MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is dated as of _________,
1996 by and between Elsinore Corporation, a Nevada corporation ("Elsinore"),
Four Queens, Inc., a Nevada corporation ("Four Queens" and, together with
Elsinore, the "Companies"), and Riviera Gaming Management Corp.-Elsinore, a
Nevada corporation ("Manager").
PRELIMINARY STATEMENTS
A. Elsinore owns and operates through its subsidiary, Four
Queens, a hotel and casino commonly known as the Four Queens Hotel and Casino,
located at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇.
B. The Companies are party to those certain Chapter 11
bankruptcy proceedings pending in the United States Bankruptcy Court for the
District of Nevada (the "Bankruptcy Court") as Case No. 95-24685 RCJ and Case
No. 95-24687 RCJ respectively (the "Proceedings").
C. Pursuant to the terms and conditions of that certain
Interim Management Agreement dated as of __________, 1996 between the Companies
and Manager (the "Interim Management Agreement") the Companies have engaged
Manager to manage the Project. The term of the Interim Management Agreement
expires on the Effective Date (as defined below).
D. Pursuant to the terms and conditions of the Joint Plan of
Reorganization for the Debtors with respect to the Proceedings (the "Plan"),
Manager shall be engaged to manage the Project upon the expiration of the term
of the Interim Management Agreement in accordance with the terms and conditions
of this Agreement.
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound, the parties to this Agreement hereby agree as
follows:
ARTICLE I. DEFINITIONS
The following defined terms are used in this Agreement:
"Affiliate" shall mean a person that directly or indirectly, or through
one or more intermediaries, controls, is controlled by, or is under common
control with the person in question and any stockholder or partner of any person
referred to in the preceding clause owning 10% or more of such entity.
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"Audit Day" is defined in Section 3.6(a).
"Audited Statements" is defined in Section 3.6(a).
"Business Days" shall mean all weekdays except those that are official
holidays of the State of Nevada or the U.S. Government. Unless specifically
stated as "Business Days," a reference to "days" means calendar days.
"Capital Budget" is defined in Section 3.9.
"Casino" shall mean those areas reserved for the operation of slot
machines, table games and any other legal forms of gaming permitted under
applicable law, and such additional ancillary service areas including
reservations and admissions, cage, vault, count room, surveillance room and any
other room or area or activities therein regulated or taxed by the Nevada Gaming
Authorities by reason of gaming operations.
"Casino Bankroll" shall mean an amount reasonably determined by Manager
as funding required to bankroll the Casino Gaming Activities but in no case less
than the amount required by Nevada gaming law or Nevada Gaming Authorities. In
no event shall such Casino Bankroll include any amount necessary to cover
Operating Expenses or Operating Capital. Casino Bankroll shall include the funds
located on the casino tables, in the gaming devices, cages, vault, counting
rooms, or in any other location in the Casino where funds may be found and funds
in a bank account identified by the Companies for any additional amount required
by Nevada gaming law or Nevada Gaming Authorities or such other amount as is
reasonably determined by Manager and the Companies.
"Casino Gaming Activities" shall mean the Casino cage, table games,
slot machines, video machines, and other forms of gaming managed by Manager in
the Casino.
"Casino Operating Expenses" shall mean expenses incurred in the
management of the Casino, including, but not limited to, gaming supplies,
maintenance of the Casino area, gaming marketing materials, uniforms,
complimentaries, Casino employee training, Casino employee compensation and
entitlements, and Gaming Taxes.
"Companies' Advances" is defined in Section 3.11.
"Confirmation Date" is defined in Recital C.
"Default" or "Event of Default" is defined in Section 6.1.
"EBITDA" shall mean revenues derived from the operation of Four Queens
less all costs of operating Four Queens (including, without limitation, any and
all costs associated with the Fremont Street Experience and the Minimum Fee)
except for (i) bankruptcy restructuring costs, (ii) Elsinore D&O insurance,
(iii) Elsinore director and officer compensation, (iv) expenses related to
Elsinore debt (including Trustee Fees), (v) any other
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Elsinore expense over which Manager has no control and (vi) the Performance Fee,
all before (a) interest on indebtedness, (b) all taxes on income other than
Gaming Taxes, (c) depreciation of tangible assets and (d) amortization of
goodwill and other intangible assets, all as determined by the independent
certified public accountant of the Companies in accordance with generally
accepted accounting principles applied on a consistent basis (after giving
effect to "fresh start" accounting), subject, however, to the dispute provisions
of Section 3.6(b).
"Effective Date" shall mean the date the Plan becomes effective as
defined in the Plan.
"Extended Term" is defined in Section 2.3.
"Extension Option" is defined in Section 2.3.
"Fiscal Year" shall mean the 12-month period starting with the first
full quarter beginning immediately following the Effective Date and each
12-month period thereafter.
"Gaming Taxes" shall mean any tax imposed by the Nevada Gaming
Authorities on Gross Gaming Revenues.
"Governmental Authorities" shall mean the United States, the State of
Nevada and any court or political subdivision agency, commission, board or
instrumentality or officer thereof, whether federal, state or local, having or
exercising jurisdiction over the Companies, Manager or the Project, including
the Casino.
"Gross Gaming Revenues" shall mean all of the revenue from the
operation of the Casino (which is taxed by the Nevada Gaming Authorities) from
all business conducted upon, related to or from the Casino in accordance with
generally accepted accounting principles and shall include, but not be limited
to, the net win from gaming activities, which is the difference between gaming
wins and losses before deducting Gaming Taxes, and plus or minus, as
appropriate, deposits made in respect of progressive slot machines and other
similar games.
"Gross Revenues" shall mean Gross Gaming Revenues, plus all other
revenues resulting from the operation of the Project, minus all Gaming Taxes.
"Management Fee" shall mean the Minimum Fee and the Performance Fee,
if any.
"Minimum Fee" is defined in Section 4.1.
"Monthly Financial Statements" is defined in Section 3.7.
"Nevada Gaming Authorities" shall mean the Nevada Gaming Commission,
State Gaming Control Board and all other gaming regulatory bodies, including,
but not limited to,
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any municipality, political subdivision, board, commission, agency or other
public body now in existence or hereafter created to regulate gaming in the
State of Nevada.
"Olympia" means the Seven Cedars Casino located in Sequim, Washington.
"Operating Bank Accounts" is defined in Section 3.10.
"Operating Budget" is defined in Section 3.9.
"Operating Capital" shall mean such amount in the Operating Bank
Accounts as will be reasonably sufficient to assure the timely payment of all
current liabilities of the Project, including the operations of the Casino,
during the term of this Agreement, and to permit Manager to perform its
management responsibilities and obligations hereunder, with reasonable reserves
for unanticipated contingencies and for short term business fluctuations
resulting from monthly variations from the Operating Budget.
"Operating Expenses" shall mean actual expenses incurred following the
Effective Date in operating the Project, including the Casino Operating
Expenses, employee compensation and entitlements, Operating Supplies,
maintenance costs, fuel costs, utilities, taxes and the Minimum Fee.
"Operating Supplies" shall mean gaming supplies, paper supplies,
cleaning materials, marketing materials, maintenance supplies, uniforms and all
other materials used in the operation of the Project.
"Palm Springs" means the Spotlight 29 Casino located in Palm Springs,
California.
"Performance Fee" shall mean the annual amount payable to Manager which
equals 25% of any increase in EBITDA in any Fiscal Year of the Term or Extended
Term over $8 million.
"Performance Fee Statement" is defined in Section 3.6(a).
"Project" shall mean the Four Queens Hotel and Casino in Las Vegas,
Nevada and all necessary ancillary facilities to the Project, including, but not
limited to, vehicular parking area, entertainment facilities, hotels,
restaurants, waiting areas, restrooms, administrative offices for, but not
limited to, accounting, purchasing, and management information services
(including offices for Manager management personnel) and other areas utilized in
support of the operations of the Project.
"Projected EBITDA" shall mean the EBITDA for the first two Fiscal Years
of the Term and is deemed to be $8 million for each such year.
"Selected Arbitrator" is defined in Section 9.1.
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"Term" is defined in Section 2.2.
ARTICLE II: ENGAGEMENT OF MANAGER AND TERM OF AGREEMENT
Section 2.1 Engagement of Manager. The Companies hereby engage and
employ Manager to act as their exclusive agent for the supervision and control
of the management of the business and affairs of the Project and to provide
certain services to the Companies as detailed in Section 3.3 of this Agreement
in connection with the Project, and Manager hereby accepts such engagement and
employment, on the terms and conditions hereinafter set forth. In addition,
Manager may provide consulting services to Elsinore from time to time with
respect to non-Project related issues and Manager agrees to provide consulting
services upon terms mutually acceptable to Manager and the Companies.
Section 2.2 Term. Manager shall manage the Project from the period (the
"Term") commencing on the Effective Date and ending 60 days after the third
Fiscal Year's audited results are available, subject to termination prior to the
end of such period as hereinafter specified or extension as hereinafter
provided. Either Manager or Elsinore may terminate this Agreement upon 120 days
notice after the second Fiscal Year's audited results are available, provided
that cumulative EBITDA for the first two Fiscal Years is less than 80% of the
cumulative Projected EBITDA. In the event that Elsinore elects to terminate this
Agreement at the end of the second Fiscal Year because the 80% cumulative
Projected EBITDA target was not met, Manager will have 60 days after receipt of
notice of Elsinore's election to so terminate in which to exercise its Warrants.
If Manager does not exercise its Warrants, or exercises only a portion of its
Warrants, then any Warrants remaining unexercised at the end of the 60 day
period will be automatically cancelled.
Section 2.3 Option to Extend Term. The Term may be extended at the
option (the "Extension Option") of Manager (the "Extended Term") for an
additional term of two years, provided that cumulative EBITDA for the Term is
80% or more of the cumulative Projected EBITDA. Manager shall give written
notice of its exercise of an Extension Option no later than 120 days prior to
the expiration of the Term, on the assumption that cumulative EBITDA for the
Term will be 80% or more of the cumulative Projected EBITDA.
ARTICLE III: RESPONSIBILITIES OF THE PARTIES.
Section 3.1 Standards. With respect to the operation of the Project
pursuant to this Agreement, Manager shall manage and maintain the Project in a
manner reasonably consistent with the average of standards and procedures
exercised by other casino/hotel operators in the management of other
casino/hotels of the same or similar type, class and quality as the Project and
located in Las Vegas, Nevada.
Section 3.2 No Interference; Board Representation. In order for
Manager to meet its responsibilities under Section 3.1 of this Agreement in a
professional manner, and to comply with any legal requirements and the terms of
this Agreement, the Companies hereby
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agree that (i) Manager shall have uninterrupted control of and responsibility
for the operation of the Project during the Term of this Agreement and (ii) the
Companies will not interfere or be involved with the operation of the Project
and that Manager may operate the Project free of molestation, eviction or
disturbance by the Companies or any third party claiming by, through or under
the Companies, provided that Manager shall not engage in any transaction with
any of its affiliates relating to the Project in excess of $10,000 without the
prior written approval of the Elsinore Board of Directors. Notwithstanding the
foregoing, during normal business hours and upon reasonable notice to Manager,
the Companies' directors and Elsinore's major stockholder and their agents may
visit the Project and may ask the Manager and the companies' officers about
various aspects of the Companies' business, operations and financial results.
Examples of the matters which Manager shall determine from time to time
hereunder include, but are not limited to, room rates, food and beverage menu
prices, charges to guests for other services performed by Manager at the
Project, for rooms, gaming, commercial purposes and entertainment, entertainment
policies and specific entertainment obligations, the labor policies of the
Project and the type and character of publicity and promotion. Manager agrees,
however, that it will in good faith use its best efforts to perform its
obligations and discharge its responsibilities in the control and operation of
the Project in and for the purpose of maximizing profits from the operation of
the Project. Nothing contained in this Section 3.2 shall prohibit the Companies'
Boards of Directors from exercising their fiduciary duties if Manager shall
default in its obligations under this Agreement pursuant to Section 6.2 and such
default shall continue after any required notice and/or cure period.
Section 3.3 Services. Manager covenants and agrees to perform, or
cause to be performed, the following services in connection with the Project:
(a) Permits. Manager, on behalf of and with the cooperation of
the Companies, shall oversee obtaining and maintaining all necessary
licenses, findings of suitability, approvals and permits required by
any law, rule or regulation of the Nevada Gaming Authorities, as may be
required for the operation of the Project as a casino/hotel including,
without limitation, gaming, liquor, bar, restaurant, signage and hotel
licenses and any permits required in connection with any refurbishing
or expansion of the Project. Manager shall comply with the rules,
regulations and orders of the Nevada Gaming Authorities and with any
conditions set out in any such licenses and permits issued by any such
authorities and, with the cooperation of the Companies, shall provide
any information, report or access to records reasonably required by the
Nevada Gaming Authorities.
(b) Personnel. Manager shall maintain such level of staffing
as shall be required to carry out its duties hereunder. If the Board of
Directors of Elsinore determines that Manger is not meeting its
staffing requirements, then Manager and Elsinore will meet in good
faith to resolve any staffing issues. If such dispute is not resolved
within two weeks, and either Manager or Elsinore determines that such
dispute cannot be resolved within a reasonable time, then such dispute
shall be resolved by arbitration pursuant to Article IX.
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(i) Except as otherwise expressly provided herein, all
personnel employed at the Project shall be employees of Four Queens.
Manager shall hire, terminate, advance, demote, supervise, direct the
work of and determine the compensation and other benefits (except for
the establishment of any new employee pension and profit-sharing plans,
which shall be determined by Manager and shall be subject to the
approval of the Board of Directors of Elsinore in its sole and absolute
discretion, it being understood that any employee pension and
profit-sharing plans in existence as of the date hereof have been
approved by the Board of Directors of Elsinore) of all personnel
working at the Project, and Elsinore shall not interfere with or give
orders or instructions to personnel employed at the Project; provided,
however, that Manager will not enter into any employment contracts with
any employees that exceed the duration of the Term or the Extended Term
of this Agreement, as the case may be, or any material employee
contracts or benefit arrangements (i.e., any such contract or
arrangement involving an annual compensation (including salary and
bonuses) of more than $125,000), unless first approved by the Board of
Directors of Elsinore which approval shall not be unreasonably
withheld. Manager agrees that employees' wages or benefits and
conditions of employment (inclusive of any discretionary employee
bonuses granted from time to time by Manager) shall be granted by
Manager in a manner consistent with the existing standards therefor
currently employed at the Project. The parties hereto agree that all
wages, bonuses, compensation and benefits (including, without
limitation, severance and termination pay) of personnel at the Project
are the exclusive obligation of Four Queens.
(ii) All wages, salaries, benefits, compensation and
entitlements of the Project employees, including the General Manager,
the consultants and independent contractors approved by the Companies
and Manager, shall be paid from the Operating Bank Accounts by Manager.
Notwithstanding the foregoing, Manager shall not be liable to any of
the Companies' personnel for wages, compensation or other employee
benefit including without limitation to health care, insurance
benefits, worker's compensation, severance or termination pay.
(iii) Manager shall be responsible for the training of all
personnel and shall cooperate with all personnel in an effort to obtain
and maintain all required licenses issued by the Nevada Gaming
Authorities, and will hire only persons with valid employee licenses,
if under the rules and regulations of the Nevada Gaming Authorities,
such employee licenses are a condition of employment.
(iv) The employees necessary to discharge Manager's
obligations and responsibilities hereunder shall be employees of
Manager (or its Affiliates) and shall be hired, paid and discharged by
Manager in its sole and absolute discretion. Manager shall in good
faith determine the number of employees necessary to discharge
Manager's obligations and responsibilities hereunder, the salaries and
other compensation arrangements of such employees shall be the
responsibility of Manager and Manager shall not have any right of
reimbursement from the Companies in respect thereof.
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(v) The Companies may employ such corporate executives, each
of whom shall be licensable if required by Nevada Gaming Authorities,
as they may choose, provided that none of the salaries, bonuses and
benefits for such executives or costs or expenses of the Companies'
Boards of Directors shall be a cost of operation of the Project for the
purposes of determining EBITDA.
Section 3.4 Sales and Promotions. Manager shall formulate, coordinate
and implement promotion, marketing and sales programs, and shall cause the
Project to participate in promotional, marketing and sales campaigns and, as
appropriate, activities involving complimentary rooms and food and beverages to
bona fide travel agents, tourist officials and airlines representatives, and to
all other individuals and entities whatsoever which, in the exercise of good
management practice, is deemed to be beneficial to the Project.
The Companies agree that no unreasonable influence shall be brought
upon Manager relating to the granting or extension of credit or complimentaries.
Credit facilities shall be granted by Manager in its reasonable discretion and
in accordance with good management practices and Manager's and its Affiliates
standard procedures; provided that except for extending credit for the purchase
of goods, services, gaming or entertainment at the Project and except as
otherwise permitted herein, Manager shall not be authorized to make any loans or
extensions of credit for or on behalf of the Companies without the prior
approval of the Board of Directors of Elsinore.
Section 3.5 Books and Records. Manager shall maintain, or cause to be
maintained, a complete accounting system for and on behalf of the Companies in
connection with Manager's management of the Project. The books and records shall
be kept in accordance with generally accepted accounting principles consistently
applied and in accordance with the uniform system of accounts for hotels. Such
books and records shall be kept on the basis of a Fiscal Year. Books and
accounts shall be maintained at the Project or at the principal office of
Manager with a duplicate copy thereof at the Project. The Companies shall have
the right and privilege of examining and copying said books and records,
including all daily reports prepared by Manager for internal use at the Project,
during regular business hours. Manager shall comply with all requirements with
respect to internal controls and accounting and shall prepare and provide all
required reports under the rules and regulations of the Nevada Gaming
Authorities.
Section 3.6 Audits.
(a) Manager shall engage ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, unless a
different mutually agreed upon auditor is substituted ("Regular
Auditor"), to audit the operations of the Companies, (i) for the
purpose of calculating the Performance Fee ("Performance Fee
Statements") and (ii) as of and at the end of each year occurring after
the date hereof (the "Audited Statements"). A sufficient number of
copies of the Performance Fee Statements and the Audited Statements
shall be furnished to the Companies and Manager as soon as available to
permit the Companies and
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Manager to meet any public reporting requirements as may be applicable
to them, but in no event later than ninety (90) days following the end
of such fiscal period (such 90th day to be the "Audit Day"). Any cost
of such statements shall be deemed an Operating Expense.
(b) Nothing herein contained shall prevent either party
("Initiator") from designating an additional independent nationally
recognized accounting firm ("Special Auditor") to review one of the
Performance Fee Statements or Audited Statements at the Initiator's
expense (which shall not be an Operating Expense). In the event of any
dispute between the Regular Auditor and the Special Auditor as to any
item subject to audit, the Regular Auditor and the Special Auditor
shall select a third nationally recognized accounting firm ("Third
Auditor") whose resolution on the non-prevailing party of such dispute
to pay the fees and expenses of the Special Auditor or Third Auditor
shall bind the parties. The fees of the Third Auditor shall be paid by
either the Companies or Manager, based upon which of them the Third
Auditor designates as the non-prevailing party, and the Third Auditor
may also, in its sole discretion, impose the costs of the Special Audit
on the non-prevailing party.
(c) If no Special Auditor shall have been designated within 60
days after the delivery of a Performance Fee Statement or an Audited
Statement, the same shall be final and binding upon the parties to this
Agreement for all purposes.
Section 3.7 Monthly and Quarterly Financial Statements. On or before
the 20th day of each month, Manager shall prepare an unaudited operating
statement for the preceding calendar month detailing the Gross Revenues and
expenses incurred in the Project's operation (the "Monthly Financial
Statements"). The Monthly Financial Statements shall include a statement
detailing drop figure accounts on all Gross Gaming Revenues. On or before the
45th day after the end of each quarter, Manager shall prepare an unaudited
report for the preceding quarter detailing the capitalized expenditures and
marketing expenses incurred in the Project's operation.
Section 3.8 Expenses. All costs, expenses, funding or operating
deficits and Operating Capital, real property and personal property taxes,
insurance premiums and other liabilities incurred due to the gaming and
nongaming operations of the Project shall be the sole and exclusive financial
responsibility of the Companies. It is understood that statements herein
indicating that the Companies shall furnish, provide or otherwise supply,
present or contribute items or services hereunder shall not be interpreted or
construed to mean that Manager is liable or responsible to fund or pay for such
items if the Companies do not.
Section 3.9 Annual Budgets. Manager shall prepare and submit to the
Companies' Boards of Directors at least 60 days before the start of the new
Fiscal Year for their approval a capital budget for the expenditure of capital
improvements ("Capital Budget"). To the extent practical, a reserve shall be
established for this purpose. The parties agree that any "material" expenditure
not contemplated by the Capital Budget shall require the consent of both Manager
and the Companies. For the foregoing purposes, "material" shall
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mean $20,000 in the case of any such individual item and an aggregate of
$250,000 in the case of all such items. Manager shall also prepare and submit to
the Companies' Boards of Directors at least 60 days before the start of the new
Fiscal Year for their approval an operating budget projecting revenues, expenses
and EBITDA for the next Fiscal Year ("Operating Budget"). Manager shall have the
responsibility to manage the Project in accordance with the Operating Budget
except for expenses necessitated by circumstances beyond Manager's reasonable
control. Any dispute as to the Capital Budget or the Operating Budget shall be
resolved by arbitration pursuant to Article IX.
Section 3.10 Operating Bank Accounts.
(a) Manager shall establish bank accounts that are necessary
for the operation of the Project, including an account for the Casino
Bankroll, at various banking institutions chosen by Manager (such
accounts are hereinafter collectively referred to as the "Operating
Bank Accounts"). The Operating Bank Accounts shall be named in such a
manner as to identify the Project and particular uses for the account
as the Companies and Manager may determine. All instructions to and
checks drawn on the Operating Bank Accounts shall be signed only by
representatives of the Companies or Manager who are covered by fidelity
insurance and designated the Companies or Manager personnel may be the
only authorizing signing persons on checks drawn on the Operating Bank
Accounts. All checks shall be drawn only in accordance with established
normal and customary accounting policies and procedures. The Operating
Bank Accounts shall be interest bearing accounts if such accounts are
reasonably available and all interest thereon shall be credited to the
Operating Bank Accounts. All Gross Revenues (excluding noncash items)
shall be deposited in the Operating Bank Accounts, and Manager shall
pay out of the Operating Bank Accounts, to the extent of the funds
therein, from time to time, all Operating Expenses and other amounts
required by Manager to perform its obligations under this Agreement.
All funds in the Operating Bank Accounts shall be separate from any
other funds of any of Manager's Affiliates and the Companies'
Affiliates and neither the Companies nor Manager may commingle such
funds in the Operating Bank Accounts with the funds of any other bank
accounts.
(b) Manager agrees that it will not use any Operating Bank
Accounts as compensating balances related to the extension of credit to
Manager or grant any right of set-off or bankers' lien on any such
accounts in respect of any amounts owed by Manager to such
depositories. Manager shall seek to obtain reasonable rates of interest
for the Operating Bank Accounts, with due regard to the financial
stability of and services offered by the depositories with which such
accounts are kept. The parties to this Agreement agree that all funds
held from time to time in the Operating Bank Accounts are solely the
property of Four Queens, and upon the expiration or Termination (as
defined below) of this Agreement for any reason, Manager shall cease to
withdraw funds from all Operating Bank Accounts and shall take such
steps as shall be necessary to (1) remove Manager's designees as
signatories to the Operating Bank Accounts and (2) authorize Elsinore's
designees
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to become the sole signatories to the Operating Bank Accounts. This
provision shall survive Termination. It is understood and agreed that
Manager may maintain ▇▇▇▇▇ cash funds at the Project and make payments
therefrom as the same are customarily made in the casino/hotel
business.
(c) The Companies shall have the right to fund their
obligations under the Plan by withdrawals from Operating Bank Accounts.
The Companies' ability to make other withdrawals from Operating Bank
Accounts shall be consistent with their funding obligations under this
Agreement and in accordance with established accounting policies and
procedures.
Section 3.11 Payment of Expenses.
(a) Manager shall pay from the Gross Revenues the following
items in the order of priority listed below, on or before their
applicable due date: (i) required payments to the Governmental
Authorities, including federal, state or local payroll taxes ("Payroll
Taxes"), (ii) Operating Expenses, including taxes (other than Payroll
Taxes) and the Management Fee, and (iii) emergency expenditures to
correct a condition of an emergency nature, including structural
repairs, which require immediate repairs to preserve and protect the
Project. In the event that funds are not available for payment of the
Operating Expenses in their entirety, all Payroll Taxes or withholding
taxes shall be paid first from the available funds.
(b) During the Term of this Agreement, within five (5)
Business Days after receipt of written notice from Manager, the
Companies shall fund the Operating Bank Accounts designated by Manager
(the "Companies' Advances") in such a fashion so as to adequately
insure that the Operating Capital set forth in the Operating Budget as
revised is sufficient to support the uninterrupted and efficient
ongoing operation of the Project. The written request for any
additional Operating Capital shall be submitted by Manager to the
Companies on a monthly basis based on the interim statements and the
Operating Budget, as revised.
Section 3.12 Cooperation of the Companies and Manager. The Companies
and Manager shall cooperate fully with each other during the Term and the
Extended Term, if any, of this Agreement to facilitate the performance by
Manager of Manager's obligations and responsibilities set forth in this
Agreement.
Section 3.13 Financing Matters.
(a) In no event may either party represent that the other
party or any Affiliate of such party is or in any way may be liable for
the obligations of such party in connection with (i) any financing
agreement, or (ii) any public or private offering or sale of
securities. If the Companies, or any Affiliate of the Companies shall,
at any time, sell or offer to sell any securities issued by the
Companies or any Affiliate of the Companies through the medium of any
prospectus or otherwise and which
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relates to the Project or its operation, it shall do so only in
compliance with all applicable laws, and shall clearly disclose to all
purchasers and offerees that (i) neither Manager nor any of its
Affiliates, officers, directors, agents or employees shall in any way
be deemed to be an issuer or underwriter of such securities, and (ii)
Manager and its Affiliates, officers, directors, agents and employees
have not assumed and shall not have any liability arising out of or
related to the sale or offer of such securities, including without
limitation, any liability or responsibility for any financial
statements, projections or other information contained in any
prospectus or similar written or oral communication. Manager shall have
the right to approve any description of Manager or its Affiliates, or
any description of this Agreement or of the Companies' relationship
with Manager hereunder, which may be contained in any prospectus or
other communications (unless such information is furnished to the
Companies by Manager in writing), and the Companies agree to furnish
copies of all such materials to Manager for such purposes within a
reasonable time prior to the delivery thereof to any prospective
purchaser or offeree. The Companies agree to indemnify, defend or hold
Manager and its Affiliates, officers, directors, agents and employees,
free and harmless from any and all liabilities, costs, damages, claims
or expenses arising out of or related to the breach of the Companies'
obligations under this Section 3.13. Manager agrees to reasonably
cooperate with the Companies in the preparation of such agreements and
offerings.
(b) Notwithstanding the above restrictions, subject to
Manager's right of review set forth in this Section 3.13, the Companies
may represent that the Project is managed by Manager and Manager may
represent that it manages the Project and both may describe the terms
of this Agreement and the physical characteristics of the Project in
regulatory filings and public or private offerings. Moreover, nothing
in this Section shall preclude the disclosure of (i) already public
information, or (ii) audited or unaudited financial statements from the
Project required by the terms of this Agreement or (iii) any
information or documents required to be disclosed to or filed with the
Governmental Authorities. Both parties shall use their best efforts to
consult with the other concerning disclosures as to the Project. The
Companies and Manager shall cooperate with each other in providing
financial information concerning the Project and Manager that may be
required by any lender or required by any Governmental Authority.
Section 3.14 Taxes and Insurance. Throughout the Term or the Extended
Term, the Companies shall furnish Manager with copies of all tax statements and
insurance policies and all financing documents (including notes and mortgages)
relating to the Companies. Manager shall cause all federal and state income and
sales tax returns of the Companies to be prepared and shall cooperate with
taxing authorities in connection with any inquiries or audits that relate to the
Companies. Manager will also assist the Companies in procuring and maintaining
liability, property and such other insurance in at least such amounts and
covering such risks as is currently maintained with respect to the Companies and
in such additional amounts and covering such additional risks, if any, as
Manager and Elsinore determine is necessary in connection with the operation of
the Companies, with responsible
- 12 -
and reputable insurance companies or associations. All such insurance policies
shall name Manager as an additional insured and all insurers thereon shall be
required to issue to Manager a certificate of insurance providing that such
insurer shall deliver to Manager reasonable prior notice of termination of any
such policy or the coverage provided thereby and, if and to the extent the same
shall be available without adversely affecting Four Queens' coverage and without
additional premiums or charges, waiving the rights of such insurer, if any, of
subrogation against Manager. Without in any way diminishing Four Queens'
responsibility hereunder, Manager is hereby authorized and directed to pay from
the Operating Bank Accounts all taxes and insurance fees including, without
limitation, withholding taxes and insurance premiums, and all other items of
expense relating to the ownership or operation of the Companies.
Section 3.15 Concessions. Manager shall consummate, if in Manager's
reasonable discretion it deems the same to be in the best interest of the
Project, in the name of and for the benefit of Four Queens, reasonable
arms-length arrangements and leases with concessionaires, licensees, tenants and
other intended users of any facilities related to the Project. Copies of all
such arrangements shall be furnished to Elsinore.
Section 3.16 Material Assessments. Manager, as exclusive agent for Four
Queens, is authorized to make and enter into any agreements (including, without
limitation, agreement with Manager's Affiliates, provided such agreements
represent the equivalent of reasonable arms, length negotiations) as are, in
Manager's opinion, necessary or desirable for the operation, supply and
maintenance of the Project, as required by this Agreement. Manager shall be
required to obtain the prior written approval of the Board of Directors of
Elsinore which approval shall be in the absolute discretion of such Board of
Directors before entering into any agreement not contemplated by the approved
Annual Budget. Manager shall not enter into any agreement involving the
incurrence of debt obligations on behalf of either or both of the Companies, or
for Manager's own account, with respect to the operations of the Project, over
any amounts therefor set forth in the approved Annual Budget.
Section 3.17 Trademarks. Manager (i) acknowledges the Companies'
exclusive rights in and to the trademarks, service marks, trade names and other
such intellectually property utilized by the Companies in the operation of the
Project (the "Four Queens Marks") and (ii) agrees not to do any act that will
impair or affect the strength of the Four Queens Marks, the continuity of the
registration of the Four Queens Marks, the Companies' ownership of the Four
Queens Marks or the goodwill associated with the Four Queens Marks. Manager
agrees to render whatever assistance Elsinore may reasonably require in the
procurement and maintenance of registrations of the Four Queens Marks in the
United States Patent and Trademark Office and in other jurisdictions.
- 13 -
ARTICLE IV: MANAGEMENT FEE; WARRANTS
Section 4.1 Payments to Manager.
(a) Manager shall be paid a minimum fee at the rate of
$1,000,000 per annum (the "Minimum Fee") payable in advance in equal
monthly installments of $83,333.33 on the first day of each month
during the Term and the Extended Term, if any.
(b) Promptly, and in no event later than 90 days following
receipt of audited financial statements after the end of a Fiscal Year,
Manager shall be paid the Performance Fee, if any. Although the
Effective Date will occur approximately two months later, the
Performance Fee for 1997 will be calculated for the period commencing
January 1, 1997.
Section 4.2 Interest on Overdue Amounts; Collection Costs. If for any
reason the Management Fee (both the Minimum Fee or Performance Fee) or any other
amount due to Manager under this Agreement is not paid on a timely basis, such
amount shall bear interest at the rate of 12% per annum until paid in full.
Manager shall also be entitled to reimbursement for the costs of collection,
including counsel fees and disbursements, with respect to amounts due to it
under this Agreement but which are unpaid.
Section 4.3 Bonus. Four Queens or Elsinore will have the option to
terminate this Agreement on 90 days prior written notice if (i) substantially
all of the assets of the Four Queens are sold, (ii) Four Queens is merged or
consolidated with another company, or (iii) the current shareholders sell at
least the majority of the shares of Four Queens or Elsinore during the term of
this Agreement. If this Agreement is so terminated before the expiration of the
Term or the Extended Term, if applicable, then Manager will be entitled to
receive $2 million in cash, minus any amount realized or realizable upon
exercise of the Warrants.
Section 4.4 Warrants. Elsinore hereby grants Manager warrants (in
customary form in the reasonable opinion of counsel to Manager) (the "Warrants")
on the terms summarized below, which summary is qualified by reference to the
Warrant Agreement, a copy of which is attached hereto as Exhibit A:
(a) Number of Shares Purchased: 20% of the issued and
outstanding equity capital (on a fully diluted basis) of Elsinore on
the Effective Date.
(b) Duration: Co-extensive with the Term and Extended
Term of this Agreement (i.e. five years but only if Extension Option
is exercised).
(c) Exercise Price: The greater of (i) book value per
share on the Effective Date after the additional cash from the rights
offering (as defined in the
- 14 -
Plan) or (ii) the "Rights Offering Net Per Share" resulting from such
rights offering. Rights Offering Net Per Share shall mean $5 million
divided by the number of shares of Elsinore outstanding after giving
effect to the rights offering and exercise of the Warrants.
(d) Anti-Dilution Adjustment: In addition to standard
adjustment for stock splits, stock dividends, recapitalizations and
similar events, the Exercise Price would be reduced and the number of
Warrants would increase by a formula if (i) shares of common stock are
sold at less than current market value, unless the Company obtains an
opinion from an investment banker that such sale at less than current
market value was necessary as a result of the quantity of common stock
being sold, or (ii) warrant options or convertible securities are
issued with an exercise or conversion price less than current market
value (other than issuances to full-time employees of Elsinore involved
in the operation of the Project of shares of common stock and options
or warrants to purchase up to an aggregate of 10% of the Elsinore
issued and outstanding common stock as of the Effective Date).
(e) Registration Rights: Manager will have the right to
become a party (with the identical rights as the Elsinore bondholders)
to the Registration Rights Agreement among the Elsinore bondholders
and Elsinore.
ARTICLE V: REPRESENTATIONS AND WARRANTIES
Section 5.1 Manager represents and warrants to the Companies as
follows:
(a) Companies' Organization. Manager is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Nevada and has the full corporate power and authority to enter
into and perform its obligations under this Agreement.
(b) Authorization of Agreement. The execution, delivery and
performance of this Agreement has been duly authorized and approved by
all necessary corporate action on the part of Manager, and this
Agreement has been duly executed and delivered by Manager and
constitutes the legal, valid and binding obligation of Manager,
enforceable against Manager in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights
and remedies generally and subject, as to enforceability, to general
principles of equity. The execution, delivery and performance of this
Agreement by Manager does not and will not conflict with any law, rule
or regulation of the Nevada Gaming Authorities.
(c) Litigation. There are no judicial or administrative
actions, proceedings or investigations pending or, to the best of
Manager's knowledge, threatened against Manager that question the
validity of this Agreement or any action taken or to be taken by
Manager in connection with this Agreement and that, if adversely
- 15 -
determined, would have a material adverse effect upon Manager's ability
to perform its obligations under this Agreement.
(d) Consents and Approvals. With the exception of the
requisite approvals of the Nevada Gaming Authorities, no authorization,
consent, approval, license, finding of suitability, exemption from or
filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary as a condition to the valid execution,
delivery or performance by Manager of this Agreement, other than such
authorizations, consents, approvals, licenses, findings of suitability,
exemptions, filings or registrations as have been obtained and are in
full force and effect.
Section 5.2 The Companies represent and warrant to Manager as follows:
(a) Companies' Organization. The Companies are corporations
duly organized, validly existing and in good standing under the laws of
the State of Nevada and have the full corporate power and authority to
enter into and perform its obligations under this Agreement.
(b) Authorization of Agreement. The execution, delivery and
performance of this Agreement and the Plan has been duly authorized and
approved by all necessary corporate action on the part of the
Companies, and this Agreement has been duly executed and delivered by
the Companies and constitutes the legal, valid and binding obligation
of them, enforceable against them in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights
and remedies generally and subject, as to enforceability, to general
principles of equity. The execution, delivery and performance of this
Agreement by the Companies does not and will not conflict with any law,
rule or regulation of the Nevada Gaming Authorities.
(c) Consents and Approvals. With the exception of the
requisite approvals of the Nevada Gaming Authorities, no authorization,
consent, approval, license, finding of suitability, exemption from or
filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary as a condition to the valid execution,
delivery or performance by the Companies of this Agreement, other than
such authorizations, consents, approvals, licenses, findings of
suitability, exemptions, filings or registrations as have been obtained
and are in full force and effect.
(d) No Joint Venture. It is expressly understood and
agreed that Manager is being employed by the Companies as an
independent contractor to provide, or cause to be provided, supervisory
management and consulting services in respect of the Project and not
as a partner or joint venturer of the Companies or either or them. All
purchases and acquisitions of every kind and character by Manager on
- 16 -
behalf of the Companies shall be property of the Companies and all
debts and liabilities incurred by Manager within the scope of the
authority granted and permitted hereunder in the course of its
management and operation of the Project shall be debts and liabilities
of the Companies only, and Manager shall not be liable therefor for its
own account, except as specifically stated to the contrary herein.
ARTICLE VI. DEFAULT
Section 6.1 Definition. The occurrence of any one or more of the events
described in the Sections 6.2, 6.3, 6.4 or 6.5 which is not cured within the
time permitted, shall constitute a default under this Agreement (hereinafter
referred to as a "Default" or an "Event of Default") as to the party failing in
the performance or effecting the breaching act.
Section 6.2 Manager's Defaults. If Manager shall (a) fail to perform or
materially comply with any of the covenants, agreements, terms or conditions
contained in this Agreement applicable to Manager and such failure shall
continue for a period of thirty (30) days after written notice thereof from the
Companies to Manager specifying in detail the nature of such failure, or, in the
case such failure is of a nature that it cannot, with due diligence and good
faith, be cured within thirty (30) days, if Manager fails to proceed promptly
and with all due diligence and in good faith to cure the same and thereafter to
prosecute the curing of such failure to completion with all due diligence within
ninety (90) days thereafter, or (b) take or fail to take any action to the
extent required of Manager by the Nevada Gaming Authorities unless Manager cures
such default or breach prior to the expiration of applicable notice, grace and
cure periods, if any, provided, however, that Manager shall only be required to
cure any defaults with respect to which Manager has a duty hereunder.
Section 6.3 The Companies' Default. If the Companies shall (a) fail to
make any monetary payment required under this Agreement, including, but not
limited to, the Companies' Advances, on or before the due date recited herein
and said failure continues for five (5) Business Days after written notice from
Manager specifying such failure, or (b) fail to perform or materially comply
with any of the other covenants, agreements, terms or conditions contained in
this Agreement applicable to the Companies (other than monetary payments) and
which failure shall continue for a period of thirty (30) days after written
notice thereof from Manager to the Companies specifying in detail the nature of
such failure, or, in the case such failure is of a nature that it cannot, with
due diligence and good faith, cure within thirty (30) days, if the Companies
fail to proceed promptly and with all due diligence and in good faith to cure
the same and thereafter to prosecute the curing of such failure to completion
with all due diligence within ninety (90) days thereafter.
Section 6.4 Bankruptcy. With the exception of any actions taken
pursuant to the Proceedings, if any party (a) applies for or consents to the
appointment of a receiver, trustee or liquidator of itself or any of its
property, (b) makes a general assignment for the benefit of creditors, (c) is
adjudicated a bankrupt or insolvent, or (d) files a voluntary petition in
bankruptcy or a petition or an answer seeking reorganization or an arrangement
with
- 17 -
creditors, takes advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law, or admits the material
allegations of a petition filed against it in any proceedings under any such
law.
Section 6.5 Reorganization/Receiver. With the exception of any actions
taken pursuant to the Proceedings, if an order, judgment or decree is entered by
any court of competent jurisdiction approving a petition seeking reorganization
of Manager or the Companies, as the case may be, or appointing a receiver,
trustee or liquidator of Manager or the Companies, as the case may be, or of all
or a substantial part of any of the assets of Manager or the Companies, as the
case may be, and such order, judgment or decree continues unstayed and in effect
for a period of sixty (60) days from the date of entry thereof.
Section 6.6 Delays and Omissions. No delay or omission as to the
exercise of any right or power accruing upon any Event of Default shall impair
the non-defaulting party's exercise of any right or power or shall be construed
to be a waiver of any Event of Default or acquiescence therein.
Section 6.7 Disputes in Arbitration. Notwithstanding the provisions of
this Article VI, any occurrence which would otherwise constitute an Event of
Default hereunder shall not constitute an Event of Default for so long as such
dispute is in arbitration pursuant to the arbitration provisions of Article IX.
ARTICLE VII. TERMINATION
Section 7.1 Termination Events. This Agreement may be terminated by the
non-defaulting party upon the occurrence of an Event of Default and the lapsing
of the time to cure.
Section 7.2 Notice of Termination. In the event of the occurrence and
continuation for the relevant cure period of an Event of Default, either Manager
or the Companies, as appropriate, may terminate ("Termination") this Agreement
by giving ten (10) days written notice, and the Term or the Extended Term of
this Agreement shall expire by limitation at the expiration of said last day
specified in the notice as if said date was the date herein originally fixed for
the expiration of the Term or the Extended Term hereof.
Section 7.3 Payments Upon Termination. The Companies shall pay to
Manager all accrued but unpaid Management Fees and expenses of Manager and any
other sum owed Manager pursuant to this Agreement.
Section 7.4 Post Termination. Upon a Termination:
(a) Manager shall promptly deliver to Elsinore any books,
records, instruments or other documentation relating to the Project and
the Companies in Manager's possession or under Manager's control;
- 18 -
(b) Manager and its Affiliates shall release and waive all
rights, claims, interests and relationships they may have to control,
retain, or discharge any matter of management with respect to the
Project, or any other benefit thereunder or in connection therewith,
except as specified in Section 7.3 and for the provisions of Article
VIII which shall survive Termination; and
(c) Manager shall peacefully vacate and surrender possession
to Four Queens, and shall fully cooperate in the prompt and efficient
transfer of the management of the Project from Manager to Four Queens
or a person or entity designated by Four Queens. In connection with the
foregoing, Manager shall act in good faith to avoid any breach or
disruption of any contract involving the Project or the lapse of any
insurance policy covering or pertaining to the Project.
Section 7.5 Transfer of Permits and Gaming Licenses Upon Termination.
To the fullest extent permissible under applicable law, upon termination or
expiration of this Agreement, Manager shall cooperate in the transfer of any and
all permits, licenses or similar authorizations issued by any governmental body
(including, without limitation, the Nevada Gaming Authorities) relating to the
operation or management of any or all of the Project to the new manager.
Section 7.6 Option to Terminate. Elsinore will have the right to
terminate this Agreement on 90 days prior written notice if (i) three months
after ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ has given notice that he will retire as Chief
Executive Officer ("CEO") of Riviera Holdings Corporation or its subsidiary
Riviera Gaming Management, a successor acceptable to Elsinore has not been
appointed or (ii) three months after the death of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, a
successor acceptable to Elsinore has not been appointed.
If either Four Queens or Elsinore terminates this Agreement pursuant to
this Section 7.6 or Section 4.3, then any increase in the Management Fee due to
the Performance Fee payable under Section 4.1 will be calculated as follows: the
Performance Fee through the date of termination will be 25% of the increase of
(i) EBITDA through the date of termination over (ii) $666,666.67 times the
number of months elapsed in the Fiscal Year through the date of termination. The
Performance Fee will be paid to Manager promptly, but in no event later than 90
days after the termination date.
ARTICLE VIII: EXCULPATION AND INDEMNIFICATION.
Section 8.1 Exculpation. Manager, its Affiliates and each of their
respective officers, partners, directors, employees and agents shall not be
liable to the Companies or any person who has acquired an interest in either or
both of the Companies, for any losses sustained or liabilities incurred,
including monetary damages, as a result of any act or omission of Manager, its
Affiliates or any of their respective officers, partners, directors, employees
or agents, if the conduct of Manager or such other person did not constitute
actual fraud, gross negligence or willful or wanton misconduct ("Manager Conduct
Standard"). The negative disposition of any action, suit or proceeding by
judgment, order,
- 19 -
settlement, conviction or upon a plea of nolo contendere, or its equivalent,
shall not, of itself, create a presumption that Manager, its Affiliates or any
of their respective officers, partners, directors, employees or agents acted in
a manner contrary to the Manager Conduct Standard. Nothing contained in this
Agreement shall exculpate or limit Manager's liability for unlawful
misappropriation of the Companies' assets.
Section 8.2 Indemnification.
(a) Subject to the provisions of Section 8.2(b) hereof, the
Companies shall indemnify and hold harmless Manager, its Affiliates and
any of their respective officers, partners, directors, employees and
agents (each individually, an "Indemnitee"), from and against any and
all losses, claims, damages, liabilities, expenses (including
reasonable legal fees and expenses), judgments, fines, settlements and
other amounts arising from any and all claims, demands, actions, suits
or proceedings, civil, criminal, administrative or investigative, in
which an Indemnitee may be involved, or threatened to be involved, as a
party or otherwise, which relates to, or arises out of, the performance
of any duties and services for or on behalf of the Companies pursuant
to the terms and within the scope of this Agreement, regardless of
whether the liability or expense accrued at or relates to, in whole or
in part, any time before, on or after the date hereof. The negative
disposition of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not, of itself, create a presumption that an
Indemnitee acted in a manner contrary to the Manager Conduct Standard.
(b) An Indemnitee shall not be entitled to indemnification
under this Section 8.2 with respect to any claim, issue or matter in
which it has been finally adjudged in a nonappealable order that such
Indemnitee has breached the Manager Conduct Standard unless and only to
the extent that the court in which such action was brought, or another
court of competent jurisdiction, determines upon application that,
despite the adjudication of liability, in view of all of the
circumstances of the case, the Indemnitee is fairly and reasonably
entitled to indemnification for such liabilities and expenses as the
court may deem proper. In addition, notwithstanding anything to the
contrary contained in this Article VIII, an Indemnitee shall not be
entitled to indemnification under this Section 8.2 against losses
sustained or liabilities incurred if such losses or liabilities are
finally determined by a court of competent jurisdiction to have been
the direct result of the Manager Conduct Standard.
(c) In the event that any legal proceedings shall be
instituted or any claim or demand shall be asserted by any person in
respect of which payment may be sought by an Indemnitee under the
provisions of this Section 8.2, the Indemnitee shall promptly cause
written notice of the assertion of any such proceeding or claim of
which it has actual knowledge to be forwarded to the Companies. Upon
receipt of such notice, the Companies shall have the right, at their
option and expense, to be represented by counsel of their choice, and
to defend against, negotiate, settle or otherwise deal with any
proceeding, claim or demand which relates to any loss,
- 20 -
liability, damage or deficiency indemnified against hereunder;
provided, however, that no settlement shall be made without prior
written consent of the Indemnitee which shall not be unreasonably
withheld; and provided further, that the Indemnitee may participate in
any such proceeding with counsel of its choice and at its expense. The
Indemnitee and the Companies agree to cooperate fully with each other
in connection with the defense, negotiation or settlement of any such
legal proceeding, claim or demand.
After any final judgment or award shall have been rendered by
a court, arbitration board or administrative agency of competent
jurisdiction and the expiration of the time in which to appeal
therefrom, or a settlement shall have been consummated, or the
Indemnitee and the Companies shall have arrived at a mutually binding
agreement with respect to each separate matter indemnified by the
Companies hereunder, the Indemnitee shall forward to the Companies
notice of any sums due and owing by it pursuant to this Agreement with
respect to such matter and the Companies shall be required to pay all
of the sums so owing to the Indemnitee in immediately available funds,
thirty (30) days after the date of such notice.
(d) The indemnification provided by this Section 8.2 shall be
in addition to any other rights to which an Indemnitee may be entitled
under any agreement, bylaw or vote of the Board of Directors of
Elsinore or Four Queens, respectively, or as a matter of law or
otherwise, both as to action in the Indemnitee's capacity as Manager,
an Affiliate thereof or an officer, partner, director, employee or
agent of Manager or its Affiliates and as to action in any other
capacity, shall continue as to an Indemnitee who has ceased to serve in
such capacity and shall inure to the benefit of the heirs, successors,
assigns and administrators of an Indemnitee.
ARTICLE IX: ARBITRATION
Section 9.1 Appointment of Arbitrators. All disputes arising out of or
connected with the subject matter of this Agreement are to be referred first to
a committee of four (4) persons who shall meet in an attempt to resolve said
dispute or open issue. The committee shall consist of two (2) persons appointed
by the Companies and two (2) persons appointed by Manager. If an agreement
cannot be reached to resolve the dispute by the committee, the dispute or open
issue will be resolved by binding arbitration. Any award of the arbitrators may
be filed in a court of law as a final judgment. Any such arbitration shall be
conducted in Las Vegas, Nevada in accordance with the rules and regulations
adopted by the American Arbitration Association. Either party may serve upon the
other party a written notice of the demand dispute or appraisal to be resolved
pursuant to this Article IX. Within thirty (30) days after the giving of such
notice, each of the parties hereto shall nominate and appoint an arbitrator (or
appraiser, as the case may be) and shall notify the other party in writing of
the name and address of the arbitrator so chosen. Upon the appointment of the
two (2) arbitrators as hereinabove provided, said two (2) arbitrators shall
forthwith, within fifteen (15) days after the appointment of the second
arbitrator, and before exchanging views as to the question at issue, appoint in
writing a third arbitrator who shall
- 21 -
be experienced in the operation of a gaming casino (the "Selected Arbitrator")
and give written notice of such appointment to each of the parties hereto. In
the event that the two (2) arbitrators shall fail to appoint or agree upon the
Selected Arbitrator within said fifteen (15) day period, the Selected Arbitrator
shall be selected by the parties themselves if they so agree upon such Selected
Arbitrator within a further period of ten (10) days. If a Selected Arbitrator
shall not be appointed or agreed upon within the time herein provided, then
either party on behalf of both may request such appointment by the American
Arbitration Association (or its successor or similar organization if the
American Arbitration Association is no longer in existence). Said arbitrators
shall be sworn faithfully and fairly to determine the question at issue. The
arbitrators shall afford to the Companies and Manager a hearing and the right to
submit evidence, with the privilege of cross-examination, on the question at
issue, and shall with all possible speed make their determination in writing and
shall give notice to the parties hereto of such determination. The concurring
determination of any two (2) of said three (3) arbitrators shall be binding upon
the parties, or, in case no two (2) of the arbitrators shall render a concurring
determination, then the determination of the Selected Arbitrator shall be
binding upon the parties hereto. Each party shall pay the fees of the arbitrator
appointed by it, and the fees of the Selected Arbitrator shall be divided
equally between the Companies and Manager.
Section 9.2 Inability to Act. In the event that an arbitrator appointed
as aforesaid shall thereafter die or become unable or unwilling to act, his
successor shall be appointed in the same manner provided in this Article IX for
the appointment of the arbitrator so dying or becoming unable or unwilling to
act.
ARTICLE X: NOTICES
Notice given by a party under this Agreement shall be in writing and
shall be deemed duly given (i) when delivered by hand, (ii) when three (3) days
have elapsed after its transmittal by registered or certified mail, postage
prepaid, return receipt requested, or two (2) days have elapsed after its
transmittal by nationally recognized air courier service; or (iii) when
delivered by telephonic facsimile transmission (with a copy thereof so delivered
by hand, mail or air courier if recipient does not acknowledge receipt of the
transmission). Notices shall be sent to the addresses set forth below, or
another as to which that party has given notice, in each case with a copy
provided in the same manner and at the same time to the persons shown below
if to Elsinore or Four Queens to:
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
- 22 -
▇▇▇▇▇▇ & Silver, Ltd.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
if to Manager to:
c/o ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Dechert, Price & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may change the name and/or address by written notice given in
each instance to the other parties.
ARTICLE XI: MISCELLANEOUS
Section 11.1 Nevada Gaming Control Act and Nevada Gaming Authorities.
Notwithstanding anything to the contrary contained in this Agreement, this
Agreement shall be deemed to include all provisions required by the Nevada
Gaming Control Act, as amended, and the regulations promulgated thereunder (the
"Act"), and shall be conditioned upon the approval of the Nevada Gaming
Authorities as required by the Act. To the extent that any term or provision
contained in this Agreement shall be inconsistent with the Act, the provisions
of the Act shall govern. All provisions of the Act, to the extent required by
law to be included in this Agreement, are incorporated herein by reference as if
fully restated in this Agreement.
Section 11.2 Entire Agreement. This Agreement contains the entire
understanding of the parties to this Agreement in respect of its subject matter
and supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
Section 11.3 Amendment; Waiver. This Agreement may not be
modified, amended, supplemented, canceled or discharged, except by written
instrument executed by all of the parties to this Agreement. No failure to
exercise, and no delay in exercising, any right,
- 23 -
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision, nor shall any waiver be implied from
any course of dealing between or among the parties. No extension of time for
performance of any obligations or other acts hereunder or under any other
agreement shall be deemed to be an extension of the time for performance of any
other obligations or any other acts.
Section 11.4 Binding Effect; Assignment; Combinations Involving
the Companies.
(a) The rights and obligations of this Agreement shall bind
and inure to the benefit of the parties (including their respective
officers, directors, employees, agents and Affiliates) and their
respective heirs, executors, successors and assigns. No party to this
Agreement shall have the right to assign this Agreement and its
respective rights and obligations hereunder without the consent of each
other party to this Agreement.
(b) If the termination option of Section 4.3 is not exercised,
the Companies agree that during the Term or the Extended Term they will
not enter into an agreement with a third party to sell substantially
all of the Project assets (as opposed to sale of equity securities) to
a third party unless, as a condition to such combination (i) Manager's
rights under this Agreement shall continue in full force and effect and
(ii) the third party shall agree to continue to pay to Manager the
Management Fee. In the event of a combination, it shall use its best
efforts to assert and protect, in good faith, Manager's rights granted
to Manager in this Agreement at all times during the negotiation of
said combination.
Section 11.5 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original but all of which together
shall constitute one and the same instrument.
Section 11.6 Terminology. The headings contained in this Agreement are
for convenience of reference only and are not to be given any legal effect and
shall not affect the meaning or interpretation of this Agreement.
Section 11.7 Governing Law. This Agreement shall be construed in
accordance with and governed for all purposes by the laws and public policy of
the State of Nevada applicable to contracts executed and to be wholly performed
within such State.
Section 11.8 Severability. If any provision of this Agreement, or the
application of any such provision to any person or circumstance, is held to be
inconsistent with any present or future law, ruling, rule or regulation of any
court or governmental or regulatory authority having jurisdiction over the
subject matter of this Agreement, such provision shall be deemed to be modified
to the minimum extent necessary to comply with such law, ruling,
- 24 -
rule or regulation, and the remainder of this Agreement, or the application of
such provision to persons or circumstances other than those as to which it is
held inconsistent, shall not be affected. If any provision is determined to be
illegal, unenforceable, or void, which provision does not relate to any payments
made hereunder and the payments made hereunder shall not be affected by such
determination and this Agreement is capable of substantial performance, then
such void provision shall be deemed rescinded and each provision not so affected
shall be enforced to the extent permitted by law.
Section 11.9 No Third Party Benefits. This Agreement is for the benefit
of the parties hereto and their respective permitted successors and assigns. The
parties neither intend to confer any benefit hereunder on any person, firm or
corporation other than the parties hereto, nor shall any such third party have
any rights hereunder.
Section 11.10 Drafting Ambiguities. Each party to this Agreement and
its counsel have had an opportunity to review and revise this Agreement. The
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement or of any amendments or exhibits to this Agreement.
Section 11.11 Attorneys' Fees. Should either party institute an
arbitration, action or proceeding to enforce any provisions hereof or for other
relief due to an alleged breach of any provision of this Agreement, the
prevailing party shall be entitled to receive from the other party all costs of
the action or proceeding and reasonable attorneys' fees.
Section 11.12 Limitations on Responsibilities of Manager. Manager shall
use its best efforts to render the services contemplated by this Agreement in
good faith to the Companies, but notwithstanding anything to the contrary which
may be expressed or implied in this Agreement, Manager hereby explicitly
disclaims any and all warranties, express or implied, including but not limited
to the success or profitability of the Project. In the performance of the
services contemplated by this Agreement, Manager shall not be liable to the
Companies for any acts or omissions in connection therewith, except which
constitute a breach of the Manager Conduct Standard and then only to the extent
of the Management Fees actually received by Manager, provided that so long as
Elsinore is controlled by affiliates of ▇▇▇▇ ▇. Waterfall, Manager's liability
for breach of the Manager Conduct Standard shall not be limited to the
Management Fees received by Manager.
Section 11.13 No Violation. Nothing contained in this Agreement shall
entitle the Boards of Directors, Manager or any other persons acting for any of
the Companies or Manager to exercise control over the operation of the Casino or
other operations of the Project in a manner which would violate any regulation
of the Nevada Gaming Authorities.
- 25 -
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by an authorized representative thereof, all as of
the day and year first above written.
ELSINORE: FOUR QUEENS:
Elsinore Corporation, a Nevada Four Queens, Inc., a Nevada
corporation corporation
By: _____________________________ By: ___________________________
Name:________________________ Name:______________________
Title:_______________________ Title:_____________________
MANAGER:
By: _____________________________
Name:________________________
Title:_______________________
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Exhibit A
---------
WARRANTS TO PURCHASE SHARES
OF COMMON STOCK OF ELSINORE CORPORATION
[number of warrants]
This Warrant Certificate certifies that Riviera Gaming Management
Corporation - Elsinore (or registered assigned (the "Holder"), is the owner of
[number] Warrants (subject to adjustment as provided herein), each of which
represents the right to subscribe for and purchase from Elsinore Corporation, a
Nevada corporation (the "Company"), one share of the Common Stock, no par value,
of the Company (the common stock, including any stock into which it may be
changed, reclassified or converted, is herein referred to as the "Common Stock")
at the purchase price (the "Exercise Price") of [amount] per share (subject to
adjustment as provided herein). This Warrant Certificate represents Warrants
issued pursuant to a Management Agreement dated [date], between the Company and
Riviera Gaming Management Corporation - Elsinore (the "Management Agreement").
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND ARE SUBJECT TO CERTAIN RESTRICTIONS, CONTAINED IN
PARAGRAPHS 5 AND 6 HEREOF, WITH RESPECT TO THEIR TRANSFER.
The Warrants represented by this Warrant Certificate are subject to the
following provisions, terms and conditions:
1. Exercise of Warrants. The Warrants may be exercised by the Holder,
in whole or in part (but not as to a fractional share of Common Stock), by
surrender of this Warrant Certificate at the principal office of the Company at
[address] (or such other office or agency of the Company as may be designated by
notice in writing to the Holder at the address of such Holder appearing on the
books of the Company), with the appropriate form attached hereto duly exercised,
at any time within the period beginning on the date hereof and expiring at the
same time as the Term or Extended Term under the Management Agreement expires
(the "Exercise Period") and by payment to the Company by certified check or bank
draft of the purchase price for such shares. The Company agrees that the shares
of Common Stock so purchased shall be and are deemed to be issued to the Holder
as the record owner of such shares of Common Stock as of the close of business
on the date on which the Warrant Certificate shall have been surrendered and
payment made for such shares of Common Stock. Certificates representing the
shares of Common Stock so purchased, together with any cash for fractional
shares of Common Stock paid pursuant to Section 2E, shall be delivered to the
Holder promptly and in no event later than ten (10) days after the Warrants
shall have
been so exercised, and, unless the Warrants have expired, a new Warrant
Certificate representing the number of Warrants represented by the surrendered
Warrant Certificate, if any, that shall not have been exercised shall also be
delivered to the Holder within such time.
2. Adjustments. The Exercise Price and the number of shares of
Common Stock issuable upon exercise of each Warrant shall be subject to
adjustment from time to time as follows:
(1) Stock Dividends; Stock Splits; Reverse Stock Splits;
Reclassifications. In case the Company shall (i) pay a
dividend with respect to its capital stock in shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of any class of Common Stock or (iv)
issue any shares of its capital stock in a reclassification of
the Common Stock (including any such reclassification in
connection with a merger, consolidation or other business
combination in which the Company is the continuing
corporation) (any one of which actions is herein referred to
as an "Adjustment Event"), the number of shares of Common
Stock purchasable upon exercise of each Warrant immediately
prior to the record date for such Adjustment Event shall be
adjusted so that the Holder shall thereafter be entitled to
receive the number of shares of Common Stock or other
securities of the Company (such other securities thereafter
enjoying the rights of shares of Common Stock under this
Warrant Certificate) that such Holder would have owned or have
been entitled to receive after the happening of such
Adjustment Event, had such Warrant been exercised immediately
prior to the happening of such Adjustment Event or any record
date with respect thereto. An adjustment made pursuant to this
Section 2A(I) shall become effective immediately after the
effective date of such Adjustment Event retroactive to the
record date, if any, for such Adjustment Event.
(2) Distributions of Subscription Rights or Convertible
Securities. In case the Company shall fix a record date for
the making of a distribution to all holders of shares of
Common Stock of rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock (excluding those referred
to in Section 2A(S) below), then in each case the number of
shares of Common Stock purchasable after such record date upon
the exercise of each Warrant shall be determined by
multiplying the number of shares of Common Stock purchasable
upon the exercise of each Warrant immediately prior to such
record date by a fraction, the numerator of which shall be the
then Current Market Value (as defined in Section 2A(3) below)
of one share of Common Stock on the record date for such
- 2 -
distribution and the denominator of which shall be the then
Current Market Value of one share of Common Stock on the
record date for such distribution less the then fair value (as
determined by the independent Financial Expert (as defined in
Section 2A(3) below), of such subscription rights, options or
warrants, or of such convertible or exchangeable securities
distributed with respect to one such share of Common Stock.
Such adjustment shall be made whenever any such distribution
is made and shall become effective on the date of distribution
retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
(3) Current Market Value. For the purpose of any computation
under this Section 2, the Current Market Value of one share of
Common Stock or of any other security (herein collectively
referred to as a "security") at the date herein specified
shall be (1) if the Company does not have a class of equity
securities registered under the Securities Exchange Act of
1934 (the "Exchange Act"), the value of the security (a)
determined in good faith in the most recently completed
armslength transaction between the Company and a third party
who is not an affiliate of the Company in which such
determination is necessary and the closing of which occurs on
such date or shall have occurred within the six months
preceding such date, provided that the Board of Directors of
the Company shall in good faith determine that any such value
represents a reasonable estimate of the fair value of a share
of Common Stock as of such date, (b) if no such transaction
shall have occurred on such date or within such six-month
period, most recently determined as of a date within the six
months preceding such date by an Independent Financial Expert
(in the event of more than one such determination, the
determination for the later date shall be used) or (c) if no
such determination shall have been made within such six month
period, determined as of such date by an Independent Financial
Expert, or (2) if the Company does have a class of equity
securities registered under the Exchange Act, deemed to be the
average of the daily market prices of the security for five
trading days before such date or, if the Company has had a
class of equity securities registered under the Exchange Act
for less than five trading days before such date, then the
average of the daily market prices for all of the trading days
before such date for which daily market prices are available.
For purposes of this Section 2 an affiliate of a person shall
mean any other person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is
under common control with, such person. For purposes of this
definition, control means the power to direct the management
and policies of a person, directly or indirectly, whether
through the ownership of voting securities, by contract or
otherwise.
- 3 -
The market price for each such business day shall be:
(A) in the case of a security listed or admitted to trading on
any securities exchange, the closing price, regular way, on
such day, or if no sale takes place on such day, the average
of the closing bid and asked prices on such day, (B) in the
case of a security not then listed or admitted to trading on
any securities exchange, the last reported sale price on such
day, or if no sale takes place on such day, the average of the
closing bid and asked prices on such day, as reported by a
reputable quotation source designated by the Company, (C) in
the case of a security not then listed or admitted to trading
on any security exchange and as to which no such reported sale
price or bid and asked prices are available, the average of
the reported high bid and low asked prices on such day, as
reported by a reputable quotation services, or a newspaper of
general circulation in the Borough of Manhattan, City and
State of New York, customarily published on each business day,
designated by the Company, or if there shall be no bid and
asked prices on such day, the average of the high bid and low
asked prices, as so reported, on the most recent day (not more
than five days prior to the date in question) for which prices
have been so reported, and (D) if there are no bid and asked
prices reported during the five days prior to the date in
question, the Current Market Value of the security shall be
determined as if the Company did not have a class of equity
securities registered under the Exchange Act.
For purposes of this Section 2A(3), an Independent
Financial Expert shall mean a nationally recognized investment
banking firm (i) which does not (and whose directors,
officers, employees and affiliates do not), have a direct or
indirect financial interest in the Company (other than the
beneficial ownership, directly or indirectly, of less than
three percent of the outstanding shares of capital stock of
the Company), (ii) which has not been, and, at the time it is
called upon to give independent financial advise to the
Company, is not (and none of whose directors, officers,
employees or affiliates is) a promoter, director or officer of
the Company or any of its affiliates or an underwriter with
respect to any of the Company's securities, (iii) which does
not provide any advise or opinions to the Company except as an
Independent Financial Expert and (iv) which is mutually
agreeable to the Company and the holders of a majority of the
Warrants. If the Company and the holders of a majority of the
Warrants do not promptly agree as to the Independent Financial
Expert, each shall appoint one investment banking firm and the
two firms so appointed shall select the Independent Financial
Expert to be employed by the Company. An Independent Financial
Expert may be compensated by the Company for opinions or
services it provides as an Independent Financial Expert. In
making its determination of the value of the Common Stock, the
Independent Financial Expert shall use one or more valuation
methods that
- 4 -
the Independent Financial Expert, in its best professional
judgment, determines to be most appropriate. After the
Independent Financial Expert has made its determination, the
Company shall cause the Independent Financial Expert to
prepare a report (a "Value Report") stating the methods of
valuation considered or used and the value of the Common Stock
or other security it values and containing a statement as to
the nature and scope of the examination made. Such Value
Report shall accompany any Adjustment Notice (as defined in
Section 2B) sent by the Company to the Holder pursuant to
Section 2B; provided, that the adjustment to the Exercise
Price that is the subject of such Adjustment Notice requires
the services of an Independent Financial Expert.
(4) Adjustment of Exercise Price. Whenever the number of
shares of Common Stock purchasable upon the exercise of each
Warrant is adjusted pursuant to Sections 2A(1) and 2A(2), the
Exercise Price for each share of Common Stock payable upon
exercise of each Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a
fraction, the numerator of which shall be the number of shares
of Common Stock purchasable upon the exercise of each Warrant
immediately prior to such adjustment, and the denominator of
which shall be the number of shares of Common Stock so
purchasable immediately thereafter.
(5) Issuance of Common Stock to Stockholders of Less Than
Current Market Value. In the event that the Company sells and
issues [to a stockholder of the Company or to any "affiliate"
of such stockholder] shares of any Common Stock, or rights,
options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of
Common Stock [excluding (i) shares, rights, options, warrants
or convertible or exchangeable securities issued in any of the
transactions described in Sections 2A(1) and 2A(2) above, (ii)
the Warrants and any shares of Common Stock issuable upon
exercise thereof, (iii) shares of Common Stock or other
securities, or options or rights in respect thereof, issued to
full-time employees of the Company or its subsidiaries in the
ordinary course of business as compensation for services
rendered or to be rendered or as part of an employee incentive
program and (iv) shares of common stock or other securities
issued upon exercise, conversion or exchange of rights,
options, warrants or convertible or exchangeable securities
issued in any of the transactions described in Sections 2A(1)
and 2A(2) above or in a transaction with respect to which no
adjustment was required pursuant to this Section 2A (but
including shares, rights, options, warrants or convertible or
exchangeable securities issued as consideration in any merger,
consolidation or other business combination)] at a price per
share of Common Stock (determined, in the case of such rights,
options, warrants or convertible or exchangeable securities,
by dividing (X) the total
- 5 -
amount receivable by the Company in consideration of the sale
and issuance of such rights, options, warrants or convertible
or exchangeable securities (which amount may be zero if such
rights, options, warrants or convertible or exchangeable
securities are issued without consideration), plus the total
consideration payable to the Company upon exercise, conversion
or exchange thereof, by (Y) the total number of shares of
Common Stock covered by such rights, opinions, warrants or
convertible or exchangeable securities) that is lower than the
then Current Market Value per share of such Common Stock (as
determined by the Independent Financial Expert in accordance
with Section 2A(3) above) in effect immediately prior to such
sale and issuance, then the Exercise Price shall be adjusted
(calculated to the nearest $0.01) so that it shall equal the
price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of
which shall be (i) an amount equal to the sum of (A) the
number of shares of Common Stock outstanding immediately prior
to such sale and issuance plus (B) the number of shares of
Common Stock which the aggregate consideration received
(determined as provided below) for such sale or issuance would
purchase at such Current Market Value per share, and the
denominator of which shall be (ii) the total number of shares
of Common Stock outstanding (determined as provided below)
immediately after such sale and issuance. Such adjustment
shall be made successively whenever such an issuance is made.
Upon the occurrence of a sale and issuance described
in the preceding paragraph, the number of shares of Common
Stock purchasable under the exercise of this Warrant shall be
that number determined by multiplying the number of shares of
Common Stock issuable upon exercise immediately prior to such
adjustment by a fraction, the numerator of which is the
Exercise Price in effect immediately prior to such adjustment
and the denominator of which is the Exercise Price as so
adjusted.
For the purposes of such adjustments, the shares of
Common Stock which the holder of any such rights, options,
warrants or convertible or exchangeable securities shall be
entitled to subscribe for or purchase shall be deemed to be
issued and outstanding as of the date of such sale and
issuance and the consideration received by the Company
therefor shall be deemed to be the consideration received by
the Company for such rights, options, warrants or convertible
or exchangeable securities (which consideration may be zero if
such rights, options, warrants or convertible or exchangeable
securities are issued without consideration), plus the
consideration or premiums stated in such rights, options,
warrants or convertible or exchangeable securities to be paid
for the shares of any Common Stock covered thereby. In case
the Company shall sell and issue, in a transaction to which
this paragraph 2A(5) applies, shares of Common
- 6 -
Stock or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock, for consideration
consisting, in whole or in part, of property other than cash
or its equivalent, then determining the "price per share of
Common Stock" and the "consideration received by the Company"
for purposes of the first sentence of this Section 2A(5), the
Board of Directors of the Company shall determine, in good
faith, the fair value of the rights, options, warrants or
convertible or exchangeable securities then being sold as part
of such unit. There shall be no adjustment of the Exercise
Price pursuant to this Section 2A(5) if the amount of such
adjustment shall be less than $0.01 per share of Common Stock;
provided, however, that any adjustments which by reason of
this provision are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
(6) Expiration of Rights Options and Conversion Privileges.
Upon the expiration without being exercised of any rights,
options, warrants or conversion or exchange privileges for
which an adjustment has been made pursuant to this Warrant,
the Exercise Price and the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall, upon such
expiration, be readjusted and shall thereafter, upon any
future exercise, be such as they would have been had they been
originally adjusted (or had the original adjustment not be
required, as the case may be) as if (A) the only shares of
Common Stock so issued were the shares of such Common Stock,
if any, actually issued or sold upon the exercise of such
rights, options, warrants or conversion or exchange rights and
(B) such shares of Common Stock, if any, were issued or sold
for the consideration actually received by the Company upon
such exercise plus the consideration, if any, actually
received by the Company for issuance, sale or grant of all
such rights, options, warrants or conversion or exchange
rights whether or not exercised; provided, that no such
readjustment shall have the effect of increasing the Exercise
Price by an amount, or decreasing the number of shares
purchasable upon exercise of each Warrant by a number, in
excess of the amount or number of the adjustment initially
made in respect to the issuance, sale or grant of such rights,
options, warrants or conversion or exchange rights.
(7) De Minimis Adjustments. Except as provided in Section
2A(5) with reference to adjustments required by such Section
2A(5), no adjustment in the number of shares of Common Stock
purchasable hereunder shall be required unless such adjustment
would require an increase or decease of at least 1.0% percent
in the number of shares of Common Stock purchasable upon an
exercise of each Warrant; provided, however, that any
adjustments which by reason of this Section 2A(7) are not
required to be made shall be
- 7 -
carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the nearest full
share.
(8) Duty to Make Fair Adjustments in Certain Cases. If any
event occurs as to which in the opinion of the Board of
Directors the other provisions of this Section 2A are not
strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Warrants in accordance with
the essential intent and principles of such provisions, then
the Board of Directors shall make an adjustment in the
application of such provisions, in accordance with such
essential intent and principles, so as to protect such
purchase rights as aforesaid.
(9) Adjustment for Asset Distributions. If the Company shall
fix a record date for the making of a distribution to all
holders of shares of Common Stock of evidence of indebtedness
of the Company or other assets (other than ordinary cash
dividends not in excess of the retained earnings of the
Company determined by the application of generally accepted
accounting principles), then the Exercise Price for each share
of Common Stock payable upon exercise of each Warrant shall be
reduced by the then fair value (as determined by the
Independent Financial Expert (as defined in Section 2A(3)
above)) of the indebtedness or other assets distributed in
respect of one such share. Such adjustment shall be made
whenever any such distribution is made and shall become
effective on the date of distribution retroactive to the
record date for the determination of stockholders entitled to
receive such distribution.
A. Notice of Adjustment. Whenever the number of shares of
Common Stock purchasable upon the exercise of each Warrant or the Exercise Price
is adjusted, as herein provided, the Company shall promptly notify the Holder in
writing (such writing referred to as an "Adjustment Notice") of such adjustment
or adjustments and shall deliver to such Holder a certificate of a firm of
independent public accountants selected by the Board of Directors of the Company
(who may be the regular accountants employed by the Company) or of the
Independent Financial Expert, if any, which makes a determination of Current
Market Value with respect to any such adjustment setting forth the number of
shares of Common Stock purchasable upon the exercise of each Warrant and the
Exercise Price after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth the computation by which such
adjustment was made.
B. Statement on Warrant Certificates. The form of this
Warrant Certificate need not be changed because of any change in the Exercise
Price or in the number or kind of shares purchasable upon the exercise of a
Warrant and any Warrant Exercise Price and the same number and kind of shares as
are stated in this Warrant Certificate. However, the Company may at the time in
its sole discretion make any
- 8 -
change in the form of the Warrant Certificate that it may deem appropriate and
that does not affect the substance thereof and any Warrant Certificate
thereafter issued, whether in exchange or substitution for any outstanding
Warrant Certificate or otherwise, may be in the form so changed.
C. Notice to Holder of Record Date, Dissolution, Liquidation
or Winding Up. The Company shall cause to be mailed (by first class mail,
postage prepaid) to the Holder of such of the record date for any dividend,
distribution or payment, in cash or in kind (including, without limitation,
evidence of indebtedness and assets), with respect to shares of Common Stock at
least 20 calendar days before any such date. In case at any time after the date
hereof, there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then the Company shall cause to be mailed (by first
class mail, postage prepaid) to the Holder at such Holder's address as shown on
the books of the Company, at the earliest practicable time (and, in any event,
not less than 20 calendar days before any date set for definitive action),
notice of the date on which such dissolution, liquidation or winding up shall
take place, as the case may be. The notices referred to above shall also specify
the date as of which the holders of the shares of Common Stock of record or
other securities underlying the Warrants shall be entitled to receive such
dividend, ties, money or the property deliverable upon such dissolution,
liquidation or winding up, as the case may be (the "Entitlement Date"). In the
case of a distribution of evidence of indebtedness or assets (other than in
dissolution, liquidation or winding up) which has the effect of reducing the
Exercise Price to zero or less pursuant to Section 2A(9), if the Holder elects
to exercise the Warrants in accordance with Section I and become a holder of the
Common Stock on the Entitlement Date, the Holder shall thereafter receive the
evidence of indebtedness or assets distributed in respect of shares of Common
Stock. In the case of any dissolution, liquidation or winding up of the Company,
the Holder shall receive on the Entitlement Date the cash or other property,
less the Exercise Price for the Warrants then in effect, that such Holder would
have been entitled to receive had the Warrants been exercisable and exercised
immediately prior to such dissolution, liquidation or winding up (or, if
appropriate, record date therefor) and any right of a Holder to exercise the
Warrants shall terminate.
E. Fractional Interests. The Company shall not be required to
issue fractional shares of Common Stock on the exercise of the Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same holder, the number of full shares of Common Stock which shall be issuable
upon such exercise shall be computed on the basis of the aggregate number of
whole shares of Common Stock purchasable on exercise of the Warrants so
presented. If any fraction of a share of Common Stock would, except for the
provisions of this Section 2E be issuable on the exercise of the Warrants (or
specified proportion thereof), the Company shall pay an amount in cash
calculated by it to be equal to the then fair value of one share of Common
Stock, as determined by the Board of Directors of the company in good faith,
multiplied by such fraction computed to the nearest whole cent.
- 9 -
3. Reservation and Authorization of Common Stock. The Company covenants
and agrees (A) that all shares of Common Stock which may be issued upon the
exercise of the Warrants represented by this Warrant Certificate will, upon
issuance, be validly issued, fully paid and nonassessable and free of all
insurance or transfer taxes, liens and charges with respect to the issue
thereof, (b) that during the Exercise Period, the Company will at all times have
authorized, and reserved for the purpose of issue or transfer upon exercise of
the Warrants evidenced by this Warrant Certificate, sufficient shares of Common
Stock to provide for the exercise of the Warrants represented by this Warrant
Certificate, and (c) that the Company will take all such action as may be
necessary to ensure that the shares of Common Stock issuable upon the exercise
of the Warrants may be so issued without violation of any applicable law or
regulation, or any requirements of any domestic securities exchange upon which
any capital stock of the Company may be listed, provided, however, that nothing
contained herein shall impose upon the Company any obligation to register the
warrants evidenced by this Warrant Certificate or such Common Stock under
applicable securities laws except as provided in the Investment Agreement. In
the event that any securities of the Company other than the Common Stock are
issuable upon exercise of the Warrants, the Company will take or refrain from
taking any action referred to in clauses (A) through (c) of this Section 3 as
though such clauses applied, mutatis mutandis to such other securities then
issuable upon the exercise the Warrants.
4. No Voting Rights. This Warrant Certificate shall not entitle
the holder hereof to any voting rights or other rights as a stockholder of the
Company.
5. Exercise or Transfer of Warrants or Common Stock. The Holder of this
Warrant Certificate agrees to be bound by the provisions contained in the
Warrant Purchase Agreement with respect to the limitations, including
limitations imposed for Securities Act compliance, on the transfer of the
Warrants and the shares of Common Stock or other securities issuable upon
exercise of the Warrants.
6. Warrants Transferable. Subject to the provision of Section 5, this
Warrant Certificate and the Warrants it evidences are transferrable, in whole or
in part, without charge to the Holder, at the office or agency of the Company
referred to in Section 1, by the Holder in person or by duly authorized
attorney, upon surrender of this Warrant Certificate properly endorsed. Each
taker and Holder of this Warrant Certificate, by taking or holding the same,
consents and agrees that this Warrant Certificate, when endorsed in blank, shall
be deemed negotiable, and that the Holder, when this Warrant Certificate shall
have been so endorsed, may be treated by the Company and all other persons
dealing with this Warrant Certificate as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant Certificate, or to the transfer hereof on the books of the Company, any
notice to the contrary notwithstanding; but until such transfer on such books,
the Company may treat the registered holder hereof as the owner for all
purposes.
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7. Registration. The Holder and certain successors of the Holder are
entitled to the benefits of a Registration Rights Agreement, a copy of which is
on file at the offices of the Company.
8. Closing of Books. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Common Stock or
other securities issuable upon the exercise of any Warrant in any manner which
interferes with the timely exercise of the Warrants.
9. Warrants Exchangeable, Loss, Theft. This Warrant Certificate is
exchangeable, upon the surrender hereof of any Holder at the office or agency of
the Company referred to in Section 1, for new Warrant Certificates of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares of Common Stock which may be subscribed for and purchased hereunder,
each such new Warrant to represent the right to subscribe and purchase such
number of shares of Common Stock as shall be designated by said holder hereof at
the time of such surrender. Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation, upon surrender or cancellation of
this Warrant Certificate, the Company will issue to the holder hereof a new
Warrant Certificate of like tenor, in lieu of this Warrant Certificate,
representing the right to subscribe for and purchase the number of shares of
Common Stock which may be subscribed for and purchased hereunder.
10. Mergers, Consolidations, Etc.
A. Except as may otherwise be provided in Section 2A(5), if
the Company shall merge or consolidate with another corporation, the holder of
this Warrant shall thereafter have the right, upon exercise hereof and payment
of the Exercise Price, to receive solely the kind and amount of shares of stock
(including, if applicable, Common Stock), other securities, property or cash or
any combination thereof receivable by a holder of the number of shares of Common
Stock for which this Warrant might have been exercised immediately prior to such
merger or consolidation (assuming, if applicable, that the holder of such Common
Stock failed to exercise its rights of election, if any, as to the kind or
amount of shares of stock, other securities, property or cash or combination
thereof receivable upon such merger or consolidation).
B. In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of this Warrant (other than elimination or
par value, a change in par value, or from par value to no par value, or as the
result of a subdivision or combination of shares (which is provided for
elsewhere herein), but including any reclassification of the shares of Common
stock into two or more classes or series of shares) or in case of any merger or
consolidation of another corporation into the Company in which the Company is
the surviving corporation and in which there is a reclassification or change of
the shares of Common Stock (other than a change in par
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value, or from par value to no par value, or as a result of a subdivision or
combination (which is provided for elsewhere herein), but including any
reclassification of the shares of Common Stock this Warrant shall thereafter
have the right, upon exercise hereof and payment of the Exercise Price, to
receive solely the kind and amount of shares of stock (including, if applicable,
Common Stock), other securities, property or cash or any combination thereof
receivable upon such reclassification, change, merger or consolidation by a
holder of the number of shares of Common Stock for which this Warrant might have
been exercised immediately prior to such reclassification, change, merger or
consolidation (assuming, if applicable, that the holder of such Common Stock
failed to exercise its rights of election, if any, as to the kind or amount of
shares of stock, other securities, property or cash or combination thereof
receivable upon such reclassification, change, merger or consolidation).
11. Rights and Obligations Survive Exercise of Warrants. The rights and
obligations of the Company, of the Holder, and of the holders of shares of
Common Stock or other securities issued upon exercise of the Warrants, contained
in Sections 5 and 7 of this Warrant Certificate shall survive the exercise of
the Warrants.
Dated: [date].
ELSINORE CORPORATION
By:_______________________________
Attest:
_________________________________
[secretary]
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