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Elsinore Corp – ‘10-K’ for 12/31/02

On:  Monday, 3/31/03, at 12:58pm ET   ·   For:  12/31/02   ·   Accession #:  311049-3-1   ·   File #:  1-07831

Previous ‘10-K’:  ‘10-K’ on 4/1/02 for 12/31/01   ·   Latest ‘10-K’:  This Filing

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  As Of                Filer                Filing    For·On·As Docs:Size

 3/31/03  Elsinore Corp                     10-K       12/31/02    8:224K

Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Elsinore Corporation 2002 10K                         75    329K 
 5: EX-10       Madow Employment Agreement                             6±    30K 
 8: EX-10       Mastromarino Employment Agreement                      6±    30K 
 7: EX-10       Mwv Letter of Intent to Extend Maturity                2±    11K 
 4: EX-10       Mwv Waiver - Restricted Payments - March 17 2003       2±     9K 
 6: EX-21       Subsidiaries of Elsinore Corporation                   1      5K 
 2: EX-99       Madow Certification                                    1      6K 
 3: EX-99       Mastromarino Certification                             1      6K 


10-K   —   Elsinore Corporation 2002 10K
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
3Item 1. Business
14Item 2. Properties
15Item 3. Legal Proceedings
"Item 4. Submission of Matters to A Vote of Security Holders
"Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
16Item 6. Selected Financial Data
18Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
29Impairment Loss
"Item 7A. Quantitative and Qualitative Disclosures about Market Risks
30Item 8. Financial Statements and Supplementary Data
53Item 9. Changes In and Disagreements with Accountants
54Item 10. Directors and Executive Officers of the Registrant
56Item 11. Executive Compensation
57Employment Agreements
59Item 12. Security Ownership of Certain Beneficial Owners and Management
62Item 13. Certain Relationships and Related Transactions
63Item 14. Controls and Procedures
"Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2002 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______ to _______. Commission File Number 1-7831 ELSINORE CORPORATION (Exact name of registrant as specified in its charter) NEVADA 88-0117544 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 202 FREMONT STREET, LAS VEGAS, NEVADA 89101 (Address of principal executive offices) (Zip Code) (702) 385-4011 (Registrant's telephone number, including area code) Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES NO X The aggregate market value of the voting and non-voting common equity held by non-affiliates computed as of the June 29, 2002 was $13,901.04. The market value was computed by reference to the closing sales price of $.04 per share reported on the NASDAQ "Bulletin Board" as of June 28, 2002. On March 18, 2003 there were 4,993,965 shares of common stock issued and outstanding.
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TABLE OF CONTENTS PART I Page ---- Item 1. Business 3 Item 2. Properties 14 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 15 Item 6. Selected Financial Data 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29 Item 8. Financial Statements and Supplementary Data 30 PART III Item 9. Changes In and Disagreements with Accountants 53 Item 10. Directors and Executive Officers of the Registrant 54 Item 11. Executive Compensation 56 Item 12. Security Ownership of Certain Beneficial Owners and Management 59 Item 13. Certain Relationships and Related Transactions 62 Item 14. Controls and Procedures 63 PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 63 SIGNATURES 71
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PART I Item 1. BUSINESS. General. Elsinore Corporation, a Nevada corporation ("Elsinore" or the "Company"), is registered with the Nevada Gaming Commission (the "Commission") as a publicly traded holding company of Four Queens, Inc. ("Four Queens"), the licensed operator of the Four Queens Hotel and Casino in Las Vegas, Nevada (the "Four Queens Casino") and a wholly owned subsidiary of the Company. In addition, Elsinore wholly owns Palm Springs East, Limited Partnership and Olympia Gaming Corporation. The Company incorporated under the laws of the State of Nevada on September 5, 1972. Its principal executive office is located at 202 Fremont Street, Las Vegas, Nevada 89101 and its telephone number is (702) 385-4011. Four Queens also holds a casino service license in New Jersey allowing it to distribute its casino game "Multiple Action Blackjack." Four Queens currently distributes the game to five casinos in New Jersey. The Four Queens' New Jersey license will expire on May 31, 2005. There can be no assurance that this license will be renewed in the future. On March 14, 2002, Elsinore announced that Four Queens entered into a definitive asset purchase agreement (the "Purchase Agreement") for the sale of substantially all of Four Queens Casino's assets, including the hotel and casino, to SummerGate, Inc. ("SummerGate"), a Nevada corporation. On June 27, 2002, the Four Queens exercised its right to terminate the Purchase Agreement and sent written notice to SummerGate of such termination. Subsequently, Four Queens received a written termination notice from SummerGate. Available Information. The Company files annual and quarterly reports and other information with the Securities and Exchange Commission. You may read and copy any document that the Company files at the Securities and Exchange Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call 1-800-SEC-0300 for further information on the operation of the Public Reference Room. Reports, proxy statements and other information regarding issuers, including the Company, that file electronically with the Securities and Exchange Commission are also available to the public from the Securities and Exchange Commission's Web site at http://www.sec.gov. Our Internet address is www.fourqueens.com. We make available free of charge on or through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Operating data for the three most recent fiscal years is set forth in Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations.
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The Four Queens Casino. Four Queens owns the Four Queens Casino, which has been in operation since 1966. The Four Queens Casino has consistently concentrated on delivering high quality, traditional Las Vegas-style gaming and entertainment. The Four Queens Casino is located on approximately 3.2 acres, of which 2.3 acres are leased from various lessors. The property is situated adjacent to the Golden Nugget Hotel & Casino in the heart of Fremont Street in downtown Las Vegas. The property features approximately 690 hotel rooms, including 45 suites, approximately 32,000 square feet of casino space, three full-service restaurants, two fast-service restaurants, three cocktail lounges, a gift shop, approximately 14,600 square feet of function space and approximately 543 parking spaces. The casino has 1,049 slot machines, 27 gaming tables, a keno parlor and a sports book. Operations. The following table sets forth the contributions from major activities to the Company's total revenues from the Four Queens Casino for the years ended December 31, 2002, 2001 and 2000. [Download Table] 2002 2001 2000 ---- ---- ---- (Dollars in Thousands) Casino(1) $ 39,284 $ 38,075 $ 37,051 Hotel(2) 8,165 8,950 9,647 Food & beverage(2) 11,133 10,792 10,298 Other 1,318 1,426 1,946 Other, non-operating(3) 1,284 - 6,191 ------ ------ ------ 61,184 59,243 65,133 Less: Promotional allowances(4) (6,303) (6,404) (5,782) --------- --------- --------- Net revenue $ 54,881 $ 52,839 $ 59,351 ========= ========= ========= (1) Consists of the net win from gaming activities (i.e., the difference between gaming wins and losses). (2) Includes revenues from services provided as promotional allowances to casino customers and others on a complimentary basis. (3) Amounts represent payments of approximately $1.3 million under the Olympia Settlement in 2002 and amounts collected by Palm Springs East, L.P ("PSELP"), of $6.2 million in 2000. (4) To be consistent with the 2002 presentation, approximately $975,000 and $709,000 of subsidies paid to tour bus companies, previously shown as casino expenses, were reclassified as a reduction of casino revenues for 2001 and 2000, respectively, pursuant to the Emerging Issues Task Force ("EITF") 00-14 "Accounting for Certain Sales Incentives". See Note 1 to the Consolidated Financial Statements.
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The following table summarizes the primary aspects of the Company's operations at the Four Queens Casino at December 31, 2002. Casino: Floor area (square feet) 32,000 Slot machines 1,049 Blackjack tables 16 Craps tables 3 Caribbean stud poker tables 1 Roulette wheels 2 Three card poker tables 1 Let-it-ride tables 2 Pai gow poker tables 2 Keno (seats) 16 Sports book 1 Hotel: Rooms 690 Meeting areas (square feet) 14,600 Restaurants and entertainment and cocktail lounges: Restaurants 5 Restaurant seats 454 Cocktail lounges 3 Other: Gift shops 1 Parking facilities (cars) 543 Operating Strategy. The Company believes that the following key elements have contributed to the Company's success. Fun and Friendly Environment. The Company believes that the Four Queens Casino is distinguished by its fun and friendly atmosphere and the high level of personalized service provided to its patrons. The Company strives to maintain the level of service that has allowed the property to maintain its customer loyalty. Marketing and Promotion. The Company promotes its gaming entertainment experience using a variety of advertising media which may include print, outdoor advertising, radio broadcast and the Internet. The Company continues to host a bus program offering a value-oriented experience to customers, primarily from the Southern California area, desiring a day or overnight trip. The Company continues to focus on maintaining its customer database by enrolling customers into its slot clubs and offering attractive promotional, cash, complimentary and retail offers. Targeted Database Marketing. The Company also continues to focus its efforts on a direct mail program in order to maintain its current customer database. The Company targets its database customers with a variety of monthly incentive offers, special promotions, tournaments and special events. Competition. The gaming industry is highly competitive. Gaming activities include: traditional land-based casinos; riverboat and dockside gaming; casino gaming on Indian land; state-sponsored lotteries; video poker in restaurants, bars and hotels; pari-mutuel betting on horse racing, dog racing and jai-alai;
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sports bookmaking; card rooms and Internet gaming. The expansion of casino gaming in or near any geographic area from which the Company attracts or expects to attract a significant number of its customers could have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that successful gaming facilities compete based on the following: location, atmosphere, quality of gaming facilities, entertainment, quality of food and beverage and value. Although the Company believes it competes favorably with respect to these factors, some of its competitors have significantly greater financial and other resources than the Company. The Company competes with a multitude of casino hotels in the greater Las Vegas metropolitan area. Currently, there are approximately 40 major gaming properties located on or near the Las Vegas Strip, 13 located in the downtown area and several located in other areas of Las Vegas. Las Vegas gaming square footage and room capacity are continuing to increase. On the Las Vegas Strip there were no new casinos built in 2002. The only casino-related room construction completed was the Orleans 620-room expansion on West Tropicana. The most significant projects now under construction, planned for, or opened in, 2003 include: The Cannery, a 201-room property in North Las Vegas, the 716-room Tuscany on East Flamingo, and the 349-room Ritz Carlton at Lake Las Vegas. Also planned are a 1,013-room expansion to the Venetian scheduled for the summer, a 1,122 all-suite tower slated to open at Mandalay Bay in November, and the scheduled fourth quarter opening of the 825 room Westin Casuarina on the site of the former Maxim. Each of the foregoing facilities has or may have a theme and attractions that have drawn or may draw significant numbers of visitors. Moreover, most of these facilities attract or may attract primarily middle-income patrons, who are the focus of the Company's marketing strategy. Although the Company believes that these additional facilities will draw more visitors to Las Vegas, future additions, expansions and enhancements to existing properties and construction of new properties by the Company's competitors could divert additional gaming activity from the Company. There can be no assurance that the Company will compete successfully in the Las Vegas market in the future. Employees. At December 31, 2002, the Four Queens Casino employed approximately 880 persons, approximately 48% of whom were covered by collective bargaining agreements. Control. On October 31, 1995, Elsinore and certain of its wholly owned subsidiaries filed for protection pursuant to Chapter 11 of the U.S. Bankruptcy Code. The resulting plan of reorganization of Elsinore and those subsidiaries (the "Plan") was confirmed on August 12, 1996 and became effective following the close of business on February 28, 1997 (the "Plan Effective Date"). Of the 4,929,313 shares of Common Stock issued pursuant to the Plan, 4,646,439 shares or 94.3% of the total outstanding were acquired by certain investment accounts (the "MWV Accounts") managed by Morgens, Waterfall, Vintiadis and Company, Inc. ("MWV"). Of the shares which the MWV Accounts acquired, 995,280 shares were purchased at $5.00 per share under a Subscription Rights Agreement dated October 10, 1996 (the "Rights Agreement"), which was called for by the Plan. Under the Rights Agreement, a total of 1,000,000 shares of Common Stock were subscribed for at $5.00 per share and were issued on the Plan Effective Date. The other 4,720 shares were subscribed for by certain holders of the common stock that was canceled on the Plan Effective Date.
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Also pursuant to the Plan, the Company was required to issue additional shares of Common Stock to the following creditor groups or to a disbursing agent on behalf of such creditor groups: Unsecured Creditors of Four Queens, Inc. 50,491 Unsecured Creditors of Elsinore Corporation 14,159 ------ Total 64,650 ====== The Company issued these shares on July 10, 2000. The shares of Common Stock acquired by the MWV Accounts, other than the 995,280 shares which were purchased under the Rights Agreement, were issued to the MWV Accounts under the Plan (i) in partial satisfaction of the MWV Accounts' respective allowed claims relating to the Company's 12.5% First Mortgage Notes due 2000 that were issued in October 1993 and (ii) as a premium for the MWV Accounts' purchase of Common Stock under the Rights Agreement which was not subscribed for by other persons entitled to participate under the Rights Agreement. Holders of the approximately 15.9 million shares of pre-Plan Effective Date common stock that were canceled on the Plan Effective Date received, in the aggregate, 77,426 shares of Common Stock (including 4,720 shares purchased under the Rights Agreement). This represents 1.6% of the Common Stock outstanding on the Plan Effective Date. As a condition to the approvals by the State Gaming Control Board (the "Board") and the Commission which were required for the Plan to become effective, limitations were placed on the persons who could exercise voting and investment power (including dispositive power) with respect to Common Stock owned by any of the MWV Accounts. Under those limitations, John C. "Bruce" Waterfall is the only individual who exercises voting and investment authority over the Common Stock on behalf of any of the MWV Accounts. Mr. Waterfall is also the Company's Chairman of the Board. Spotlight 29 Casino. In November 1993, the Company's subsidiary, Palm Springs East Limited Partnership ("PSELP"), and the Twenty-Nine Palms Band of Mission Indians (the "Band") entered into a management contract (the "PSELP Contract"), whereby PSELP had the exclusive right to manage and operate the Spotlight 29 Casino, located near Palm Springs, California, and owned by the Band. In March 1995, the Band and PSELP had a dispute regarding, among other things, the terms of the PSELP Contract. As a result, PSELP lost its management position, and subsequently wrote off casino development costs of $1,037,000 and accrued interest and working capital loans of $3,500,000. On March 29, 1996, PSELP entered into a settlement with the Band that was approved by the Bankruptcy Court and which received final clearance by the Bureau of Indian Affairs. Pursuant to the settlement agreement, PSELP received a promissory note from the Band dated October 8, 1996, in the principal amount of $9,000,000, which was fully reserved at February 28, 1997 (the "PSELP Note").
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On October 6, 2000, PSELP entered into a release and settlement agreement (the "PSELP Agreement") with the Band. Pursuant to the terms of the PSELP Agreement, the Band is required to pay PSELP an aggregate amount of $3,500,000. In addition, pursuant to the terms of the PSELP Agreement, PSELP and the Band agreed to release each other and their respective affiliates from any and all liability, obligations rights, claims demands, actions or causes of action relating to the PSELP Note. 7 Cedars Casino. Elsinore, through its wholly-owned subsidiary, Olympia Gaming Corporation (collectively, with Elsinore, the "Company"), entered into a Gaming Project Development and Management Agreement (the "Olympia Agreement") dated as of September 28, 1993 with the Jamestown S'Klallam Tribe (the "JST") and JKT Gaming, Inc. ("JKT") to operate the 7 Cedars Casino (the "7 Cedars"), which is located on the Olympic Peninsula in the State of Washington and is owned by JST. Pursuant to a Loan Agreement dated November 12, 1993 among the Company, JST and JKT, as amended, and the documents related thereto (collectively, the "Loan Documents"), the Company loaned $9,000,000 (the "7 Cedars Note") to JST for the construction of 7 Cedars. During 1995, the Olympia Agreement was terminated by 7 Cedars. As a result, the Company recorded a reserve on the 7 Cedars Note and wrote off unamortized casino development costs and all accrued interest. During 1997, the Company wrote off the 7 Cedars Note and related reserve. The Company entered into a Settlement Agreement and Mutual Release (the "Olympia Settlement") on May 23, 2002 with JST and JKT to resolve any claims of the parties arising out of the Loan Documents. Pursuant to the Settlement, JST agreed to pay the Company $1.5 million, plus interest, over a 36 month period, with an option to prepay, at a negotiated discount, the full amount at any time prior to the end of such 36 month period. Pursuant to the Settlement, the Company, JST and JKT have each agreed to mutually release each party to the Settlement from all claims or causes of action arising from the Loan Documents and related transactions. The Company collected payments under the Olympia Settlement in the approximate amount of $1.3 million during 2002, as payment in full. The Las Vegas Market. Las Vegas Market. Las Vegas is one of the fastest growing and largest entertainment markets in the United States. As reported by the Las Vegas Convention and Visitors Authority ("LVCVA"), for fiscal year 2002, gaming revenues in Clark County were $7.6 billion. Management believes that the number of visitors traveling to Las Vegas has increased at a significant rate, from 30.5 million visitors in 1997 to a near record 35.1 million in 2002, representing a compound annual growth rate of 2.86%; however, visitor volume decreased from 35.8 million in 2000. The negative impact to visitor volume was due, in part, to the acts of terrorism which occurred in New York City and Washington, D.C. on September 11, 2001, which disrupted travel to Las Vegas. Aggregate expenditures by Las Vegas visitors increased at a compound annual growth rate of 4.82% from $25.0 billion in 1997 to $31.6 billion in 2002. The number of hotel and motel rooms in Las Vegas increased by approximately 20% from 105,347 in 1997 to 126,787 in 2002,
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surpassing 100,000 rooms in January 1997, the first market to reach that level. Despite this significant increase in the number of rooms, hotel occupancy rates on average were approximately 90.5% for the five year period from 1998 through 2002. Approximately 5,617 hotel and motel rooms are expected to be added to the Las Vegas market by 2004. The most significant projects currently under construction are the Venetian and Mandalay Bay expansions and renovation of Maxim which will reopen as the Westin Casuarina. The following table sets forth certain statistical information for the Las Vegas market for the years 1998 through 2002, as reported by the LVCVA. [Enlarge/Download Table] Las Vegas Market Statistics 2002 2001 2000 1999 1998 ----------- ----------- ----------- ----------- ------------ Visitor volume (in thousands) 35,072 35,017 35,850 33,809 30,605 Clark County gaming revenues $7,631 $7,637 $7,671 $7,209 $6,347 (in millions) Hotel/motel rooms 126,787 126,610 124,270 120,294 109,365 Average hotel occupancy rate 88.8% 88.9% 92.5% 92.1% 90.3% Airport passenger traffic 35,009 35,180 36,866 33,669 30,227 (in thousands) Convention attendance 5,105 5,014 3,853 3,773 3,302 (in thousands) The Downtown Market. General Information. Downtown Las Vegas, with its famous neon lighting and its 13 major casinos all located within close proximity of each other, attracts a significant number of loyal customers comprised of both visitors to Las Vegas and local residents. Results of the downtown Las Vegas casinos have been adversely affected by, among other things, the opening of themed mega-casinos on the Las Vegas Strip. In the 1989-1991 period, the opening of the Mirage and Excalibur casino/hotels depressed the growth rate of downtown Las Vegas gaming revenues. Similarly, the openings of the Bellagio, MGM Grand, Luxor, Treasure Island, Monte Carlo and New York New York casino/hotels had an adverse effect on downtown gaming revenue. In addition, the openings of Mandalay Bay, The Venetian, Paris, the MGM Grand expansion and the Aladdin, all on the Las Vegas Strip, have had a further adverse effect on downtown gaming revenue. These new casinos are primarily designed to attract high-end gaming and convention customers and are priced at rates well above those which have been or can be charged by the Four Queens Casino based on the Company's investment in that facility. With the proliferation of mega-casinos on the Las Vegas Strip, the Company believes that downtown Las Vegas has become increasingly appealing to the price-conscious vacationer. Four Queens attempts to offer a competitive package of rooms, restaurants and the popular gaming devices demanded by the value-oriented vacationer. The Fremont Street Experience. The Fremont Street Experience, a public/private downtown Las Vegas revitalization development, opened to the public December 13, 1995. The development consists of a 90 foot high, 80 foot
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wide celestial vault, 1,400 feet in length, spanning Fremont Street, from Main Street to Fourth Street. Fremont Street from Main Street to Las Vegas Boulevard was closed to vehicular traffic creating a pedestrian mall. The celestial vault is the framework for the largest graphic display system in the world, which uses more than two million lights and the largest sound system in the world, entertaining millions of guests with sound and light shows. Nine major entertainment venues including the Four Queens Casino connect the development offering more than 11,000 slot machines, 350 blackjack and other table games, 45 restaurants and approximately 7,000 hotel rooms. The development also includes a 1,400 space parking facility. A 250,000 square feet entertainment retail center featuring a 14-screen movie complex and a variety of restaurants and other retail outlets opened on the mall in Spring, 2002. The goal of the Fremont Street Experience is to create a special attraction for gaming customers and other visitors to Las Vegas through multiple activities which include on-going street entertainment, special events, concerts and community activities. Events can draw as many as 80,000 people. Through such attractions, the Fremont Street Experience attempts to draw visitors to the downtown area and provide competition with the larger and new gaming and entertainment complexes located on or near the Las Vegas Strip. The Company and several of the other downtown casino operators collectively own the Fremont Street Experience through their ownership of Fremont Street Experience LLC, which holds title to the project. The Company has a 17.65% ownership share and is responsible for a proportionate share of the project's operating costs. See Note 11 to the Consolidated Financial Statements. Gaming Regulation and Licensing. Nevada. Elsinore is registered with the Commission as a publicly traded company and has been found suitable as the sole shareholder of Four Queens. Four Queens holds a nonrestricted gaming license to conduct nonrestricted gaming operations at the Four Queens Casino. Ownership and operation of casino gaming facilities in Nevada, as well as the manufacture and distribution of gaming devices, are subject to extensive state and local regulation. Publicly traded parent corporations and holding companies of Nevada gaming licensees, as well as the licensed subsidiaries, are subject to the Nevada Gaming Control Act and their regulations promulgated thereunder (collectively, the "Nevada Act") and various local regulations. A registered company and its gaming operations and companies are subject to the licensing and regulatory control of the Commission, the Board, the Clark County Liquor Gaming Licensing Board and possibly other local agencies throughout the State of Nevada, including the City of Las Vegas (collectively, the "Nevada Gaming Authorities"). The laws, regulations and supervisory procedures of the Nevada Gaming Authorities have their genesis in various declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) the creation
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of a source of state and local revenues through taxation and licensing fees. Neither gaming licenses nor the registration approvals given to publicly traded corporations are transferable. Changes in such laws, regulations and procedures could have an adverse effect on the Company's operation. Since the Company is registered with the Commission as a publicly traded corporation and has been found suitable as the sole shareholder of Four Queens, it is required to submit, upon application and on a periodic basis, detailed financial and operating reports to the Commission. Additionally, the Company may be required to furnish any other information requested by the Commission. No person may become a shareholder of, or receive any percentage of profits from, licensed Nevada operating companies without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, any registered company or its licensed subsidiary in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of the licensed subsidiary must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the registered company who are actively and directly involved in the gaming activities of the licensed subsidiary may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause deemed reasonable. A finding of suitability is comparable to licensing, and both require the submission of detailed personal and financial information followed by a thorough investigation. An applicant for licensing or a finding of suitability must pay all of the costs of the investigation. Changes in licensed positions with the registered company or its licensed subsidiary must be reported to the Nevada Gaming Authorities. In addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities also have jurisdiction to disapprove a change in a corporate position. If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the registered company or its licensed subsidiary, the companies involved would be required to sever all relationships with such a person. Additionally, the Commission may require the registered company or its licensed subsidiary to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or questions pertaining to licensing are not subject to judicial review in Nevada. Elsinore and Four Queens are required to submit detailed financial and operating reports to the Commission. Substantially all loans, leases, sales of securities and similar financing transactions by Four Queens must be reported to, or approved by, the Commission. If it were determined that the Nevada Act was violated by the licensed subsidiary or the registered company, the gaming licenses or registration held by the registered company and its licensed subsidiary could be limited, conditioned, suspended, or revoked subject to compliance with certain statutory and regulatory procedures. Moreover, at the discretion of the Commission, the registered company and its licensed subsidiary and persons involved could be subject to substantial fines for each separate violation of the Nevada Act.
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A beneficial holder of the registered company's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated and have his suitability as a beneficial holder of the registered company's voting securities determined if the Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of the investigation incurred by the Nevada Gaming Authorities in conducting such an investigation. Also, the Clark County Liquor Gaming Licensing Board and the City of Las Vegas have taken the position that they have the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming license. The Nevada Act requires any person who acquires more than 5% of the registered company's voting securities to report the acquisition to the Commission. The Nevada Act requires that beneficial owners of more than 10% of the registered company's voting securities apply to the Commission for a finding of suitability within 30 days after the Chairman of the Board mails written notice requiring such a filing. Under certain circumstances, an "institutional investor," as defined in the Nevada Act, which acquires more than 10%, but not more than 15% of the registered company's voting securities, may apply to the Commission for a waiver of such a finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold the voting securities for investment purposes only unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the registered company, any change in the registered company's corporate charter, bylaws, management, policies or operations of the registered company, or any of its gaming affiliates, or any other action which the Commission finds to be inconsistent with holding the registered company's voting securities for investment purposes only. Activities which are not deemed inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by shareholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies, or operations; and (iii) such other activities as the Commission may determine to be consistent with such investment intent. If the Commission grants a waiver to an "institutional investor" the waiver does not include a waiver or exemption from the requirement for prior approval to "acquire control" of a registered corporation. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Commission or the Chairman of the Board may be found unsuitable. The same restriction applies to a record owner if the record owner, after request, fails to identify the beneficial owners. Any shareholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of a registered corporation beyond such period of time as may be prescribed by the Commission may be guilty of a criminal offense. The registered company is subject to
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disciplinary action if, after it receives notice that a person is unsuitable to be a shareholder or to have any other relationship with the registered company or its subsidiaries, it: (i) pays that person any dividend or interest on voting securities of the registered company, (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pays remuneration in any form to that person for services rendered or otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities for cash at fair market value. The Commission may, in its sole discretion, require the holder of any debt security of a registered corporation to file applications, be investigated and be found suitable to own the debt security of the registered corporation. If the Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the registered corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. The registered company is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such a disclosure may be grounds for finding the record holder unsuitable. The registered company is also required to render maximum assistance in determining the identity of the beneficial owner. The Commission has the power to require the registered company's stock certificates to bear a legend indicating that the securities are subject to the Nevada Act. The registered company may not make a public offering of its securities without the prior approval of the Commission if the securities or the proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. Any such approval, if given, would not constitute a finding, recommendation or approval by the Commission or the Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary is unlawful. Application for approval of public offerings and the like may be filed without complete documentation related thereto so long as the documents and information are supplied to the Board and Commission as they become available in accordance with the normal and customary practice of the securities industry. Additionally, the Commission may, either generally or specifically, exempt any person, security or transaction from application pursuant to its regulations regarding publicly traded corporations. Changes in control of the registered company or its subsidiaries through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Commission. Entities seeking to acquire control of a registered corporation must satisfy the Board and the
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Commission in a variety of stringent standards prior to assuming control of such registered corporation. The Commission may also require controlling shareholders, officers, directors and other persons having a material relationship or involvement with the entity proposed to acquire control, to be investigated and licensed as part of the approval process related to the transaction. License fees and taxes, computed in various ways depending upon the type of gaming activity involved, are payable to the State of Nevada and to the counties and cities in which the Nevada licensee's respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly, or annually and are based upon either: (i) a percentage of gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. A casino entertainment tax is also paid by casino operations where entertainment is furnished in connection with the selling of food or refreshments. Nevada licensees that hold a license as an operator of a slot route, or a manufacturer's or distributor's license, also pay certain fees and taxes to the State of Nevada. Any person who is licensed, required to be licensed, registered, or required to be registered, or is under common control with such person (collectively, "Licensees") and who proposes to become involved in a gaming venture outside the State of Nevada, is required to deposit with the Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the Board of his participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Commission. Thereafter, Licensees are required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employ a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the basis of personal unsuitability. The granting of any registrations, amendment of orders of registration, findings of suitability, approvals or licenses are discretionary with the Nevada Gaming Authorities. The burden of demonstrating the suitability or desirability of certain business transactions is at all times upon the applicants. Any licensing or approval process requires the submission of detailed financial, business and possibly personal information and the completion of a thorough investigation. New Jersey. Four Queens was granted a Casino Service Industry License by the State of New Jersey on October 7, 2002. The Four Queens' New Jersey license will expire on May 31, 2005. There can be no assurance that this license will be renewed in the future. Item 2. PROPERTIES. Except for certain small parcels of land owned in fee, the real property underlying the Four Queens Casino is leased pursuant to several long-term
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leases, none of which expire before October 31, 2024. An adjoining garage is occupied under a lease that expires in 2034. Such leases generally provide for annual minimum rental and adjustments relating to cost of living. The Four Queens Casino is subject to security interests under the Company's 12.83% Mortgage Notes. See Note 8 of Notes to Consolidated Financial Statements. Item 3. LEGAL PROCEEDINGS. The Company is a party to certain claims and lawsuits. Management believes that such matters are either covered by insurance, or if not insured, will not have a material adverse effect on the financial statements of the Company taken as a whole. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. There is no organized or established trading market for the Common Stock. The Common Stock's prices are reported on the NASDAQ Stock Market "Bulletin Board" under the symbol ELSO. The following table sets forth, for the periods indicated, the high and low bid prices as reported, which represents inter-dealer prices without adjustment for retail markups, markdowns or commissions and may not reflect actual transactions. 2002 2001 ---- ---- High Low High Low ---- --- ---- --- First quarter $0.63 $0.05 $0.75 $0.20 Second quarter 0.06 0.04 0.75 0.24 Third quarter 0.40 0.04 0.65 0.24 Fourth quarter 0.10 0.06 0.65 0.24 As of the close of business on March 26, 2003, there were approximately 933 record owners of Common Stock. Elsinore has not paid any dividends on the Common Stock in the past two years and does not currently expect to pay any dividends in the foreseeable future. For information regarding our Equity Compensation Plans see Item 12 of this report.
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The trading market for the Common Stock is extremely thin. The MWV Accounts own 94.3% of the outstanding Common Stock, which they acquired pursuant to the Plan and, upon conversion of their 50,000,000 shares of Series A Convertible Preferred Stock into shares of Common Stock, will own 99.6% of the Common Stock. The MWV Accounts have bought and sold Common Stock only within the MWV Accounts. The Common Stock held by the MWV Accounts is deemed beneficially owned by Mr. Waterfall, Elsinore's Chairman of the Board, and Elsinore's directors and executive officers as a group are deemed to own beneficially 99.6% of the outstanding Common Stock. The remaining .4% of the outstanding shares is widely dispersed among numerous shareholders. Item 6. SELECTED FINANCIAL DATA. Set forth below is selected consolidated historical financial data with respect to the Company for the five years ended December 31, 2002. The selected consolidated financial data as of December 31, 2002 and 2001 and for the three years ended December 31, 2002, should be read in conjunction with the audited consolidated financial statements and notes thereto set forth elsewhere herein.
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[Enlarge/Download Table] December 31, 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (Dollars in thousands, except per share amounts) Balance sheet data: Total assets $34,096 $32,761 $47,995 $48,793 $49,748 Current portion of long-term debt 415 603 1,178 2,079 1,906 Long-term debt, less current maturities 8,625 8,684 10,093 14,264 15,548 6% Cumulative convertible preferred stock 23,066 21,760 20,528 19,366 18,270 Shareholders' equity $19,283 $18,039 $31,608 $25,339 $24,109 Operations data: Revenues (net) $54,881 $52,839 $59,351 $55,243 $54,584 Income(loss) before Extraordinary items 1,244 (c) (13,569) (b) 6,269 960 (1,272) Extraordinary item - - - - (77) (a) -------- -------- -------- -------- -------- Net income(loss) 1,244 (13,569) 6,269 960 (1,349) Undeclared dividends on cumulative preferred stock 1,306 1,232 1,162 1,096 270 -------- -------- -------- -------- -------- Net income (loss) applicable to common shares ($62) ($14,801) $5,107 ($136) ($1,619) ======== ======== ======== ======== ======== Basic and diluted per share amounts: Basic income (loss) before Extraordinary item ($.01) ($2.96) $1.02 ($.03) ($.31) Extraordinary item - - - - (.02) -------- -------- -------- -------- -------- Basic income (loss) per share ($0.01) ($2.96) $1.02 ($.03) ($.33) ======== ======== ======== ======== ======== Diluted income (loss) per Share ($0.01) ($2.96) $.06 ($.03) ($.33) ======== ======== ======== ======== ======== Capital costs: Depreciation and Amortization $1,564 (d) $3,954 $3,872 $3,332 $2,804 Interest expense 1,214 1,415 1,634 1,997 4,372 -------- -------- -------- -------- -------- Capital costs $2,778 $5,369 $5,506 $5,329 $7,176 ======== ======== ======== ======== ======== (a) The Company incurred approximately $77,000 in extraordinary costs associated with the buyout of its 11.5% First Mortgage Notes. (b) In connection with the Purchase Agreement, the Company recognized a non-cash impairment loss of approximately $13.2 million during 2001. See discussion in Notes of the Consolidated Financial Statements. (c) In connection with the Purchase Agreement, the Company recognized an additional non-cash impairment loss of approximately $324,000 during 2002. See discussion in Notes of the Consolidated Financial Statements. (d) In connection with the Purchase Agreement, substantially all of the assets of the Four Queens were held for sale during the first half of 2002, no depreciation was recorded on these assets for the six months ended June 30, 2002.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto set forth elsewhere herein. FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. Certain information included in this Form 10-K and other materials filed with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contains statements that are forward looking. Such statements include statements regarding the Company's expectations, hopes or intentions regarding the future, including but not limited to statements regarding the Company's strategy, competition, expenses, development plans, capital expenditures, financing sources, the adoption of certain accounting standards and their anticipated effects on our business, financing, revenue, operations, the impact of the terrorist attacks in the United States, regulations, management's belief regarding the sufficiency of cash flow, the Company's ability to service its debt and to refinance its debt (including paying down principal and extending the maturity date) and compliance with applicable laws. Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in any such statement. Among the factors that could cause actual results to differ materially are the following: declines in general economic conditions, increased labor costs, including those resulting from collective bargaining negotiations on their contract renewals, the Company's ability to refinance its debt, the Company's plan to pay down principal on its debt and to extend the maturity date of its debt, other financing needs, further terrorist attacks, the effect of war in Iraq on the travel and entertainment industries, the availability of sufficient funds for capital improvements and other risks related to such improvements, changes in gaming laws, loss of licenses or permits and other factors described from time to time in the Company's reports filed with the Securities and Exchange Commission. All forward-looking statements in this document are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statement. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents of approximately $6.3 million at December 31, 2002, as compared to approximately $4.6 million at December 31, 2001. During 2002, the Company's net cash provided by operating activities was $3,702,000 compared to $3,419,000 in 2001, and $8,287,000 in 2000. The decrease from 2000 to 2001 was due primarily to $6.2 million received during 2000 from 29 Palms Mission Band of Indians (the "Band") pursuant to a settlement agreement. As a result of the acts of terrorism that occurred in New York City and Washington, D.C. on September 11, 2001, there have been disruptions in travel, which have resulted in decreased customer visitation to our property. We have experienced declines, most noticeably in room and casino revenues, which, along
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with general economic conditions, have materially adversely affected our operating results since September 11, 2001. The Company cannot be certain of the impact that the events of September 11 and the subsequent war in Iraq may continue to have, if any, on future operations. As of December 31, 2002, the Company had the following contractual obligations and commitments: [Enlarge/Download Table] Payments Due by Year ----------------------------------------------------------------------------------------- 2003 2004 2005 2006 2007 Thereafter Total ---- ---- ---- ---- ---- ---------- ----- Long-term debt $- $7,104 $- $- $- $- $7,104 Capital leases 331 223 223 223 223 5,796 7,019 Notes payable 337 53 - - - - 390 Operating leases 4,096 4,012 4,012 4,000 3,997 99,111 119,228 ------ ------- ------ ------ ------ -------- -------- Total $4,764 $11,392 $4,235 $4,223 $4,220 $104,907 $133,741 ====== ======= ====== ====== ====== ======== ======== The Company's 12.83% Mortgage Notes are hold by Morgens, Waterfall, Vintiadis & Company ("MWV"). Certain investment accounts of Morgens, Waterfall, Vintiadis & Company (the "MWV Accounts") own 94.3% of the outstanding Common Stock, and upon conversion of their 50,000,000 shares of Series A Convertible Preferred Stock into shares of Common Stock, will own 99.6% of the Common Stock. The Common Stock held by the MWV Accounts is deemed beneficially owned by John C. "Bruce" Waterfall, Elsinore's Chairman of the Board, and Elsinore's directors and executive officers as a group are deemed to own beneficially 99.6% of the outstanding Common Stock. The remaining .4% of the outstanding shares is widely dispersed among numerous shareholders. Mr. Waterfall is the only individual who exercises voting and investment authority over the Common Stock on behalf of any of the MWV Accounts. Interest on the Company's 12.83% Mortgage Notes (the "Notes") is paid in February and August, during each fiscal year, which significantly affects the Company's cash and cash equivalents in the second and fourth quarters and should be considered in evaluating cash increases or decreases in the second and fourth quarters. The Notes are due in full on October 20, 2003. The Notes are redeemable by the Company at any time at 100% of par, without premium. The Company is required to make an offer to purchase all Notes at 101% of face value upon any "Change of Control" as defined in the indenture governing the Notes. The indenture also provides for mandatory redemption of the Notes by the Company upon order of the Nevada Gaming Authorities. The Notes are guaranteed by Elsub Management Corporation, Four Queens, Inc. and Palm Springs East Limited Partnership ("PSELP") and are collateralized by a second deed of trust on, and a pledge of, substantially all the assets of the Company and the guarantors. The Company has received a Letter of Intent from the MWV Accounts committing to extend the due date of the Notes to October 2004. Accordingly, the Company has classified the amount due on these Notes as long-term. In connection with the Purchase Agreement, Elsinore notified the trustee under the Company's 12.83% Mortgage Notes due 2003 (the "Notes"), that the Company was going to redeem the Notes on April 30, 2002, pursuant to the originally scheduled closing date for the Purchase Agreement with SummerGate. Both the failure to redeem the Notes on April 30, 2002 in accordance with the Company's notice to the trustee, as well as the execution of the Purchase
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Agreement to sell the Four Queens assets, were defaults under the Notes. The Company obtained a waiver of such defaults on May 30, 2002. Subsequently, in connection with an amendment to the Purchase Agreement and extension of the closing date for the asset sale, the Company notified the trustee that it intended to redeem the Notes on June 30, 2002. The failure to redeem the Notes on this date was also a default under the Notes. The Company obtained a waiver of this default on August 15, 2002. Since the Purchase Agreement was terminated on June 27, 2002, the Company does not have any current plans to redeem the Notes. Scheduled interest payments on the Notes and other indebtedness is approximately $764,000 in 2003. Management believes that sufficient cash flow will be available to cover the Company's interest payments for the next twelve months and enable investment in forecasted capital expenditures (see description below) of approximately $2.6 million for 2003, of which $500,000 is expected to be financed. The Company's ability to service its debt is dependent upon future performance, which will be affected by, among other things, prevailing economic conditions and financial, business and other factors, certain of which are beyond the Company's control. In December 2000, the Company made a principal payment on the Notes in the amount of $3 million, after the receipt of $3.5 million by Palm Springs East, L.P. ("PSELP") resulting from the settlement agreement with the Band. The Company made additional principal payments on the Notes in June 2001 in the amount of $1 million from the Company's operating cash flows and a principal payment of $2 million in January 2003 from proceeds from a settlement agreement between Olympia Gaming Corporation and the Jamestown S'Klallam Tribe and JKT Gaming, Inc. (the "Olympia Settlement"). Cash flow from operations is not expected to be sufficient to pay the remaining $5.1 million of principal of the Notes at maturity on October 20, 2003, The Company intends to exchange the Existing Notes, in the same principal amount, in order to extend the maturity date of the Notes. It is anticipated that the New Notes will have the same terms, provisions, and conditions as the Existing Notes, except that the New Notes will have a new maturity date. A note agreement executed in connection with the issuance of the Notes, among other things, places significant restrictions on the incurrence of additional indebtedness by the Company, the creation of additional liens on the collateral securing the Notes, transactions with affiliates and payment of certain restricted payments. In order for the Company to incur additional indebtedness or make a restricted payment, the Company must, among other things, meet a specified consolidated fixed charges coverage ratio and have earned an EBITDA in excess of $0. The ratio is defined as the ratio (the "Ratio") of aggregate consolidated EBITDA to the aggregate consolidated fixed charges for the twelve-month reference period. As of the reference period ended December 31, 2002 the Ratio was 3.31 to 1.00 and the Company was in compliance. Pursuant to covenants applicable to the Company's Notes and Third Supplemental Indenture, the Company is required to maintain a minimum consolidated fixed charges coverage ratio of 1.25 to 1.00. At December 31, 2002, the Company was in compliance with the Ratio requirements. The Company must also maintain a minimum consolidated net worth of not less than an amount equal to its consolidated net worth on the Effective Date of the Plan, less $5 million. At December 31, 2002, the Company was in compliance with the minimum net worth requirements; however,
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the Company was not in compliance with a covenant pertaining to limitations on restricted payments. Specifically, the Company paid approximately $846,000 in connection with its ownership interest of the Fremont Street Experience, while the note agreement limited such payments to $600,000. A waiver has been obtained by the Company from the lender through December 31, 2003. Management considers it important to the competitive position of the Four Queens Casino that expenditures be made to upgrade the property. Uses of cash included capital expenditures of $1.2 million, $1.6 million and $1.7 million during 2002, 2001 and 2000, respectively. Management has budgeted mandatory and maintenance capital expenditures to be $2.6 million for the year 2003. The Company expects to finance such capital expenditures from cash on hand, cash flow and lease financing. Based upon current operating results and cash on hand, the Company estimates it has sufficient operating capital to fund its operations and capital expenditures for the next twelve months. The Company's ability to make such expenditures is dependent upon future performance, which will be affected by, among other things, prevailing economic conditions and financial, business and other factors, certain of which are beyond the Company's control. Recently Issued Accounting Standards In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". SFAS 142 is effective for fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized in an entity's statement of financial position at that date, regardless of when those assets were initially recognized. The adoption of this standard did not have a significant impact on our financial statements. In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 requires one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. The requirements of SFAS No. 144 are effective for fiscal years beginning after December 15, 2001. The Company adopted the provisions of SFAS No. 144 on January 1, 2002. See "Impariment Loss" in Note 1 and Note 4. EITF 00-14 "Accounting for Certain Sales Incentives," which became effective January 1, 2002, focuses on the accounting for, and presentation of, discounts, coupons and rebates. EITF 00-14 requires that cash or equivalent amounts provided or returned to customers as part of a transaction should not be shown as an expense but should be an offset to the related revenue. The Company offers certain incentives to its customers to encourage visitation and play at the casino. Per the consensus, with prior year restatement also required, the cost of these programs should be reported as a contra-revenue, rather than as an expense. We had historically reported the costs of such items as an expense, so these costs were reclassified to be contra-revenues in our Consolidated Statements of Operations to comply with the consensus. This reclassification had no impact on the results of operations. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements 4, 44, and 64, Amendment of FASB Statement 13, and Technical Corrections". SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt". Under SFAS No. 4, all gains and losses from extinguishment of debt were
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required to be aggregated, if material, and classified as an extraordinary item, net of related income tax effect, on the statement of income. SFAS No. 145 requires all gains and losses from extinguishment of debt to be classified as extraordinary only if they meet the criteria of Accounting Principles Board Opinion 30. The Company will adopt this Statement in fiscal year 2003 and the adoption of this statement will not have a material impact on the Company's financial position or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan, as previously required under Emerging Issues Task Force Issue No. 94-3. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company has determined that SFAS No. 146 will not have a material impact on its financial position or results of operations. In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN No. 45 requires disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. Additionally, a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial liability recognition and measurement provisions of FIN No. 45 apply prospectively to guarantees issued or modified after December 31, 2002. The disclosure requirements in FIN No. 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company has determined that FIN No. 45 will not have a material impact on its financial position or results of operations. In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities", which addresses consolidation by business enterprises where equity investors do not bear the residual economic risks and rewards. These entities have been commonly referred to as "special purpose entities". Companies are required to apply the provisions of FIN 46 prospectively for all variable interest entities created after January 31, 2003. FIN 46 is expected to have no impact on the Company's results of operations or financial position.
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CRITICAL ACCOUNTING POLICIES The preparation of the Company's consolidated financial statements requires the Company's management to adopt accounting policies and to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and provision for income taxes. Management periodically evaluates its policies, estimates and assumptions related to these policies. The Company operates in a highly regulated industry. The Company is subject to regulations that describe and regulate operating and internal control procedures. The majority of our casino revenue is in the form of cash, personal checks or gaming chips and tokens, which by their nature do not require complex estimations. We estimate certain liabilities with payment periods that extend for longer than several months. Such estimates include customer loyalty liabilities and self-insured medical and workers compensation costs. We believe that these estimates are reasonable based upon our past experience with the business and based upon our assumptions related to possible outcomes in the future. Future actual results will likely differ from these estimates. Long-lived Assets The Company has a significant investment in long-lived property and equipment. The Company estimates that the undiscounted future cash flows expected to result from the use of these assets exceeds the current carrying value of these assets. Any adverse change to the estimate of these undiscounted future cash flows could necessitate an impairment charge that would adversely affect operating results. The Company estimates useful lives for its assets based on historical experience, estimates of assets' commercial lives, and the likelihood of technological obsolescence. Should the actual useful life of a class of assets differ from the estimated useful life, the Company would record an impairment charge. The Company reviews useful lives, obsolescence, and assesses commercial viability of these assets periodically. Deferred Income Tax Assets We utilize estimates related to cash flow projections for the application of SFAS 109 to the realization of deferred tax assets. Our estimates are based upon recent operating results and budgets for future operating results. These estimates are made using assumptions about the economic, social and regulatory environments in which we operate. These estimates could be negatively impacted by numerous unforeseen events including changes to regulations affecting how we operate our business, changes in the labor market or economic downturns in the areas where we operate. RESULTS OF OPERATIONS 2002 COMPARED TO 2001 REVENUES Net revenues increased by approximately $2,042,000, or 3.9%, from $52,839,000 during the 2001 period, to $54,881,000 for the 2002 period. This increase was due, in part, to payments of approximately $1.3 million received during 2002 under the Olympia Settlement, as discussed below. However, the acts of terrorism that occurred in New York City and Washington, D.C. on September
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11, 2001, have resulted in a disruption in travel which management believes has continued to contribute to decreased customer visitation to our property. We have experienced declines, most noticeably in room revenues and slot revenues, which, along with general economic conditions, has adversely affected our operating results since September 11, 2001, also discussed below. Although the Company cannot be certain of the impact that the events of September 11, 2001 may continue to have, if any, on future operations, management believes that the current results compared to the periods immediately following September 11, 2001 are continuing to improve. Casino revenues increased by approximately $1,209,000, or 3.2%, from $38,075,000 during the 2001 period to $39,284,000 during the 2002 period. This increase was primarily due to a $1,652,000, or 21.0%, increase in table games revenue which was partially offset by a $303,000, or 1.1%, decrease in slot machine revenue, a $101,000, or 18.4%, decrease in keno revenue, a $28,000, or 20.7%, decrease in live and tournament poker revenue and a $11,000, or 1.0%, decrease in slot promotion revenue for the 2002 period. The increase in table games revenue was attributable to an increase in the win percentage of 1.1% and an increase in drop of $6,645,000, or 12.3%. The decrease in slot machine revenue was attributable to a decrease in slot coin-in of $10,029,000, or 2.1%, partially offset by an increase in the hold percentage of 0.06%. The decrease in keno revenue was attributable to a decrease in keno drop of $183,000, or 10.8%. The decrease in slot promotion revenue was due to a decrease in the average daily headcount of $21 WinsSM, a promotional slot program, of 23, or 13.4%, due to a decline in foot traffic. Hotel revenues decreased by approximately $785,000, or 8.8%, from $8,950,000 during the 2001 period to $8,165,000 during the 2002 period. This decrease was primarily due to a decrease in room occupancy, as a percentage of total rooms available for sale, from 86.1% for the 2001 period, to 83.1% for the 2002 period and a decrease in the average daily room rate of $1.75, from $37.19 in the 2001 period to $35.44 in the 2002 period. The overall decline in performance was primarily attributed to a reduction in individual reservations call volume which has not improved since the events of September 11, 2001 and has been affected by general economic conditions. Food and beverage revenues increased approximately $341,000, or 3.2%, from $10,792,000 during the 2001 period to $11,133,000 during the 2002 period. This increase was primarily due to an increase in cash sales as a result of a higher average check. Other and other non-operating revenues increased by approximately $1,176,000, or 82.5%, from $1,426,000 during the 2001 period to $2,602,000 during the 2002 period. This increase was primarily due to payments received from June to October, 2002 of approximately $1.3 million under the Olympia Settlement, partially offset, by a decrease in parking garage revenue of $53,000, or 11.2%, due to a decline in the number of cars parked. Promotional allowances decreased by approximately $102,000, or 1.6%, from $6,405,000 during the 2001 period to $6,303,000 during the 2002 period due to a decrease in complimentary rooms, food and beverage resulting from a decrease in casino complimentaries caused in part by decreased slot machine play.
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DIRECT COSTS AND EXPENSES OF OPERATING DEPARTMENTS Total direct costs and expenses of operating departments, including taxes and licenses, increased by approximately $1,147,000, or 3.2%, from $35,298,000 for the 2001 period to $36,445,000 for the 2002 period. Casino expenses increased $575,000, or 4.4%, from $13,021,000 during the 2001 period to $13,596,000 during the 2002 period, and expenses as a percentage of revenue increased from 34.2% to 34.6%, respectively. The increase was partially due to an increase in labor costs associated with an increase in the number of table games open for play as well as an increase in the reclassification of the cost of complimentary rooms, food and beverage reflected as a casino expense. Hotel expenses increased $45,000, or 0.5%, from $9,384,000 during the 2001 period to $9,429,000 during the 2002 period, and expenses as a percentage of revenue increased from 104.8% to 115.5%, respectively. The increase in expense was due, in part, to an increase in union labor costs and an increase in the reclassification of cost of complimentary rooms reflected as a casino expense. Food and beverage costs and expenses increased by approximately $300,000, or 4.2%, from $7,188,000 during the 2001 period to $7,488,000 during the 2002 period, and expenses as a percentage of revenues increased from 66.6% to 67.3%, respectively. The increase was due, in part, to an increase in union labor costs. Taxes and licenses increased $227,000, or 4.0%, from $5,705,000 in the 2001 period to $5,932,000 in the 2002 period as a result of corresponding increases in casino revenues. The Company concluded negotiations with the Culinary Workers Union Local 226 and Bartenders Union Local 165 as well as the International Union of Operating Engineers Local 501 (AFL-CIO) on June 30, 2002. Pursuant to such negotiations, the Company has commitments for various union payroll increases retroactive to June 1, 2002, for a period of five years, which will increase future payroll costs. OTHER OPERATING EXPENSES Selling, general and administrative expenses increased $551,000, or 6.8%, from $8,122,000 during the 2001 period to $8,672,000 during the 2002 period, and, as a percentage of total net revenues, expenses increased from 15.4% to 15.8%, respectively. The increase was primarily due to expenses incurred relating to the proposed sale of the Four Queens' assets, which was ultimately not consummated. Rent expense increased by approximately $128,000, or 3.0%, from $4,299,000 during the 2001 period to $4,427,000 during the 2002 period, due primarily to adjustments for rent increases pursuant to the terms of our land lease agreements. On March 14, 2002, the Company entered into a purchase agreement (the "Purchase Agreement") for the sale of substantially all of Four Queens Casino's assets, including the hotel and casino, to SummerGate, Inc., a Nevada corporation, for a purchase price, subject to certain adjustments, of
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approximately $22 million, plus the value of cash on hand and the assumption of certain liabilities. On April 5, 2002, the Four Queens amended the Purchase Agreement to, among other things, extend the termination date to June 30, 2002, and reduce the $22 million purchase price to approximately $21.15 million (plus the value of cash on hand and the assumption of certain liabilities) if the sale of assets was consummated after May 7, 2002. In connection with the Purchase Agreement, the Company recognized a non-cash impairment loss of approximately $13.2 million during 2001. An impairment loss was necessary as net proceeds resulting from the sale of the Four Queens would have been less than the carrying value of the assets that were to be sold as of December 31, 2001. Approximately $12.9 million of the impairment loss related to buildings and equipment and the remainder related to the impairment of reorganization value in excess of amounts allocable to identifiable assets. The Company recorded an adjustment to the impairment loss by approximately $324,000, in the first quarter of 2002, due to the amendment of the Purchase Agreement and an increase in the carrying value of the Four Queens' assets that were to be purchased at March 31, 2002. For more information, see Note 4. "Impairment Loss" in the notes to the consolidated financial statements. During 2002, the Company incurred approximately $992,000, net, in merger and litigation costs. Approximately $2,101,000 was incurred as a result of litigation and settlement costs related to the Agreement and Plan of Merger, between Elsinore and Allen E. Paulson. See discussion in the Notes of the Condensed Consolidated Financial Statements. The Company's directors and officers' insurance carrier reimbursed the Company's costs relating to this matter, during 2002, in the approximate amount of $1,109,000. OTHER EXPENSES Depreciation and amortization expense decreased by approximately $2,390,000, or 60.4% from $3,954,000 during the 2001 period to $1,564,000 during the 2002 period. The decrease was primarily due to an adjustment in the carrying value of the Four Queens' assets previously being held for sale and through the recording of an impairment loss in prior reporting periods. Approximately $12.9 million of the impairment loss recorded during 2001 was related to buildings and equipment and the remainder was related to the impairment of reorganization value in excess of amounts allocable to identifiable assets. The Company recorded an adjustment to the impairment loss in the first quarter of 2002 by approximately $324,000, due to the amendment of the Purchase Agreement and an increase in the carrying value of the Four Queens' assets that would have been purchased at March 31, 2002. As substantially all of the assets of the Four Queens were held for sale, no depreciation was recorded on these assets for the six months ended June 30, 2002. Interest expense decreased by approximately $201,000, or 14.2% from $1,415,000 during the 2001 period to $1,214,000 for the 2002 period. The reduction in interest expense was primarily due to a reduction in the principal balance of the Company's 12.83% Mortgage Notes (the "Notes") as a result of a principal payment by the Company in June 2001. NET INCOME BEFORE PROVISION FOR INCOME TAXES AND UNDECLARED DIVIDENDS ON CUMULATIVE CONVERTIBLE PREFERRED STOCK
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As a result of the factors discussed above, the Company experienced net income before provision for income taxes and undeclared dividends on cumulative convertible preferred stock in the 2002 period of $1,244,000 compared to a loss of $13,569,000 in the 2001 period, an increase of $14,813,000. 2001 COMPARED TO 2000 REVENUES Net revenues decreased by approximately $6,513,000, or 11.0%, from $59,351,000 during the 2000 period, to $52,839,000 for the 2001 period. This decrease was primarily due to $6.2 million in payments received in 2000 under a settlement agreement with the Band and a decrease in hotel revenues offset by an increase in casino revenues. On September 11, 2001, acts of terrorism occurred in New York City and Washington, D.C. As a result of such terrorist acts, there was a disruption in travel. These terrorist acts and travel disruptions resulted in decreased customer visitation to the Four Queens Casino. The Company has experienced declines, most noticeably in room and casino revenues, which has materially adversely affected our operating results since September 11, 2001 as discussed below. Casino revenues increased by approximately $1,024,000, or 2.8%, from $37,051,000 during the 2000 period to $38,075,000 during the 2001 period. This increase was primarily due to a $1,100,000, or 100%, increase in slot promotion revenue, a $825,000, or 11.7%, increase in table games revenue and a $135,000, or 100%, increase in poker revenue, partially offset by a $1,049,000, or 3.6%, decrease in slot machine revenue. The increase in table games revenue was attributable to an increase in the win percentage of 1.9%, which was partially offset by a decrease in drop of $1,518,000, or 2.7%. The increase in slot promotion revenue was due to the implementation of a promotional slot program in February 2001 known as $21 WinsSM. The average daily headcount for $21 WinsSM during the nine-month 2001 period was 172. The decrease in slot machine revenue was attributable to a decrease in slot coin-in of $19,943,000 or 4.0%. The increase in poker revenue was attributable to poker tournament revenue earned during the Four Queens Poker Classic, which was held from September 5 through September 23, 2001, as well as revenues earned from live poker play during the same time period. Hotel revenues decreased by approximately $697,000, or 7.2%, from $9,647,000 during the 2000 period to $8,950,000 during the 2001 period. This decrease was primarily due to a decrease in room occupancy, as a percentage of total rooms available for sale, from 91.5% for the 2000 period, to 88.5% for the 2001 period and the average daily room rate decreased $1.25, from $38.44 in the 2000 period to $37.19 in the 2001 period. Food and beverage revenues increased approximately $494,000, or 4.8% from $10,298,000 during the 2000 period to $10,792,000 during the 2001 period. This increase was primarily due to an increase in cash food sales as a result of a higher average of food and beverage checks and an increase in complimentary covers of 6,212, or 6.1%. Other and other non-operating revenues decreased by approximately $6,711,000, or 82.5%, from $8,137,000 during the 2000 period to $1,426,000 during the 2001 period. This decrease was primarily due to payments received in
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2000 of approximately $6,191,000, under a settlement agreement with the Band and a reduction in commemorative chips taken to income of approximately $281,000. Promotional allowances increased by approximately $623,000, or 10.8%, from $5,782,000 during the 2000 period to $6,405,000 during the 2001 period due to a decrease in complimentary rooms, food and beverage resulting from an decrease in casino complimentaries due, in part, to decreased slot play. DIRECT COSTS AND EXPENSES OF OPERATING DEPARTMENTS Total direct costs and expenses of operating departments, including taxes and licenses, increased by approximately $1,170,000, or 3.4%, from $34,128,000 for the 2000 period to $35,298,000 for the 2001 period. Casino expenses increased $1,174,000, or 9.9%, from $11,847,000 during the 2000 period to $13,021,000 during the 2001 period, and expenses as a percentage of revenue increased from 32.1% to 34.2%. Hotel expenses decreased $224,000, or 2.3%, from $9,608,000 during the 2000 period to $9,384,000 during the 2001 period, however, expenses as a percentage of revenue increased from 99.6% to 104.8%. Food and beverage costs and expenses increased by approximately $301,000, or 4.4%, from $6,887,000 during the 2000 period to $7,188,000 during the 2001 period; however, expenses as a percentage of revenues decreased from 66.9% to 66.6%. Taxes and licenses decreased $81,000, or 1.4%, from $5,786,000 in the 2000 period to $5,705,000 in the 2001 period. OTHER OPERATING EXPENSES Selling, general and administrative expenses decreased $1,110,000, or 12.0%, from $9,231,000 during the 2000 period to $8,121,000 during the 2001 period, and as a percentage of total net revenues, expenses decreased from 15.6% to 15.4% primarily due to a reduction in slot marketing expenses as a result of a discontinued promotion. The Company has commitments for various union payroll increases which are expected to increase future payroll costs. OTHER EXPENSES Rent expense increased by approximately $162,000, or 3.9%, from $4,137,000 during the 2000 period to $4,299,000 during the 2001 period, due primarily to corresponding annual Consumer Price Index increases for land lease agreements. Depreciation and amortization increased by approximately $82,000, or 2.1% from $3,872,000 during the 2000 period to $3,954,000 during the 2001 period, primarily due to the acquisition of new equipment and the completion of a room remodel project. Interest expense decreased by approximately $219,000, or 13.4% from $1,634,000 during the 2000 period to $1,415,000 for the 2001 period. The reduction in interest expense was primarily due to a reduction in the principal balance of the Company's Notes as a result of additional principal payments by the Company in June 2001.
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During 2001, the Company incurred approximately $127,000 in merger and litigation costs. Approximately $370,000 was incurred as a result of litigation costs related to the Agreement and Plan of Merger, between Elsinore and Allen E. Paulson, which was offset by a reimbursement from the Company's directors and officers' insurance carrier in the amount of $243,000. IMPAIRMENT LOSS In connection with the Purchase Agreement, the Company recognized a non-cash impairment loss of approximately $13.2 million during 2001. An impairment loss was necessary as net proceeds resulting from the sale of the Four Queens would have been less than the carrying value of the assets to be sold as of December 31, 2001. Approximately $12.9 million of the impairment loss was related to buildings and equipment and the remainder was related to the impairment of reorganization value in excess of amounts allocable to identifiable assets. See discussion in the Notes of the Consolidated Financial Statements. NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND UNDECLARED DIVIDENDS ON CUMULATIVE CONVERTIBLE PREFERRED STOCK As a result of the factors discussed above, the Company experienced a net loss before provision for income taxes and undeclared dividends on cumulative convertible preferred stock in the 2001 period of $13,569,000 compared to a net profit of $6,269,000 in the 2000 period, a decline of $19,838,000. Item 7A. Quantitative and Qualitative Disclosures about Market Risks. The Company's financial instruments include cash and long-term debt. At December 31, 2002, the carrying values of the Company's financial instruments approximated their fair values based on current market prices and rates. It is the Company's policy not to enter into derivative financial instruments. The Company does not currently have any significant foreign currency exposure since it does not transact business in foreign currencies. Therefore, the Company does not have significant overall currency exposure at December 31, 2002. The Company does not have any variable rate debt.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES For the years ended December 31, 2002, 2001 and 2000 Page ---- Independent Auditors' Report 31 Consolidated Balance Sheets as of December 31, 2002 and 2001 32 Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000 34 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2002, 2001 and 2000 36 Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 37 Notes to Consolidated Financial Statements 39 All Financial Statement Schedules are omitted because they are either not required or not applicable, or the required information is presented in the Notes to the Consolidated Financial Statements.
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INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Elsinore Corporation Las Vegas, Nevada We have audited the accompanying consolidated balance sheets of Elsinore Corporation and Subsidiaries (the "Company") as of December 31, 2002 and 2001, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Las Vegas, Nevada February 14, 2003
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[Enlarge/Download Table] Elsinore Corporation and Subsidiaries Consolidated Balance Sheets December 31, 2002 and 2001 (Dollars in Thousands) 2002 2001 --------------------- -------------------- Assets Current Assets: Cash and cash equivalents $6,333 $4,643 Accounts receivable, less allowance for doubtful accounts of $161 and $163, respectively 416 1,163 Inventories 418 360 Prepaid expenses 1,446 1,165 --------------------- -------------------- Total current assets 8,613 7,331 Property and equipment, net 23,515 23,637 Other assets 1,968 1,793 --------------------- -------------------- Total assets $34,096 $32,761 ===================== ==================== (continued)
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Elsinore Corporation and Subsidiaries Consolidated Balance Sheets (continued) December 31, 2002 and 2001 (Dollars in Thousands) 2002 2001 --------------------- -------------------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable $848 $1,095 Accrued interest 319 316 Accrued expenses 4,606 4,024 Current portion of long-term debt 415 603 --------------------- -------------------- Total current liabilities 6,188 6,038 Long-term debt, less current portion 8,625 8,684 --------------------- -------------------- Total liabilities 14,813 14,722 --------------------- -------------------- Commitments and contingencies (Note 11) Shareholders' Equity: 6% cumulative convertible preferred stock, no par value. Authorized, issued and outstanding 50,000,000 shares. 23,066 21,760 Common stock, $.001 par value per share. Authorized 100,000,000 shares. Issued and outstanding 4,993,965 shares at December 31, 2002 and 2001, respectively. 5 5 Additional paid-in capital 4,571 5,877 Accumulated deficit (8,359) (9,603) --------------------- -------------------- Total shareholders' equity 19,283 18,039 --------------------- -------------------- Total liabilities and shareholders' equity $34,096 $32,761 ===================== ====================
See accompanying notes to the Consolidated Financial Statements.
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[Download Table] Elsinore Corporation and Subsidiaries Consolidated Statements of Operations (Dollars in Thousands) Year Year Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ Revenues, net: Casino $39,284 $38,075 $37,051 Hotel 8,165 8,950 9,647 Food and beverage 11,133 10,792 10,298 Other 1,318 1,426 1,946 Other, non-operating 1,284 - 6,191 ------------ ------------ ------------ Total revenues 61,184 59,243 65,133 Promotional allowances (6,303) (6,404) (5,782) ------------ ------------ ------------ Net revenues 54,881 52,839 59,351 ------------ ------------ ------------ Costs and expenses: Casino 13,596 13,021 11,847 Hotel 9,429 9,384 9,608 Food and beverage 7,488 7,188 6,887 Taxes and licenses 5,932 5,705 5,786 Selling, general and administrative 8,672 8,122 9,231 Rents 4,427 4,299 4,137 Depreciation and amortization 1,564 3,954 3,872 Interest 1,214 1,415 1,634 Impairment loss 323 13,193 - Merger and litigation costs 992 127 80 ------------ ------------ ------------ Total costs and expenses 53,637 66,408 53,082 ------------ ------------ ------------ Net income (loss) before undeclared dividends on cumulative preferred stock 1,244 (13,569) 6,269 Undeclared dividends on cumulative preferred stock 1,306 1,232 1,162 ------------ ------------ ------------ Net (loss) income applicable to common ($62) ($14,801) $5,107 ============ ============ =============
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[Enlarge/Download Table] Elsinore Corporation and Subsidiaries Consolidated Statements of Operations (Dollars in Thousands) Year Year Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------ ------------ ------------ Basic and diluted (loss) income per share: Basic (loss) income per share ($0.01) ($2.96) $1.02 ============ ============ ============= Weighted average number of common shares outstanding 4,993,965 4,993,965 4,993,965 ============ ============ ============= Diluted (loss) income per share ($0.01) ($2.96) $.06 ============ ============ ============= Weighted average number of common and common share equivalent shares outstanding 4,993,965 4,993,965 97,993,965 ============ ============ ============= See accompanying notes to the Consolidated Financial Statements.
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[Enlarge/Download Table] Elsinore Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity Years Ended December 31, 2002, 2001 and 2000 (Dollars in Thousands) Common Stock Preferred Stock ---------------------- ---------------------- Total Outstanding Outstanding Additional Accumulated Shareholders' Shares Amount Shares Amount Paid-In-Capital Deficit Equity ------------- -------- ------------- -------- ----------------- ------------- --------------- Balance, January 1, 2000 4,929,313 $5 50,000,000 $19,366 $8,271 ($2,303) $25,339 Common stock issued 64,652 Net income 6,269 6,269 Undeclared preferred Stock dividends 1,162 (1,162) ------------- -------- ------------- -------- ----------------- ------------- --------------- Balance, December 31, 2000 4,993,965 5 50,000,000 20,528 7,109 3,966 31,608 Net loss (13,569) (13,569) Undeclared preferred Stock dividends 1,232 (1,232) ------------- -------- ------------- -------- ----------------- ------------- --------------- Balance, December 31, 2001 4,993,965 5 50,000,000 21,760 5,877 (9,603) 18,039 Net income 1,244 1,244 Undeclared preferred Stock dividends 1,306 (1,306) ------------- -------- ------------- -------- ----------------- ------------- --------------- Balance, December 31, 2002 4,993,965 $5 50,000,000 $23,066 $4,571 ($8,359) $19,283 ============= ======== ============= ======== ================= ============= =============== See accompanying notes to the Consolidated Financial Statements.
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[Enlarge/Download Table] Elsinore Corporation and Subsidiaries Consolidated Statements of Cash Flows (Dollars in Thousands) ------------------------------------------------------------------------- Year Year Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $1,244 ($13,569) $6,269 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,564 3,954 3,872 Impairment loss 323 13,193 - Provision for uncollectible accounts 29 (14) 108 Changes in assets and liabilities: Accounts receivable 718 (619) 56 Inventories (58) 34 200 Prepaid expenses (281) 231 (209) Other assets (175) (110) (14) Accounts payable (247) (148) (560) Accrued expenses 582 406 (955) Accrued interest 3 61 (480) ----------------------- ------------------------ ---------------------- Net cash provided by operating activities 3,702 3,419 8,287 Cash flows used in investing activities: Capital expenditures (1,190) (1,566) (1,695) Cash flows used in financing activities: Principal payments on long-term debt (822) (2,218) (5,131) ----------------------- ------------------------ ---------------------- Net increase (decrease) in cash and cash equivalents 1,690 (365) 1,461 Cash and cash equivalents at beginning of year 4,643 5,008 3,547 ----------------------- ------------------------ ---------------------- Cash and cash equivalents at end of year $6,333 $4,643 $5,008 ======================= ======================== ======================
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[Enlarge/Download Table] Elsinore Corporation and Subsidiaries Consolidated Statements of Cash Flows (continued) (Dollars in Thousands) ------------------------------------------------------------------------- Year Year Year Ended Ended Ended December 31, December 31, December 31, 2002 2001 2000 ------------------------------------------------------------------------- Supplemental disclosure of non- cash investing and financing activities: Equipment purchased with capital lease financing $575 $234 $59 Undeclared preferred stock dividends $1,306 $1,232 $1,162 Supplemental disclosure of cash activities: Cash paid for interest $1,211 $1,348 $2,169 Cash paid for income taxes $1 $51 $2 See accompanying notes to the Consolidated Financial Statements.
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Elsinore Corporation and Subsidiaries Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Elsinore Corporation ("Elsinore" or the "Company") and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Impairment Loss As discussed in Note 4, on March 14, 2002, Elsinore announced that its wholly owned subsidiary, Four Queens, Inc. ("Four Queens"), which operates the Four Queens Hotel & Casino ("Four Queens Casino") entered into a definitive asset purchase agreement (the "Purchase Agreement") for the sale of substantially all of Four Queens Casino's assets, including the hotel and casino, to SummerGate, Inc., a Nevada corporation, for a purchase price, subject to certain price adjustments, of approximately $22 million, plus the value of cash on hand and the assumption of certain liabilities. The assets of the Four Queens constitute substantially all of the assets of Elsinore. Subsequently, on April 5, 2002, Four Queens amended the Purchase Agreement to, among other things, extend the termination date to June 30, 2002, and reduce the $22 million purchase price to approximately $21.15 million (plus the value of cash on hand and the assumption of certain liabilities) if the sale of assets was consummated after May 7, 2002. In connection with the Purchase Agreement, the Company recognized a non-cash impairment loss of approximately $13.2 million during 2001. The Company recorded an additional impairment loss of approximately $324,000, in the first quarter of 2002, due to the amendment of the Purchase Agreement. As substantially all of the assets of the Four Queens were held for sale, no depreciation was recorded on these assets for the six months ended June 30, 2002. On June 27, 2002, the Four Queens exercised its right to terminate the Purchase Agreement and sent written notice to SummerGate of such termination. Subsequently, Four Queens received a written termination notice from SummerGate. As such, assets held for sale as of June 30, 2002 were depreciated effective July 1, 2002. Accounting for Casino Revenue and Promotional Allowances In accordance with industry practice, the Company recognizes as casino revenue the net win from gaming activities, which is the difference between gaming wins and losses. The retail value of complimentary food, beverages and hotel services furnished to customers is included in the respective revenue classifications and then deducted as promotional allowances. The estimated costs of providing such promotional allowances are included in casino costs and expenses and consist of the following:
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Years Ended December 31, ----------------------------- 2002 2001 2000 ---- ---- ---- (Dollars in thousands) Hotel $1,190 $1,120 $ 899 Food & beverage 2,931 2,738 2,617 ------ ------ ------ Total $4,121 $3,858 $3,516 ====== ====== ====== Non-Gaming Revenue Recognition Hotel, food and beverage and other revenues are recognized as services are provided to customers. Advance deposits on rooms are recorded as accrued liabilities until services are provided to the customer. Cash Equivalents Cash equivalents include highly liquid investments with a maturity date of 90 days or less at the date they were purchased. Inventories Inventories, which include food, beverage and sundries, are stated at the lower of cost (first-in, first-out) or market. Property and Equipment Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets using the straight-line method. Useful lives range from 4 to 40 years. Equipment held under capital leases is recorded at the net present value of minimum lease payments at the inception of the lease and amortized over the shorter of the terms of the leases or estimated useful lives of the related assets. Long-lived Assets In accordance with the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company evaluates the potential impairment of long-lived assets when events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If it is determined that the carrying value of long-lived assets may not be recoverable based upon the relevant facts and circumstances, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, the Company will recognize an impairment loss for the difference between the carrying value of the asset and its fair value.
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Other Assets Other assets consists of the following: (Dollars in thousands) December 31, 2002 2001 ----------------- Secured letter of credit $694 $615 Promotional gift inventory 227 263 Parking garage deposit 351 364 Security deposits on leases 154 180 Other 542 371 ------ ------ Total $1,968 $1,793 ====== ====== Income Taxes Under the asset and liability method of accounting for income taxes, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Net (Loss) Income Per Common Share Basic per share amounts are computed by dividing net (loss) income by average shares outstanding during the year. Diluted per share amounts are computed by dividing net (loss) income applicable to common shares by average shares outstanding plus the dilutive effect of common share equivalents. Since the Company incurred a net loss for the years ended December 31, 2002 and 2001, the effect of common stock equivalents was anti-dilutive. Therefore, basic and diluted per share amounts are the same for these years. [Enlarge/Download Table] Year Ended December 31, 2000 --------------------------------------------------- Income Shares Per Share Amounts Basic EPS: Net income available to common shareholders $5,107,000 4,993,965 $1.02 Effect of Dilutive Securities: Undeclared dividends on cumulative convertible preferred stock 1,162,000 93,000,000 (0.96) --------------------------------------------------- Diluted EPS: Net income available to common shareholders plus assumed conversions $6,269,000 97,993,965 $0.06 ===================================================
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Reclassifications Certain 2001 and 2000 amounts have been reclassified to conform with the 2002 presentation. In addition, approximately $975,000 and $709,000 of subsidies paid to tour bus companies, previously shown as casino expenses, was reclassified as a reduction of casino revenues for 2001 and 2000, respectively, pursuant to EITF 00-14 "Accounting For Certain Sales Incentives". These reclassifications had no effect on the Company's net income (loss). Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates used by the Company include the estimated useful lives for depreciable assets, the estimated allowance for doubtful accounts receivable, the estimated valuation allowance for deferred tax assets and estimated cash flows used in assessing the recoverability of long-lived assets. Actual results may differ from those estimates. Recently Issued Accounting Standards In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". SFAS 142 is effective for fiscal years beginning after December 15, 2001 and applies to all goodwill and other intangible assets recognized in an entity's statement of financial position at that date, regardless of when those assets were initially recognized. The adoption of this standard did not have a significant impact on our financial statements. In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 requires one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. The requirements of SFAS No. 144 are effective for fiscal years beginning after December 15, 2001. In connection with the adoption of SFAS No. 144, and the proposed sale, the Company ceased depreciation of its assets. The adoption of SFAS No. 144 did not have any other material effect on the Company's financial position or results of operations. EITF 00-14 "Accounting for Certain Sales Incentives," which became effective January 1, 2002, focuses on the accounting for, and presentation of, discounts, coupons and rebates. EITF 00-14 requires that cash or equivalent amounts provided or returned to customers as part of a transaction should not be shown as an expense but should be an offset to the related revenue. The Company offers certain incentives to its customers to encourage visitation and play at the casino. The consensus, with prior year restatement also required, the cost of these programs should be reported as a contra-revenue, rather than as an expense. We had historically reported the costs of such items as an expense, so these costs were reclassified to be contra-revenues in our Consolidated Statements of Operations to comply with the consensus. This reclassification had no impact on the results of operations.
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In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements 4, 44, and 64, Amendment of FASB Statement 13, and Technical Corrections". SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt". Under SFAS No. 4, all gains and losses from extinguishment of debt were required to be aggregated, if material, and classified as an extraordinary item, net of related income tax effect, on the statement of income. SFAS No. 145 requires all gains and losses from extinguishment of debt to be classified as extraordinary only if they meet the criteria of Accounting Principles Board Opinion 30. The Company adopted this Statement in fiscal year 2002 and the adoption of this statement did not have a material impact on the Company's financial position or results of operations. In June 2002, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standard No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No.146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. A fundamental conclusion reached by the FASB in this statement is that an entity's commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. SFAS No. 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company adopted this statement in the fourth quarter of 2002 and the adoption of this statement did not have a material impact on its financial position and results of operations. In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN No. 45 requires disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. Additionally, a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial liability recognition and measurement provisions of FIN No. 45 apply prospectively to guarantees issued or modified after December 31, 2002. The disclosure requirements in FIN No. 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company has determined that FIN No. 45 will not have a material impact on its financial position or results of operations. In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities", which addresses consolidation by business enterprises where equity investors do not bear the residual economic risks and rewards. These entities have been commonly referred to as "special purpose entities". Companies are required to apply the provisions of FIN 46 prospectively for all variable interest entities created after January 31, 2003. FIN 46 is expected to have no impact on the Company's results of operations or financial position.
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2. Property and Equipment Property and equipment, net, consists of the following: December 31, Useful 2002 2001 Lives ---------------------- ------ (Dollars in thousands) Land $2,800 $2,800 Buildings 21,308 21,283 30 Equipment 16,202 14,773 4 to 7 Construction in progress 41 63 ------- ------- 40,351 38,919 Less accumulated depreciation 16,836 15,282 ------- ------- $23,515 $23,637 ======= ======= In connection with the Purchase Agreement as discussed in Note 4, the Company reassessed the carrying value of its property and equipment. The Company determined, based upon the Purchase Agreement terms, that the value of property and equipment was approximately $23.6 million at December 31, 2001. Based upon the evaluation, the property and equipment was written down during 2001 by approximately $12.9 million to reflect the permanent impairment of value. Pursuant to the pending Purchase Agreement, the property and equipment was written down further during the first quarter of 2002 by approximately $324,000. 3. Accrued Expenses Accrued expenses consist of the following: December 31, 2002 2001 ----------------- (Dollars in thousands) Payroll, benefits and related $2,550 $1,986 Gaming taxes 193 148 Slot club liability 618 627 Outstanding chip and token liability 591 327 Other 654 936 ------ ------ $4,606 $4,024 ====== ====== 4. Impairment Loss In connection with a Purchase Agreement entered into between the Four Queens and SummerGate, Inc. on March 14, 2002 pursuant to which the Four Queens' proposed to sell substantially all of its assets to SummerGate (the "Purchase Agreement"), the Company recognized a non-cash impairment loss of approximately $13.2 million during 2001. An impairment loss was necessary as the proposed net proceeds resulting from the sale of the assets of Four Queens, under the Purchase Agreement, would have been less than the carrying value of the assets to be sold as of December 31, 2001. Approximately $12.9 million of the impairment loss was related to buildings and equipment and the remainder was related to the impairment of reorganization value in excess of amounts allocable to identifiable assets.
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On April 5, 2002, Four Queens amended the Purchase Agreement to, among other things, extend the termination date to June 30, 2002, and reduce the $22 million purchase price to approximately $21.15 million (plus the value of cash on hand and the assumption of certain liabilities) if the sale of assets was consummated after May 7, 2002. The Company recorded an adjustment to the impairment loss of approximately $324,000, in the first quarter of 2002, due to the amendment of the Purchase Agreement and an increase in the carrying value of assets being purchased at March 31, 2002. On June 27, 2002, the Four Queens exercised its right to terminate the Agreement and sent written notice to SummerGate of such termination. Subsequently, Four Queens received a written termination notice from SummerGate. 5. Olympia Gaming Corporation Elsinore, through its wholly-owned subsidiary, Olympia Gaming Corporation (collectively, with Elsinore, the "Company"), entered into a Gaming Project Development and Management Agreement (the "Contract") dated as of September 28, 1993 with the Jamestown S'Klallam Tribe (the "JST") and JKT Gaming, Inc. ("JKT") to operate the 7 Cedars Casino (the "7 Cedars"), which is located on the Olympic Peninsula in the State of Washington and is owned by JST. Pursuant to a Loan Agreement dated November 12, 1993 among the Company, JST and JKT, as amended, and the documents related thereto (collectively, the "Loan Documents"), the Company loaned $9,000,000 (the "7 Cedars Note") to JST for the construction of 7 Cedars. During 1995, the Contract was terminated by 7 Cedars. As a result, the Company recorded a reserve on the 7 Cedars Note and wrote off unamortized casino development costs in the amount of $242,000 and all accrued interest. During 1997, the Company wrote off the 7 Cedars Note and related reserve. The Company entered into a Settlement Agreement and Mutual Release (the "Settlement") on May 23, 2002 with JST and JKT to resolve any claims of the parties arising out of the Loan Documents. Pursuant to the Settlement, JST agreed to pay the Company $1.5 million, plus interest, over a 36 month period, with an option to prepay, at a negotiated discount, the full amount at any time prior to the end of such 36 month period. Pursuant to the Settlement, the Company, JST and JKT have each agreed to mutually release each party to the Settlement from all claims or causes of action arising from the Loan Documents and related transactions. The Company collected approximately $450,000 under the Settlement between June and September of 2002. In October 2002, pursuant to certain pre-payment terms under this Settlement, the Company received approximately $834,000 as payment in full. These amounts are included in other non-operating revenues. 6. Spotlight 29 Casino In November 1993, the Company's subsidiary, Palm Springs East Limited Partnership ("PSELP"), and the Twenty-Nine Palms Band of Mission Indians (the "Band") entered into a management contract (the "PSELP Contract"), whereby PSELP had the exclusive right to manage and operate the Spotlight 29 Casino (the "Spotlight 29"), located near Palm Springs, California, and owned by the Band.
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In March 1995, the Band and PSELP had a dispute regarding, among other things, the terms of the PSELP Contract. As a result, PSELP lost its management position, and subsequently wrote off casino development costs of $1,037,000 and accrued interest and working capital loans of $3,500,000. On March 29, 1996, PSELP entered into a settlement with the Band that was approved by the Bankruptcy Court and which received final clearance by the Bureau of Indian Affairs. Pursuant to the settlement agreement, PSELP received a promissory note from the Band dated October 8, 1996, in the principal amount of $9,000,000, which was fully reserved at February 28, 1997 (the "Note"). On October 6, 2000, PSELP entered into a release and settlement agreement (the "PSELP Agreement") with the Band. Pursuant to the terms of the PSELP Agreement, the Band is required to pay PSELP an aggregate amount of $3,500,000. In addition, pursuant to the terms of the PSELP Agreement, PSELP and the Band agreed to release each other and their respective affiliates from any and all liability, obligations rights, claims demands, actions or causes of action relating to the Note. Payments received from the Band in the amount of $6,191,418 has been recorded in other non-operating revenue for the year ending 2000. 7. Long-Term Debt Long-term debt, including capital lease obligations, are as follows: December 31, 2002 2001 ----------------- (Dollars in thousands) 12.83% New Mortgage Notes $7,104 $7,104 Notes payable - Other 371 196 Capital leases (see Note 8) 1,565 1,987 ------ ------ 9,040 9,287 Less current maturities (415) (603) ------- ------- $8,625 $8,684 ====== ====== The Company's 12.83% Mortgage Notes are held by Morgens, Waterfall, Vintiadis & Company ("MWV"). Certain investment accounts of Morgens, Waterfall, Vintiadis & Company (the "MWV Accounts") own 94.3% of the outstanding Common Stock, and upon conversion of their 50,000,000 shares of Series A Convertible Preferred Stock into shares of Common Stock, will own 99.6% of the Common Stock. The Common Stock held by the MWV Accounts is deemed beneficially owned by John C. "Bruce" Waterfall, Elsinore's Chairman of the Board, and Elsinore's directors and executive officers as a group are deemed to own beneficially 99.6% of the outstanding Common Stock. The remaining .4% of the outstanding shares is widely dispersed among numerous shareholders. Mr. Waterfall is the only individual who exercises voting and investment authority over the Common Stock on behalf of any of the MWV Accounts. Interest on the 12.83% New Mortgage Notes ("Existing Notes") is payable on February 28 and August 31 of each year. The Company entered into a Third Supplemental Indenture on October 31, 2000 ("New Notes"), in which New Notes were exchanged for the Existing Notes in the same principal amount.
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The New Notes have the same terms, provisions and conditions as the Existing Notes, except that the New Notes are due in full on October 20, 2003. The New Notes are redeemable by the Company at any time at 100% of par, without premium. The Company is required to make an offer to purchase all New Notes at 101% upon any "Change of Control" as defined in the indenture governing the New Notes. The indenture also provides for mandatory redemption of the Notes by the Company upon order of the Nevada Gaming Authorities. The New Notes are guaranteed by Elsub Management Corporation, Four Queens, Inc. and Palm Springs East Limited Partnership and are collateralized by a second deed of trust on and pledge of substantially all the assets of the Company and the guarantors. The Company intends to exchange the Existing Notes, in the same principal amount, in order to extend the maturity date of the Notes. It is anticipated that the New Notes will have the same terms, provisions and conditions as the Existing Notes, except that the New Notes will have a new maturity date. The Company has received a Letter of Intent from the MWV Accounts committing to extend the due date of the Notes to October 2004. Accordingly, the Company has classified the amount due on these Notes as long-term. In January 2003, the Company made an additional principal payment on the Notes in the amount of $2 million from the Company's operating cash flow and the proceeds from the Olympia Settlement. The Note Agreement, among other things, places significant restrictions on the incurrence of additional indebtedness by the Company, the creation of additional liens on the collateral securing the New Notes, transactions with affiliates and payment of certain restricted payments (as defined). In order for the Company to incur additional indebtedness or make a restricted payment, the Company must, among other things, meet a specified consolidated fixed charges coverage ratio and have earned an EBITDA in excess of $0. The Company must also maintain a minimum amount of consolidated net worth not less than an amount equal to its consolidated net worth on February 28, 1997, which was $5 million, less $5 million. At December 31, 2002, the Company was not in compliance with a requirement pertaining to limitations on restricted payments; however, a waiver has been obtained from the lender through December 31, 2003. The Company has several notes for the purchase of slot machines from various slot manufacturers. Maturities of the Company's long-term debt are as follows: Year Ending December 31, (In Thousands) 2003 $415 2004 7,158 2005 3 2006 4 2007 4 Thereafter 1,456 ------ $9,040 ======
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8. Leases All non-cancelable leases have been classified as capital or operating leases. At December 31, 2002, the Company had leases for real and personal property which expire in various years through 2074. Under most leasing arrangements, the Company pays the taxes, insurance and the operating expenses related to the leased property. Certain leases on real property provide for adjustments of rents based on the cost-of-living index. Buildings and equipment leased under capital leases, included in property and equipment, are as follows: December 31, 2002 2001 ----------------- (Dollars in thousands) Building $1,364 $1,364 Equipment 478 2,810 ----- ----- 1,842 4,174 Less accumulated depreciation (599) (2,489) ------- ------- $1,243 $1,685 ======= ======= Depreciation of assets held under capital leases is included in depreciation in the Consolidated Statements of Operations. The following is a schedule of future minimum lease payments for capital and operating leases (with initial or remaining terms in excess of one year) as of December 31, 2002: Capital Operating Leases Leases ------- --------- (Dollars in thousands) Years Ending December 31, 2003 $331 $4,096 2004 223 4,012 2005 223 4,012 2006 223 4,000 2007 223 3,997 Thereafter 5,796 99,111 ----- -------- Total minimum lease payments 7,019 $119,228 ======== Less: amount representing interest(at imputed rates ranging from 5.9% to 15.0%) 5,454 Present value of net minimum capital lease payments 1,565 Less: current maturities ( 95) ------- Capital lease obligations, excluding current maturities $1,470 ====== Rent expense recorded under operating leases for the years ended December 31, 2002, 2001 and 2000 was $4,048,000, $3,931,000 and $3,823,000 respectively.
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9. Income Taxes No income tax benefit related to the 2001 loss has been recorded due to the uncertain ability of the Company to utilize its net operating loss carryforwards. The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred tax liabilities are presented below: December 31, 2002 2001 ---------------------- (Dollars in thousands) Deferred income tax assets: Accounts receivable, principally due to allowance for doubtful accounts $ 55 $ 55 Accrued compensation, principally due to accrual for financial reporting purposes 360 335 Progressive slot and slot club accruals 447 218 Net operating loss carryforwards 2,399 2,691 General business credit carryforward, principally due to FICA tip credits generated in prior years 534 710 Income recognized for tax purposes on investment in partnership 1,100 1,111 Contribution deduction carryforward, principally due to amounts not deductible in prior periods 1 24 Plant and equipment, principally due to differences in depreciation - 1,195 Reorganization items, principally due to amounts not currently deductible for tax purposes - - ------- ------- Total gross deferred tax assets 4,896 6,339 Less valuation allowance (2,121) (5,816) ------- ------- Net deferred income tax assets 2,775 523 ------- ------- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation (2,222) - Prepaid expenses, principally due to deduction for tax purposes (309) (281) Losses recognized for tax purposes on partnership investments (244) (242) ------- ------- Total gross deferred income tax liabilities 2,775 (523) ------- ------- Net deferred tax asset (liability) $ - $ - ======= ======= Prior to emergence from bankruptcy following the close of business on February 28, 1997, the Company had a net operating loss carryforward for federal income tax purposes of approximately $79,000,000. As a result of ownership changes in prior years, Internal Revenue Code Section 382 ("Section 382")
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limited the amount of loss carryforward currently available to offset federal taxable income. As a result of the bankruptcy and the resulting change in ownership, only losses generated subsequent to February 28, 1997 can offset taxable income. These losses of $2,399,000 will start to expire in 2012. The Company had general business tax credit carryforwards for federal income tax purposes of approximately $534,000 which are available to reduce future federal income taxes, if any, through 2012. This amount does not include credits of $269,000 incurred before February 28, 1997, which may be limited by Section 382 and may not be available for use in future periods. 10. Benefit Plans Four Queens makes contributions to several multi-employer pension and welfare benefit plans covering its union employees. The plans provide defined benefits to covered employees. Amounts charged to pension cost and contributed to the plans for the years 2002, 2001 and 2000 totaled $406,776, $335,683 and $389,200 respectively. While the Company is liable for its share of unfunded vested benefits, the Company believes the amount, if any, would not be material to the consolidated financial statements. On October 1, 1990, the Company instituted a savings plan qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. The savings plan covers substantially all employees who are not covered by a collective bargaining agreement. Employee contributions to the savings plan are discretionary. The Company matches and contributes to each employee's account an amount equal to 25% of the employee's contributions to the savings plan up to a maximum employee contribution of 8% of each employee's gross compensation. The Company's contribution was $143,980, $122,073 and $87,200 for 2002, 2001 and 2000, respectively. There were 305, 303 and 256 current employee participants in the savings plan as of December 31, 2002, 2001 and 2000, respectively. Effective January 1, 2001, the Board of Directors of the Company approved a Deferred Compensation Plan for the Four Queens. Participation is limited to four Four Queens Casino executives. The Deferred Compensation Plan provides that, upon election, the executive may defer up to 100% of his annual base salary per year. The Company will match $1, for each $1 deferred, up to 10% of the executive's annual base salary. Executives become vested 33 1/3% each year and are fully-vested after three years. Upon a change in control, the Deferred Compensation Plan calls for immediate vesting and requires the distribution of all assets held under the Deferred Compensation Plan. 11. Commitments and Contingencies The Company and seven other downtown Las Vegas property owners, who together operate ten casinos, have formed the Fremont Street Experience LLC, a limited liability company of which the Company owns 17.65%, to develop the Fremont Street Experience. The Company is liable for a proportionate share of the project's operating expenses. The Company's allocated share of the operating costs of the Fremont Street Experience ($600,000 in 2002, 2001 and 2000, respectively) is expensed as incurred. The Company also shares in certain marketing cost assessments as approved by the Fremont Street Experience LLC Board of Directors. The Company's allocated share of the marketing costs of the Fremont Street Experience were $246,400, $283,800 and $262,900 for 2002, 2001 and 2000, respectively.
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The President and Executive Director of Finance of Four Queens have employment agreements with Four Queens which became effective on January 1, 2003. In the event of a change of ownership or control, the President and Executive Director of Finance of Four Queens have the option to elect to be employed with the entity or person having acquired such control or terminate their respective employment agreement. If the executive elects to terminate their respective employment agreements upon a change of ownership or control, the Four Queens must pay them an amount equal to one year's base salary and COBRA benefits. "Change of ownership or control" means that all or substantially all of the assets of Four Queens are directly, or through transfer of equity interests, transferred or otherwise disposed of in one or a series of related transactions after (1) the Four Queens ceases to own directly or indirectly substantially all equity interests in the Four Queens; (2) the Four Queens sells 51% or more of the assets of Four Queens; or (3) the Company ceases to own directly or indirectly at least 51% of all outstanding shares of Four Queens. The President's annual compensation pursuant to his employment agreement is $255,000 and the Executive Director of Finance's annual compensation under her employment agreement is $145,000. The Company is a party to other claims and lawsuits. Management believes that such matters are either covered by insurance, or if not insured, will not have a material adverse effect on the financial statements of the Company taken as a whole. 12. Paulson Litigation Pursuant to a settlement agreement dated as of April 3, 2002, the lawsuit between the Company and certain entities controlled by Allen E. Paulson has been resolved. A Settlement Bar Order and Final Judgment was entered by the Court on July 1, 2002. Pursuant to the settlement agreement, Elsinore agreed to pay the sum of $1,100,000, which was paid on June 1, 2002. Total litigation and settlement costs (including the settlement payment) incurred during 2002, were approximately $992,000, net. Approximately $2,101,000 was incurred as a result of litigation and settlement costs. The Company's directors' and officers' insurance carrier reimbursed the Company's costs relating to this matter, during 2002, in the approximate amount of $1,109,000. 13. Taxes and Licenses, Other Than Income Taxes Taxes and licenses, other than income taxes, principally include payroll taxes, gaming licenses and gross revenue taxes, and are summarized as follows: Operating Departments ---------------------- (Dollars in thousands) Food and Casino Hotel Beverage Other Total ------ ----- -------- ----- ----- 2002 $4,019 $480 $450 $983 $5,932 2001 3,757 473 412 1,063 5,705 2000 3,825 430 399 1,132 5,786
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14. Supplemental Financial Information A summary of additions and deductions to the allowance for doubtful accounts receivable for the years ended December 31, 2002, 2001 and 2000 follows: (Dollars in thousands) Balance at Balance Beginning of At End of Years Ended Year Additions Deductions Year ----------- ------------ --------- ---------- ---------- 2002 $163 $29 $31 $161 2001 282 50 169 163 2000 249 216 183 282
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[Enlarge/Download Table] Elsinore Corporation and Subsidiaries Selected Quarterly Financial Information (Unaudited) (Dollars in thousands, except per share amounts) ---------------------------------------------------------------------------------------- Year ended December 31, 2002 ---------------------------------------------------------------------------------------- 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ----- Net revenues $13,794 $13,956 $13,135 $13,996 $54,881 Net income (loss) before undeclared dividends on cumulative preferred stock 837 37 (78) 448 1,244 Undeclared dividends on cumulative preferred stock 322 321 322 341 1,306 Net income (loss) applicable to common shares 515 (284) (400) 107 (62) Basic and diluted net income per common share: Basic EPS $0.10 ($0.06) ($0.08) $0.03 ($0.01) Diluted EPS 0.01 ($0.06) ($0.08) $0.00 ($0.01) Year ended December 31, 2001 ---------------------------------------------------------------------------------------- 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ----- Net revenues $14,345 $13,739 $12,992 $11,763 $52,839 Net income (loss) before undeclared dividends on cumulative preferred stock 826 9 (622) (13,782) (a) (13,569) Undeclared dividends on cumulative preferred stock 304 303 303 322 1,232 Net income (loss) applicable to common shares 522 (294) (925) (14,104) (14,801) Basic and diluted net income per common share: Basic EPS $0.10 ($0.06) ($0.19) ($2.82) ($2.96) Diluted EPS 0.01 ($0.06) ($0.19) ($2.82) ($2.96) (a) In connection with the Purchase Agreement (as disclosed in Note 4) the Company recognized a non-cash impairment loss of approximately $13.2 million in the fourth quarter of fiscal year ended 2001. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS. None.
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PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Directors and Executive Officers. The following sets forth the names, ages and positions of each person who is a director or executive officer of the Company as well as certain key employees of the Four Queens Hotel and Casino (the "Four Queens"). Name Age Position ---- --- -------- Directors and Executive Officers -------------------------------- John C. "Bruce" Waterfall 65 Chairman of the Board Philip W. Madow 43 President and Director S. Barton Jacka 66 Treasurer, Secretary and Director Donald A. Hinkle 55 Director Gina L. Contner Mastromarino 37 Principal Accounting and Financial Officer Key Employees of the Four Queens -------------------------------- Tjoan T. Tan 44 Executive Director of Casino Operations, the Four Queens Tina M. Kotula 45 Executive Director of Marketing, the Four Queens John C. "Bruce" Waterfall. Mr. Waterfall joined the Board of Directors and has been Chairman of the Board of the Company since February 1997. Mr. Waterfall has been a professional money manager and analyst for the past 35 years with MWV, of which he is President, co-founder and a director. Certain investment accounts managed by MWV own 99.6% of the outstanding Common Stock, and Mr. Waterfall exercises sole voting and investment authority over that Common Stock. Mr. Waterfall is also Chairman of the Board of Olympia Gaming Corporation. Philip W. Madow. Mr. Madow was appointed as President and as a member of the Board of Directors of the Company in December 2000. He has been employed with the Four Queens for over 18 years, and he previously worked with Marriott Corporation, Mirage/Las Vegas and was General Manager for the flagship property of Budget Suites of America. He was appointed as the Four Queens' President and General Manager in December 2000, and is responsible for daily operations, after serving as the Four Queens' Acting General Manager since August 2000. He has also served in numerous capacities at the Four Queens including Director of Operations and Administration and Vice President of Hotel Operations since 1983. Mr. Madow has over 27 years of experience in the hospitality and gaming industry.
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S. Barton Jacka. Mr. Jacka has been the Secretary, Treasurer and a member of the Board of Directors of the Company since February 1997. Mr. Jacka is a gaming consultant and serves as chairman of the gaming compliance committees of several companies licensed by the Nevada Gaming Authorities. From 1993 to 1996, Mr. Jacka was with Bally Gaming, Inc. and Bally Gaming International, Inc., first as Director of Government Affairs and Gaming Compliance and later as Vice President. He held the position of Director of Corporate Gaming Compliance for Bally Manufacturing Corporation and then Bally's Casino Resort from 1987 to 1993. Mr. Jacka retired from the position of Chairman of the Nevada State Gaming Control Board, a position he held from 1985 to 1987, prior to entering the private sector. Donald A. Hinkle. Mr. Hinkle has been a member of the Board of Directors of the Company since October 2000. He has 25 years of experience in the gaming industry and has held various executive positions in the industry. He is a certified public accountant and has held gaming licenses in both Nevada and Atlantic City. Since March 2001, Mr. Hinkle has held the position of Assistant General Manager and Chief Financial Officer for the AVI Hotel and Casino, a Native American resort and casino in Laughlin, Nevada. He was originally hired as Director of Finance for the AVI Resort and Casino in May 1999. From March 1993 to September 1998, Mr. Hinkle was the Vice President of Finance and Administration of Bally Systems. Gina L. Contner Mastromarino. Ms. Mastromarino was appointed the Company's Principal Accounting and Financial Officer on March 29, 2001. Prior to her appointment, Ms. Mastromarino served as the Company's Assistant Secretary. Ms. Mastromarino joined the Four Queens in August 1996 and serves as the Four Queens' Executive Director of Finance. Ms. Mastromarino has nearly 16 years experience in the gaming industry. From 1993 to 1996, she held the position of Financial Controller for the Riviera Hotel & Casino in Las Vegas, and from 1989 to 1993, she held the position of Assistant Financial Controller for the Riviera Hotel and Casino in Las Vegas. Tjoan T. Tan. Mr. Tan joined the Four Queens in January 1997 and currently serves as Executive Director of Casino Operations. Mr. Tan is responsible for all gaming operations including slots, table games and Keno. From March 2000 to May 2001, Mr. Tan served as the Four Queens' Director of Financial Planning and Casino Administration, from May 1998 to March 2000, he held the position of Financial Planning Manager, and from January 1997 to May 1998, he held the position of Financial Analyst/Special Projects. Mr. Tan was the Casino Trainer at the Riviera Hotel & Casino from September 1993 to January 1997. Tina M. Kotula. Ms. Kotula joined the Four Queens in September 2001 and serves as the Executive Director of Marketing. Ms. Kotula has 20 years of experience in the gaming industry. From 1983 to 1995 she held the positions of Casino Marketing Manager/Special Events Manager and the Director of Marketing for the Four Queens, from 1995 to 1996 she held the position of Director of Marketing/Consultant for the Golden Gate Hotel & Casino, from 1996 to 1997 she held the position of Players Club Manager at the Fiesta Hotel & Casino, from 1997 to 1999 she held the position of Director of Marketing and Casino Marketing for Boomtown & Silverton Hotel & Casino in Las Vegas, and from 1999 to 2001 she held the position of Director of Marketing for Bayer-Brown-Bauserman Advertising and Shonkwiler-Marcoux Advertising in Las Vegas.
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There are no family relationships between any director and executive officer. Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Exchange Act requires the Company's officers, directors and persons who own more than 10% of a registered class of the Company's equity securities, to file an initial report of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC. Such officers, directors and 10% stockholders are also required by the SEC rules to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Forms 5 were required for such persons, the Company believes that during 2002, all Section 16(a) filing requirements applicable to its officers, directors and 10% stockholders were complied with. Item 11. EXECUTIVE COMPENSATION. The following table provides certain summary information concerning compensation paid by the Company, which includes compensation paid by the Four Queens, to the Company's executive officers. [Enlarge/Download Table] Long Term Compensation Annual Compensation Awards ------------------------------------------------ ------ Securities All Other Underlying Compensation Name and Principal Position Year Salary ($) Bonus($) Other($) Options (#) ($) --------------------------- ---- ---------- -------- -------- ----------- --- Philip W. Madow President of the Company 2002 $240,400(3) $90,000 * -0- $29,120(7) President and General 2001 210,000(4) 75,000 * -0- 24,850(8) Manager of the Four 2000 145,000 22,500 * -0- -0- Queens(1) Gina L. Contner Mastromarino 2002 $132,220(5) 28,000 * -0- 15,886 (9) Principal Accounting and 2001 113,000(6) 28,000 * -0- 10,000(10) Financial Officer of the 2000 96,000 22,500 * -0- 18,500(11) Company and Executive Director of Finance of the Four Queens (2) * Amount did not exceed the lessor of $50,000 or 10% of annual salary and bonus. (1) Mr. Madow was elected President of the Company on December 5, 2000. (2) Ms. Mastromarino was elected Principal Accounting and Financial Officer of the Company on March 29, 2001. (3) Reflects amounts earned as an employee of the Four Queens. Mr. Madow does not receive a salary for his position as the President of the Company. Includes $78,000 earned as base salary but deferred under the Four Queens' Deferred Compensation Plan.
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(4) Includes $26,900 earned as base salary but deferred under the Four Queens' Deferred Compensation Plan. (5) Reflects amounts earned as an employee of the Four Queens. Ms. Mastromarino does not receive a salary from her position as Principal Accounting and Financial Officer of the Company. Includes $17,000 earned as base salary but deferred under the Four Queens' Deferred Compensation Plan. (6) Includes $8,800 earned as base salary but deferred under the Four Queens' Deferred Compensation Plan. (7) Includes $25,500 of matching funds contributed by the Four Queens under the Four Queens' Deferred Compensation Plan, $2,750 of matching funds contributed by the Four Queens under the Four Queens' 401(k) Plan and $870 in life insurance premiums paid by the Four Queens. (8) Includes $21,000 of matching funds contributed by the Four Queens under the Four Queens' Deferred Compensation Plan, $2,600 of matching funds contributed by the Four Queens under the Four Queens' 401(k) Plan and $1,250 in life insurance premiums paid by the Four Queens. (9) Includes $14,500 of matching funds contributed by the Four Queens under the Four Queens' Deferred Compensation Plan, $960 of matching funds contributed by the Four Queens under the Four Queens' 401(k) Plan and $426 in life insurance premiums paid by the Four Queens. (10) Includes $8,600 of matching funds contributed by the Company under the Four Queens' Deferred Compensation Plan, $400 of matching funds contributed by the Four Queens under the Four Queens' 401(k) Plan and $800 in life insurance premiums paid by the Four Queens. (11) Ms. Mastromarino received a one-time bonus in connection with the settlement between Palm Springs East Limited Partnership, the Company's subsidiary and the Twenty-Nine Palms Band of Mission Indians. Stock Options and Similar Rights. The Company did not grant any stock options or stock appreciation rights (collectively, "Stock Rights"), during 2002 nor were any Stock Rights exercised in 2002. As of February 28, 1997, all previously issued and outstanding Stock Rights were canceled. Employment Agreements. Philip W. Madow and Gina L. Contner Mastromarino have employment agreements with the Four Queens. Under the employment agreements, which became effective on January 1, 2003, Philip W. Madow and Gina L. Contner Mastromarino are employed by the Four Queens for a period of one year. Mr. Madow's agreement may be renewed annually by the
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Company's Board of Directors, and Ms. Mastromarino's agreement may be renewed annually by the Four Queens. In the event the term of the agreements expire on December 31, 2003, without renewal by the Company's Board of Directors, or by the Four Queens in the case of Ms. Mastromarino, and Mr. Madow or Ms. Mastromarino have not been terminated on or prior thereto, if either Mr. Madow or Ms. Mastromarino are terminated thereafter, without cause prior to December 31 of the next calendar year, then Mr. Madow and Ms. Mastromarino are entitled to receive their base salary, less standard withholdings and deductions, payable in biweekly installments for the remainder of such calendar year. Mr. Madow and Ms. Mastromarino may terminate the agreements at any time without cause by giving the Four Queens two weeks written notice of such termination. The Four Queens may terminate the agreements at any time without cause by giving Mr. Madow and Ms. Mastromarino written notice. If the Four Queens terminates Mr. Madow or Ms. Mastromarino's employment without cause, the Four Queens must pay an amount in severance equal to one year salary and COBRA benefits payable in biweekly installments. In the event of a change of ownership or control, Mr. Madow and Ms. Mastromarino have the option to elect to be employed with the entity or person having acquired such control or terminate their respective employment agreement. If Mr. Madow or Ms. Mastromarino elect to terminate their respective employment agreement upon a change of ownership or control, the Four Queens must pay them an amount equal to one year's base salary and COBRA benefits. "Change of ownership or control" means that all or substantially all of the assets of Four Queens are directly, or through transfer of equity interests, transferred or otherwise disposed of in one or a series of related transactions after (1) the Four Queens ceases to own directly or indirectly substantially all equity interests in the Four Queens; (2) the Four Queens sells 51% or more of the assets of Four Queens; or (3) the Company ceases to own directly or indirectly at least 51% of all outstanding shares of Four Queens. Mr. Madow's annual compensation pursuant to his employment agreement is $255,000 and Ms. Mastromarino's annual compensation pursuant to her employment agreement is $145,000. Incentive Bonus Plan. Effective January 1, 2001, the Board of Directors of the Company approved an incentive bonus plan for approximately 30 senior employees of the Four Queens ("Bonus Plan"). The Bonus Plan provides that if certain targeted earnings are met, a corresponding amount will be credited towards a bonus pool. Bonuses are expected to be paid, following annual audited results, in March of the succeeding year. The distribution of the bonus pool is discretionary. Bonuses for targets met in 2002 were paid on February 26, 2003. Deferred Compensation Plan. Effective January 1, 2001, the Board of Directors of the Company approved a Deferred Compensation Plan for the Four Queens. Participation is limited to Mr. Madow, Ms. Mastromarino and two other Four Queens executives. The Deferred Compensation Plan provides that, upon election, the executive may defer up to 100% of executive's annual base salary per year. The Company will match $1, for each $1 deferred, up to 10% of the executive's annual base salary. The Deferred Compensation Plan vests over a three year period at 33.33% per year. Upon a change in control, the Deferred Compensation Plan will automatically accelerates and requires the distribution of all assets held under the Deferred Compensation Plan.
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Compensation of Directors. Mr. Waterfall and Mr. Madow receive no compensation from the Company for serving on the Board of Directors or for attending meetings of the Board of Directors. Each of the other directors receives a payment of $6,250 in consideration for his attendance at each quarterly meeting of the Board of Directors ($25,000 annually) plus $1,000 for each additional meeting (other than meetings by telephone conference) at which his attendance is required. In addition, each member of the audit committee receives a payment of $1,000 in consideration for his attendance at each quarterly meeting of the audit committee ($4,000 annually). All directors receive reimbursement for reasonable expenses incurred in attending each meeting of the Board of Directors. Mr. Jacka receives $10,000 per year for serving as an executive officer of the Company. Separate from his duties as a director of the Company, Mr. Jacka receives $72,000 per year for serving as a consultant to the Company for gaming compliance matters. Compensation Committee Interlocks and Insider Participation. The Company did not have a compensation committee in 2002. The Board of Directors made all decisions regarding executive officer compensation. Mr. Madow receives no compensation for serving as the President of the Company, but received a salary of $240,400 in his position as President and General Manager of the Four Queens. Separate from his duties as a director of the Company, Mr. Jacka receives $72,000 per year for serving as a consultant to the Company for Gaming Compliance matters, and $10,000 a year for serving as an executive officer of the Company. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Security Ownership of Certain Beneficial Owners. As of March 25, 2003, the Company had two classes of voting securities, the Common Stock and the Preferred Stock. The Preferred Stock votes on an as converted basis, except with respect to the election of directors, as described above. As of March 25, 2003, the beneficial ownership of the Company's voting securities held by each person who is known by the Company to be the beneficial owner of more than 5% of the outstanding shares of the Common Stock or the Preferred Stock, is as follows: [Enlarge/Download Table] Common Stock ------------ Amount and Nature of Percent Name and Address of Beneficial Owner Beneficial Ownership(1) of Class ------------------------------------ ----------------------- -------- John C. "Bruce" Waterfall, who exercises voting and investment authority over the Common Stock owned by the MWV Accounts, as follows (2)(3)(4)(5): Betje Partners 4,278,690.06 46.1% Endowment Prime, L.L.C. (f/k/a) The Common Fund for Non-Profit Organizations 14,836,328.84 77.6 Morgens Waterfall Income Partners, L.P. 2,604,280.86 34.3 MWV Employee Retirement Plan Group Trust 879,022.60 15.1 MWV International, Ltd. 3,898,515.00 78.1
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Phoenix Partners, L.P. 12,276,868.62 71.1 Restart Partners, L.P. 10,273,330.56 67.3 Restart Partners II, L.P. 19,677,499.86 79.8 Restart Partners III, L.P. 16,089,026.04 76.3 Restart Partners IV, L.P. 10,135,926.78 67.0 Restart Partners V, L.P. 2,696,949.78 35.1 ------------- ----- Total Beneficial Ownership of MWV Accounts 97,646,439.00 99.6% ============= =====
[Enlarge/Download Table] Preferred Stock --------------- Amount and Nature of Percent Name and Address of Beneficial Owner Beneficial Ownership(1) of Class ------------------------------------ ----------------------- -------- John C. "Bruce" Waterfall, who exercises voting and investment authority over the Preferred Stock owned by the MWV Accounts, as follows (2)(3)(4)(5): Betje Partners 2,300,371.00 4.6% Endowment Prime, L.L.C. (f/k/a) The Common Fund for Non-Profit Organizations 7,596,894.00 15.2 Morgens Waterfall Income Partners, L.P. 1,400,151.00 2.8 MWV Employee Retirement Plan Group Trust 450,110.00 * MWV International, Ltd. - * Phoenix Partners, L.P. 6,600,467.00 13.2 Restart Partners, L.P. 5,523,296.00 11.0 Restart Partners II, L.P. 10,579,301.00 21.2 Restart Partners III, L.P. 8,650,014.00 17.3 Restart Partners IV, L.P. 5,449,423.00 10.9 Restart Partners V, L.P. 1,449,973.00 2.9 ------------- ------ Total Beneficial Ownership of MWV Accounts 50,000,000.00 100.0% ============= ====== *Less than 1% of the outstanding shares (1) The number of shares beneficially owned and the percentage of shares beneficially owned are determined in accordance with the rules of the Securities and Exchange Commission (the "SEC") and are based on 4,993,965 shares of Common Stock and 50,000,000 shares of Preferred Stock issued and outstanding respectively as of March 25, 2003. The Preferred Stock is convertible at the option of the holder into an aggregate of 93,000,000 shares of Common Stock. (2) The address for Mr. Waterfall and each of the MWV Accounts is 600 5th Avenue, 27th Floor, New York, New York 10020. (3) The following sets forth the number of shares of Common Stock that each entity owns, on an as-converted basis: Betje Partners - 4,278,690.06 (all of which may be obtained upon conversion of Preferred Stock); Endowment Prime, L.L.C. - 14,836,328.84 (which includes 14,130,222.84 shares of Common Stock which may be obtained upon conversion of Preferred Stock); Morgens Waterfall Income Partners, L.P. - 2,604,280.86 (all of which may be obtained upon conversion of Preferred Stock); MWV Employee Retirement Plan Group Trust - 879,022.60 (which includes 837,204.60 shares of Common Stock which may be obtained upon conversion of Preferred Stock); MWV International, Ltd. - 3,898,515; Phoenix Partners, L.P. - 12,276,868.62 (all of which may be obtained
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upon conversion of Preferred Stock); Restart Partners, L.P. - 10,273,330.56 (all of which may be obtained upon conversion of Preferred Stock); Restart Partners II, L.P. - 19,677,499.86 (all of which may be obtained upon conversion of Preferred Stock); Restart Partners III, L.P. - 16,089,026.04 (all of which may be obtained upon conversion of Preferred Stock); Restart Partners IV, L.P. - 10,135,926.78 (all of which may be obtained upon conversion of Preferred Stock); and Restart Partners V, L.P. - 2,696,949.78 (all of which may be obtained upon conversion of Preferred Stock). (4) Pursuant to agreements and undertakings with the Nevada State Gaming Control Board and the Nevada Gaming Commission, which were required in order for the Company's Plan of Reorganization (the "Plan") to become effective, Mr. Waterfall is the only individual who exercises voting and investment power (including dispositive power) with respect to the Common Stock owned by the MWV Accounts. Such voting and investment power is exercised pursuant to a voting trust agreement that was executed pursuant to the terms of the Plan. Morgens Waterfall Vintiadis & Company, Inc. ("MWV") and its affiliates other than Mr. Waterfall are either investment advisors to, or trustees or general partners of, the MWV Accounts. Accordingly, for purposes of the relevant rules under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), MWV could also be deemed the beneficial owners of the Common Stock held by the MWV Accounts. The possible attribution of such beneficial ownership of the Common Stock, expressed in number of shares, on an as-converted basis, and percent of the class, to MWV and those affiliates is as follows: MWV - 9,056,227.66 (89.6%); Endowment Prime, L.L.C. - 14,836,328.84 (77.6%); MW Capital, L.L.C. - 2,604,280.86 (34.3%); MW Management, L.L.C. - 12,276,868.62 (71.1%); Prime Group, L.P. -10,273,330.56 (67.3%); Prime Group II, L.P. - 19,677,499.86 (79.8%); Prime Group III, L.P. - 16,089,026.04 (76.3%); Prime Group IV, L.P. - 10,135,926.78 (67.0%); and Prime Group V, L.P. - 2,696,949.78 (35.1%). The possible attribution of ownership of the Preferred Stock, expressed in number of shares and percent of the class, to MWV and those affiliates is as follows: MWV - 2,750,481.00 (5.5%); Endowment Prime, L.L.C. - 7,596,894.00 (15.2%); MW Capital, L.L.C. 1,400,151.00 (2.8%); MW Management, L.L.C. - 6,600,467.00 (13.2%); Prime Group, L.P. -5,523,296.00 (11.0%); Prime Group II, L.P. - 10,579,301.00 (21.2%); Prime Group III, L.P. - 8,650,014.00 (17.3%); Prime Group IV, L.P. - 5,449,423.00 (10.9%); and Prime Group V, L.P. - 1,449,973.00 (2.9%). In view of Mr. Waterfall's possession of sole voting and investment power over the Common Stock and the Preferred Stock on behalf of the MWV Accounts, these entities disclaim beneficial ownership of the Common Stock and the Preferred Stock. (5) The Company has relied on information provided by the MWV Accounts for beneficial ownership allocation. Security Ownership of Management As of March 25, 2003, the beneficial ownership of Common Stock and Preferred Stock by each of Elsinore's directors, named executive officers and by its directors and executive officers as a group, as such ownership is known by Elsinore, is as follows:
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[Enlarge/Download Table] Amount and Nature of Title of Class Name of Beneficial Owner Beneficial Ownership Percent of Class -------------- ------------------------ -------------------- ---------------- Common Stock John C. "Bruce" Waterfall, Chairman of the Board (1) 97,646,439 (2) 99.6% Philip W. Madow, President and Director -0- * S. Barton Jacka, Secretary, Treasurer and Director -0- * Donald A. Hinkle, Director -0- * Gina L. Contner Mastromarino, Executive Director of Finance, Four Queens -0- * Common Stock Directors and executive officers as a group (7 persons) 97,646,439 (2) 99.6 Series A Convertible John C. "Bruce" Waterfall, Chairman of the Preferred Board (1) 50,000,000 100.0 Series A Convertible Directors and executive officers as a group Preferred (7 persons) 50,000,000 100.0 *Less than 1% of class (1) See note (4) to the table in Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - Security Ownership of Certain Beneficial Owners. (2) See note (1) to the table Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - Security Ownership of Certain Beneficial Owners. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Pursuant to a recapitalization which took place on September 29, 1998, the MWV Accounts have beneficially owned 99.6% of the Common Stock and $7,104,000 principal amount of the Company's 12.83% Mortgage Notes. Mr. Jacka, a member of the Company's board of directors and an executive officer of the Company, serves as a consultant to the Company regarding gaming compliance matters. Mr. Jacka receives $72,000 per year pursuant to his consulting agreement with the Company. During fiscal year 2002, the MWV Accounts delivered waivers of defaults in connection with the Company's breach of certain covenants pursuant to the Company's 12.83% Mortgage Notes due 2003 (the "New Mortgage Notes"). Mr.
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Waterfall, the Company's Chairman of the Board and majority stockholder, is the President, a director and a principal shareholder of MWV, which manages the MWV Accounts. Certain of the Company's executive officers have entered into employment agreements with the Four Queens, for more information, please see "Executive Compensation - Employment Agreements." Item 14. CONTROLS AND PROCEDURES. Within the 90 days prior to the filing of this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in this report. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls subsequent to our most recent evaluation of our internal controls. PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. and 2. Financial Statements and Schedules The financial statements and schedules filed as part of this report are listed in the Index to Consolidated Statements under Item 8. 3. List of exhibits 2.1* First Amended Plan of Reorganization [2.1](5) 2.2* Order Confirming First Amended Plan of Reorganization [2.2](5) 2.3* Bankruptcy Court Order Approving Plan Documentation [2.3](6) 2.4* Asset Purchase Agreement by and between Four Queens, Inc. and SummerGate, Inc. dated March 14, 2002 [2.4](18) 3.1* Amended and Restated Articles of Incorporation of Elsinore Corporation [3.1](7) 3.2* Amended and Restated Bylaws of Elsinore Corporation [3.2](7) 3.3* Certificate of Designations, Preferences and Rights of Elsinore Corporation Series A Preferred Stock [3.3](14)4.1*
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Certificate of Designations, Preferences and Rights of Elsinore Corporation Series A Preferred Stock [3.3] (14) 10.1* Sublease, dated May 26, 1964, by and between A.W. Ham, Jr. and Four Queens, Inc. [10.1](1) 10.2* Amendment of Sublease, dated June 15, 1964, by and between A.W. Ham, Jr. and Four Queens, Inc. [10.2](1) 10.3* Amendment of Sublease, dated February 25, 1965, by and between A.W. Ham, Jr. and Four Queens, Inc. [10.3](1) 10.4* Amendment to Lease, dated January 29, 1973, by and between A.W. Ham, Jr. and Four Queens, Inc. [10.4](1) 10.5* Supplemental Lease, dated January 29, 1973, by and between A.W. Ham, Jr. and Four Queens, Inc. [10.5](1) 10.6* Lease Agreement, dated April 25, 1972, by and between Bank of Nevada and Leon H. Rockwell, Jr., as Trustees and Four Queens, Inc. [10.6](1) 10.7* Lease, dated January 1, 1978, between Finley Company and Elsinore Corporation [10.7](1) 10.8* Ground Lease, dated October 25, 1983, between Julia E. Albers, Otto J. Westlake, Guardian, and Four Queens, Inc. [10.8](1) 10.9* Ground Lease, dated October 25, 1983, between Katherine M. Purkiss and Four Queens, Inc. [10.9](1) 10.10* Ground Lease, dated October 25, 1983, by and between Otto J. Westlake and Four Queens, Inc. [10.10](1) 10.11* Indenture of Lease, dated March 28, 1984, by and between the City of Las Vegas and Four Queens, Inc. [10.11](1) 10.12* Lease Indenture, dated May 1, 1970, by and between Thomas L. Carroll, et al. and Four Queens, Inc. [10.12](1) 10.13* Memorandum Lease, dated January 26, 1973, by and between President and Board of Trustees of Santa Clara College and Four Queens, Inc. [10.13](1) 10.14* Agreement, dated April 29, 1992, by and among Four Queens, Inc., Jeanne Hood, Edward M. Fasulo and Richard A. LeVasseur [10.28](1) 10.15* Settlement Agreement, dated March 29, 1996, by and between Palm Springs East Limited Partnership and the 29 Palms Band of Mission Indians [10.19](7) 10.16* Loan Agreement, dated November 12, 1993, by and among The Jamestown S'Klallam Tribe and JKT Gaming, Inc. [10.31](3)
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10.17* First Amendment to Loan Agreement, dated January 28, 1994, by and among The Jamestown S'Klallam Tribe and JKT Gaming, Inc. [10.32](3) 10.18 Intentionally omitted 10.19* Amended and Restated Indenture, dated as of March 3, 1997, by and among Elsinore Corporation, the Guarantors named therein and First Trust National Association, as Trustee (the "Restated Indenture") [10.23](7) 10.20* Waiver of Compliance, dated February 27 and March 3, 1998, under the Restated Indenture [10.24](15) 10.21* Pledge Agreement, dated as of October 8, 1993, from Elsinore Corporation and Elsub Management Corporation to First Trust National Association [10.7](2) 10.22* Amendment of 1993 Pledge Agreement, dated March 3, 1997 [10.25](7) 10.23* Deed of Trust, Assignment of Rents and Security Agreement, dated as of October 8, 1993, by and among Four Queens, Inc., Land Title of Nevada, Inc. and First Trust National Association [10.8](2) 10.24* Modification of Subordinated Deed of Trust, dated March 3, 1997, by and between Four Queens, Inc. and First Trust National Association [10.27](7) 10.25 Intentionally omitted 10.26 Intentionally omitted 10.27* Assignment of Operating Agreements, dated as of October 8, 1993, by Palm Springs East Limited Partnership to First Trust National Association [10.9](2) 10.28* Assignment of Operating Agreement, dated as of October 8, 1993, by Olympia Gaming Corporation to First Trust National Association [10.10](2) 10.29* Common Stock Registration Rights Agreement, dated as of February 28, 1997, among Elsinore Corporation and the Holders of Registrable Shares referred to therein (incorporated by reference herein and filed as (i) Exhibit 10.31 to Elsinore Corporation's Quarterly Report on Form 10-Q for the three months ended March 31, 1997 and (ii) Exhibit B to Schedule 13D, dated March 10, 1997, by Morgens Waterfall Income Partners, L.P.; Restart Partners, L.P.; Restart Partners II, L.P.; Restart Partners III, L.P.; Restart Partners IV, L.P.; Restart Partners V, L.P.; The Common Fund for Non-Profit Organizations; MWV Employee Retirement Plan Group Trust; Betje
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Partners; Phoenix Partners, L.P.; Morgens, Waterfall, Vintiadis & Company, Inc.; MW Capital, L.L.C.; Prime Group, L.P.; Prime Group II, L.P.; Prime Group III, L.P.; Prime Group IV, L.P.; Prime Group V, L.P.; Prime, Inc.; MW Management, L.L.C.; John C. "Bruce" Waterfall; and Edwin H. Morgens, with respect to the Common Stock) [10.33] (15) 10.30* Description of Compensation Plan or Arrangement for Elsinore Corporation Directors and Executive Officers (filed pursuant to Item 14(c) of this report) [10.32](8) 10.31* First Amendment to Lease by and among Finley Company, Elsinore Corporation and Four Queens, Inc. effective May 14, 1997 [10.33] (9) 10.32* Agreement and Plan of Merger by and among R & E Gaming Corp., Elsinore Acquisition Sub, Inc. and Elsinore Corporation dated September 15, 1997 [10.34] (9) 10.33* Option and Voting Agreement by and between R&E Gaming Corp. and Morgens, Waterfall, Vintiadis & Company, Inc. on behalf of certain investment accounts, dated September 15, 1997 [10.37] (15) 10.34* Amended Lease Schedule No. 1 to Master Lease Agreement by and between IGT North America, Inc. and Four Queens, Inc., and PDS Financial Corporation-Nevada, as assignee of Lessor's interest, dated November 28, 1994 [10.35](9) 10.35* Master Lease Agreement by and between PDS Financial Corporation-Nevada and Four Queens, Inc. dated May 1, 1997 [10.36] (9) 10.36* Amendment to Master Lease Agreement by and between PDS Financial Corporation-Nevada and Four Queens, Inc. dated August 1, 1997 [10.37](9) 10.37* Warrants to Purchase 1,125,000 Shares of Common Stock of Elsinore Corporation Issued to Riviera Gaming Management Corp.-Elsinore [10.38](9) 10.38* Assignment by Richard A. LeVasseur to Four Queens, Inc. dated July 14, 1992 [10.39](9) 10.39* First Supplemental Amended and Restated Indenture by and among Elsinore Corporation, the guarantors named therein and First Trust National Association, as trustee, dated as of September 18, 1997 [10.40](9) 10.40 Intentionally omitted 10.41 Intentionally omitted 10.42* Capital Contribution Agreement by and between Elsinore Corporation and certain investment accounts named therein, dated as of September 29, 1998 [10.46] (13)
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10.43* First Mortgage Note Purchase Agreement by and between Elsinore Corporation and the holders (Putnam Diversified Income Trust, Putnam High Income Convertible and Bond Fund, Putnam Master Intermediate Income Trust, Putnam Managed High Yield Trust, and Putnam Manager Trust - PCM Diversified Income Fund), dated as of September 29, 1998 [10.47] (13) 10.44* Second Mortgage Note Purchase Agreement by and between Elsinore Corporation and the holders (Paul Voigt, BEA Income Fund, and BEA Strategic Global Income Fund), dated as of September 29, 1997. [10.48] (13) 10.45* Exchange Agreement by and between Elsinore Corporation and certain investment accounts named therein, dated as of September 29, 1998 [10.49] (14) 10.46* Second Supplemental Indenture among Elsinore Corporation, the guarantors (Elsub Management Corporation, Four Queens, Inc., and Palm Springs East Limited Partnership), and U.S. Bank Trust National Association, dated as of September 29, 1998 [10.50] (14) 10.47* Series A Preferred Stock Purchase Agreement by and between Elsinore Corporation and certain investment accounts named therein, dated as of September 29, 1998 [10.51] (14) 10.48* Registration Rights Agreement by and between Elsinore Corporation and certain investment accounts named therein, dated as of September 29, 1998 [10.52] (14) 10.49* Acknowledgment and Confirmation of Pledge Agreement among Elsinore Corporation, Elsub Management Corporation, Palm Springs East Limited Partnership, and U.S. Bank Trust National Association, dated as of September 29, 1998 [10.53] (14) 10.50* Acknowledgment and Confirmation of Guaranty among Elsub Management Corporation, Four Queens, Inc., Palm Springs East Limited Partnership, and U.S. Bank Trust National Association, dated as of September 29, 1998 [10.54] (14) 10.51* Second Modification of Subordinated Deed of Trust by and between Four Queens, Inc. and U.S. Bank Trust National Association, dated as of September 29, 1998 [10.55] (14) 10.52* Waiver of Compliance and letters dated November 12 and 13, 1998 [10.56] (12) 10.53* Waiver of Compliance, dated November 6, 1998 under the Second Supplemental Indenture dated September 29, 1998 and letter dated November 12, 1998 [10.57] (12) 10.54* Waiver of Compliance dated December 1, 1998 under Amended and Restated Indenture dated as of March 3, 1997 [10.54](16) 10.55* Waiver of Compliance dated November 12, 1998 under the Amended and Restated Indenture dated as of March 3, 1997 [10.55](16)
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10.56* Waiver of Compliance dated February 22, 2000 under Amended and Restated Indenture dated as of March 3, 1997 [10.56] (17) 10.57* Release and Settlement Agreement by and among Palm Springs East, Limited Partnership and the 29 Palms Band of Mission Indians dated October 5, 2000[10.57] (19) 10.58* Third Supplemental Indenture dated October 31, 2000 [10.58] (20) 10.59* Waiver of Compliance dated January 18, 2001 [10.59](18) 10.60* Executive Employment Agreement by and between Four Queens, Inc. and Philip W. Madow dated January 30, 2001 [10.60](18) 10.61* Executive Employment Agreement by and between Four Queens, Inc. and Jake S. Vanderlei dated January 30, 2001 [10.61](18) 10.62* Executive Employment Agreement by and between Four Queens, Inc. and Gina L. Contner dated January 30, 2001 [10.62](18) 10.63* Deferred Compensation Agreement by and between Four Queens, Inc. and Philip W. Madow dated January 20, 2001 [10.63](18) 10.64* Deferred Compensation Agreement by and between Four Queens, Inc. and Jake S. Vanderlei dated January 20, 2001 [10.64](18) 10.65* Deferred Compensation Agreement by and between Four Queens, Inc. and Gina L. Contner dated January 20, 2001 [10.65](18) 10.66* Waiver of Compliance dated May 8, 2001 [10.66](21) 10.67* Executive Employment Agreement by and between Four Queens, Inc. and Philip W. Madow dated January 1, 2002 10.68* Executive Employment Agreement by and between Four Queens, Inc. and Gina L. Contner dated January 1, 2002 10.69* Waiver of Compliance dated March 29, 2002 10.70* Settlement Agreement and Mutual Release entered into as of April 3, 2002 by and between John Michael Paulson, as executor of the Will of Allen E. Paulson; John Michael Paulson and Nicholas Diaco, M.D., as the trustees of the Allen E. Paulson Living Trust dated December 23, 1986, as amended; R&E Gaming Corp.; Elsinore Acquisition Sub, Inc.; Riviera Acquisition Sub, Inc.; and Carlo Corporation, on the one hand, and Elsinore Corporation and Morgens, Waterfall, Vintiadis & Company, Inc., on the other. [10.70](22) 10.71* Settlement Agreement and Mutual Release, dated May 23, 2002, by and between Olympia Gaming Corporation, a wholly-owned subsidiary of Elsinore Corporation, The Jamestown S'Klallam Tribe, and JKT Gaming, Inc. [10.71](22) 10.72* Waiver of Defaults [10.72](22)
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10.73* Waiver of Defaults dated August 15, 2002 [10.73](23) 10.74 Waiver of Compliance dated March 17, 2003 10.75 Executive Employment Agreement by and between Four Queens, Inc. and Philip W. Madow dated January 1, 2003 10.76 Executive Employment Agreement by and between Four Queens, Inc. and Gina L. Contner Mastromarino dated January 1, 2003 10.77 Letter of Intent dated March 27, 2003 21.1 Subsidiaries of Elsinore Corporation 99.1 Certification of the President pursuant to 18 U.S.C., section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Action of 2002 99.2 Certification of the Principal Financial and Accounting Officer pursuant to 18 U.S.C., section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Action of 2002 *Previously filed with the Securities and Exchange Commission as an exhibit to the document shown below under the Exhibit Number indicated in brackets and incorporated herein by reference and made a part hereof: (1) Annual Report on Form 10-K for the year ended December 31, 1992 (Securities and Exchange Commission File Number 1-7831) (2) Current Report on Form 8-K dated October 19, 1993 (3) Annual Report on Form 10-K for the year ended December 31, 1993 (4) Intentionally omitted (5) Current Report on Form 8-K dated August 8, 1996 (6) Current Report on Form 8-K dated March 14, 1997 (7) Quarterly Report on Form 10-Q for the three months ended March 31, 1997 (8) Quarterly Report on Form 10-Q for the six months ended June 30, 1997 (9) Quarterly Report on Form 10-Q for the nine months ended September 30, 1997 (10) Intentionally omitted (11) Intentionally omitted (12) Quarterly Report on Form 10-Q for the nine months ended September 30, 1998
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(13) Current Report on Form 8-K dated October 13, 1998 (14) Current Report on Form 8-K dated October 13, 1998 (15) Annual Report on Form 10-K for year end December 31, 1997 (16) Annual Report on Form 10-K for year end December 31, 1998 (17) Annual Report on Form 10-K for year end December 31, 2000 (18) Annual Report on Form 10-K for year end December 31, 2001 (19) Intentionally omitted (20) Quarterly Report on Form 10-Q for the nine months ended September 30, 2000 (21) Quarterly Report on Form 10-Q for the three months ended March 31, 2001 (22) Quarterly Report on Form 10-Q for the six months ended June 30, 2002 (23) Quarterly Report on Form 10-Q for the nine months ended September 30, 2002 (a) Exhibits, other than those incorporated by reference as listed in Item 14(a)(3), appear after the signature page of this report. (b) Current Report on Form 8-K None.
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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ELSINORE CORPORATION (Registrant) Dated: March 27, 2003 By: /s/Philip W. Madow -------------------------- PHILIP W. MADOW, President Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities as indicated on March 27, 2003. Name Title Date ---- ----- ----- /s/John C. "Bruce" Waterfall Chairman of the March 27, 2003 -------------------------------- Board of Directors John C. "Bruce" Waterfall /s/Philip W. Madow Director, President March 27, 2003 -------------------------------- and Principal Executive Philip W. Madow Officer /s/S. Barton Jacka Director March 27, 2003 -------------------------------- S. Barton Jacka /s/Donald A. Hinkle Director March 27, 2003 -------------------------------- Donald A. Hinkle /s/Gina L. Contner Mastromarino Principal Financial March 27, 2003 -------------------------------- and Accounting Officer Gina L. Contner Mastromarino
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CERTIFICATION I, Philip W. Madow, certify that: 1. I have reviewed this annual report on Form 10-K of Elsinore Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal
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controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 27, 2003 By: /s/ Philip W. Madow ------------------------- Philip W. Madow Principal Executive Officer
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CERTIFICATION I, Gina L. Contner Mastromarino, certify that: 1. I have reviewed this annual report on Form 10-K of Elsinore Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal
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controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 27, 2003 By: /s/ Gina L. Contner Mastromarino --------------------------------- Gina L. Contner Mastromarino Principal Accounting and Financial Officer

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10/31/2415
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3/26/0315
3/25/035961
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2/14/0331
1/31/032243
1/1/035169
For Period End:12/31/02153
12/15/022243
10/7/0214
9/30/027010-Q
8/15/022069
7/1/0239518-K
6/30/02177010-Q,  8-K
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6/1/022551
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5/23/02868
5/7/022645
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12/31/0147010-K
12/15/012142
9/23/0127
9/11/01827
5/8/0168
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1/30/0168
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1/18/0168
1/1/015058
12/31/0047010-K
12/5/0056
10/31/004668
10/6/00846
10/5/0068
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11/12/9867
11/6/9867
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9/29/986267
3/3/9865
12/31/977010-K
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9/29/9767
9/18/9766
9/15/9766
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6/30/976910-Q
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5/1/9766
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3/29/96764
12/13/959
10/31/956
11/28/9466
1/28/9465
12/31/9369
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