decisions
regarding the collateral.
The trustee under the indenture governing the notes entered into an
intercreditor agreement with the lenders under our senior secured credit
facility and us. The intercreditor agreement provides for the allocation of
rights among the trustee and these lenders with respect to their respective
interests in the collateral, and the enforcement of those related provisions.
Until the indebtedness under our senior secured credit facility, including any
permitted refinancings, has been satisfied in full, the lenders under our
senior secured credit facility have the exclusive right to determine the
circumstances and manner in which the collateral securing the notes and our
senior secured credit facility may be disposed of. As a result, the lenders
under our senior secured credit facility may take actions with respect to the
collateral securing the notes which holders of the notes may disagree with or
which may be contrary to the best interest of the holders of the notes. This
includes, without limitation, the right to determine whether to foreclose on
the collateral and when and at what price to sell the collateral following an
event of default under the notes or our senior secured credit facility. See
"Description of Other Indebtedness -- Intercreditor Agreement."
Silver Legacy Capital Corp. does not have any operations or assets and does not
have any revenues.
Silver Legacy Capital Corp. is a wholly owned subsidiary of Circus and
Eldorado Joint Venture. Its sole purpose is to serve as a co-issuer of the
notes. As such, it does not have any operations, assets or revenues.
Consequently, the holders of the notes should not expect Silver Legacy Capital
Corp. to participate in servicing the principal, interest, premium or any other
payment obligations on the notes or our other obligations. Our only source of
cash to make interest payments on the notes and pay our other obligations and
to repay the principal amount of these obligations, including the notes, will
be the cash that we generate from our operations and our borrowings.
The joint venture partners are not be required to make any payments on the
notes or to make any other payments or equity contributions to or for our
operations.
Our obligations under the notes are non-recourse to our partners.
Accordingly, Eldorado Limited Liability Company and Galleon, Inc. are not
liable for our obligations other than with respect to their pledges of their
interests in us. The entities that own our partners, Eldorado Resorts LLC and
Mandalay Resort Group, also have no legal obligation to supply any additional
funding to us if our revenues or other financings are insufficient to support
our continuing operations or to fund our obligations, including our obligations
under the notes and our senior secured credit facility. See "The Partnership
Agreement."
20
As a noteholder, you may be required to comply with licensing, qualification or
other requirements under gaming laws or dispose of your securities.
The gaming authority of any jurisdiction in which we or either of the joint
venture partners or their respective parents, or other affiliated entities
currently or in the future conduct or propose to conduct gaming, directly or
through a subsidiary or joint venture, may require that a noteholder be
licensed, qualified or found suitable, or comply with some other requirement
under applicable gaming laws. These gaming authorities include those of the
States of Illinois, Michigan and Mississippi where Mandalay Resort Group,
either directly or through a subsidiary or joint venture, currently conducts
gaming operations. When you purchase or otherwise accept an interest in the
notes, by the terms of the indenture, you agree to comply with all of these
requirements, including your agreement to apply for a license, qualification or
a finding of suitability, or comply with any other requirement, within the
required time period, as provided by the relevant gaming authority. If you fail
to apply to be, or fail to become, licensed or qualified, or are found
unsuitable or fail to comply with any other requirement of a gaming authority,
then we will have the right, at our option, to:
. require you to sell your notes or beneficial interest in the notes within
30 days after you receive notice of our election, or any earlier date
that the relevant gaming authority may request or prescribe; or
. redeem your notes (possibly within less than 30 days following the notice
of redemption if requested or prescribed by the gaming authority) at a
price equal to the lesser of:
. your cost;
. 100% of the principal amount of the notes, plus accrued and unpaid
interest, if any, to the redemption date or the date of any failure
to comply, whichever is earlier; and
. the fair market value of the notes, plus accrued and unpaid interest,
if any, to the redemption date or the date of any failure to comply,
whichever is earlier, or
any other amount required by applicable law or by order of any gaming
authority.
We will notify the indenture trustee in writing of any redemption as soon as
practicable. We will not be responsible for any costs or expenses you may incur
in connection with your application for a license, qualification or a finding
of suitability, or your compliance with any other requirement of a gaming
authority. The indenture also provides that as soon as a gaming authority
requires you to sell your notes, you will, to the extent required by applicable
gaming laws, have no further right:
. to exercise, directly or indirectly, any right conferred by the notes; or
. to receive from us any interest, dividends or any other distributions or
payments, or any remuneration in any form, relating to the notes, except
the redemption price we refer to above.
Gaming authority approvals are required for a pledge and grant of a security
interest in the Circus and Eldorado Joint Venture interests and for filing an
exchange offer or shelf registration statement with respect to the notes.
The pledge and grant of a security interest by Eldorado Limited Liability
Company and Galleon, Inc. of their interests in Circus and Eldorado Joint
Venture as additional collateral for payment of the notes requires the prior
approval of the Nevada Gaming Commission. We have filed an application with the
Nevada Gaming Commission for these approvals and believe we will obtain the
approvals before the exchange offer is consumated.
We cannot complete the public offering of any securities, including the
notes, until we become registered with the Nevada Gaming Commission as a
"publicly traded company" under Nevada law and have obtained the prior approval
of the Nevada Gaming Commission for the proposed offering. We have filed
applications with the Nevada Gaming Commission for this approval and believe we
will obtain the registration and approval before the exchange offer is
consumated.
21
We can give no assurances that these approvals will be granted in a timely
fashion, or at all. See "Regulation and Licensing."
We may not be able to purchase your notes upon a change of control.
Upon the occurrence of specified "change of control" events, we will be
required to offer to purchase each holder's notes at a price of 101% of their
principal amount plus accrued and unpaid interest. We may not have sufficient
financial resources at the time of a change of control to purchase all of the
notes that holders tender to us upon a change of control offer, or restrictions
under our senior secured credit facility may prevent us from being able to do
so. If we fail to make a change of control offer or pay the required purchase
price when due, an event of default will occur. Moreover, under our senior
secured credit facility and/or any future credit facility, the occurrence of a
change of control could also constitute a default giving our lenders the right
to accelerate the maturity of all or portions of our borrowings. We cannot
assure you that under these circumstances we would be able to obtain necessary
consents from our lenders under our senior secured credit facility and/or any
future credit facility to permit us to repurchase the notes pursuant to a
change of control or to repay or refinance all of our indebtedness under our
senior secured credit facility. See "Description of the Notes -- Repurchase at
the Option of the Holders."
An active trading market may not develop for exchange notes.
We are offering the exchange notes to the holders of the old notes. The old
notes were sold in March 2002 to a small number of institutional investors and
are eligible for trading in the Private Offerings, Resale and Trading through
Automatic Linkages (PORTAL) Market. To the extent that old notes are tendered
and accepted in the exchange offer, the trading market for untendered and
tendered but unaccepted old notes will be adversely affected. We cannot assure
you that this market will provide liquidity for you if you want to sell your
old notes.
We do not intend to apply for a listing of the exchange notes on a
securities exchange or on any automated dealer quotation system. The exchange
notes are new securities for which there is currently no market. We cannot
assure you as to the liquidity of markets that may develop for the exchange
notes, your ability to sell the exchange notes or the price at which you would
be able to sell the exchange notes. If one or more markets were to exist, the
exchange notes could trade at prices that may be lower than their principal
amount or purchase price depending on many factors, including prevailing
interest rates and the markets for similar securities. The initial purchasers
of the old notes have advised us that they currently intend to make a market
with respect to the exchange notes. However, they are not obligated to do so,
and any market making activities may be discontinued at any time without
notice. In addition, such market making activity may be limited during the
pendency of the exchange offer.
The liquidity of, and trading market for, the exchange notes also may be
adversely affected by changes in the market for securities such as the exchange
notes and by changes in our financial performance or prospects or in the
prospects for companies in our industry generally.
As a result, you cannot be sure that an active trading market will develop
for the exchange notes.
22
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We have based these forward-looking statements on our
current expectations about future events. These forward-looking statements
include statements with respect to our beliefs, plans, objectives, goals,
expectations, anticipations, intentions, financial condition, results of
operations, future performance and business, including:
. statements relating to our business strategy;
. our current and future plans; and
. statements that include the words "may," "could," "should," "would,"
"believe," "expect," "anticipate," "estimate," "intend," "plan" or
similar expressions.
These forward-looking statements are subject to risks, uncertainties, and
assumptions about us and our operations that are subject to change based on
various important factors, some of which are beyond our control. The following
factors, among others, could cause our financial performance to differ
materially from the goals, plans, objectives, intentions and expectations
expressed in our forward-looking statements:
. competition, including Native American casinos in northern California;
. domestic and global economic, credit and capital market conditions;
. leverage and debt service, including sensitivity to fluctuations in
interest rates;
. our dependence on existing management;
. applications for licenses and approvals under applicable laws and
regulations, including gaming laws and regulations;
. changes in gaming laws or regulations, including the legalization or
expansion of gaming in certain jurisdictions;
. changes in federal or state tax laws or the administration of these laws;
. regulatory or judicial proceedings;
. the consequences of any future security alerts and/or terrorist attacks
such as the attacks that occurred on September 11, 2001; and
. certain other risks described under the heading "Risk Factors."
If one or more of the assumptions underlying our forward-looking statements
proves incorrect, then our actual results, performance or achievements in 2002
and beyond could differ materially from those expressed in, or implied by, the
forward-looking statements contained in this prospectus. Therefore, we caution
you not to place undue reliance on our forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether written or oral, whether as a result of new information,
changed assumptions, the occurrence of unanticipated events, changes in future
operating results over time or otherwise. All forward-looking statements
attributable to us are expressly qualified by these cautionary statements.
23
USE OF PROCEEDS
We will not receive any proceeds from the exchange of the exchange notes for
the old notes pursuant to the exchange offer.
We used the aggregate net proceeds from the offering of the old notes, which
were approximately $154.4 million after deducting fees and expenses associated
with the offering, together with excess cash and $26 million of borrowings
under the senior secured credit facility we entered into at the time we issued
the old notes, to repay $150.6, representing the entire amount of our
indebtedness outstanding under our prior credit facility and to make $30
million of distributions to our joint venture partners.
24
CAPITALIZATION
The following table sets forth our capitalization at December 31, 2001:
. on a historical basis; and
. as adjusted after giving effect to the offering of the old notes and the
other transactions referred to in "Use of Proceeds."
You should read this information together with the information in the
sections "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in this prospectus and our
consolidated financial statements and related notes contained elsewhere in this
prospectus.
As of December 31, 2001
-----------------------
Actual As Adjusted(1)
-------- --------------
(In thousands)
Cash and cash equivalents..................... $ 12,256 $ 10,000
======== ========
Long-term debt (including current maturities):
Prior credit facility...................... 145,000 --
Senior secured credit facility(2).......... -- 26,000
10 1/8% Mortgage notes due 2012(3)......... -- 159,378
-------- --------
Total long-term debt................... 145,000 185,378
Partners' equity(4)........................... 145,407 107,902
-------- --------
Total capitalization................... $290,407 $293,280
======== ========
- --------
(1) As adjusted amounts shown include $7.3 million of additional borrowings
drawn subsequent to December 31, 2001, of which (i) $5.2 million represents
payment of fiscal year 2000 tax distributions and (ii) $2.1 million
represents the remaining priority allocation payment to Mandalay Resort
Group. See "Management--Compensation Committee Interlocks and Insider
Participation."
(2) The total commitment under our senior secured credit facility is $40.0
million, comprised of a $20.0 million revolving credit facility and a $20.0
million amortizing term loan. See "Description of Other Indebtedness."
(3) Reflects the price to investors of the old notes of 99.6112%.
(4) The reduction in partners' equity represents (i) the $30.0 million partners
distribution in conjunction with the offering of the old notes, (ii) a $5.2
million payment of fiscal year 2000 tax distributions, (iii) a $2.1 million
priority allocation payment to Mandalay Resort Group and (iv) a $0.2
million write-off of unamortized deferred financing fees associated with
our prior credit facility.
25
SELECTED FINANCIAL INFORMATION
The following table sets forth our selected financial information for the
five fiscal years ended December 31, 1997, 1998, 1999, 2000 and 2001, which
have been derived from our audited consolidated financial statements. This
selected financial information 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 consolidated financial statements and related notes
contained elsewhere in this prospectus.
Fiscal Year Ended December 31,
------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(Dollars in thousands, except operating data)
Income Statement Data:
Operating revenues
Casino............................................................. $ 99,192 $ 97,207 $105,284 $109,641 $ 98,374
Rooms.............................................................. 35,008 36,472 36,877 37,936 37,835
Food and beverage.................................................. 32,475 33,088 35,632 36,832 35,558
Other.............................................................. 6,179 7,380 7,748 8,786 7,508
-------- -------- -------- -------- --------
Gross revenues....................................................... 172,854 174,147 185,541 193,195 179,275
Less: promotional allowances....................................... (13,044) (13,829) (15,193) (15,706) (14,598)
-------- -------- -------- -------- --------
Net operating revenues............................................... 159,810 160,318 170,348 177,489 164,677
-------- -------- -------- -------- --------
Operating expenses
Casino............................................................. 43,114 43,736 46,724 48,723 45,820
Rooms.............................................................. 12,582 12,559 12,634 12,867 12,166
Food and beverage.................................................. 23,445 24,137 26,101 26,188 25,019
Other operating expenses........................................... 4,922 5,944 6,327 7,248 5,927
Selling, general and administrative................................ 27,390 27,773 28,482 29,719 29,207
Depreciation and amortization...................................... 17,601 17,583 17,824 15,500 12,082
Write-off of debt issuance costs................................... -- -- -- -- 370
Loss on sale of assets............................................. 43 53 1 1 4
-------- -------- -------- -------- --------
Total operating expenses........................................... 129,097 131,785 138,093 140,246 130,595
-------- -------- -------- -------- --------
Operating income................................................... 30,713 28,533 32,255 37,243 34,082
-------- -------- -------- -------- --------
Other (income) expense
Insurance settlement proceeds...................................... -- -- -- -- (225)
Interest income.................................................... (38) (149) (162) (248) (112)
Interest expense, net(1)........................................... 21,036 18,733 16,334 15,721 13,299
Interest rate swap, income(2)...................................... -- -- -- -- (327)
-------- -------- -------- -------- --------
Total other (income) expense......................................... 20,998 18,584 16,172 15,473 12,635
-------- -------- -------- -------- --------
Net income before cumulative effect of change in accounting principle 9,715 9,949 16,083 21,770 21,447
Cumulative effect of change in accounting principle(2)............... -- -- -- -- (327)
-------- -------- -------- -------- --------
Net income(3)........................................................ $ 9,715 $ 9,949 $ 16,083 $ 21,770 $ 21,120
======== ======== ======== ======== ========
Other Financial Data:
EBITDA(4)............................................................ $ 48,357 $ 46,169 $ 50,080 $ 52,744 $ 46,538
Cash provided by operating activities................................ 22,131 28,400 32,045 37,510 33,048
Cash used in investing activities.................................... 3,343 4,642 4,848 4,224 3,917
Cash used in financing activities.................................... 15,197 23,500 24,500 35,500 28,000
Capital expenditures................................................. 4,323 4,808 4,902 4,158 4,180
Ratio of earnings to fixed charges(5)................................ 1.5x 1.5x 2.0x 2.4x 2.6x
Operating Data(6):
Number of hotel rooms................................................ 1,709 1,710 1,710 1,710 1,710
Average daily room rate.............................................. $ 58.94 $ 60.70 $ 60.99 $ 62.99 $ 66.35
Daily occupancy rate................................................. 88.3% 89.0% 89.7% 88.9% 83.4%
Number of slot machines.............................................. 2,266 2,264 2,207 2,237 2,177
Slot machine win per unit per day.................................... $ 82.05 $ 78.10 $ 86.72 $ 90.29 $ 83.25
Number of table games................................................ 87 83 81 79 82
Table game win per unit per day...................................... $ 935 $ 988 $ 1,113 $ 1,143 $ 1,003
(Footnotes on following next page)
26
As of December 31,
--------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(In thousands)
Balance Sheet Data:
Cash and cash equivalents $ 10,384 $ 10,642 $ 13,339 $ 11,125 $ 12,256
Total assets............. 346,554 333,225 324,211 311,844 303,169
Total debt............... 222,000 198,500 174,000 163,500 145,000
Total partners' equity... 110,615 120,564 136,647 133,417 145,407
- --------
(1) Interest expense is net of the effect of all payments made or received
pursuant to hedging obligations.
(2) In accordance with SFAS 133, Accounting for Derivative Instruments and
Hedging Activities, we are required to record all derivatives as assets or
liabilities measured at fair value with the change in fair value recognized
in earnings. On January 1, 2001, we recorded a liability of $0.3 million
for the fair value of our interest rate swaps at that date, with a
corresponding cumulative effect adjustment in the income statement. All of
our interest rate swaps matured on October 29, 2001.
(3) Circus and Eldorado Joint Venture is not subject to income taxes, as the
partners include their respective shares of partnership taxable income in
their income tax returns. Therefore, a provision for income taxes is not
included in our selected financial information. Circus and Eldorado Joint
Venture's governing documents require the partnership to make distributions
to its partners in an amount equal to the maximum marginal federal income
tax rate applicable to any partner multiplied by the income of the
partnership for the applicable period. See "The Partnership Agreement."
(4) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, loss on sale of assets, other non-recurring charges and
cumulative effect of change in accounting principle. EBITDA is presented as
a supplemental disclosure because management believes that it is a widely
used measure of operating performance in the gaming industry. EBITDA should
not be construed as an alternative to operating income or net income (as
determined in accordance with generally accepted accounting principles, or
GAAP), as an indicator of cash flows or a measure of liquidity. All
companies do not calculate EBITDA in the same manner. As a result, EBITDA
as presented here may not be comparable to similarly titled measures
presented by other companies.
(5) The ratio of earnings to fixed charges has been computed as earnings
divided by fixed charges. Earnings represent net income plus fixed charges.
Fixed charges represent interest expense, whether expensed or capitalized,
the interest component of rent expense and amortization of debt issuance
costs.
(6) Operating data are averages for the respective periods.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Silver Legacy's net operating revenues and income are derived largely from
our gaming activities. In an effort to enhance our gaming revenues, we attempt
to maximize the use of our gaming facilities at Silver Legacy by providing a
well-balanced casino environment that contains a mix of games attractive to
multiple market segments. In addition, we endeavor to maximize customer visits
to Silver Legacy by offering a variety of value- oriented dining options along
with a variety of promotional, special event and entertainment schedules. For
the fiscal year ended December 31, 2001, casino revenues accounted for
approximately 54.9% of gross revenues.
Effective March 1, 1994, Eldorado Limited Liability Company ("ELLC"), a
Nevada limited liability company owned and controlled by Eldorado Resorts LLC,
and Galleon, Inc. ("Galleon"), a Nevada corporation owned and controlled by
Mandalay Resort Group, formerly known as Circus Circus Enterprises Inc.,
entered into a joint venture agreement to establish the Partnership.
On July 28, 1995, Silver Legacy commenced operations as a hotel-casino in
downtown Reno, Nevada. Currently, Silver Legacy is a leader within the Reno
market in terms of size, offering the largest number of slot machines and table
games and the second largest number of hotel rooms. Convention expansions,
amenity additions and other renovations have been completed on an annual basis.
Complimentary revenues are included in gross revenues and deducted as a
promotional allowance expense to calculate net operating revenues.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
September 11, 2001. The terrorist attacks which occurred on September 11,
2001 had a pronounced impact on our operating results during the weeks
immediately following the attacks. Silver Legacy's hotel occupancy, gaming
volume and customer traffic declined significantly during the post-September 11
portion of our third quarter compared with the levels we experienced prior to
September 11. In response to the effects of the terrorist attacks, we took
several steps to mitigate the impact on our operations and financial position,
including reducing staff to correspond with reduced business levels and
decreased discretionary spending. During the fourth quarter of 2001 the weekend
business at Silver Legacy returned to near-normal levels, in terms of customer
traffic, and midweek business improved, although we have yet to achieve the
midweek levels we experienced during the corresponding periods of the prior
year. Management believes that the Reno market's greater dependence on
"drive-in" customers has helped us to rebound more quickly and has minimized
the long-term impact on our operations. While we cannot predict the extent to
which the attacks will continue to directly or indirectly impact our
operations, we believe the most significant impact will be the adverse effect
on the economy, particularly in northern California.
Net Operating Revenues. For the year ended December 31, 2001, net revenues
were $164.7 million compared to $177.5 million for the year ended December 31,
2000. The primary contributors to the $12.8 million, or 7.2%, decrease were
declines in casino revenues, which we believe were associated with the stock
market and economic downturns.
Casino Revenues. Casino revenues decreased $11.3 million, or 10.3%, to
$98.4 million for the year ended December 31, 2001 from $109.6 million for the
year ended December 31, 2000. Table games drop decreased 7.3% for the year
ended December 31, 2001 compared to the year ended December 31, 2000. Due to a
lower hold percentage, table games net revenue was down 9.4% for the year ended
December 31, 2001, compared to the prior year. Much of the decreases in table
games drop and net revenue were due to declines in both cash and credit play
for the year ended December 31, 2001 in comparison to the year ended December
31, 2000.
28
For the year ended December 31, 2001, in comparison to the year ended
December 31, 2000, slot handle decreased 8.8%. This decline in volume was in
part due to the absence of the WIBC Women's Bowling Tournament which positively
impacted the first and second quarters in 2000. Slot net revenues were
$66.2 million for the year ended December 31, 2001, compared to $73.8 million
for the year ended December 31, 2000, resulting in a $7.7 million, or 10.4%,
decrease.
Room Revenues. For the year ended December 31, 2001, room revenues were
$37.8 million resulting in a slight decrease of $0.1 million, or 0.3%, from
$37.9 million for the year ended December 31, 2000. Included in the twelve
months ended December 31, 2001, is $0.9 million related to an energy surcharge
collected from guests, which was not reflected in the average daily room rate
calculation. The average daily room rate rose to $66.35 for the year ended
December 31, 2001 from $62.99 for the year ended December 31, 2000. However,
the occupancy percentage decreased to 83.4% for the year ended December 31,
2001 from 88.9% for the year ended December 31, 2000 due to declines in room
nights occupied in the leisure, casino and wholesale segments. The decrease in
occupancy was offset by the increase in the average daily room rate and the
energy surcharge.
Food and Beverage Revenues. Food and beverage revenues were $35.6 million
for the year ended December 31, 2001, compared to $36.8 million for the year
ended December 31, 2000. The decrease of $1.3 million, or 3.5%, was due to
declines in beverage complimentary revenue and food cash revenue for the year
ended December 31, 2001, compared to the year ended December 31, 2000. For the
year ended December 31, 2001, cover counts declined 11.9% in comparison to the
year ended December 31, 2000, which was in conjunction with the aforementioned
table games and slot volume decreases.
Other Revenues. Other revenues are comprised of revenues generated by the
retail outlets, arcade, entertainment concert series, events pavilion, ATM/cash
advance commissions and other miscellaneous items. For the year ended December
31, 2001, other revenues were $7.5 million compared to $8.8 million for the
year ended December 31, 2000, resulting in a $1.3 million, or 14.5%, decrease.
This decrease was mainly related to the $0.7 million, or 18.6%, decrease for
the year ended December 31, 2001, in entertainment revenues resulting from
fewer concerts being scheduled in 2001 compared to 2000.
Promotional Allowances. For the year ended December 31, 2001, promotional
allowances decreased $1.1 million, or 7.1%, to $14.6 million from $15.7 million
for the year ended December 31, 2000. As a percentage of gross revenues,
promotional allowances remained constant at 8.1% for the years ended
December 31, 2001 and 2000.
Operating Expenses. Operating expenses for the year ended December 31,
2001, were $130.6 million compared to $140.2 million for the year ended
December 31, 2000, resulting in a $9.7 million, or 6.9%, decrease from prior
year. This decrease was primarily due to reductions in casino expenses, other
expenses and depreciation expense.
Casino Expenses. Casino expenses decreased $2.9 million, or 6.0%, to $45.8
million for the year ended December 31, 2001 from $48.7 million for the year
ended December 31, 2000. The majority of this decrease was associated with cost
containment efforts to reduce casino payroll and operating expenses along with
decreases in state gaming revenue taxes associated with decreased revenues. In
addition, casino promotion expenses decreased by $0.5 million for the year
ended December 31, 2001 compared to the prior year due to a reduction in the
special events schedule along with decreased costs associated with our
"Ultimate Party" promotion.
Room Expenses. For the year ended December 31, 2001, room expenses were
$12.2 million, resulting in a $0.7 million, or 5.4%, decrease from $12.9
million for the year ended December 31, 2000. This decrease was attributed to
operating efficiencies and decreases in departmental payroll expenses in
addition to the decline in occupied rooms from prior year.
29
Food and Beverage Expenses. Food and beverage expenses decreased by $1.2
million, or 4.5%, to $25.0 million for the year ended December 31, 2001, from
$26.2 million for the year ended December 31, 2000, resulting from decreases in
food cost of sales and food payroll expenses as a percent of revenues.
Other Expenses. Other expenses are comprised of expenses associated with
the operation of the retail outlets, arcade and events pavilion along with
entertainment department's payroll, production costs and professional fees. For
the year ended December 31, 2001, other expenses were $5.9 million, a $1.3
million, or
18.2%, decrease from $7.2 million for the year ended December 31, 2000. This
decrease was primarily due to the $1.2 million, or 23.2%, reduction in
entertainment expenses, principally professional fees for headliner
entertainment, for the year ended December 31, 2001, compared to the prior year
period.
Selling, General and Administrative Expenses. Selling, general and
administration expenses decreased by $0.5 million, or 1.7%, to $29.2 million
for the year ended December 31, 2001, from $29.7 million for the year ended
December 31, 2000. Administration and advertising expenses for the year ended
December 31, 2001, decreased $1.1 million, or 7.6%, from the same prior year
period due to efforts to reduce expenses in response to decreased business
levels. However, this decline was offset by a $0.9 million, or 22.7%, increase
in utilities expenses and a $0.2 million, or 5.7%, increase in property taxes
and insurance expenses for the year ended December 31, 2001 compared to the
year ended December 31, 2000.
Depreciation. Depreciation for the year ended December 31, 2001, decreased
$3.4 million, or 22.1%, to $12.1 million from $15.5 million for the year ended
December 31, 2000. This decrease resulted from many five year assets becoming
fully depreciated in mid year 2000.
Operating Income. Operating income for the year ended December 31, 2001,
was $34.1 million, resulting in a $3.2 million, or 8.5%, decrease compared to
$37.2 million for the year ended December 31, 2000. This decrease was due to
the aforementioned revenue and expense variations.
Other (Income) Expense. Other (income) expense is comprised of interest
income, interest expense, income related to an insurance settlement and
interest rate swap income. Other expense was $12.6 million for the year ended
December 31, 2001, compared to $15.5 million for the year ended December 31,
2000. Interest expense accounts for the majority of the decrease and was $13.3
million for the year ended December 31, 2001 compared to $15.7 million for the
year ended December 31, 2000. This interest expense decrease was primarily due
to declines in our interest rate and a decrease in our average outstanding
borrowings.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net Operating Revenues. Net operating revenues for the year ended December
31, 2000, were $177.5 million compared to $170.3 million for the year ended
December 31, 1999, an increase of $7.1 million, or 4.2%. This increase in net
operating revenues was mainly driven by growth in casino revenues, and to a
smaller degree, increases in revenues from all other departments.
Casino Revenues. For the year ended December 31, 2000, casino revenues
increased $4.4 million, or 4.1%, to $109.6 million from $105.3 million for the
year ended December 31, 1999. Table games drop increased 2.0% for the year
ended December 31, 2000, compared to the year ended December 31, 1999. The
table games hold percentage was consistent for the years ended December 31,
2000 and 1999. Table games net revenue also rose for the year ended December
31, 2000, to $33.0 million from $32.4 million for the year ended December 31,
1999, an increase of $0.6 million, or 1.8%. Strong credit play was a factor
having a positive impact on table games volume and revenue.
Slot handle experienced volume increases, up 5.3% for the year ended
December 31, 2000, in comparison to the year ended December 31, 1999. Much of
this increase in volume may be credited to the WIBC Women's Bowling Tournament
held during the months of March through mid-July 2000, which helped to produce
record
30
first and second quarter results in the year ended December 31, 2000. The slot
hold percentages were consistent for the years ended December 31, 2000 and
1999. Slot net revenues for the year ended December 31, 2000, were $73.8
million compared to $70.0 million for the year ended December 31, 1999, a $3.9
million, or 5.5%, increase over the prior year.
Room Revenues. Room revenues increased $1.1 million, or 2.9%, to $37.9
million for the year ended December 31, 2000, from $36.9 million for the year
ended December 31, 1999. This increase over the prior year was attributed to an
increase in the average daily room rate. For the year ended December 31, 2000,
in comparison to the year ended December 31, 1999, the average daily room rates
and occupancy percentages were $62.99 and 88.9% versus $60.99 and 89.7%,
respectively. In addition, the hotel benefited from convention business
generated by the completion of the mezzanine expansion in April of 2000. This
expansion provided approximately 9,000 square feet of new convention space and
enabled the hotel to increase convention room nights 17.2% for the year ended
December 31, 2000 in comparison to the prior year.
Food and Beverage Revenues. For the year ended December 31, 2000, food and
beverage revenues were $36.8 million, increasing $1.2 million, or 3.4%, from
$35.6 million for the year ended December 31, 1999. Much of this increase was
due to selective menu pricing changes. During the years ended December 31, 2000
and 1999, the average revenue per cover was $10.35 and $10.04, respectively.
Other Revenues. For the year ended December 31, 2000, other revenues were
$8.8 million compared to $7.7 million for the year ended December 31, 1999, and
exceeded the prior year by $1.0 million, or 13.4%. The primary contributor to
the increase was entertainment revenue, rising by $0.8 million, or 28.6%, for
the year ended December 31, 2000, over the prior year as a result of a strong
concert schedule in comparison to 1999. Other revenues are comprised of
revenues generated by the retail outlets, arcade, entertainment concert series,
events pavilion, ATM/cash advance commissions and other miscellaneous items.
Promotional Allowances. Promotional allowances were $15.7 million for the
year ended December 31, 2000 in comparison to $15.2 million for the year ended
December 31, 1999. While this represents a $0.5 million, or 3.4%, increase over
the prior year, promotional allowances as a percentage of gross revenues
decreased to 8.1% for the year ended December 31, 2000 from 8.2% for the year
ended December 31, 1999.
Operating Expenses. Operating expenses for the year ended December 31,
2000, were $140.2 million versus $138.1 million for the year ended December 31,
1999, and exceeded the prior year by $2.2 million, or 1.6%. This increase was
mainly attributable to increases in casino, entertainment and selling, general
and administrative expenses.
Casino Expenses. For the year ended December 31, 2000, casino expenses were
$48.7 million, an increase of $2.0 million, or 4.3%, from $46.7 million for the
year ended December 31, 1999. Increased promotional expenses related to the
WIBC Women's Bowling Tournament and state gaming revenue taxes produced the
majority of this increase.
Room Expenses. Room expenses increased by $0.2 million, or 1.8%, to $12.9
million for the year ended December 31, 2000, from $12.6 million for the year
ended December 31, 1999, and was attributed to increases in departmental
payroll expenses and travel agent commissions.
Food and Beverage Expenses. Food and beverage expenses were relatively flat
with the prior year posting an increase of $0.1 million to $26.2 million for
the year ended December 31, 2000, versus $26.1 million for the year ended
December 31, 1999. The slight increase was related to higher food departmental
payroll expenses for the year ended December 31, 2000, in comparison to the
prior year.
Other Expenses. Other expenses are comprised of expenses associated with
the operation of the retail outlets, arcade and events pavilion along with
entertainment department's production costs and professional fees.
31
For the year ended December 31, 2000, other expenses were $7.2 million,
representing an increase of $0.9 million, or 14.6%, from $6.3 million for the
year ended December 31, 1999. The majority of this increase was associated with
the entertainment department due to increased professional fees for concert
entertainers.
Selling, General and Administration Expenses. For the year ended December
31, 2000, selling, general and administration expenses were $29.7 million,
resulting in a $1.2 million, or 4.3%, increase compared to $28.5 million for
the year ended December 31, 1999. This increase was mainly due to higher
marketing and advertising expenses, which increased $0.7 million, or 10.8%, to
$6.7 million for the year ended December 31, 2000, from $6.1 million for the
year ended December 31, 1999. Another primary contributor was utility expense,
increasing $0.2 million, or 5.4%, to $3.9 million versus $3.7 million for the
years ending December 31, 2000 and 1999, respectively.
Depreciation and Amortization. Depreciation and amortization expense for
the year ended December 31, 2000, was $15.5 million, down $2.3 million, or
13.0%, from $17.8 million for the year ended December 31, 1999, due to assets
becoming fully depreciated in mid-2000.
Operating Income. For the year ended December 31, 2000, operating income
was $37.2 million resulting in a $5.0 million, or 15.5%, increase from $32.3
million for the year ended December 31, 1999. This increase was due to the
previously discussed increases in revenues while expenses did not increase
proportionately.
Other (Income) Expense. Other (income) expense is comprised of interest
income, interest expense and loss on sale of assets. For the year ended
December 31, 2000, other expense was $15.5 million compared to $16.2 million
for the year ended December 31, 1999. The majority of the decrease was due to
the decline in interest expense to $15.7 million for the year ended December
31, 2000 from $16.3 million for the year ended December 31, 1999. This decline
resulted from a decrease in the average outstanding borrowings during 2000.
Liquidity and Capital Resources
Our primary source of liquidity and capital resources has been cash flow
from operations. As of December 31, 2001, 2000 and 1999, cash and cash
equivalents were $12.3 million, $11.1 million and $13.3 million, respectively.
Cash provided by operating activities was $33.0 million for the year ended
December 31, 2001, compared to $37.5 million for the year ended December 31,
2000. This $4.5 million decrease was due to a $6.2 million decline in operating
income (excluding depreciation expense and other non-cash charges). This
decline in operating income was comprised of a reduction in net revenues of
$12.8 million offset by a decline in cash operating expenses of $6.6 million.
Additionally, interest expense decreased $2.4 million due to a reduction in our
interest rate on our variable rate borrowings. The remaining difference is
working capital change. Cash provided by operating activities was $32.0 million
for the year ended December 31, 1999. The increase of $5.5 million was
primarily due to the increase in net income to $21.8 million for the year ended
December 31, 2000, from $16.1 million for the year ended December 31, 1999.
Cash used in investing activities for the year ended December 31, 2001, was
$3.9 million compared to $4.2 million for the year ended December 31, 2000, and
$4.8 million for the year ended December 31, 1999. The majority of cash used in
investing activities for all three years related to capital expenditures for
various expansion and renovation projects along with the purchases of slot
machines and computer software.
Cash used in financing activities was $28.0 million for the year ended
December 31, 2001, compared to $35.5 million for the year ended December 31,
2000. The uses of cash for the year ended December 31, 2001, were $9.1 million
in partner tax distributions, $21.5 million in payments on our prior credit
facility and $0.4 million related to the incurrence of debt issuance costs. For
the year ended December 31, 2000, $35.5 million was used for payments on our
prior credit facility. In addition, $25.0 million was borrowed under our prior
credit facility in order to make a $25.0 million partner distribution in 2000.
Cash used in financing activities was $24.5 million for the year ended December
31, 1999, and was used to make payments on our prior credit facility.
32
Our executive committee has approved $4.3 million in capital expenditures
for 2002 primarily relating to renovation projects and purchases of gaming
equipment. In future years, we intend to make capital expenditures consistent
with historical expenditures and, to the extent necessary to continue to
maintain an attractive property and a competitive position in our marketplace,
additional amounts as approved by our executive committee.
After giving effect to the issuance of the notes and the other transactions
set forth in "Use of Proceeds," we believe that cash flow from operations and
available cash, together with available borrowings under our senior secured
credit facilities and the utilization of capital leases, will be adequate to
meet our anticipated future requirements for working capital, budgeted capital
expenditures and scheduled payments of principal and interest on our
indebtedness, including the notes, for the foreseeable future.
Impact of Inflation
Absent changes in competitive and economic conditions or in specific prices
affecting the industry, we do not expect that inflation will have a significant
impact on our operations. Changes in specific prices, such as fuel
and transportation prices, relative to the general rate of inflation may have a
material adverse effect on the hotel and casino industry in general.
Market Risk and Derivative Financial Instruments
We are exposed to market risk in the form of fluctuations in interest rates
and their potential impact upon our variable-rate debt. We evaluate our
exposure to market risk by monitoring interest rates in the marketplace and we
have, on occasion, utilized derivative financial instruments to help manage
this risk. We do not utilize derivative financial instruments for trading
purposes. There were no material quantitative changes in our market risk
exposure, or how such risks are managed, during 2001.
The derivative financial instruments we utilized during 2001 consisted
exclusively of three interest rate swap agreements which expired during that
year. Interest differentials resulting from these agreements were recorded on
an accrual basis as an adjustment to interest expense. Interest rate swaps
related to debt are matched with our variable-rate borrowings.
To manage our exposure to counterparty credit risk in interest rate swaps,
we entered into agreements with highly rated institutions. The institutions
that were the counterparties to our recently expired interest rate swap
agreements were members of the bank group providing our prior credit facility.
Our three interest rate swap agreements were for notional amounts of $25.0
million, $25.0 million and $50.0 million, respectively. All of the interest
rate swap agreements expired on October 29, 2001. Each of the swaps provided
for an approximate fixed interest rate of 6.4%. The floating rate index was
computed on a 3-month LIBOR payable on the 29th of each January, April, July
and October. Based upon quoted market values from the institutions holding the
swaps, if we had terminated the swaps as of December 31, 2000, we would have
had to pay $0.3 million.
As of December 31, 2001, the interest rate on our prior credit facility was
LIBOR plus 1.1%. The indebtedness outstanding under our prior credit facility
as of December 31, 2001, totaled $145.0 million.
33
BUSINESS
Silver Legacy
We own and operate the Silver Legacy Resort Casino, a premier nineteenth
century silver mining themed hotel-casino and entertainment complex in Reno,
Nevada. Silver Legacy is among the largest hotel-casinos in the Reno market. We
have established Silver Legacy as a "must see" destination resort for Reno
visitors by creating an exciting, luxurious atmosphere unique in the Reno
market. We offer a dynamic gaming environment and a wide variety of amenities
delivered with special attention to personal service to appeal to our multiple
customer segments, including preferred casino players.
Silver Legacy opened in July 1995, with a capital investment of over $360
million, and is strategically located on two city blocks in downtown Reno
directly off Interstate 80, the principal highway connecting Reno with San
Francisco, Sacramento and other cities in northern California. The casino and
entertainment areas at Silver Legacy are seamlessly connected to the Eldorado
Hotel & Casino and the Circus Circus Hotel and Casino by 200-foot wide skyway
corridors, comprising the heart of the Reno market's prime gaming area and room
base.
Silver Legacy has approximately 87,300 square feet of gaming space situated
on two levels. At December 31, 2001, Silver Legacy featured 2,112 slot machines
and 82 table games, including blackjack, craps, roulette, Pai Gow Poker, Let It
Ride(R), Caribbean stud poker, Baccarat and Pai Gow, in addition to keno and a
race and sportsbook. "Club Legacy," Silver Legacy's players club, offers
customers exciting special events and tournaments and convenient ways of
earning complimentaries.
Silver Legacy's hotel, the tallest building in northern Nevada, is a
"Y"-shaped structure with three wings, consisting of 37-, 34- and 31-floor
tiers. An enclosed, climate controlled skywalk over North Sierra Street links
the hotel to the main casino, restaurants and additional public areas on the
mezzanine level. The hotel currently offers 1,710 guest rooms, including 145
player spa suites and eight penthouse suites.
Silver Legacy's dining options incorporate fine dining and casual elegance
in six venues:
. Sterling's Seafood Steakhouse, which has a seating capacity of 168,
offering the finest in steaks and seafood along with an extensive wine
list, featured in Wine Spectator magazine, table side desserts and an
extravagant Sunday Brunch;
. the Victorian Buffet, which has a seating capacity of 500;
. Fairchild's Oyster Bar, which has a seating capacity of 56, offering a
comfortable drink and a quick bite;
. Sweetwater Cafe, which has a seating capacity of 333, offering an
extensive menu that includes American classics and Chinese cuisine
24-hours a day;
. Fresh Express Food Court, which has a seating capacity of 110, offering a
range of options including a deli and grill, authentic Asian cuisine and
American classics; and
. Sips Coffee House, situated in the hotel lobby, offers gourmet coffee and
teas.
Silver Legacy is downtown Reno's leading convention destination, offering
approximately 90,000 square feet of exhibit and convention space. Our
convention and meeting space includes an approximately 20,000 square-foot
divisible ballroom and approximately 30,000 square feet of additional breakout
rooms all located within the casino. The City Center Pavilion, which provides
approximately 40,000 square feet of convention space, is located on an adjacent
special events plaza situated across North Virginia Street from Silver Legacy
which is owned by our affiliates. The City Center Pavilion was constructed in
February 1999 and is currently operated by us under a three-year use permit
which expires in February 2005. Furthermore, we believe the additional hotel
capacity and meeting space available at the adjoining Eldorado and Circus
properties significantly enhance our ability to attract larger conventions.
34
Silver Legacy's other amenities include custom retail shops, exercise
facilities, a beauty salon, a video arcade, and an outdoor swimming pool and
sundeck. Silver Legacy's 10-story parking facility is capable of accommodating
approximately 1,800 vehicles.
We carefully target our marketing programs to five segments of the gaming
market: free and independent travelers, preferred casino customers, convention
groups, local patrons and wholesale/specialty groups. We attract our target
customers through newspaper, radio, television and direct mail campaigns
locally and in northern California, the Pacific northwest and other regional
travel markets. Silver Legacy utilizes a broad special events calendar, along
with our guest development program, including selective casino credit, to
attract and retain our target customers. In addition, we utilize our hotel
rooms, restaurants and other amenities to offer complimentaries to a broad
spectrum of established casino guests. "Club Legacy," Silver Legacy's players
club, offers customers exciting special events and tournaments and convenient
ways of earning complimentaries. The convention and wholesale/specialty market
segments contribute to our hotel occupancy during slower mid-week periods. For
the twelve months ended December 31, 2001 our average occupancy rate was 83.4%
compared to 76.9% for the Reno market.
Competitive Strengths
Silver Legacy offers our guests a fully integrated gaming, lodging, dining
and entertainment experience in a convenient downtown Reno location. We believe
the quality of our amenities enables us to attract multiple customer segments
from the local area, northern California, the Pacific northwest and other
regional travel markets.
Premier "Must See" Attraction. We believe Silver Legacy is a "must see"
attraction for Reno visitors and residents as the only major newly-constructed
hotel-casino in the Reno market since 1978. A uniquely themed mega-resort, the
property's design is inspired by Nevada's rich mining heritage and the legend
of Sam Fairchild, a fictitious silver baron who "struck it rich" on the site of
the casino. Silver Legacy's opulent interior showcases a casino built around
Sam Fairchild's famed 120-foot tall mining rig, which appears to mine for
silver. The rig is situated beneath a 180-foot diameter dome, which is a
distinctive landmark on the Reno skyline. The interior surface of the dome
features dynamic sound and laser light shows, providing visitors with a unique
experience when they enter the casino.
Center of Tri-Property Destination Resort. Silver Legacy, together with the
Eldorado and Circus properties, comprises the heart of the Reno market's prime
gaming area and room base, providing the most extensive variety of gaming,
lodging, dining and entertainment amenities in the Reno area. As of December
31, 2001, the tri-property complex offered 4,099 rooms, 20 restaurants, 5,534
slot machines, 233 table games and parking to accommodate over 6,000 vehicles,
representing approximately 27% of the Reno market's total room base and 24% of
the Reno market's total slot machines and table games. We believe that the
centralized location and critical mass of these three properties, together with
the seamless connections between the facilities, provide Silver Legacy with
significant advantages over other freestanding hotel-casinos in the Reno market.
Headliner Entertainment and Premium Dining. Our customers are attracted to
Silver Legacy's entertainment and award-winning cuisine. Each year,
approximately 50 nights of headliner entertainment are scheduled in our
1,600-seat Grande Exposition Hall or the 3,400-seat City Center Pavilion,
making Silver Legacy the leading entertainment venue in the Reno market.
Entertainers who appeared during 2001 include Jay Leno, Chicago, Michael Bolton
and George Carlin. Recent enhancements include the opening of Rum Bullions
Island Bar, a tropical-themed bar and lounge with nightly entertainment and the
expansion of our race and sports book, including a new sports-themed bar.
Silver Legacy also features Catch a Rising Star, a 220-seat, nationally
recognized comedy club.
Quality Personal Service. We are committed to providing our customers with
a high level of personal service, which we believe is an integral part of
fostering customer loyalty and generating repeat business. We
35
continually strive to instill in each employee a dedication to superior service
designed to exceed our guests' expectations.
Experienced Management Team. Silver Legacy has an experienced management
team with an average of more than 20 years of experience in the Reno gaming
market. All of our senior management have been with Silver Legacy since it
opened in July 1995. We also benefit from the expertise of our joint venture
partners and the leadership they provide through our executive committee, which
includes senior executives from Eldorado Resorts LLC and Mandalay Resort Group.
Adjoining Properties
Enclosed, climate controlled corridors connect Silver Legacy with the Circus
Circus Hotel and Casino and the Eldorado Hotel & Casino, each of which is owned
and independently operated by an affiliate of one of Circus and Eldorado Joint
Venture's partners. The three properties comprise the heart of Reno's prime
gaming area and room base, providing the most extensive and broadest variety of
gaming, entertainment, lodging and dining amenities in the Reno area, with an
aggregate of 4,099 rooms, 20 restaurants, 5,534 slot machines, 233 table games
and enough parking to accommodate over 6,000 vehicles as of December 31, 2001.
Although we compete with these other two properties, we believe that the
centralized location and critical mass of these three properties, Silver
Legacy's position as the centerpiece of the three properties and the seamless
connections between the facilities, provide Silver Legacy with significant
competitive advantages over other freestanding hotel-casinos in the Reno market.
Circus Circus Hotel and Casino. The Circus Circus Hotel and Casino features
1,572 guestrooms and a 60,000 square-foot casino, which, as of December 31,
2001, featured 1,596 slot machines and 73 table games. The property offers its
guests a variety of circus acts performed daily, free of charge, under a "Big
Top" above the casino. A mezzanine area has a circus midway with carnival-style
games and an arcade that offers a variety of amusement and electronic games.
The property features two specialty restaurants, Amici's Pasta and Steaks and
Art Gecko's Southwest Grill, in addition to a 464-seat buffet, coffee shop,
deli/bakery, fast food snack bar, cocktail lounges, gift shop, specialty shops
and parking facilities for approximately 3,200 vehicles.
Eldorado Hotel & Casino. This property is a luxurious hotel-casino offering
approximately 84,000 square feet of gaming space. Its three hotel towers have a
total of 817 guestrooms, including 18 specialty suites, 93 "Eldorado Player's
Spa Suites" with bedside spas and 26 one or two bedroom suites. As of December
31, 2001, this property's casino featured 1,826 slot machines and 78 table
games, as well as poker, keno and a race and sports book. The property is
renowned for its eight restaurants, including Bistro Roxy, La Strada and a
525-seat buffet. Additional amenities include a casino cabaret, bars and
lounges, parking facilities for approximately 1,100 vehicles, and approximately
12,000 square feet of convention space.
The map on the following page shows the relative locations of Silver Legacy,
the Eldorado Hotel & Casino, and Circus Circus Hotel and Casino, as well as
certain other competitors and points of interest in the Reno market.
36
[MAP] Map of Reno
37
Reno Market
The Reno market is the eighth largest gaming market in the United States,
generating approximately $1.0 billion of gaming revenues for the twelve months
ended December 31, 2001. As of December 31, 2001, the Reno market featured
approximately 15,459 hotel rooms, 23,386 slot machines and 676 table games. For
the twelve months ended December 31, 2001, the Reno market had an estimated
76.9% average hotel occupancy rate.
Reno is the second largest metropolitan area in Nevada, with a population of
approximately 340,000 according to the most recently available U.S. Census
data, and is located at the base of the Sierra Nevada Mountains along
Interstate 80, approximately 135 miles east of Sacramento, California and 225
miles east of San Francisco, California. Reno is a destination resort market
that primarily attracts "drive-in" visitors by offering gaming as well as
numerous other summer and winter recreational activities. Management believes
that approximately two-thirds of visitors to the Reno market arrive by some
form of ground transportation. Popular special events include the National
Championship Air Races, the Reno-Tahoe Open PGA tour event and Hot August
Nights, a vintage car event. In addition, the National Bowling Stadium, located
one block from Silver Legacy, is the largest bowling complex in North America
and has been selected to host multi-month tournaments in Reno two out of every
three years through 2009, of which 2002 is a non-tournament year.
According to the Reno-Sparks Convention & Visitors Authority, the greater
Reno area attracted an estimated 5.2 million visitors during the twelve months
ended June 30, 2001 and 2000. The following table sets forth certain
statistical information for the Reno market for the years 1997 through 2001 as
reported by the Reno-Sparks Convention & Visitors Authority, the Nevada State
Gaming Control Board and Reno/Tahoe International Airport.
1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ----------
Gaming Revenues (000's)(1)..... $ 901,989 $ 929,844 $ 968,531 $1,026,700 $ 961,664
Gaming Positions(2)(3)......... 31,762 30,816 30,526 30,951 27,712
Hotel Rooms(2)................. 15,773 15,271 15,957 16,515 15,459
Average Hotel Occupancy Rate(1) 80.3% 79.1% 78.8% 78.3% 76.9%
Visitors(4).................... 5,155,649 5,121,693 5,051,101 5,185,393 5,164,474
- --------
(1) For the twelve months ended December 31 for each period shown.
(2) As of December 31 for each period shown.
(3) Calculated from information provided by the Nevada State Gaming Control
Board.
(4) For the twelve months ended June 30 for each period shown.
Marketing Strategy
We target the following customer segments of the Reno gaming market: free
and independent travelers, preferred casino customers, conventions, local
patrons and specialty groups.
Free and Independent Travelers. This customer segment consists of persons
who are not affiliated with travel groups and who make arrangements for their
accommodations directly or through independent travel agents. For Reno, free
and independent travelers consist principally of persons who typically travel
on weekends from northern California, Oregon, Washington and western Canada.
Silver Legacy targets this segment through advertising efforts, including
aggressive television and newsprint exposure, emphasizing the exciting
atmosphere and high level of relative value offered at Silver Legacy.
Advertising efforts are directed principally to existing Reno gaming customers,
as well as to experienced gaming customers of Las Vegas and other markets
presenting the Reno market, generally, and Silver Legacy, specifically, as an
attractive alternative. Additionally, utilizing the unique theming of Silver
Legacy, the variety, quality, and attractive pricing of its food and beverage
outlets, and its close proximity to other hotel casinos in downtown Reno
(including its connection with the Circus Circus Hotel and Casino and Eldorado
Hotel & Casino), we target "walk-in" customers for Silver Legacy.
38
Preferred Casino Customers. Management targets valued gaming customers
through an aggressive development program. This program utilizes independent
sales representatives to engage in one-on-one sales activities and marketing
personnel trained to identify and target these individuals while they patronize
Silver Legacy. We also use television advertisements featuring the elegant
image and exciting atmosphere at Silver Legacy to target preferred gaming
customers. In addition, through specialized entertainment programs and special
events, including televised boxing matches, and by highlighting Silver Legacy's
145 players' spa suites and eight luxury suites (which have been designed
specifically to cater to the needs of high end gaming customers), and the
property's entertainment facilities, amenities and unique attractions, we seek
to capture a significant portion of Reno's valued gaming business. Our
marketing efforts for preferred gaming customers include the provision of
complimentary rooms, food and beverages, air transportation and the extension
of credit to qualified persons. "Club Legacy," Silver Legacy's players club,
offers customers exciting special events and tournaments and convenient ways of
earning complimentaries.
Convention Groups. Conventioneers and attendees of Reno area events are
targeted by Silver Legacy, depending on management's view of their relative
propensity for gaming and the timing of the specific events or conventions
relative to the historic seasonality of the gaming business in Reno. In so
doing, we seek to increase Silver Legacy's mid-week occupancies and mitigate
the effects of seasonality on our operations. For example, Silver Legacy
targets competitors at the National Bowling Stadium in Reno and their guests.
Other special events groups, generally consisting of between 1,000 and 1,500
persons, are also targeted by Silver Legacy by emphasizing Silver Legacy's
special events center which is available to be used for concerts, shows, theme
parties, televised boxing matches and other events.
Local Patrons. We attract and retain local customers through frequent
promotions that highlight our quality gaming and dining experience, as well as
being an active supporter of numerous Reno market events and organizations.
Wholesale/Specialty Groups. The wholesale/specialty segment consists of
customers who utilize "packages" to reduce the cost of travel, lodging and
entertainment. These packages are produced by wholesalers (such as major
airlines) and travel agents, and emphasize mid-week stays. Packages including
Silver Legacy are marketed by wholesalers and travel agents principally to
customers in Oregon, Washington and western Canada. This market segment allows
us to utilize our rooms during slower mid-week periods.
Competition
The gaming industry includes land-based casinos, dockside casinos, riverboat
casinos, casinos located on Native American reservations and other forms of
legalized gaming. There is intense competition among companies in the gaming
industry, many of which have significantly greater resources than we do.
Certain states have legalized casino gaming and other states may legalize
gaming in the future. Legalized casino gaming in these states and on Native
American reservations near our markets or changes to gaming laws in states
surrounding Nevada could increase competition and could adversely affect our
operations. We also compete, to a lesser extent, with gaming facilities in
other jurisdictions with dockside gaming facilities, state-sponsored lotteries,
on-and-off track pari-mutuel wagering, Internet gaming, card clubs, riverboat
casinos and other forms of legalized gambling.
We compete for customers primarily on the basis of location, range and
pricing of amenities and overall atmosphere. Of the 34 casinos currently
operating in the Reno market, we compete principally with the eight other
hotel-casinos that, like Silver Legacy, each generate at least $36 million in
annual gaming revenues, including the Circus Circus Hotel and Casino and the
Eldorado Hotel & Casino. Although no hotel-casino projects are currently under
construction in the Reno area, we cannot predict the extent to which new
projects will be undertaken or the extent to which current hotel space may be
expanded in the near future. We expect that any additional rooms added in the
Reno market will increase competition for visitor revenue. There can be no
assurance that any growth in Reno's current room base or gaming capacity will
not adversely affect our financial
39
condition or results of operations. We also compete with hotel-casinos located
in the nearby Lake Tahoe region as well as those in Las Vegas, Nevada. A
substantial number of customers travel to both Reno and the Lake Tahoe area
during their visits. Consequently, we believe that Silver Legacy's success is
influenced to some degree by the success of the Lake Tahoe market. While we do
not anticipate a decline in the popularity of either Reno or Lake Tahoe as tour
destination areas in the foreseeable future, any such decline could adversely
affect our operations.
Land-based, riverboat, or dockside casino gaming (other than that conducted
on Native American-owned land) is currently legal in nine states and casino
gaming on Native American-owned land is legal in at least 29 states, including
California, Washington, and Oregon. Management believes the Reno market draws
over 50% of its visitors from California. California allows other non-casino
style gaming, including pari-mutuel wagering, a state-sponsored lottery, card
clubs, bingo, and off-track betting. The competitive impact on Nevada gaming
establishments, in general, and our operations, in particular, from the
continued growth of gaming outside Nevada cannot be determined at this time. We
believe that the expansion of casino gaming on Native American lands in
California, and to a lesser extent in Washington and Oregon, could have a
material adverse affect on our operations depending on the nature, location,
and scope of those operations.
On March 7, 2000, California voters approved Proposition 1A which amended
the California constitution and legalized "Nevada-style" gaming on Native
American reservations. The passage of this amendment has allowed the expansion
of existing Native American gaming operations, as well as the opening of new
Native American gaming facilities. Additionally, numerous tribes have announced
that they intend to open gaming facilities. There are approximately 107
federally recognized Native American tribes in California. In order to conduct
gaming operations in California, a Native American tribe must enter into a
compact with the state. As of December 31, 2001, the State of California had
entered into compacts with approximately 60 tribes. Each Native American tribe
in California is limited to a maximum of 2,000 slot machines and there may not
be more than two gaming facilities on any one reservation. Under the governor
of California's interpretation of the compacts, all Native American tribes in
California are permitted to operate a total of approximately 45,000 slot
machines. However, there remains substantial uncertainty as to the total number
of slot machines authorized by the compacts and it is possible that the
approximately 45,000-machine limit will increase, and, if so, the increase may
be substantial. In addition to allowing the expansion of slot machines, the
compacts allow for the expansion of other casino-style games, including
blackjack and poker. Most existing Native American gaming facilities in
northern California are modest compared to Reno market casinos. However, there
are several more significant Native American casinos which currently compete
with the Reno market, including: (1) the Cache Creek Indian Bingo & Casino in
Brooks, California, approximately 58 miles northwest of Sacramento and (2) the
Jackson Rancheria Casino, Hotel and Conference Center in Jackson, California,
approximately 59 miles southeast of Sacramento.
In addition to the existing gaming facilities, numerous Native American
tribes have announced that they are in the process of developing or are
considering establishing large-scale hotel and gaming facilities in northern
California, including two which have entered into development and management
agreements with established gaming operators. Station Casinos, Inc. has entered
into agreements with the United Auburn Indian Community to develop and manage a
gaming and entertainment facility on a proposed 49-acre site approximately 21
miles northeast of Sacramento. The United States Interior Department's Bureau
of Indian Affairs has approved the application of the United Auburn Indian
Community to take the 49-acre site into trust for the planned casino
development. Lakes Gaming Inc. has entered into agreements with the Shingle
Springs Rancheria to develop and manage a large-scale hotel-casino
approximately 35 miles southeast of Sacramento. Other tribes are at various
stages of planning new or expanded facilities in northern California, such as
the Buena Vista Rancheria of Me-Wuk Indians, on land located approximately 50
miles southwest of Sacramento, and the Lytton Band of Pomo Indians, on land
located approximately 21 miles northeast of San Francisco.
40
Seasonality
Silver Legacy's hotel-casino operations are subject to seasonal variation,
with the strongest operating results generally occurring in the third quarter
of each year and the weakest results occurring during the period from November
through February. Variations occur when weather conditions make travel to Reno
by visitors from northern California and the Pacific Northwest difficult. The
following table shows our percentage of gross revenues by quarter for each of
1999, 2000 and 2001.
1999 2000 2001
----- ----- -----
First quarter. 21.7% 22.1% 22.6%
Second quarter 25.7% 27.0% 27.3%
Third quarter. 28.3% 28.1% 27.4%
Fourth quarter 24.3% 22.8% 22.7%
----- ----- -----
Total...... 100.0% 100.0% 100.0%
===== ===== =====
Employees
As of December 31, 2001, Silver Legacy employed approximately 2,286 persons.
Currently, none of our employees are employed pursuant to a collective
bargaining agreement. The number of people employed at any time is subject to
seasonal fluctuation. We believe that our employee relations are excellent.
Property
The Silver Legacy Resort Casino is located on two neighboring parcels of
land, located at 407 and 411 North Virginia Street, Reno, Nevada. We own both
parcels, comprising 118,167 and 119,927 square feet, respectively.
In addition, we utilize the City Center Pavilion, an approximate 40,000
square-foot temporary convention and entertainment facility located across
North Virginia Street from Silver Legacy. This structure is situated on an
approximate 63,000 square-foot parcel of land which is owned jointly by
Eldorado Resorts LLC and Galleon, Inc., but is not currently subject to a lease.
Environmental Matters
As in the case with any owner or operator of real property, we are subject
to a variety of federal, state and local governmental regulations relating to
the use, storage, discharge, emission, and disposal of hazardous materials.
Federal, state and local environmental laws and regulations also impose
liability on potentially responsible parties, including the owners or operators
of real property, to clean up, or contribute to the cost of cleaning up, sites
at which hazardous wastes or materials were disposed of or released. We do not
have environmental liability insurance to cover these events.
During excavation for construction of Silver Legacy, petroleum contamination
of soil and groundwater was discovered on the property. The apparent sources of
this contamination were a former gasoline station and numerous abandoned
heating oil tanks. Our contractors removed and disposed of contaminated soils,
and we were successful in obtaining reimbursement and indemnification from
Chevron Company USA. In addition, we received reimbursement from the State of
Nevada Petroleum Fund, which was established to reimburse parties for costs
incurred in cleaning up contamination from certain underground storage tanks.
With the consent of the relevant county agency, the cleanup was completed
leaving some contaminated soils in place (under structures and roads, for
example), so that some additional soil contamination is known to remain in
place. The Nevada Division of Environmental Protection has not, however,
required us to conduct any further investigation or remediation.
41
Groundwater in the vicinity of Silver Legacy property is also contaminated
by a chlorinated solvent known as tetrachloroethene or "PCE." This contaminant
is widespread in the Reno/Sparks area. The Central Truckee Meadows Remediation
District, encompassing much of the cities of Reno and Sparks, was established
pursuant to state legislation to address this contamination. The Central
Truckee Meadows Remediation District is managed by Washoe County under the
direction of the Nevada Division of Environmental Protection, and is currently
conducting investigations and developing a remediation plan. Funding for the
Central Truckee Meadows Remediation District is provided through assessments to
water customers which are calculated on the basis of water use. The assessments
to Silver Legacy have averaged approximately $450 annually during the years
that assessments have been collected. It is possible that additional
assessments may be made against properties that receive special benefits from
the Central Truckee Meadows Remediation District, such as clean-up of
contamination affecting a specific parcel. The legislation implementing this
program exempts property owners who did not cause or contribute to the
contamination from civil and criminal liability for the cost of remediation and
any related damages, except to the extent of unpaid assessments. We do not
believe that we have contributed to this solvent contamination, however we
expect that we will be required to allow the Central Truckee Meadows
Remediation District access to our property for continued investigation,
including access to monitoring wells.
The possibility exists that additional contamination, as yet unknown, may
exist at Silver Legacy property. In all cases, however, we believe that any
such contamination would have arisen from activities of prior owners or
occupants, or from offsite sources and not as a result of any of our actions or
operations. We do not believe that our expenditures for environmental
investigations or remediation will have a material adverse effect on our
financial condition or results of operations.
Litigation
We are from time to time involved in litigation arising in the ordinary
course of our business. We do not believe that such litigation will,
individually or in the aggregate, have a material adverse effect on our
financial position or results of operations.
42
REGULATION AND LICENSING
Silver Legacy, the partners of Circus and Eldorado Joint Venture, and their
parent entities are subject to extensive regulation under laws, rules and
supervisory procedures primarily in the jurisdictions where their facilities
are located or docked. Some jurisdictions, including Nevada, empower their
regulators to investigate participation by licensees in gaming outside their
jurisdiction and require access to and periodic reports respecting those gaming
activities. Violations of laws in one jurisdiction could result in disciplinary
action in other jurisdictions.
Under provisions of gaming laws in jurisdictions in which we, our partners
or their parent entities have operations and under our organizational documents
certain of our securities are subject to restrictions on ownership which may be
imposed by specified governmental authorities. The restrictions may require a
holder of our securities to dispose of the securities or, if the holder
refuses, or is unable, to dispose of the securities, we may be required to
repurchase the securities.
Each holder of a note, by accepting any note, will be deemed to have agreed
to be bound by the requirements imposed on holders of our debt securities by
the gaming authority of any jurisdiction in which we conduct or propose to
conduct gaming activity. See "Description of the Notes -- Mandatory Disposition
Pursuant to Gaming Laws." In addition, the indenture governing the notes
provides that each holder and beneficial owner of the notes, by accepting or
otherwise acquiring an interest in any of the notes, will be deemed to have
agreed that if the gaming authority of any jurisdiction in which we conduct or
propose to conduct gaming requires that a person who is a holder or beneficial
owner must be licensed, qualified or found suitable under applicable gaming
laws, the holder or beneficial owner will apply for a license, qualification or
finding of suitability within the required time period. If the person fails to
apply or become licensed or qualified or is found unsuitable, we will have the
right, at our option:
. to require the person to dispose of his or her notes or beneficial
interest in the notes within 30 days of receipt of notice of our election
or any earlier date that the relevant gaming authority may request or
prescribe; or
. to redeem the notes (possibly within less than 30 days following the
notice of redemption if requested or prescribed by the gaming authority)
at a redemption price equal to the lesser of:
. the person's cost;
. 100% of the principal amount, plus accrued and unpaid interest to the
redemption date or the date of the finding of unsuitability, whichever
is earlier; and
. any other amount required by applicable law or by order of any gaming
authority.
We will notify the trustee under the indenture in writing of any redemption
under these circumstances as soon as practicable. We will not be responsible
for any costs or expenses any holder or beneficial owner may incur in
connection with its application for a license, qualification or finding of
suitability.
Nevada Gaming Laws
The ownership and operation of casino gaming facilities in the State of
Nevada are subject to the Nevada Gaming Control Act and the regulations
promulgated under this Act and various local regulations. Silver Legacy's
operations are subject to the licensing and regulatory control of the Nevada
Gaming Commission, the Nevada State Gaming Control Board and the City of Reno,
which we refer to collectively as the "Nevada Gaming Authorities."
43
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things:
. the prevention of unsavory or unsuitable persons from having a direct or
indirect involvement with gaming at any time or in any capacity;
. the establishment and maintenance of responsible accounting practices and
procedures;
. the maintenance of effective controls over the financial practices of
licensees, including the establishment of minimum procedures for internal
fiscal affairs and the safeguarding of assets and revenues, providing
reliable record keeping and requiring the filing of periodic reports with
the Nevada Gaming Authorities;
. the prevention of cheating and fraudulent practices; and
. providing a source of state and local revenues through taxation and
licensing fees.
Changes in these laws, regulations and procedures could have an adverse effect
on our gaming operations.
Circus and Eldorado Joint Venture holds all licenses and approvals required
to conduct its present gaming operations. The gaming license requires the
periodic payment of fees and taxes and is not transferable. The parent entities
of Circus and Eldorado Joint Venture's partners, Eldorado Resorts LLC and
Mandalay Resort Group, are required to be registered by the Nevada Gaming
Commission as publicly traded corporations and are required periodically to
submit detailed financial and operating reports to the Nevada Gaming Commission
and to furnish any other information that the Nevada Gaming Commission may
require. No person may become a stockholder of, or receive any percentage of
profits from, a licensed entity such as Circus and Eldorado Joint Venture
without first obtaining licenses and approvals from the Nevada Gaming
Authorities. Circus and Eldorado Joint Venture and its parent entities have
obtained from the Nevada Gaming Authorities the various registrations, findings
of suitability, approvals, permits and licenses required in order to engage in
gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with us in order to determine
whether the individual is suitable or should be licensed as a business
associate of a gaming licensee. We and our officers, directors and key
employees must file applications with the Nevada Gaming Authorities and may be
required to be licensed or found suitable by the Nevada Gaming Authorities. The
Nevada Gaming Authorities may deny an application for licensing for any cause
which they deem reasonable. A finding of suitability is comparable to
licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. An applicant for licensing or
an applicant for a finding of suitability must pay for all the costs of the
investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and, in addition to their authority to deny an application
for a finding of suitability or licensing, the Nevada Gaming Authorities have
the jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with us, we would have to sever all relationships with that
person. In addition, the Nevada Gaming Commission may require us to terminate
the employment of any person who refuses to file appropriate applications.
Determinations of suitability or questions pertaining to licensing are not
subject to judicial review in Nevada.
We are required to submit detailed financial and operating reports to the
Nevada Gaming Commission. Substantially all material loans, leases, sales of
securities and similar financing transactions must be reported to, or approved
by, the Nevada Gaming Commission.
If the Nevada Gaming Commission determined that we violated the Nevada
Gaming Control Act or any of its regulations, it could limit, condition,
suspend or revoke our gaming licenses. In addition, we and the persons involved
could be subject to substantial fines for each separate violation of the Nevada
Gaming Control Act or of
44
the regulations of the Nevada Gaming Commission at the discretion of the Nevada
Gaming Commission. Further, a supervisor could be appointed by the Nevada
Gaming Commission to operate Silver Legacy and, under specified circumstances,
earnings generated during the supervisor's appointment (except for the
reasonable rental value of the premises) could be forfeited to the State of
Nevada. Limitation, conditioning or suspension of any of our gaming licenses
and the appointment of a supervisor could, or revocation of any gaming license
would, have a material adverse effect on our gaming operations.
Any beneficial holder of an interest in Circus and Eldorado Joint Venture or
of any of the equity securities of any partner of Circus and Eldorado Joint
Venture, or of any interest in the parent entities of Circus and Eldorado Joint
Venture's members, regardless of the amount of interest owned or the number of
shares held, may be required to file an application, be investigated, and have
that person's suitability as a beneficial holder of an equity interest
determined if the Nevada Gaming Commission has reason to believe that the
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of the investigation incurred
by the Nevada Gaming Authorities in conducting any investigation.
The partners of Circus and Eldorado Joint Venture may not pledge their
interests in Circus and Eldorado Joint Venture as collateral for payment of the
notes without the prior approval of the Nevada Gaming Commission and no person
or entity may execute on pledges of interests in a licensed entity without the
prior approval of the Nevada Gaming Commission. The partners of Circus and
Eldorado Joint Venture have applied for approvals by the Nevada Gaming
Commission to pledge their respective interests in the partnership as
collateral for payment of the notes. Although we are not aware of any reason
why these approvals will not be granted, there can be no assurance that the
approvals will be granted prior to the closing on the issuance of the notes, or
at all. See "Description of the Notes -- Security for the Notes.
Nevada law requires any licensed gaming entity, such as Circus and Eldorado
Joint Venture which has one or more classes of securities registered with the
Securities and Exchange Commission pursuant to the provisions of the Securities
Act of 1933, as amended, to additionally register with the Nevada Gaming
Commission as a "publicly traded corporation." Pursuant to the applicable
provisions of Nevada gaming law, we have filed applications with the Nevada
Gaming Commission for this status (a "registered corporation") and for approval
to make a public offering of the exchange notes. The applications are presently
pending and we expect to receive the required approvals and registration before
the offer is consummated, although there can be no assurance that these
approvals will be granted.
If the beneficial holder of an interest in Circus and Eldorado Joint Venture
or in the equity securities of any of Circus and Eldorado Joint Venture's
partners, or of any interest in one of the parent entities who must be found
suitable is a corporation, partnership, limited partnership, limited liability
company or trust, it must submit detailed business and financial information
including a list of beneficial owners. The applicant is required to pay all
costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Gaming
Commission or by the Chairman of the Nevada State Gaming Control Board, or who
refuses or fails to pay the investigative costs incurred by the gaming
authorities in connection with the investigation of its application, may be
found unsuitable. The same restrictions apply to a record owner if the record
owner, after request, fails to identify the beneficial owner. Any person found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
an interest in Circus and Eldorado Joint Venture or in the voting securities of
any of Circus and Eldorado Joint Venture's partners or of the parent entities
beyond the period of time as may be prescribed by the Nevada Gaming Commission
may be guilty of a criminal offense. We will be subject to disciplinary action
if, after we receive notice that a person is unsuitable to hold an equity
interest or to have any other relationship with, we:
. pay that person any dividend or interest upon any partnership interest or
other equity interest;
. allow that person to exercise, directly or indirectly, any voting right
held by that person relating to Silver Legacy;
45
. pay remuneration in any form to that person for services rendered or
otherwise; or
. fail to pursue all lawful efforts to require the unsuitable person to
relinquish his interest in the Partnership or in the voting securities
including, if necessary, the immediate purchase of the interest or voting
securities for cash at fair market value.
The Nevada Gaming Commission may, in its discretion, require the holder of
any debt security of a licensee or registered corporation to file applications,
be investigated, and be found suitable to own the debt security of the licensee
or registered corporation. If the Nevada Gaming Commission determines that a
person is unsuitable to own the security, then under the Nevada Gaming Control
Act, the licensee or registered corporation can be sanctioned, including the
loss of its approvals, if without the prior approval of the Nevada Gaming
Commission, it:
. pays to the unsuitable person any dividend, interest or any distribution
whatsoever;
. recognizes any voting right by the unsuitable person in connection with
the securities;
. pays the unsuitable person remuneration in any form; or
. makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar transaction.
Our partners and their parent entities are required to maintain current
stock ledgers in Nevada which may be examined by the Nevada Gaming Authorities
at any time. If any securities are held in trust by an agent or by a nominee,
the record holder may be required to disclose the identity of the beneficial
owner to the Nevada Gaming Authorities. A failure to make the disclosure may be
grounds for finding the record holder unsuitable. We are also required to
render maximum assistance in determining the identity of the beneficial owner
of any of our voting securities. The Nevada Gaming Commission has the power to
require the stock certificates of any registered corporation to bear a legend
indicating that the securities are subject to the Nevada Gaming Control Act.
We may not make a public offering of our securities, including the notes,
without the prior approval of the Nevada Gaming Commission if we intend to use
the securities or the proceeds from the offering to construct, acquire or
finance gaming facilities in Nevada, or to retire or extend obligations
incurred for those purposes or for similar transactions. We have filed
applications for approval of the exchange offer. Although we are not aware of
any reason why this approval, and the approval of Circus and Eldorado Joint
Venture and Silver Legacy Capital Corp. as registered corporations, will not be
granted, there can be no assurance that the approvals will be granted. Further,
any approvals, if granted, do not constitute a finding, recommendation, or
approval by any of the Nevada gaming authorities as to the accuracy or adequacy
of this prospectus or the investment merits of the notes. Any representation to
the contrary is unlawful.
We must obtain prior approval of the Nevada Gaming Commission with respect
to a change in control through:
. merger;
. consolidation;
. stock or asset acquisitions;
. management or consulting agreements; or
. any act or conduct by a person whereby the person obtains control of us.
Entities seeking to acquire control of a registered corporation must satisfy
the Nevada State Gaming Control Board and Nevada Gaming Commission with respect
to a variety of stringent standards before assuming control of the registered
corporation. The Nevada Gaming Commission may also require controlling
stockholders,
46
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated
and licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchase of voting securities and corporate defense tactics
affecting Nevada gaming licenses, and registered corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Gaming Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business
practices upon Nevada's gaming industry and to further Nevada's policy to:
. assure the financial stability of corporate gaming operators and their
affiliates;
. preserve the beneficial aspects of conducting business in the corporate
form; and
. promote a neutral environment for the orderly governance of corporate
affairs.
Approvals may be required from the Nevada Gaming Commission before we can
make exceptional repurchases of voting securities above their current market
price and before a corporate acquisition opposed by management can be
consummated. The Nevada Act also requires prior approval of a plan of
recapitalization proposed by a registered corporation's board of directors in
response to a tender offer made directly to its stockholders for the purpose of
acquiring control.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the licensed subsidiaries respective operations
are conducted. Depending upon the particular fee or tax involved, these fees
and taxes are payable either monthly, quarterly or annually and are based upon
either:
. a percentage of the gross revenues received;
. the number of gaming devices operated; or
. the number of table games operated.
A casino entertainment tax is also paid by casino operations where
entertainment is furnished in connection with the selling or serving of food or
refreshments or the selling of merchandise.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with those persons (collectively,
"licensees"), and who proposes to become involved in a gaming venture outside
of Nevada, is required to deposit with the Nevada State Gaming Control Board,
and thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada State Gaming Control Board of the
licensee's participation in such foreign gaming. The revolving fund is subject
to increase or decrease in the discretion of the Nevada Gaming Commission.
Thereafter, licensees are required to comply with the reporting requirements
imposed by the Nevada Gaming Control Act. A licensee is also subject to
disciplinary action by the Nevada Gaming Commission if it:
. knowingly violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation;
. fails to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations;
. engages in activities or enters into associations that are harmful to the
State of Nevada or its ability to collect gaming taxes and fees; or
. employs, contracts with or associates with a person in the foreign
operation who has been denied a license or finding of suitability in
Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages at Silver Legacy is subject to licensing,
control and regulation by applicable local regulatory agencies. All licenses
are revocable and are not transferable. The agencies involved have full
47
power to limit, condition, suspend or revoke any license, and any disciplinary
action could, and revocation would, have a material adverse effect upon our
operations.
Internal Revenue Service Regulations
The Internal Revenue Service requires operators of casinos located in the
United States to file information returns for U.S. citizens, including names
and addresses of winners, for keno, bingo and slot machine winnings in excess
of stipulated amounts. The Internal Revenue Service also requires operators to
withhold taxes on some keno, bingo and slot machine winnings of nonresident
aliens. We are unable to predict the extent, to which these requirements, if
extended, might impede or otherwise adversely affect operations of, and/or
income from, the other games.
Regulations adopted by the Financial Crimes Enforcement Network of the
Treasury Department and the Nevada gaming regulatory authorities require the
reporting of currency transactions in excess of $10,000 occurring within a
gaming day, including identification of the patron by name and social security
number. This reporting obligation began in May 1985 and may have resulted in
the loss of gaming revenues to jurisdictions outside the United States which
are exempt from the ambit of these regulations.
Other Laws And Regulations
The Silver Legacy Resort Casino is subject to extensive state and local
regulations and, on a periodic basis, must obtain various licenses and permits,
including those required to sell alcoholic beverages. We believe that we have
obtained all required licenses and permits and that our business is conducted
in substantial compliance with applicable laws.
48
MANAGEMENT
The current managing partner of Circus and Eldorado Joint Venture (the
"Partnership") is Galleon, Inc. ("Galleon"). Under the terms of the partnership
agreement, the managing partner is responsible for the day-to-day management of
the business affairs of the Partnership. The managing partner has delegated a
substantial portion of its duties to the general manager of the Silver Legacy
Resort Casino. Although the Partnership is a general partnership between
Galleon, which is a wholly-owned subsidiary of Mandalay Resort Group, and
Eldorado Limited Liability Company ("ELLC"), which is a 96%-owned subsidiary of
Eldorado Resorts LLC, we employ our own separate management team to operate
Silver Legacy. An executive committee of the Partnership is responsible for
consulting with, reviewing, monitoring and overseeing the performance of the
management of Silver Legacy, and thus, functions in a capacity similar to a
corporation's board of directors. For additional information concerning the
duties and responsibilities of the management of the Partnership's business
operations, see "The Partnership Agreement."
Executive Officers, Members of the Executive Committee and Directors
The following table sets forth certain information concerning our executive
officers, the executive officer and director of our managing partner, Galleon,
members of the Partnership's executive committee and the members of the board
of directors of Silver Legacy Capital Corp. ("Capital").
Name Age Positions
---- --- ---------
Gary L. Carano....... 50 General Manager of Silver Legacy, Chief Executive Officer
of the Partnership, and President and Chief Executive
Officer of Capital
Michael F. Whitemaine 47 Assistant General Manager of Silver Legacy and Vice
President of Capital
Glenn T. Carano...... 46 Executive Director of Marketing of Silver Legacy and
Secretary of the Partnership and Capital
Bruce C. Sexton...... 49 Director of Finance/Administration of Silver Legacy,
Controller and Chief Accounting and Financial Officer of
the Partnership, and Treasurer and Chief Accounting and
Financial Officer of Capital
Glenn W. Schaeffer... 48 President, Secretary, Treasurer and Director of Galleon
Gene R. Carano....... 46 Member of the Partnership's Executive Committee and
Director of Capital
Stephen J. Greathouse 51 Member of the Partnership's Executive Committee and
Director of Capital
Robert M. Jones...... 59 Member of the Partnership's Executive Committee and
Director of Capital
Yvette E. Landau..... 45 Member of the Partnership's Executive Committee and
Director of Capital
Thomas D. Robinson... 61 Member of the Partnership's Executive Committee and
Director of Capital
Gary L. Carano. Mr. Carano has served as General Manager of Silver Legacy
and Chief Executive Officer of the Partnership since January 1995 and President
and Chief Executive Officer of Capital since its incorporation in August 2001.
He is also a member of the board of managers of the Eldorado Hotel & Casino and
Treasurer of Recreational Enterprises, Inc. Previously, he served as Assistant
General Manager, General Manager and Chief Operating Officer of the Eldorado
Hotel & Casino from 1980 to 1994. Gary Carano, Glenn Carano and Gene Carano are
brothers.
49
Michael F. Whitemaine. Mr. Whitemaine has been the Assistant General
Manager of Silver Legacy since January 1995 and Vice President of Capital since
November 2001. Prior to 1995, Mr. Whitemaine worked at the Eldorado Hotel &
Casino for 12 years, where he served in various positions, including Food and
Beverage Director, Slot Director, and most recently, Assistant General Manager.
Glenn T. Carano. Mr. Carano has been the Director of Marketing or Executive
Director of Marketing of Silver Legacy since January 1995, Secretary of the
Partnership since August 2001 and Secretary of Capital since November 2001.
Prior to 1995, he served as Director of Marketing at the Eldorado Hotel &
Casino for eight years. Mr. Carano has served as chairman of the board of
directors of the Airport Authority of Washoe County and is presently a member
of the board of the Reno-Sparks Convention & Visitors Authority. He is also
presently a member of the board of managers of the Eldorado Hotel & Casino and
Secretary of Recreational Enterprises, Inc. From 1977 to 1983, Mr. Carano was a
quarterback for the Dallas Cowboys football team.
Bruce C. Sexton. Mr. Sexton has been the Director of Finance/Administration
of Silver Legacy since January 1995, Controller and Chief Accounting and
Financial Officer of the Partnership since January 1995. He has been Treasurer
of Capital since its incorporation in August 2001 and its Chief Accounting and
Financial Officer since November 2001. Mr. Sexton began working at the Circus
Circus Hotel and Casino in 1978 as chief accountant and, before joining Silver
Legacy, held the position of Controller at the Circus Circus Hotel and Casino
for eight years.
Glenn W. Schaeffer. Mr. Schaeffer has been President, Secretary, Treasurer
and Director of Galleon since March 1997. He has been President, Chief
Financial Officer and Treasurer of Mandalay Resort Group since June 1995 and a
Director of Mandalay Resort Group since March 1996. Mr. Schaeffer was involved
in an executive capacity in the management and operations of other gaming
entities from 1993 until they were acquired by Mandalay Resort Group in June
1995. He also was President of Mandalay Resort Group from June 1991 until
February 1993 and was that corporation's Chief Financial Officer and a Director
from 1984 until February 1993. Mr. Schaeffer is also a Director of Pulte Homes,
Inc.
Gene R. Carano. Mr. Carano has been a member of the executive committee of
the Partnership since December 2000 and a director of Capital since November
2001. He has been the General Manager, Vice President and a member of the board
of managers of the Eldorado Hotel & Casino since 1998, the Vice President of
Eldorado Resorts LLC or its predecessor since 1993, the Secretary of Eldorado
Resorts LLC since June 1996, and Vice President of Recreational Enterprises,
Inc. since 1983. Prior to 1993, Mr. Carano served as a Co-General Manager of
the Eldorado Hotel & Casino and served as its Director of Gaming. Prior to
joining Eldorado Resorts LLC, Mr. Carano held various positions at another
major casino in northern Nevada, including slot floor supervisor and pit boss.
Stephen J. Greathouse. Mr. Greathouse has been a member of the executive
committee of the Partnership since September 1997 and a director of Capital
since November 2001. He is also currently an officer of various operating
subsidiaries of Mandalay Resort Group. Prior to joining Mandalay Resort Group
in 1997, he was Chief Executive Officer of Boardwalk Casino, Inc. and from 1995
to 1996 he was Chairman and Chief Executive Officer of Alliance Gaming
Corporation.
Robert M. Jones. Mr. Jones has been a member of the executive committee of
the Partnership since November 1995 and a director of Capital since November
2001. He has been the Chief Financial Officer of Eldorado Resorts LLC or its
predecessor since 1989. Prior to joining Eldorado Resorts LLC in 1984, Mr.
Jones spent fourteen years in public accounting, ten of which were as an audit
principal with the international accounting firm of Arthur Young & Company. Mr.
Jones is a former Certified Public Accountant.
Yvette E. Landau. Ms. Landau has been a member of the executive committee
of the Partnership since July 1995 and a director of Capital since November
2001. She is also Vice President, Detroit Entertainment, L.L.C.,
50
of which Mandalay Resort Group owns a 53.5% interest. Prior to joining Mandalay
Resort Group in 1993, she was a partner in the law firm of Snell & Wilmer in
Phoenix, Arizona.
Thomas D. Robinson. Mr. Robinson has been a member of the executive
committee of the Partnership since November 1999 and a director of Capital
since November 2001. He is currently the Vice President and General Manager of
the Circus Circus Hotel and Casino. From 1995 until joining the Circus Circus
Hotel and Casino in 1999, he was the Director of Casino Operations at Luxor
Hotel and Casino in Las Vegas, Nevada.
Executive Compensation
The following table sets forth, for our last three fiscal years, the cash
compensation paid by us, as well as certain other compensation paid or accrued
for those years, to the Partnership's executive officers and the executives of
Silver Legacy. In this prospectus, we sometimes refer to these individuals as
our "named executive officers."
Annual Compensation
--------------------- All Other
Name and Principal Position Year Salary Bonus Compensation(1)
--------------------------- ---- -------- ------- ---------------
Gary L. Carano................................... 2001 $400,000 $65,306 $2,650(2)
General Manager of Silver Legacy and Chief 2000 400,000 72,900 1,287
Executive Officer of the Partnership 1999 400,000 75,000 1,102
Michael F. Whitemaine............................ 2001 $275,000 $52,245 $ 100(2)
Assistant General Manager of Silver Legacy 2000 275,000 58,320 1,287
1999 269,167 60,000 1,102
Glenn T. Carano.................................. 2001 $400,000 $52,245 $2,650(2)
Executive Director of Marketing of Silver Legacy 2000 400,000 58,320 1,287
and Secretary of the Partnership 1999 400,000 60,000 96
Bruce C. Sexton.................................. 2001 $175,000 $44,508 $2,295(2)
Director of Finance/Administration of Silver 2000 175,000 48,600 1,287
Legacy and Controller and Chief Accounting and 1999 175,000 50,000 1,102
Financial Officer of the Partnership
- --------
(1) Certain of the individuals named in this table received personal benefits
that are not reflected in their salary and bonus amounts. The value of the
personal benefits received by each of these individuals did not, in any of
our last three fiscal years, exceed $50,000 or 10% of the individual's
total annual salary and bonus for that fiscal year.
(2) Represents $100 in premiums paid by the Partnership for life and accidental
death insurance for the benefit of these individuals and $2,550, $2,550 and
$2,195 in matching contributions paid by the Partnership to the accounts of
Gary L. Carano, Glenn T. Carano and Bruce C. Sexton, respectively, under
the Partnership's 401(k) savings plan.
None of the members of the Partnership's executive committee, the executive
officer or director of our managing partner, Galleon, or the members of the
board of directors of Capital or its executive officers is compensated by the
Partnership or Capital for his or her services in these capacities.
Pension Plan
The following tables show the estimated annual benefits payable to the "Tier
I" and "Tier II" participants under the Silver Legacy Supplementary Executive
Retirement Plan (the "SERP") at normal retirement (which is age 65), based on
years of service credited under the SERP and the participant's final
compensation, as determined under the SERP. Gary L. Carano is a Tier I
participant in the SERP and each of our other named executive officers is a
Tier II participant.
51
Tier I
Estimated Annual Benefits
Upon Retirement at Age 65
After Completion of the Following Years of Service(1)
- ---------------------------------------------------------------------------------
(Years of Service)
14 or
Remuneration(2) Less than 4 4 or 5 6 or 7 8 or 9 10 or 11 12 or 13 more
- --------------- ----------- -------- -------- -------- -------- -------- --------
$150,000 -- $ 30,000 $ 37,500 $ 45,000 $ 60,000 $ 75,000 $ 90,000
200,000 -- 40,000 50,000 60,000 80,000 100,000 120,000
250,000 -- 50,000 62,500 75,000 100,000 125,000 150,000
300,000 -- 60,000 75,000 90,000 120,000 150,000 180,000
350,000 -- 70,000 87,500 105,000 140,000 175,000 210,000
400,000 -- 80,000 100,000 120,000 160,000 200,000 240,000
450,000 -- 90,000 112,500 135,000 180,000 225,000 270,000
500,000 -- 100,000 125,000 150,000 200,000 250,000 300,000
550,000 -- 110,000 137,500 165,000 220,000 275,000 330,000
600,000 -- 120,000 150,000 180,000 240,000 300,000 360,000
Tier II
Estimated Annual Benefits
Upon Retirement at Age 65
After Completion of the Following Years of Service(1)
- --------------------------------------------------------------------------------
(Years of Service)
14 or
Remuneration(2) Less than 4 4 or 5 6 or 7 8 or 9 10 or 11 12 or 13 more
- --------------- ----------- ------- -------- -------- -------- -------- --------
$150,000 -- $22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500 $ 60,000
200,000 -- 30,000 40,000 50,000 60,000 70,000 80,000
250,000 -- 37,500 50,000 62,500 75,000 87,500 100,000
300,000 -- 45,000 60,000 75,000 90,000 105,000 120,000
350,000 -- 52,500 70,000 87,500 105,000 122,500 140,000
400,000 -- 60,000 80,000 100,000 120,000 140,000 160,000
450,000 -- 67,500 90,000 112,500 135,000 157,500 180,000
500,000 -- 75,000 100,000 125,000 150,000 175,000 200,000
550,000 -- 82,500 110,000 137,500 165,000 192,500 220,000
600,000 -- 90,000 120,000 150,000 180,000 210,000 240,000
- --------
(1) The amounts set forth in each table are computed as an annual benefit
payable in the form of a straight-life annuity, commencing following the
participant's attainment of age 65, the normal retirement age under the
SERP. The benefits listed in the tables are not subject to any deduction
for Social Security or other offset amounts.
(2) The amount of a participant's remuneration for purposes of determining
benefits under the tables is his highest annual compensation during any of
the last five full calendar years the participant is employed (or such
smaller number of full calendar years if the participant has not worked for
five years at the time of terminating his or her employment) or the
12-month period ending on the participant's termination of employment with
the Partnership or Silver Legacy. Annual compensation for this purpose is
the participant's base salary plus his bonus. The SERP limits the amount of
bonus that may be taken into account for this purpose to 150% of base
salary. A participant is credited with a year of service under the SERP for
each period of 12 full months of employment with the Partnership or Silver
Legacy, but service credit for periods prior to enrollment in the plan is
limited to ten years.
52
For purposes of determining their respective benefits pursuant to the SERP,
each of our named executive officers will have 14 or more credited years of
service if he continues to be employed by the Partnership until age 65, the
normal retirement age under the SERP. Each of our named executive officers had
7 credited years of service under the SERP as of December 31, 2001.
Compensation Committee Interlocks and Insider Participation
The compensation of the Partnership's executive officers and Silver Legacy's
executives is determined by the Partnership's executive committee. The only
individuals who served on the Partnership's executive committee during the year
ended December 31, 2001 are the committee's current members, Gene R. Carano,
Stephen J. Greathouse, Robert M. Jones, Yvette E. Landau and Thomas D.
Robinson, none of whom has ever been an officer or employee of the Partnership
or any subsidiary of the Partnership.
During the year ended December 31, 2001, Gary L. Carano, the Partnership's
Chief Executive Officer, served on the Board of Managers of Eldorado Resorts
LLC, and Gene R. Carano, Vice President and Secretary of Eldorado Resorts LLC,
served on the Partnership's executive committee.
Tri-Property Payments. Registered hotel guests at Silver Legacy, as well as
registered hotel guests at the Circus Circus Hotel and Casino and the Eldorado
Hotel & Casino, have the privilege of charging to their hotel rooms the costs
incurred at the restaurants and shops located within the entire tri-property
complex. Any of these charges that are incurred by a paying guest are paid by
the guest when he or she checks out and each hotel, including Silver Legacy,
remits to the other two properties the respective amounts collected for charges
incurred at the other properties. In the case of registered guests who are
provided room, food, beverage and other services on a complimentary basis, the
property where the guest is registered pays to each of the other two properties
the respective amounts of any charges to the guest's room for services provided
by the other properties. The following table sets forth for 1999, 2000 and
2001, the respective amounts paid for such complimentary charges by Silver
Legacy to the Circus and Eldorado properties and the respective amounts
received by Silver Legacy from the Circus and Eldorado properties.
Payor Payee 1999 2000 2001
----- ------------- ------- ------- -------
Silver Legacy Circus Circus $ 1,808 $ -- $ --
Silver Legacy Eldorado 47,479 10,880 22,157
Circus Circus Silver Legacy -- 374 2,339
Eldorado..... Silver Legacy 2,844 3,736 2,444
The Eldorado Hotel & Casino is owned by Eldorado Resorts LLC, which is 63.0%
owned directly or indirectly by members of the Carano family, including Gary L.
Carano, the Partnership's Chief Executive Officer, Glenn T. Carano, Secretary
of the Partnership, and Gene R. Carano, a member of the Partnership's executive
committee.
Yvette E. Landau has, since July 1996, been an executive officer of Mandalay
Resort Group which owns and operates the Circus Circus Hotel and Casino though
a wholly owned subsidiary. Gene R. Carano has been the general manager, a vice
president and a member of the board of managers of the Eldorado Hotel & Casino
since July 1996 and, since July 1996, he and Robert M. Jones have been
executive officers of Eldorado Resorts LLC, which owns 96% of ELLC.
Eldorado Limited Liability Company and Galleon, Inc. The Agreement of Joint
Venture of Circus and Eldorado Joint Venture dated as of March 1, 1994 (the
"Original Partnership Agreement"), pursuant to which the Partnership was
formed, provided for certain distributions of the Partnership's "Net Cash from
Operations" (as
53
defined) to the partners, ELLC and Galleon, to the extent there are funds
available for that purpose. During 1999, 2000 and 2001, the distributions made
pursuant to this provision of the Original Partnership Agreement were as
follows:
Year Ended December 31,
----------------------------------
Partner 1999 2000 2001
------- -------- ------------- ----------
ELLC... $ -- $ -- $4,565,000
Galleon -- 25,000,000(1) 4,565,000
- --------
(1) The 2000 distribution was made entirely to Galleon pursuant to a priority
allocation in the Original Partnership Agreement which is no longer
applicable to the distributions the Partnership makes to its partners. The
Partnership made no distributions of net cash from operations prior to 2000.
On January 15, 2002, the Partnership made a fourth quarter 2001 tax
distribution to ELLC and Galleon of $1.2 million each, utilizing $0.9 million
of net cash from operations and $1.5 million borrowed under our prior credit
facility. In February 2002, the Partnership made distributions to ELLC and
Galleon, of which (i) $5.2 million represented fiscal year 2000 tax
distributions and (ii) $2.1 million represented the remaining priority
allocation payment to Mandalay Resort Group.
On March 5, 2002, the Partnership made additional distributions to ELLC and
Galleon of $10.0 million and $20.0 million, respectively. See "Use of
Proceeds." For information concerning the provisions that are currently
applicable to the Partnership's distributions to its partners, see "The
Partnership Agreement."
ELLC is 96% owned by Eldorado Resorts LLC, which is 63.0% owned directly or
indirectly by members of the Carano family, including Gary L. Carano, the
Partnership's Chief Executive Officer, Glenn T. Carano, Secretary of the
Partnership and Gene R. Carano, a member of the Partnership's executive
committee.
Recreational Enterprises, Inc. From time to time, Silver Legacy has
utilized a King Air jet owned by Recreational Enterprises, Inc. ("REI") for the
purpose of providing air service to select customers. During 1999, 2000 and
2001 the Partnership paid $2,380, $17,000 and $31,375, respectively. We believe
the terms on which we have utilized this service are at least as favorable as
those that would be available from an unrelated third party. Although there is
no agreement obligating the Partnership to utilize the plane or entitling it to
do so, it is anticipated that the Partnership will continue to utilize this
service from time to time in the future on terms mutually acceptable to the
parties. REI, which owns 55% of Eldorado Resorts LLC, is owned by various
members of the Carano family, including Gary L. Carano, Silver Legacy's General
Manager, Glenn T. Carano, Silver Legacy's Executive Director of Marketing, and
Gene R. Carano, a member of the Partnership's Executive Committee, each of whom
owns an approximately 10.1% beneficial interest in REI, and Donald L. Carano,
the father of Gary, Glenn and Gene Carano, who owns an approximately 49.5%
interest in REI.
Sierra Adventure Equipment Leasing, Inc. From time to time, Silver Legacy's
marketing and sales departments have utilized a yacht owned by Sierra Adventure
Equipment Leasing, Inc. ("Sierra Leasing") at a flat rate per trip of $2,500
for various promotional events. The payments made by the Partnership to Sierra
Leasing for the use of the yacht totaled $62,500, $30,625 and $21,250 during
1999, 2000 and 2001, respectively. Although there is no agreement obligating
the Partnership to utilize the yacht or entitling it to do so, it is
anticipated that the Partnership will continue to utilize this service from
time to time in the future on terms mutually acceptable to the parties. Sierra
Leasing is owned by Donald L. Carano, the father of Gary L. Carano, Silver
Legacy's General Manager, Glenn T. Carano, Silver Legacy's Executive Director
of Marketing, and Gene R. Carano, a member of the Partnership's executive
committee.
For additional information concerning certain amounts paid or payable, or
that may become payable, by the Partnership to Galleon or ELLC, or certain of
their respective affiliates, see "Certain Relationships and Related
Transactions" and "The Partnership Agreement."
54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Capital
All of the issued and outstanding capital stock of Capital is owned by the
Partnership.
The Partnership
The Partnership is a joint venture in the form of a general partnership in
which Galleon, Inc., a wholly owned subsidiary of Mandalay Resort Group and the
Partnership's managing partner, and Eldorado Limited Liability Company, a 96%
owned subsidiary of Eldorado Resorts LLC, each owns a 50% equity interest.
The following table sets forth certain information with respect to the
beneficial ownership of partnership interests in the Partnership by (i) each
person known by the Partnership to be a beneficial owner of a greater than 5%
interest in the Partnership, (ii) each partner in the Partnership, (iii) each
member of the executive committee of the Partnership, (iv) each director of
Capital, (v) each executive officer of the Partnership and Capital, (vi) Glenn
W. Schaeffer, the sole officer and director of Galleon, (vii) all executive
committee members and executive officers of the Partnership as a group, and
(viii) all directors and executive officers of Capital as a group. Except as
otherwise indicated in the footnotes to the table below, Galleon, Inc. and
Eldorado Limited Liability Company each has sole voting and dispositive power
with respect to its interest in the Partnership. Except as otherwise indicated,
the address of each person listed in the table below is c/o Circus and Eldorado
Joint Venture, 407 North Virginia Street, Reno, Nevada 89501.
Percentage of Partnership Interest
in Circus and Eldorado Joint Venture
------------------------------------
Galleon, Inc.(1).......................................................... 50%
Eldorado Limited Liability Company(2)..................................... 50%
Mandalay Resort Group(1).................................................. 50%
Eldorado Resorts LLC(2)................................................... 50%
Recreational Enterprises, Inc.(2)......................................... 50%
Donald L. Carano(2)....................................................... 50%
Gary L. Carano............................................................ --
Michael F. Whitemaine..................................................... --
Glenn T. Carano........................................................... --
Bruce C. Sexton........................................................... --
Gene R. Carano............................................................ --
Stephen J. Greathouse..................................................... --
Robert M. Jones........................................................... --
Yvette E. Landau.......................................................... --
Thomas D. Robinson........................................................ --
Glenn W. Schaeffer(3)..................................................... 50%
All executive officers and executive committee members of the Partnership,
as a group.............................................................. --
All executive officers and directors of Capital, as a group............... --
- --------
(1) Galleon, Inc. is a wholly owned subsidiary of Mandalay Resort Group. Under
Rule 13d-3 of the Securities Exchange Act of 1934, Mandalay Resort Group
may be deemed to be an indirect beneficial owner of the interest in the
Partnership owned by Galleon, Inc. by virtue of its ownership of Galleon,
Inc. The address of Galleon, Inc. and Mandalay Resort Group is 3950 Las
Vegas Boulevard South, Las Vegas, Nevada 89119.
(2) Eldorado Limited Liability Company is a 96% owned subsidiary of Eldorado
Resorts LLC. Under Rule 13d-3 of the Securities Exchange Act of 1934,
Eldorado Resorts LLC, and in turn Recreational Enterprises, Inc., the 55%
owner of Eldorado Resorts LLC, and Donald L. Carano, who owns 49.5% of
Recreational Enterprises, Inc. and 3% of Eldorado Resorts LLC, may each be
deemed to be an indirect
55
beneficial owner of the interest in the Partnership owned by Eldorado
Limited Liability Company by virtue of their direct and indirect controlling
interests in Eldorado Limited Liability Company. The address of Eldorado
Limited Liability Company, Eldorado Resorts LLC and Donald L. Carano is P.O.
Box 3399, Reno, Nevada 89505. The address of Recreational Enterprises, Inc.
is P.O. Box 2540, Reno, Nevada 89505.
(3) Under Rule 13d-3 of the Securities and Exchange Act of 1934, Glenn W.
Schaeffer may be deemed to be an indirect beneficial owner of the interest
in the Partnership owned by Galleon, Inc. by virtue of his position as the
sole officer and director of Galleon, Inc. The address of Glenn W.
Schaeffer is 3950 Las Vegas Boulevard South, Las Vegas, Nevada 89119.
56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Eldorado Resorts LLC. On May 16, 1996, the Partnership entered into an
agreement with Eldorado Resorts LLC pursuant to which Eldorado Resorts LLC
operated the race and sports book at Silver Legacy until November 23, 1999.
Pursuant to the agreement, Eldorado Resorts LLC provided the management,
employees and equipment associated with the operation. During the period the
agreement was in effect, the revenues and expenses associated with the race and
sports book were apportioned in accordance with the terms of the agreement. The
race and sports book's revenues and expenses incurred by the parties during
1999 were as follows:
Eldorado
Partnership Resorts LLC
----------- -----------
Revenues........ $726,502 $273,541
Expenses........ 505,688 712,036
Eldorado Resorts LLC owns the skywalk that connects Silver Legacy with the
Eldorado Hotel & Casino. The Partnership originally paid for all of the
utilities associated with this skywalk. Until October 1998, these payments were
made in lieu of rent for the portion of the skywalk on which part of Silver
Legacy's coffee shop was situated. The coffee shop was redesigned and, in
October 1998, the portion of the facility situated within the skywalk was
eliminated. In February 2002, the Partnership billed Eldorado Resorts LLC
$67,864 for each of 1999, 2000 and 2001 for utilities provided. The skywalk was
not separately metered until last year. The amount billed for the three year
period represented a monthly charge equal to the average monthly cost actually
incurred for the skywalk's utilities during the last four months of 2001 when
the skywalk was separately metered. All of the amounts billed have been paid in
full by Eldorado Resorts LLC.
Since 1998, the Partnership has purchased from Eldorado Resorts LLC homemade
pasta and other food products for use in the restaurants at Silver Legacy and
it is anticipated that the Partnership will continue to make similar purchases
in the future. For these products, which are billed to the Partnership at cost
plus associated labor, the Partnership paid Eldorado Resorts LLC $93,988,
$88,405 and $47,050 during 1999, 2000 and 2001, respectively. ELLC, which owns
50% of the Partnership, is 96% owned by Eldorado Resorts LLC.
Lexicon Design, Inc. In 1998, the Partnership began purchasing advertising
posters, banners and other material from Lexicon Design, Inc., a corporation
which is wholly owned by the wife of Glenn Carano, Executive Director of
Marketing of Silver Legacy and Secretary of the Partnership. The payments made
by the Partnership to Lexicon Design, Inc. were $217,460, $363,828 and $428,247
during 1999, 2000 and 2001, respectively.
Mandalay Resort Group. As a condition to the lenders' execution of the
Partnership's prior credit facility, Mandalay Resort Group entered into a
make-well agreement pursuant to which it was, from 1995 until March 5, 2002,
obligated to make additional contributions to Silver Legacy, to the extent
required to maintain a minimum coverage ratio. No contribution was required by
Mandalay Resort Group pursuant to the make-well agreement. As compensation for
the make-well agreement, Mandalay Resort Group was entitled to receive from the
Partnership for the period the make-well agreement was in effect a fee equal to
1 1/2% of the balance from time to time outstanding under the credit facility.
The Partnership made payments of the fee totaling $2,838,410, $2,523,185 and
$2,311,130 during 1999, 2000 and 2001, respectively. In March 2002, the then
accrued and unpaid $193,077 balance of this fee was paid in full and, on March
5, 2002, Mandalay Resort Group's obligations pursuant to the make-well
agreement, and its right to receive additional payments of the aforementioned
fee, terminated. Galleon, which owns 50% of the Partnership, is a wholly owned
subsidiary of Mandalay Resort Group.
In April 2001, Silver Legacy began utilizing 235 spaces in the parking
garage at the Circus Circus Hotel and Casino. The spaces are utilized to
provide parking for employees of Silver Legacy. In consideration for its use of
the spaces, the Partnership pays the Circus Circus Hotel and Casino rent in the
amount of $5,000 per month. We believe the terms on which we have utilized this
service are at least as favorable as those that would be available
57
from an unrelated third party. Although there is no agreement obligating the
Partnership to continue utilizing the spaces or entitling it to do so, it is
anticipated that the Partnership will continue this arrangement for the
foreseeable future. The Circus Circus Hotel and Casino is owned by a wholly
owned subsidiary of Mandalay Resort Group.
For information concerning certain other transactions with entities of which
a member of the Partnership's executive committee is an executive officer or
owns a beneficial interest in excess of 10%, see "Management -- Compensation
Committee Interlocks and Inside Participation."
For additional information concerning the Partnership and the respective
rights and obligations of its two partners, ELLC and Galleon, see "The
Partnership Agreement."
58
DESCRIPTION OF OTHER INDEBTEDNESS
Senior Secured Credit Facility
Concurrently with the offering of the old notes, we entered into our current
senior secured credit facility comprised of a $20.0 million term loan facility
that amortizes over a period of five years and a $20.0 million revolving
facility with a five year maturity. The following description summarizes the
material provisions included in our senior secured credit facility.
Our senior secured credit facility is secured by (x) a first priority
security interest in substantially all of our existing and future assets, other
than certain licenses which may not be pledged under applicable law, and
(y) subject to the approval of the Nevada Gaming Commission, a first priority
pledge of and security interest in all of the partnership interests in the
Partnership held, by our joint venture partners, and ranks equal in right of
payment to our existing and future senior indebtedness, including the notes.
The security interests securing our obligations on our senior secured credit
facility are senior to the pledge and security interests securing our
obligations on the notes.
We initially borrowed $26.0 million under our senior secured credit facility
on March 5, 2002 which, together with excess cash and the proceeds from the
offering of the old notes, was used to repay our prior credit facility, fund a
distribution to our joint venture partners and pay related fees and expenses.
For additional details, see "Use of Proceeds."
The term loan portion of our senior secured credit facility amortizes
quarterly beginning March 31, 2003 and thereafter based on the annual amounts
listed below:
Calendar Year Annual Reduction
------------- ----------------
2003..... 20.0%
2004..... 20.0%
2005..... 25.0%
2006..... 30.0%
2007..... 5.0%
Interest on outstanding balances and commitment fees on unused
availabilities under our senior secured credit facility is determined by a
formula based on our leverage ratio, which is the ratio of our total debt to
annualized cash flow, and in the case of interest rates, on the basis of the
Eurodollar or base rate existing for each interest calculation date. As our
leverage ratio declines or increases, the interest rate and commitment fees we
pay will decline or increase commensurately. We also pay agency fees in
connection with our senior secured credit facility.
Our senior secured credit facility contains customary events of default and
covenants, including covenants that limit or restrict our ability to:
. incur additional debt;
. create liens or other encumbrances;
. pay dividends or make other restricted payments;
. prepay subordinated indebtedness;
. make investments, loans or other guarantees;
. sell or otherwise dispose of a portion of our assets; or
. make acquisitions or merge or consolidate with another entity.
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In addition, our senior secured credit facility requires us to meet
specified financial tests on an on-going basis, including the following:
. we are required to maintain a maximum ratio of total debt to EBITDA as
follows:
Maximum
Period Ratio
------ -----
On or prior to September 30, 2002........... 4.50 : 1.00
From December 31, 2002 to September 30, 2003 4.25 : 1.00
December 31, 2003 and thereafter............ 4.00 : 1.00
. we are required to maintain a minimum ratio of EBITDA to fixed charges of
1.10 : 1.00 at all times.
Intercreditor Agreement
Concurrently with the issuance of the old notes and in connection with
entering into our current senior secured credit facility, Bank of America, N.
A., as administrative agent for the lenders under our senior secured credit
facility, and The Bank of New York, as trustee under the indenture governing
the notes, entered into an intercreditor agreement. The intercreditor agreement
defines the rights of the lenders under our senior secured credit facility, and
any lenders directly or indirectly refinancing the obligations of the
Partnership under our senior secured credit facility, in relation to the rights
of the noteholders with respect to the collateral that secures our obligations
under both our senior secured credit facility, and any amendments,
restatements, extensions, renewals, refinancings or refunding thereof, and the
indenture governing the notes. The following description summarizes the
material terms of the intercreditor agreement, a copy of which has been filed
as an exhibit to the registration statement of which this prospectus is a part.
It does not restate the intercreditor agreement in its entirety. We urge you to
read the intercreditor agreement because it, and not this description, will
define the rights of noteholders, in relation to the lenders, to the collateral.
Under the intercreditor agreement, Bank of America, N.A. acknowledges the
lien that the trustee holds on the collateral to secure the notes and our
obligations under the indenture governing the notes and related security
documents. The trustee and each noteholder, by accepting a note:
. acknowledges the first priority lien that Bank of America, N.A. holds on
the collateral to secure our obligations under our senior secured credit
facility and related security documents, and
. agrees to all of the terms of the intercreditor agreement, as it may be
amended from time to time.
Under the intercreditor agreement, Bank of America, N.A. and the trustee
agreed that Bank of America, N.A.'s lien on the collateral has priority over
the trustee's lien on the collateral to secure our obligations under our senior
secured credit facility up to an aggregate principal amount of $40.0 million,
plus interest, fees, expenses, obligations owed pursuant to any interest rate
hedging arrangement with respect to the obligations under our senior secured
credit facility and related costs. Bank of America, N.A.'s priority will not be
affected by:
. the order, time or manner of attachment, perfection or recording of Bank
of America, N.A. or the trustee's lien;
. any refinancing of or amendments to the terms of our senior secured
credit facility or the indenture or any other documents governing our
obligations to either the lenders or the noteholders to the extent any
such amendment or refinancing is permitted under the indenture governing
the notes; or
. any action or inaction of either Bank of America, N.A. or the trustee
with respect to the collateral.
Following any event of default under the indenture governing the notes, the
intercreditor agreement provides that, until our obligations under our senior
secured credit facility have been paid in full and the commitments under our
senior secured credit facility have been terminated, and for a period of 90
days following the date upon which the trustee under the indenture governing
the notes gives written notice to the administrative agent of a
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default under our senior secured credit facility and thereafter during any
bankruptcy proceeding or following acceleration of our senior secured credit
facility, the trustee and the holders of the notes will not have the right to:
. exercise any right of set-off;
. exercise any right of possession or attach, seize or realize upon any of
the collateral; or
. exercise any right under Uniform Commercial Code, including the right of
strict foreclosure, but excluding the right of redemption of assets.
The intercreditor agreement provides that the proceeds of the collateral are
to be applied to first pay our obligations under our senior secured credit
facility in full. Moreover, until our senior secured credit facility and the
related documents evidencing our obligations thereunder have been terminated,
the proceeds of the collateral will be required to be used to provide for
payment of our contingent liabilities under those agreements before payment of
any amounts owed under the indenture governing the notes and related documents.
If the trustee receives any proceeds of collateral while our obligations under
our senior secured credit facility remain outstanding, the trustee will be
required to turn those proceeds over to Bank of America, N.A.
If we become debtors in a bankruptcy case, the trustee and the noteholders
agree that Bank of America, N.A. and our other lenders under our senior secured
credit facility may consent to the use of cash collateral or provide bankruptcy
financing on terms and conditions and in such amounts as the lenders under our
senior secured credit facility, in their sole discretion, may decide as long as
the total outstanding principal of that financing, including amounts already
outstanding under our senior secured credit facility, does not exceed
$40.0 million. The trustee and the noteholders further agree that the lien
securing any such financing is senior in priority to the lien securing our
obligations under the notes.
Bank of America, N.A. is required under the intercreditor agreement, unless
a proceeding under the U.S. Bankruptcy Code has been commenced, to provide the
trustee with notice of any acceleration under our senior secured credit
facility. For the thirty-day period following such notice, the trustee and the
holders of the notes will have the right (subject to various limitations and
restrictions contained in the intercreditor agreement) to purchase all lender
obligations under our senior secured credit facility for a purchase price equal
to the principal thereof plus all accrued and unpaid interest, fees and other
amounts owing by us to Bank of America, N.A. and the lenders under our senior
secured credit facility.
61
THE PARTNERSHIP AGREEMENT
Overview
The Partnership was formed in 1994 pursuant to the Original Partnership
Agreement, between the two partners, ELLC, a subsidiary of Eldorado Resorts
LLC, and Galleon, a subsidiary of Mandalay Resort Group. ELLC and Galleon each
own a 50% interest in the Partnership. Pursuant to the Original Partnership
Agreement, each of the partners contributed cash or property to the Partnership
with a value approximating 15% of the total budgeted cost for developing and
constructing Silver Legacy. To satisfy their respective contribution
obligations, ELLC contributed the land on which Silver Legacy was constructed,
at an agreed value of $25 million, and $26.9 million in cash. Galleon
contributed $51.9 million in cash. Mandalay Resort Group also provided credit
support in the form of a make-well agreement for the Partnership's credit
agreement originally entered into by the Partnership on May 30, 1995 to fund
the balance of Silver Legacy's development and construction costs. For
additional information concerning the make-well agreement, which terminated on
March 5, 2002, when the old notes were issued, see "Certain Relationships and
Related Transactions."
Description of the Partnership Agreement
Concurrently with the closing of the issuance of the old notes, the Original
Partnership Agreement was amended and restated in its entirety and was further
amended in April 2002 (the "New Partnership Agreement"). The April 2002
amendments were principally (i) to provide equal voting rights for ELLC and
Galleon (and procedures for resolving deadlocks with respect to approval of the
Partnership's annual business plan and the appointment and compensation of the
general manager, and (ii) to give each partner the right to terminate the
general manager. The following is a summary of the New Partnership Agreement.
This summary is qualified in its entirety by reference to the New Partnership
Agreement, a copy of which has been filed as an exhibit to the registration
statement of which this prospectus is a part.
Additional Capital Contributions
The New Partnership Agreement provides that the partners shall not be
permitted or required to contribute additional capital to the Partnership
without the consent of partners, which consent may be given or withheld in each
partner's sole and absolute discretion.
Partnership Distributions
Subject to any contractual restrictions to which the Partnership is subject,
including the indenture relating to the notes, and prior to the occurrence of a
"Liquidating Event," the Partnership will be required by the New Partnership
Agreement to make distributions to its partners as follows:
(a) The estimated taxable income of the Partnership allocable to each
partner multiplied by the greater of the maximum marginal federal income tax
rate applicable to individuals for such period (as of the date hereof,
39.1%) or the maximum marginal federal income tax rate applicable to
corporations for such period (as of the date hereof, 35%); provided,
however, that if the State of Nevada enacts an income tax (including any
franchise tax based on income), the applicable tax rate for any tax
distributions subsequent to the effective date of such income tax shall be
increased by the higher of the maximum marginal individual tax rate or
corporate income tax rate imposed by such tax (after reduction for the
federal tax benefit for the deduction of state taxes, using the maximum
marginal federal individual or corporate rate, respectively).
(b) Annual distributions of remaining "Net Cash From Operations" in
proportion to the percentage interests of the partners.
(c) Distributions of "Net Cash From Operations" in amounts or at times
that differ from those described in (a) and (b) above, provided in each case
that both partners agree in writing to the distribution in advance thereof.
As defined in the New Partnership Agreement, the term "Net Cash From
Operations" means the gross cash proceeds received by the Partnership, less the
following amounts: (i) cash operating expenses and payments of
62
other expenses and obligations of the Partnership, including interest and
scheduled principal payments on Partnership indebtedness, including
indebtedness owed to the partners, if any, (ii) all capital expenditures made
by the Partnership, and (iii) such reasonable reserves as the partners deem
necessary in good faith and in the best interests of the Partnership to meet
anticipated future obligations and liabilities of the Partnership (less any
release of reserves previously established, as similarly determined).
The Managing Partner
The New Partnership Agreement designates Galleon as the Partnership's
managing partner with responsibility and authority for the day-to-day
management of the business affairs of the Partnership, including overseeing the
day-to-day operations of Silver Legacy and other Partnership business,
preparation of the Partnership's budgets and implementation of the decisions
made by the partners. The managing partner is also responsible for the
preparation and submission of the Partnership's annual business plan for review
and approval by the Partnership's executive committee, utilizing the special
voting procedures and the procedure for resolving deadlocks described below.
The New Partnership Agreement provides that the managing partner shall
appoint the general manager, subject to approval of the appointment by the
executive committee, utilizing the special voting procedures and the procedure
for resolving deadlocks described below. Under the terms of the New Partnership
Agreement, the general manager may be removed by ELLC or Galleon upon 30 days
written notice. The New Partnership Agreement also provides that the managing
partner shall appoint the other principal senior management of the Partnership
and Silver Legacy, who shall perform such functions, duties, and
responsibilities as the managing partner may assign, and shall serve at the
direction and pleasure of the managing partner.
The New Partnership Agreement provides that the unanimous approval of both
partners is required for certain actions, including the admission of an
additional partner, the purchase of additional real property, encumbrances on
Silver Legacy, sales or other dispositions of all or substantially all of the
assets of the Partnership, refinancing or incurrence of indebtedness involving
in excess of $250,000 other than in the ordinary course of business, capital
improvements involving more than $250,000 that are not included in an approved
annual business plan, and any obligation, contract, agreement, or commitment
with a partner or an affiliate of a partner which is not specifically permitted
by the New Partnership Agreement.
Replacement of the Managing Partner
If the actual net operating results of the business of the Partnership for
any four consecutive quarters are less than 80% of the projected amount as set
forth in the Partnership's annual business plan, after appropriate adjustments
for factors affecting similar business in the vicinity of the Silver Legacy,
ELLC may require Galleon to resign from its position as managing partner.
In addition, in the event Galleon resigns as managing partner, ELLC will
have the right and option to become the managing partner of the Partnership and
assume all the obligations of the managing partner under the New Partnership
Agreement, or the partners are required to attempt to appoint a third party to
manage the day-to-day business affairs of the Partnership. In such event, if
the partners are unable to agree on a manager, then the Partnership shall be
dissolved and liquidated in accordance with the provisions of the New
Partnership Agreement.
The Executive Committee
An executive committee of the Partnership is authorized to review, monitor
and oversee the performance of the management of the Silver Legacy. The
executive committee of the Partnership shall consist of five members, with
three members appointed by the managing partner and two members appointed by
the other partner. In the event that neither of the partners is the managing
partner, then the executive committee shall consist of five members, with two
members appointed by each partner and a fifth member appointed by a third party
manager
63
selected by the partners. Each partner may, at any time, appoint alternate
members to the executive committee and the alternates will have all the powers
of a regular committee member in the absence or inability of a regular
committee member to serve. With the exception of the special voting procedures
described below, each member of the executive committee is entitled to one vote
on each matter decided by the executive committee and each action of the
executive committee must be approved by a majority of all of the members of the
executive committee, who may be present or voting by proxy. The current members
of the executive committee are Stephen J. Greathouse, Thomas D. Robinson and
Yvette E. Landau, each of whom was appointed by Galleon, and Robert M. Jones
and Gene Carano, each of whom was appointed by ELLC.
Subject to the requirement of unanimous approval of the partners for certain
actions, the duties of the executive committee include, but are not limited to,
(i) reviewing, adjusting, approving, developing, and supervising the
Partnership's annual business plan, (ii) reviewing and approving the terms of
any loans made to the Partnership, (iii) approving all material purchases,
sales, leases or other dispositions of Partnership property, other than in the
ordinary course of business, and (iv) approving the appointment of the General
Manager, who is the Partnership's Chief Executive Officer, and the Controller,
who is the Partnership's Chief Financial Officer and Accounting Officer, and
determining the compensation of the General Manager and the Controller.
The New Partnership Agreement provides special voting procedures for the
executive committee's approval of the annual business plan, the appointment of
the general manager and the determination of the general manager's
compensation. In voting on these matters, the members of the executive
committee appointed by the managing partner shall have a total of two votes and
the members of the executive committee appointed by the other partner shall
have a total of two votes. The managing partner shall designate which two of
the three members of the executive committee appointed by the managing partner
are to exercise the two votes. If the executive committee is deadlocked in
deciding any matter which is subject to the special voting procedures, then the
meeting may be adjourned to another meeting date. If the executive committee
remains deadlocked with respect to its approval of an annual business plan
until the end of the second month of the fiscal year described in the annual
business plan, then either partner may by written notice cause the approval of
the annual business plan to be submitted to a nationally recognized accounting
firm mutually agreeable to the partners (the "Accountant") for resolution. The
Accountant shall consider the positions of the members of the executive
committee and the partners, and shall decide whether to approve the annual
business plan, or to modify the annual business plan and approve it with such
modifications. The decision of the Accountant on these matters shall have the
same effect as the approval of the annual business plan by the executive
committee. If the executive committee remains deadlocked with respect to its
approval of the appointment of a general manager for a period of one month
following the effective date of the resignation or removal of the previous
general manager, then the executive committee shall assume the duties of the
general manager until such time as the executive committee can reach a decision
on the appointment and compensation of a new general manager. In exercising the
duties of the general manager, the executive committee shall act and vote in
accordance with the special voting procedures described above. If the executive
committee remains deadlocked on the determination of the compensation of the
general manager for a period of one month following the first meeting on the
proposed compensation, then either partner may by written notice cause the
determination of such compensation to be submitted to the Accountant for
resolution. In that event, the Accountant shall consider the positions of the
executive committee, and shall adopt a compensation arrangement consistent with
the position advocated by at least one member of the executive committee. The
decision of the Accountant on any matter which is subject to the special voting
procedures shall be final and binding on the executive committee and the
partners.
Transfer of Partnership Interests
Except as expressly permitted by the New Partnership Agreement, neither
partner may transfer all or any portion of its interest in the Partnership or
any rights therein without the unanimous consent of both partners. The New
Partnership Agreement provides that a partner may transfer or convey all or any
portion of its interest in the Partnership to an affiliate of such partner
(subject to certain limitations), members of the partner's family (which
includes the partner's spouse, natural or adoptive lineal descendants, and
trusts for their benefit), another partner,
64
a personal representative of the partner or any person or entity approved by
the unanimous consent of the partners.
Unless otherwise agreed by Galleon, Donald L. Carano or a member of his
immediate family acceptable to Galleon, which acceptance may not be
unreasonably withheld, or an affiliate controlled by Donald L. Carano or a
member of his immediate family acceptable to Galleon, which acceptance may not
be unreasonably withheld, is required to be the manager of and control ELLC
(or, if applicable, any entity that is a Permitted Transferee and to which ELLC
has transferred its interest in the Partnership). Unless otherwise agreed by
ELLC, which may not be unreasonably withheld, Galleon (or, if applicable, any
entity that is a permitted transferee and to which Galleon has transferred its
interest in the Partnership) is required to be controlled by Mandalay Resort
Group. In the event the limitation in this paragraph with respect to either
partner is breached, the other partner will have the right (but not be
required) to exercise the buy-sell provisions described below.
Limitation on Partners' Actions
The New Partnership Agreement includes each partner's covenant and agreement
not to (i) take any action to require partition or to compel any sale with
respect to its Partnership interest, (ii) take any action to file a certificate
of dissolution or its equivalent with respect to itself, (iii) take any action
that would cause a bankruptcy of such partner, (iv) withdraw or attempt to
withdraw from the Partnership, (v) exercise any power under the Nevada Uniform
Partnership Act to dissolve the Partnership, (vi) transfer all or any portion
of its interest in the Partnership (other than as permitted hereunder), (vii)
petition for judicial dissolution of the Partnership, or (viii) demand a return
of such partner's contributions or profits (or a bond or other security for the
return of such contributions or profits) without the unanimous consent of the
partners. The New Partnership Agreement also provides that if a partner
attempts to (A) cause a partition or (B) withdraw from the Partnership or
dissolve the Partnership, or otherwise take any action in breach of its
aforementioned agreements, the Partnership shall continue and (1) the breaching
partner shall immediately cease to have the authority to act as a partner, (2)
the other partner shall have the right (but shall not be obligated unless it
was so obligated prior to such breach) to manage the affairs of the
Partnership, (3) the breaching partner shall be liable in damages, without
requirement of a prior accounting, to the Partnership for all costs and
liabilities that the Partnership or any partner may incur as a result of such
breach, (4) distributions to the breaching partner shall be reduced to 75% of
the distributions otherwise payable to the breaching partner and (5) the
breaching partner shall continue to be liable to the Partnership for any
obligations of the Partnership pursuant to the New Partnership Agreement, and
to be jointly and severally liable with the other partners for any debts and
liabilities (whether actual or contingent, known or unknown) of the Partnership
existing at the time the breaching partner withdraws or dissolves.
Buy-Sell Provision
At any time on or after July 1, 2005 either partner (provided such partner
is not in default of any of the provisions of the New Partnership Agreement)
may make an offer to purchase ("Offer") the interest of the other partner,
which will constitute an irrevocable offer by the partner giving the Offer
either to (i) purchase all, but not less than all, of the interest of the
Partnership of the other partner free of liens and encumbrances for the amount
specified in the Offer (the "Sales Price"), or (ii) sell all, but not less than
all, of its interest in the Partnership free of liens and encumbrances to the
other partner for the amount specified in the Offer (the "Purchase Price"). The
partner receiving an Offer will have a period of two months to accept the Offer
to sell at the Sales Price or, in the alternative, to require that the offering
partner sell its interest to the other partner at the Purchase Price. The
closing of the transaction for the sale or purchase of the Partnership interest
shall occur not later than six months after the notice of election or at such
other time as may be required by the Nevada Gaming Authorities. Subject to any
agreements to which the Partnership is a party, the partner purchasing the
Partnership interest (the "Purchasing Partner") shall be entitled to encumber
the Partnership property in order to finance the purchase, provided that the
other partner (the "Selling Partner") will have no liability, contingent or
otherwise, under such financing. The purchasing partner may assign all or part
of its right to purchase the Partnership interest of the
65
Selling Partner to an affiliate of the purchasing partner, provided that no
such assignment relieves the Purchasing Partner of its obligations in the event
of a default by the affiliate.
Dissolution, Winding Up and Liquidation
The New Partnership Agreement provides that the Partnership shall dissolve
and commence winding up and liquidating upon the first to occur of any of (i)
January 1, 2053, (ii) the sale of all or substantially all of the Partnership
property, (iii) the unanimous vote of the partners to dissolve, wind up, and
liquidate the Partnership, (iv) the happening of any other event that makes it
unlawful or impossible to carry on the business of the Partnership, (v) the
occurrence of an Event of Bankruptcy (as defined the New Partnership Agreement)
of a partner, or (vi) the partners are unable to agree upon a replacement
managing partner as provided in the New Partnership Agreement (each, a
"Liquidating Event").
The New Partnership Agreement also includes the partners' agreement that the
Partnership shall not dissolve prior to the occurrence of a Liquidating Event,
notwithstanding any provision of the Nevada Uniform Partnership Act to the
contrary. If it is determined by a court of competent jurisdiction that the
Partnership has dissolved prior to the occurrence of a Liquidating Event, the
partners have agreed to continue the business of the Partnership without a
winding up or liquidation.
Upon the occurrence of a Liquidating Event, the Partnership will continue
solely for the purpose of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and
partners. The managing partner will be responsible for overseeing the winding
up and liquidation of the Partnership, taking full account of the Partnership's
liabilities and assets, causing the assets to be liquidated as promptly as is
consistent with obtaining the fair market value thereof, and causing the
proceeds therefrom, to the extent sufficient therefor, to be applied and
distributed (i) first, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than partners, (ii) second, to the
payment and discharge of all of the Partnership's debts and liabilities to
partners, and (iii) the balance, if any, to the partners in the amount of their
respective capital accounts, after giving effect to all contributions,
distributions, and allocations for all periods or portions thereof.
66
THE EXCHANGE OFFER
General
As of the date of this prospectus, $160 million in principal amount of the
old notes is outstanding. This prospectus, together with the letter of
transmittal, is first being sent to holders on , 2002.
Purpose of the Exchange Offer
We issued the old notes on March 5, 2002 in a transaction exempt from the
registration requirements of the Securities Act of 1933 (the "Securities Act").
Accordingly, the old notes may not be reoffered, resold, or otherwise
transferred unless so registered or unless an applicable exemption from the
registration and prospectus delivery requirements of the Securities Act is
available.
In connection with the sale of the old notes, we entered into a registration
rights agreement, which requires us to:
. file a registration statement with the Securities and Exchange Commission
(the "Commission") relating to the exchange offer not later than 60 days
after the date of issuance of the old notes;
. to cause the registration statement relating to the exchange offer to
become effective under the Securities Act within 150 days after the date
of issuance of the old notes; and
. to complete the exchange offer within 30 business days after the
effective date of the registered statement or such longer period as may
be required by the federal securities laws or, if obligated to file a
shelf registration statement, to use our best efforts to file the shelf
registration statement with the Commission as promptly as practicable
after the filing obligation arises and to cause the shelf registration
statement to be declared effective by the 90th day after such obligation
arises. We have filed a copy of the registration rights agreement as an
exhibit to the registration statement of which this prospectus is a part.
We are making the exchange offer to satisfy our obligations under the
registration rights agreement. Other than pursuant to the registration rights
agreement, we are not required to file any registration statement to register
any outstanding old notes. Holders of old notes who do not tender their old
notes or whose old notes are tendered but not accepted in the exchange offer
must rely on an exemption from the registration requirements under the
securities laws, including the Securities Act, if they wish to sell their old
notes.
We are making the exchange offer in reliance on the position of the staff of
the Commission as set forth in interpretive letters addressed to third parties
in other transactions. However, we have not sought our own interpretive letter
and we can provide no assurance that the staff would make a similar
determination with respect to the exchange offer as it has in interpretive
letters to third parties. Based on these interpretations by the staff, we
believe that the exchange notes issued in the exchange offer in exchange for
old notes may be offered for resale, resold and otherwise transferred by a
holder other than any holder who is a broker-dealer or an "affiliate" of ours
within the meaning of Rule 405 of the Securities Act, without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that:
. the exchange notes are acquired in the ordinary course of the holder's
business;
. the holder has no arrangement or understanding with any person to
participate in the distribution of the exchange notes; and
. the holder is not engaged in, and does not intend to engage in a
distribution of the exchange notes.
For additional information, see the discussion in this section under the
subheading "Resale of Exchange Notes." Each broker-dealer that receives
exchange notes for its own account in exchange for old notes, where the
broker-dealer acquired the old notes as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. For additional information,
see the section "Plan of Distribution" in this prospectus.
67
Terms of the Exchange
We are offering to exchange, subject to the conditions described in this
prospectus and in the letter of transmittal accompanying this prospectus,
$1,000 in principal amount of exchange notes for each $1,000 in principal
amount of the old notes. The terms of the exchange notes are identical in all
material respects to the terms of the old notes, except that the exchange notes
will generally be freely transferable by holders of the exchange notes and will
not be subject to the terms of the registration rights agreement. The exchange
notes will evidence the same indebtedness as the old notes exchanged therefor
and will be entitled to the benefits of the indenture. For additional
information, see the section "Description of the Notes" in this prospectus.
The exchange offer is not conditioned upon the tender of any minimum
principal amount of old notes.
We have not requested, and do not intend to request, an interpretation by
the staff of the Commission as to whether the exchange notes issued in exchange
for the old notes may be offered for sale, resold or otherwise transferred by
any holder without compliance with the registration and prospectus delivery
provisions of the Securities Act. Instead, based on an interpretation by the
staff of the Commission set forth in a series of no-action letters issued to
third parties, we believe that exchange notes issued in the exchange offer in
exchange for old notes may be offered for sale, resold and otherwise
transferred by any holder of exchange notes, other than any holder that is a
broker-dealer or is an "affiliate" of ours within the meaning of Rule 405 under
the Securities Act, without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that:
. the exchange notes are acquired in the ordinary course of the holder's
business;
. the holder has no arrangement or understanding with any person to
participate in the distribution of the exchange notes; and
. the holder is not engaged in, and does not intend to engage in a
distribution of the exchange notes.
Since the Commission has not considered the exchange offer in the context of
a no-action letter, we can provide no assurance that the staff of the
Commission would make a similar determination with respect to the exchange
offer. Any holder who is an affiliate of ours or who tenders old notes in the
exchange offer for the purpose of participating in a distribution of the
exchange notes cannot rely on the interpretation by the staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each holder,
other than a broker-dealer, must acknowledge that it is not engaged in, and
does not intend to engage in, a distribution of exchange notes. Each
broker-dealer that receives exchange notes for its own account in exchange for
old notes, where the broker-dealer acquired the old notes as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
For additional information, see the section "Plan of Distribution" in this
prospectus.
The exchange notes will accrue interest from the last interest payment date
on which interest was paid on the old notes or, if no interest was paid on the
old notes, from the date of issuance of the old notes, which was on March 5,
2002. Holders whose old notes are accepted for exchange will be deemed to have
waived the right to receive any interest accrued on the old notes.
Tendering holders of the old notes will not be required to pay brokerage
commissions or fees or, transfer taxes, except as specified in the instructions
in the letter of transmittal, with respect to the exchange of the old notes in
the exchange offer.
Expiration Date; Extension; Termination; Amendment
The exchange offer will expire at 5:00 p.m., New York City time, on
, 2002, unless we, in our sole discretion, have extended the period of
time for which the exchange offer is open. The time and date, as it may be
extended, is referred to herein as the "expiration date." The expiration date
will be at least 20 business
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days after the commencement of the exchange offer in accordance with Rule
14e-1(a) under the Exchange Act. We expressly reserve the right, at any time or
from time to time, to extend the period of time during which the exchange offer
is open, and thereby delay acceptance for exchange of any old notes. We will
extend the expiration date by giving oral or written notice of the extension to
the exchange agent and by timely public announcement no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date. During the extension, all old notes previously tendered will
remain subject to the exchange offer unless properly withdrawn.
We expressly reserve the right to:
. terminate or amend the exchange offer and not to accept for exchange any
old notes not previously accepted for exchange upon the occurrence of any
of the events specified in this section under the subheading "Certain
Conditions to the Exchange Offer" which have not been waived by us; and
. amend the terms of the exchange offer in any manner which, in our good
faith judgment, is advantageous to the holders of the old notes, whether
before or after any tender of the old notes.
If any termination or amendment occurs, we will notify the exchange agent
and will either issue a press release or give oral or written notice to the
holders of the old notes as promptly as practicable.
For purposes of the exchange offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless we terminate
the exchange offer prior to 5:00 p.m., New York City time, on the expiration
date, we will exchange the exchange notes for the old notes promptly following
the expiration date.
Procedures For Tendering Old Notes
Our acceptance of old notes tendered by a holder will constitute a binding
agreement between the tendering holder and us upon the terms and subject to the
conditions described in this prospectus and in the accompanying letter of
transmittal. All references in this prospectus to the letter of transmittal are
deemed to include a facsimile of the letter of transmittal.
A holder of old notes may tender the old notes by:
. properly completing and signing the letter of transmittal;
. properly completing any required signature guarantees;
. properly completing any other documents required by the letter of
transmittal; and
. delivering all of the above, together with the certificate or
certificates representing the old notes being tendered, to the exchange
agent at its address set forth below on or prior to the expiration date;
or
. complying with the procedure for book-entry transfer described below; or
. complying with the guaranteed delivery procedures described below.
The method of delivery of old notes, letters of transmittal and all other
required documents is at the election and risk of the holders. If the delivery
is by mail, it is recommended that registered mail properly insured, with
return receipt requested, be used. In all cases, sufficient time should be
allowed to ensure timely delivery. Holders should not send old notes or letters
of transmittal to us.
The signature on the letter of transmittal need not be guaranteed if:
. tendered old notes are registered in the name of the signer of the letter
of transmittal; and
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. the exchange notes to be issued in exchange for the old notes are to be
issued in the name of the holder; and
. any untendered old notes are to be reissued in the name of the holder.
In any other case, the tendered old notes must be:
. endorsed or accompanied by written instruments of transfer in form
satisfactory to us;
. duly executed by the holder; and
. the signature on the endorsement or instrument of transfer must be
guaranteed by a bank, broker, dealer, credit union, savings association,
clearing agency or other institution, each an "eligible institution" that
is a member of a recognized signature guarantee medallion program within
the meaning of Rule 17Ad-15 under the Exchange Act.
If the exchange notes and/or old notes not exchanged are to be delivered to
an address other than that of the registered holder appearing on the note
register for the old notes, the signature in the letter of transmittal must be
guaranteed by an eligible institution.
The exchange agent will make a request within two business days after the
date of receipt of this prospectus to establish accounts with respect to the
old notes at The Depository Trust Company, the "book-entry transfer facility,"
for the purpose of facilitating the exchange offer. We refer to the Depository
Trust Company in this prospectus as "DTC." Subject to establishing the
accounts, any financial institution that is a participant in the book-entry
transfer facility's system may make book-entry delivery of old notes by causing
the book-entry transfer facility to transfer the old notes into the exchange
agent's account with respect to the old notes in accordance with the book-entry
transfer facility's procedures for the transfer. Although delivery of old notes
may be effected through book-entry transfer into the exchange agent's account
at the book-entry transfer facility, an appropriate letter of transmittal with
any required signature guarantee and all other required documents, or an
agent's message, must in each case be properly transmitted to and received or
confirmed by the exchange agent at its address set forth below prior to the
expiration date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures.
The exchange agent and DTC have confirmed that the exchange offer is
eligible for the DTC Automated Tender Offer Program. We refer to the Automated
Tender Offer Program in this prospectus as "ATOP." Accordingly, DTC
participants may, in lieu of physically completing and signing the letter of
transmittal and delivering it to the exchange agent, electronically transmit
their acceptance of the exchange offer by causing DTC to transfer old notes to
the exchange agent in accordance with DTC's ATOP procedures for transfer. DTC
will then send an agent's message.
The term "agent's message" means a message which:
. is transmitted by DTC;
. received by the exchange agent and forming part of the book-entry
transfer;
. states that DTC has received an express acknowledgment from a participant
in DTC that is tendering old notes which are the subject of the
book-entry transfer;
. states that the participant has received and agrees to be bound by all of
the terms of the letter of transmittal; and
. states that we may enforce the agreement against the participant.
If a holder desires to accept the exchange offer and time will not permit a
letter of transmittal or old notes to reach the exchange agent before the
expiration date or the procedure for book-entry transfer cannot be completed on
a timely basis, the holder may effect a tender if the exchange agent has
received at its address set forth below
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on or prior to the expiration date, a letter, telegram or facsimile
transmission, and an original delivered by guaranteed overnight courier, from
an eligible institution setting forth:
. the name and address of the tendering holder;
. the names in which the old notes are registered and, if possible, the
certificate numbers of the old notes to be tendered; and
. a statement that the tender is being made thereby and guaranteeing that
within three business days after the expiration date, the old notes in
proper form for transfer, or a confirmation of book-entry transfer of
such old notes into the exchange agent's account at the book-entry
transfer facility and an agent's message, will be delivered by the
eligible institution together with a properly completed and duly executed
letter of transmittal and any other required documents.
Unless old notes being tendered by the above-described method are deposited
with the exchange agent, a tender will be deemed to have been received as of
the date when:
. the tendering holder's properly completed and duly signed letter of
transmittal, or a properly transmitted agent's message, accompanied by
the old notes or a confirmation of book-entry transfer of the old notes
into the exchange agent's account at the book-entry transfer facility is
received by the exchange agent; or
. a notice of guaranteed delivery or letter, telegram or facsimile
transmission to similar effect from an eligible institution is received
by the exchange agent.
Issuances of exchange notes in exchange for old notes tendered pursuant to a
notice of guaranteed delivery or letter, telegram or facsimile transmission to
similar effect by an eligible institution will be made only against deposit of
the letter of transmittal and any other required documents and the tendered old
notes or a confirmation of book-entry and an agent's message.
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance of old notes tendered for exchange will be determined
by us in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all tenders of any old notes not
properly tendered or not to accept any old notes which acceptance might, in our
judgment or the judgment of our counsel, be unlawful. We also reserve the
absolute right to waive any defects or irregularities or conditions of the
exchange offer as to any old notes either before or after the expiration date,
including the right to waive the ineligibility of any holder who seeks to
tender old notes in the exchange offer. The interpretation of the terms and
conditions of the exchange offer, including the letter of transmittal and the
instructions contained in the letter of transmittal, by us will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes for exchange must be cured within such
reasonable period of time as we determine. Neither we, the exchange agent nor
any other person has any duty to give notification of any defect or
irregularity with respect to any tender of old notes for exchange, nor will any
of us incur any liability for failure to give such notification.
If the letter of transmittal is signed by a person or persons other than the
registered holder or holders of old notes, the old notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders appear on the old notes.
If the letter of transmittal or any old notes or powers of attorney 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, such persons must submit proper evidence satisfactory to us of their
authority to so act.
By tendering, each holder represents to us that, among other things:
. the exchange notes acquired pursuant to the exchange offer are being
acquired in the ordinary course of business of the holder;
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. the holder is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the exchange notes; and
. the holder is not an "affiliate," as defined under Rule 405 of the
Securities Act, of ours.
Each broker-dealer that receives exchange notes for its own account in
exchange for old notes, where the broker-dealer acquired the old notes as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
the exchange notes. For additional information, see the section "Plan of
Distribution" in this prospectus.
Terms and Conditions of the Letter of Transmittal
The letter of transmittal contains, among other things, the following terms
and conditions, which are part of the exchange offer.
The party tendering old notes for exchange exchanges, assigns and transfers
the old notes to us and irrevocably constitutes and appoints the exchange agent
as his agent and attorney-in-fact to cause the old notes to be assigned,
transferred and exchanged. We refer to the party tendering notes herein as the
"transferor." The transferor represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the old notes and to acquire
exchange notes issuable upon the exchange of the tendered old notes, and that,
when the same are accepted for exchange, we will acquire good and unencumbered
title to the tendered old notes, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The transferor
also warrants that it will, upon request, execute and deliver any additional
documents deemed by the exchange agent or us to be necessary or desirable to
complete the exchange, assignment and transfer of tendered old notes or
transfer ownership of such old notes on the account books maintained by a
book-entry transfer facility. The transferor further agrees that acceptance of
any tendered old notes by us and the issuance of exchange notes in exchange for
old notes will constitute performance in full by us of various of our
obligations under the registration rights agreement. All authority conferred by
the transferor will survive the death or incapacity of the transferor and every
obligation of the transferor will be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of the
transferor.
The transferor certifies that it is not an "affiliate" of ours within the
meaning of Rule 405 under the Securities Act and that it is acquiring the
exchange notes offered hereby in the ordinary course of the transferor's
business and that the transferor has no arrangement with any person to
participate in the distribution of the exchange notes.
Each holder, other than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a distribution of exchange notes.
Each transferor which is a broker-dealer receiving exchange notes for its own
account must acknowledge that it will deliver a prospectus in connection with
any resale of the exchange notes. 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.
Withdrawal Rights
Tenders of old notes may be withdrawn at any time prior to the expiration
date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission, with receipt confirmed by telephone, or
letter must be received by the exchange agent at the address set forth in this
prospectus prior to the expiration date. Any notice of withdrawal must:
. specify the name of the person having tendered the old notes to be
withdrawn;
. identify the old notes to be withdrawn, including the certificate number
or numbers and principal amount of such old notes;
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. specify the principal amount of old notes to be withdrawn;
. include a statement that the holder is withdrawing his election to have
the old notes exchanged;
. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the old notes were tendered or as
otherwise described above, including any required signature guarantees,
or be accompanied by documents of transfer sufficient to have the trustee
under the indenture register the transfer of the old notes into the name
of the person withdrawing the tender; and
. specify the name in which any such old notes are to be registered, if
different from that of the person who tendered the old notes.
The exchange agent will return the properly withdrawn old notes promptly
following receipt of the notice of withdrawal. If old notes have been tendered
pursuant to the procedure for book-entry transfer, any notice of withdrawal
must specify the name and number of the account at the book-entry transfer
facility to be credited with the withdrawn old notes or otherwise comply with
the book-entry transfer facility procedure. All questions as to the validity of
notices of withdrawals, including time of receipt, will be determined by us and
our determination will be final and binding on all parties.
Any old notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the exchange offer. Any old notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder without cost to the holder. In the case of old notes
tendered by book-entry transfer into the exchange agent's account at the
book-entry transfer facility pursuant to the book-entry transfer procedures
described above, the old notes will be credited to an account with the
book-entry transfer facility specified by the holder. In either case, the old
notes will be returned as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn old notes may
be retendered by following one of the procedures described in this section
under the subheading "Procedures for Tendering Old Notes" at any time prior to
the expiration date.
Acceptance of Old Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, on the expiration date, all old notes properly tendered and
will issue the exchange notes promptly after such acceptance. See the
discussion in this section under the subheading "Certain Conditions to the
Exchange Offer" for more detailed information. For purposes of the exchange
offer, we will be deemed to have accepted properly tendered old notes for
exchange when, and if, we have given oral or written notice of our acceptance
to the exchange agent.
For each old note accepted for exchange, the holder of the old note will
receive an exchange note having a principal amount equal to that of the
surrendered old note.
In all cases, issuance of exchange notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after:
. timely receipt by the exchange agent of certificates for the old notes or
a timely book-entry confirmation of the old notes into the exchange
agent's account at the book-entry transfer facility;
. a properly completed and duly executed letter of transmittal, or a
properly transmitted agent's message; and
. timely receipt by the exchange agent of all other required documents.
If any tendered old notes are not accepted for any reason described in the
terms and conditions of the exchange offer or if old notes are submitted for a
greater principal amount than the holder desires to exchange, the unaccepted or
nonexchanged old notes will be returned without expense to the tendering holder
of the old notes. In the case of old notes tendered by book-entry transfer into
the exchange agent's account at the book-
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entry transfer facility pursuant to the book-entry transfer procedures
described above, the non-exchanged old notes will be credited to an account
maintained with the book-entry transfer facility. In either case, the old notes
will be returned as promptly as practicable after the expiration of the
exchange offer.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, or any extension
of the exchange offer, we will not be required to accept for exchange, or to
issue exchange notes in exchange for, any old notes and may terminate or amend
the exchange offer, by oral or written notice to the exchange agent or by a
timely press release, if at any time before the acceptance of the old notes for
exchange or the exchange of the exchange notes for such old notes, any of the
following conditions exist:
. 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 would reasonably be expected to impair our ability
to proceed with the exchange offer; or
. the exchange offer, or the making of any exchange by a holder, violates
applicable law or any applicable interpretation of the staff of the
Commission.
Regardless of whether any of the conditions has occurred, we may amend the
exchange offer in any manner which, in our good faith judgment, is advantageous
to holders of the old notes.
The conditions described above are for our sole benefit and may be asserted
by us regardless of the circumstances giving rise to the condition or we may
waive any condition in whole or in part at any time and from time to time in
our sole discretion. Our failure at any time to exercise any of the rights
described above will not be deemed a waiver of the right and each right will be
deemed an ongoing right which we may assert at any time and from time to time.
If we waive or amend the conditions above, we will, if required by law,
extend the exchange offer for a minimum of five business days from the date
that we first give notice, by public announcement or otherwise, of the waiver
or amendment, if the exchange offer would otherwise expire within the five
business-day period. Any determination by us concerning the events described
above will be final and binding upon all parties.
The exchange offer is not conditioned upon any minimum principal amount of
old notes being tendered.
Exchange Agent
The Bank of New York has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be directed to the
exchange agent at one of the addresses set forth below:
By Registered Facsimile Transactions: By Hand or Overnight
or Certified Mail: (Eligible Institutions Delivery:
The Bank of New York Only) The Bank of New York
Corporate Trust Department (212) 235-2261 Corporate Trust Department
Reorganization Unit To Confirm by Telephone Reorganization Unit
15 Broad Street, 16th or for Information Call: 15 Broad Street, 16th
Floor (212) 235-2354 Floor
New York, New York 10007 New York, New York 10007
Attn: Ms. Carolle Attn: Ms. Carolle
Montreuil Montreuil
You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for notices of guaranteed delivery to the exchange agent at the
address and telephone number set forth in the letter of transmittal.
74
Delivery to an address other than as set forth on the letter of transmittal,
or transmissions of instructions via a facsimile number other than the one set
forth on the letter of transmittal, will not constitute a valid delivery.
Solicitation of Tenders; Fees and Expenses
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith. We will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this and other
related documents to the beneficial owners of the old notes and in handling or
forwarding tenders for their customers.
We will pay the expenses to be incurred in connection with the exchange
offer. We estimate the expenses to be approximately $175,000, which includes
fees and expenses of the exchange agent and trustee, registration fees, and
accounting, legal, printing and related fees and expenses.
No person has been authorized to give any information or to make any
representations in connection with the exchange offer other than those
contained in this prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by us.
Neither the delivery of this prospectus nor any exchange made pursuant to this
prospectus, under any circumstances, creates any implication that there has
been no change in our affairs since the respective dates as of which
information is given in this prospectus. The exchange offer is not being made
to, and tenders will not be accepted from or on behalf of, holders of old notes
in any jurisdiction in which the making of the exchange offer or the acceptance
of the exchange offer would not be in compliance with the laws of the
jurisdiction. However, we may, at our discretion, take such action as we may
deem necessary to make the exchange offer in the jurisdiction and extend the
exchange offer to holders of old notes in the jurisdiction. In any jurisdiction
the securities laws or blue sky laws of which require the exchange offer to be
made by a licensed broker or dealer, the exchange offer is being made on our
behalf by one or more registered brokers or dealers which are licensed under
the laws of the jurisdiction.
Transfer Taxes
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. However, the transfer taxes will be
payable by the tendering holder if:
. certificates representing exchange notes or old notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or
are to be issued in the name of, any person other than the registered
holder of the old notes tendered; or
. tendered old notes are registered in the name of any person other than
the person signing the letter of transmittal; or
. a transfer tax is imposed for any reason other than the exchange of old
notes pursuant to the exchange offer.
We will bill the amount of the transfer taxes directly to the tendering
holder if satisfactory evidence of payment of the taxes or exemption therefrom
is not submitted with the letter of transmittal.
Accounting Treatment
For accounting purposes, we will not recognize gain or loss upon the
exchange of the exchange notes for old notes. We will amortize expenses
incurred in connection with the issuance of the exchange notes over the term of
the exchange notes.
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Consequences Of Failure To Exchange
Holders of old notes who do not exchange their old notes for exchange notes
pursuant to the exchange offer will continue to be subject to the restrictions
on transfer of the old notes as described in the legend on the old notes. Old
notes not exchanged pursuant to the exchange offer will continue to remain
outstanding in accordance with their terms. In general, the old notes may not
be offered or sold unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act
and applicable state securities laws. We do not currently anticipate that we
will register the old notes under the Securities Act.
Participation in the exchange offer is voluntary, and holders of old notes
should carefully consider whether to participate. Holders of old notes are
urged to consult their financial and tax advisors in making their own decision
on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered old notes pursuant to the terms of, this exchange offer, we
will have fulfilled a covenant contained in the registration rights agreement.
Holders of old notes who do not tender their old notes in the exchange offer
will continue to hold the old notes and will be entitled to all the rights and
limitations applicable to the old notes under the indenture, except for any
rights under the registration rights agreement that by their terms terminate or
cease to have further effectiveness as a result of the making of this exchange
offer. All untendered old notes will continue to be subject to the restrictions
on transfer described in the indenture. To the extent that old notes are
tendered and accepted in the exchange offer, the trading market for untendered
old notes could be adversely affected.
We may in the future seek to acquire, subject to the terms of the indenture,
untendered old notes in open market or privately negotiated transactions,
through subsequent exchange offers or otherwise. We have no present plan to
acquire any old notes which are not tendered in the exchange offer.
Resale of Exchange Notes
We are making the exchange offer in reliance on the position of the staff of
the Commission as set forth in interpretive letters addressed to third parties
in other transactions. However, we have not sought our own interpretive letter
and we can provide no assurance that the staff would make a similar
determination with respect to the exchange offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff, we
believe that the exchange notes issued pursuant to the exchange offer in
exchange for old notes may be offered for resale, resold and otherwise
transferred by a holder, other than any holder who is a broker-dealer or an
"affiliate" of ours within the meaning of Rule 405 of the Securities Act,
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that:
. the exchange notes are acquired in the ordinary course of the holder's
business; and
. the holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution of the exchange notes.
However, any holder who is:
. an "affiliate" of ours;
. who has an arrangement or understanding with respect to the distribution
of the exchange notes to be acquired pursuant to the exchange offer; or
. any broker-dealer who purchased old notes from us to resell pursuant to
Rule 144A or any other available exemption under the Securities Act,
could not rely on the applicable interpretations of the staff and must comply
with the registration and prospectus delivery requirements of the Securities
Act. A broker-dealer who holds old notes that were acquired for its own account
as a result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the
76
Securities Act in connection with any resale of exchange notes. Each such
broker-dealer that receives exchange notes for its own account in exchange for
old notes, where the broker-dealer acquired the old notes as a result of
market-making activities or other trading activities, must acknowledge, as
provided in the letter of transmittal, that it will deliver a prospectus in
connection with any resale of such exchange notes. For more detailed
information, see the section "Plan of Distribution" in this prospectus.
In addition, to comply with the securities laws of various jurisdictions, if
applicable, the exchange notes may not be offered or sold unless they have been
registered or qualified for sale in the jurisdiction or an exemption from
registration or qualification is available and is complied with. We have
agreed, pursuant to the registration rights agreement and subject to specified
limitations therein, to register or qualify the exchange notes for offer or
sale under the securities or blue sky laws of the jurisdictions as any holder
of the exchange notes reasonably requests. The registration or qualification
may require the imposition of restrictions or conditions, including suitability
requirements for offerees or purchasers, in connection with the offer or sale
of any exchange notes.
Shelf Registration Statement
If:
. we are not permitted to consummate the exchange offer because the
exchange offer is not permitted by applicable law or Commission policy; or
. any holder of Transfer Restricted Securities notifies us prior to the
20th day following consummation of the exchange offer that:
. it is prohibited by law or Commission policy from participating in
the exchange offer; or
. it may not resell the exchange notes required by it in the
exchange offer to the public without delivering a prospectus and
this prospectus is not appropriate or available for such resales;
or
. it is a broker-dealer and owns notes acquired directly from us or
one of our affiliates,
we will file with the Commission a shelf registration statement to cover
resales of the notes by the holders thereof who satisfy certain conditions
relating to the provision of information in connection with the shelf
registration statement.
For purposes of the preceding, "Transfer Restricted Securities" means each
note until:
. the date on which such note has been exchanged by a person other than a
broker-dealer for an exchange note in the exchange offer;
. following the exchange by a broker-dealer in the exchange offer of an old
note for an exchange note, the date on which such exchange note is sold
to a purchaser who receives from such broker-dealer on or prior to the
date of such sale a copy of this prospectus;
. the date on which such note has been effectively registered under the
Securities Act and disposed of in accordance with the shelf registration
statement; or
. the date on which such note is distributed to the public pursuant to Rule
144 under the Securities Act.
If we become obligated to file a shelf registration statement, we will use
our best efforts to file the shelf registration statement with the Commission
as promptly as practicable after the filing obligation arises and to cause the
shelf registration statement to be declared effective by the Commission on or
prior to 90 days after the obligation arises.
We will, in the event of the filing of a shelf registration statement,
provide to each holder of the old notes copies of the prospectus which is a
part of the shelf registration statement, notify each holder when the shelf
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registration statement for the old notes has become effective and take other
actions as are required to permit unrestricted resales of the old notes. A
holder of old notes that sells the old notes pursuant to the shelf registration
statement generally:
. will be required to be named as a selling securityholder in the related
prospectus and to deliver a prospectus to purchasers;
. will be subject to some of the civil liability provisions under the
Securities Act in connection with the sales; and
. will be bound by the provisions of the registration rights agreement
which are applicable to the holder, including specified indemnification
obligations.
In addition, each holder of the old notes will be required to deliver
information to be used in connection with the shelf registration statement and
to provide comments on the shelf registration statement within the time periods
specified in the registration rights agreement in order to have their old notes
included in the shelf registration statement and to benefit from the provisions
regarding liquidated damages described below.
Liquidated Damages
The registration rights agreement states that if:
(a) any registration statement required by the registration rights
agreement is not filed with the Commission on or prior to the
applicable filing deadline specified in the registration rights
agreement;
(b) any registration statement is not declared effective on or prior to
the date specified in the registration rights agreement for
effectiveness;
(c) the exchange offer is not consummated within 30 business days
following the date on which the registration statement of which this
prospectus is a part is declared effective; or
(d) any registration statement required by the registration rights
agreement is filed and declared effective but later ceases to be
effective or usable for its intended purpose,
we will pay liquidated damages to each holder of old notes with respect to the
first 90-day period immediately following the occurrence of any of the events
described in (a) through (d) above, each of which will constitute a
registration default, up to an amount equal to $0.05 per week per $1,000
principal amount of old notes held by the holder. The amount of liquidated
damages will increase by an additional $0.05 per week per $1,000 principal
amount of old notes with respect to each subsequent 90-day period until all
registration defaults have been cured, up to a maximum amount of liquidated
damages for all registration defaults of $0.25 per week per $1,000 principal
amount of old notes. Following the cure of all registration defaults, the
accrual of liquidated damages will cease. The registration statement of which
this prospectus is a part was filed within the period specified in the
registration rights agreement.
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DESCRIPTION OF THE NOTES
The exchange notes will be issued under an Indenture among Circus and
Eldorado Joint Venture (the "Partnership") and Silver Legacy Capital Corp.
("Capital"), as issuers (together, the "Issuers"), and The Bank of New York, as
trustee (the "Trustee"), pursuant to which we issued the old notes
(collectively with the exchange notes, referred to in the following description
as the "Notes"). The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act.
The following description is a summary of the material provisions of the
Indenture, the Registration Rights Agreement and the Collateral Documents.
Except as otherwise indicated, cross references in this description of the
Notes are to subsections in this description of the Notes. The Indenture, the
Registration Rights Agreement and the Collateral Documents, and not this
description, determine the rights of holders of the Notes. Copies of the
Indenture, the Registration Rights Agreement and the Collateral Documents have
been filed as exhibits to the registration statement of which this prospectus
is a part. Definitions of certain terms used in this description are found
under the subheading "-- Certain Definitions." Certain defined terms used in
this description but not defined below under "-- Certain Definitions" have the
meanings assigned to them in the Indenture.
Capital is a wholly owned subsidiary of the Partnership that was
incorporated in Nevada for the purpose of serving as a co-issuer of the Notes
in order to facilitate the issuance of the Notes. Capital has no operations or
assets and will not have any revenues. As a result, investors should not expect
Capital to participate in servicing the interest and principal obligations on
the Notes. See "-- Certain Covenants."
Brief Description of the Notes
The Notes:
. are senior secured obligations of the Issuers;
. are secured by:
(1) a security interest in substantially all of the Issuers' existing
and future assets, other than certain licenses which may not be pledged
under applicable law; and
(2) subject to approval of the Nevada Gaming Authorities,will be
secured by a pledge of the partnership interests of the Partnership;
. rank pari passu in right of payment to any existing and future senior
indebtedness of the Issuers; and
. rank senior in right of payment with any of the Issuers' existing and
future subordinated Indebtedness.
The pledge of and security interest in the partnership interests and the
security interest in the Issuers' existing and future assets securing the
Issuers' obligation on the Notes will be junior to the pledge of and security
interest in such assets securing the Partnership's obligations on the New
Credit Facility and any refinancings of such facility that are permitted
pursuant to the terms of the Indenture.
Principal, Maturity and Interest
The Notes are issued in denominations of $1,000 and integral multiples of
$1,000 and have a maximum aggregate principal amount of $160.0 million. The
Issuers will be permitted to issue additional notes from time to time under the
Indenture; provided that the aggregate principal amount of Notes and the
additional notes that are issued under the Indenture may not exceed $180.0
million. Any offering of additional notes will be subject to the covenant
described under the caption "Certain Covenants -- Limitation on Indebtedness."
The Notes and any additional notes subsequently issued under the Indenture will
be treated as a single class for all purposes under the Indenture, including,
without limitation, security, waivers, amendments, redemptions and offers to
purchase. The Notes and any additional notes will mature on March 1, 2012.
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Interest on the Notes will accrue at the rate of 10 1/8% per annum and will
be payable semi-annually in arrears on March 1 and September 1, commencing on
September 1, 2002. Interest payments will be made to the holders of record on
the immediately preceding February 15 and August 15.
Interest on the Notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Methods of Receiving Payments on the Notes
All payments on Notes will be made at the office or agency of the paying
agent and registrar within the City and State of New York unless the Issuers
elect to make interest payments by check mailed to the holders at their
addresses set forth in the register of holders. Payments on the Notes shall be
considered paid on the date they are due if the Trustee or paying agent (other
than any Issuer or an Affiliate of any Issuer) holds for the benefit of the
holders of the Notes, at the date and time due, in immediately payable funds
deposited and designated for and sufficient to make all such payments then due.
Paying Agent and Registrar for the Notes
The Trustee is acting as paying agent and registrar. The Issuers may change
the paying agent or registrar without prior notice to the holders. So long as
no default has occurred under the Indenture, the Partnership or any of its
Subsidiaries may act as paying agent or registrar.
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 in connection with a
transfer of Notes. Holders of Notes will be required to pay any taxes and fees
required by law or permitted by the Indenture. The Issuers are not required to
transfer or exchange any Note selected for redemption. Also, the Issuers are
not required to transfer or exchange any Note for a period of 15 days before a
selection of Notes to be redeemed. The registered holder of a Note will be
treated as the owner of it for all purposes.
Security for the Notes
The Notes, except as described below, are secured by:
(1) a mortgage on all of the real property comprising the Hotel/Casino
Property, including all additions and improvements and component parts
related to it and issues and profits from it;
(2) a security interest in all furniture, fixtures and equipment which
are part of the Hotel/Casino Property, whether now owned or hereafter
acquired;
(3) a security interest in all of the Partnership's accounts receivable,
general intangibles, inventory and other personal property not contemplated
by clause (2) above, whether now owned or hereafter acquired;
(4) a collateral assignment of the Partnership's interests in the
principal agreements entered into by it in connection with the acquisition,
ownership or operation of the Silver Legacy Resort Casino; and
(5) to the extent permitted by law, a pledge of all licenses and permits
relating to the Silver Legacy Resort Casino.
The pledge of and security interest in the partnership interests and the
security interest in the Issuers' existing and future assets securing the
Issuers' obligation on the Notes are subject to Permitted Liens and are junior
to the pledge of and security interest in such assets securing the
Partnership's obligations on the New
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Credit Facility and any refinancings of such facility that are permitted
pursuant to the terms of the Indenture. The pledge of, and the grant of a
security interest in, all of the partnership interests of the Partnership to the
Trustee for the benefit of the holders of the Notes will be subject to the
approval of the Nevada Gaming Authorities, which may be granted or denied at
the discretion of the Nevada Gaming Authorities.
The Partnership and, as and when applicable, Eldorado Limited Liability
Company and Galleon, Inc. (collectively, the "Pledging Parties") and the
Subsidiary Guarantors, entered into the Collateral Documents that provided for
a grant of a security interest and a pledge of the Collateral to the Trustee
for the benefit of the holders of the Notes. These pledges and security
interests secure the payment and performance when due of all the Obligations of
the Issuers and, as and when applicable, the Subsidiary Guarantors, under the
Indenture, the Notes, the Subsidiary Guarantees and the Collateral Documents,
as applicable. In connection with the Partnership entering into the New Credit
Facility, the Trustee entered into an Intercreditor Agreement which among other
things provides that the security interest securing the Issuers' obligations
under the Notes is subordinate to the lien securing indebtedness outstanding
under the New Credit Facility.
Following any event of default under the Indenture, the Intercreditor
Agreement provides that, until our obligations under the New Credit Facility
have been paid in full and the commitments under the New Credit Facility have
been terminated, and for a period of 90 days following the date upon which the
Trustee under the Indenture gives written notice to the administrative agent
under the New Credit Facility and thereafter during any bankruptcy proceeding
or following acceleration of the New Credit Facility, the Trustee and the
holders of the Notes will not have the right to: (i) exercise any right of
set-off; (ii) exercise any right of possession or attach, seize or realize upon
any of the collateral; or (iii) exercise any right under the Uniform Commercial
Code, including the right of strict foreclosure, but excluding the right of
redemption of assets.
Such liens and security interests may also be subordinate or junior to
mechanics liens and may be subordinate to, or may exclude (if precluded by the
terms of such security interest), assets with respect to which a security
interest is granted in connection with up to $5.0 million of indebtedness
incurred to purchase, construct, improve or lease furniture, fixtures and
equipment.
If an Event of Default occurs and is continuing, the Trustee, in addition to
any rights and remedies available to it under the Indenture and the Collateral
Documents, may, subject to the Intercreditor Agreement, take such action as it
is instructed by the holders to take to protect and enforce its rights in the
Collateral, including the institution of sale or foreclosure proceedings. While
indebtedness is outstanding under the New Credit Facility, rights of the
holders of Notes and the Trustee are subject to the terms of the Intercreditor
Agreement. The proceeds received by the Trustee from any sale or foreclosure
will be applied, subject to the Intercreditor Agreement, first to pay the
expenses of the sale or foreclosure and fees or any other amounts then payable
to the Trustee under the Indenture, and thereafter to pay amounts due and
payable with respect to the Notes.
So long as no Default or Event of Default shall have occurred and be
continuing, and subject to certain terms and conditions in the Indenture and
the Collateral Documents, the Partnership, the Pledging Parties and the
Subsidiary Guarantors will be entitled to receive the benefit of all cash
dividends, distributions, interest and other payments made upon or with respect
to the Collateral pledged by them and to exercise any voting and other
consensual rights pertaining to the Collateral pledged by them. Upon the
occurrence and during the continuance of an Event of Default:
(1) all rights of the Partnership, the Pledging Parties and the
Subsidiary Guarantors to exercise such voting or other consensual rights
shall cease, and, subject to the Intercreditor Agreement, all such rights
shall become vested in the Trustee which, to the extent permitted by law,
will have the sole right to exercise such rights;
(2) all rights of the Partnership, the Pledging Parties and the
Subsidiary Guarantors to receive all cash dividends, distributions, interest
and other payments made upon or with respect to the Collateral will cease
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and such cash dividends, distributions, interest and other payments will,
subject to the Intercreditor Agreement, be paid to the Trustee; and
(3) the Trustee may, subject to the Intercreditor Agreement, sell the
Collateral or any part thereof in accordance with the terms of the
Collateral Documents.
Under the terms of the Indenture and the Collateral Documents, the holders
of the Notes will instruct the Trustee, subject to the Intercreditor Agreement,
as to the circumstances and manner in which the Collateral shall be disposed
of, including, but not limited to, the determination of whether to release all
or any portion of the Collateral from the Liens created by the Collateral
Documents and whether to foreclose on the Collateral following an Event of
Default. Moreover, upon the full and final payment and performance of all
obligations of the Issuers and the Subsidiary Guarantors under the Indenture
and the Notes, the Collateral Documents will terminate and the Collateral will
be released. The proceeds of any sale of the Collateral pursuant to the
Indenture and the related Collateral Documents following an Event of Default
may not be sufficient, after payment of expenses of sale, to satisfy payments
due on the Notes.
Certain Gaming Law Limitations
The Trustee's ability to foreclose upon the pledged partnership interests
and other gaming collateral is limited by relevant gaming laws. Regulations of
the Nevada Gaming Commission provide that no person may acquire an interest in
a gaming licensee or enforce a security interest in a partnership which is the
holder of a gaming license without the prior approval of the Nevada Gaming
Commission. As such, neither the Trustee nor any Holder is permitted to operate
or manage any gaming business or assets unless such person has been licensed
under applicable law for such purpose.
Nevada law requires that all persons who propose to own interests in
licensed gaming operations must be found suitable by the Nevada Gaming
Commission before acquiring ownership of such interests. Consequently, it would
be necessary for the Trustee to file an application with the Nevada Gaming
Commission requesting approval to enforce the security interest in the pledged
partnership interests and obtain such approval before it may take any steps to
enforce the security interest. Additionally, the Trustee must file applications
with the Nevada Gaming Commission requesting approval to enforce a security
interest in gaming assets before it may take steps to enforce the security
interest. Moreover, it would be necessary for a prospective purchaser of the
pledged partnership interests or of the assets comprising our gaming businesses
to file the necessary applications, be investigated, and be found suitable by
the Nevada Gaming Commission before acquiring the gaming assets or the pledged
partnership interests through the foreclosure sale. Under Nevada law, the
applicant for such approvals must file all applications required by the Nevada
Gaming Commission, be investigated, provide all information requested by the
investigating agency and pay all fees and costs charged by the Nevada Gaming
Commission for such investigations. These requirements may therefore limit the
number of potential bidders who would participate in any foreclosure sale and
may delay the sale of the pledged partnership interests or other gaming assets,
either of which could have an adverse effect on the proceeds received from such
sales.
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 case were to be commenced by or
against either of the Issuers prior to the Trustee having repossessed and
disposed of the Collateral. Under bankruptcy law, a secured creditor such as
the Trustee is prohibited from repossessing its security from a debtor in a
bankruptcy case, or from disposing of security repossessed from that debtor,
without bankruptcy court approval. Moreover, bankruptcy law permits the debtor
to continue to retain and to use collateral (and the proceeds, products,
offspring, rents or profits of that collateral) 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, but is intended in general
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to protect the value of the secured creditor's interest in the collateral and
may include, if approved by the court, cash payments or the granting of
additional security for any diminution in the value of the collateral as a
result of the stay of repossession or the disposition or any use of the
collateral by the debtor during the pendency of the bankruptcy case. The court
has broad discretionary powers in all these matters, including the valuation of
the collateral. In addition, since the enforcement of the Lien of the Trustee
in cash, deposit accounts and cash equivalents may be limited in a bankruptcy
case, the holders of the Notes may not have any consent rights with respect to
the use of those funds by either of the Issuers or any of their Subsidiaries
during the pendency of the case. In view of these considerations, 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 of
the Notes would be compensated for any delay in payment or loss of value of the
Collateral.
Subsidiary Guarantees
The Partnership does not currently have any Subsidiaries other than Capital.
If the Partnership forms or acquires any Subsidiaries in the future, each of
such Subsidiaries that is a Restricted Subsidiary and has at any time Total
Assets in excess of $1.0 million will jointly and severally guarantee the
Issuers' obligations under the Notes. The Subsidiary Guarantees will be secured
by a security interest in substantially all of the Subsidiary Guarantors'
existing and future assets and a pledge to the Trustee for the benefit of the
holders of the Notes of the Capital Stock of each such Subsidiary Guarantor.
The security interest in the Subsidiary Guarantors' existing and future assets
securing the obligations on the Subsidiary Guarantees will be junior to the
security interest on such assets securing the Subsidiary Guarantors'
obligations on the guarantees of the New Credit Facility and any refinancings
of such facility that are permitted pursuant to the terms of the Indenture. The
obligation of each Subsidiary Guarantor under its Subsidiary Guarantee is
intended to be limited as necessary to prevent that Subsidiary Guarantee from
becoming a fraudulent conveyance under applicable law.
Optional Redemption
At any time prior to March 1, 2005, the Issuers may, on any one or more
occasions, redeem up to 35% of the aggregate principal amount of Notes issued
under the Indenture at a redemption price of 110.125% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to
the redemption date, with the net cash proceeds of one or more sales of Capital
Stock of the Partnership resulting, for each such sale, in net cash proceeds to
the Partnership in excess of $25 million, provided that:
(1) at least 65% of the aggregate principal amount of Notes issued under
the Indenture remains outstanding immediately after the occurrence of this
redemption (excluding Notes held by the Partnership and Subsidiaries of the
Partnership); and
(2) the redemption must occur within 45 days of the date of the closing
of such offering.
Except pursuant to the preceding paragraph, the Notes will not be redeemable
at the option of the Issuers prior to March 1, 2007.
After March 1, 2007, the Issuers may redeem all or a part of the Notes 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 during the twelve-month period beginning on March
1 of the years indicated below:
Year Percentage
---- -----------
2007.............................. 105.0625%
2008.............................. 103.3750%
2009.............................. 101.6875%
2010 and thereafter............... 100.0000%
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Gaming Redemption
Each holder, by accepting a Note, shall be deemed to have agreed that if the
gaming authority of any jurisdiction in which the Partnership, either of its
partners or any of their respective Affiliates, including Eldorado Resorts LLC
and Mandalay Resort Group, currently conducts, or, in the future, may conduct,
directly or through a subsidiary or joint venture, gaming notifies a holder or
beneficial owner of the Notes that:
(1) the holder or beneficial owner must be licensed, qualified or found
suitable under any applicable gaming law and the holder or beneficial owner
does not apply for that license, qualification or finding of suitability
within 30 days, or any shorter period as may be required by the Gaming
Authority; or
(2) the holder or beneficial owner will not be licensed, qualified or
found suitable under an applicable gaming law;
then the Issuers, at their option, may:
(1) require that the holder or beneficial owner dispose of the holder's
or beneficial owner's Notes within 30 days, or any earlier date as may be
required by the Gaming Authority, of (A) the termination of the 30-day
period described above for the holder or beneficial owner to apply for a
license, qualification or finding of suitability or (B) the receipt of the
notice from the Gaming Authority that the holder or beneficial owner will
not be licensed, qualified or found suitable; or
(2) redeem the holder's or beneficial owner's Notes at a price equal to
(A) the lesser of (1) 100% of the principal amount thereof, (2) the price at
which the holder or beneficial owner acquired the Notes and (3) the fair
market value of the Notes, together with, in either case, accrued and unpaid
interest and Liquidated Damages, if any, thereon to the earlier of the date
of redemption or such earlier date as may be required by the Gaming
Authority or the date of the finding of unsuitability by such Gaming
Authority, which may be less than 30 days following the notice of
redemption, if so ordered by the Gaming Authority or (B) such other price as
shall be ordered by the Gaming Authority.
Immediately upon a determination that a holder or beneficial owner will not
be licensed, qualified or found suitable, the holder or beneficial owner will
have no further rights (1) to exercise any right conferred by the Notes,
directly or indirectly, through any trustee, nominee or any other Person or
entity, or (2) to receive any interest or other distribution or payment with
respect to the Notes or any remuneration in any form from the Issuers for
services rendered or otherwise, except the redemption price of the Notes.
The holder or beneficial owner of Notes applying for a license,
qualification or a finding of suitability must pay all costs of the licenses or
investigation for this qualification or finding of suitability. The Issuers are
not required to pay or reimburse any holder or beneficial owner of Notes who is
required to apply for any license, qualification or finding of suitability.
Mandatory Redemption
The Issuers are not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of Notes will have the right to
require the Issuers to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that holder's Notes pursuant to a Change of
Control offer on the terms set forth in the Indenture (the "Change of Control
Offer"). In the Change of Control Offer, the Issuers will offer a payment in
cash equal to 101% of the aggregate principal amount of Notes repurchased plus
accrued and unpaid interest and Liquidated Damages, if any, thereon, to the
date of purchase
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(the "Change of Control Payment"). Within 30 days following any Change of
Control, the Issuers 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 date specified in that notice (the "Change of
Control Payment Date"). That date will be no earlier than 30 days and no later
than 60 days from the date the notice is mailed, pursuant to the procedures
required by the Indenture and described in the notice. The Issuers will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent those 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 conflict with the Change of Control provisions
of the Indenture, the Issuers will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations under
the Change of Control provisions of the Indenture by virtue of that conflict.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful:
(1) accept for payment all Notes or portions thereof properly tendered
under 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 of Notes 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 of Notes being purchased by the Issuers.
The paying agent will promptly mail to each holder of Notes so tendered the
Change of Control Payment for those Notes, and the Trustee 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 new Note will be in a principal amount
of $1,000 or an integral multiple thereof.
The Issuers will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The provisions described above that require the Issuers to make a Change of
Control Offer following a Change of Control will apply regardless of whether
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 the Issuers to repurchase or
redeem the Notes in the event of a takeover, recapitalization or similar
transaction.
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements outlined
in the Indenture applicable to a Change of Control Offer made by the Issuers
and purchases all Notes validly tendered and not withdrawn under that Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the direct
or indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the Issuers and all of their Subsidiaries properties or
assets. Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Notes to require
the Issuers to repurchase those Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the Issuers' assets to
another Person or group may be uncertain.
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Asset Sales
The Partnership will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) no Default or Event of Default exists or is continuing immediately
prior to and after giving effect to the Asset Sale;
(2) the Partnership or the Restricted Subsidiary, as the case may be,
receives (i) consideration at the time of the Asset Sale at least equal to
the fair market value, as determined in good faith by a majority of the
members of the Partnership's Management Committee, of the assets or Equity
Interests issued, sold or otherwise disposed of or (ii) in the case of a
lease of assets that constitute an Asset Sale, a lease providing for rents
or other consideration which are no less favorable to the Partnership or the
Restricted Subsidiary, as the case may be, than the prevailing market
conditions, as determined in good faith by a majority of the members of the
Partnership's Management Committee;
(3) if applicable, the fair market value is evidenced by a resolution of
the Partnership's Management Committee set forth in an Officers' Certificate
delivered to the Trustee; and
(4) at least 75% of the consideration therefor received by the
Partnership or the Restricted Subsidiary is in the form of cash or Cash
Equivalents; provided that:
(a) any liabilities (as shown on the Partnership's or the Restricted
Subsidiary's most recent balance sheet) of the Partnership or the
Restricted Subsidiary (other than contingent liabilities and liabilities
that are by their terms subordinated to the Notes or any Subsidiary
Guarantee) that are assumed by the transferee of any of those assets
under a customary novation agreement that unconditionally releases the
Partnership or the Restricted Subsidiary, as the case may be, from
further liability will be deemed to be cash for purposes of this
provision; and
(b) any securities, notes or other obligations received by the
Partnership or the Restricted Subsidiary from the transferee that are
promptly, but in any event within 30 days of receipt, converted by the
Partnership or the Restricted Subsidiary into cash will be deemed to be
cash (to the extent of the cash received in that conversion) for
purposes of this provision.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Partnership or the Restricted Subsidiary may apply such Net Proceeds to (a)
make a capital expenditure, (b) improve real property, (c) acquire long-term
assets that are used or useful in a line of business permitted by the covenant
entitled "-- Business Activities" or (d) repay Indebtedness permitted by the
Indenture to be incurred under (and permanently reduce, by the amount of
principal repaid, the commitments, if any, under) the New Credit Facility in
the following order of priority, first, Indebtedness incurred under the New
Term Loan Facility, and second, Indebtedness incurred under the New Revolving
Facility; provided, however, that the Partnership or the Restricted Subsidiary,
as the case may be, grants to the Trustee, on behalf of the holders of Notes, a
perfected security interest, subject to Permitted Liens, on any such property
or assets acquired or constructed with the Net Proceeds of any such Asset Sale
on the terms set forth in the Indenture and the Collateral Documents. Pending
the final applications of any such Net Proceeds, the Partnership or the
applicable Restricted Subsidiary may invest such Net Proceeds in Cash
Equivalents which will be held in an account in which the Trustee has a
perfected security interest, subject to Permitted Liens, for the benefit of the
holders of Notes.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Issuers 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
Excess Proceeds. The offer price in any Asset Sale 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. The Issuers will
commence an Asset Sale Offer with respect to Excess Proceeds within 10 business
days after the date that the aggregate amount of Excess Proceeds not so applied
within such 365 days exceeds $5.0 million by mailing the notice required
pursuant to the
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terms of the Indenture. If any Excess Proceeds remain after an Asset Sale
Offer, they shall cease to be "Excess Proceeds" and the Partnership or the
Restricted Subsidiary may use such proceeds for any purpose not prohibited by
the Indenture or the Collateral Documents. If the aggregate principal amount of
Notes surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee will select the Notes to be purchased in the manner described under the
caption "Selection and Notice" below.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with each
repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of the Indenture, the Issuers will comply with the applicable
securities laws and regulations and will not be deemed to have breached the
Issuers' obligations under the Asset Sale provisions of the Indenture by virtue
of that conflict.
Liens under the Collateral Documents on assets subject to an Asset Sale and
permitted pursuant to the terms of the Indenture will be released concurrently
with the consummation of such Asset Sale.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, the Trustee
will select Notes for redemption as follows:
(1) if the Notes are listed, in compliance with the requirements of the
principal national securities exchange on which the Notes are listed; or
(2) if the Notes are not so listed, on a pro rata basis, by lot or by any
other method as the Trustee deems fair and appropriate.
No Notes of $1,000 or less may be redeemed in part unless all of the Notes
of a holder are to be purchased or redeemed, in which case the entire
outstanding amount of Notes held by such holder, even if not a multiple of
$1,000, will be purchased or redeemed. Notices of redemption will be mailed by
first class mail, postage prepaid, at least 30 but not more than 60 days 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 that Note will state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion of
the original Note 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 and
Liquidated Damages, if any, cease to accrue on Notes or portions of them called
for redemption.
Certain Covenants
Restricted Payments
The Indenture provides that the Partnership will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of the Partnership's or any Restricted Subsidiary's Equity
Interests (including, without limitation, any payment in connection with any
merger or consolidation involving the Partnership or any Restricted
Subsidiary) or to the direct or indirect holders of the Partnership's or any
Restricted Subsidiaries' Equity Interests in their capacity as such (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Partnership or dividends or distributions payable
to the Partnership or a Restricted Subsidiary);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving
the Partnership or any Restricted Subsidiary) any Equity Interests of the
Partnership or any direct or indirect parent or Affiliate of the Partnership;
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(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value, any Indebtedness that is
subordinated to the Notes or a Subsidiary Guarantee, except a payment of
interest or principal at the Stated Maturity thereof; or
(4) make any Restricted Investment
(all payments and other actions set forth in clauses (1) through (4) being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to the Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or
would occur as a result thereof;
(b) the Partnership would, at the time of the Restricted Payment and
after giving pro forma effect thereto as if the 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
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption
"-- Incurrence of Indebtedness and Issuance of Disqualified Stock"; and
(c) the Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Partnership and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted
Payments permitted by clauses (2), (3), (4), (5) and (6) of the next
succeeding paragraph), is less than the sum, without duplication, of:
(i) 50% of the cumulative Consolidated Net Income of the
Partnership for the period (taken as one accounting period) beginning
on April 1, 2002 to the end of its most recently ended fiscal quarter
for which internal financial statements are available at the time of
the Restricted Payment (or, if such Consolidated Net Income for this
period is a deficit, less 100% of this deficit); plus
(ii) 100% of the aggregate net cash proceeds received by the
Partnership subsequent to the issuance of the Notes as a contribution
to the Partnership's common equity capital or from the issue or sale
of Equity Interests of the Partnership (other than Disqualified Stock
or warrants, options and other rights to acquire Disqualified Stock)
or from the issue or sale of convertible or exchangeable debt
securities of the Partnership that have been converted into or
exchanged for Equity Interests of the Partnership (other than Equity
Interests (or Disqualified Stock or debt securities) sold to a
Subsidiary); plus
(iii) to the extent that any Restricted Investment that was made
after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of
capital with respect to that Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of that Restricted
Investment; plus
(iv) 50% of any dividends or distributions received by the
Partnership or a Restricted Subsidiary after the date of the
Indenture from an Unrestricted Subsidiary of the Partnership, to the
extent that such dividends or distributions were not otherwise
included in the Consolidated Net Income of the Partnership for such
period; plus
(v) $5.0 million.
The preceding provisions will not prohibit:
(1) if no Event of Default shall have occurred and be continuing or would
be caused thereby, the payment of any dividend or distribution within 60
days after the date of declaration thereof, if at the date of declaration,
the payment would have complied with the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of subordinated Indebtedness of the Partnership or any of its
Restricted Subsidiaries that is a Subsidiary Guarantor or of any Equity
Interests of the Partnership in exchange for, or out of the net cash
proceeds of, a substantially concurrent capital contribution or sale (other
than to a Subsidiary of the Partnership) of, other Equity
88
Interests of the Partnership (other than Disqualified Stock or warrants,
options and other rights to acquire Disqualified Stock); provided that the
amount of the net cash proceeds that are utilized for any redemption,
repurchase, retirement, defeasance or other acquisition will be excluded
from clause (c)(ii) above;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of the Partnership or any Restricted Subsidiary
that is a Subsidiary Guarantor with the net cash proceeds from an incurrence
of Permitted Refinancing Indebtedness;
(4) so long as the Partnership is treated as a partnership or other
pass-through entity for United States federal income tax purposes,
distributions to equity owners of the Partnership in an amount with respect
to any taxable year beginning with the 2001 taxable year not to exceed the
Tax Amount for such taxable year and, in the case of 2001, only to the
extent that such amounts have not been distributed prior to the date of the
Indenture (it being understood that the Partnership may distribute the tax
amount for any taxable year in four quarterly installments at times
reasonably designed to enable its equity owners to pay estimated taxes on
taxable income allocated to them by the Partnership with respect to such
taxable year, the amount of each installment to be based on estimates of the
excess of (x) the Tax Amount that would have been payable from the beginning
of such taxable year through the end of the month preceding the date of such
distribution being a taxable year over (y) distributions attributable to all
prior periods during such taxable year with any
over-distributions for a taxable year reducing the Tax Amount distributable
with respect to the next succeeding taxable year);
(5) distributions to equity owners of the Partnership made substantially
concurrently with the initial issuance of the Notes in an amount not to
exceed $30.0 million in the aggregate;
(6) any redemption required pursuant to the provisions of the Indenture
described under the captions "Gaming Redemption," "Repurchase at the Option
of Holders -- Change of Control" and "-- Asset Sales" above; and
(7) the redemption, repurchase, retirement or other acquisition of any
Equity Interest of the Partnership to the extent required by a Gaming
Authority.
The amount of all Restricted Payments, other than cash, will be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued to or by the Partnership or the
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be
valued by this covenant will be determined in good faith by a majority of the
Partnership's Management Committee whose resolution with respect thereto will
be delivered to the Trustee. The determination of the Partnership's Management
Committee must be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if the fair market
value of assets (other than cash) or securities to be transferred or issued
exceeds $5.0 million. Not later than the date of making any Restricted Payment,
the Partnership will deliver to the Trustee an Officers' Certificate stating
that the Restricted Payment is permitted and setting forth the basis upon which
the calculations required by this "Restricted Payments" covenant were computed,
together with a copy of any fairness opinion or appraisal required by the
Indenture.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Partnership will not, and will not permit any of its Restricted
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 (including
Acquired Debt), and the Partnership will not issue any Disqualified Stock and
will not permit any of its Restricted Subsidiaries to issue any shares of
Preferred Stock; provided, however, that if no Default or Event of Default
shall have occurred and be continuing at the time or as a consequence of the
incurrence of this Indebtedness, the Partnership may incur Indebtedness
(including Acquired Debt) or issue shares of Disqualified Stock, if (x) the
Fixed Charge Coverage Ratio for the Partnership's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which that additional Indebtedness is
incurred would have been at least 2.0 to 1, determined on a pro-forma basis
(including a pro-forma application of the net proceeds therefrom),
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as if the additional Indebtedness had been incurred or the Disqualified Stock
had been issued, as the case may be, at the beginning of the four-quarter
period and (y) no Default or Event of Default will have occurred and be
continuing at the time of or would occur after giving pro forma effect to such
incurrence or issuance and the application of the proceeds therefrom.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following (collectively, "Permitted Debt"):
(1) (a) Indebtedness represented by the Notes to be issued on the date of
the Indenture and the Exchange Notes to be issued pursuant to the
Registration Rights Agreement, and (b) the respective obligations of the
Partnership and its Restricted Subsidiaries arising under the Collateral
Documents to the extent such obligations would represent Indebtedness;
(2) Indebtedness incurred pursuant to the New Revolving Facility in an
amount outstanding at any time not to exceed $20 million less any permanent
reductions made pursuant to the provisions of the covenant entitled
"Repurchase at the Option of Holders -- Asset Sales";
(3) Existing Indebtedness;
(4) Permitted Refinancing Indebtedness;
(5) so long as at the time of incurrence no Event of Default has occurred
and is continuing, Indebtedness in one or more FF&E Financings and
Capitalized Lease Obligations to acquire or refinance furniture, fixtures or
equipment incident to and useful in the Gaming Business, in an aggregate
principal amount not to exceed $5.0 million outstanding at any one time;
(6) intercompany Indebtedness between or among the Partnership and any of
its Restricted Subsidiaries as provided in the covenant entitled "Advances
to Restricted Subsidiaries"; provided, however, that:
(a) if the Partnership or any Subsidiary Guarantor is the obligor on
that Indebtedness, the obligations to pay principal, interest or other
amounts under such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
Notes, in the case of the Partnership, or the Subsidiary Guarantee, in
the case of a Subsidiary Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any Indebtedness being held by a Person other than the
Partnership or a Restricted Subsidiary and (ii) any sale or other
transfer of any Indebtedness to a Person other than the Partnership or a
Restricted Subsidiary, will be deemed, in each case, to constitute an
incurrence of Indebtedness by the Partnership or the Restricted
Subsidiary, as the case may be, that was not permitted by this clause
(6);
(7) Hedging Obligations of the Partnership or any of its Restricted
Subsidiaries that are incurred for the purpose of fixing, managing or
hedging interest rate risk with respect to any Indebtedness that is
permitted by the terms of the Indenture to be outstanding; provided,
however, that, in each case, the Hedging Obligations are not incurred for
speculative purposes;
(8) to the extent that such incurrence does not result in the incurrence
by the Partnership or any Restricted Subsidiary of any obligation for the
payment of borrowed money of others, Indebtedness incurred solely as a
result of the execution by the Partnership or its Restricted Subsidiaries of
letters of credit relating to workers compensation or self insurance,
performance bonds or similar instruments; provided, however, that the
foregoing exception shall not be applicable to Indebtedness incurred in
connection with the performance by the Partnership or its Restricted
Subsidiaries of such bonds or instruments or payment of such letter of
credit; and
(9) Indebtedness represented by a Subsidiary Guarantee.
The Partnership will not incur any Indebtedness (including Permitted Debt)
that is contractually subordinated in right of payment to any other
Indebtedness of the Partnership unless such Indebtedness is also
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contractually subordinated in right of payment to the Notes on substantially
identical terms; provided, however, that no Indebtedness of the Partnership
shall be deemed to be contractually subordinated in right of payment to any
other Indebtedness of the Partnership solely by virtue of being unsecured.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Disqualified Stock" covenant, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through (9) above, or is entitled to be
incurred under the first paragraph of this covenant, the Partnership will be
permitted to classify the item of Indebtedness on the date of its incurrence,
or later reclassify all or a portion of the item of Indebtedness, in any manner
that complies with this covenant.
Liens
The Indenture provides that the Partnership will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien of any kind on any asset now owned or
hereafter acquired, or any proceeds, income or profits thereon, 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 Partnership will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or permit
to exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any Restricted Subsidiary to:
(1) (A) pay dividends or make any other distributions on its Capital
Stock to the Partnership or any of its Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or (B) pay any Indebtedness owed to the Partnership or any of its
Restricted Subsidiaries;
(2) make loans or advances to the Partnership or any of its Restricted
Subsidiaries; or
(3) sell, lease or transfer any of its properties or assets to the
Partnership or any of its Restricted Subsidiaries.
However, the restrictions above will not apply to encumbrances or
restrictions existing under or by reason of:
(1) the Indenture, the Notes, the Subsidiary Guarantees and the
Collateral Documents;
(2) the New Credit Facility and the collateral documents related thereto;
(3) applicable law or any applicable rule or order;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Partnership or any of its Restricted Subsidiaries as in
effect at the time of the acquisition (except to the extent that
Indebtedness was incurred in connection with or in contemplation of the
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person so
acquired, and such acquired Person's subsidiaries, provided that, in the
case of Indebtedness, the Indebtedness was permitted by the terms of the
Indenture to be incurred;
(5) customary non-assignment provisions in leases and other contracts
entered into in the ordinary course of business;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the sale, lease or transfer
of the property so acquired;
(7) any restriction or encumbrance contained in contracts for the sale of
assets permitted by the Indenture, provided that such restrictions or
encumbrances relate only to the assets being sold pursuant to these
contracts; and
91
(8) Permitted Refinancing Indebtedness, provided that the restrictions on
the ability of Restricted Subsidiaries to engage in activities described in
the first paragraph of this covenant contained in the agreements governing
Permitted Refinancing Indebtedness are no more restrictive, taken as a
whole, than those contained in the agreements governing the Indebtedness
being refinanced.
Merger, Consolidation or Sale of Assets
The Indenture provides that (1) neither the Partnership nor any Subsidiary
Guarantor may, directly or indirectly, consolidate or merge with or into
another Person; and (2) the Partnership will not directly or indirectly sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to another
Person, unless:
(1) either: (a) the Partnership or the Subsidiary Guarantor is the
surviving entity; or (b) the Person formed by or surviving any consolidation
or merger or to which the sale, assignment, transfer, conveyance or other
disposition shall have been made (in each case, if other than the
Partnership or the Subsidiary Guarantor) is a limited liability company,
limited partnership, partnership or corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(2) the Person formed by or surviving any consolidation or merger or the
Person to which the sale, assignment, transfer, conveyance or other
disposition shall have been made (in each case, if other than the
Partnership or the Subsidiary Guarantor), assumes all the obligations of the
Partnership or the Subsidiary Guarantor, as applicable, under the Notes, the
Indenture, the Registration Rights Agreement, the Subsidiary Guarantee and
the Collateral Documents pursuant to agreements reasonably satisfactory to
the Trustee, in its reasonable discretion;
(3) immediately before and immediately after giving effect to the
transaction (including giving effect to any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of the
transaction) no Default or Event of Default would exist or be continuing;
(4) in the case of a consolidation or merger of the Partnership, the
Partnership or the Person formed by or surviving any such consolidation or
merger, or, in the case of a sale, assignment, transfer, lease, conveyance
or other disposition of all or substantially all of the assets of the
Partnership, the Person to whom such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (if other than the
Partnership) will, or, in the case of a consolidation or merger of a
Subsidiary Guarantor or the sale, assignment, transfer, lease, conveyance or
other disposition of the property or assets of the Subsidiary Guarantor, the
Partnership will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions, in each case, as if
the same had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant entitled "-- Incurrence of Indebtedness and
Issuance of Disqualified Stock";
(5) the transaction would not require any holder of Notes to obtain a
Gaming License or be qualified under the laws of any applicable gaming
jurisdiction which would not be required in the absence of such transaction;
provided that a transaction involving a jurisdiction that does not require
the licensing or qualification of any holder of Notes as a condition to such
transaction, but reserves the discretionary right to require the licensing
or qualification of any holder of Notes, shall not be prohibited pursuant to
the terms of this clause (5);
(6) the transaction would not result in the material impairment or loss
of any qualification or any license necessary for any Gaming Business
operated, or anticipated to be operated, by the Partnership or any of its
Restricted Subsidiaries following the consummation of the proposed
transaction;
(7) the Partnership has delivered to the Trustee an Opinion of Counsel
satisfactory to the Trustee in its reasonable discretion 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 transaction and will be
subject to federal income
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tax in the same manner and at the same time as would have been the case if
such transaction had not occurred; and
(8) the Partnership, the Subsidiary Guarantor or the resulting Person
will have delivered to the Trustee (a) an Officers' Certificate and an
Opinion of Counsel (which counsel may not be in-house counsel of either of
the Issuers or any of their Affiliates), each stating that the
consolidation, merger, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with the transaction, the supplemental
indenture, comply with this provision of the Indenture and the Collateral
Documents and that all conditions precedent in the Indenture relating to the
transaction have been satisfied and (b) a certificate from the Partnership's
independent certified public accountants stating that the Partnership has
made the calculations required by clause (4) above in accordance with the
terms of the Indenture and the Collateral Documents.
In addition, neither the Partnership nor any Subsidiary Guarantor may, and
none of them may permit any Restricted Subsidiary to, directly or indirectly,
lease all or substantially all of the respective properties or assets of the
Partnership or a Subsidiary Guarantor, as applicable, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among the Partnership and any of its
Restricted Subsidiaries.
Designation of Restricted and Unrestricted Subsidiaries
The Partnership's Management Committee may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if that designation would not cause
a Default. If a Restricted Subsidiary is designated as an Unrestricted
Subsidiary, the aggregate fair market value of all outstanding Investments
owned by the Partnership and its Restricted Subsidiaries in the Restricted
Subsidiary so designated will be deemed to be an Investment made as of the time
of such designation and that designation will only be permitted if such
Investment would be permitted at that time pursuant to the covenant entitled
"-- Restricted Payments" and will reduce the amount available for Restricted
Payments under the covenant entitled "-- Restricted Payments." That designation
will only be permitted if such Restricted Payment would be permitted at that
time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The Partnership's Management Committee may redesignate
any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation
would not cause a Default.
Transactions with Affiliates
The Indenture provides that the Issuers will not, and will not permit any of
their Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) to the extent that such transaction could be entered into with an
unrelated Person, the Affiliate Transaction is on terms that are no less
favorable to the Issuers or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Issuers or
the Restricted Subsidiary with an unrelated Person;
(2) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, prior to the time that the aggregate consolidation paid for such
Affiliate Transaction or series of Affiliate Transactions exceeds $1.0
million, the Partnership delivers to the Trustee a resolution of its
Management Committee set forth in an Officers' Certificate certifying that
the Affiliate Transaction complies with this covenant and that the Affiliate
Transaction has been approved by a majority of the members of its Management
Committee, and, to the extent that there are members of the Management
Committee that do not have a direct or indirect financial interest in such
Affiliate Transaction and who were not appointed to the Management Committee
by a Person that has a direct or
93
indirect financial interest in such Affiliate Transaction, by a majority of
such disinterested members of the Management Committee; and
(3) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration of $10.0 million or
more, prior to the time that the aggregate consolidation paid for such
Affiliate Transaction or series of Affiliate Transactions exceeds $10.0
million, the Partnership delivers to the Trustee an opinion as to the
fairness to the Partnership or the relevant Restricted Subsidiary of that
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing who
does not, and whose directors, officers, employees, and Affiliates do not,
have a direct or indirect material financial interest in the Partnership or
any Affiliate of the Partnership; provided that ownership of less than 5% of
the outstanding equity interests of an Affiliate of the Partnership shall
not constitute a material financial interest in the Partnership and the
Partnership shall be entitled to rely on representations made by such
accounting, appraisal or investment banking firm as to ownership of such
equity interests.
The following items will not be deemed to be Affiliate Transactions and will
not be subject to the provisions of the prior paragraph:
(1) to the extent not otherwise prohibited under the Indenture,
transactions in the ordinary course of business consistent with past
practices of the Partnership on terms that the Management Committee believes
in its good faith judgment are commercially reasonable to the Issuers or the
relevant Restricted Subsidiary;
(2) to the extent not otherwise prohibited under the Indenture,
transactions between or among the Partnership and/or its Restricted
Subsidiaries, provided, that, in each case, no Affiliate of the Partnership
(other than another Restricted Subsidiary or a director owning qualifying
shares) owns Capital Stock of any such Restricted Subsidiary;
(3) reasonable compensation paid to and indemnities provided on behalf
of, officers, directors, employees or Management Committee members of the
Partnership or any Restricted Subsidiary; and
(4) Restricted Payments, Permitted Investments and other payments and
distributions that are permitted by the provisions of the Indenture
described above under the caption "Restricted Payments."
Limitations on Issuances and Sales of Equity Interests in Restricted
Subsidiaries
The Indenture provides that all of the Partnership's Restricted Subsidiaries
shall be wholly owned by the Partnership, by one or more of its Restricted
Subsidiaries or by the Partnership and one or more of its Restricted
Subsidiaries.
The Partnership will not, and will not permit any of its Restricted
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Equity Interests in any Restricted Subsidiary of the Partnership to any Person
(other than the Partnership or a Restricted Subsidiary of the Partnership),
unless:
(1) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Restricted Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant entitled
"Repurchase at the Option of Holders -- Asset Sales."
In addition, the Partnership will not permit any of its Restricted
Subsidiaries to issue any of its Equity Interests to any Person other than to
the Partnership or one or more of its Restricted Subsidiaries.
Subsidiary Guarantees
The Indenture provides that if the Partnership or any of its Restricted
Subsidiaries acquires or creates a Subsidiary that is organized and existing
under the laws of any state in the United States or the District of
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Columbia after the date of the Indenture, then the newly acquired or created
Subsidiary will execute a supplemental indenture setting forth its Subsidiary
Guarantee, together with such Collateral Documents as are necessary to create
and convey to the Trustee, for the benefit of the holders of the Notes, a
perfected second-priority lien on all Collateral (subject to Permitted Liens)
held by such Subsidiary, and deliver an Opinion of Counsel relating to the
enforceability and authorization of that Subsidiary Guarantee and the
perfection of the liens in favor of the Trustee on the Collateral owned by such
Subsidiary Guarantor in accordance with the terms of the Indenture, pursuant to
which that Restricted Subsidiary will become a Subsidiary Guarantor, on a
senior secured basis, of the Issuers' payment obligations under the Notes and
the Indenture; provided that this covenant will not apply to Capital or to any
Subsidiary during a period when that Subsidiary (i) has been properly
designated as an Unrestricted Subsidiary in accordance with the Indenture for
so long as it continues to constitute an Unrestricted Subsidiary or (ii) has
Total Assets of less than $1.0 million.
In the event of a sale or other disposition of all of the assets of any
Subsidiary Guarantor by way of merger, consolidation or otherwise, or a sale or
other disposition of all of the Capital Stock of any Subsidiary Guarantor, then
that Subsidiary Guarantor (in the event of a sale or other disposition, by way
of a merger, consolidation or otherwise, of all of the Capital Stock of that
Subsidiary Guarantor) or the corporation or other Person acquiring the property
(in the event of a sale or other disposition of all of the assets of that
Subsidiary Guarantor) will be released and relieved of any obligations under
that Subsidiary Guarantor's Subsidiary Guarantee; provided that the Net
Proceeds of the sale or other disposition are applied in accordance with the
Indenture. In addition, in the event the Partnership's Management Committee
designates a Subsidiary Guarantor to be an Unrestricted Subsidiary, then that
Subsidiary Guarantor will be released and relieved of any obligations under its
Subsidiary Guarantee; provided that the designation is made in accordance with
the Indenture.
Business Activities
The Indenture provides that the Partnership will not, and will not permit
any of its Restricted Subsidiaries to, engage, directly or indirectly, in any
business other than a Gaming Business and any other business activities that
are incidental to, related or complementary thereto. Neither the Partnership
nor any of its Subsidiaries are permitted by the Indenture to conduct a Gaming
Business in any gaming jurisdiction in which the Partnership or that Subsidiary
is not licensed on the date of the Indenture if the holders of the Notes would
be required to be licensed as a result thereof, provided that provisions
described in this sentence will not prohibit the Partnership or its Restricted
Subsidiary from conducting a Gaming Business in any jurisdiction that does not
require licensing or qualification of all of the holders of the Notes as a
condition to the conduct of business, but reserves the discretionary right to
require or otherwise refuse the licensing or qualification of any holder of
Notes.
Restrictions on Activities of Capital
The Indenture provides that Capital may not hold any material assets, become
liable for any obligations or engage in any significant business activities;
provided that Capital may be a co-obligor or guarantor with respect to
Indebtedness if the Partnership is a primary obligor of that Indebtedness and
the net proceeds of that Indebtedness are received by the Partnership.
Advances to Restricted Subsidiaries
The Indenture provides that all advances, other than equity contributions,
to Restricted Subsidiaries made by the Partnership after the date of the
Indenture will be evidenced by intercompany notes in favor of the Partnership.
These intercompany notes are pledged pursuant to the Collateral Documents to
the Trustee as Collateral to secure the Notes. Each intercompany note will be
payable upon demand and will bear interest at a rate equal to the then current
fair market interest rate.
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Insurance
The Indenture provides that until the Notes have been paid in full, the
Partnership will, and will cause its Restricted Subsidiaries to, maintain
insurance with carriers against such risks and in such amounts as is
customarily carried by similar businesses with such deductibles, retentions,
self insured amounts and coinsurance provisions as are customarily carried by
similar businesses of similar size, including, without limitation, property and
casualty, and will have provided insurance certificates evidencing such
insurance to the Trustee prior to the issuance of the old notes and will
thereafter provide such certificates prior to the anniversary or renewal date
of each such policy, which certificate will expressly state the expiration date
for each policy listed. 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 with minimum limits of $1.0
million per occurrence;
(3) umbrella or excess liability insurance providing excess liability
coverages over and above the foregoing underlying insurance policies up to a
minimum limit of $50.0 million;
(4) business interruption insurance; 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 of loss and losses resulting from earthquakes or
floods for a business of similar type and size; provided, however, that such
insurance will provide coverage of not less than the least of (a) 130% of
the sum of (x) the outstanding principal amount of the Notes plus accrued
and unpaid interest thereon and (y) the aggregate commitments under the New
Credit Facility, (b) 100% of actual replacement value (as determined at each
policy renewal based on the F.W. Dodge Building Index or some other
recognized means) of any improvements customarily insured consistent with
industry standards and (c) in the case of earthquake insurance, such
coverage as is available on commercially reasonable terms and, in any event,
is consistent with coverage obtained by businesses of a similar type and
size and, in each case, with a deductible no greater than 3% of the insured
value of the Hotel/Casino Property or such greater amount as is available on
commercially reasonable terms.
All insurance required by this covenant (except worker's compensation) will
name the Issuers 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
Issuers 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 will provide 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 Issuers will deliver to the
Trustee on each anniversary of the issuance of the old notes a certificate of
an insurance agent describing the insurance policies obtained by the Issuers
and their Restricted Subsidiaries, together with an Officers' Certificate
stating that such policies comply with this covenant and the related applicable
provisions of the Collateral Documents.
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Further Assurances
The Indenture provides that the Issuers will, and will cause each of their
Restricted Subsidiaries to do, execute, acknowledge, deliver, record,
re-record, file, re-file, register and re-register, as applicable, any and all
such further acts, deeds, conveyances, security agreements, mortgages,
assignments, estoppel certificates, financing statements and continuations
thereof, termination statements, notices of assignment, transfers,
certificates, assurances and other instruments as may be required from time to
time in order to:
(1) carry out more effectively the purposes of the Collateral Documents;
(2) subject to the Liens created by any of the Collateral Documents any
of the properties, rights or interests required to be encumbered thereby;
(3) perfect and maintain the validity, effectiveness and priority of any
of the Collateral Documents and the Liens intended to be created thereby;
and
(4) better assure, convey, grant, assign, transfer, preserve, protect and
confirm to the Trustee any of the rights granted now or hereafter intended
by the parties thereto to be granted to the Trustee under any other
instrument executed in connection therewith or granted to the Issuers under
the Collateral Documents or under any other instrument executed in
connection therewith.
Payments for Consent
The Indenture provides that the Issuers will not, and will not permit any of
their Restricted Subsidiaries to, directly or indirectly, pay or cause to be
paid any consideration to or for the benefit of any holder of Notes for or as
an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture, the Notes or the Collateral Documents unless that
consideration is offered to be paid and is paid to all holders of the Notes
that consent, waive or agree to amend in the time frame described in the
solicitation documents relating to that consent, waiver or agreement, as
applicable.
Reports
The Indenture provides that whether or not required by the Commission, so
long as any Notes are outstanding (unless defeased in a Legal Defeasance) the
Issuers will furnish to the holders of Notes, within the time periods specified
in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if
the Issuers were required to file those 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 on the annual
financial statements by the Issuers certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Issuers were required to file such reports.
In addition, whether or nor required by the Commission, the Issuers will
file a copy of all of the information and reports referred to in clauses (1)
and (2) above with the Commission for public availability within the time
periods specified in the Commission's rules and regulations (unless the
Commission will not accept such filing) and make such information available to
securities analysts and prospective investors upon request if not obtainable
from the Commission. In addition, the Issuers and the Subsidiary Guarantors
have agreed that, for so long as any Notes remain outstanding, they will
furnish to the holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144(d)(4) under the Securities Act if not obtainable from the Commission.
If the Issuers have designated any of their Subsidiaries as Unrestricted
Subsidiaries, then, to the extent that any such Unrestricted Subsidiary or
group of Unrestricted Subsidiaries would (but for its or their being
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designated as an Unrestricted Subsidiary or Subsidiaries) constitute a
Significant Subsidiary or Subsidiaries, the quarterly and annual financial
information required by the preceding paragraph shall include a reasonably
detailed presentation, either on the face of the financial statements or in the
footnotes thereto, and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," of the financial condition and results of
operations of the Issuers and their Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
of the Issuers.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default:
(1) default for 30 days or more in the payment when due of interest on,
or Liquidated Damages with respect to, the Notes;
(2) default in payment when due, upon maturity, redemption or otherwise,
of the principal of, or premium, if any, on the Notes;
(3) failure by the Issuers or any of their Restricted Subsidiaries to
comply with the provisions described under the captions "Repurchase at the
Option of Holders -- Change of Control," "Repurchase at the Option of
Holders -- Asset Sales," or "Certain Covenants -- Merger, Consolidation or
Sale of Assets";
(4) failure by the Issuers or any of their Restricted Subsidiaries for 30
days after notice to comply with any of the other agreements,
representations or warranties in the Indenture, the Notes or the Collateral
Documents (other than a default set forth in clause (1), (2) or (3) above);
(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 Partnership or any of its Restricted Subsidiaries
(or the payment of which is guaranteed by the Partnership or any of its
Restricted Subsidiaries), whether the Indebtedness or guarantee now exists,
or is created after the date of the Indenture, if that default:
(a) is caused by a failure to pay principal of, or interest or
premium, if any, on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default
(a "Payment Default"); or
(b) results in the acceleration of that Indebtedness prior to its
express maturity,
and, in each case, the principal amount of that Indebtedness, together with the
principal amount of any other 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 Issuers or any of their Restricted Subsidiaries to pay
final non-appealable judgments (other than any judgments or portions thereof
as to which a reputable insurance company has accepted full liability in
writing) aggregating in excess of $5.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
(7) any Guarantee of a Subsidiary Guarantor shall be held in a judicial
proceeding to be unenforceable or invalid or shall cease for any reason,
other than pursuant to the terms of the Indenture, to be in full force and
effect, or any Guarantor, or any Person acting on behalf of any Guarantor,
shall deny or disaffirm its obligations under its Guarantee;
(8) breach by either of the Issuers or any of the Subsidiary Guarantors
in any material respect of any representation or warranty or agreement in
any of the Collateral Documents or in any certificates delivered in
connection therewith, the repudiation by any of them of any of its
obligations under any of the Collateral Documents, the unenforceability of
the Collateral Documents against any of them for any reason which continues
for 30 days after written notice from the Trustee or holders of at least 25%
in outstanding principal amount of Notes or the loss of the perfection or
priority of the Liens granted by any of them pursuant to the Collateral
Documents for any reason;
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(9) any Gaming License is revoked, terminated or suspended or otherwise
ceases to be effective resulting in the cessation or suspension of operation
for a period of more than 30 days of any material portion or aspect of the
Gaming Business of any Gaming Facility;
(10) the Partnership fails to own 100% of the issued and outstanding
Equity Interests of Capital;
(11) cessation of gaming operations of Silver Legacy Resort Casino for a
period of more than 180 consecutive days; or
(12) certain events of bankruptcy or insolvency with respect to the
Issuers or any of their Significant Subsidiaries or any group that,
considered together, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency with respect to the Issuers or any of their Restricted
Subsidiaries, all outstanding Notes will become due and payable immediately and
automatically without further action or notice. Subject to the terms of the
Intercreditor Agreement, if any other 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.
Holders of the Notes may not enforce the Indenture or the Notes except as
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 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 or Liquidated Damages, if any) 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 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 except a continuing Default or Event of Default in the
payment of interest or Liquidated Damages, if any, on, or the principal of, the
Notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by the Issuers or on their behalf with
the intention of avoiding payment of the premium that the Issuers would have
had to pay if the Issuers then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
March 1, 2007, by reason of any willful action (or inaction) taken (or not
taken) by the Issuers or on their behalf with the intention of avoiding the
prohibition on redemption of the Notes prior to March 1, 2007, then the premium
specified in the Indenture shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the Notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon becoming aware of any Default or
Event of Default, the Issuers are required to deliver to the Trustee a
statement specifying the Default or Event of Default.
No Personal Liability of Partners, Management Committee Members, Officers,
Employees and Stockholders
Except as provided by agreements governing the pledge of the Capital Stock
of the Partnership to the Trustee for the benefit of the holders of the Notes,
the obligations of the Issuers with respect to the Notes shall be nonrecourse
to the partners of the Partnership and no member, partner, Management Committee
member, director, officer, employee, incorporator or stockholder of either of
the Issuers or any of their Affiliates will have any liability for any of the
Issuers' or the Subsidiary Guarantors' obligations under the Notes, the
Indenture, the Subsidiary Guarantees, the Collateral Documents, or for any
claim based on, in respect of, or by reason of, these obligations or their
creation. Each holder of Notes by accepting a Note waives and releases these
individuals from this liability. The waiver and release are part of the
consideration for issuance of the Notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
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Legal Defeasance and Covenant Defeasance
The Issuers may, at their option and at any time, elect to have their
obligations with respect to the outstanding Notes and all obligations of the
Subsidiary Guarantors discharged with respect to their Subsidiary Guarantees
("Legal Defeasance"). This means the Issuers shall be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Notes, except
for:
(1) the rights of holders of outstanding Notes to receive payments in
respect of the principal of, or interest or premium and Liquidated Damages,
if any, on, these Notes when these payments are due;
(2) the Issuers' 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 payments;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
the Issuers' and the Subsidiary Guarantors' obligations in connection
therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Issuers may, at their option and at any time, elect to have
their obligations and the obligations of the Subsidiary Guarantors released
with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with those
covenants 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 Issuers 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 amounts that will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, or interest and premium and
Liquidated Damages, if any, on the outstanding Notes on the stated maturity
or on the applicable redemption date, as the case may be, and the Issuers
must specify whether the Notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of Legal Defeasance, the Issuers will have delivered to
the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that (a) the Issuers have received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date of
the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon, the 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 the 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 that Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Issuers will have delivered
to the Trustee an Opinion of Counsel 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 this
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 the Covenant Defeasance had not occurred;
(4) no Default or Event of Default has occurred and is continuing either:
(a) on the date of deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit); or
(b) insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after
the date of deposit;
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(5) the Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement
or instrument, except with respect to the borrowing of funds as described in
clause (4) above, or any other material agreement or instrument to which the
Issuers or any of their Subsidiaries are a party or by which the Issuers or
any of their Subsidiaries are bound;
(6) the Issuers must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by them with the intent of preferring
the holders of Notes over other creditors of the Issuers or with the intent
of defeating, hindering, delaying or defrauding creditors of the Issuers or
others;
(7) the Issuers must deliver to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied with;
and
(8) the Issuers must have delivered to the Trustee an Opinion of Counsel
to the effect that:
(a) the trust funds will not be subject to any rights of holders of
Indebtedness of the Partnership other than the Notes, and
(b) assuming no intervening bankruptcy by either of the Issuers or
any Subsidiary Guarantor between the date of deposit and the 91st day
following the deposit and assuming that no holder is an "insider" of
either of the Issuers under applicable bankruptcy law, after the 91st
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.
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the Indenture,
the Notes, the Subsidiary Guarantees or the Collateral Documents may be amended
or supplemented by the Issuers with the consent of the holders of at least a
majority in 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 Subsidiary 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 any Notes held by a non-consenting holder):
(1) reduce the principal amount of Notes whose holders must consent to an
amendment, supplement or waiver;
(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;
(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 interest or premium, or Liquidated Damages, if any, 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 relating to
waivers of past Defaults or Events of Default or the rights of holders of
Notes to receive payments of principal of, or interest or premium or
Liquidated Damages, if any, on the Notes;
(7) release any Subsidiary Guarantor from any of its obligations under
its Subsidiary Guarantee or the Indenture, except in accordance with the
terms of the Indenture;
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(8) waive a redemption payment with respect to any Note or modify the
obligations of the Issuers to make offers to purchase Notes (i) upon a
Change of Control after the occurrence of a Change of Control or (ii) from
the proceeds of one or more Asset Sales after the aggregate amount of Excess
Proceeds from such Asset Sales exceeds $5.0 million;
(9) release all or substantially all of the Collateral from the Lien of
the Indenture or the Collateral Documents (except in accordance with the
provisions thereof); or
(10) make any change in the preceding amendment and waiver provisions.
Any amendment to, or waiver of, the provisions of any of the Collateral
Documents relating to the covenant entitled "Liens" or the security provisions
of the Indenture will require the consent of the holders of at least 66 2/3% in
principal amount of the Notes then outstanding.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Issuers and the Trustee may amend or supplement the Indenture or the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(3) to provide for the assumption of the Issuers' or Subsidiary
Guarantors' obligations to holders of Notes in the case of a merger or
consolidation or sale of all or substantially all of an Issuer's or
Subsidiary Guarantor's assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of Notes or that does not adversely affect the legal
rights under the Indenture of any holder;
(5) to enter into additional or supplemental Collateral Documents; or
(6) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act;
provided, however, that in the case of a change pursuant to clause (1) or (5)
above, the Issuers have delivered to the Trustee an Opinion of Counsel stating
that the change does not adversely affect the rights of any holder of Notes.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as
to all Notes issued thereunder, when:
(1) either:
(a) all Notes that have been authenticated (except lost, stolen or
destroyed Notes that have been replaced or paid and Notes for whose
payment money has theretofore been deposited in trust and thereafter
repaid to us) have been delivered to the Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the making of a
notice of redemption or otherwise or will become due and payable within
one year and the Issuers or any Subsidiary Guarantor has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in
trust solely for the benefit of the holders, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in amounts
sufficient, without consideration of any reinvestment of interest, to
pay and discharge the entire indebtedness on the Notes not delivered to
the Trustee for cancellation for principal, premium and Liquidated
Damages, if any, and accrued interest to the date of maturity or
redemption;
(2) no Default or Event of Default has occurred and is continuing on the
date of the deposit or shall occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
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default under, any other instrument to which either of the Issuers or any
Subsidiary Guarantor is a party or by which any of them is bound;
(3) the Issuers and each Subsidiary Guarantor have paid or caused to be
paid all sums payable by them under the Indenture; and
(4) the Issuers have delivered irrevocable instructions to the Trustee
under the Indenture 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 Issuers must deliver an Officers' Certificate and an
Opinion of Counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
Concerning the Trustee
If the Trustee becomes a creditor of the Issuers or any Subsidiary
Guarantor, the Indenture limits its right to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest as
described in the Trust Indenture Act, it must eliminate that conflict within 90
days, apply to the Commission 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
occurs and is continuing, the
Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent person in the conduct of its own affairs. Subject to these
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any holder
of Notes, unless that holder has offered to the Trustee security and indemnity
satisfactory to it against any loss, costs, liability or expense that might be
incurred by it in connection with the request or direction.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
Additional Information
Anyone who receives this prospectus may obtain a copy of the Indenture, each
of the Collateral Documents and the Registration Rights Agreement without
charge by writing to Silver Legacy Resort Casino, 407 North Virginia Street,
Reno, Nevada 89501, Attention: Bruce Sexton.
Book-Entry, Delivery and Form
The exchange notes initially will be represented by one or more Notes in
registered, global form without interest coupons (the "Global Notes"). The
Global Notes will be deposited upon issuance with the Trustee as custodian for
The Depository Trust Company ("DTC"), in New York, New York, and registered in
the name of DTC or its nominee, in each case for credit to an account of a
direct or indirect participant in DTC. Except as set forth below, the Global
Notes may be transferred, in whole and not in part, only to another nominee of
DTC or to a successor of DTC or its nominee. Beneficial interests in the Global
Notes may not be exchanged for Notes in certificated form except in the limited
circumstances described below. See "-- Exchange of Global Notes for
Certificated Notes." Except in the limited circumstances described below,
owners of beneficial interests in the
103
Global Notes will not be entitled to receive physical delivery of Notes in
certificated form. In addition, transfers of beneficial interests in the Global
Notes will be subject to the applicable rules and procedures of DTC and its
direct or indirect participants, which may change from time to time.
Depository Procedures
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them. The Issuers take no responsibility for these operations and
procedures and urge investors to contact the system or their participants
directly to discuss these matters.
DTC has advised the Issuers that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the initial purchasers of the old
notes), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Issuers that, pursuant to procedures established by
it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the exchange agent with portions of the principal
amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants
and the Indirect Participants (with respect to other owners of beneficial
interest in the Global Notes).
The laws of some states require that certain Persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to these Persons will be limited
to that extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants, the ability of a Person having
beneficial interests in a Global Note to pledge interests to Persons that do
not participate in the DTC system, or otherwise take actions in respect of
these interests, may be affected by the lack of a physical certificate
evidencing these interests.
Except as described below, owners of interests in the Global Notes will not
have Notes registered in their names, will not receive physical delivery of
Notes in certificated form and will not be considered the registered owners or
holders thereof under the Indenture for any purpose.
Payments in respect of the principal of, and interest and premium and
Liquidated Damages, if any, on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered
holder under the Indenture. Under the terms of the Indenture, the Issuers and
the Trustee will treat the Persons in whose names the Notes, including the
Global Notes, are registered as the owners thereof for the purpose of receiving
payments and for all other purposes. Consequently, neither the Issuers, the
Trustee nor any of the Issuers' or the Trustee's agents has or will have any
responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
104
(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.
DTC has advised the Issuers that its current practice, upon receipt of any
payment in respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not
receive payment on the payment date. Each relevant Participant is credited with
an amount proportionate to its beneficial ownership of an interest in the
principal amount of the relevant security as shown on the records of DTC.
Payments by the Participants and the Indirect Participants to the beneficial
owners of Notes will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the Trustee or the
Issuers. Neither the Issuers nor the Trustee will be liable for any delay by
DTC or any of its Participants in identifying the beneficial owners of the
Notes, and the Issuers and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
DTC has advised the Issuers that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the Notes as to
which the Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC reserves the
right to exchange the Global Notes for legended Notes in certificated form, and
to distribute these Notes to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among participants in DTC, it is under no
obligation to perform or to continue to perform those procedures, and may
discontinue those procedures at any time. Neither the Issuer nor the Trustee
nor any of their respective agents will have any responsibility for the
performance by DTC or its respective participants or indirect participants of
its respective obligations under the rules and procedures governing its
operations.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies the Issuer that it is unwilling or unable to
continue as depositary for the Global Notes and the Issuers fail to appoint
a successor depositary or (b) has ceased to be a clearing agency registered
under the Exchange Act;
(2) the Issuers, at their option, notify the Trustee in writing that they
elect to cause the issuance of the Certificated Notes; or
(3) there has occurred and is continuing a Default or Event of Default
with respect to the Notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the Indenture. In all cases, Certificated
Notes delivered in exchange for any Global Note or beneficial interests in
Global Notes will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures) and will bear the applicable restrictive legend
unless that legend is not required by applicable law.
Exchange of Certificated Notes for Global Notes
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the Trustee a written
certificate (in the form provided in the Indenture) to the effect that the
105
transfer will comply with the appropriate transfer restrictions applicable to
these Notes. See "Notice to Investors."
Same Day Settlement and Payment
The Issuers will make payments in respect of the Notes represented by the
Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) by wire transfer of immediately available funds to the
accounts specified by the Global Note holder. The Issuers will make all
payments of principal, interest and premium and Liquidated Damages, if any,
with respect to Certificated Notes by wire transfer of immediately available
funds to the accounts specified by the holders thereof or, if no account is
specified, by mailing a check to that holder's registered address. The Notes
represented by the Global Notes are expected to be eligible to trade in the
PORTAL market and to trade in DTC's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in the Notes will, therefore, be
required by DTC to be settled in immediately available funds. The Issuers
expect that secondary trading in any Certificated Notes will also be settled in
immediately available funds.
Registration Rights; Liquidated Damages
The following description is a summary of the material provisions of the
Registration Rights Agreement. This summary is qualified in its entirety by
reference to the Registration Rights Agreement, a copy of which has been filed
as an exhibit to the registration statement of which this prospectus is a part.
The Issuers entered into a registration rights agreement with the initial
purchasers of the old notes (the "Registration Rights Agreement"). Pursuant to
the Registration Rights Agreement, the Issuers agreed, at their cost, to file
the registration statement of which this prospectus is a part with the
Commission (the "Exchange Offer Registration Statement") with respect to this
registered offer to exchange (the "Exchange Offer") the old notes for the
exchange notes (the "Exchange Notes").
If:
(1) the Issuers are not permitted to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy; or
(2) any holder of Transfer Restricted Securities notifies the Issuers
prior to the 20th day following consummation of the Exchange Offer that:
(a) it is prohibited by law or Commission policy from participating
in the Exchange Offer; or
(b) it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales; or
(c) it is a broker-dealer and owns Notes acquired directly from the
Issuers or one of their affiliates,
the Issuers will file with the Commission a registration statement (the "Shelf
Registration Statement") to cover resales of the Notes by the holders thereof
who satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement.
The Issuers will use their best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
106
For purposes of the preceding, "Transfer Restricted Securities" means each
Note until:
(1) the date on which such Note has been exchanged by a Person other than
a broker-dealer for an Exchange Note in the Exchange Offer;
(2) following the exchange by a broker-dealer in the Exchange Offer of a
Note for an Exchange Note, the date on which such Exchange Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of
such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement;
(3) the date on which such Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement; or
(4) the date on which such Note is distributed to the public pursuant to
Rule 144 under the Securities Act.
The Registration Rights Agreement provides that:
(1) the Issuers will file an Exchange Offer Registration Statement with
the Commission on or prior to 60 days after the issuance of the old notes;
(2) the Issuers will use their best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to
150 days after the issuance of the old notes;
(3) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Issuers will
(a) commence the Exchange Offer; and
(b) use their best efforts to issue on or prior to 30 business days,
or longer, if required by the federal securities laws, after the date on
which the Exchange Offer Registration Statement was declared effective
by the Commission, Exchange Notes in exchange for all Notes tendered
prior thereto in the Exchange Offer; and
if obligated to file the Shelf Registration Statement, the Issuers will use
their best efforts to file the Shelf Registration Statement with the Commission
as promptly as practicable after such filing obligation arises and to cause the
Shelf Registration to be declared effective by the Commission on or prior to 90
days after such obligation arises.
If:
(1) the Issuers fail to file any of the registration statements required
by the Registration Rights Agreement on or before the date specified for
such filing; or
(2) any of such registration statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"); or
(3) the Issuers fail to consummate the Exchange Offer within 30 business
days following the date on which the Exchange Offer Registration Statement
is declared effective; or
(4) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective or
usable in connection with resales of Transfer Restricted Securities during
the periods specified in the Registration Rights Agreement (each such event
referred to in clauses (1) through (4) above, a "Registration Default"),
then the Issuers will pay liquidated damages ("Liquidated Damages") to each
holder of Notes, with respect to the first 90-day period immediately following
the occurrence of the first Registration Default in an amount equal to $0.05
per week per $1,000 principal amount of Notes held by such holder.
107
The amount of Liquidated Damages will increase by an additional $0.05 per
week per $1,000 principal amount of Notes with respect to each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages for all Registration Defaults of $0.25 per week
per $1,000 principal amount of Notes.
The Issuers will pay all accrued Liquidated Damages on each damages payment
date to the Global Note holder by wire transfer of immediately available funds
or by federal funds check and to holders of Certificated Notes by wire transfer
to the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
Holders of Notes will be required to make certain representations to the
Issuers (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver certain
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the Registration Rights Agreement in order to have their Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above. By acquiring Transfer Restricted
Securities, a holder will be deemed to have agreed to indemnify the Issuers
against certain losses arising out of information furnished by such holder in
writing for inclusion in any Shelf Registration Statement. Holders of Notes
will also be required to suspend their use of the prospectus included in the
Shelf Registration Statement under certain circumstances upon receipt of
written notice to that effect from the Issuers. See "The Exchange Offer."
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 these terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time that other
Person is merged with or into, became a Restricted Subsidiary of, or
substantially all of its business and assets were acquired by, that
specified Person, whether or not the Indebtedness is incurred in connection
with, or in contemplation of, the other Person merging with or into,
becoming a Restricted Subsidiary of, or substantially all of its business
and assets being acquired by, that specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by that
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of that Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the voting securities of a Person will be deemed to be control. For purposes of
this definition, the terms "controlling," "controlled by" and "under common
control with" have correlative meanings.
"Applicable Tax Rate" means, with respect to any taxable year, the highest
effective combined federal, state and local tax rates applicable to any equity
holder of the Partnership, or, if such equity holder is a partnership or other
pass-through entity for United States federal income tax purposes, the equity
holders of such equity holders, during such taxable year with respect to income
allocated to such equity holder by the Partnership, taking into account (i) the
deductibility of state and local taxes for federal income tax purposes and the
limitation
108
of Internal Revenue Code section 68 on such deductions, computed as if the
equity holder's only income were that allocated to the equity holder by the
Partnership and (ii) the highest statutory rates applicable to different
categories of income allocated to such equity holder by the Partnership (e.g.
tax-exempt income or long-term capital gains).
"Asset Sale" means:
(1) the sale, lease, conveyance, transfer or other disposition (whether
in a single transaction or a series of related transactions) of any assets
or rights (including but not limited to sale and leaseback transactions);
provided that the sale, lease, conveyance, transfer or other disposition of
all or substantially all of the assets of the Issuers and their Restricted
Subsidiaries taken as a whole, or the sale of the Hotel/Casino Property,
will be governed by the provisions of the Indenture described above under
the caption "Repurchase at the Option of Holders -- Change of Control"
and/or the provisions described above under the caption "Certain
Covenants -- Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any Restricted Subsidiary or the
sale of Equity Interests in any of the Partnership's Restricted Subsidiaries
by the Partnership or any Restricted Subsidiary.
Notwithstanding the foregoing, the following items will not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $1,000,000;
(2) a transfer of assets between or among the Partnership and its
Restricted Subsidiaries;
(3) an issuance of Equity Interests by Capital to the Partnership or by a
Restricted Subsidiary to the Partnership or to another Restricted Subsidiary;
(4) the sale of inventory or obsolete furniture, fixtures, equipment or
other assets in the ordinary course of business;
(5) dispositions of gaming equipment in the ordinary course of business
pursuant to an established program for the maintenance and upgrading of this
equipment;
(6) dispositions pursuant to the foreclosure of any Lien on assets
securing any FF&E Financing or Capital Lease Obligation permitted pursuant
to the provisions of the Indenture described above under the caption
"Certain Covenants -- Incurrence of Indebtedness and Issuance of
Disqualified Stock," provided that the FF&E Financing or Capital Lease
Obligation is secured by a Lien that relates only to assets purchased with
that FF&E Financing or Capital Lease Obligation, and provided further that
each foreclosure or other remedy is conducted in a commercially reasonable
manner or in accordance with applicable law;
(7) the sale or other disposition of cash or Cash Equivalents; and
(8) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "Certain Covenants -- Restricted
Payments."
"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 that time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, any and all shares of stock issued by
the corporation;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock;
109
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Carano Interests" means Donald L. Carano, his spouse, lineal descendants
(including adopted children and their lineal descendants) and any trust or
entity that is owned exclusively by or established for the exclusive benefit
of, or the estate of, any of the foregoing.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) having maturities of not more than one year from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of one year or less from the date of acquisition, bankers' acceptances with
maturities not exceeding one year and overnight bank deposits, in each case,
with any commercial bank chartered or organized in the United States and
having capital and surplus in excess of $500.0 million and a Thomson Bank
Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within six months after the date of acquisition; and
(6) a money market fund at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition, if such fund has assets of not less than $500 million.
"Change of Control" means the occurrence of any of the following:
(1) the Permitted Holders shall at any time cease to own, directly or
indirectly, in the aggregate, at least 50% of the Voting Stock of the
Partnership or any entity resulting from any merger or consolidation of the
Partnership with any Person;
(2) after an Initial Public Offering, the Partnership's becoming aware of
(by way of a report or any other filing pursuant to Section 13(d) of the
Exchange Act, proxy vote, written notice or otherwise) the acquisition by
any Person or related group (within the meaning of Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act, or any successor provision to either
of the foregoing, including any "group" acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-5(b)(1)
under the Exchange Act), other than the Permitted Holders, in a single
transaction or in a related series of transactions, by way of merger,
consolidation or other business combination or purchase of beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any
successor provision) of 35% or more of the Voting Stock of the Partnership,
or such other Person surviving the transaction and, at such time, the
Permitted Holders shall fail to beneficially own, directly or indirectly,
securities representing greater than the combined voting power of the
Partnership's or such other Person's Voting Stock as is beneficially owned
by such Person or group;
(3) the direct or indirect sale, transfer, conveyance or other
disposition of the Hotel/Casino Property;
(4) the first day on which the Partnership fails to own 100% of the
issued and outstanding Equity Interest of Capital, other than by reason of a
merger of Capital with and into a corporate successor to the Partnership;
110
(5) the first day on which a majority of the members of the Partnership's
Management Committee are not Continuing Members; and
(6) the adoption of a plan relating to the liquidation or dissolution of
either of the Issuers.
"Collateral" means all "collateral" referred to in the Collateral Documents
and all other property or assets that become subject to a Lien in favor of the
Trustee or the holders of the Notes.
"Collateral Documents" means, collectively, all agreements, instruments,
documents, pledges or filings executed in connection with granting, or that
otherwise evidence, the Lien of the Trustee in the Collateral.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any specified Person for any
period, the Consolidated Net Income of that Person for that period plus
(without duplication):
(1) an amount equal to any extraordinary loss plus the amount of any net
loss realized by that Person or any of its Restricted Subsidiaries in
connection with an Asset Sale, to the extent those losses were deducted in
computing Consolidated Net Income; plus
(2) provision for taxes based on income or profits of that Person and its
Restricted Subsidiaries for the relevant period, to the extent that the
provision for taxes was deducted in computing Consolidated Net Income or, so
long as that Person is treated as a partnership or other pass through entity
for United States federal income tax purposes, the Tax Amount of that Person
and its Restricted Subsidiaries for the relevant period; plus
(3) consolidated interest expense of that Person and its Restricted
Subsidiaries for the relevant period, whether paid or accrued and whether or
not capitalized (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, 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 this expense
was deducted in computing Consolidated Net Income; plus
(4) 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 expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or reserve
for cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of that Person and its Restricted
Subsidiaries for the relevant period to the extent that depreciation,
amortization and other non-cash expenses were deducted in computing
Consolidated Net Income; minus
(5) non-cash items increasing Consolidated Net Income for the relevant
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
expenses of, a Restricted Subsidiary of the Issuers will be added to
Consolidated Net Income to compute Consolidated Cash Flow of the Issuers only
to the extent that a corresponding amount would be permitted at the date of
determination to be dividended to the Issuers by that Restricted Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
111
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of that Person and its Restricted
Subsidiaries for that 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 Restricted
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 specified Person or a Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar distributions
by that Restricted 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 Restricted 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 its acquisition will be
excluded; and
(4) the cumulative effect of a change in accounting principles will be
excluded.
"Continuing Member" means, as of any date of determination, any member of
the Management Committee who:
(1) was a member of the Partnership's Management Committee on the date of
the Indenture; or
(2) was nominated for election or elected to the Partnership's Management
Committee with the approval of a Permitted Holder.
"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.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case 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, on or prior to the date that is 91 days after the
date on which the Notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Issuers to repurchase that
Capital Stock upon the occurrence of a change of control or an asset sale will
not constitute Disqualified Stock if the terms of that Capital Stock provide
that the Issuers may not repurchase or redeem any of that Capital Stock unless
the repurchase or redemption complies with the covenant described above under
the caption "Certain Covenants -- Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means Indebtedness of the Issuers and their
Restricted Subsidiaries (excluding Indebtedness under the New Revolving
Facility but including Indebtedness under the New Term Loan Facility)
outstanding or incurred immediately prior to or concurrently with the execution
of the Indenture, until those amounts are repaid.
"FF&E" means furniture, fixture and equipment, including gaming equipment,
used in connection with any Gaming Business.
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"FF&E Financing" means the incurrence of Indebtedness, the proceeds of which
will be used to finance the acquisition by the Partnership or a Restricted
Subsidiary of FF&E used in connection with any Gaming Facility whether or not
secured by a Lien on such FF&E; provided that such Indebtedness does not exceed
the cost of such FF&E at the time of its acquisition.
"Fixed Charge Coverage Ratio" means with respect to any specified Person for
any period, the ratio of the Consolidated Cash Flow of that Person for that
period to the Fixed Charges of that Person for that period. In the event that
the specified Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, repays, repurchases or redeems any Indebtedness (other than
ordinary revolving credit borrowings) or issues, repurchases or redeems
Preferred Stock subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated and on or 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 that incurrence, assumption, Guarantee,
repayment, repurchase or redemption of Indebtedness, or that issuance,
repurchase or redemption of Preferred Stock, and the use of the proceeds
therefrom 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 specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to that reference period and on or prior to
the Calculation Date will be given pro forma effect as if they had occurred
on the first day of the four-quarter reference period and Consolidated Cash
Flow for that reference period will be calculated on a pro forma basis in
accordance with Regulation S-X under the Securities Act;
(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, will be excluded; and
(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 those Fixed Charges will not be obligations
of the specified Person or any of its Restricted Subsidiaries following the
Calculation Date.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of that Person and its Restricted
Subsidiaries for that 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, 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 made or received pursuant to Hedging Obligations; plus
(2) the consolidated interest of that Person and its Restricted
Subsidiaries that was capitalized during that period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by that Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of that Person or one of its Restricted Subsidiaries,
whether or not the Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends and distributions, whether paid or
accrued and whether or not in cash, on any series of Preferred Stock of such
Person or any of its Restricted Subsidiaries other than dividends or
distributions on Equity Interests payable solely in Equity Interests of the
Partnership (other than Disqualified Stock) or to the Partnership or a
Restricted Subsidiary of the Partnership, and (b) a fraction, the numerator
of which is one and the denominator of which is one minus the Applicable Tax
Rate
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for such Person with respect to the taxable year in which the distribution
is made (calculated based on a reasonable estimate of the character of the
income to be allocated to such person with respect to such distribution).
"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 other statements by other
entities that have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Gaming Authority" means any agency, authority, board, bureau, commission,
department, office or instrumentality of any nature whatsoever of the United
States federal or foreign government, any state, province or any city or the
political subdivision or otherwise, and whether now or hereafter in existence,
or any officer or official thereof, including the Nevada State Gaming
Commission, the Nevada State Gaming Control Board and any other applicable
gaming regulatory authority with authority to regulate any gaming operation (or
proposed gaming operation) owned, managed or operated by the Partnership or any
of its Subsidiaries.
"Gaming Business" means the gaming business and includes all businesses
necessary for, incident to, connected with or arising out of the operation of a
gaming establishment or facility (including developing and operating lodging,
retail and restaurant facilities, sports or entertainment facilities,
transportation services or other related activities or enterprises and any
additions or improvements thereto) and any businesses incident and useful to
the Gaming Business, including without limitation food and beverage
distribution operations to the extent that they are operated in connection with
a gaming business.
"Gaming Facility" means any tangible vessel, building, or other structure
used or expected to be used to enclose space in which a Gaming Business is
conducted and (i) wholly or partially owned, directly or indirectly, by the
Partnership or any Restricted Subsidiary or (ii) any portion or aspect of which
is managed or used, or expected to be managed or used, by the Partnership or
any of its Restricted Subsidiaries; provided that the term Gaming Facility does
not include any real property whether or not this vessel, building or other
structure is located thereon or adjacent thereto or any furniture, fixtures and
equipment, including gaming equipment, used in connection with any Gaming
Business.
"Gaming License" means any license, permit, franchise or other authorization
from any Gaming Authority required on the date of the Indenture or at any time
thereafter to own, lease, operate or otherwise conduct the Gaming Business of
the Partnership and its Subsidiaries, including all licenses granted under the
gaming laws of a jurisdiction or jurisdictions to which the Partnership or any
of its Subsidiaries is, or may at any time after the date of the Indenture, be
subject.
"Government Securities" means securities that are
(1) direct obligations of the United States of America for the timely
payment of which its full faith and credit is pledged; or
(2) obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America, the timely
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America,
which, in either case, are not callable or redeemable at the option of the
issuer thereof, and will also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act), as custodian with respect to
any such Government Security or a specific payment of principal of or interest
on any such Government Security held by such custodian for the account of the
holder of such depository receipt; provided, however, that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to
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the holder of such depository receipt from any amount received by the custodian
in respect of the Government Security or the specific payment of principal of
or interest on the Government Security evidenced by such depository receipt.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of that Person under interest rate swap agreements, interest rate
cap agreements, interest rate collar agreements and other agreements or
arrangements designed to manage interest rate risk.
"Hotel/Casino Property" means that certain parcel of real property together
with the improvements thereon operated as the Silver Legacy Resort Casino
located at 404 North Virginia Street in the city of Reno, Nevada.
"Indebtedness" means, with respect to any specified Person and without
duplication, any liability of that Person, whether or not contingent:
(1) for 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 banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of
any property, except any balance that constitutes an accrued expense or
trade payable;
(6) all Indebtedness of others secured by a Lien on any asset of the
specified Person (whether or not such Indebtedness is assumed by the
specified Person); provided, however, that the amount of such Indebtedness
shall be limited to the lesser of the fair market value of the assets or
property to which such Lien attaches and the amount of the Indebtedness so
incurred;
(7) representing any Hedging Obligations; and
(8) to the extent not otherwise included, the Guarantee by the specified
Person of any Indebtedness of any other Person,
if and to the extent any of the preceding items (other than letters of credit,
Hedging Obligations and the amount of that Person's obligation to the
redemption, repayment or other repurchase of Disqualified Stock) would appear
as a liability upon a balance sheet of the specified Person prepared in
accordance with GAAP. In addition, the term "Indebtedness" includes all
Indebtedness of others secured by a Lien on any asset of the specified Person
(whether or not such Indebtedness is assumed by the specified Person).
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"Initial Public Offering" means the first underwritten public offering of
Capital Stock of the Partnership (other than a public offering registered on
Form S-8 under the Securities Act) that results in net proceeds of at least
$20.0 million to the Partnership or its successor entity.
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"Intercreditor Agreement" means that certain Intercreditor Agreement dated
as of the date of the Indenture by and among Bank of America, N.A., as
administrative agent, The Bank of New York, as trustee, and the Issuers.
"Investments" means, with respect to any Person, all direct or indirect
investments by that Person in other Persons (including Affiliates) in the forms
of loans (including Subsidiary Guarantees 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, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the
Partnership or any of its Restricted Subsidiaries sells or otherwise disposes
of any Equity Interests of any Restricted Subsidiary such that, after giving
effect to the sale or disposition, that Person is no longer a Restricted
Subsidiary, then the Partnership or that Restricted Subsidiary will be deemed
to have made an Investment on the date of the sale or disposition equal to the
fair market value of the Equity Interests of that Subsidiary not sold or
disposed of pursuant to the sale or disposition in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments." If the Issuers or any of
their Restricted Subsidiaries designate a Restricted Subsidiary to be an
Unrestricted Subsidiary pursuant to the provisions of the Indenture, then the
Issuers or that Restricted Subsidiary will be deemed to have made an Investment
on the date of that designation equal to the greater of the book value and the
fair market value of the Equity Interests of that Subsidiary in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "Certain Covenants -- Restricted Payments."
The acquisition by the Partnership or any Restricted Subsidiary of a Person
that holds an Investment in any third Person will be deemed to be an Investment
by the Partnership or the Restricted Subsidiary in that third Person in an
amount equal to the fair market value of the Investment held by the acquired
Person in that third Person in an amount determined as provided in the final
paragraph of the covenant described above under the caption "Certain
Covenants -- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of that asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
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 agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Management Committee" means:
(1) with respect to a corporation, the Board of Directors of the
corporation;
(2) with respect to the Partnership, the executive committee of the
Partnership;
(3) with respect to a limited partnership or partnership other than the
Partnership, the Board of Directors of the general partner of the
partnership; and
(4) with respect to any other Person, the board or committee of that
Person serving a similar function.
"Net Income" means, with respect to any specified Person for any period, (i)
the net income (loss) of that Person for that period, determined in accordance
with GAAP and before any reduction in respect of Preferred Stock dividends and
distributions, excluding, however, (1) any gain (but not loss), together with
any related provision for taxes on that gain (but not loss), realized in
connection with: (a) any Asset Sale; or (b) the disposition of any securities
by that Person or any of its Restricted Subsidiaries or the extinguishment of
any Indebtedness of that Person or any of its Restricted Subsidiaries,
including, with respect to the Partnership, premiums paid in connection with
the purchase of Notes; and (2) any extraordinary gain (but not loss), together
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with any related provision for taxes on that extraordinary gain (but not loss),
less, (ii) in the case of any Person that is treated as a partnership or other
pass through entity for United States federal or state income tax purposes, the
Tax Amount of that Person for such period.
"Net Proceeds" means the aggregate cash proceeds received by the Partnership
or any of its Restricted 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 the Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, any taxes or Tax Distributions paid or payable by
the Partnership as a result thereof, in each case, after taking into account
any available tax credits or deductions and any tax sharing arrangements, and
amounts required to be applied to the repayment of Indebtedness, other than
Indebtedness under the New Credit Facility, secured by a Lien on the asset or
assets that were the subject of the Asset Sale and any reserve for adjustment
in respect of the sale price of the asset or assets established in accordance
with GAAP.
"New Credit Facility" means the New Term Loan Facility and the New Revolving
Facility.
"New Revolving Facility" means (a) the revolving portion of that certain
Credit Agreement dated as of March 1, 2002 between the Partnership and the
lenders thereunder (and any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith) and (b) any
amendment, modification, supplement, restatement, refunding, refinancing,
restructuring, replacement, renewal, repayment or extension thereof (whether
with the original agent and lenders or other agents and lenders or otherwise
and whether provided under the Credit Agreement or other credit agreements or
otherwise) or additional revolving lines of credit with respect to which the
principal lender is a commercial banking institution with over $500 million in
assets.
"New Term Loan Facility" means the term loan portion of that certain Credit
Agreement dated as of March 1, 2002 between the Partnership and the lenders
thereunder (and any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith) in an initial
principal amount of $20.0 million.
"Non-Recourse Indebtedness" means Indebtedness:
(1) as to which neither the Partnership nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the Notes) of the Partnership or any of
its Restricted Subsidiaries to declare a default on such other Indebtedness
or cause the payment thereof to be accelerated or payable prior to its
stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Partnership or any of
its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Holders" means the (1) Carano Interests, (2) Mandalay Resort
Group and any Person into which Mandalay Resort Group merges or consolidates or
that acquires all or substantially all of the assets and properties of Mandalay
Resort Group and (3) any Wholly-Owned Subsidiary of any of the foregoing.
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"Permitted Investments" means:
(1) any Investment in the Partnership or in any of its Restricted
Subsidiaries including, without limitation, any Investment in the Gaming
Business of the Partnership or in the Gaming Business of any such Restricted
Subsidiary;
(2) the making of Investments in the Partnership by any Subsidiary
(provided that any Indebtedness evidencing that Investment is subordinated
and junior to the Notes);
(3) any Investment in Cash Equivalents;
(4) any Investment by the Partnership or any of its Restricted
Subsidiaries in a Person, if as a result of that Investment:
(a) the Person becomes a Restricted Subsidiary of the Partnership
engaged in the Gaming Business; or
(b) the Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, the Partnership or a Restricted Subsidiary engaged in
the Gaming Business;
(5) any Investment 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 described above under the caption "Repurchase at the
Option of Holders -- Asset Sales";
(6) advances and loans to employees of the Partnership or a Restricted
Subsidiary in the ordinary course of business not in excess of $500,000 at
any one time outstanding;
(7) Investments acquired by the Partnership or any of its Restricted
Subsidiaries (a) in exchange for any other Investment or accounts receivable
held by the Partnership or such Restricted Subsidiary in connection with or
as a result of a bankruptcy workout, reorganization or recapitalization of
the issuer of such Investment or accounts receivable or (b) as a result of a
foreclosure by the Partnership or such Restricted Subsidiary or other
transfer of title with respect to any secured Investment in default; or
(8) Hedging Obligations otherwise permitted under the Indenture.
"Permitted Liens" means:
(1) Liens on the assets of the Issuers and any Subsidiary Guarantor
created (a) by the Indenture and the Collateral Documents securing Notes
issued on the date of the Indenture and, to the extent that additional Notes
are issued to refinance amounts outstanding under the New Term Loan
Facility, such additional Notes, the Exchange Notes and the Subsidiary
Guarantees or (b) by the New Credit Facility;
(2) Liens in favor of the Issuers or any of their Restricted Subsidiaries;
(3) Liens on property of a Person existing at the time that Person is
acquired by, merged with or into or consolidated with the Issuers or any of
their Restricted Subsidiaries; provided that those Liens were in existence
prior to the contemplation of the acquisition, merger or consolidation and
do not extend to any assets other than those of the Person acquired by,
merged into or consolidated with the Issuers or such Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by the
Issuers or any of their Restricted Subsidiaries; provided that those Liens
were in existence prior to the contemplation of the acquisition and do not
extend to any assets other than the acquired property;
(5) Liens or deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
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(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (5) of the second paragraph of the covenant entitled
"Certain Covenants -- Incurrence of Indebtedness and Issuance of
Disqualified Stock" covering only the assets acquired with or improved with
the proceeds of that Indebtedness;
(7) Liens to secure Indebtedness that is Permitted Refinancing
Indebtedness incurred with respect to the New Term Loan Facility;
(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that can be paid without penalty or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been made
therefor;
(9) Liens incurred in the ordinary course of business of the Partnership
or of any of its Restricted Subsidiaries with respect to obligations that do
not at any time exceed 5% of the net book value of the total net assets of
the Partnership as of the time of determination and that (A) are not
incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of
business) and (B) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof by the Partnership or
its Restricted Subsidiary;
(10) leases or subleases that are not prohibited by the terms of the
Indenture and that are granted to others in the ordinary course of business
and do not in any material respect interfere with the business of the
Partnership or any Restricted Subsidiary and deposits made in connection
therewith;
(11) carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other similar Liens arising in the ordinary course of business and not
overdue for a period of more than 90 days or which are being contested in
good faith by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Partnership and its Restricted
Subsidiaries in accordance with GAAP;
(12) Liens incurred or pledges or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other social security legislation;
(13) easements, rights-of-way, restrictions and other similar
encumbrances or charges which, in the aggregate, are not substantial in
amount and which do not in any case materially detract from the value of the
property subject thereto or materially interfere with the ordinary course of
the business of the Partnership and its Restricted Subsidiaries, taken as a
whole, and any exceptions to title set forth in any title policies;
(14) Liens existing on the date of the Indenture;
(15) Liens incurred in the ordinary course of business securing Hedging
Obligations otherwise permitted under the terms of the Indenture; and
(16) Liens securing Permitted Refinancing Indebtedness, provided, that,
in each case, such Liens do not extend to any additional property or asset
that did not secure the Indebtedness being extended, refinanced, renewed,
replaced, deferred or refunded or that did not secure the Indebtedness
affected by such amendment or renewal and do not have a higher priority than
the Liens securing the Indebtedness being extended, refinanced, renewed,
replaced, deferred or refunded.
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"Permitted Refinancing Indebtedness" means any Indebtedness of the
Partnership or of any of its Restricted Subsidiaries issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness of the Issuers or of any of their
Restricted Subsidiaries that was permitted by the Indenture to be incurred
under the first paragraph of the covenant entitled "Certain
Covenants --Incurrence of Indebtedness and Issuance of Disqualified Stock" or
clause (3) of the second paragraph of such covenant; provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the sum of (a) the
outstanding principal amount (or accreted value, if applicable) of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus all accrued interest thereon and the amount of all premiums
and reasonable expenses incurred in connection therewith) less (b) all due
and unpaid scheduled principal payments with respect thereto plus (c) the
reasonable fees and expenses incurred in connection with obtaining such
Permitted Refinancing Indebtedness;
(2) the Permitted Refinancing Indebtedness has a final maturity date not
earlier than the final maturity date of, and 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;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes, the
Permitted Refinancing Indebtedness has a final maturity date not earlier
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 the Notes as
those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) the Indebtedness is incurred either by the Issuers or by the
Restricted Subsidiary that is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or distributions or upon liquidation, dissolution or
winding up.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of that Person that
is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means a "significant subsidiary" of the Partnership
as defined in Article I, Rule 1-02 of Regulation S-X promulgated under the
Securities Act.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing that Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase such interest or principal prior to the date
originally scheduled for the payment thereof.
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"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock 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 that Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is that Person or a Subsidiary of that Person or (b) the
only general partners of which are that Person or one or more Subsidiaries
of that Person (or any combination thereof).
"Subsidiary Guarantee" means a guarantee of the Issuers' payment obligations
under the Notes and the Indenture by a Subsidiary Guarantor in accordance with
the provisions of the Indenture.
"Subsidiary Guarantor" means each Restricted Subsidiary that executes a
Subsidiary Guarantee of the Issuers' payment obligations under the Notes and
the Indenture in accordance with the provisions of the Indenture, and their
respective successors and assigns.
"Tax Amount" means, with respect to any taxable year, without duplication,
the amount of taxable income of any Person for such period multiplied by the
Applicable Tax Rate.
"Tax Distribution" means a distribution in respect of taxes to the partners
of the Partnership pursuant to clause (4) of the second paragraph of the
covenant entitled "Restricted Payments."
"Total Assets" means, with respect to any person, the aggregate of all
assets of such Person and its subsidiaries as would be shown on the balance
sheet of such Person prepared in accordance with GAAP.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means any Subsidiary of the Partnership other than
Capital that is designated by the Management Committee as an Unrestricted
Subsidiary pursuant to a resolution, but only to the extent that such
Subsidiary:
(1) has no Indebtedness other than Non-Recourse Indebtedness;
(2) is not party to any agreement, contract, arrangement or understanding
with the Partnership or any Restricted Subsidiary of the Partnership unless
the terms of any such agreement, contract, arrangement or understanding are
no less favorable to the Partnership or such Restricted Subsidiary than
those that might be obtained at the time from Persons who are not Affiliates
of the Partnership;
(3) is a Person with respect to which neither the Partnership nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Partnership or any of its
Restricted Subsidiaries.
Any designation of a Subsidiary of the Partnership as an Unrestricted
Subsidiary shall 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
preceding conditions and was permitted by the covenant entitled "Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the preceding requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be
121
deemed to be incurred by a Restricted Subsidiary of the Partnership 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
Disqualified Stock," the Partnership shall be in default of such covenant. The
Management Committee of the Partnership may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Partnership of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (1)
such Indebtedness is permitted under the covenant entitled "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock," calculated on a pro forma
basis as if such designation had occurred at the beginning of the four-quarter
reference period and (2) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" means any class of Capital Stock of any Person then
outstanding normally entitled (without regard to the occurrence of any
contingency) to vote in elections of the members of such Person's Management
Committee.
"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 payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between that date and the making of the
payment; by
(2) the then outstanding principal amount of that Indebtedness.
122
CERTAIN FEDERAL TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the ownership of the notes. It deals only with notes held as
capital assets and acquired at original issuance and not with special classes
of noteholders, such as dealers in securities or currencies, life insurance
companies, tax exempt entities, and persons that hold a note in connection with
an arrangement that completely or partially hedges the note. The discussion is
based upon the Internal Revenue Code of 1986, as amended, and regulations,
rulings and judicial decisions thereunder as of the date of this prospectus.
These authorities may be repealed, revoked or modified, perhaps retroactively,
so as to produce federal income tax consequences different from those discussed
below.
Prospective holders of notes should consult their own tax advisors
concerning the United States federal income tax and any state or local income
or franchise tax consequences in their particular situations, as well as any
consequences under the laws of any other taxing jurisdiction.
United States Holders
For purposes of this discussion, a "United States holder" generally means
. a citizen or resident of the United States;
. a partnership, corporation or other entity created or organized in or
under the law of the United States or of any State of the United States;
. an estate the income of which is subject to United States federal income
tax regardless of its source; or
. a trust, if either (A) a court within the United States is able to
exercise primary supervision over the administration of the trust, and
one or more United States persons have the authority to control all
substantial decisions of the trust or (B) the trust was in existence on
August 20, 1996, was treated as a United States person on that date and
elected to be treated as a United States person at all times thereafter.
The term also includes certain former citizens of the United States whose
income and gain on the notes will be subject to United States income tax.
Payments of Interest. Payments of stated interest on a note will generally
be taxable to a United States holder as ordinary interest income at the time it
is received or accrued, depending on the noteholder's method of accounting for
tax purposes.
Additional Interest and Exchange Offer. We intend to take the position that
the likelihood that additional interest will be paid is remote and that the
amount of additional interest if paid, will be incidental. Accordingly, the
special rules applicable to debt instruments with contingent payments would
generally not apply. The additional interest described under "Registration
Rights; Additional Interest" would be taxable to a United States holder as
ordinary income in accordance with such United States holder's method of
accounting for tax purposes. The IRS, however, may take a different position,
which could affect the timing of both a United States holder's income and our
deduction with respect to such additional interest and could also affect the
character as ordinary or capital gain or loss of any income recognized on the
disposition of a note.
The exchange of a note by a United States holder for an exchange note will
not constitute a taxable exchange of the note. As a result, a United States
holder will not recognize taxable gain or loss upon receipt of an exchange
note, a United States holder's holding period for an exchange note generally
will include the holding period for the note so exchanged and such United
States holder's adjusted tax basis in an exchange note generally will be the
same as such United States holder's adjusted tax basis in the note so exchanged.
123
Backup Withholding and Information Reporting. In general, information
reporting requirements will apply to payments of principal and interest on a
note and the proceeds of the sale of a note before maturity within the United
States to non-corporate United States holders. A 30% "backup withholding" tax
will apply to such payments if the United States holder fails to provide
certain documentation including an accurate taxpayer identification number or
certification of exempt status and, in certain circumstances, a certification
that it has not been notified by the Internal Revenue Service that, as a result
of failing to report all interest and dividends required to be shown on its
federal income tax return, it is subject to backup withholding. Amounts
withheld may be allowable as a credit against a holder's federal income tax.
Non-United States Holders
As used herein, a "Non-United States holder" is a person or entity that, for
United States federal income tax purposes, is not a United States holder.
If the income or gain on the notes is "effectively connected with the
conduct of a trade or business within the United States" by the Non-United
States holder holding the note, such income or gain will be subject to tax
essentially in the same manner as if the notes were held by a United States
holder, as discussed above, and in the case of a Non-United States holder that
is a foreign corporation, may also be subject to the United States branch
profits tax. Such foreign corporations should consult their own tax advisors
concerning the branch profits tax.
If the income and gain on the notes is not "effectively connected with the
conduct of a trade or business within the United States," then, under the
portfolio interest exemption of current United States federal income tax law,
payments of principal and interest on a note by us or any paying agent to a
noteholder that is a Non-United States holder will not be subject to
withholding of United States federal income tax, if the noteholder:
. does not actually or constructively own 10% or more of the combined
voting power of all classes of our stock;
. is not a bank receiving interest pursuant to a loan agreement entered
into in the ordinary course of its trade or business;
. is not a controlled foreign corporation related to us through stock
ownership; and
. provides appropriate certification.
Under current law, the certification requirement will be met if either:
. in accordance with specified procedures, the Non-United States holder
provides to us or our paying agent a Form W-8 (or a suitable substitute
or successor form), that is signed under penalties of perjury, includes
its name and address, and contains a certification that the holder is not
a United States person; or
. the Non-United States holder provides a Form W-8 (or a suitable
substitute or successor form), signed under the penalties of perjury, to
a qualified intermediary, such as a securities clearing organization,
bank, or other financial institution who holds customers' securities in
the ordinary course of its trade or business and holds the notes on
behalf of a beneficial owner, and the qualified intermediary certifies to
us, or our paying agent, under the penalties of perjury, that such
statement has been received by it from the beneficial owner, directly or
through another intermediary financial institution, and furnishes us or
our paying agent with a copy.
Recently finalized Treasury regulations that are applicable to interest paid
after December 31, 2000, provide alternative documentation procedures for
satisfying the certification requirement described above. These regulations add
intermediary certification options for certain qualifying agents. For instance,
under one option, a withholding agent would be allowed to rely on an IRS Form
W-8IMY, or suitable substitute or successor form,
furnished by a financial institution or other intermediary on behalf of one or
more beneficial owners or other
124
intermediaries without having to obtain the beneficial owner certificate
described in the preceding paragraph, provided that the financial institution
or intermediary has entered into a withholding agreement with the IRS and thus
is a qualified intermediary.
If a Non-United States holder does not qualify for the portfolio interest
exemption, interest payments to the Non-United States holder that are not
effectively connected with the conduct of a U.S. trade or business would be
subject to United States withholding at a 30% rate. The rate may be reduced or
eliminated under applicable treaties. To claim the benefit of a treaty the
Non-United States holder must furnish us with an appropriate form, e.g., Form
W-8BEN.
If the income and gain on the notes is not "effectively connected with the
conduct of a trade or business within the United States," a noteholder that is
a Non-United States holder will not be subject to United States federal income
tax on gain realized on the sale, exchange or redemption of the note, unless in
the case of a Non-United States holder who is a nonresident alien individual
and holds the note as a capital asset, the holder is present in the United
States for 183 or more days in the taxable year and certain other requirements
are met.
Under current United States estate tax law, a noteholder will not be subject
to United States federal estate tax as a result of the death of a noteholder
who is not a citizen or resident of the United States at the time of death,
provided that the noteholder did not at the time of death actually or
constructively own 10% or more of the combined voting power of all classes of
our stock and, at the time of the noteholder's death, payments of interest on
the note would not have been effectively connected with the conduct by the
noteholder of a trade or business in the United States.
United States information reporting requirements and backup withholding tax
will not apply to payments on a note made outside the United States by us or
any paying agent (acting in its capacity as such) to a noteholder that is a
Non-United States holder provided that a certification of non-U.S. status, as
discussed above, has been received and neither we nor our paying agent has
actual knowledge that the payee is not a Non-United States holder.
Information reporting requirements and backup withholding tax will not apply
to any payment of the proceeds of the sale of a note effected outside the
United States by a foreign office of a "broker" (as defined in applicable
Treasury regulations), provided that the broker:
. is a Non-United States holder;
. derives less than 50% of its gross income for certain periods from the
conduct of a trade or business in the United States; and
. is not a controlled foreign corporation as to the United States or a
foreign partnership doing business in the United States or in which
United States persons own more than 50% of the income or capital
interests ("foreign controlled person.")
Payment of the proceeds of the sale of a note effected outside the United
States by a foreign office of any broker that is not a foreign controlled
person will not be subject to backup withholding tax, but will be subject to
information reporting requirements unless such broker has documentary evidence
in its records that the beneficial owner is a Non-United States holder and
certain other conditions are met, or the beneficial owner otherwise establishes
an exemption.
125
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 the exchange notes. Broker-dealers may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of exchange notes received in exchange for old notes
where the broker-dealer acquired the old notes as a result of market-making
activities or other trading activities. To the extent a broker-dealer
participates in the exchange offer and so notifies us, we have agreed to make
this prospectus, as amended or supplemented, available to the broker-dealer for
use in connection with any such resale. We will promptly send additional copies
of this prospectus and any amendment or supplement to any broker-dealer that
requests the documents in the letter of transmittal.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers or any other persons. Broker-dealers may sell exchange notes
received by them for their own account pursuant to the exchange offer 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
. through a combination of the above methods of resale,
at market prices prevailing at the time of resale, at prices related to the
prevailing market prices or negotiated prices. Broker-dealers may resell
exchange notes directly to purchasers or to or through brokers or dealers who
may receive compensation in the form of commissions or concessions from any
broker-dealer and/or the purchasers of the 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 the exchange notes may be deemed to be "underwriters" within
the meaning of the Securities Act and any profit on any 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. 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 the exchange offer, other
than commissions and concessions of any broker-dealer. We estimate the expenses
we will incur in connection with the exchange offer to be approximately
$175,000, which includes fees and expenses of the exchange agent and trustee,
registration fees, and accounting, legal, printing and related fees and
expenses. We also will provide indemnification against specified liabilities,
including liabilities that may arise under the Securities Act, to
broker-dealers that make a market in the old notes and exchange old notes in
the exchange offer for exchange notes.
By its acceptance of the exchange offer, any broker-dealer that receives
exchange notes pursuant to the exchange offer agrees to notify us before using
the prospectus in connection with the sale or transfer of exchange notes. The
broker-dealer further acknowledges and agrees that, upon receipt of notice from
us of the happening of any event which:
. makes any statement in the prospectus untrue in any material respect;
. requires the making of any changes in the prospectus to make the
statements in the prospectus not misleading; or
. may impose upon us disclosure obligations that may have a material
adverse effect on us,
which notice we agree to deliver promptly to the broker-dealer, the
broker-dealer will suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and have furnished
copies of any amendment or supplement to the prospectus to the broker-dealer.
126
LEGAL MATTERS
Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia, Pennsylvania will
pass upon various legal matters for us in connection with the exchange notes
offered hereby. Certain matters of Nevada law will be passed upon for us by
McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP, Reno and Las
Vegas, Nevada. Donald L. Carano, who owns an approximately 30.3% beneficial
interest in Eldorado Limited Liability Company, one of the Partnership's two
partners, and has owned a controlling interest in that entity's parent or its
predecessor since 1973, maintains an "of counsel" relationship with McDonald
Carano Wilson McCune Bergin Frankovich & Hicks LLP, but is not involved in the
active practice of law or in the representation of the Partnership, Capital or
any of their affiliates as an attorney.
EXPERTS
The consolidated financial statements and schedules of Circus and Eldorado
Joint Venture and Silver Legacy Capital Corp. as of December 31, 2001 and 2000
and for the three years in the period ended December 31, 2001 included in this
prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4, including exhibits and schedules, under the Securities
Act with respect to the exchange notes to be offered by this prospectus. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits and schedules which are part of the registration statement. The rules
and regulations of the Commission allow us to omit certain information included
in the registration statement from this prospectus. Accordingly, any statements
made in this prospectus as to the contents of any agreement or other document
are not necessarily complete. With respect to each agreement or other document
filed as an exhibit to the registration statement, we refer you to the exhibit
for a more complete description of the matter involved, and each statement in
this prospectus shall be deemed qualified in its entirety by this reference.
You may read and copy all or any portion of the registration statement or any
reports, statements or other information in the files at the following public
reference facility of the Commission:
Judiciary Plaza
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
You can request copies of these documents upon payment of a duplicating fee
by writing to the Commission. You may call the Commission at 1-800-SEC-0330 for
further information on the operation of its public reference rooms. Our
filings, including the registration statement, will also be available to you on
the Internet web site maintained by the Commission at http://www.sec.gov.
We intend to furnish the holders of our notes with annual reports containing
audited financial statements and quarterly reports for the first three quarters
of each year containing unaudited interim financial information.
127
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants........................................................ F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000.................................... F-3
Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999.......... F-4
Consolidated Statements of Partners' Equity for the years ended December 31, 2001, 2000 and 1999 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999...... F-6
Notes to Consolidated Financial Statements...................................................... F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Circus and Eldorado Joint Venture
(doing business as Silver Legacy Resort Casino):
We have audited the accompanying consolidated balance sheets of Circus and
Eldorado Joint Venture (doing business as SILVER LEGACY RESORT CASINO) and
subsidiary (the "Joint Venture") as of December 31, 2001 and 2000, and the
related consolidated statements of income, partners' equity and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Joint Venture'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 Circus and Eldorado Joint
Venture (doing business as SILVER LEGACY RESORT CASINO) and subsidiary as of
December 31, 2001 and 2000, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.
As explained in Note 1 to the financial statements, effective January 1, 2001,
the Joint Venture changed its method of accounting for interest rate swaps to
comply with Statement of Financial Accounting Standards No. 133.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 8, 2002 (except with
respect to the matter discussed
in Note 13, as to which the date
is March 5, 2002)
F-2
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
CONSOLIDATED BALANCE SHEETS
As of December 31, 2001 and 2000
(Amounts in Thousands)
2001 2000
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................ $ 12,256 $ 11,125
Accounts receivable, net................. 4,300 4,787
Inventories.............................. 1,877 1,723
Prepaid expenses......................... 3,186 4,316
-------- --------
Total current assets........................ 21,619 21,951
Property and equipment, net................. 280,975 288,883
Other assets, net........................... 575 1,010
-------- --------
Total assets............................. $303,169 $311,844
======== ========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable......................... $ 3,797 $ 4,585
Current portion of long-term debt........ 10,000 6,500
Accrued interest......................... 130 1,389
Accrued and other liabilities............ 8,650 8,744
Accrued guarantee fees to related party.. 185 209
-------- --------
Total current liabilities................... 22,762 21,427
Long-term debt, less current portion........ 135,000 157,000
-------- --------
Total liabilities........................... 157,762 178,427
Commitments and contingencies
Partners' equity............................ 145,407 133,417
-------- --------
Total liabilities and partners' equity... $303,169 $311,844
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2001, 2000 and 1999
(Amounts in Thousands)
2001 2000 1999
-------- -------- --------
Operating revenues:
Casino........................................................... $ 98,374 $109,641 $105,284
Rooms............................................................ 37,835 37,936 36,877
Food and beverage................................................ 35,558 36,832 35,632
Other............................................................ 7,508 8,786 7,748
-------- -------- --------
179,275 193,195 185,541
Less: promotional allowances..................................... (14,598) (15,706) (15,193)
-------- -------- --------
Net operating revenues........................................ 164,677 177,489 170,348
-------- -------- --------
Operating expenses:
Casino........................................................... 45,820 48,723 46,724
Rooms............................................................ 12,166 12,867 12,634
Food and beverage................................................ 25,019 26,188 26,101
Other operating expenses......................................... 5,927 7,248 6,327
Selling, general and administrative.............................. 29,207 29,719 28,482
Depreciation and amortization.................................... 12,082 15,500 17,824
Write-off of debt issuance costs................................. 370 -- --
Loss on sale of assets........................................... 4 1 1
-------- -------- --------
Total operating expenses...................................... 130,595 140,246 138,093
-------- -------- --------
Operating income................................................. 34,082 37,243 32,255
-------- -------- --------
Other (income) expense:
Insurance settlement proceeds.................................... (225) -- --
Interest income.................................................. (112) (248) (162)
Interest expense, net............................................ 13,299 15,721 16,334
Interest rate swap, income....................................... (327) -- --
-------- -------- --------
Total other (income) expense.................................. 12,635 15,473 16,172
-------- -------- --------
Income before cumulative effect of change in accounting principle 21,447 21,770 16,083
Cumulative effect of change in accounting principle.............. (327) -- --
-------- -------- --------
Net income....................................................... $ 21,120 $ 21,770 $ 16,083
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
For the Years Ended December 31, 2001, 2000 and 1999
(Amounts in Thousands)
Eldorado
Galleon, Inc. Resorts, LLC Total
------------- ------------ --------
Balance December 31, 1998. $ 69,723 $50,841 $120,564
Net income............. 13,202 2,881 16,083
-------- ------- --------
Balance December 31, 1999. 82,925 53,722 136,647
Partners' distribution. (25,000) -- (25,000)
Net income............. 9,835 11,935 21,770
-------- ------- --------
Balance December 31, 2000. 67,760 65,657 133,417
Partners' distribution. (4,565) (4,565) (9,130)
Net income............. 10,560 10,560 21,120
-------- ------- --------
Balance December 31, 2001. $ 73,755 $71,652 $145,407
======== ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2000 and 1999
(Amounts in Thousands)
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net income............................................................ $ 21,120 $ 21,770 $ 16,083
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization..................................... 12,082 15,500 17,824
Write-off of debt issuance costs.................................. 370 -- --
Amortization of deferred loan costs............................... 403 403 403
Insurance settlement proceeds..................................... (225) -- --
Loss on sale of assets............................................ 4 1 1
Changes in current assets and current liabilities:
Increase (decrease) in accounts receivable, net of allowance...... 487 (995) (680)
(Increase) decrease in inventories................................ (154) 264 (340)
Increase (decrease) in prepaid expenses........................... 1,126 (796) (649)
(Decrease) increase in accounts payable........................... (788) 94 (635)
(Decrease) in accrued guarantee fees to related party............. (24) (13) (32)
(Decrease) increase in accrued interest........................... (1,259) 255 (145)
(Decrease) increase in accrued and other liabilities.............. (94) 1,027 215
-------- -------- --------
Total adjustments..................................................... 11,928 15,740 15,962
-------- -------- --------
Net cash provided by operating activities......................... 33,048 37,510 32,045
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of assets.......................................... 6 32 --
Decrease (increase) in other assets................................... 32 (98) 54
Insurance settlement proceeds......................................... 225 -- --
Purchase of property and equipment.................................... (4,180) (4,158) (4,902)
-------- -------- --------
Net cash used in investing activities............................. (3,917) (4,224) (4,848)
-------- -------- --------
Cash flows from financing activities:
Proceeds from Bank Credit Facility.................................... 3,000 25,000 --
Partners' distribution................................................ (9,130) (25,000) --
Debt issuance costs................................................... (370) -- --
Payments on Bank Credit Facility...................................... (21,500) (35,500) (24,500)
-------- -------- --------
Net cash used in financing activities............................. (28,000) (35,500) (24,500)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents..................... 1,131 (2,214) 2,697
Cash and cash equivalents at beginning of year........................... 11,125 13,339 10,642
-------- -------- --------
Cash and cash equivalents at end of year................................. $ 12,256 $ 11,125 $ 13,339
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during year for interest.................................... $ 14,179 $ 15,075 $ 16,080
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a. Principles of Consolidation/Operations
Effective March 1, 1994, Eldorado Limited Liability Company (a Nevada
limited liability company owned and controlled by Eldorado Resorts, LLC) and
Galleon, Inc. (a Nevada corporation owned and controlled by Mandalay Resort
Group formerly known as Circus Circus Enterprises, Inc.) (collectively, the
"Partners"), entered into a joint venture agreement to establish the Silver
Legacy Resort Casino (the "Joint Venture" or "Silver Legacy"), a Nevada general
partnership. The Joint Venture consists of a casino and hotel located in Reno,
Nevada, which began operations on July 28, 1995. The Eldorado Limited Liability
Company contributed land to the Joint Venture with a fair value of $25,000,000
and cash of $26,900,000 for a total equity investment of $51,900,000. Galleon,
Inc. contributed cash to the Joint Venture of $51,900,000 to comprise their
total equity investment. Each partner has a 50% interest in the partnership.
The consolidated financial statements include the accounts of Silver Legacy
and its wholly-owned subsidiary, Silver Legacy Capital Corp. ("Capital"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
b. Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 requires that
entities record all derivatives as assets or liabilities measured at fair
value, with the change in fair value recognized in earnings or in other
comprehensive income, depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133 amends or supersedes several
current accounting statements. In July 1999, the FASB issued SFAS No. 137 which
delayed the effective date of SFAS No. 133 from fiscal year 2000 to fiscal year
2001. During June 2000, the FASB issued SFAS No. 138 which amends certain
sections of SFAS No. 133. As of January 1, 2001, the Joint Venture changed its
method of accounting for interest rate swaps to comply with SFAS No. 133, and
accordingly, changes to fair value of the interest rate swaps are recognized in
earnings. On January 1, 2001, the Joint Venture recorded a liability of
$327,000 for the fair value of its interest rate swaps at that date, with a
corresponding cumulative effect adjustment in the statement of income. The
interest rate swaps expired on October 29, 2001; accordingly, the Joint Venture
recognized $327,000 as interest rate swap income for the year ended December
31, 2001.
c. Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
d. Cash and Cash Equivalents
Cash and cash equivalents include investments purchased with an original
maturity of 90 days or less.
e. Inventories
Inventories are stated at the lower of cost, using a first-in, first-out
basis, or market value.
F-7
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
f. Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful life of the asset. Costs of
major improvements are capitalized, while costs of normal repairs and
maintenance are charged to expense as incurred.
g. Capitalization of Interest
The Joint Venture's policy is to capitalize interest on funds disbursed
during the active construction and development phases of its facilities and
other major projects. There was no interest capitalized in 2001, 2000 or 1999.
h. Interest Rate Swaps
The Joint Venture, from time to time, uses interest rate swaps to assist in
managing interest incurred on its Bank Credit Facility. The interest rate swaps
expired on October 29, 2001. The difference between amounts received and
amounts paid under such agreements, as well as any costs or fees, is recorded
as a reduction of, or addition to, interest expense as incurred over the life
of the swaps. The interest rate swaps accounted for additional interest expense
of $1,375,000 in 2001 and interest income of $(34,059) in 2000 and expense of
$1,113,000 in 1999.
i. Casino Revenue and Promotional Allowances
In accordance with industry practice, the Joint Venture recognizes as casino
revenue the net win from gaming activities, which is the difference between
gaming wins and losses. The retail value of food, beverage, rooms and other
services furnished to customers on a complimentary basis is included in gross
revenues and then deducted as promotional allowances. The estimated costs of
providing such promotional allowances are included in casino costs and expenses
and consist of the following:
Years ended December 31,
------------------------
2001 2000 1999
------ ------ ------
(in thousands)
Food and Beverage $6,589 $6,889 $6,521
Rooms............ 1,263 1,285 1,344
Other............ 867 1,230 1,008
------ ------ ------
$8,719 $9,404 $8,873
====== ====== ======
j. Advertising
Advertising costs are expensed the first time the advertising takes place.
Advertising costs included in selling, general and administrative expenses were
$6,191,000, $6,748,000 and $6,088,000 for the years ended December 31, 2001,
2000, and 1999, respectively.
k. Federal Income Taxes
The Joint Venture is not subject to income taxes; therefore, no provision
for income taxes has been made, as the Partners include their respective share
of Joint Venture income in their income tax returns. The Joint Venture
Agreement provides for the Joint Venture to make distributions to the Partners
in an amount equal to the
F-8
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
maximum marginal federal income tax rate applicable to any Partner multiplied
by the income of the Joint Venture for the applicable period (see Note 13).
The reported amounts of the Joint Venture's assets and liabilities exceeded
the net tax basis by $44,151,000 and $43,494,000, at December 31, 2001 and
2000, respectively.
l. Fair Value of Financial Instruments
Management is of the opinion that the fair values of all its financial
instruments are not materially different from their carrying values. The fair
value of the interest rate swaps at December 31, 2001 and 2000 were $0 and
$327,000, respectively.
m. Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to current year presentation which have no effect on net
income.
2. Certain Risks and Uncertainties
A significant portion of the Joint Venture's revenues and operating income
are generated from patrons who are residents of Northern California. A change
in general economic conditions or the extent and nature of casino gaming in
California, Washington or Oregon could adversely affect the Joint Venture's
operating results. On September 10, 1999, California lawmakers approved a
constitutional amendment that would give Indian tribes the right to offer slot
machines and a range of house-banked card games. On March 7, 2000, California
voters approved the constitutional amendment which legalized "Nevada-style"
gaming on Native American reservations.
3. Accounts Receivable
Components of accounts receivable, net are as follows:
2001 2000
------- -------
(in thousands)
Casino receivables.......... $ 3,654 $ 3,846
Hotel receivables........... 1,783 1,888
Other receivables........... 167 130
------- -------
5,604 5,864
Less-allowance for bad debts (1,304) (1,077)
------- -------
Accounts receivable, net.... $ 4,300 $ 4,787
======= =======
The provision for bad debt expense for the years ended December 31, 2001,
2000 and 1999, was $864,000, $596,000, and $508,000, respectively.
Included in Other receivables is $95,000 and $36,000 due from Eldorado Hotel
& Casino and $59,000 and $78,000 due from Circus Circus Hotel and Casino-Reno
as of December 31, 2001 and 2000, respectively.
F-9
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Property and Equipment
Property and equipment at December 31, 2001 and 2000 consisted of the
following:
Estimated
2001 2000 Service Life
--------- -------- ------------
(in thousands) (Years)
Land and improvements....................... $ 28,405 $ 28,405 --
Buildings and other leasehold improvements.. 271,517 270,576 15-45
Furniture, fixtures, and equipment.......... 84,260 81,716 3-15
Construction in progress.................... 38 16 --
--------- --------
384,220 380,713
Less-accumulated depreciation............... (103,245) (91,830)
--------- --------
Property and equipment, net................. $ 280,975 $288,883
========= ========
Substantially all property and equipment of the Joint Venture collateralize
the Bank Credit Facility (see Note 7).
5. Other Assets
Other assets, net at December 31, 2001 and 2000 consisted of the following:
2001 2000
----- ------
(in thousands)
China, glassware, silverware and linens................... $289 $ 246
Gaming chips and tokens................................... 46 49
Deferred loan costs....................................... 202 605
Other..................................................... 38 110
---- ------
$575 $1,010
==== ======
The initial inventory of china, glassware and silverware is being amortized
to 50% of cost with the balance kept as base stock. Subsequent purchases of
china, glassware and silverware are expensed as used.
Gaming chips and tokens are being amortized over three years.
Costs incurred to acquire the Bank Credit Facility were capitalized and are
being amortized to interest expense over the term of the Bank Credit Facility
agreement. The unamortized balance of $202,000 at December 31, 2001 will be
amortized through June 30, 2003, the remaining term of the Bank Credit Facility
(see Notes 7 and 13).
Costs incurred in connection with the Notes Offering in the amount of
$370,000 have been written-off due to the postponement of the offering for
greater than 90 days (see Note 13).
F-10
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Accrued and Other Liabilities
Accrued and other liabilities consist of the following (in thousands):
2001 2000
------ ------
Accrued payroll and related..... $1,825 $1,854
Accrued vacation................ 1,512 1,465
Other........................... 5,313 5,425
------ ------
Accrued and other liabilities... $8,650 $8,744
====== ======
7. Long-Term Debt
Long-term debt at December 31, 2001 and 2000 consisted of the following:
2001 2000
-------- --------
(in thousands)
Amounts due under the Bank Credit Facility at floating interest rates,
weighted average of 5.93% and 7.51% during 2001 and 2000,
respectively; due June 30, 2003..................................... $145,000 $163,500
Less-current portion.................................................. (10,000) (6,500)
-------- --------
$135,000 $157,000
======== ========
The Bank Credit Facility contains various restrictive covenants including
the maintenance of certain financial ratios and limitations on additional debt,
distributions, disposition of property, mergers and similar transactions. As of
December 31, 2001, the Joint Venture was in compliance with all loan agreement
provisions.
Scheduled maturities of long-term debt are as follows at December 31, 2001
(in thousands):
2002......... $ 10,000
2003......... 135,000
Thereafter... --
--------
$145,000
========
On May 30, 1995, the Joint Venture entered into a $230,000,000 reducing,
revolving credit facility with a consortium of banks (the "Bank Credit
Facility"). On September 9, 1996, the Joint Venture amended its Bank Credit
Facility to $220,000,000 and on November 24, 1997, amended the Bank Credit
Facility to $230,000,000. Quarterly commitment reductions of $4,250,000 per
quarter are due beginning March 31, 1998 through December 31, 2000; $5,500,000
per quarter beginning January 1, 2001 through December 31, 2002; $6,000,000 on
March 31, 2003 and all remaining outstanding balances are due June 30, 2003.
Required commitment reductions of $10,000,000 for fiscal year 2002 will reduce
availability under the Bank Credit Facility to $135,000,000 as of December 31,
2002. The Joint Venture incurs commitment fees of 0.25% on the unused portion
of the credit facility. The Bank Credit Facility is secured by a deed of trust
on the Joint Venture's real property and by security interests in other assets
of the Joint Venture (see Note 4).
In order to limit its exposure to interest rate movements, the Joint Venture
entered into agreements with members of its bank group to participate in
interest rate swaps. In connection therewith, the Joint Venture agreed
F-11
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
to pay the institutions a fixed interest rate of approximately 6.4% on a total
notional amount of $100,000,000, in return for the institutions' commitment to
pay the Joint Venture a floating interest rate equal to the three-month
Eurodollar rate. These agreements expired on October 29, 2001.
8. Related Parties
Silver Legacy is owned by our Partners, each of which operates a casino
attached and adjacent to Silver Legacy. Our Partners may be deemed to be in a
conflict of interest position with respect to decisions they make relating to
the Joint Venture, the Eldorado Hotel & Casino and Circus Circus Hotel &
Casino--Reno.
The cost of the Silver Legacy, in excess of the equity contributions, was
funded from a combination of cash generated from operations, the Bank Credit
Facility and a loan from Mandalay Resort Group ("MRG"). The MRG loan, executed
on May 31, 1995, was for an amount up to $75,000,000 and carried an annual
interest rate of 10%. On September 9, 1996, the MRG loan was amended to change
the maturity date to 367 days after the Bank Credit Facility is paid in full.
On November 24, 1997, the entire principal balance of $35,104,000 was paid out
of funds received from the Bank Credit Facility.
As a condition to the Bank Credit Facility, MRG guaranteed completion of the
Silver Legacy and, in addition, entered into a make-well agreement whereby it
is obligated to make additional contributions to Silver Legacy as may be
necessary to maintain a minimum coverage ratio (as defined). As compensation
for the make-well agreement, MRG receives guarantee fees of 1 1/2% of the
outstanding balance of the Bank Credit Facility. The Joint Venture made
payments totaling $2,311,000, $2,523,000, and $2,838,000 on its guarantee fee
commitment in 2001, 2000 and 1999 leaving an accrued balance of $185,000 and
$209,000 of guarantee fees for the years ended December 31, 2001 and 2000,
respectively.
On May 16, 1996, Eldorado Resorts, LLC ("Eldorado"), entered into an
agreement with the Joint Venture to operate a race and sports book (the "Book")
located in the Silver Legacy. Eldorado supplied the management, employees and
equipment associated with the operation of the Book. Revenues and expenses were
apportioned according to a formula included in the race and sports book
agreement. For the year ended December 31, 1999, the Joint Venture recorded
$727,000 in revenues and $505,000 in expenses related to the operations of the
Book. Effective November 23, 1999, the agreement with the Eldorado was
terminated and the Joint Venture began operating the Book exclusively.
Silver Legacy has utilized a King Air jet owned by Recreational Enterprises,
Inc. ("REI") for the purpose of providing air service to select customers.
During 2001, 2000 and 1999, the Joint Venture paid $31,000, $17,000 and $2,000,
respectively. Although there is no agreement obligating the Joint Venture to
utilize the plane or entitling it to do so, it is anticipated that the Joint
Venture will continue to utilize this service from time to time in the future
on terms mutually acceptable to the parties. REI, which owns 55% of Eldorado is
owned by various members of the Carano family, including Gary L. Carano, Silver
Legacy's General Manager, Glenn T. Carano, Silver Legacy's Executive Director
of Marketing, and Gene R. Carano, a member of the Joint Venture's Executive
Committee, each of whom owns an approximate 10.1% beneficial interest in REI,
and Donald L. Carano, the father of Gary, Glenn and Gene Carano, who owns an
approximate 49.5% interest in REI.
Silver Legacy's marketing and sales departments have utilized a yacht owned
by Sierra Adventure Equipment Leasing, Inc. ("Sierra Leasing") at a flat rate
per trip of $2,500 for various promotional events. The payments made by the
Joint Venture to Sierra Leasing for the use of the yacht totaled $21,000,
$31,000 and $63,000 during 2001, 2000 and 1999, respectively. Although there is
no agreement obligating the Joint Venture to utilize the yacht or entitling it
to do so, it is anticipated that the Joint Venture will continue to utilize this
F-12
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
service from time to time in the future on terms mutually acceptable to the
parties. Sierra Leasing is owned by Donald L. Carano, the father of Gary L.
Carano, Silver Legacy's General Manager, Glenn T. Carano, Silver Legacy's
Executive Director of Marketing, and Gene R. Carano, a member of the Joint
Venture's executive committee.
In 1998, the Joint Venture began purchasing advertising materials from
Lexicon Design, Inc., a corporation which is wholly-owned by the wife of Silver
Legacy's Executive Director of Marketing. The payments made by the Joint
Venture to Lexicon Design, Inc. were $428,000, $364,000 and $217,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.
In April 2001, the Joint Venture began utilizing 235 spaces in the parking
garage at Circus Circus Hotel and Casino-Reno. The spaces are utilized to
provide parking for employees of Silver Legacy. In consideration for its use of
the spaces, the Joint Venture pays Circus Circus Hotel and Casino-Reno rent in
the amount of $5,000 per month. Although there is no agreement obligating the
Joint Venture to continue utilizing the spaces or entitling it to do so, it is
anticipated that the Joint Venture will continue this agreement for the
foreseeable future.
9. 401(k) Plan
The Joint Venture instituted a defined contribution 401(k) plan in September
1995 which covers all employees who meet certain age and length of service
requirements and allows an employer contribution up to 25 percent of the first
six percent of each participating employee's compensation. Plan participants
can elect to defer before tax compensation through payroll deductions. Those
deferrals are regulated under Section 401(k) of the Internal Revenue Code. The
Joint Venture's matching contributions were $318,000, $320,000, and $278,000
for the fiscal years ended December 31, 2001, 2000 and 1999, respectively.
10. Supplemental Executive Retirement Plan
The Joint Venture anticipates adopting a Supplemental Executive Retirement
Plan ("SERP") for a select group of management and highly compensated
employees. The SERP will be effective January 1, 2002 and will provide for a
lifetime benefit at age 65, based on a formula which takes into account a
participants' highest annual compensation, years of service, and executive
level. The SERP will also provide an early retirement benefit at age 55 with at
least four years of service, a disability provision, and a lump sum death
benefit. The obligation is expected to be funded through life insurance
contracts on the participants. There were neither accrued amounts nor a
required deposit as of December 31, 2001. The Joint Venture anticipates that
its required deposit upon inception of the plan will be approximately $700,000,
its periodic pension cost for the year ended December 31, 2002 will be
approximately $600,000 and the accumulated benefit obligation at inception of
the Plan will be approximately $1,234,000.
11. Commitments and Contingencies
a. Letters of Credit
The Bank Credit Facility allows for the issuance of letters of credit of up
to $5,000,000. As of December 31, 2001 and 2000, the Joint Venture had not
drawn against these letters of credit.
F-13
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
b. Operating Leases
The Joint Venture leases land and equipment under operating leases. Future
minimum payments (expiring from 2002 and thereafter) under noncancellable
operating leases with initial terms of one year or more consisted of the
following at December 31, 2001:
2002...... $167,000
2003...... 23,000
Thereafter --
--------
$190,000
========
Total rental expense under operating leases was $548,000, $482,000, and
$376,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
c. Litigation
The Joint Venture is party to various litigation arising in the normal
course of business. Management is of the opinion that the ultimate resolution
of these matters will not have a material effect on the financial position or
the results of operations of the Joint Venture.
12. Priority Allocation
For so long as Eldorado Resorts, LLC has the right to select the General
Manager of the Silver Legacy, as provided in the Joint Venture Agreement,
Galleon, Inc. is entitled annually on a non-cumulative basis, commencing with
the eight-month period ending December 31, 1997 and for each subsequent
12-month period, to a priority allocation of the Joint Venture's operating
income (the "Priority Allocation") in an amount equal to approximately 11.54%
of the average of the "Adjusted Initial Investment" (as defined) for the
period. If, after deducting equal shares of interest expense, a Partner's share
of the priority allocation is less than zero, additional operating income is
allocated to that Partner to bring their allocation to zero. For purposes of
determining the amount of the Priority Allocation for any period, the term
"Adjusted Initial Investment" means $290,000,000 (the "Initial Investment") as
adjusted at the end of each year by subtracting (i) the depreciation on the
Initial Investment taken in such year in accordance with the depreciation
schedule agreed to by the Partners and (ii) the principal payments which would
have been made in repayment of the original bank financing utilized for the
development, construction and completion of the Silver Legacy.
As a result of the Priority Allocation, each of the Partners received 50% of
the operating income through April 30, 1997 and Galleon, Inc. received 100% of
the operating income for the remaining eight months ending December 31, 1997
and for the twelve months ending December 31, 1998. The total allocations to
the two Partners for the years ended December 31, 2001, 2000 and 1999, are
$10,560,000, $11,935,000, and $2,881,000 to Eldorado Resorts, LLC and
$10,560,000, $9,835,000, and $13,202,000 to Galleon, Inc., respectively. The
allocation to Eldorado Resorts, LLC for the year ended December 31, 2000
includes $1,050,000 to adjust for an excess allocation in the same amount to
Galleon, Inc. for the year ended December 31, 1999.
F-14
CIRCUS AND ELDORADO JOINT VENTURE
(doing business as Silver Legacy Resort Casino)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Subsequent Events
Notes Offering
On March 5, 2002, the Joint Venture and Capital completed an offering of
Mortgage Notes ("Notes") (the "Notes Offering") with a principal amount of $160
million. The Notes Offering was made to qualified investors pursuant to Rule
144A of the Securities Act of 1933. Within 60 days after the issue date of the
Notes, a registration statement enabling holders to exchange their privately
placed notes for publicly registered notes with identical terms, will be filed.
The Notes are senior secured obligations which rank equally to all of the Joint
Ventures' outstanding senior debt and senior to all of the Joint Venture's
subordinated debt. Concurrent with the Notes Offering, the Joint Venture
entered into a new senior secured credit facility. The proceeds from the Notes,
together with borrowings under the new senior secured credit facility for $40
million, were used to repay amounts outstanding under the existing Bank Credit
Facility, fund a distribution to the Partners and pay related fees and expenses
of the transactions. Deferred loan costs of approximately $200,000 related to
the existing Bank Credit Facility were written-off, as an extraordinary item,
upon repayment in full of the existing Bank Credit Facility.
Joint Venture Agreement
The Joint Venture Partners executed an Amended and Restated Joint Venture
Agreement. This Amended and Restated Joint Venture Agreement provides for,
among other items, profits and losses to be allocated to the Partners in
proportion to their percentage interests, separate capital accounts to be
maintained for each Partner and provisions for management of the Joint Venture,
payment of distributions and bankruptcy and/or dissolution of the Joint
Venture. The Priority Allocation provisions included in the original Joint
Venture Agreement have been eliminated from the Amended and Restated Joint
Venture Agreement and will not apply in future periods. The Managing Partner,
currently Mandalay Resort Group, will be given the ability to appoint the
General Manager.
Distributions
Subsequent to year-end, the Joint Venture made a fourth quarter 2001 tax
distribution to ELLC and Galleon of $1.2 million each, utilizing $0.9 million
of cash from operations and $1.5 million borrowed under the existing credit
facility. Prior to the issuance of the Notes Offering, the Joint Venture made
distributions to ELLC and Galleon of (i) $5.2 million representing fiscal year
2000 tax distributions and (ii) $2.1 million representing the remaining
Priority Allocation payment to Mandalay Resort Group to be made from borrowings
under the existing credit facility.
Concurrent with the Notes Offering, the Joint Venture made additional
distributions to ELLC and Galleon of $10.0 million and $20.0 million,
respectively.
F-15
================================================================================
CIRCUS AND ELDORADO JOINT VENTURE
SILVER LEGACY CAPITAL CORP.
Offer to Exchange up to $160,000,000 of their
10 1/8% Mortgage Notes due 2012
Which Have Been Registered Under the Securities Act of 1933,
For up to $160,000,000 of their
Outstanding 10 1/8% Mortgage Notes due 2012
-----------------
PROSPECTUS
-----------------
, 2002
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification Of Directors And Officers.
Section 6.1 of the Amended and Restated Joint Venture Agreement (the
"Partnership Agreement") of Circus and Eldorado Joint Venture (the
"Partnership") requires the Partnership to indemnify, hold harmless, and pay
all judgments and claims of third parties against each of its partner or any
officer, shareholder, member, partner, or director of either partner and
members of the Partnership's executive committee relating to any liability or
damage, including attorneys' fees, arising by reason of any action or failure
to act by the partner, officer, shareholder, member, director or member of the
Partnership's executive committee in connection with the business of the
Partnership, except for any conduct of a partner that constitutes fraud, bad
faith or breach of fiduciary duty.
Section 6.2 of the Partnership Agreement further requires that the
Partnership indemnify, hold harmless, and pay all expenses, costs, or
liabilities of any partner who for the benefit of the Partnership makes any
deposit, acquires any option, or makes any other similar payment or assumes any
obligation in connection with any property proposed to be acquired by the
Partnership in accordance with the Partnership Agreement and who suffers any
financial loss as the result of such action. In the event that any provision of
either Section 6.1 or 6.2 is determined to be invalid in whole or in part, the
Partnership Agreement provides that the relevant section will be enforced to
the maximum extent permitted by law.
Section 78.7502 of the Nevada Revised Statutes (the "Nevada Law") permits a
corporation to indemnify any of its directors, officers, employees and agents
against costs and expenses arising from claims, suits and proceedings if such
persons acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Notwithstanding the foregoing, no indemnification may be made in
respect of any claim, issue or matter, as to which such person is adjudged to
be liable to the corporation unless and only to the extent that a court of
competent jurisdiction determines that in view of all the circumstances of the
case, the person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
In accordance with Nevada Revised Statutes 78.037, Article V of the Articles
of Incorporation of Silver Legacy Capital Corp. ("Capital") provides that no
director of Capital will be personally liable to Capital or its stockholders
for damages for breach of fiduciary duty as a director, except for (a) acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law, or (b) the payment of dividends in violation of Nevada Revised Statutes
Chapter 78.
Article V further provides that each person who is or was a director of
Capital (including the heirs, executors, administrators or estate of such
person) will be indemnified by Capital as of right to the full extent permitted
by Chapter 78 of the Nevada Law against any liability, cost or expense asserted
against such director and incurred by such director by reason of the fact that
such person is or was a director. The expenses of directors, past or present,
incurred in defending a civil or criminal action, suit, or proceeding must be
paid by Capital as incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of
the director to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by Capital.
Article V provides that Capital, to the full extent of its power to do so,
will indemnify all directors, officers, employees, and/or agents in accordance
with the provisions the Nevada Law. Article V further provides that Capital
will have power to purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of Capital, or is or was
serving at the request of Capital as a director, officer, employee, or agent or
another corporation, partnership, joint venture, trust or other enterprise
against any liability
II-1
asserted against him in any such capacity or arising out of his status as such,
whether or not Capital would have the power to indemnify him against such
liability under the provisions of Nevada law.
Article V also provides that any repeal or modification of all or any
portion of the provisions of Article V by the stockholders of Capital will not
adversely affect any right or protection of an officer or director of Capital
existing at the time of such repeal or modification.
Article V of Capital's Bylaws provides that each person who was or is a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(a "Proceeding"), by reason of the fact that such person or a person for whom
such person is the legal representative is or was a director, officer, employee
or agent of Capital or is or was serving at the request of Capital as a
director, officer, member, manager, employee or agent of another corporation or
of a partnership, limited liability company, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such Proceeding is alleged action or inaction in an official
capacity or in any other capacity while serving as a director, officer,
employee or agent of Capital, will be indemnified and held harmless by Capital
to the fullest extent permitted by the laws of the State of Nevada as the same
exist or may hereafter be amended (but, in the case of such amendment, only to
the extent that such amendment permits Capital to provide broader
indemnification rights than such laws permitted Capital to provide before such
amendment) against all costs, charges, expenses, liabilities and losses
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement and amounts expended in seeking
indemnification granted to such person under applicable law, Article V or any
agreement with Capital) reasonably incurred or suffered by such person in
connection therewith, and such indemnification will continue as to a person who
has ceased to be a director, officer, employee or agent of Capital, or who
served in any other capacity on behalf of Capital, and will inure to the
benefit of such person's heirs, executors and administrators.
Article X, Section 10.2 of the registrant's Restated Bylaws provides for
mandatory indemnification of directors and officers to the fullest extent now
or hereafter permitted by law.
Item 21. Exhibits And Financial Statement Schedules.
(a) Exhibits
3.1 Articles of Incorporation of Silver Legacy Capital Corp.
3.2 Bylaws of Silver Legacy Capital Corp.
3.3 Amended and Restated Agreement of Joint Venture of Circus and Eldorado Joint Venture between
Eldorado Limited Liability Company and Galleon, Inc.
4.1 Indenture, dated as of March 5, 2002, among the Registrants and The Bank of New York, with respect
to the 10 1/8% Mortgage Notes due 2012 (incorporated by reference to Exhibit 10.10.1 to the Annual
Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on
Form 10-K for the year ended December 31, 2001)
4.2 Deed of Trust, Fixture Filing and Security Agreement with Assignment of Rents, dated as of
February 26, 2002, by Circus and Eldorado Joint Venture, to First American Title Company of
Nevada for the benefit of The Bank of New York, as trustee (incorporated by reference to
Exhibit 10.10.2 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp.
(Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
4.3 Security Agreement, dated as of March 5, 2002, by the Registrants for the benefit of The Bank of New
York, as trustee (incorporated by reference to Exhibit 10.10.3 to the Annual Report of Eldorado
Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the
year ended December 31, 2001)
4.4 Assignment of Rent and Revenues, entered into as of February 26, 2002, between Circus and Eldorado
Joint Venture and The Bank of New York, as trustee (incorporated by reference to Exhibit 10.10.4 to
the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-
11811) on Form 10-K for the year ended December 31, 2001)
II-2
4.5 Collateral Account Agreement, dated as of March 5, 2002, among the Registrants and The Bank of
New York, as trustee (incorporated by reference to Exhibit 10.10.5 to the Annual Report of
Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on
Form 10-K for the year ended December 31, 2001)
4.6 Environmental Indemnity, entered into as of March 5, 2002, by the Registrants (incorporated by
reference to Exhibit 10.10.6 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital
Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
4.7 Registration Rights Agreement, dated as of March 5, 2002, among the Registrants and Banc of
America Securities LLC
4.8 Second Amended and Restated Credit Agreement, dated as of March 5, 2002, among Circus and
Eldorado Joint Venture, Bank of America, N.A., Bank of Scotland, and U.S. Bank National
Association (incorporated by reference to Exhibit 10.9.2 to the Annual Report of Eldorado Resorts
LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year
ended December 31, 2001)
4.9 Guaranty, dated as of March 5, 2002, made by Silver Legacy Capital Corp. in favor of Bank of
America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.3 to the Annual
Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on
Form 10-K for the year ended December 31, 2001)
4.10 Second Amended and Restated Security Agreement, dated as of March 5, 2002, between Circus and
Eldorado Joint Venture and Bank of America, N.A., as administrative agent (incorporated by
reference to Exhibit 10.9.4 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital
Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
4.11 Guarantor Security Agreement, dated as of March 5, 2002, between Silver Legacy Capital Corp. and
Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.5 to the
Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File
No. 333-11811) on Form 10-K for the year ended December 31, 2001)
4.12 Second Amended and Restated Construction Deed of Trust, Fixture Filing and Security Agreement
with Assignment of Rents, dated as of February 26, 2002, but effective March 5, 2002, among
Circus and Eldorado Joint Venture, First American Title Company of Nevada, as trustee, and Bank
of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.6 to the Annual
Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on
Form 10-K for the year ended December 31, 2001)
4.13 Second Amended and Restated Assignment of Rents and Revenues, entered into as of February 26,
2002, but effective as of March 5, 2002, between Circus and Eldorado Joint Venture and Bank of
America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.7 to the Annual
Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on
Form 10-K for the year ended December 31, 2001)
4.14 Second Amended and Restated Collateral Account Agreement, dated March 5, 2002, between Circus
and Eldorado Joint Venture and Bank of America, N.A., as administrative agent (incorporated by
reference to Exhibit 10.9.8 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital
Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
4.15 Intercreditor Agreement, dated as of March 5, 2002, among Bank of America, N.A., as administrative
agent, The Bank of New York, as trustee, and the Registrants (incorporated by reference to
Exhibit 10.9.9 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp.
(Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
5 Opinions of Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia, Pennsylvania, and McDonald
Carano Wilson McCune Bergin Frankovich & Hicks LLP, Reno and Las Vegas, Nevada
II-3
10* Silver Legacy Supplemental Executive Retirement Plan
12 Statement regarding Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of Registrants
23.1 Consent of Wolf, Block, Schorr and Solis-Cohen LLP (included as part of Exhibit 5)
23.2 Consent of McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP (included as part of
Exhibit 5)
23.3 Consent of Arthur Andersen LLP
24 Power of Attorney (included on Page II-5 of this Registration Statement)
25 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as trustee of the
10 1/8% Mortgage Notes due 2012 of the Registrants
99.1 Form of Letter of Transmittal with respect to the Exchange Offer
99.2 Form of Notice of Guaranteed Delivery with respect to the Exchange Offer
99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9
99.4 Client Letter
99.5 Broker Dealer Letter
99.6 Letter to Commission pursuant to Temporary Note 3T to Article 3 of Regulation S-X
- --------
* This exhibit is a management contract or compensatory plan or arrangement
required to be filed as an exhibit.
In accordance with Regulation S-K 601(b)(4)(iii)(A), the registrants agree
to file applicable agreements with the Securities and Exchange Commission upon
request.
(b) Financial Statement Schedules
None.
Item 22. Undertakings.
(a) The undersigned registrants each hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) The undersigned registrants each hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(c) The undersigned registrants each hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in
II-4
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) of the Act if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrants
have duly caused this registration statement to be signed on their behalf by
the undersigned, thereunto duly authorized, in the City of Reno, State of
Nevada, on April 26, 2002.
CIRCUS AND ELDORADO JOINT VENTURE
By: /s/ Gary L. Carano
-------------------------------
Gary L. Carano,
Chief Executive Officer
SILVER LEGACY CAPITAL CORP.
By: /s/ Gary L. Carano
-----------------------------
Gary L. Carano,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary L. Carano and Bruce C. Sexton, and each of
them, with full power to act without the other, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including pre- and
post-effective amendments) to this registration statement, and to file the
same, with exhibits and schedules thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing necessary or desirable to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title(s) Date
--------- -------- ----
/s/ Gary L. Carano Chief Executive Officer of April 26, 2002
- ----------------------------- Circus and Eldorado Joint
Gary L. Carano Venture and President and
Chief Executive Officer of
Silver Legacy Capital Corp.
(Principal Executive
Officer of each Registrant)
/s/ Bruce C. Sexton Controller and Chief April 26, 2002
- ----------------------------- Accounting and Financial
Bruce C. Sexton Officer of Circus and
Eldorado Joint Venture and
Treasurer and Chief
Accounting and Financial
Officer of Silver Legacy
Capital Corp. (Principal
Accounting Officer and
Principal Financial Officer
of each Registrant)
II-6
Signature Title(s) Date
--------- -------- ----
/s/ Gene R. Carano Member of the Executive April 26, 2002
- ----------------------------- Committee of Circus and
Gene R. Carano Eldorado Joint Venture and
Director of Silver Legacy
Capital Corp.
/s/ Stephen J. Greathouse Member of the Executive April 26, 2002
- ----------------------------- Committee of Circus and
Stephen J. Greathouse Eldorado Joint Venture and
Director of Silver Legacy
Capital Corp.
/s/ Robert M. Jones Member of the Executive April 26, 2002
- ----------------------------- Committee of Circus and
Robert M. Jones Eldorado Joint Venture and
Director of Silver Legacy
Capital Corp.
/s/ Yvette E. Landau Member of the Executive April 26, 2002
- ----------------------------- Committee of Circus and
Yvette E. Landau Eldorado Joint Venture and
Director of Silver Legacy
Capital Corp.
/s/ Thomas D. Robinson Member of the Executive April 26, 2002
- ----------------------------- Committee of Circus and
Thomas D. Robinson Eldorado Joint Venture and
Director of Silver Legacy
Capital Corp.
II-7
INDEX TO EXHIBITS
Exhibit
No. Description
--- -----------
3.1 Articles of Incorporation of Silver Legacy Capital Corp.
3.2 Bylaws of Silver Legacy Capital Corp.
3.3 Amended and Restated Agreement of Joint Venture of Circus and Eldorado Joint Venture between
Eldorado Limited Liability Company and Galleon, Inc.
4.1 Indenture, dated as of March 5, 2002, among the Registrants and The Bank of New York, with respect
to the 10 1/8% Mortgage Notes due 2012 (incorporated by reference to Exhibit 10.10.1 to the
Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-
11811) on Form 10-K for the year ended December 31, 2001)
4.2 Deed of Trust, Fixture Filing and Security Agreement with Assignment of Rents, dated as of
February 26, 2002, by Circus and Eldorado Joint Venture, to First American Title Company of
Nevada for the benefit of The Bank of New York, as trustee (incorporated by reference to
Exhibit 10.10.2 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp.
(Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
4.3 Security Agreement, dated as of March 5, 2002, by the Registrants for the benefit of The Bank of
New York, as trustee (incorporated by reference to Exhibit 10.10.3 to the Annual Report of
Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on
Form 10-K for the year ended December 31, 2001)
4.4 Assignment of Rent and Revenues, entered into as of February 26, 2002, between Circus and
Eldorado Joint Venture and The Bank of New York, as trustee (incorporated by reference to
Exhibit 10.10.4 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp.
(Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
4.5 Collateral Account Agreement, dated as of March 5, 2002, among the Registrants and The Bank of
New York, as trustee (incorporated by reference to Exhibit 10.10.5 to the Annual Report of
Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on
Form 10-K for the year ended December 31, 2001)
4.6 Environmental Indemnity, entered into as of March 5, 2002, by the Registrants (incorporated by
reference to Exhibit 10.10.6 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital
Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
4.7 Registration Rights Agreement, dated as of March 5, 2002, among the Registrants and Banc of
America Securities LLC
4.8 Second Amended and Restated Credit Agreement, dated as of March 5, 2002, among Circus and
Eldorado Joint Venture, Bank of America, N.A., Bank of Scotland, and U.S. Bank National
Association (incorporated by reference to Exhibit 10.9.2 to the Annual Report of Eldorado Resorts
LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year
ended December 31, 2001)
4.9 Guaranty, dated as of March 5, 2002, made by Silver Legacy Capital Corp. in favor of Bank of
America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.3 to the Annual
Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on
Form 10-K for the year ended December 31, 2001)
4.10 Second Amended and Restated Security Agreement, dated as of March 5, 2002, between Circus and
Eldorado Joint Venture and Bank of America, N.A., as administrative agent (incorporated by
reference to Exhibit 10.9.4 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital
Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
Exhibit
No. Description
--- -----------
4.11 Guarantor Security Agreement, dated as of March 5, 2002, between Silver Legacy Capital Corp. and
Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.5 to the
Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File
No. 333-11811) on Form 10-K for the year ended December 31, 2001)
4.12 Second Amended and Restated Construction Deed of Trust, Fixture Filing and Security Agreement
with Assignment of Rents, dated as of February 26, 2002, but effective March 5, 2002, among
Circus and Eldorado Joint Venture, First American Title Company of Nevada, as trustee, and Bank
of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.6 to the
Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-
11811) on Form 10-K for the year ended December 31, 2001)
4.13 Second Amended and Restated Assignment of Rents and Revenues, entered into as of February 26,
2002, but effective as of March 5, 2002, between Circus and Eldorado Joint Venture and Bank of
America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.7 to the Annual
Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on
Form 10-K for the year ended December 31, 2001)
4.14 Second Amended and Restated Collateral Account Agreement, dated March 5, 2002, between Circus
and Eldorado Joint Venture and Bank of America, N.A., as administrative agent (incorporated by
reference to Exhibit 10.9.8 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital
Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
4.15 Intercreditor Agreement, dated as of March 5, 2002, among Bank of America, N.A., as administrative
agent, The Bank of New York, as trustee, and the Registrants (incorporated by reference to
Exhibit 10.9.9 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp.
(Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
5 Opinions of Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia, Pennsylvania, and McDonald
Carano Wilson McCune Bergin Frankovich & Hicks LLP, Reno and Las Vegas, Nevada
10* Silver Legacy Supplemental Executive Retirement Plan
12 Statement regarding Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of Registrants
23.1 Consent of Wolf, Block, Schorr and Solis-Cohen LLP (included as part of Exhibit 5)
23.2 Consent of McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP (included as part of
Exhibit 5)
23.3 Consent of Arthur Andersen LLP
24 Power of Attorney (included on Page II-5 of this Registration Statement)
25 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as trustee of the
10 1/8% Mortgage Notes due 2012 of the Registrants
99.1 Form of Letter of Transmittal with respect to the Exchange Offer
99.2 Form of Notice of Guaranteed Delivery with respect to the Exchange Offer
99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9
99.4 Client Letter
99.5 Broker Dealer Letter
99.6 Letter to Commission pursuant to Temporary Note 3T to Article 3 of Regulation S-X
- --------
* This exhibit is a management contract or compensatory plan or arrangement
required to be filed as an exhibit.