-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jmbi4PwM4DEer9Qy0ZzutwKBcRvz8/KqI5WDqdi2Sg9evLvtm2s0zMjcm3r3hNQG zgSCWQyjJ83zRfe6FSabhA== 0001021408-02-005930.txt : 20020430 0001021408-02-005930.hdr.sgml : 20020430 ACCESSION NUMBER: 0001021408-02-005930 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 20020430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIRCUS & ELDORADO JOINT VENTURE CENTRAL INDEX KEY: 0001171079 IRS NUMBER: 880310787 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-87202 FILM NUMBER: 02625542 BUSINESS ADDRESS: STREET 1: 407 N VIRGINIA ST CITY: RENO STATE: NV ZIP: 89501 BUSINESS PHONE: 8006878733 MAIL ADDRESS: STREET 1: 407 N VIRGINEA ST CITY: RENO STATE: NV ZIP: 89501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILVER LEGACY CAPITAL CORP CENTRAL INDEX KEY: 0001171078 IRS NUMBER: 710868362 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-87202-01 FILM NUMBER: 02625543 BUSINESS ADDRESS: STREET 1: 407 N VIRGINIA ST CITY: RENO STATE: NV ZIP: 89501 BUSINESS PHONE: 8006878733 MAIL ADDRESS: STREET 1: 407 N VIRGINIA ST CITY: RENO STATE: NV ZIP: 89501 S-4 1 ds4.txt SILVER LEGACY FORM S-4 As filed with the Securities and Exchange Commission on April 30, 2002 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- Form S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------- CIRCUS AND ELDORADO JOINT VENTURE SILVER LEGACY CAPITAL CORP. (Exact name of registrants as specified in their charters) Nevada 7011 88-0310787 Nevada (Primary Standard 71-0868362 (State or other Industrial (I.R.S. Employer jurisdiction Classification Code Identification Numbers) of incorporation or Number) organization) 407 North Virginia Street Reno, Nevada 89501 (800) 687-7733 (Address, including zip code, telephone number, including area code, of registrants' principal executive offices) ----------------- Gary L. Carano Chief Executive Officer 407 North Virginia Street Reno, Nevada 89501 (800) 687-7733 (Name, address, including zip code, and telephone number, including area code, of agent for service) ----------------- Copies of all communications to: Howell J. Reeves Wolf, Block, Schorr and Solis-Cohen LLP 1650 Arch Street, 22nd Floor Philadelphia, Pennsylvania 19103 (215) 977-2000 ----------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] _ If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] _ CALCULATION OF REGISTRATION FEE ================================================================================
Proposed Proposed Amount maximum maximum Title of each class of to be offering price aggregate Amount of securities to be registered registered per Note(1) offering price(1) registration fee - ------------------------------------------------------------------------------------------------------- 10 1/8% Series B Mortgage Notes due 2012 $160,000,000 100% $160,000,000 $14,720 - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1) Estimated solely for the purpose of determining the registration fee in accordance with Rule 457. ----------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ The information in this prospectus is not complete and may be changed. We may not sell or offer these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED APRIL 30, 2002 PROSPECTUS [LOGO] Crest of Silver Legacy CIRCUS AND ELDORADO JOINT VENTURE [LOGO] Logo of Silver Legacy SILVER LEGACY CAPITAL CORP. Offer to Exchange their 10 1/8% Mortgage Notes due 2012, Which Have Been Registered Under the Securities Act of 1933, for any and all of their Outstanding 10 1/8% Mortgage Notes due 2012 -----------------
The Exchange Notes . The terms of the notes Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. are issuing will be substantially identical to the outstanding notes that they issued on March 5, 2002, except for the elimination of some transfer restrictions, registration rights and liquidated damages provisions relating to the outstanding notes. . Interest on the notes will accrue at the rate of 10 1/8% per year, payable semi-annually in cash in arrears on each March 1 and September 1, beginning September 1, 2002, and the notes will mature on March 1, 2012. . The notes will be senior secured obligations and will rank equally with all of our existing and future senior indebtedness and senior to all of our existing and future subordinated indebtedness. The notes will effectively rank junior to our senior secured credit facility to the extent of the value of the property securing that indebtedness. . The notes will be secured by a security interest in substantially all of our existing and future assets which will be subordinate to the security interest securing our obligations under our senior secured credit facility. Subject to the approval of the Nevada gaming authorities, each of our joint venture partners will execute a pledge of all of its partnership interests in Circus and Eldorado Joint Venture to secure the notes. . The notes will be redeemable on or after March 1, 2007. In addition, we may redeem up to 35% of the notes before March 1, 2005 with the net cash proceeds from specified equity offerings. Material Terms of the Exchange Offer . The exchange offer expires at 5:00 p.m., New York City time, on , 2002, unless extended. . Our completion of the exchange offer is subject to customary conditions, which we may waive. . Upon our completion of the exchange offer, all outstanding notes that are validly tendered and not withdrawn will be exchanged for an equal principal amount of notes that are registered under the Securities Act of 1933. . Tenders of outstanding notes may be withdrawn at any time prior to the expiration of the exchange offer. . The exchange of registered notes for outstanding notes will not be a taxable exchange for U.S. Federal income tax purposes. . We will not receive any proceeds from the exchange offer. For a discussion of factors that you should consider before participating in this exchange offer, see "Risk Factors" beginning on page 10 of this prospectus. ----------------- Neither the Securities and Exchange Commission, the Nevada Gaming Commission, the Nevada State Gaming Control Board, nor any state securities commission or other gaming authority, has passed on the adequacy or accuracy of this prospectus or the investment merits of the notes offered hereby. Any representation to the contrary is a criminal offense. ----------------- The date of this prospectus is , 2002. We have not authorized any dealer, salesman or other person to give any information or to make any representation other than those contained or incorporated by reference in this prospectus. You must not rely upon any information or representation not contained or incorporated by reference in this prospectus as if we had authorized it. This prospectus does not constitute an offer to sell or the solicitation of an offer to buy any securities other than the registered securities to which it relates, nor does this prospectus constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. ----------------- TABLE OF CONTENTS Summary.............................................................................. 1 Risk Factors......................................................................... 10 Forward-Looking Statements........................................................... 23 Use of Proceeds...................................................................... 24 Capitalization....................................................................... 25 Selected Financial Information....................................................... 26 Management's Discussion and Analysis of Financial Condition and Results of Operations 28 Business............................................................................. 34 Regulation and Licensing............................................................. 43 Management........................................................................... 49 Security Ownership of Certain Beneficial Owners and Management....................... 55 Certain Relationships and Related Transactions....................................... 57 Description of Other Indebtedness.................................................... 59 The Partnership Agreement............................................................ 62 The Exchange Offer................................................................... 67 Description of the Notes............................................................. 79 Certain Federal Tax Consequences..................................................... 123 Plan of Distribution................................................................. 126 Legal Matters........................................................................ 127 Experts.............................................................................. 127 Available Information................................................................ 127 Index to Consolidated Financial Statements........................................... F-1
i SUMMARY The following summary highlights selected information from this prospectus and may not contain all the information that may be important to you. You should read this entire prospectus, including the consolidated financial data and related notes, before making an investment decision. The terms "we," "our," "us" and "Issuers," as used in this prospectus, refer to Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. as a combined entity, except where it is clear that the terms mean only Circus and Eldorado Joint Venture or Silver Legacy Capital Corp. When we use the term "Partnership" it refers only to Circus and Eldorado Joint Venture, and when we use the term "Capital" it refers only to Silver Legacy Capital Corp. The term "Silver Legacy" refers to the Silver Legacy Resort Casino. References to the Circus Circus Hotel and Casino refer to the hotel-casino by that name located in Reno, Nevada. When we use the term "Reno market" we are referring to the Reno and Sparks areas as delineated by the Nevada Gaming Control Board. The term "old notes" refers to our outstanding 10 1/8 Mortgage Notes due 2012 that we issued on March 5, 2002 and that have not been registered under the Securities Act of 1933. The term "exchange notes" refers to the 10 1/8% Mortgage Notes due 2012 offered by this prospectus. The term "notes" refers to the old notes and the exchange notes collectively. Silver Legacy Overview Circus and Eldorado Joint Venture, a Nevada general partnership which is a joint venture between affiliates of Mandalay Resort Group and Eldorado Resorts LLC, owns and operates the Silver Legacy Resort Casino, a premier nineteenth century silver mining themed hotel-casino and entertainment complex in Reno, Nevada. Silver Legacy is among the largest hotel-casinos in the Reno market. We have established Silver Legacy as a "must see" destination resort for Reno visitors by creating an exciting, luxurious atmosphere. We offer a dynamic gaming environment and a wide variety of amenities delivered with special attention to personal service to appeal to our multiple customer segments, including preferred casino players. Silver Legacy opened in July 1995, with a capital investment of over $360 million, and is strategically located on two city blocks in downtown Reno directly off Interstate 80, the principal highway connecting Reno with San Francisco, Sacramento and other cities in northern California. The casino and entertainment areas at Silver Legacy are seamlessly connected to the Eldorado Hotel & Casino and the Circus Circus Hotel and Casino by 200-foot wide skyway corridors, comprising the heart of the Reno market's prime gaming area and room base. As of December 31, 2001, Silver Legacy offered the following features and amenities: . an approximately 87,300 square-foot casino with 2,112 slot and video poker machines, 82 table games, a keno lounge and a race and sports book; . a 37-story hotel tower with 1,710 guest rooms, including 145 player spa suites and eight penthouse suites; . six dining venues, including an award-winning steakhouse and a multi-cuisine buffet; . approximately 90,000 square feet of meeting, convention and entertainment space, including the approximately 40,000 square-foot City Center Pavilion, located on an adjacent special events plaza owned by our affiliates; . Catch a Rising Star, a 220-seat, nationally recognized comedy club; . a 10-story parking facility capable of accommodating approximately 1,800 vehicles; and . additional amenities including four bars and lounges, custom retail shops, a spa/exercise facility, a video arcade and an outdoor swimming pool/sundeck. 1 We carefully target our marketing programs to five segments of the gaming market: free and independent travelers, preferred casino customers, convention groups, local patrons and wholesale/specialty groups. We attract our target customers through newspaper, radio, television and direct mail campaigns locally and in northern California, the Pacific northwest and other regional travel markets. Silver Legacy utilizes a broad special events calendar along with our guest development program, including selective casino credit, to attract and retain our target customers. In addition, we utilize our hotel rooms, restaurants and other amenities to offer complimentaries to a broad spectrum of established casino guests. "Club Legacy," Silver Legacy's players club, offers customers exciting special events and tournaments and convenient ways of earning complimentaries. The convention and wholesale/specialty market segments contribute to our hotel occupancy during slower mid-week periods. For the twelve months ended December 31, 2001, our average occupancy rate was 83.4% compared to 76.9% for the Reno market. Competitive Strengths Silver Legacy offers our guests a fully integrated gaming, lodging, dining and entertainment experience in a convenient downtown Reno location. We believe the quality of our amenities enables us to attract multiple customer segments from the local area, northern California, the Pacific northwest and other regional travel markets. Premier "Must See" Resort Casino. We believe Silver Legacy is a "must see" attraction for Reno visitors and residents as the only major newly-constructed hotel-casino in the Reno market since 1978. A uniquely themed mega-resort, the property's design is inspired by Nevada's rich mining heritage and the legend of Sam Fairchild, a fictitious silver baron who "struck it rich" on the site of the casino. Silver Legacy's opulent interior showcases a casino built around Sam Fairchild's famed 120-foot tall mining rig, which appears to mine for silver. The rig is situated beneath a 180-foot diameter dome, which is a distinctive landmark on the Reno skyline. The interior surface of the dome features dynamic sound and laser light shows, providing visitors with a unique experience when they are in the casino. Center of Tri-Property Destination Resort. Silver Legacy, together with the Eldorado and Circus properties, comprises the heart of the Reno market's prime gaming area and room base, providing the most extensive variety of gaming, lodging, dining and entertainment amenities in the Reno area. As of December 31, 2001, the tri-property complex offered 4,099 rooms, 20 restaurants, 5,534 slot machines, 233 table games and parking to accommodate over 6,000 vehicles, representing approximately 27% of the Reno market's total room base and 24% of the Reno market's total slot machine and table games. We believe that the centralized location and critical mass of these three properties, together with the seamless connections between the facilities, provide Silver Legacy with significant advantages over other freestanding hotel-casinos in the Reno market. Headliner Entertainment and Premium Dining. Our customers are attracted to Silver Legacy's entertainment and award-winning cuisine. Each year, approximately 50 nights of headliner entertainment are scheduled in our 1,600-seat Grande Exposition Hall or the 3,400-seat City Center Pavilion, making Silver Legacy the leading entertainment venue in the Reno market. Entertainers who appeared during 2001 include Jay Leno, Chicago, Michael Bolton and George Carlin. Recent enhancements include the opening of Rum Bullions Island Bar, a tropical-themed bar and lounge with nightly entertainment, and the expansion of our race and sports book, including a new sports-themed bar. Quality Personal Service. We are committed to providing our customers with a high level of personal service, which we believe is an integral part of fostering customer loyalty and generating repeat business. We continually strive to instill in each employee a dedication to superior service designed to exceed our guests' expectations. 2 Experienced Management Team. Silver Legacy has an experienced management team with an average of more than 20 years of experience in the Reno gaming market. All of our senior management have been with Silver Legacy since its opening in July 1995. We also benefit from the expertise of our joint venture partners and the leadership they provide through our executive committee, which includes senior executives from Eldorado Resorts LLC and Mandalay Resort Group. Reno Market The Reno market is the eighth largest gaming market in the United States, generating approximately $1.0 billion of gaming revenues for the twelve months ended December 31, 2001. As of December 31, 2001, the Reno market featured approximately 15,459 hotel rooms, 23,386 slot machines and 676 table games. For the twelve months ended December 31, 2001, the Reno market had an estimated 76.9% average hotel occupancy rate. Reno is the second largest metropolitan area in Nevada, with a population of approximately 340,000 according to the most recently available U.S. Census data, and is located at the base of the Sierra Nevada Mountains along Interstate 80, approximately 135 miles east of Sacramento, California and 225 miles east of San Francisco, California. Reno is a destination resort market that primarily attracts "drive-in" visitors by offering gaming as well as numerous other summer and winter recreational activities. Management believes that approximately two-thirds of visitors to the Reno market arrive by some form of ground transportation. Popular special events include the National Championship Air Races, the Reno-Tahoe Open PGA tour event and Hot August Nights, a vintage car event. In addition, the National Bowling Stadium, located one block from Silver Legacy, is the largest bowling complex in North America and has been selected to host multi-month tournaments in Reno two out of every three years through 2009, of which 2002 is a non-tournament year. According to the Reno-Sparks Convention & Visitors Authority, the greater Reno area attracted an estimated 5.2 million visitors for the twelve months ended June 30, 2001 and 2000. ----------------- Our executive offices are located at the Silver Legacy Resort Casino at 407 North Virginia Street, Reno, Nevada 89501, and our telephone number is (800) 687-7733 3 Summary of the Exchange Offer The Exchange Offer.......... We are offering to exchange $1,000 principal amount of our exchange notes for each $1,000 principal amount of old notes. As of the date of this prospectus, $160 million in aggregate principal amount of old notes are outstanding. We have registered the exchange notes under the Securities Act of 1933 and they are substantially identical to the old notes, except for the elimination of some transfer restrictions, registration rights and liquidated damages provisions relating to the old notes. Accrued Interest on the Exchange Notes and the Old Notes..................... Interest on the exchange notes will accrue from the last interest payment date on which interest was paid on the old notes or, if no interest was paid on the old notes, from the date of issuance of the old notes, which was on March 5, 2002. Holders whose old notes are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the old notes. No Minimum Condition........ We are not conditioning the exchange offer on the tender of any minimum principal amount of old notes. Expiration Date............. The exchange offer will expire at 5:00 p.m., New York City time, on , 2002, unless we decide to extend the exchange offer. Withdrawal Rights........... You may withdraw your tender at any time prior to 5:00 p.m., New York City time, on the expiration date. Conditions to the Exchange Offer..................... The exchange offer is subject to customary conditions, which we may waive. We currently anticipate that each of the conditions will be satisfied and that we will not need to waive any conditions. We reserve the right to terminate or amend the exchange offer at any time before the expiration date if any of the conditions occurs. For additional information, see the section "The Exchange Offer--Certain Conditions to the Exchange Offer." Procedures for Tendering Old Notes..................... If you are a holder of old notes who wishes to accept the exchange offer, you must: . complete, sign and date the accompanying letter of transmittal, or a facsimile of the letter of transmittal, and mail or otherwise deliver the letter of transmittal, together with your old notes, to the exchange agent at the address set forth in the section "The Exchange Offer--Exchange Agent"; or . arrange for The Depository Trust Company to transmit certain required information, including an agent's message forming part of a book-entry transfer in which you agree to be bound by the terms of the letter of transmittal, to the exchange agent in connection with a book-entry transfer. 4 By tendering your old notes in either manner, you will be representing among other things, that: . the exchange notes you receive pursuant to the exchange offer are being acquired in the ordinary course of your business; . you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the exchange notes issued to you in the exchange offer; and . you are not an "affiliate" of ours. Special Procedures for Beneficial Owners......... If you beneficially own old notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your old notes in the exchange offer, you should contact the registered holder promptly and instruct it to tender on your behalf. If you wish to tender on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your old notes, either arrange to have your old notes registered in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Guaranteed Delivery Procedures................ If you wish to tender your old notes and time will not permit your required documents to reach the exchange agent by the expiration date, or the procedures for book-entry transfer cannot be completed on time, you may tender your old notes according to the guaranteed delivery procedures described in the section "The Exchange Offer--Procedures for Tendering Old Notes." Acceptance of Old Notes and Delivery of Exchange Notes.................... We will accept for exchange all old notes which are properly tendered in the exchange offer prior to 5:00 p.m., New York City time, on the expiration date. The exchange notes issued in the exchange offer will be delivered promptly following the expiration date. For additional information, see the section "The Exchange Offer--Acceptance of Old Notes for Exchange; Delivery of Exchange Notes." Use of Proceeds............. We will not receive any proceeds from the issuance of exchange notes in the exchange offer. We will pay for our expenses incident to the exchange offer. Federal Income Tax Consequences.............. The exchange of exchange notes for old notes in the exchange offer will not be a taxable event for federal income tax purposes. For additional information, see the section "Material Federal Income Tax Consequences of the Exchange." Effect on Holders of Old Notes..................... As a result of this exchange offer, we will have fulfilled a covenant contained in the registration rights agreement dated as of March 5, 2002 among Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. as issuers and Banc of America Securities LLC as 5 representative for the initial purchasers named in the agreement and, accordingly, there will be no increase in the interest rate on the old notes. If you do not tender your old notes in the exchange offer: . you will continue to hold the old notes and will be entitled to all the rights and limitations applicable to the old notes under the indenture governing the notes, except for any rights under the registration rights agreement that terminate as a result of the completion of the exchange offer; and . you will not have any further registration or exchange rights and your old notes will continue to be subject to restrictions on transfer. Accordingly, the trading market for untendered old notes could be adversely affected. Exchange Agent.............. The Bank of New York is serving as exchange agent in connection with the exchange offer. Summary of the Exchange Notes Issuers..................... Circus and Eldorado Joint Venture, a Nevada general partnership, and Silver Legacy Capital Corp., a Nevada corporation wholly owned by Circus and Eldorado Joint Venture. Neither of our joint venture partners nor their parent companies will be responsible for our obligations under the exchange notes. Total Amount of Exchange Notes Offered............. $160 million in principal amount of 10 1/8% mortgage notes due 2012. Maturity.................... March 1, 2012. Interest.................... 10 1/8% per year. Interest Payment Dates...... March 1 and September 1, beginning September 1, 2002. Optional Redemption......... We will have the right to redeem some or all of the notes on or after March 1, 2007 at the redemption prices described in the section "Description of the Notes -- Optional Redemption." Prior to March 1, 2005, we may redeem up to 35% of the notes with the net cash proceeds from specified equity offerings at the redemption price described in the section "Description of the Notes -- Optional Redemption." We may, however, only make these redemptions if at least $104 million aggregate principal amount of the notes remains outstanding after the redemptions. Regulatory Redemption....... The notes will be subject to redemption requirements imposed by gaming laws and regulations of the State of Nevada and other gaming authorities that have jurisdiction over our gaming activities or those of our partners or their respective parents or other affiliates. See "Description of the Notes -- Gaming Redemption." Change of Control........... If a change of control event occurs, each holder of notes may require us to repurchase all or a portion of the holder's notes at a purchase 6 price equal to 101% of the principal amount of the notes, plus accrued interest. See "Description of the Notes -- Repurchase at the Option of Holders -- Change of Control." Certain Covenants........... The indenture governing the notes, among other things, limits our ability to: . incur additional debt; . create liens or other encumbrances; . pay dividends or make other restricted payments; . prepay subordinated indebtedness; . make investments, loans or other guarantees; . sell or otherwise dispose of a portion of our assets; or . make acquisitions or merge or consolidate with another entity. These covenants are subject to a number of important qualifications and exceptions which are described in the section "Description of the Notes -- Additional Covenants." Use of proceeds............. We will not receive any cash proceeds from the exchange offer. Risk Factors See the section "Risk Factors" in this prospectus for a discussion of the factors you should carefully consider before deciding to invest in the notes, including factors affecting forward-looking statements. 7 Summary Financial Information The following table sets forth our summary financial information for the five fiscal years ended December 31, 1997, 1998, 1999, 2000 and 2001, which have been derived from our audited consolidated financial statements. This summary financial information is not necessarily indicative of our future results of operations or financial condition and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Selected Financial Information" and our consolidated financial statements and related notes contained elsewhere in this prospectus.
Fiscal Year Ended December 31, ------------------------------------------------ 1997 1998 1999 2000 2001 -------- -------- -------- -------- -------- (Dollars in thousands, except operating data) Income Statement Data: Operating revenues Casino............................................................. $ 99,192 $ 97,207 $105,284 $109,641 $ 98,374 Rooms.............................................................. 35,008 36,472 36,877 37,936 37,835 Food and beverage.................................................. 32,475 33,088 35,632 36,832 35,558 Other.............................................................. 6,179 7,380 7,748 8,786 7,508 -------- -------- -------- -------- -------- Gross revenues....................................................... 172,854 174,147 185,541 193,195 179,275 Less: promotional allowances....................................... (13,044) (13,829) (15,193) (15,706) (14,598) -------- -------- -------- -------- -------- Net operating revenues............................................... 159,810 160,318 170,348 177,489 164,677 -------- -------- -------- -------- -------- Operating expenses Casino............................................................. 43,114 43,736 46,724 48,723 45,820 Rooms.............................................................. 12,582 12,559 12,634 12,867 12,166 Food and beverage.................................................. 23,445 24,137 26,101 26,188 25,019 Other operating expenses........................................... 4,922 5,944 6,327 7,248 5,927 Selling, general and administrative................................ 27,390 27,773 28,482 29,719 29,207 Depreciation and amortization...................................... 17,601 17,583 17,824 15,500 12,082 Write-off of debt issuance costs................................... -- -- -- -- 370 Loss on sale of assets............................................. 43 53 1 1 4 -------- -------- -------- -------- -------- Total operating expenses........................................... 129,097 131,785 138,093 140,246 130,595 -------- -------- -------- -------- -------- Operating income................................................... 30,713 28,533 32,255 37,243 34,082 -------- -------- -------- -------- -------- Other (income) expense Insurance settlement proceeds...................................... -- -- -- -- (225) Interest income.................................................... (38) (149) (162) (248) (112) Interest expense, net(1)........................................... 21,036 18,733 16,334 15,721 13,299 Interest rate swap, income(2)...................................... -- -- -- -- (327) -------- -------- -------- -------- -------- Total other (income) expense......................................... 20,998 18,584 16,172 15,473 12,635 -------- -------- -------- -------- -------- Net income before cumulative effect of change in accounting principle 9,715 9,949 16,083 21,770 21,447 Cumulative effect of change in accounting principle(2)............... -- -- -- -- (327) -------- -------- -------- -------- -------- Net income(3)........................................................ $ 9,715 $ 9,949 $ 16,083 $ 21,770 $ 21,120 ======== ======== ======== ======== ======== Other Financial Data: EBITDA(4)............................................................ $ 48,357 $ 46,169 $ 50,080 $ 52,744 $ 46,538 Capital expenditures................................................. 4,323 4,808 4,902 4,158 4,180 Ratio of earnings to fixed charges(5)................................ 1.5x 1.5x 2.0x 2.4x 2.6x Operating Data(6): Number of hotel rooms................................................ 1,709 1,710 1,710 1,710 1,710 Average daily room rate.............................................. $ 58.94 $ 60.70 $ 60.99 $ 62.99 $ 66.35 Daily occupancy rate................................................. 88.3% 89.0% 89.7% 88.9% 83.4% Number of slot machines.............................................. 2,266 2,264 2,207 2,237 2,177 Slot machine win per unit per day.................................... $ 82.05 $ 78.10 $ 86.72 $ 90.29 $ 83.25 Number of table games................................................ 87 83 81 79 82 Table game win per unit per day...................................... $ 935 $ 988 $ 1,113 $ 1,143 $ 1,003
(Footnotes on following page) 8
Fiscal Year Ended December 31, 2001 ------------- (Dollars in thousands) Pro Forma Data(7): EBITDA(4)............................... $46,538 Cash interest expense................... 17,583 Ratio of EBITDA to cash interest expense 2.6x Ratio of total debt to EBITDA........... 4.0x
As of December 31, 2001 ----------------------- Actual As Adjusted(8) -------- -------------- (Dollars in thousands) Balance Sheet Data: Cash and cash equivalents $ 12,256 $ 10,000 Total assets............. 303,169 307,711 Total debt............... 145,000 187,047 Partners' equity......... 145,407 107,902
- -------- (1) Interest expense is net of the effect of all payments made or received pursuant to hedging obligations. (2) In accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities, we are required to record all derivatives as assets or liabilities measured at fair value with the change in fair value recognized in earnings. On January 1, 2001, we recorded a liability of $0.3 million for the fair value of our interest rate swaps at that date, with a corresponding cumulative effect adjustment in the income statement. All of our interest rate swaps matured on October 29, 2001. (3) Circus and Eldorado Joint Venture is not subject to income taxes, as the partners include their respective shares of partnership taxable income in their income tax returns. Therefore, a provision for income taxes is not included in our summary financial information. Circus and Eldorado Joint Venture's governing documents require the partnership to make distributions to its partners in an amount equal to the maximum marginal federal income tax rate applicable to any partner multiplied by the income of the partnership for the applicable period. See "The Partnership Agreement." (4) EBITDA is defined as earnings before interest, taxes, depreciation and amortization, loss on sale of assets, other non-recurring charges and cumulative effect of change in accounting principle. EBITDA is presented as a supplemental disclosure because management believes that it is a widely used measure of operating performance in the gaming industry. EBITDA should not be construed as an alternative to operating income or net income (as determined in accordance with generally accepted accounting principles, or GAAP), as an indicator of cash flows or a measure of liquidity. All companies do not calculate EBITDA in the same manner. As a result, EBITDA as presented here may not be comparable to similarly titled measures presented by other companies. (5) The ratio of earnings to fixed charges has been computed as earnings divided by fixed charges. Earnings represent net income plus fixed charges. Fixed charges represent interest expense, whether expensed or capitalized, the interest component of rent expense and amortization of debt issuance costs. (6) Operating data are averages for the respective periods. (7) Pro forma data give effect to our issuance of the old notes, the senior secured credit facility we entered into on March 5, 2002 and the application of the net proceeds therefrom, as if such transactions occurred on January 1, 2001. See "Use of Proceeds." (8) As adjusted to give effect to our issuance of the old notes, the senior secured credit facility we entered into on March 5, 2002 and the application of the net proceeds therefrom and the write-off of unamortized deferred financing fees associated with our prior credit facility as if such transactions had occurred on December 31, 2001. 9 RISK FACTORS You should carefully consider the following factors in addition to the other information set forth in this prospectus before making an investment in the exchange notes. Risks Related to our Business We face substantial competition in the hotel and casino industry. The hotel and casino industry is very competitive. We compete for customers primarily on the basis of location, range and pricing of amenities and overall atmosphere. Of the 34 casinos currently operating in the Reno market, we compete principally with the eight other hotel-casinos that, like the Silver Legacy Resort Casino, each generate at least $36 million in annual gaming revenues, including the Circus Circus Hotel and Casino and the Eldorado Hotel & Casino. According to statistics published by the Reno-Sparks Convention & Visitors Authority, there were approximately 15,459 hotel rooms and approximately 4,616 motel rooms in the Reno area at December 31, 2001. Although no hotel-casino projects are currently under construction in the Reno area, we cannot predict the extent to which new casino projects will be undertaken or the extent to which current hotel capacity may be expanded in the near future. There can be no assurance that any growth in Reno's room base or gaming capacity will not adversely affect our financial condition or results of operations. See "Business -- Reno Market; Competition." A substantial number of customers travel to both Reno and Lake Tahoe during their visits. Consequently, we believe that the Reno market's visitation is influenced, to some degree, by the visitation of the Lake Tahoe market. While we do not anticipate a decline in the popularity of either Reno or Lake Tahoe as tourist destination areas in the foreseeable future, any such decline could adversely affect our operations. Reno casinos, including our own, also compete with Native American gaming in California and the northwestern United States. We also compete with hotel-casinos located in Las Vegas, Nevada and the Lake Tahoe area. To a lesser extent, we compete with hotel-casinos in other parts of the United States and with dockside gaming facilities, riverboat casinos, state-sponsored lotteries, on-and-off track pari-mutuel wagering, Internet gaming, card clubs, riverboat casinos and other forms of legalized gaming. Land-based, dockside or riverboat casino gaming, other than that conducted on Native American-owned land, is currently legal in nine states and gaming on Native American-owned land is legal in at least 29 states, including California, Washington and Oregon. Management believes the Reno market draws over 50% of its visitors from California. California allows other non-casino style gaming, including pari-mutuel wagering, a state-sponsored lottery, card clubs, bingo and off-track betting. Certain constituencies have proposed ballot initiatives which are currently pending in California that would legalize casino-style gaming generally. As a result, there can be no assurance that casino-style gaming in California will not be expanded beyond the currently legal Native American gaming. Any such expansion could have a material adverse effect on our operations. The competitive impact on Nevada gaming establishments, in general, and our operations, in particular, from the continued growth of gaming outside Nevada cannot be determined at this time. We believe that the further expansion of casino gaming in markets close to Nevada, such as California, and to a lesser extent Washington and Oregon, could have a material adverse affect on our operations depending on the nature, location and scope of those operations. 10 Native American gaming in California could have a material adverse effect on the Reno market, in general, and on our operations, in particular. On March 7, 2000, California voters approved Proposition 1A which amended the California constitution and legalized "Nevada-style" gaming on Native American reservations. The passage of this amendment has allowed the expansion of existing Native American gaming operations, as well as the opening of new Native American gaming facilities. Additionally, numerous tribes have announced that they intend to open gaming facilities. This proliferation of gaming in California could have a material adverse effect on the hotel-casinos and gaming operations in the Reno market, including the Silver Legacy Resort Casino. There are approximately 107 federally recognized Native American tribes in California. In order to conduct gaming operations in California, a Native American tribe is required to enter into a compact with the state. As of December 31, 2001, the State of California had entered into compacts with approximately 60 tribes. Each Native American tribe in California is limited to a maximum of 2,000 slot machines and there may not be more than two gaming facilities on any one reservation. Under the governor of California's interpretation of the compacts, all Native American tribes in California are permitted to operate a total of approximately 45,000 slot machines. However, there remains substantial uncertainty as to the total number of slot machines authorized by the compacts and it is possible that the approximately 45,000-machine limit will increase and, if so, the increase may be substantial. In addition to allowing the expansion of slot machines, the compacts allow for the expansion of other casino-style games, including blackjack and poker. Further, there can be no assurance that the existing compacts will not be renegotiated to permit more slot machines than are permitted by the existing compacts as they are currently interpreted. Most existing Native American gaming facilities in northern California are modest compared to Reno market casinos. However, there are several more significant Native American casinos that currently compete with the Reno market, including: . the Cache Creek Indian Bingo & Casino in Brooks, California, approximately 58 miles northwest of Sacramento; and . the Jackson Rancheria Casino, Hotel and Conference Center in Jackson, California, approximately 59 miles southeast of Sacramento. In addition to the existing gaming facilities, numerous Native American tribes have announced that they are in the process of developing or are considering establishing large-scale hotel and gaming facilities in northern California, including two which have entered into development and management agreements with established gaming operators. Station Casinos, Inc. has entered into agreements with the United Auburn Indian Community to develop and manage a gaming and entertainment facility on a proposed 49-acre site approximately 21 miles northeast of Sacramento. The United States Interior Department's Bureau of Indian Affairs has approved the application of the United Auburn Indian Community to take the 49-acre site into trust for the planned casino development. Lakes Gaming Inc. has entered into agreements with the Shingle Springs Rancheria to develop and manage a large-scale hotel-casino approximately 35 miles southeast of Sacramento. Other tribes are at various stages of planning new or expanded facilities in northern California, such as the Buena Vista Rancheria of Me-Wuk Indians, on land located approximately 50 miles southeast of Sacramento, and the Lytton Band of Pomo Indians, on land located approximately 21 miles northeast of San Francisco. Our operations have been adversely impacted by the growth in Native American gaming in California that has occurred to date. The competitive impact on the Reno market, in general, and our operations, in particular, from the continued growth of gaming establishments in northern California remains uncertain. There can be no assurances as to the extent of any new or expanded facilities that may commence operations. We believe, however, that the continued expansion of Native American gaming in northern California could have a material adverse impact on the Reno gaming market and our gaming operations. 11 The terrorist attacks of September 11, 2001 have adversely impacted our operations and these attacks, as well as any security alerts and/or similar attacks that may occur, could have a material adverse effect on our future operations. The terrorist attacks on the World Trade Center in New York City and the Pentagon outside Washington, D.C. which occurred on September 11, 2001 had a pronounced impact on our operating results during the weeks immediately following the attacks. Silver Legacy's hotel occupancy, gaming volume and customer traffic declined significantly during the post-September 11 portion of our third quarter compared with the levels we experienced prior to September 11. In response to the effects of the terrorist attacks, we took several steps to mitigate the impact on our operations and financial position, including reducing staff to correspond with reduced business levels and discretionary spending. During the fourth quarter of 2001, the weekend business at Silver Legacy returned to near-normal levels, in terms of customer traffic, and midweek business improved, although we have yet to achieve the midweek levels we experienced during the corresponding periods of the prior year. Because our operations during the fourth quarter of 2001 were impacted by a number of factors, including an economy that was already weakening before September 11 and increased competition from Native American casinos in northern California, we cannot measure the precise impact the September 11 attacks had on our fourth quarter results of operations, although we believe the negative effect the attacks had on the economy magnified market downtrends we experienced throughout 2001 and continued to depress gaming volume and hotel occupancy during the remainder of 2001. We cannot predict the extent to which the events of September 11 will continue to directly or indirectly impact our future operating results, and we cannot predict the extent to which any future security alerts and/or additional terrorist attacks such as those that occurred on September 11 may impact our future operations. Our substantial indebtedness could adversely affect our financial results and prevent us from fulfilling our obligations under the notes. We have a significant amount of indebtedness. The amount of our total indebtedness at December 31, 2001, as adjusted at that date to give effect to the issuance of the old notes and the application of the net proceeds and the other transactions set forth in the section "Use of Proceeds," would have been approximately $185 million. See "Capitalization." Our significant indebtedness could have important consequences to you, such as: . limiting our ability to satisfy our obligations with respect to the notes; . limiting our ability to obtain additional financing to fund our working capital requirements, capital expenditures, debt service, general corporate or other obligations, including our obligations with respect to the notes; . limiting our ability to use operating cash flow in other areas of our business because we must dedicate a significant portion of these funds to make principal and interest payments on our indebtedness; . increasing our interest expense if there is a rise in interest rates, because a portion of our borrowings are and will be under our senior secured credit facility and, as such, we will have interest rate periods with short-term durations (typically 30 to 180 days) that require ongoing refunding at the then current rates of interest; . causing our failure to comply with the financial and restrictive covenants contained in the indenture and agreements governing the notes, our senior secured credit facility and our other indebtedness which could cause a default under those instruments and which, if not cured or waived, could have a material adverse effect on us; . placing us at a competitive disadvantage to our competitors who are not as highly leveraged; and . increasing our vulnerability and limiting our ability to react to changing market conditions, changes in our industry and economic downturns. 12 In addition, we have the capacity to issue additional indebtedness, including the ability to incur additional indebtedness under our senior secured revolving credit facility, subject to the limitations imposed by the covenants in the senior secured credit facility and the indenture governing the notes. Moreover, we may be able to incur additional debt in the future. The indenture governing the notes and our senior secured credit facility contain financial and other restrictive covenants, but do not fully prohibit us from incurring additional debt. If new debt is added to our current level of indebtedness, related risks that we and you now face could increase. If we do not generate sufficient cash from our operations to make scheduled payments on the notes or to meet our other obligations, we will need to take one or more actions including the refinancing of our debt, obtaining additional financing, selling assets, obtaining additional equity capital, or reducing or delaying capital expenditures and our ability to take one or more of these actions may be limited by the financial and other restrictive covenants contained in the agreements and indenture governing our indebtedness. We cannot assure you that our business will generate cash flow or that we will be able to obtain funding sufficient to satisfy our debt service requirements. Our senior secured credit facility and the indenture governing the notes contain covenants that restrict our ability to engage in certain transactions. Our senior secured credit facility and the indenture governing the notes impose operating and financial restrictions on us. The restrictions imposed under our senior secured credit facility and/or the indenture include, among other things, limitations on our ability to: . incur additional debt; . create liens or other encumbrances; . pay dividends or make other restricted payments; . prepay subordinated indebtedness; . make investments, loans or other guarantees; . sell or otherwise dispose of a portion of our assets; or . make acquisitions or merge or consolidate with another entity. In addition, under our senior secured credit facility, we are required to satisfy certain financial covenants, including maintaining certain debt to earnings and earnings to fixed charges ratios. Our ability to comply with these provisions may be affected by general economic conditions, industry conditions and other events beyond our control. We cannot assure you that we will be able to comply with these covenants. If we fail to comply with a financial covenant or other restriction contained in our senior secured credit facility, the indenture or any future financing agreements, an event of default could occur. An event of default could result in acceleration of some or all of our indebtedness and the inability to borrow additional funds under our senior secured credit facility. We would not have, and are not certain we would be able to obtain, sufficient funds to repay our indebtedness if it is accelerated, including our payments on the notes. Servicing our debt will require a significant amount of cash, and our ability to generate sufficient cash will depend on many factors, some of which are beyond our control. Our ability to make payments on and refinance our indebtedness and to fund our capital expenditures will depend on our ability to generate cash flow and secure financing in the future. Our ability to generate cash flow will depend upon: . our future operating performance; . the demand for services we provide; 13 . general economic conditions; . competition; and . legislative and regulatory factors affecting our operations and business. Some of these factors are beyond our control. In addition, the ability to borrow funds under our senior secured credit facility in the future will depend on our meeting the financial covenants in the senior secured credit facility. Our senior secured credit facility includes a term portion that amortizes over five years. We cannot assure you that our business will generate cash flow from operations or that future borrowings will be available to us under our senior secured credit facility or otherwise in an amount sufficient to enable us to pay our indebtedness, including the notes, or to fund other liquidity needs. As a result, we may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on favorable terms, or at all. Any inability to generate sufficient cash flow or refinance our indebtedness on favorable terms could have a material adverse effect on our financial condition. Because we are entirely dependent upon the Silver Legacy Resort Casino for all of our cash flow, we are subject to greater risks than a gaming company that is geographically or otherwise diversified. We are entirely dependent upon the Silver Legacy Resort Casino for all of our cash flow. Therefore, we are subject to greater degrees of risk than a gaming company that is geographically or otherwise diverse. The risks to which we will have a greater degree of exposure include the following: . local economic and competitive conditions; . inaccessibility due to weather conditions, road construction or closure of primary access routes; . changes in local and state governmental laws and regulations, including gaming laws and regulations; . natural and other disasters; . a decline in the number of residents near, or visitors to, the Silver Legacy Resort Casino; and . a decrease in gaming activities at the Silver Legacy Resort Casino. Any of the factors outlined above could adversely affect our ability to generate sufficient cash flow to make payments on the notes pursuant to the indenture or with respect to our other debt. Our operations may be negatively affected by general economic conditions. Our operations during fiscal 2001 were adversely affected by a number of factors, including the overall decline in the U.S. economy and increases in gasoline prices and electric power costs. Any adverse change in general economic conditions can adversely affect consumer spending, which can have a negative impact on our ability to generate revenues from our operations. Increases in gasoline prices can adversely affect our operations because most of our patrons travel to Reno by car or on airlines that may pass on increases in fuel costs to their passengers in the form of higher ticket prices. We are a large consumer of electricity. Consequently, an increase in the cost of electric power will increase our operating costs and, depending on the extent of any increase, could adversely affect our results of operations. We cannot be sure that any or all of these factors will not continue to adversely affect us or that such factors will not have a greater adverse impact on our results of operations in the future. Shortages of electrical power in Reno or in areas of California where many of our customers reside could adversely impact our operations. During the past year, areas of California have experienced mandated periods without electrical power, commonly referred to as "blackouts," necessitated by power shortages. Elimination of California's power 14 shortages, which have resulted in substantial rate increases over the past year and occasional blackouts, require longer-term solutions which will be complicated by continued population growth in the southwestern United States, including California and Nevada. Further rate increases and/or blackouts, should they occur in California and/or Nevada, could have a material adverse effect on Reno-area hotels and casinos, including our operations. The hotel-casinos in the Reno market are highly dependent on surrounding market areas. Management believes that visitors from California, Washington and Oregon account for approximately two-thirds of the visitors to the Reno market. We are primarily dependent upon the gaming activities of customers visiting the Reno market from these areas for our revenues. A decline in the economies of any one or more of these areas, or a decline in the number of gaming customers traveling to Reno from these areas for any reason, including increased competition, such as Native American gaming in California, Washington and Oregon, could have a material adverse effect on our results of operations. The hotel-casinos in the Reno market have been subject to seasonal variations and quarterly fluctuations in operating results. Historically, hotel-casino operations in the Reno market have been subject to seasonal variations. Traditionally, the strongest operating results have occurred in the third quarter and the weakest results have occurred during the period from November through February when weather conditions have adversely affected operating results. Excessive snowfall during the winter months can make travel to the Reno area more difficult. This often results in significant declines in traffic on major highways, particularly on routes to and from northern California, and causes a downturn in customer volume. Furthermore, management believes that approximately two-thirds of visitors to the Reno market arrive by some form of ground transportation. Therefore, even normal winter weather may cause our revenues and cash flows to be adversely affected. We expect the highest level of customer visits to occur during the summer months, because of the more favorable weather conditions. A poor summer season, due to any reason, including events outside our control, would adversely affect our business. Congestion on the roads leading to Reno, common during the peak summer season, holidays and other times, may discourage potential customers from traveling to our hotel-casino, particularly if road construction is in process. See "Business -- Seasonality." Significant conflicts of interest may arise in the performance of the duties of the members of our executive committee and our executive officers. The Silver Legacy Resort Casino is situated between the Circus Circus Hotel and Casino, which is wholly owned by Mandalay Resort Group, and the Eldorado Hotel & Casino, which is wholly owned by Eldorado Resorts LLC. Our partners are a wholly owned subsidiary of Mandalay Resort Group and a 96%-owned subsidiary of Eldorado Resorts LLC, and their respective personnel who participate in decisions that affect the Silver Legacy Resort Casino may be deemed to be in a conflict of interest position, to the extent they participate in decisions relating to the Silver Legacy Resort Casino that affect, or may be perceived to affect, the Circus Circus Hotel and Casino and/or the Eldorado Hotel & Casino. The potential for these conflicts of interest may be exacerbated by the design of the Silver Legacy Resort Casino, which connects its casino and core entertainment center with the Circus and Eldorado properties by enclosed skyways. Each member of the executive committee of Circus and Eldorado Joint Venture is currently an employee of, and/or holds an executive position with, Mandalay Resort Group or Eldorado Resorts LLC or one of their affiliates, and each of our executive officers had a similar relationship before assuming his present position with Circus and Eldorado Joint Venture. Accordingly, these individuals may be deemed to be in a conflict of interest position with respect to business decisions they make that affect, or may be perceived to affect, the Circus or Eldorado properties. Furthermore, a conflict of interest may be deemed to exist by reason of the access any of these individuals has to information or business opportunities that may be useful to the Eldorado or Circus 15 properties. No specific procedures for resolving these conflicts of interest have been developed and there can be no assurance that effective procedures for addressing these matters can be developed. See "Management" and "Certain Relationships and Related Transactions." Our partnership agreement contains a buy-sell provision which, if exercised by either of our partners, could adversely affect our management and operations. Our partnership agreement contains a buy-sell provision pursuant to which either of our partners may elect to offer to purchase the entire interest of our other partner on or after July 1, 2005. If either partner makes such an offer, our partnership agreement requires the other partner to either sell its partnership interest or purchase the partnership interest of the offering partner, in each case at the price proposed by the offering partner. An election by either of our partners to exercise its buy-sell right, which would result in the buy-out of one of our partners, could adversely effect the continuity of our management as well as any existing affiliate arrangements and agreements with the partner who had been bought out. We are subject to extensive state and local regulation, and licensing and gaming authorities have significant control over our operations, which could have an adverse effect on our business. The ownership and operation of casino gaming facilities are subject to extensive state and local regulation. Circus and Eldorado Joint Venture currently holds all state and local licenses and related approvals necessary to conduct its present gaming operations. Circus and Eldorado Joint Venture is required by the State of Nevada, as well as the applicable local authorities, to comply with all applicable gaming laws and regulations and to maintain its various licenses and registrations, findings of suitability, permits and approvals in good standing. The gaming authorities in Nevada may deny, limit, condition, suspend or revoke a gaming license or related approval for violations of applicable gaming laws and regulations and may impose substantial fines and take other actions, any one of which could have a significant adverse effect on our business, financial condition, and results of operations. If additional gaming laws or regulations are adopted, these regulations could impose restrictions or costs that could have a significant adverse effect on us. See "Regulation and Licensing." The Nevada Gaming Commission may, in its discretion, require the holder of any securities that we issue, including the notes, to file applications, be investigated, and be found suitable to own our securities if it has reason to believe that the security ownership would be inconsistent with the declared policies of the State of Nevada. Further, the costs of any investigation conducted by the Nevada Gaming Commission under these circumstances must be paid by the applicant and refusal or failure to pay these charges may constitute grounds for a finding that the applicant is unsuitable to own the securities. If the Nevada Gaming Commission determines that a person is unsuitable to own our securities, then, under the Nevada Gaming Control Act and the regulations promulgated under this Act, we can be sanctioned, including the loss of our approvals, if, without the prior approval of the Nevada Gaming Commission, we: . pay to the unsuitable person any dividend, interest or any distribution whatsoever; . recognize any voting right by the unsuitable person in connection with the securities; . pay the unsuitable person remuneration in any form; or . make any payment to the unsuitable person including any principal, redemption, conversion, exchange, liquidation or similar payment. We may not make a public offering of our securities without prior approval of the Nevada Gaming Commission if we intend to use the securities or proceeds from the offering to: . construct, acquire or finance gaming properties in Nevada; or . retire or extend obligations incurred for these purposes or for similar transactions. 16 The registration and issuance of the exchange notes require prior review and approval by the Nevada Gaming Commission. If the Nevada gaming authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. Furthermore, the Nevada Gaming Commission may require us to terminate the employment of any person who refuses to file appropriate applications. Either result could materially adversely affect our gaming operations. On April 28, 1999, the National Gambling Impact Study Commission established by the United States Congress to conduct a comprehensive study of the social and economic impact of gaming in the United States voted to recommend that the expansion of gambling be curtailed. In June 1999, the commission issued a final report of its findings and conclusions, together with recommendations for legislative and administrative actions, including a recommendation to restrict legal gaming to those at least 21 years of age. Any additional regulation of the gaming industry which may result from the commission's report may have an adverse effect on the gaming industry, including our operations. See "Regulation and Licensing." Because we own real property, we are subject to extensive environmental regulation, which creates uncertainty regarding future environmental expenditures and liabilities. We have incurred and may continue to incur costs to comply with environmental requirements, such as those relating to the discharges to air, water and land, the handling and disposal of solid and hazardous waste, and the cleanup of properties affected by hazardous substances. Under these and other environmental requirements, we, as an owner of the property on which the Silver Legacy Resort Casino is situated, may be required to investigate and clean up hazardous or toxic substances or chemical releases at that property. As an owner or operator, we could also be held responsible to a governmental entity or third parties for property damage, personal injury and for investigation and cleanup costs incurred by them in connection with the contamination. These laws typically impose cleanup responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants and the liability under those laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of the responsibility. The costs of investigation, remediation or removal of those substances may be substantial, and the presence of those substances, or the failure to remediate a property properly, may adversely affect our ability to rent or otherwise utilize our property. In addition, environmental requirements address the impacts of development on wetlands. Petroleum and chlorinated solvent contamination of soil and groundwater is known to exist at and in the vicinity of the Silver Legacy Resort Casino. No action in regard to these contaminants is currently required of us, however we are required to pay assessments averaging approximately $450 annually in contribution to a Washoe County special assessment district which is undertaking community wide remediation of groundwater solvent contamination. These assessments may increase in the future. State law exempts property owners who did not cause or contribute to the solvent contamination from civil and criminal liability for the cost of remediation and any related damages, except to the extent of unpaid assessments. This provision would not be effective to shield us from liability under federal laws. The Silver Legacy Resort Casino site was previously required to be cleaned up under environmental laws to address petroleum contamination from leaking underground storage tanks and other sources. At the conclusion of that cleanup, with the permission of the relevant regulatory county authority, certain contaminated soils were permitted to remain in place. The Washoe County District Health Department issued a "no further action" letter with respect to that cleanup on February 20, 1996. The possibility exists that additional contamination, as yet unknown, may exist on the Silver Legacy Resort Casino site. Although we believe that any remaining contamination arose from activities of prior owners or occupants, or from offsite sources and not as a result of any of our actions or operations, we cannot make any assurances that we will not incur expenditures for environmental investigations or remediation in the future. 17 An earthquake could adversely affect our business. The Reno area has been, and may in the future be, subject to earthquakes. Depending upon its magnitude, an earthquake could severely damage the Silver Legacy Resort Casino, which could adversely affect our business and operations. We currently maintain earthquake insurance for the Silver Legacy Resort Casino and the resulting business interruption. However, there is no assurance that our coverage will be sufficient if there is a major earthquake. In addition, upon the expiration of our current policies, which expire July 28, 2002, we cannot assure that adequate coverage will be available at economically justifiable rates, if at all. We rely on our key personnel. Our future success will depend upon, among other things, our ability to keep our senior executives and highly qualified employees. We compete with other potential employers for employees, and we may not succeed in hiring or retaining the executives and other employees that we need. We do not have employment contracts with any of our senior executives and we do not maintain key-man insurance policies for any of our executives. A sudden loss of or inability to replace key employees could have a material adverse effect on our financial condition and results of operation. We may face difficulties in attracting and retaining qualified employees for our casino. The operation of our business requires qualified executives, managers and skilled employees with gaming industry experience and qualifications who are able to obtain the requisite licenses and approval from the Nevada Gaming Commission. Currently, there is a shortage of skilled labor in the Reno area and the continued growth of Native American gaming in northern California may make it more difficult for us to attract qualified individuals in the future. While we believe that the Silver Legacy Resort Casino will continue to be able to attract and retain qualified employees, shortages of skilled labor will make it increasingly difficult and expensive to attract and retain the services of a satisfactory number of qualified employees, and we may incur higher costs than expected as a result. There is uncertainty concerning our continued use of Arthur Andersen LLP as our outside auditors. Arthur Andersen LLP are our auditors and the auditors of our historical financial information included in this prospectus. Due to the recent indictment of Arthur Andersen, there exists significant uncertainty concerning our continued use of Arthur Andersen LLP as our auditors. The New Jersey Casino Control Commission has issued a temporary prohibitory order barring New Jersey licensed casinos and their parent firms from using Arthur Andersen LLP. While we are not licensed by the New Jersey Casino Control Commission, we cannot assure you that Nevada regulators will not undertake similar actions. For the foregoing and other reasons, we are uncertain as to whether it will be necessary for us to secure the services of another auditing firm to provide us with audits on an ongoing basis and, potentially, to re-audit our historical financial information. We have not determined to engage another firm at this time. We do not know what impact the situation will have on our ability to comply with any future filing obligations in respect of the notes, including any future filing required by the registration rights agreement we entered into in connection with the issuance of the old notes. Furthermore, relief which may be available under the federal securities laws against auditing firms may not be available as a practical matter against Arthur Andersen LLP should it cease to operate or become financially impaired. 18 Risks Related to the Offering Although the notes are senior secured obligations, they are effectively subordinated to our senior secured credit facility to the extent of the property securing that indebtedness and in the event of a default and foreclosure, there may not be sufficient collateral available to satisfy our obligations under our senior secured credit facility and the notes. The notes are secured by a lien on the Silver Legacy Resort Casino and other related assets, constituting most of our assets. The liens securing the notes are subordinated to the liens securing our senior secured credit facility pursuant to which we may incur up to $40.0 million of debt. In the event there is a default and foreclosure on the collateral, the proceeds from the sale of collateral may not be sufficient to satisfy our obligations under the notes. This is because proceeds from the sale of the collateral would be distributed first to satisfy our outstanding obligations under our senior secured credit facility before they would be available for payment to holders of the notes. The holders of the notes will not receive any proceeds from the sale of collateral unless and until all indebtedness under our senior secured credit facility is repaid in full. We did not prepare any appraisals of the collateral in connection with the issuance of the notes. By its nature, some or all of the collateral is illiquid and may have no readily ascertainable value. Accordingly, we cannot assure you that all the collateral will be able to be sold or that there will be sufficient funds available to repay the notes after payment in full of debt outstanding under our senior secured credit facility. In addition, the trustee for the notes and the agent for our senior secured credit facility entered into an intercreditor agreement under which the lenders under our senior secured credit facility have the exclusive right to dispose of, release or foreclose on or otherwise deal with the collateral securing our senior secured credit facility and the notes. As a result, the holders of the notes do not have the ability to make those decisions or in any way ensure that sufficient collateral is securing the obligations owed by us to the holders of the notes. See "Description of Other Indebtedness -- Intercreditor Agreement." The collateral securing the notes may be subject to other security rights in addition to those under our senior secured credit facility. The indenture governing the notes permits liens in addition to those under our senior secured credit facility and any permitted refinancing of that facility. Furthermore, landlords', warehousemens' and materialmens' liens and some tax liens and liens of some lenders, such as purchase money lenders, may, as a matter of law, have priority over the liens granted in the collateral to the trustee for the notes. We cannot assure you that the collateral is not and will not become subject to other security rights, in addition to those under our senior secured credit facility and any permitted refinancing of that facility and those permitted by the terms of the notes, which will have priority over the security rights granted to the trustee for the benefit of the holders of the notes. In the event we default on the payment of the notes, any resulting foreclosure sale of the Silver Legacy Resort Casino may be hindered by applicable gaming laws and regulations or by bankruptcy laws. The notes are secured by a lien on the Silver Legacy Resort Casino and other related assets, constituting most of our assets. In any foreclosure sale of the Silver Legacy Resort Casino or the gaming equipment constituting collateral securing the notes, the purchaser or the operator of the facility and/or such gaming equipment would need to be licensed in order to operate the facility under the Nevada gaming laws and regulations. If the trustee is unable, or chooses not, to sell the Silver Legacy Resort Casino, the trustee would not be permitted to continue gaming operations at the Silver Legacy Resort Casino unless it retained an entity licensed under the Nevada gaming laws in order to conduct gaming operations at the facility. Because potential bidders who wish to operate the facility as a casino must satisfy these requirements, the number of potential bidders in a foreclosure sale could be less than in foreclosures of other types of facilities and these requirements might delay the sale of, and adversely affect the sales price for, the Silver Legacy Resort Casino. The ability to take possession and dispose of the collateral securing the notes upon acceleration of the notes is likely to be 19 significantly impaired or delayed by applicable bankruptcy law if a bankruptcy case is commenced by or against us prior to a taking of possession or disposition of the collateral securing the notes by the trustee for the benefit of the holders of the notes. If the liens that secure the notes are held to be invalid or unenforceable or are limited in accordance with their terms, the notes will be unsecured. Our obligations on the notes are secured by a lien on substantially all of our existing and future assets, other than certain licenses which may not be pledged under applicable law. This lien is junior to the lien securing our obligations under our senior secured credit facility and any permitted refinancing of that facility. Our creditors could challenge these liens as fraudulent conveyances or on other grounds. We cannot assure you that a court would not conclude that the liens constitute fraudulent conveyances. In the event that a court declares these liens to be void, any claim you may make against us for amounts payable on the notes will be unsecured. Our intercreditor agreement could subject the holders of the notes to certain risks including the inability of the holders of the notes to control decisions regarding the collateral. The trustee under the indenture governing the notes entered into an intercreditor agreement with the lenders under our senior secured credit facility and us. The intercreditor agreement provides for the allocation of rights among the trustee and these lenders with respect to their respective interests in the collateral, and the enforcement of those related provisions. Until the indebtedness under our senior secured credit facility, including any permitted refinancings, has been satisfied in full, the lenders under our senior secured credit facility have the exclusive right to determine the circumstances and manner in which the collateral securing the notes and our senior secured credit facility may be disposed of. As a result, the lenders under our senior secured credit facility may take actions with respect to the collateral securing the notes which holders of the notes may disagree with or which may be contrary to the best interest of the holders of the notes. This includes, without limitation, the right to determine whether to foreclose on the collateral and when and at what price to sell the collateral following an event of default under the notes or our senior secured credit facility. See "Description of Other Indebtedness -- Intercreditor Agreement." Silver Legacy Capital Corp. does not have any operations or assets and does not have any revenues. Silver Legacy Capital Corp. is a wholly owned subsidiary of Circus and Eldorado Joint Venture. Its sole purpose is to serve as a co-issuer of the notes. As such, it does not have any operations, assets or revenues. Consequently, the holders of the notes should not expect Silver Legacy Capital Corp. to participate in servicing the principal, interest, premium or any other payment obligations on the notes or our other obligations. Our only source of cash to make interest payments on the notes and pay our other obligations and to repay the principal amount of these obligations, including the notes, will be the cash that we generate from our operations and our borrowings. The joint venture partners are not be required to make any payments on the notes or to make any other payments or equity contributions to or for our operations. Our obligations under the notes are non-recourse to our partners. Accordingly, Eldorado Limited Liability Company and Galleon, Inc. are not liable for our obligations other than with respect to their pledges of their interests in us. The entities that own our partners, Eldorado Resorts LLC and Mandalay Resort Group, also have no legal obligation to supply any additional funding to us if our revenues or other financings are insufficient to support our continuing operations or to fund our obligations, including our obligations under the notes and our senior secured credit facility. See "The Partnership Agreement." 20 As a noteholder, you may be required to comply with licensing, qualification or other requirements under gaming laws or dispose of your securities. The gaming authority of any jurisdiction in which we or either of the joint venture partners or their respective parents, or other affiliated entities currently or in the future conduct or propose to conduct gaming, directly or through a subsidiary or joint venture, may require that a noteholder be licensed, qualified or found suitable, or comply with some other requirement under applicable gaming laws. These gaming authorities include those of the States of Illinois, Michigan and Mississippi where Mandalay Resort Group, either directly or through a subsidiary or joint venture, currently conducts gaming operations. When you purchase or otherwise accept an interest in the notes, by the terms of the indenture, you agree to comply with all of these requirements, including your agreement to apply for a license, qualification or a finding of suitability, or comply with any other requirement, within the required time period, as provided by the relevant gaming authority. If you fail to apply to be, or fail to become, licensed or qualified, or are found unsuitable or fail to comply with any other requirement of a gaming authority, then we will have the right, at our option, to: . require you to sell your notes or beneficial interest in the notes within 30 days after you receive notice of our election, or any earlier date that the relevant gaming authority may request or prescribe; or . redeem your notes (possibly within less than 30 days following the notice of redemption if requested or prescribed by the gaming authority) at a price equal to the lesser of: . your cost; . 100% of the principal amount of the notes, plus accrued and unpaid interest, if any, to the redemption date or the date of any failure to comply, whichever is earlier; and . the fair market value of the notes, plus accrued and unpaid interest, if any, to the redemption date or the date of any failure to comply, whichever is earlier, or any other amount required by applicable law or by order of any gaming authority. We will notify the indenture trustee in writing of any redemption as soon as practicable. We will not be responsible for any costs or expenses you may incur in connection with your application for a license, qualification or a finding of suitability, or your compliance with any other requirement of a gaming authority. The indenture also provides that as soon as a gaming authority requires you to sell your notes, you will, to the extent required by applicable gaming laws, have no further right: . to exercise, directly or indirectly, any right conferred by the notes; or . to receive from us any interest, dividends or any other distributions or payments, or any remuneration in any form, relating to the notes, except the redemption price we refer to above. Gaming authority approvals are required for a pledge and grant of a security interest in the Circus and Eldorado Joint Venture interests and for filing an exchange offer or shelf registration statement with respect to the notes. The pledge and grant of a security interest by Eldorado Limited Liability Company and Galleon, Inc. of their interests in Circus and Eldorado Joint Venture as additional collateral for payment of the notes requires the prior approval of the Nevada Gaming Commission. We have filed an application with the Nevada Gaming Commission for these approvals and believe we will obtain the approvals before the exchange offer is consumated. We cannot complete the public offering of any securities, including the notes, until we become registered with the Nevada Gaming Commission as a "publicly traded company" under Nevada law and have obtained the prior approval of the Nevada Gaming Commission for the proposed offering. We have filed applications with the Nevada Gaming Commission for this approval and believe we will obtain the registration and approval before the exchange offer is consumated. 21 We can give no assurances that these approvals will be granted in a timely fashion, or at all. See "Regulation and Licensing." We may not be able to purchase your notes upon a change of control. Upon the occurrence of specified "change of control" events, we will be required to offer to purchase each holder's notes at a price of 101% of their principal amount plus accrued and unpaid interest. We may not have sufficient financial resources at the time of a change of control to purchase all of the notes that holders tender to us upon a change of control offer, or restrictions under our senior secured credit facility may prevent us from being able to do so. If we fail to make a change of control offer or pay the required purchase price when due, an event of default will occur. Moreover, under our senior secured credit facility and/or any future credit facility, the occurrence of a change of control could also constitute a default giving our lenders the right to accelerate the maturity of all or portions of our borrowings. We cannot assure you that under these circumstances we would be able to obtain necessary consents from our lenders under our senior secured credit facility and/or any future credit facility to permit us to repurchase the notes pursuant to a change of control or to repay or refinance all of our indebtedness under our senior secured credit facility. See "Description of the Notes -- Repurchase at the Option of the Holders." An active trading market may not develop for exchange notes. We are offering the exchange notes to the holders of the old notes. The old notes were sold in March 2002 to a small number of institutional investors and are eligible for trading in the Private Offerings, Resale and Trading through Automatic Linkages (PORTAL) Market. To the extent that old notes are tendered and accepted in the exchange offer, the trading market for untendered and tendered but unaccepted old notes will be adversely affected. We cannot assure you that this market will provide liquidity for you if you want to sell your old notes. We do not intend to apply for a listing of the exchange notes on a securities exchange or on any automated dealer quotation system. The exchange notes are new securities for which there is currently no market. We cannot assure you as to the liquidity of markets that may develop for the exchange notes, your ability to sell the exchange notes or the price at which you would be able to sell the exchange notes. If one or more markets were to exist, the exchange notes could trade at prices that may be lower than their principal amount or purchase price depending on many factors, including prevailing interest rates and the markets for similar securities. The initial purchasers of the old notes have advised us that they currently intend to make a market with respect to the exchange notes. However, they are not obligated to do so, and any market making activities may be discontinued at any time without notice. In addition, such market making activity may be limited during the pendency of the exchange offer. The liquidity of, and trading market for, the exchange notes also may be adversely affected by changes in the market for securities such as the exchange notes and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, you cannot be sure that an active trading market will develop for the exchange notes. 22 FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We have based these forward-looking statements on our current expectations about future events. These forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance and business, including: . statements relating to our business strategy; . our current and future plans; and . statements that include the words "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "plan" or similar expressions. These forward-looking statements are subject to risks, uncertainties, and assumptions about us and our operations that are subject to change based on various important factors, some of which are beyond our control. The following factors, among others, could cause our financial performance to differ materially from the goals, plans, objectives, intentions and expectations expressed in our forward-looking statements: . competition, including Native American casinos in northern California; . domestic and global economic, credit and capital market conditions; . leverage and debt service, including sensitivity to fluctuations in interest rates; . our dependence on existing management; . applications for licenses and approvals under applicable laws and regulations, including gaming laws and regulations; . changes in gaming laws or regulations, including the legalization or expansion of gaming in certain jurisdictions; . changes in federal or state tax laws or the administration of these laws; . regulatory or judicial proceedings; . the consequences of any future security alerts and/or terrorist attacks such as the attacks that occurred on September 11, 2001; and . certain other risks described under the heading "Risk Factors." If one or more of the assumptions underlying our forward-looking statements proves incorrect, then our actual results, performance or achievements in 2002 and beyond could differ materially from those expressed in, or implied by, the forward-looking statements contained in this prospectus. Therefore, we caution you not to place undue reliance on our forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether written or oral, whether as a result of new information, changed assumptions, the occurrence of unanticipated events, changes in future operating results over time or otherwise. All forward-looking statements attributable to us are expressly qualified by these cautionary statements. 23 USE OF PROCEEDS We will not receive any proceeds from the exchange of the exchange notes for the old notes pursuant to the exchange offer. We used the aggregate net proceeds from the offering of the old notes, which were approximately $154.4 million after deducting fees and expenses associated with the offering, together with excess cash and $26 million of borrowings under the senior secured credit facility we entered into at the time we issued the old notes, to repay $150.6, representing the entire amount of our indebtedness outstanding under our prior credit facility and to make $30 million of distributions to our joint venture partners. 24 CAPITALIZATION The following table sets forth our capitalization at December 31, 2001: . on a historical basis; and . as adjusted after giving effect to the offering of the old notes and the other transactions referred to in "Use of Proceeds." You should read this information together with the information in the sections "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this prospectus and our consolidated financial statements and related notes contained elsewhere in this prospectus.
As of December 31, 2001 ----------------------- Actual As Adjusted(1) -------- -------------- (In thousands) Cash and cash equivalents..................... $ 12,256 $ 10,000 ======== ======== Long-term debt (including current maturities): Prior credit facility...................... 145,000 -- Senior secured credit facility(2).......... -- 26,000 10 1/8% Mortgage notes due 2012(3)......... -- 159,378 -------- -------- Total long-term debt................... 145,000 185,378 Partners' equity(4)........................... 145,407 107,902 -------- -------- Total capitalization................... $290,407 $293,280 ======== ========
- -------- (1) As adjusted amounts shown include $7.3 million of additional borrowings drawn subsequent to December 31, 2001, of which (i) $5.2 million represents payment of fiscal year 2000 tax distributions and (ii) $2.1 million represents the remaining priority allocation payment to Mandalay Resort Group. See "Management--Compensation Committee Interlocks and Insider Participation." (2) The total commitment under our senior secured credit facility is $40.0 million, comprised of a $20.0 million revolving credit facility and a $20.0 million amortizing term loan. See "Description of Other Indebtedness." (3) Reflects the price to investors of the old notes of 99.6112%. (4) The reduction in partners' equity represents (i) the $30.0 million partners distribution in conjunction with the offering of the old notes, (ii) a $5.2 million payment of fiscal year 2000 tax distributions, (iii) a $2.1 million priority allocation payment to Mandalay Resort Group and (iv) a $0.2 million write-off of unamortized deferred financing fees associated with our prior credit facility. 25 SELECTED FINANCIAL INFORMATION The following table sets forth our selected financial information for the five fiscal years ended December 31, 1997, 1998, 1999, 2000 and 2001, which have been derived from our audited consolidated financial statements. This selected financial information is not necessarily indicative of our future results of operations or financial condition and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes contained elsewhere in this prospectus.
Fiscal Year Ended December 31, ------------------------------------------------ 1997 1998 1999 2000 2001 -------- -------- -------- -------- -------- (Dollars in thousands, except operating data) Income Statement Data: Operating revenues Casino............................................................. $ 99,192 $ 97,207 $105,284 $109,641 $ 98,374 Rooms.............................................................. 35,008 36,472 36,877 37,936 37,835 Food and beverage.................................................. 32,475 33,088 35,632 36,832 35,558 Other.............................................................. 6,179 7,380 7,748 8,786 7,508 -------- -------- -------- -------- -------- Gross revenues....................................................... 172,854 174,147 185,541 193,195 179,275 Less: promotional allowances....................................... (13,044) (13,829) (15,193) (15,706) (14,598) -------- -------- -------- -------- -------- Net operating revenues............................................... 159,810 160,318 170,348 177,489 164,677 -------- -------- -------- -------- -------- Operating expenses Casino............................................................. 43,114 43,736 46,724 48,723 45,820 Rooms.............................................................. 12,582 12,559 12,634 12,867 12,166 Food and beverage.................................................. 23,445 24,137 26,101 26,188 25,019 Other operating expenses........................................... 4,922 5,944 6,327 7,248 5,927 Selling, general and administrative................................ 27,390 27,773 28,482 29,719 29,207 Depreciation and amortization...................................... 17,601 17,583 17,824 15,500 12,082 Write-off of debt issuance costs................................... -- -- -- -- 370 Loss on sale of assets............................................. 43 53 1 1 4 -------- -------- -------- -------- -------- Total operating expenses........................................... 129,097 131,785 138,093 140,246 130,595 -------- -------- -------- -------- -------- Operating income................................................... 30,713 28,533 32,255 37,243 34,082 -------- -------- -------- -------- -------- Other (income) expense Insurance settlement proceeds...................................... -- -- -- -- (225) Interest income.................................................... (38) (149) (162) (248) (112) Interest expense, net(1)........................................... 21,036 18,733 16,334 15,721 13,299 Interest rate swap, income(2)...................................... -- -- -- -- (327) -------- -------- -------- -------- -------- Total other (income) expense......................................... 20,998 18,584 16,172 15,473 12,635 -------- -------- -------- -------- -------- Net income before cumulative effect of change in accounting principle 9,715 9,949 16,083 21,770 21,447 Cumulative effect of change in accounting principle(2)............... -- -- -- -- (327) -------- -------- -------- -------- -------- Net income(3)........................................................ $ 9,715 $ 9,949 $ 16,083 $ 21,770 $ 21,120 ======== ======== ======== ======== ======== Other Financial Data: EBITDA(4)............................................................ $ 48,357 $ 46,169 $ 50,080 $ 52,744 $ 46,538 Cash provided by operating activities................................ 22,131 28,400 32,045 37,510 33,048 Cash used in investing activities.................................... 3,343 4,642 4,848 4,224 3,917 Cash used in financing activities.................................... 15,197 23,500 24,500 35,500 28,000 Capital expenditures................................................. 4,323 4,808 4,902 4,158 4,180 Ratio of earnings to fixed charges(5)................................ 1.5x 1.5x 2.0x 2.4x 2.6x Operating Data(6): Number of hotel rooms................................................ 1,709 1,710 1,710 1,710 1,710 Average daily room rate.............................................. $ 58.94 $ 60.70 $ 60.99 $ 62.99 $ 66.35 Daily occupancy rate................................................. 88.3% 89.0% 89.7% 88.9% 83.4% Number of slot machines.............................................. 2,266 2,264 2,207 2,237 2,177 Slot machine win per unit per day.................................... $ 82.05 $ 78.10 $ 86.72 $ 90.29 $ 83.25 Number of table games................................................ 87 83 81 79 82 Table game win per unit per day...................................... $ 935 $ 988 $ 1,113 $ 1,143 $ 1,003
(Footnotes on following next page) 26
As of December 31, -------------------------------------------- 1997 1998 1999 2000 2001 -------- -------- -------- -------- -------- (In thousands) Balance Sheet Data: Cash and cash equivalents $ 10,384 $ 10,642 $ 13,339 $ 11,125 $ 12,256 Total assets............. 346,554 333,225 324,211 311,844 303,169 Total debt............... 222,000 198,500 174,000 163,500 145,000 Total partners' equity... 110,615 120,564 136,647 133,417 145,407
- -------- (1) Interest expense is net of the effect of all payments made or received pursuant to hedging obligations. (2) In accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities, we are required to record all derivatives as assets or liabilities measured at fair value with the change in fair value recognized in earnings. On January 1, 2001, we recorded a liability of $0.3 million for the fair value of our interest rate swaps at that date, with a corresponding cumulative effect adjustment in the income statement. All of our interest rate swaps matured on October 29, 2001. (3) Circus and Eldorado Joint Venture is not subject to income taxes, as the partners include their respective shares of partnership taxable income in their income tax returns. Therefore, a provision for income taxes is not included in our selected financial information. Circus and Eldorado Joint Venture's governing documents require the partnership to make distributions to its partners in an amount equal to the maximum marginal federal income tax rate applicable to any partner multiplied by the income of the partnership for the applicable period. See "The Partnership Agreement." (4) EBITDA is defined as earnings before interest, taxes, depreciation and amortization, loss on sale of assets, other non-recurring charges and cumulative effect of change in accounting principle. EBITDA is presented as a supplemental disclosure because management believes that it is a widely used measure of operating performance in the gaming industry. EBITDA should not be construed as an alternative to operating income or net income (as determined in accordance with generally accepted accounting principles, or GAAP), as an indicator of cash flows or a measure of liquidity. All companies do not calculate EBITDA in the same manner. As a result, EBITDA as presented here may not be comparable to similarly titled measures presented by other companies. (5) The ratio of earnings to fixed charges has been computed as earnings divided by fixed charges. Earnings represent net income plus fixed charges. Fixed charges represent interest expense, whether expensed or capitalized, the interest component of rent expense and amortization of debt issuance costs. (6) Operating data are averages for the respective periods. 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Silver Legacy's net operating revenues and income are derived largely from our gaming activities. In an effort to enhance our gaming revenues, we attempt to maximize the use of our gaming facilities at Silver Legacy by providing a well-balanced casino environment that contains a mix of games attractive to multiple market segments. In addition, we endeavor to maximize customer visits to Silver Legacy by offering a variety of value- oriented dining options along with a variety of promotional, special event and entertainment schedules. For the fiscal year ended December 31, 2001, casino revenues accounted for approximately 54.9% of gross revenues. Effective March 1, 1994, Eldorado Limited Liability Company ("ELLC"), a Nevada limited liability company owned and controlled by Eldorado Resorts LLC, and Galleon, Inc. ("Galleon"), a Nevada corporation owned and controlled by Mandalay Resort Group, formerly known as Circus Circus Enterprises Inc., entered into a joint venture agreement to establish the Partnership. On July 28, 1995, Silver Legacy commenced operations as a hotel-casino in downtown Reno, Nevada. Currently, Silver Legacy is a leader within the Reno market in terms of size, offering the largest number of slot machines and table games and the second largest number of hotel rooms. Convention expansions, amenity additions and other renovations have been completed on an annual basis. Complimentary revenues are included in gross revenues and deducted as a promotional allowance expense to calculate net operating revenues. Year Ended December 31, 2001 Compared to Year Ended December 31, 2000 September 11, 2001. The terrorist attacks which occurred on September 11, 2001 had a pronounced impact on our operating results during the weeks immediately following the attacks. Silver Legacy's hotel occupancy, gaming volume and customer traffic declined significantly during the post-September 11 portion of our third quarter compared with the levels we experienced prior to September 11. In response to the effects of the terrorist attacks, we took several steps to mitigate the impact on our operations and financial position, including reducing staff to correspond with reduced business levels and decreased discretionary spending. During the fourth quarter of 2001 the weekend business at Silver Legacy returned to near-normal levels, in terms of customer traffic, and midweek business improved, although we have yet to achieve the midweek levels we experienced during the corresponding periods of the prior year. Management believes that the Reno market's greater dependence on "drive-in" customers has helped us to rebound more quickly and has minimized the long-term impact on our operations. While we cannot predict the extent to which the attacks will continue to directly or indirectly impact our operations, we believe the most significant impact will be the adverse effect on the economy, particularly in northern California. Net Operating Revenues. For the year ended December 31, 2001, net revenues were $164.7 million compared to $177.5 million for the year ended December 31, 2000. The primary contributors to the $12.8 million, or 7.2%, decrease were declines in casino revenues, which we believe were associated with the stock market and economic downturns. Casino Revenues. Casino revenues decreased $11.3 million, or 10.3%, to $98.4 million for the year ended December 31, 2001 from $109.6 million for the year ended December 31, 2000. Table games drop decreased 7.3% for the year ended December 31, 2001 compared to the year ended December 31, 2000. Due to a lower hold percentage, table games net revenue was down 9.4% for the year ended December 31, 2001, compared to the prior year. Much of the decreases in table games drop and net revenue were due to declines in both cash and credit play for the year ended December 31, 2001 in comparison to the year ended December 31, 2000. 28 For the year ended December 31, 2001, in comparison to the year ended December 31, 2000, slot handle decreased 8.8%. This decline in volume was in part due to the absence of the WIBC Women's Bowling Tournament which positively impacted the first and second quarters in 2000. Slot net revenues were $66.2 million for the year ended December 31, 2001, compared to $73.8 million for the year ended December 31, 2000, resulting in a $7.7 million, or 10.4%, decrease. Room Revenues. For the year ended December 31, 2001, room revenues were $37.8 million resulting in a slight decrease of $0.1 million, or 0.3%, from $37.9 million for the year ended December 31, 2000. Included in the twelve months ended December 31, 2001, is $0.9 million related to an energy surcharge collected from guests, which was not reflected in the average daily room rate calculation. The average daily room rate rose to $66.35 for the year ended December 31, 2001 from $62.99 for the year ended December 31, 2000. However, the occupancy percentage decreased to 83.4% for the year ended December 31, 2001 from 88.9% for the year ended December 31, 2000 due to declines in room nights occupied in the leisure, casino and wholesale segments. The decrease in occupancy was offset by the increase in the average daily room rate and the energy surcharge. Food and Beverage Revenues. Food and beverage revenues were $35.6 million for the year ended December 31, 2001, compared to $36.8 million for the year ended December 31, 2000. The decrease of $1.3 million, or 3.5%, was due to declines in beverage complimentary revenue and food cash revenue for the year ended December 31, 2001, compared to the year ended December 31, 2000. For the year ended December 31, 2001, cover counts declined 11.9% in comparison to the year ended December 31, 2000, which was in conjunction with the aforementioned table games and slot volume decreases. Other Revenues. Other revenues are comprised of revenues generated by the retail outlets, arcade, entertainment concert series, events pavilion, ATM/cash advance commissions and other miscellaneous items. For the year ended December 31, 2001, other revenues were $7.5 million compared to $8.8 million for the year ended December 31, 2000, resulting in a $1.3 million, or 14.5%, decrease. This decrease was mainly related to the $0.7 million, or 18.6%, decrease for the year ended December 31, 2001, in entertainment revenues resulting from fewer concerts being scheduled in 2001 compared to 2000. Promotional Allowances. For the year ended December 31, 2001, promotional allowances decreased $1.1 million, or 7.1%, to $14.6 million from $15.7 million for the year ended December 31, 2000. As a percentage of gross revenues, promotional allowances remained constant at 8.1% for the years ended December 31, 2001 and 2000. Operating Expenses. Operating expenses for the year ended December 31, 2001, were $130.6 million compared to $140.2 million for the year ended December 31, 2000, resulting in a $9.7 million, or 6.9%, decrease from prior year. This decrease was primarily due to reductions in casino expenses, other expenses and depreciation expense. Casino Expenses. Casino expenses decreased $2.9 million, or 6.0%, to $45.8 million for the year ended December 31, 2001 from $48.7 million for the year ended December 31, 2000. The majority of this decrease was associated with cost containment efforts to reduce casino payroll and operating expenses along with decreases in state gaming revenue taxes associated with decreased revenues. In addition, casino promotion expenses decreased by $0.5 million for the year ended December 31, 2001 compared to the prior year due to a reduction in the special events schedule along with decreased costs associated with our "Ultimate Party" promotion. Room Expenses. For the year ended December 31, 2001, room expenses were $12.2 million, resulting in a $0.7 million, or 5.4%, decrease from $12.9 million for the year ended December 31, 2000. This decrease was attributed to operating efficiencies and decreases in departmental payroll expenses in addition to the decline in occupied rooms from prior year. 29 Food and Beverage Expenses. Food and beverage expenses decreased by $1.2 million, or 4.5%, to $25.0 million for the year ended December 31, 2001, from $26.2 million for the year ended December 31, 2000, resulting from decreases in food cost of sales and food payroll expenses as a percent of revenues. Other Expenses. Other expenses are comprised of expenses associated with the operation of the retail outlets, arcade and events pavilion along with entertainment department's payroll, production costs and professional fees. For the year ended December 31, 2001, other expenses were $5.9 million, a $1.3 million, or 18.2%, decrease from $7.2 million for the year ended December 31, 2000. This decrease was primarily due to the $1.2 million, or 23.2%, reduction in entertainment expenses, principally professional fees for headliner entertainment, for the year ended December 31, 2001, compared to the prior year period. Selling, General and Administrative Expenses. Selling, general and administration expenses decreased by $0.5 million, or 1.7%, to $29.2 million for the year ended December 31, 2001, from $29.7 million for the year ended December 31, 2000. Administration and advertising expenses for the year ended December 31, 2001, decreased $1.1 million, or 7.6%, from the same prior year period due to efforts to reduce expenses in response to decreased business levels. However, this decline was offset by a $0.9 million, or 22.7%, increase in utilities expenses and a $0.2 million, or 5.7%, increase in property taxes and insurance expenses for the year ended December 31, 2001 compared to the year ended December 31, 2000. Depreciation. Depreciation for the year ended December 31, 2001, decreased $3.4 million, or 22.1%, to $12.1 million from $15.5 million for the year ended December 31, 2000. This decrease resulted from many five year assets becoming fully depreciated in mid year 2000. Operating Income. Operating income for the year ended December 31, 2001, was $34.1 million, resulting in a $3.2 million, or 8.5%, decrease compared to $37.2 million for the year ended December 31, 2000. This decrease was due to the aforementioned revenue and expense variations. Other (Income) Expense. Other (income) expense is comprised of interest income, interest expense, income related to an insurance settlement and interest rate swap income. Other expense was $12.6 million for the year ended December 31, 2001, compared to $15.5 million for the year ended December 31, 2000. Interest expense accounts for the majority of the decrease and was $13.3 million for the year ended December 31, 2001 compared to $15.7 million for the year ended December 31, 2000. This interest expense decrease was primarily due to declines in our interest rate and a decrease in our average outstanding borrowings. Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 Net Operating Revenues. Net operating revenues for the year ended December 31, 2000, were $177.5 million compared to $170.3 million for the year ended December 31, 1999, an increase of $7.1 million, or 4.2%. This increase in net operating revenues was mainly driven by growth in casino revenues, and to a smaller degree, increases in revenues from all other departments. Casino Revenues. For the year ended December 31, 2000, casino revenues increased $4.4 million, or 4.1%, to $109.6 million from $105.3 million for the year ended December 31, 1999. Table games drop increased 2.0% for the year ended December 31, 2000, compared to the year ended December 31, 1999. The table games hold percentage was consistent for the years ended December 31, 2000 and 1999. Table games net revenue also rose for the year ended December 31, 2000, to $33.0 million from $32.4 million for the year ended December 31, 1999, an increase of $0.6 million, or 1.8%. Strong credit play was a factor having a positive impact on table games volume and revenue. Slot handle experienced volume increases, up 5.3% for the year ended December 31, 2000, in comparison to the year ended December 31, 1999. Much of this increase in volume may be credited to the WIBC Women's Bowling Tournament held during the months of March through mid-July 2000, which helped to produce record 30 first and second quarter results in the year ended December 31, 2000. The slot hold percentages were consistent for the years ended December 31, 2000 and 1999. Slot net revenues for the year ended December 31, 2000, were $73.8 million compared to $70.0 million for the year ended December 31, 1999, a $3.9 million, or 5.5%, increase over the prior year. Room Revenues. Room revenues increased $1.1 million, or 2.9%, to $37.9 million for the year ended December 31, 2000, from $36.9 million for the year ended December 31, 1999. This increase over the prior year was attributed to an increase in the average daily room rate. For the year ended December 31, 2000, in comparison to the year ended December 31, 1999, the average daily room rates and occupancy percentages were $62.99 and 88.9% versus $60.99 and 89.7%, respectively. In addition, the hotel benefited from convention business generated by the completion of the mezzanine expansion in April of 2000. This expansion provided approximately 9,000 square feet of new convention space and enabled the hotel to increase convention room nights 17.2% for the year ended December 31, 2000 in comparison to the prior year. Food and Beverage Revenues. For the year ended December 31, 2000, food and beverage revenues were $36.8 million, increasing $1.2 million, or 3.4%, from $35.6 million for the year ended December 31, 1999. Much of this increase was due to selective menu pricing changes. During the years ended December 31, 2000 and 1999, the average revenue per cover was $10.35 and $10.04, respectively. Other Revenues. For the year ended December 31, 2000, other revenues were $8.8 million compared to $7.7 million for the year ended December 31, 1999, and exceeded the prior year by $1.0 million, or 13.4%. The primary contributor to the increase was entertainment revenue, rising by $0.8 million, or 28.6%, for the year ended December 31, 2000, over the prior year as a result of a strong concert schedule in comparison to 1999. Other revenues are comprised of revenues generated by the retail outlets, arcade, entertainment concert series, events pavilion, ATM/cash advance commissions and other miscellaneous items. Promotional Allowances. Promotional allowances were $15.7 million for the year ended December 31, 2000 in comparison to $15.2 million for the year ended December 31, 1999. While this represents a $0.5 million, or 3.4%, increase over the prior year, promotional allowances as a percentage of gross revenues decreased to 8.1% for the year ended December 31, 2000 from 8.2% for the year ended December 31, 1999. Operating Expenses. Operating expenses for the year ended December 31, 2000, were $140.2 million versus $138.1 million for the year ended December 31, 1999, and exceeded the prior year by $2.2 million, or 1.6%. This increase was mainly attributable to increases in casino, entertainment and selling, general and administrative expenses. Casino Expenses. For the year ended December 31, 2000, casino expenses were $48.7 million, an increase of $2.0 million, or 4.3%, from $46.7 million for the year ended December 31, 1999. Increased promotional expenses related to the WIBC Women's Bowling Tournament and state gaming revenue taxes produced the majority of this increase. Room Expenses. Room expenses increased by $0.2 million, or 1.8%, to $12.9 million for the year ended December 31, 2000, from $12.6 million for the year ended December 31, 1999, and was attributed to increases in departmental payroll expenses and travel agent commissions. Food and Beverage Expenses. Food and beverage expenses were relatively flat with the prior year posting an increase of $0.1 million to $26.2 million for the year ended December 31, 2000, versus $26.1 million for the year ended December 31, 1999. The slight increase was related to higher food departmental payroll expenses for the year ended December 31, 2000, in comparison to the prior year. Other Expenses. Other expenses are comprised of expenses associated with the operation of the retail outlets, arcade and events pavilion along with entertainment department's production costs and professional fees. 31 For the year ended December 31, 2000, other expenses were $7.2 million, representing an increase of $0.9 million, or 14.6%, from $6.3 million for the year ended December 31, 1999. The majority of this increase was associated with the entertainment department due to increased professional fees for concert entertainers. Selling, General and Administration Expenses. For the year ended December 31, 2000, selling, general and administration expenses were $29.7 million, resulting in a $1.2 million, or 4.3%, increase compared to $28.5 million for the year ended December 31, 1999. This increase was mainly due to higher marketing and advertising expenses, which increased $0.7 million, or 10.8%, to $6.7 million for the year ended December 31, 2000, from $6.1 million for the year ended December 31, 1999. Another primary contributor was utility expense, increasing $0.2 million, or 5.4%, to $3.9 million versus $3.7 million for the years ending December 31, 2000 and 1999, respectively. Depreciation and Amortization. Depreciation and amortization expense for the year ended December 31, 2000, was $15.5 million, down $2.3 million, or 13.0%, from $17.8 million for the year ended December 31, 1999, due to assets becoming fully depreciated in mid-2000. Operating Income. For the year ended December 31, 2000, operating income was $37.2 million resulting in a $5.0 million, or 15.5%, increase from $32.3 million for the year ended December 31, 1999. This increase was due to the previously discussed increases in revenues while expenses did not increase proportionately. Other (Income) Expense. Other (income) expense is comprised of interest income, interest expense and loss on sale of assets. For the year ended December 31, 2000, other expense was $15.5 million compared to $16.2 million for the year ended December 31, 1999. The majority of the decrease was due to the decline in interest expense to $15.7 million for the year ended December 31, 2000 from $16.3 million for the year ended December 31, 1999. This decline resulted from a decrease in the average outstanding borrowings during 2000. Liquidity and Capital Resources Our primary source of liquidity and capital resources has been cash flow from operations. As of December 31, 2001, 2000 and 1999, cash and cash equivalents were $12.3 million, $11.1 million and $13.3 million, respectively. Cash provided by operating activities was $33.0 million for the year ended December 31, 2001, compared to $37.5 million for the year ended December 31, 2000. This $4.5 million decrease was due to a $6.2 million decline in operating income (excluding depreciation expense and other non-cash charges). This decline in operating income was comprised of a reduction in net revenues of $12.8 million offset by a decline in cash operating expenses of $6.6 million. Additionally, interest expense decreased $2.4 million due to a reduction in our interest rate on our variable rate borrowings. The remaining difference is working capital change. Cash provided by operating activities was $32.0 million for the year ended December 31, 1999. The increase of $5.5 million was primarily due to the increase in net income to $21.8 million for the year ended December 31, 2000, from $16.1 million for the year ended December 31, 1999. Cash used in investing activities for the year ended December 31, 2001, was $3.9 million compared to $4.2 million for the year ended December 31, 2000, and $4.8 million for the year ended December 31, 1999. The majority of cash used in investing activities for all three years related to capital expenditures for various expansion and renovation projects along with the purchases of slot machines and computer software. Cash used in financing activities was $28.0 million for the year ended December 31, 2001, compared to $35.5 million for the year ended December 31, 2000. The uses of cash for the year ended December 31, 2001, were $9.1 million in partner tax distributions, $21.5 million in payments on our prior credit facility and $0.4 million related to the incurrence of debt issuance costs. For the year ended December 31, 2000, $35.5 million was used for payments on our prior credit facility. In addition, $25.0 million was borrowed under our prior credit facility in order to make a $25.0 million partner distribution in 2000. Cash used in financing activities was $24.5 million for the year ended December 31, 1999, and was used to make payments on our prior credit facility. 32 Our executive committee has approved $4.3 million in capital expenditures for 2002 primarily relating to renovation projects and purchases of gaming equipment. In future years, we intend to make capital expenditures consistent with historical expenditures and, to the extent necessary to continue to maintain an attractive property and a competitive position in our marketplace, additional amounts as approved by our executive committee. After giving effect to the issuance of the notes and the other transactions set forth in "Use of Proceeds," we believe that cash flow from operations and available cash, together with available borrowings under our senior secured credit facilities and the utilization of capital leases, will be adequate to meet our anticipated future requirements for working capital, budgeted capital expenditures and scheduled payments of principal and interest on our indebtedness, including the notes, for the foreseeable future. Impact of Inflation Absent changes in competitive and economic conditions or in specific prices affecting the industry, we do not expect that inflation will have a significant impact on our operations. Changes in specific prices, such as fuel and transportation prices, relative to the general rate of inflation may have a material adverse effect on the hotel and casino industry in general. Market Risk and Derivative Financial Instruments We are exposed to market risk in the form of fluctuations in interest rates and their potential impact upon our variable-rate debt. We evaluate our exposure to market risk by monitoring interest rates in the marketplace and we have, on occasion, utilized derivative financial instruments to help manage this risk. We do not utilize derivative financial instruments for trading purposes. There were no material quantitative changes in our market risk exposure, or how such risks are managed, during 2001. The derivative financial instruments we utilized during 2001 consisted exclusively of three interest rate swap agreements which expired during that year. Interest differentials resulting from these agreements were recorded on an accrual basis as an adjustment to interest expense. Interest rate swaps related to debt are matched with our variable-rate borrowings. To manage our exposure to counterparty credit risk in interest rate swaps, we entered into agreements with highly rated institutions. The institutions that were the counterparties to our recently expired interest rate swap agreements were members of the bank group providing our prior credit facility. Our three interest rate swap agreements were for notional amounts of $25.0 million, $25.0 million and $50.0 million, respectively. All of the interest rate swap agreements expired on October 29, 2001. Each of the swaps provided for an approximate fixed interest rate of 6.4%. The floating rate index was computed on a 3-month LIBOR payable on the 29th of each January, April, July and October. Based upon quoted market values from the institutions holding the swaps, if we had terminated the swaps as of December 31, 2000, we would have had to pay $0.3 million. As of December 31, 2001, the interest rate on our prior credit facility was LIBOR plus 1.1%. The indebtedness outstanding under our prior credit facility as of December 31, 2001, totaled $145.0 million. 33 BUSINESS Silver Legacy We own and operate the Silver Legacy Resort Casino, a premier nineteenth century silver mining themed hotel-casino and entertainment complex in Reno, Nevada. Silver Legacy is among the largest hotel-casinos in the Reno market. We have established Silver Legacy as a "must see" destination resort for Reno visitors by creating an exciting, luxurious atmosphere unique in the Reno market. We offer a dynamic gaming environment and a wide variety of amenities delivered with special attention to personal service to appeal to our multiple customer segments, including preferred casino players. Silver Legacy opened in July 1995, with a capital investment of over $360 million, and is strategically located on two city blocks in downtown Reno directly off Interstate 80, the principal highway connecting Reno with San Francisco, Sacramento and other cities in northern California. The casino and entertainment areas at Silver Legacy are seamlessly connected to the Eldorado Hotel & Casino and the Circus Circus Hotel and Casino by 200-foot wide skyway corridors, comprising the heart of the Reno market's prime gaming area and room base. Silver Legacy has approximately 87,300 square feet of gaming space situated on two levels. At December 31, 2001, Silver Legacy featured 2,112 slot machines and 82 table games, including blackjack, craps, roulette, Pai Gow Poker, Let It Ride(R), Caribbean stud poker, Baccarat and Pai Gow, in addition to keno and a race and sportsbook. "Club Legacy," Silver Legacy's players club, offers customers exciting special events and tournaments and convenient ways of earning complimentaries. Silver Legacy's hotel, the tallest building in northern Nevada, is a "Y"-shaped structure with three wings, consisting of 37-, 34- and 31-floor tiers. An enclosed, climate controlled skywalk over North Sierra Street links the hotel to the main casino, restaurants and additional public areas on the mezzanine level. The hotel currently offers 1,710 guest rooms, including 145 player spa suites and eight penthouse suites. Silver Legacy's dining options incorporate fine dining and casual elegance in six venues: . Sterling's Seafood Steakhouse, which has a seating capacity of 168, offering the finest in steaks and seafood along with an extensive wine list, featured in Wine Spectator magazine, table side desserts and an extravagant Sunday Brunch; . the Victorian Buffet, which has a seating capacity of 500; . Fairchild's Oyster Bar, which has a seating capacity of 56, offering a comfortable drink and a quick bite; . Sweetwater Cafe, which has a seating capacity of 333, offering an extensive menu that includes American classics and Chinese cuisine 24-hours a day; . Fresh Express Food Court, which has a seating capacity of 110, offering a range of options including a deli and grill, authentic Asian cuisine and American classics; and . Sips Coffee House, situated in the hotel lobby, offers gourmet coffee and teas. Silver Legacy is downtown Reno's leading convention destination, offering approximately 90,000 square feet of exhibit and convention space. Our convention and meeting space includes an approximately 20,000 square-foot divisible ballroom and approximately 30,000 square feet of additional breakout rooms all located within the casino. The City Center Pavilion, which provides approximately 40,000 square feet of convention space, is located on an adjacent special events plaza situated across North Virginia Street from Silver Legacy which is owned by our affiliates. The City Center Pavilion was constructed in February 1999 and is currently operated by us under a three-year use permit which expires in February 2005. Furthermore, we believe the additional hotel capacity and meeting space available at the adjoining Eldorado and Circus properties significantly enhance our ability to attract larger conventions. 34 Silver Legacy's other amenities include custom retail shops, exercise facilities, a beauty salon, a video arcade, and an outdoor swimming pool and sundeck. Silver Legacy's 10-story parking facility is capable of accommodating approximately 1,800 vehicles. We carefully target our marketing programs to five segments of the gaming market: free and independent travelers, preferred casino customers, convention groups, local patrons and wholesale/specialty groups. We attract our target customers through newspaper, radio, television and direct mail campaigns locally and in northern California, the Pacific northwest and other regional travel markets. Silver Legacy utilizes a broad special events calendar, along with our guest development program, including selective casino credit, to attract and retain our target customers. In addition, we utilize our hotel rooms, restaurants and other amenities to offer complimentaries to a broad spectrum of established casino guests. "Club Legacy," Silver Legacy's players club, offers customers exciting special events and tournaments and convenient ways of earning complimentaries. The convention and wholesale/specialty market segments contribute to our hotel occupancy during slower mid-week periods. For the twelve months ended December 31, 2001 our average occupancy rate was 83.4% compared to 76.9% for the Reno market. Competitive Strengths Silver Legacy offers our guests a fully integrated gaming, lodging, dining and entertainment experience in a convenient downtown Reno location. We believe the quality of our amenities enables us to attract multiple customer segments from the local area, northern California, the Pacific northwest and other regional travel markets. Premier "Must See" Attraction. We believe Silver Legacy is a "must see" attraction for Reno visitors and residents as the only major newly-constructed hotel-casino in the Reno market since 1978. A uniquely themed mega-resort, the property's design is inspired by Nevada's rich mining heritage and the legend of Sam Fairchild, a fictitious silver baron who "struck it rich" on the site of the casino. Silver Legacy's opulent interior showcases a casino built around Sam Fairchild's famed 120-foot tall mining rig, which appears to mine for silver. The rig is situated beneath a 180-foot diameter dome, which is a distinctive landmark on the Reno skyline. The interior surface of the dome features dynamic sound and laser light shows, providing visitors with a unique experience when they enter the casino. Center of Tri-Property Destination Resort. Silver Legacy, together with the Eldorado and Circus properties, comprises the heart of the Reno market's prime gaming area and room base, providing the most extensive variety of gaming, lodging, dining and entertainment amenities in the Reno area. As of December 31, 2001, the tri-property complex offered 4,099 rooms, 20 restaurants, 5,534 slot machines, 233 table games and parking to accommodate over 6,000 vehicles, representing approximately 27% of the Reno market's total room base and 24% of the Reno market's total slot machines and table games. We believe that the centralized location and critical mass of these three properties, together with the seamless connections between the facilities, provide Silver Legacy with significant advantages over other freestanding hotel-casinos in the Reno market. Headliner Entertainment and Premium Dining. Our customers are attracted to Silver Legacy's entertainment and award-winning cuisine. Each year, approximately 50 nights of headliner entertainment are scheduled in our 1,600-seat Grande Exposition Hall or the 3,400-seat City Center Pavilion, making Silver Legacy the leading entertainment venue in the Reno market. Entertainers who appeared during 2001 include Jay Leno, Chicago, Michael Bolton and George Carlin. Recent enhancements include the opening of Rum Bullions Island Bar, a tropical-themed bar and lounge with nightly entertainment and the expansion of our race and sports book, including a new sports-themed bar. Silver Legacy also features Catch a Rising Star, a 220-seat, nationally recognized comedy club. Quality Personal Service. We are committed to providing our customers with a high level of personal service, which we believe is an integral part of fostering customer loyalty and generating repeat business. We 35 continually strive to instill in each employee a dedication to superior service designed to exceed our guests' expectations. Experienced Management Team. Silver Legacy has an experienced management team with an average of more than 20 years of experience in the Reno gaming market. All of our senior management have been with Silver Legacy since it opened in July 1995. We also benefit from the expertise of our joint venture partners and the leadership they provide through our executive committee, which includes senior executives from Eldorado Resorts LLC and Mandalay Resort Group. Adjoining Properties Enclosed, climate controlled corridors connect Silver Legacy with the Circus Circus Hotel and Casino and the Eldorado Hotel & Casino, each of which is owned and independently operated by an affiliate of one of Circus and Eldorado Joint Venture's partners. The three properties comprise the heart of Reno's prime gaming area and room base, providing the most extensive and broadest variety of gaming, entertainment, lodging and dining amenities in the Reno area, with an aggregate of 4,099 rooms, 20 restaurants, 5,534 slot machines, 233 table games and enough parking to accommodate over 6,000 vehicles as of December 31, 2001. Although we compete with these other two properties, we believe that the centralized location and critical mass of these three properties, Silver Legacy's position as the centerpiece of the three properties and the seamless connections between the facilities, provide Silver Legacy with significant competitive advantages over other freestanding hotel-casinos in the Reno market. Circus Circus Hotel and Casino. The Circus Circus Hotel and Casino features 1,572 guestrooms and a 60,000 square-foot casino, which, as of December 31, 2001, featured 1,596 slot machines and 73 table games. The property offers its guests a variety of circus acts performed daily, free of charge, under a "Big Top" above the casino. A mezzanine area has a circus midway with carnival-style games and an arcade that offers a variety of amusement and electronic games. The property features two specialty restaurants, Amici's Pasta and Steaks and Art Gecko's Southwest Grill, in addition to a 464-seat buffet, coffee shop, deli/bakery, fast food snack bar, cocktail lounges, gift shop, specialty shops and parking facilities for approximately 3,200 vehicles. Eldorado Hotel & Casino. This property is a luxurious hotel-casino offering approximately 84,000 square feet of gaming space. Its three hotel towers have a total of 817 guestrooms, including 18 specialty suites, 93 "Eldorado Player's Spa Suites" with bedside spas and 26 one or two bedroom suites. As of December 31, 2001, this property's casino featured 1,826 slot machines and 78 table games, as well as poker, keno and a race and sports book. The property is renowned for its eight restaurants, including Bistro Roxy, La Strada and a 525-seat buffet. Additional amenities include a casino cabaret, bars and lounges, parking facilities for approximately 1,100 vehicles, and approximately 12,000 square feet of convention space. The map on the following page shows the relative locations of Silver Legacy, the Eldorado Hotel & Casino, and Circus Circus Hotel and Casino, as well as certain other competitors and points of interest in the Reno market. 36 [MAP] Map of Reno 37 Reno Market The Reno market is the eighth largest gaming market in the United States, generating approximately $1.0 billion of gaming revenues for the twelve months ended December 31, 2001. As of December 31, 2001, the Reno market featured approximately 15,459 hotel rooms, 23,386 slot machines and 676 table games. For the twelve months ended December 31, 2001, the Reno market had an estimated 76.9% average hotel occupancy rate. Reno is the second largest metropolitan area in Nevada, with a population of approximately 340,000 according to the most recently available U.S. Census data, and is located at the base of the Sierra Nevada Mountains along Interstate 80, approximately 135 miles east of Sacramento, California and 225 miles east of San Francisco, California. Reno is a destination resort market that primarily attracts "drive-in" visitors by offering gaming as well as numerous other summer and winter recreational activities. Management believes that approximately two-thirds of visitors to the Reno market arrive by some form of ground transportation. Popular special events include the National Championship Air Races, the Reno-Tahoe Open PGA tour event and Hot August Nights, a vintage car event. In addition, the National Bowling Stadium, located one block from Silver Legacy, is the largest bowling complex in North America and has been selected to host multi-month tournaments in Reno two out of every three years through 2009, of which 2002 is a non-tournament year. According to the Reno-Sparks Convention & Visitors Authority, the greater Reno area attracted an estimated 5.2 million visitors during the twelve months ended June 30, 2001 and 2000. The following table sets forth certain statistical information for the Reno market for the years 1997 through 2001 as reported by the Reno-Sparks Convention & Visitors Authority, the Nevada State Gaming Control Board and Reno/Tahoe International Airport.
1997 1998 1999 2000 2001 ---------- ---------- ---------- ---------- ---------- Gaming Revenues (000's)(1)..... $ 901,989 $ 929,844 $ 968,531 $1,026,700 $ 961,664 Gaming Positions(2)(3)......... 31,762 30,816 30,526 30,951 27,712 Hotel Rooms(2)................. 15,773 15,271 15,957 16,515 15,459 Average Hotel Occupancy Rate(1) 80.3% 79.1% 78.8% 78.3% 76.9% Visitors(4).................... 5,155,649 5,121,693 5,051,101 5,185,393 5,164,474
- -------- (1) For the twelve months ended December 31 for each period shown. (2) As of December 31 for each period shown. (3) Calculated from information provided by the Nevada State Gaming Control Board. (4) For the twelve months ended June 30 for each period shown. Marketing Strategy We target the following customer segments of the Reno gaming market: free and independent travelers, preferred casino customers, conventions, local patrons and specialty groups. Free and Independent Travelers. This customer segment consists of persons who are not affiliated with travel groups and who make arrangements for their accommodations directly or through independent travel agents. For Reno, free and independent travelers consist principally of persons who typically travel on weekends from northern California, Oregon, Washington and western Canada. Silver Legacy targets this segment through advertising efforts, including aggressive television and newsprint exposure, emphasizing the exciting atmosphere and high level of relative value offered at Silver Legacy. Advertising efforts are directed principally to existing Reno gaming customers, as well as to experienced gaming customers of Las Vegas and other markets presenting the Reno market, generally, and Silver Legacy, specifically, as an attractive alternative. Additionally, utilizing the unique theming of Silver Legacy, the variety, quality, and attractive pricing of its food and beverage outlets, and its close proximity to other hotel casinos in downtown Reno (including its connection with the Circus Circus Hotel and Casino and Eldorado Hotel & Casino), we target "walk-in" customers for Silver Legacy. 38 Preferred Casino Customers. Management targets valued gaming customers through an aggressive development program. This program utilizes independent sales representatives to engage in one-on-one sales activities and marketing personnel trained to identify and target these individuals while they patronize Silver Legacy. We also use television advertisements featuring the elegant image and exciting atmosphere at Silver Legacy to target preferred gaming customers. In addition, through specialized entertainment programs and special events, including televised boxing matches, and by highlighting Silver Legacy's 145 players' spa suites and eight luxury suites (which have been designed specifically to cater to the needs of high end gaming customers), and the property's entertainment facilities, amenities and unique attractions, we seek to capture a significant portion of Reno's valued gaming business. Our marketing efforts for preferred gaming customers include the provision of complimentary rooms, food and beverages, air transportation and the extension of credit to qualified persons. "Club Legacy," Silver Legacy's players club, offers customers exciting special events and tournaments and convenient ways of earning complimentaries. Convention Groups. Conventioneers and attendees of Reno area events are targeted by Silver Legacy, depending on management's view of their relative propensity for gaming and the timing of the specific events or conventions relative to the historic seasonality of the gaming business in Reno. In so doing, we seek to increase Silver Legacy's mid-week occupancies and mitigate the effects of seasonality on our operations. For example, Silver Legacy targets competitors at the National Bowling Stadium in Reno and their guests. Other special events groups, generally consisting of between 1,000 and 1,500 persons, are also targeted by Silver Legacy by emphasizing Silver Legacy's special events center which is available to be used for concerts, shows, theme parties, televised boxing matches and other events. Local Patrons. We attract and retain local customers through frequent promotions that highlight our quality gaming and dining experience, as well as being an active supporter of numerous Reno market events and organizations. Wholesale/Specialty Groups. The wholesale/specialty segment consists of customers who utilize "packages" to reduce the cost of travel, lodging and entertainment. These packages are produced by wholesalers (such as major airlines) and travel agents, and emphasize mid-week stays. Packages including Silver Legacy are marketed by wholesalers and travel agents principally to customers in Oregon, Washington and western Canada. This market segment allows us to utilize our rooms during slower mid-week periods. Competition The gaming industry includes land-based casinos, dockside casinos, riverboat casinos, casinos located on Native American reservations and other forms of legalized gaming. There is intense competition among companies in the gaming industry, many of which have significantly greater resources than we do. Certain states have legalized casino gaming and other states may legalize gaming in the future. Legalized casino gaming in these states and on Native American reservations near our markets or changes to gaming laws in states surrounding Nevada could increase competition and could adversely affect our operations. We also compete, to a lesser extent, with gaming facilities in other jurisdictions with dockside gaming facilities, state-sponsored lotteries, on-and-off track pari-mutuel wagering, Internet gaming, card clubs, riverboat casinos and other forms of legalized gambling. We compete for customers primarily on the basis of location, range and pricing of amenities and overall atmosphere. Of the 34 casinos currently operating in the Reno market, we compete principally with the eight other hotel-casinos that, like Silver Legacy, each generate at least $36 million in annual gaming revenues, including the Circus Circus Hotel and Casino and the Eldorado Hotel & Casino. Although no hotel-casino projects are currently under construction in the Reno area, we cannot predict the extent to which new projects will be undertaken or the extent to which current hotel space may be expanded in the near future. We expect that any additional rooms added in the Reno market will increase competition for visitor revenue. There can be no assurance that any growth in Reno's current room base or gaming capacity will not adversely affect our financial 39 condition or results of operations. We also compete with hotel-casinos located in the nearby Lake Tahoe region as well as those in Las Vegas, Nevada. A substantial number of customers travel to both Reno and the Lake Tahoe area during their visits. Consequently, we believe that Silver Legacy's success is influenced to some degree by the success of the Lake Tahoe market. While we do not anticipate a decline in the popularity of either Reno or Lake Tahoe as tour destination areas in the foreseeable future, any such decline could adversely affect our operations. Land-based, riverboat, or dockside casino gaming (other than that conducted on Native American-owned land) is currently legal in nine states and casino gaming on Native American-owned land is legal in at least 29 states, including California, Washington, and Oregon. Management believes the Reno market draws over 50% of its visitors from California. California allows other non-casino style gaming, including pari-mutuel wagering, a state-sponsored lottery, card clubs, bingo, and off-track betting. The competitive impact on Nevada gaming establishments, in general, and our operations, in particular, from the continued growth of gaming outside Nevada cannot be determined at this time. We believe that the expansion of casino gaming on Native American lands in California, and to a lesser extent in Washington and Oregon, could have a material adverse affect on our operations depending on the nature, location, and scope of those operations. On March 7, 2000, California voters approved Proposition 1A which amended the California constitution and legalized "Nevada-style" gaming on Native American reservations. The passage of this amendment has allowed the expansion of existing Native American gaming operations, as well as the opening of new Native American gaming facilities. Additionally, numerous tribes have announced that they intend to open gaming facilities. There are approximately 107 federally recognized Native American tribes in California. In order to conduct gaming operations in California, a Native American tribe must enter into a compact with the state. As of December 31, 2001, the State of California had entered into compacts with approximately 60 tribes. Each Native American tribe in California is limited to a maximum of 2,000 slot machines and there may not be more than two gaming facilities on any one reservation. Under the governor of California's interpretation of the compacts, all Native American tribes in California are permitted to operate a total of approximately 45,000 slot machines. However, there remains substantial uncertainty as to the total number of slot machines authorized by the compacts and it is possible that the approximately 45,000-machine limit will increase, and, if so, the increase may be substantial. In addition to allowing the expansion of slot machines, the compacts allow for the expansion of other casino-style games, including blackjack and poker. Most existing Native American gaming facilities in northern California are modest compared to Reno market casinos. However, there are several more significant Native American casinos which currently compete with the Reno market, including: (1) the Cache Creek Indian Bingo & Casino in Brooks, California, approximately 58 miles northwest of Sacramento and (2) the Jackson Rancheria Casino, Hotel and Conference Center in Jackson, California, approximately 59 miles southeast of Sacramento. In addition to the existing gaming facilities, numerous Native American tribes have announced that they are in the process of developing or are considering establishing large-scale hotel and gaming facilities in northern California, including two which have entered into development and management agreements with established gaming operators. Station Casinos, Inc. has entered into agreements with the United Auburn Indian Community to develop and manage a gaming and entertainment facility on a proposed 49-acre site approximately 21 miles northeast of Sacramento. The United States Interior Department's Bureau of Indian Affairs has approved the application of the United Auburn Indian Community to take the 49-acre site into trust for the planned casino development. Lakes Gaming Inc. has entered into agreements with the Shingle Springs Rancheria to develop and manage a large-scale hotel-casino approximately 35 miles southeast of Sacramento. Other tribes are at various stages of planning new or expanded facilities in northern California, such as the Buena Vista Rancheria of Me-Wuk Indians, on land located approximately 50 miles southwest of Sacramento, and the Lytton Band of Pomo Indians, on land located approximately 21 miles northeast of San Francisco. 40 Seasonality Silver Legacy's hotel-casino operations are subject to seasonal variation, with the strongest operating results generally occurring in the third quarter of each year and the weakest results occurring during the period from November through February. Variations occur when weather conditions make travel to Reno by visitors from northern California and the Pacific Northwest difficult. The following table shows our percentage of gross revenues by quarter for each of 1999, 2000 and 2001.
1999 2000 2001 ----- ----- ----- First quarter. 21.7% 22.1% 22.6% Second quarter 25.7% 27.0% 27.3% Third quarter. 28.3% 28.1% 27.4% Fourth quarter 24.3% 22.8% 22.7% ----- ----- ----- Total...... 100.0% 100.0% 100.0% ===== ===== =====
Employees As of December 31, 2001, Silver Legacy employed approximately 2,286 persons. Currently, none of our employees are employed pursuant to a collective bargaining agreement. The number of people employed at any time is subject to seasonal fluctuation. We believe that our employee relations are excellent. Property The Silver Legacy Resort Casino is located on two neighboring parcels of land, located at 407 and 411 North Virginia Street, Reno, Nevada. We own both parcels, comprising 118,167 and 119,927 square feet, respectively. In addition, we utilize the City Center Pavilion, an approximate 40,000 square-foot temporary convention and entertainment facility located across North Virginia Street from Silver Legacy. This structure is situated on an approximate 63,000 square-foot parcel of land which is owned jointly by Eldorado Resorts LLC and Galleon, Inc., but is not currently subject to a lease. Environmental Matters As in the case with any owner or operator of real property, we are subject to a variety of federal, state and local governmental regulations relating to the use, storage, discharge, emission, and disposal of hazardous materials. Federal, state and local environmental laws and regulations also impose liability on potentially responsible parties, including the owners or operators of real property, to clean up, or contribute to the cost of cleaning up, sites at which hazardous wastes or materials were disposed of or released. We do not have environmental liability insurance to cover these events. During excavation for construction of Silver Legacy, petroleum contamination of soil and groundwater was discovered on the property. The apparent sources of this contamination were a former gasoline station and numerous abandoned heating oil tanks. Our contractors removed and disposed of contaminated soils, and we were successful in obtaining reimbursement and indemnification from Chevron Company USA. In addition, we received reimbursement from the State of Nevada Petroleum Fund, which was established to reimburse parties for costs incurred in cleaning up contamination from certain underground storage tanks. With the consent of the relevant county agency, the cleanup was completed leaving some contaminated soils in place (under structures and roads, for example), so that some additional soil contamination is known to remain in place. The Nevada Division of Environmental Protection has not, however, required us to conduct any further investigation or remediation. 41 Groundwater in the vicinity of Silver Legacy property is also contaminated by a chlorinated solvent known as tetrachloroethene or "PCE." This contaminant is widespread in the Reno/Sparks area. The Central Truckee Meadows Remediation District, encompassing much of the cities of Reno and Sparks, was established pursuant to state legislation to address this contamination. The Central Truckee Meadows Remediation District is managed by Washoe County under the direction of the Nevada Division of Environmental Protection, and is currently conducting investigations and developing a remediation plan. Funding for the Central Truckee Meadows Remediation District is provided through assessments to water customers which are calculated on the basis of water use. The assessments to Silver Legacy have averaged approximately $450 annually during the years that assessments have been collected. It is possible that additional assessments may be made against properties that receive special benefits from the Central Truckee Meadows Remediation District, such as clean-up of contamination affecting a specific parcel. The legislation implementing this program exempts property owners who did not cause or contribute to the contamination from civil and criminal liability for the cost of remediation and any related damages, except to the extent of unpaid assessments. We do not believe that we have contributed to this solvent contamination, however we expect that we will be required to allow the Central Truckee Meadows Remediation District access to our property for continued investigation, including access to monitoring wells. The possibility exists that additional contamination, as yet unknown, may exist at Silver Legacy property. In all cases, however, we believe that any such contamination would have arisen from activities of prior owners or occupants, or from offsite sources and not as a result of any of our actions or operations. We do not believe that our expenditures for environmental investigations or remediation will have a material adverse effect on our financial condition or results of operations. Litigation We are from time to time involved in litigation arising in the ordinary course of our business. We do not believe that such litigation will, individually or in the aggregate, have a material adverse effect on our financial position or results of operations. 42 REGULATION AND LICENSING Silver Legacy, the partners of Circus and Eldorado Joint Venture, and their parent entities are subject to extensive regulation under laws, rules and supervisory procedures primarily in the jurisdictions where their facilities are located or docked. Some jurisdictions, including Nevada, empower their regulators to investigate participation by licensees in gaming outside their jurisdiction and require access to and periodic reports respecting those gaming activities. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions. Under provisions of gaming laws in jurisdictions in which we, our partners or their parent entities have operations and under our organizational documents certain of our securities are subject to restrictions on ownership which may be imposed by specified governmental authorities. The restrictions may require a holder of our securities to dispose of the securities or, if the holder refuses, or is unable, to dispose of the securities, we may be required to repurchase the securities. Each holder of a note, by accepting any note, will be deemed to have agreed to be bound by the requirements imposed on holders of our debt securities by the gaming authority of any jurisdiction in which we conduct or propose to conduct gaming activity. See "Description of the Notes -- Mandatory Disposition Pursuant to Gaming Laws." In addition, the indenture governing the notes provides that each holder and beneficial owner of the notes, by accepting or otherwise acquiring an interest in any of the notes, will be deemed to have agreed that if the gaming authority of any jurisdiction in which we conduct or propose to conduct gaming requires that a person who is a holder or beneficial owner must be licensed, qualified or found suitable under applicable gaming laws, the holder or beneficial owner will apply for a license, qualification or finding of suitability within the required time period. If the person fails to apply or become licensed or qualified or is found unsuitable, we will have the right, at our option: . to require the person to dispose of his or her notes or beneficial interest in the notes within 30 days of receipt of notice of our election or any earlier date that the relevant gaming authority may request or prescribe; or . to redeem the notes (possibly within less than 30 days following the notice of redemption if requested or prescribed by the gaming authority) at a redemption price equal to the lesser of: . the person's cost; . 100% of the principal amount, plus accrued and unpaid interest to the redemption date or the date of the finding of unsuitability, whichever is earlier; and . any other amount required by applicable law or by order of any gaming authority. We will notify the trustee under the indenture in writing of any redemption under these circumstances as soon as practicable. We will not be responsible for any costs or expenses any holder or beneficial owner may incur in connection with its application for a license, qualification or finding of suitability. Nevada Gaming Laws The ownership and operation of casino gaming facilities in the State of Nevada are subject to the Nevada Gaming Control Act and the regulations promulgated under this Act and various local regulations. Silver Legacy's operations are subject to the licensing and regulatory control of the Nevada Gaming Commission, the Nevada State Gaming Control Board and the City of Reno, which we refer to collectively as the "Nevada Gaming Authorities." 43 The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy that are concerned with, among other things: . the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; . the establishment and maintenance of responsible accounting practices and procedures; . the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; . the prevention of cheating and fraudulent practices; and . providing a source of state and local revenues through taxation and licensing fees. Changes in these laws, regulations and procedures could have an adverse effect on our gaming operations. Circus and Eldorado Joint Venture holds all licenses and approvals required to conduct its present gaming operations. The gaming license requires the periodic payment of fees and taxes and is not transferable. The parent entities of Circus and Eldorado Joint Venture's partners, Eldorado Resorts LLC and Mandalay Resort Group, are required to be registered by the Nevada Gaming Commission as publicly traded corporations and are required periodically to submit detailed financial and operating reports to the Nevada Gaming Commission and to furnish any other information that the Nevada Gaming Commission may require. No person may become a stockholder of, or receive any percentage of profits from, a licensed entity such as Circus and Eldorado Joint Venture without first obtaining licenses and approvals from the Nevada Gaming Authorities. Circus and Eldorado Joint Venture and its parent entities have obtained from the Nevada Gaming Authorities the various registrations, findings of suitability, approvals, permits and licenses required in order to engage in gaming activities in Nevada. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with us in order to determine whether the individual is suitable or should be licensed as a business associate of a gaming licensee. We and our officers, directors and key employees must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. An applicant for licensing or an applicant for a finding of suitability must pay for all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and, in addition to their authority to deny an application for a finding of suitability or licensing, the Nevada Gaming Authorities have the jurisdiction to disapprove a change in a corporate position. If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. In addition, the Nevada Gaming Commission may require us to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or questions pertaining to licensing are not subject to judicial review in Nevada. We are required to submit detailed financial and operating reports to the Nevada Gaming Commission. Substantially all material loans, leases, sales of securities and similar financing transactions must be reported to, or approved by, the Nevada Gaming Commission. If the Nevada Gaming Commission determined that we violated the Nevada Gaming Control Act or any of its regulations, it could limit, condition, suspend or revoke our gaming licenses. In addition, we and the persons involved could be subject to substantial fines for each separate violation of the Nevada Gaming Control Act or of 44 the regulations of the Nevada Gaming Commission at the discretion of the Nevada Gaming Commission. Further, a supervisor could be appointed by the Nevada Gaming Commission to operate Silver Legacy and, under specified circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the premises) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any of our gaming licenses and the appointment of a supervisor could, or revocation of any gaming license would, have a material adverse effect on our gaming operations. Any beneficial holder of an interest in Circus and Eldorado Joint Venture or of any of the equity securities of any partner of Circus and Eldorado Joint Venture, or of any interest in the parent entities of Circus and Eldorado Joint Venture's members, regardless of the amount of interest owned or the number of shares held, may be required to file an application, be investigated, and have that person's suitability as a beneficial holder of an equity interest determined if the Nevada Gaming Commission has reason to believe that the ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of the investigation incurred by the Nevada Gaming Authorities in conducting any investigation. The partners of Circus and Eldorado Joint Venture may not pledge their interests in Circus and Eldorado Joint Venture as collateral for payment of the notes without the prior approval of the Nevada Gaming Commission and no person or entity may execute on pledges of interests in a licensed entity without the prior approval of the Nevada Gaming Commission. The partners of Circus and Eldorado Joint Venture have applied for approvals by the Nevada Gaming Commission to pledge their respective interests in the partnership as collateral for payment of the notes. Although we are not aware of any reason why these approvals will not be granted, there can be no assurance that the approvals will be granted prior to the closing on the issuance of the notes, or at all. See "Description of the Notes -- Security for the Notes. Nevada law requires any licensed gaming entity, such as Circus and Eldorado Joint Venture which has one or more classes of securities registered with the Securities and Exchange Commission pursuant to the provisions of the Securities Act of 1933, as amended, to additionally register with the Nevada Gaming Commission as a "publicly traded corporation." Pursuant to the applicable provisions of Nevada gaming law, we have filed applications with the Nevada Gaming Commission for this status (a "registered corporation") and for approval to make a public offering of the exchange notes. The applications are presently pending and we expect to receive the required approvals and registration before the offer is consummated, although there can be no assurance that these approvals will be granted. If the beneficial holder of an interest in Circus and Eldorado Joint Venture or in the equity securities of any of Circus and Eldorado Joint Venture's partners, or of any interest in one of the parent entities who must be found suitable is a corporation, partnership, limited partnership, limited liability company or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Gaming Commission or by the Chairman of the Nevada State Gaming Control Board, or who refuses or fails to pay the investigative costs incurred by the gaming authorities in connection with the investigation of its application, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any person found unsuitable and who holds, directly or indirectly, any beneficial ownership of an interest in Circus and Eldorado Joint Venture or in the voting securities of any of Circus and Eldorado Joint Venture's partners or of the parent entities beyond the period of time as may be prescribed by the Nevada Gaming Commission may be guilty of a criminal offense. We will be subject to disciplinary action if, after we receive notice that a person is unsuitable to hold an equity interest or to have any other relationship with, we: . pay that person any dividend or interest upon any partnership interest or other equity interest; . allow that person to exercise, directly or indirectly, any voting right held by that person relating to Silver Legacy; 45 . pay remuneration in any form to that person for services rendered or otherwise; or . fail to pursue all lawful efforts to require the unsuitable person to relinquish his interest in the Partnership or in the voting securities including, if necessary, the immediate purchase of the interest or voting securities for cash at fair market value. The Nevada Gaming Commission may, in its discretion, require the holder of any debt security of a licensee or registered corporation to file applications, be investigated, and be found suitable to own the debt security of the licensee or registered corporation. If the Nevada Gaming Commission determines that a person is unsuitable to own the security, then under the Nevada Gaming Control Act, the licensee or registered corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Gaming Commission, it: . pays to the unsuitable person any dividend, interest or any distribution whatsoever; . recognizes any voting right by the unsuitable person in connection with the securities; . pays the unsuitable person remuneration in any form; or . makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction. Our partners and their parent entities are required to maintain current stock ledgers in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make the disclosure may be grounds for finding the record holder unsuitable. We are also required to render maximum assistance in determining the identity of the beneficial owner of any of our voting securities. The Nevada Gaming Commission has the power to require the stock certificates of any registered corporation to bear a legend indicating that the securities are subject to the Nevada Gaming Control Act. We may not make a public offering of our securities, including the notes, without the prior approval of the Nevada Gaming Commission if we intend to use the securities or the proceeds from the offering to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for those purposes or for similar transactions. We have filed applications for approval of the exchange offer. Although we are not aware of any reason why this approval, and the approval of Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. as registered corporations, will not be granted, there can be no assurance that the approvals will be granted. Further, any approvals, if granted, do not constitute a finding, recommendation, or approval by any of the Nevada gaming authorities as to the accuracy or adequacy of this prospectus or the investment merits of the notes. Any representation to the contrary is unlawful. We must obtain prior approval of the Nevada Gaming Commission with respect to a change in control through: . merger; . consolidation; . stock or asset acquisitions; . management or consulting agreements; or . any act or conduct by a person whereby the person obtains control of us. Entities seeking to acquire control of a registered corporation must satisfy the Nevada State Gaming Control Board and Nevada Gaming Commission with respect to a variety of stringent standards before assuming control of the registered corporation. The Nevada Gaming Commission may also require controlling stockholders, 46 officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction. The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchase of voting securities and corporate defense tactics affecting Nevada gaming licenses, and registered corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Gaming Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: . assure the financial stability of corporate gaming operators and their affiliates; . preserve the beneficial aspects of conducting business in the corporate form; and . promote a neutral environment for the orderly governance of corporate affairs. Approvals may be required from the Nevada Gaming Commission before we can make exceptional repurchases of voting securities above their current market price and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by a registered corporation's board of directors in response to a tender offer made directly to its stockholders for the purpose of acquiring control. License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the licensed subsidiaries respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either: . a percentage of the gross revenues received; . the number of gaming devices operated; or . the number of table games operated. A casino entertainment tax is also paid by casino operations where entertainment is furnished in connection with the selling or serving of food or refreshments or the selling of merchandise. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with those persons (collectively, "licensees"), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada State Gaming Control Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation of the Nevada State Gaming Control Board of the licensee's participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Gaming Commission. Thereafter, licensees are required to comply with the reporting requirements imposed by the Nevada Gaming Control Act. A licensee is also subject to disciplinary action by the Nevada Gaming Commission if it: . knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation; . fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations; . engages in activities or enters into associations that are harmful to the State of Nevada or its ability to collect gaming taxes and fees; or . employs, contracts with or associates with a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability. The sale of alcoholic beverages at Silver Legacy is subject to licensing, control and regulation by applicable local regulatory agencies. All licenses are revocable and are not transferable. The agencies involved have full 47 power to limit, condition, suspend or revoke any license, and any disciplinary action could, and revocation would, have a material adverse effect upon our operations. Internal Revenue Service Regulations The Internal Revenue Service requires operators of casinos located in the United States to file information returns for U.S. citizens, including names and addresses of winners, for keno, bingo and slot machine winnings in excess of stipulated amounts. The Internal Revenue Service also requires operators to withhold taxes on some keno, bingo and slot machine winnings of nonresident aliens. We are unable to predict the extent, to which these requirements, if extended, might impede or otherwise adversely affect operations of, and/or income from, the other games. Regulations adopted by the Financial Crimes Enforcement Network of the Treasury Department and the Nevada gaming regulatory authorities require the reporting of currency transactions in excess of $10,000 occurring within a gaming day, including identification of the patron by name and social security number. This reporting obligation began in May 1985 and may have resulted in the loss of gaming revenues to jurisdictions outside the United States which are exempt from the ambit of these regulations. Other Laws And Regulations The Silver Legacy Resort Casino is subject to extensive state and local regulations and, on a periodic basis, must obtain various licenses and permits, including those required to sell alcoholic beverages. We believe that we have obtained all required licenses and permits and that our business is conducted in substantial compliance with applicable laws. 48 MANAGEMENT The current managing partner of Circus and Eldorado Joint Venture (the "Partnership") is Galleon, Inc. ("Galleon"). Under the terms of the partnership agreement, the managing partner is responsible for the day-to-day management of the business affairs of the Partnership. The managing partner has delegated a substantial portion of its duties to the general manager of the Silver Legacy Resort Casino. Although the Partnership is a general partnership between Galleon, which is a wholly-owned subsidiary of Mandalay Resort Group, and Eldorado Limited Liability Company ("ELLC"), which is a 96%-owned subsidiary of Eldorado Resorts LLC, we employ our own separate management team to operate Silver Legacy. An executive committee of the Partnership is responsible for consulting with, reviewing, monitoring and overseeing the performance of the management of Silver Legacy, and thus, functions in a capacity similar to a corporation's board of directors. For additional information concerning the duties and responsibilities of the management of the Partnership's business operations, see "The Partnership Agreement." Executive Officers, Members of the Executive Committee and Directors The following table sets forth certain information concerning our executive officers, the executive officer and director of our managing partner, Galleon, members of the Partnership's executive committee and the members of the board of directors of Silver Legacy Capital Corp. ("Capital").
Name Age Positions ---- --- --------- Gary L. Carano....... 50 General Manager of Silver Legacy, Chief Executive Officer of the Partnership, and President and Chief Executive Officer of Capital Michael F. Whitemaine 47 Assistant General Manager of Silver Legacy and Vice President of Capital Glenn T. Carano...... 46 Executive Director of Marketing of Silver Legacy and Secretary of the Partnership and Capital Bruce C. Sexton...... 49 Director of Finance/Administration of Silver Legacy, Controller and Chief Accounting and Financial Officer of the Partnership, and Treasurer and Chief Accounting and Financial Officer of Capital Glenn W. Schaeffer... 48 President, Secretary, Treasurer and Director of Galleon Gene R. Carano....... 46 Member of the Partnership's Executive Committee and Director of Capital Stephen J. Greathouse 51 Member of the Partnership's Executive Committee and Director of Capital Robert M. Jones...... 59 Member of the Partnership's Executive Committee and Director of Capital Yvette E. Landau..... 45 Member of the Partnership's Executive Committee and Director of Capital Thomas D. Robinson... 61 Member of the Partnership's Executive Committee and Director of Capital
Gary L. Carano. Mr. Carano has served as General Manager of Silver Legacy and Chief Executive Officer of the Partnership since January 1995 and President and Chief Executive Officer of Capital since its incorporation in August 2001. He is also a member of the board of managers of the Eldorado Hotel & Casino and Treasurer of Recreational Enterprises, Inc. Previously, he served as Assistant General Manager, General Manager and Chief Operating Officer of the Eldorado Hotel & Casino from 1980 to 1994. Gary Carano, Glenn Carano and Gene Carano are brothers. 49 Michael F. Whitemaine. Mr. Whitemaine has been the Assistant General Manager of Silver Legacy since January 1995 and Vice President of Capital since November 2001. Prior to 1995, Mr. Whitemaine worked at the Eldorado Hotel & Casino for 12 years, where he served in various positions, including Food and Beverage Director, Slot Director, and most recently, Assistant General Manager. Glenn T. Carano. Mr. Carano has been the Director of Marketing or Executive Director of Marketing of Silver Legacy since January 1995, Secretary of the Partnership since August 2001 and Secretary of Capital since November 2001. Prior to 1995, he served as Director of Marketing at the Eldorado Hotel & Casino for eight years. Mr. Carano has served as chairman of the board of directors of the Airport Authority of Washoe County and is presently a member of the board of the Reno-Sparks Convention & Visitors Authority. He is also presently a member of the board of managers of the Eldorado Hotel & Casino and Secretary of Recreational Enterprises, Inc. From 1977 to 1983, Mr. Carano was a quarterback for the Dallas Cowboys football team. Bruce C. Sexton. Mr. Sexton has been the Director of Finance/Administration of Silver Legacy since January 1995, Controller and Chief Accounting and Financial Officer of the Partnership since January 1995. He has been Treasurer of Capital since its incorporation in August 2001 and its Chief Accounting and Financial Officer since November 2001. Mr. Sexton began working at the Circus Circus Hotel and Casino in 1978 as chief accountant and, before joining Silver Legacy, held the position of Controller at the Circus Circus Hotel and Casino for eight years. Glenn W. Schaeffer. Mr. Schaeffer has been President, Secretary, Treasurer and Director of Galleon since March 1997. He has been President, Chief Financial Officer and Treasurer of Mandalay Resort Group since June 1995 and a Director of Mandalay Resort Group since March 1996. Mr. Schaeffer was involved in an executive capacity in the management and operations of other gaming entities from 1993 until they were acquired by Mandalay Resort Group in June 1995. He also was President of Mandalay Resort Group from June 1991 until February 1993 and was that corporation's Chief Financial Officer and a Director from 1984 until February 1993. Mr. Schaeffer is also a Director of Pulte Homes, Inc. Gene R. Carano. Mr. Carano has been a member of the executive committee of the Partnership since December 2000 and a director of Capital since November 2001. He has been the General Manager, Vice President and a member of the board of managers of the Eldorado Hotel & Casino since 1998, the Vice President of Eldorado Resorts LLC or its predecessor since 1993, the Secretary of Eldorado Resorts LLC since June 1996, and Vice President of Recreational Enterprises, Inc. since 1983. Prior to 1993, Mr. Carano served as a Co-General Manager of the Eldorado Hotel & Casino and served as its Director of Gaming. Prior to joining Eldorado Resorts LLC, Mr. Carano held various positions at another major casino in northern Nevada, including slot floor supervisor and pit boss. Stephen J. Greathouse. Mr. Greathouse has been a member of the executive committee of the Partnership since September 1997 and a director of Capital since November 2001. He is also currently an officer of various operating subsidiaries of Mandalay Resort Group. Prior to joining Mandalay Resort Group in 1997, he was Chief Executive Officer of Boardwalk Casino, Inc. and from 1995 to 1996 he was Chairman and Chief Executive Officer of Alliance Gaming Corporation. Robert M. Jones. Mr. Jones has been a member of the executive committee of the Partnership since November 1995 and a director of Capital since November 2001. He has been the Chief Financial Officer of Eldorado Resorts LLC or its predecessor since 1989. Prior to joining Eldorado Resorts LLC in 1984, Mr. Jones spent fourteen years in public accounting, ten of which were as an audit principal with the international accounting firm of Arthur Young & Company. Mr. Jones is a former Certified Public Accountant. Yvette E. Landau. Ms. Landau has been a member of the executive committee of the Partnership since July 1995 and a director of Capital since November 2001. She is also Vice President, Detroit Entertainment, L.L.C., 50 of which Mandalay Resort Group owns a 53.5% interest. Prior to joining Mandalay Resort Group in 1993, she was a partner in the law firm of Snell & Wilmer in Phoenix, Arizona. Thomas D. Robinson. Mr. Robinson has been a member of the executive committee of the Partnership since November 1999 and a director of Capital since November 2001. He is currently the Vice President and General Manager of the Circus Circus Hotel and Casino. From 1995 until joining the Circus Circus Hotel and Casino in 1999, he was the Director of Casino Operations at Luxor Hotel and Casino in Las Vegas, Nevada. Executive Compensation The following table sets forth, for our last three fiscal years, the cash compensation paid by us, as well as certain other compensation paid or accrued for those years, to the Partnership's executive officers and the executives of Silver Legacy. In this prospectus, we sometimes refer to these individuals as our "named executive officers."
Annual Compensation --------------------- All Other Name and Principal Position Year Salary Bonus Compensation(1) --------------------------- ---- -------- ------- --------------- Gary L. Carano................................... 2001 $400,000 $65,306 $2,650(2) General Manager of Silver Legacy and Chief 2000 400,000 72,900 1,287 Executive Officer of the Partnership 1999 400,000 75,000 1,102 Michael F. Whitemaine............................ 2001 $275,000 $52,245 $ 100(2) Assistant General Manager of Silver Legacy 2000 275,000 58,320 1,287 1999 269,167 60,000 1,102 Glenn T. Carano.................................. 2001 $400,000 $52,245 $2,650(2) Executive Director of Marketing of Silver Legacy 2000 400,000 58,320 1,287 and Secretary of the Partnership 1999 400,000 60,000 96 Bruce C. Sexton.................................. 2001 $175,000 $44,508 $2,295(2) Director of Finance/Administration of Silver 2000 175,000 48,600 1,287 Legacy and Controller and Chief Accounting and 1999 175,000 50,000 1,102 Financial Officer of the Partnership
- -------- (1) Certain of the individuals named in this table received personal benefits that are not reflected in their salary and bonus amounts. The value of the personal benefits received by each of these individuals did not, in any of our last three fiscal years, exceed $50,000 or 10% of the individual's total annual salary and bonus for that fiscal year. (2) Represents $100 in premiums paid by the Partnership for life and accidental death insurance for the benefit of these individuals and $2,550, $2,550 and $2,195 in matching contributions paid by the Partnership to the accounts of Gary L. Carano, Glenn T. Carano and Bruce C. Sexton, respectively, under the Partnership's 401(k) savings plan. None of the members of the Partnership's executive committee, the executive officer or director of our managing partner, Galleon, or the members of the board of directors of Capital or its executive officers is compensated by the Partnership or Capital for his or her services in these capacities. Pension Plan The following tables show the estimated annual benefits payable to the "Tier I" and "Tier II" participants under the Silver Legacy Supplementary Executive Retirement Plan (the "SERP") at normal retirement (which is age 65), based on years of service credited under the SERP and the participant's final compensation, as determined under the SERP. Gary L. Carano is a Tier I participant in the SERP and each of our other named executive officers is a Tier II participant. 51 Tier I Estimated Annual Benefits Upon Retirement at Age 65
After Completion of the Following Years of Service(1) - --------------------------------------------------------------------------------- (Years of Service) 14 or Remuneration(2) Less than 4 4 or 5 6 or 7 8 or 9 10 or 11 12 or 13 more - --------------- ----------- -------- -------- -------- -------- -------- -------- $150,000 -- $ 30,000 $ 37,500 $ 45,000 $ 60,000 $ 75,000 $ 90,000 200,000 -- 40,000 50,000 60,000 80,000 100,000 120,000 250,000 -- 50,000 62,500 75,000 100,000 125,000 150,000 300,000 -- 60,000 75,000 90,000 120,000 150,000 180,000 350,000 -- 70,000 87,500 105,000 140,000 175,000 210,000 400,000 -- 80,000 100,000 120,000 160,000 200,000 240,000 450,000 -- 90,000 112,500 135,000 180,000 225,000 270,000 500,000 -- 100,000 125,000 150,000 200,000 250,000 300,000 550,000 -- 110,000 137,500 165,000 220,000 275,000 330,000 600,000 -- 120,000 150,000 180,000 240,000 300,000 360,000
Tier II Estimated Annual Benefits Upon Retirement at Age 65
After Completion of the Following Years of Service(1) - -------------------------------------------------------------------------------- (Years of Service) 14 or Remuneration(2) Less than 4 4 or 5 6 or 7 8 or 9 10 or 11 12 or 13 more - --------------- ----------- ------- -------- -------- -------- -------- -------- $150,000 -- $22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500 $ 60,000 200,000 -- 30,000 40,000 50,000 60,000 70,000 80,000 250,000 -- 37,500 50,000 62,500 75,000 87,500 100,000 300,000 -- 45,000 60,000 75,000 90,000 105,000 120,000 350,000 -- 52,500 70,000 87,500 105,000 122,500 140,000 400,000 -- 60,000 80,000 100,000 120,000 140,000 160,000 450,000 -- 67,500 90,000 112,500 135,000 157,500 180,000 500,000 -- 75,000 100,000 125,000 150,000 175,000 200,000 550,000 -- 82,500 110,000 137,500 165,000 192,500 220,000 600,000 -- 90,000 120,000 150,000 180,000 210,000 240,000
- -------- (1) The amounts set forth in each table are computed as an annual benefit payable in the form of a straight-life annuity, commencing following the participant's attainment of age 65, the normal retirement age under the SERP. The benefits listed in the tables are not subject to any deduction for Social Security or other offset amounts. (2) The amount of a participant's remuneration for purposes of determining benefits under the tables is his highest annual compensation during any of the last five full calendar years the participant is employed (or such smaller number of full calendar years if the participant has not worked for five years at the time of terminating his or her employment) or the 12-month period ending on the participant's termination of employment with the Partnership or Silver Legacy. Annual compensation for this purpose is the participant's base salary plus his bonus. The SERP limits the amount of bonus that may be taken into account for this purpose to 150% of base salary. A participant is credited with a year of service under the SERP for each period of 12 full months of employment with the Partnership or Silver Legacy, but service credit for periods prior to enrollment in the plan is limited to ten years. 52 For purposes of determining their respective benefits pursuant to the SERP, each of our named executive officers will have 14 or more credited years of service if he continues to be employed by the Partnership until age 65, the normal retirement age under the SERP. Each of our named executive officers had 7 credited years of service under the SERP as of December 31, 2001. Compensation Committee Interlocks and Insider Participation The compensation of the Partnership's executive officers and Silver Legacy's executives is determined by the Partnership's executive committee. The only individuals who served on the Partnership's executive committee during the year ended December 31, 2001 are the committee's current members, Gene R. Carano, Stephen J. Greathouse, Robert M. Jones, Yvette E. Landau and Thomas D. Robinson, none of whom has ever been an officer or employee of the Partnership or any subsidiary of the Partnership. During the year ended December 31, 2001, Gary L. Carano, the Partnership's Chief Executive Officer, served on the Board of Managers of Eldorado Resorts LLC, and Gene R. Carano, Vice President and Secretary of Eldorado Resorts LLC, served on the Partnership's executive committee. Tri-Property Payments. Registered hotel guests at Silver Legacy, as well as registered hotel guests at the Circus Circus Hotel and Casino and the Eldorado Hotel & Casino, have the privilege of charging to their hotel rooms the costs incurred at the restaurants and shops located within the entire tri-property complex. Any of these charges that are incurred by a paying guest are paid by the guest when he or she checks out and each hotel, including Silver Legacy, remits to the other two properties the respective amounts collected for charges incurred at the other properties. In the case of registered guests who are provided room, food, beverage and other services on a complimentary basis, the property where the guest is registered pays to each of the other two properties the respective amounts of any charges to the guest's room for services provided by the other properties. The following table sets forth for 1999, 2000 and 2001, the respective amounts paid for such complimentary charges by Silver Legacy to the Circus and Eldorado properties and the respective amounts received by Silver Legacy from the Circus and Eldorado properties.
Payor Payee 1999 2000 2001 ----- ------------- ------- ------- ------- Silver Legacy Circus Circus $ 1,808 $ -- $ -- Silver Legacy Eldorado 47,479 10,880 22,157 Circus Circus Silver Legacy -- 374 2,339 Eldorado..... Silver Legacy 2,844 3,736 2,444
The Eldorado Hotel & Casino is owned by Eldorado Resorts LLC, which is 63.0% owned directly or indirectly by members of the Carano family, including Gary L. Carano, the Partnership's Chief Executive Officer, Glenn T. Carano, Secretary of the Partnership, and Gene R. Carano, a member of the Partnership's executive committee. Yvette E. Landau has, since July 1996, been an executive officer of Mandalay Resort Group which owns and operates the Circus Circus Hotel and Casino though a wholly owned subsidiary. Gene R. Carano has been the general manager, a vice president and a member of the board of managers of the Eldorado Hotel & Casino since July 1996 and, since July 1996, he and Robert M. Jones have been executive officers of Eldorado Resorts LLC, which owns 96% of ELLC. Eldorado Limited Liability Company and Galleon, Inc. The Agreement of Joint Venture of Circus and Eldorado Joint Venture dated as of March 1, 1994 (the "Original Partnership Agreement"), pursuant to which the Partnership was formed, provided for certain distributions of the Partnership's "Net Cash from Operations" (as 53 defined) to the partners, ELLC and Galleon, to the extent there are funds available for that purpose. During 1999, 2000 and 2001, the distributions made pursuant to this provision of the Original Partnership Agreement were as follows:
Year Ended December 31, ---------------------------------- Partner 1999 2000 2001 ------- -------- ------------- ---------- ELLC... $ -- $ -- $4,565,000 Galleon -- 25,000,000(1) 4,565,000
- -------- (1) The 2000 distribution was made entirely to Galleon pursuant to a priority allocation in the Original Partnership Agreement which is no longer applicable to the distributions the Partnership makes to its partners. The Partnership made no distributions of net cash from operations prior to 2000. On January 15, 2002, the Partnership made a fourth quarter 2001 tax distribution to ELLC and Galleon of $1.2 million each, utilizing $0.9 million of net cash from operations and $1.5 million borrowed under our prior credit facility. In February 2002, the Partnership made distributions to ELLC and Galleon, of which (i) $5.2 million represented fiscal year 2000 tax distributions and (ii) $2.1 million represented the remaining priority allocation payment to Mandalay Resort Group. On March 5, 2002, the Partnership made additional distributions to ELLC and Galleon of $10.0 million and $20.0 million, respectively. See "Use of Proceeds." For information concerning the provisions that are currently applicable to the Partnership's distributions to its partners, see "The Partnership Agreement." ELLC is 96% owned by Eldorado Resorts LLC, which is 63.0% owned directly or indirectly by members of the Carano family, including Gary L. Carano, the Partnership's Chief Executive Officer, Glenn T. Carano, Secretary of the Partnership and Gene R. Carano, a member of the Partnership's executive committee. Recreational Enterprises, Inc. From time to time, Silver Legacy has utilized a King Air jet owned by Recreational Enterprises, Inc. ("REI") for the purpose of providing air service to select customers. During 1999, 2000 and 2001 the Partnership paid $2,380, $17,000 and $31,375, respectively. We believe the terms on which we have utilized this service are at least as favorable as those that would be available from an unrelated third party. Although there is no agreement obligating the Partnership to utilize the plane or entitling it to do so, it is anticipated that the Partnership will continue to utilize this service from time to time in the future on terms mutually acceptable to the parties. REI, which owns 55% of Eldorado Resorts LLC, is owned by various members of the Carano family, including Gary L. Carano, Silver Legacy's General Manager, Glenn T. Carano, Silver Legacy's Executive Director of Marketing, and Gene R. Carano, a member of the Partnership's Executive Committee, each of whom owns an approximately 10.1% beneficial interest in REI, and Donald L. Carano, the father of Gary, Glenn and Gene Carano, who owns an approximately 49.5% interest in REI. Sierra Adventure Equipment Leasing, Inc. From time to time, Silver Legacy's marketing and sales departments have utilized a yacht owned by Sierra Adventure Equipment Leasing, Inc. ("Sierra Leasing") at a flat rate per trip of $2,500 for various promotional events. The payments made by the Partnership to Sierra Leasing for the use of the yacht totaled $62,500, $30,625 and $21,250 during 1999, 2000 and 2001, respectively. Although there is no agreement obligating the Partnership to utilize the yacht or entitling it to do so, it is anticipated that the Partnership will continue to utilize this service from time to time in the future on terms mutually acceptable to the parties. Sierra Leasing is owned by Donald L. Carano, the father of Gary L. Carano, Silver Legacy's General Manager, Glenn T. Carano, Silver Legacy's Executive Director of Marketing, and Gene R. Carano, a member of the Partnership's executive committee. For additional information concerning certain amounts paid or payable, or that may become payable, by the Partnership to Galleon or ELLC, or certain of their respective affiliates, see "Certain Relationships and Related Transactions" and "The Partnership Agreement." 54 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Capital All of the issued and outstanding capital stock of Capital is owned by the Partnership. The Partnership The Partnership is a joint venture in the form of a general partnership in which Galleon, Inc., a wholly owned subsidiary of Mandalay Resort Group and the Partnership's managing partner, and Eldorado Limited Liability Company, a 96% owned subsidiary of Eldorado Resorts LLC, each owns a 50% equity interest. The following table sets forth certain information with respect to the beneficial ownership of partnership interests in the Partnership by (i) each person known by the Partnership to be a beneficial owner of a greater than 5% interest in the Partnership, (ii) each partner in the Partnership, (iii) each member of the executive committee of the Partnership, (iv) each director of Capital, (v) each executive officer of the Partnership and Capital, (vi) Glenn W. Schaeffer, the sole officer and director of Galleon, (vii) all executive committee members and executive officers of the Partnership as a group, and (viii) all directors and executive officers of Capital as a group. Except as otherwise indicated in the footnotes to the table below, Galleon, Inc. and Eldorado Limited Liability Company each has sole voting and dispositive power with respect to its interest in the Partnership. Except as otherwise indicated, the address of each person listed in the table below is c/o Circus and Eldorado Joint Venture, 407 North Virginia Street, Reno, Nevada 89501.
Percentage of Partnership Interest in Circus and Eldorado Joint Venture ------------------------------------ Galleon, Inc.(1).......................................................... 50% Eldorado Limited Liability Company(2)..................................... 50% Mandalay Resort Group(1).................................................. 50% Eldorado Resorts LLC(2)................................................... 50% Recreational Enterprises, Inc.(2)......................................... 50% Donald L. Carano(2)....................................................... 50% Gary L. Carano............................................................ -- Michael F. Whitemaine..................................................... -- Glenn T. Carano........................................................... -- Bruce C. Sexton........................................................... -- Gene R. Carano............................................................ -- Stephen J. Greathouse..................................................... -- Robert M. Jones........................................................... -- Yvette E. Landau.......................................................... -- Thomas D. Robinson........................................................ -- Glenn W. Schaeffer(3)..................................................... 50% All executive officers and executive committee members of the Partnership, as a group.............................................................. -- All executive officers and directors of Capital, as a group............... --
- -------- (1) Galleon, Inc. is a wholly owned subsidiary of Mandalay Resort Group. Under Rule 13d-3 of the Securities Exchange Act of 1934, Mandalay Resort Group may be deemed to be an indirect beneficial owner of the interest in the Partnership owned by Galleon, Inc. by virtue of its ownership of Galleon, Inc. The address of Galleon, Inc. and Mandalay Resort Group is 3950 Las Vegas Boulevard South, Las Vegas, Nevada 89119. (2) Eldorado Limited Liability Company is a 96% owned subsidiary of Eldorado Resorts LLC. Under Rule 13d-3 of the Securities Exchange Act of 1934, Eldorado Resorts LLC, and in turn Recreational Enterprises, Inc., the 55% owner of Eldorado Resorts LLC, and Donald L. Carano, who owns 49.5% of Recreational Enterprises, Inc. and 3% of Eldorado Resorts LLC, may each be deemed to be an indirect 55 beneficial owner of the interest in the Partnership owned by Eldorado Limited Liability Company by virtue of their direct and indirect controlling interests in Eldorado Limited Liability Company. The address of Eldorado Limited Liability Company, Eldorado Resorts LLC and Donald L. Carano is P.O. Box 3399, Reno, Nevada 89505. The address of Recreational Enterprises, Inc. is P.O. Box 2540, Reno, Nevada 89505. (3) Under Rule 13d-3 of the Securities and Exchange Act of 1934, Glenn W. Schaeffer may be deemed to be an indirect beneficial owner of the interest in the Partnership owned by Galleon, Inc. by virtue of his position as the sole officer and director of Galleon, Inc. The address of Glenn W. Schaeffer is 3950 Las Vegas Boulevard South, Las Vegas, Nevada 89119. 56 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Eldorado Resorts LLC. On May 16, 1996, the Partnership entered into an agreement with Eldorado Resorts LLC pursuant to which Eldorado Resorts LLC operated the race and sports book at Silver Legacy until November 23, 1999. Pursuant to the agreement, Eldorado Resorts LLC provided the management, employees and equipment associated with the operation. During the period the agreement was in effect, the revenues and expenses associated with the race and sports book were apportioned in accordance with the terms of the agreement. The race and sports book's revenues and expenses incurred by the parties during 1999 were as follows:
Eldorado Partnership Resorts LLC ----------- ----------- Revenues........ $726,502 $273,541 Expenses........ 505,688 712,036
Eldorado Resorts LLC owns the skywalk that connects Silver Legacy with the Eldorado Hotel & Casino. The Partnership originally paid for all of the utilities associated with this skywalk. Until October 1998, these payments were made in lieu of rent for the portion of the skywalk on which part of Silver Legacy's coffee shop was situated. The coffee shop was redesigned and, in October 1998, the portion of the facility situated within the skywalk was eliminated. In February 2002, the Partnership billed Eldorado Resorts LLC $67,864 for each of 1999, 2000 and 2001 for utilities provided. The skywalk was not separately metered until last year. The amount billed for the three year period represented a monthly charge equal to the average monthly cost actually incurred for the skywalk's utilities during the last four months of 2001 when the skywalk was separately metered. All of the amounts billed have been paid in full by Eldorado Resorts LLC. Since 1998, the Partnership has purchased from Eldorado Resorts LLC homemade pasta and other food products for use in the restaurants at Silver Legacy and it is anticipated that the Partnership will continue to make similar purchases in the future. For these products, which are billed to the Partnership at cost plus associated labor, the Partnership paid Eldorado Resorts LLC $93,988, $88,405 and $47,050 during 1999, 2000 and 2001, respectively. ELLC, which owns 50% of the Partnership, is 96% owned by Eldorado Resorts LLC. Lexicon Design, Inc. In 1998, the Partnership began purchasing advertising posters, banners and other material from Lexicon Design, Inc., a corporation which is wholly owned by the wife of Glenn Carano, Executive Director of Marketing of Silver Legacy and Secretary of the Partnership. The payments made by the Partnership to Lexicon Design, Inc. were $217,460, $363,828 and $428,247 during 1999, 2000 and 2001, respectively. Mandalay Resort Group. As a condition to the lenders' execution of the Partnership's prior credit facility, Mandalay Resort Group entered into a make-well agreement pursuant to which it was, from 1995 until March 5, 2002, obligated to make additional contributions to Silver Legacy, to the extent required to maintain a minimum coverage ratio. No contribution was required by Mandalay Resort Group pursuant to the make-well agreement. As compensation for the make-well agreement, Mandalay Resort Group was entitled to receive from the Partnership for the period the make-well agreement was in effect a fee equal to 1 1/2% of the balance from time to time outstanding under the credit facility. The Partnership made payments of the fee totaling $2,838,410, $2,523,185 and $2,311,130 during 1999, 2000 and 2001, respectively. In March 2002, the then accrued and unpaid $193,077 balance of this fee was paid in full and, on March 5, 2002, Mandalay Resort Group's obligations pursuant to the make-well agreement, and its right to receive additional payments of the aforementioned fee, terminated. Galleon, which owns 50% of the Partnership, is a wholly owned subsidiary of Mandalay Resort Group. In April 2001, Silver Legacy began utilizing 235 spaces in the parking garage at the Circus Circus Hotel and Casino. The spaces are utilized to provide parking for employees of Silver Legacy. In consideration for its use of the spaces, the Partnership pays the Circus Circus Hotel and Casino rent in the amount of $5,000 per month. We believe the terms on which we have utilized this service are at least as favorable as those that would be available 57 from an unrelated third party. Although there is no agreement obligating the Partnership to continue utilizing the spaces or entitling it to do so, it is anticipated that the Partnership will continue this arrangement for the foreseeable future. The Circus Circus Hotel and Casino is owned by a wholly owned subsidiary of Mandalay Resort Group. For information concerning certain other transactions with entities of which a member of the Partnership's executive committee is an executive officer or owns a beneficial interest in excess of 10%, see "Management -- Compensation Committee Interlocks and Inside Participation." For additional information concerning the Partnership and the respective rights and obligations of its two partners, ELLC and Galleon, see "The Partnership Agreement." 58 DESCRIPTION OF OTHER INDEBTEDNESS Senior Secured Credit Facility Concurrently with the offering of the old notes, we entered into our current senior secured credit facility comprised of a $20.0 million term loan facility that amortizes over a period of five years and a $20.0 million revolving facility with a five year maturity. The following description summarizes the material provisions included in our senior secured credit facility. Our senior secured credit facility is secured by (x) a first priority security interest in substantially all of our existing and future assets, other than certain licenses which may not be pledged under applicable law, and (y) subject to the approval of the Nevada Gaming Commission, a first priority pledge of and security interest in all of the partnership interests in the Partnership held, by our joint venture partners, and ranks equal in right of payment to our existing and future senior indebtedness, including the notes. The security interests securing our obligations on our senior secured credit facility are senior to the pledge and security interests securing our obligations on the notes. We initially borrowed $26.0 million under our senior secured credit facility on March 5, 2002 which, together with excess cash and the proceeds from the offering of the old notes, was used to repay our prior credit facility, fund a distribution to our joint venture partners and pay related fees and expenses. For additional details, see "Use of Proceeds." The term loan portion of our senior secured credit facility amortizes quarterly beginning March 31, 2003 and thereafter based on the annual amounts listed below:
Calendar Year Annual Reduction ------------- ---------------- 2003..... 20.0% 2004..... 20.0% 2005..... 25.0% 2006..... 30.0% 2007..... 5.0%
Interest on outstanding balances and commitment fees on unused availabilities under our senior secured credit facility is determined by a formula based on our leverage ratio, which is the ratio of our total debt to annualized cash flow, and in the case of interest rates, on the basis of the Eurodollar or base rate existing for each interest calculation date. As our leverage ratio declines or increases, the interest rate and commitment fees we pay will decline or increase commensurately. We also pay agency fees in connection with our senior secured credit facility. Our senior secured credit facility contains customary events of default and covenants, including covenants that limit or restrict our ability to: . incur additional debt; . create liens or other encumbrances; . pay dividends or make other restricted payments; . prepay subordinated indebtedness; . make investments, loans or other guarantees; . sell or otherwise dispose of a portion of our assets; or . make acquisitions or merge or consolidate with another entity. 59 In addition, our senior secured credit facility requires us to meet specified financial tests on an on-going basis, including the following: . we are required to maintain a maximum ratio of total debt to EBITDA as follows:
Maximum Period Ratio ------ ----- On or prior to September 30, 2002........... 4.50 : 1.00 From December 31, 2002 to September 30, 2003 4.25 : 1.00 December 31, 2003 and thereafter............ 4.00 : 1.00
. we are required to maintain a minimum ratio of EBITDA to fixed charges of 1.10 : 1.00 at all times. Intercreditor Agreement Concurrently with the issuance of the old notes and in connection with entering into our current senior secured credit facility, Bank of America, N. A., as administrative agent for the lenders under our senior secured credit facility, and The Bank of New York, as trustee under the indenture governing the notes, entered into an intercreditor agreement. The intercreditor agreement defines the rights of the lenders under our senior secured credit facility, and any lenders directly or indirectly refinancing the obligations of the Partnership under our senior secured credit facility, in relation to the rights of the noteholders with respect to the collateral that secures our obligations under both our senior secured credit facility, and any amendments, restatements, extensions, renewals, refinancings or refunding thereof, and the indenture governing the notes. The following description summarizes the material terms of the intercreditor agreement, a copy of which has been filed as an exhibit to the registration statement of which this prospectus is a part. It does not restate the intercreditor agreement in its entirety. We urge you to read the intercreditor agreement because it, and not this description, will define the rights of noteholders, in relation to the lenders, to the collateral. Under the intercreditor agreement, Bank of America, N.A. acknowledges the lien that the trustee holds on the collateral to secure the notes and our obligations under the indenture governing the notes and related security documents. The trustee and each noteholder, by accepting a note: . acknowledges the first priority lien that Bank of America, N.A. holds on the collateral to secure our obligations under our senior secured credit facility and related security documents, and . agrees to all of the terms of the intercreditor agreement, as it may be amended from time to time. Under the intercreditor agreement, Bank of America, N.A. and the trustee agreed that Bank of America, N.A.'s lien on the collateral has priority over the trustee's lien on the collateral to secure our obligations under our senior secured credit facility up to an aggregate principal amount of $40.0 million, plus interest, fees, expenses, obligations owed pursuant to any interest rate hedging arrangement with respect to the obligations under our senior secured credit facility and related costs. Bank of America, N.A.'s priority will not be affected by: . the order, time or manner of attachment, perfection or recording of Bank of America, N.A. or the trustee's lien; . any refinancing of or amendments to the terms of our senior secured credit facility or the indenture or any other documents governing our obligations to either the lenders or the noteholders to the extent any such amendment or refinancing is permitted under the indenture governing the notes; or . any action or inaction of either Bank of America, N.A. or the trustee with respect to the collateral. Following any event of default under the indenture governing the notes, the intercreditor agreement provides that, until our obligations under our senior secured credit facility have been paid in full and the commitments under our senior secured credit facility have been terminated, and for a period of 90 days following the date upon which the trustee under the indenture governing the notes gives written notice to the administrative agent of a 60 default under our senior secured credit facility and thereafter during any bankruptcy proceeding or following acceleration of our senior secured credit facility, the trustee and the holders of the notes will not have the right to: . exercise any right of set-off; . exercise any right of possession or attach, seize or realize upon any of the collateral; or . exercise any right under Uniform Commercial Code, including the right of strict foreclosure, but excluding the right of redemption of assets. The intercreditor agreement provides that the proceeds of the collateral are to be applied to first pay our obligations under our senior secured credit facility in full. Moreover, until our senior secured credit facility and the related documents evidencing our obligations thereunder have been terminated, the proceeds of the collateral will be required to be used to provide for payment of our contingent liabilities under those agreements before payment of any amounts owed under the indenture governing the notes and related documents. If the trustee receives any proceeds of collateral while our obligations under our senior secured credit facility remain outstanding, the trustee will be required to turn those proceeds over to Bank of America, N.A. If we become debtors in a bankruptcy case, the trustee and the noteholders agree that Bank of America, N.A. and our other lenders under our senior secured credit facility may consent to the use of cash collateral or provide bankruptcy financing on terms and conditions and in such amounts as the lenders under our senior secured credit facility, in their sole discretion, may decide as long as the total outstanding principal of that financing, including amounts already outstanding under our senior secured credit facility, does not exceed $40.0 million. The trustee and the noteholders further agree that the lien securing any such financing is senior in priority to the lien securing our obligations under the notes. Bank of America, N.A. is required under the intercreditor agreement, unless a proceeding under the U.S. Bankruptcy Code has been commenced, to provide the trustee with notice of any acceleration under our senior secured credit facility. For the thirty-day period following such notice, the trustee and the holders of the notes will have the right (subject to various limitations and restrictions contained in the intercreditor agreement) to purchase all lender obligations under our senior secured credit facility for a purchase price equal to the principal thereof plus all accrued and unpaid interest, fees and other amounts owing by us to Bank of America, N.A. and the lenders under our senior secured credit facility. 61 THE PARTNERSHIP AGREEMENT Overview The Partnership was formed in 1994 pursuant to the Original Partnership Agreement, between the two partners, ELLC, a subsidiary of Eldorado Resorts LLC, and Galleon, a subsidiary of Mandalay Resort Group. ELLC and Galleon each own a 50% interest in the Partnership. Pursuant to the Original Partnership Agreement, each of the partners contributed cash or property to the Partnership with a value approximating 15% of the total budgeted cost for developing and constructing Silver Legacy. To satisfy their respective contribution obligations, ELLC contributed the land on which Silver Legacy was constructed, at an agreed value of $25 million, and $26.9 million in cash. Galleon contributed $51.9 million in cash. Mandalay Resort Group also provided credit support in the form of a make-well agreement for the Partnership's credit agreement originally entered into by the Partnership on May 30, 1995 to fund the balance of Silver Legacy's development and construction costs. For additional information concerning the make-well agreement, which terminated on March 5, 2002, when the old notes were issued, see "Certain Relationships and Related Transactions." Description of the Partnership Agreement Concurrently with the closing of the issuance of the old notes, the Original Partnership Agreement was amended and restated in its entirety and was further amended in April 2002 (the "New Partnership Agreement"). The April 2002 amendments were principally (i) to provide equal voting rights for ELLC and Galleon (and procedures for resolving deadlocks with respect to approval of the Partnership's annual business plan and the appointment and compensation of the general manager, and (ii) to give each partner the right to terminate the general manager. The following is a summary of the New Partnership Agreement. This summary is qualified in its entirety by reference to the New Partnership Agreement, a copy of which has been filed as an exhibit to the registration statement of which this prospectus is a part. Additional Capital Contributions The New Partnership Agreement provides that the partners shall not be permitted or required to contribute additional capital to the Partnership without the consent of partners, which consent may be given or withheld in each partner's sole and absolute discretion. Partnership Distributions Subject to any contractual restrictions to which the Partnership is subject, including the indenture relating to the notes, and prior to the occurrence of a "Liquidating Event," the Partnership will be required by the New Partnership Agreement to make distributions to its partners as follows: (a) The estimated taxable income of the Partnership allocable to each partner multiplied by the greater of the maximum marginal federal income tax rate applicable to individuals for such period (as of the date hereof, 39.1%) or the maximum marginal federal income tax rate applicable to corporations for such period (as of the date hereof, 35%); provided, however, that if the State of Nevada enacts an income tax (including any franchise tax based on income), the applicable tax rate for any tax distributions subsequent to the effective date of such income tax shall be increased by the higher of the maximum marginal individual tax rate or corporate income tax rate imposed by such tax (after reduction for the federal tax benefit for the deduction of state taxes, using the maximum marginal federal individual or corporate rate, respectively). (b) Annual distributions of remaining "Net Cash From Operations" in proportion to the percentage interests of the partners. (c) Distributions of "Net Cash From Operations" in amounts or at times that differ from those described in (a) and (b) above, provided in each case that both partners agree in writing to the distribution in advance thereof. As defined in the New Partnership Agreement, the term "Net Cash From Operations" means the gross cash proceeds received by the Partnership, less the following amounts: (i) cash operating expenses and payments of 62 other expenses and obligations of the Partnership, including interest and scheduled principal payments on Partnership indebtedness, including indebtedness owed to the partners, if any, (ii) all capital expenditures made by the Partnership, and (iii) such reasonable reserves as the partners deem necessary in good faith and in the best interests of the Partnership to meet anticipated future obligations and liabilities of the Partnership (less any release of reserves previously established, as similarly determined). The Managing Partner The New Partnership Agreement designates Galleon as the Partnership's managing partner with responsibility and authority for the day-to-day management of the business affairs of the Partnership, including overseeing the day-to-day operations of Silver Legacy and other Partnership business, preparation of the Partnership's budgets and implementation of the decisions made by the partners. The managing partner is also responsible for the preparation and submission of the Partnership's annual business plan for review and approval by the Partnership's executive committee, utilizing the special voting procedures and the procedure for resolving deadlocks described below. The New Partnership Agreement provides that the managing partner shall appoint the general manager, subject to approval of the appointment by the executive committee, utilizing the special voting procedures and the procedure for resolving deadlocks described below. Under the terms of the New Partnership Agreement, the general manager may be removed by ELLC or Galleon upon 30 days written notice. The New Partnership Agreement also provides that the managing partner shall appoint the other principal senior management of the Partnership and Silver Legacy, who shall perform such functions, duties, and responsibilities as the managing partner may assign, and shall serve at the direction and pleasure of the managing partner. The New Partnership Agreement provides that the unanimous approval of both partners is required for certain actions, including the admission of an additional partner, the purchase of additional real property, encumbrances on Silver Legacy, sales or other dispositions of all or substantially all of the assets of the Partnership, refinancing or incurrence of indebtedness involving in excess of $250,000 other than in the ordinary course of business, capital improvements involving more than $250,000 that are not included in an approved annual business plan, and any obligation, contract, agreement, or commitment with a partner or an affiliate of a partner which is not specifically permitted by the New Partnership Agreement. Replacement of the Managing Partner If the actual net operating results of the business of the Partnership for any four consecutive quarters are less than 80% of the projected amount as set forth in the Partnership's annual business plan, after appropriate adjustments for factors affecting similar business in the vicinity of the Silver Legacy, ELLC may require Galleon to resign from its position as managing partner. In addition, in the event Galleon resigns as managing partner, ELLC will have the right and option to become the managing partner of the Partnership and assume all the obligations of the managing partner under the New Partnership Agreement, or the partners are required to attempt to appoint a third party to manage the day-to-day business affairs of the Partnership. In such event, if the partners are unable to agree on a manager, then the Partnership shall be dissolved and liquidated in accordance with the provisions of the New Partnership Agreement. The Executive Committee An executive committee of the Partnership is authorized to review, monitor and oversee the performance of the management of the Silver Legacy. The executive committee of the Partnership shall consist of five members, with three members appointed by the managing partner and two members appointed by the other partner. In the event that neither of the partners is the managing partner, then the executive committee shall consist of five members, with two members appointed by each partner and a fifth member appointed by a third party manager 63 selected by the partners. Each partner may, at any time, appoint alternate members to the executive committee and the alternates will have all the powers of a regular committee member in the absence or inability of a regular committee member to serve. With the exception of the special voting procedures described below, each member of the executive committee is entitled to one vote on each matter decided by the executive committee and each action of the executive committee must be approved by a majority of all of the members of the executive committee, who may be present or voting by proxy. The current members of the executive committee are Stephen J. Greathouse, Thomas D. Robinson and Yvette E. Landau, each of whom was appointed by Galleon, and Robert M. Jones and Gene Carano, each of whom was appointed by ELLC. Subject to the requirement of unanimous approval of the partners for certain actions, the duties of the executive committee include, but are not limited to, (i) reviewing, adjusting, approving, developing, and supervising the Partnership's annual business plan, (ii) reviewing and approving the terms of any loans made to the Partnership, (iii) approving all material purchases, sales, leases or other dispositions of Partnership property, other than in the ordinary course of business, and (iv) approving the appointment of the General Manager, who is the Partnership's Chief Executive Officer, and the Controller, who is the Partnership's Chief Financial Officer and Accounting Officer, and determining the compensation of the General Manager and the Controller. The New Partnership Agreement provides special voting procedures for the executive committee's approval of the annual business plan, the appointment of the general manager and the determination of the general manager's compensation. In voting on these matters, the members of the executive committee appointed by the managing partner shall have a total of two votes and the members of the executive committee appointed by the other partner shall have a total of two votes. The managing partner shall designate which two of the three members of the executive committee appointed by the managing partner are to exercise the two votes. If the executive committee is deadlocked in deciding any matter which is subject to the special voting procedures, then the meeting may be adjourned to another meeting date. If the executive committee remains deadlocked with respect to its approval of an annual business plan until the end of the second month of the fiscal year described in the annual business plan, then either partner may by written notice cause the approval of the annual business plan to be submitted to a nationally recognized accounting firm mutually agreeable to the partners (the "Accountant") for resolution. The Accountant shall consider the positions of the members of the executive committee and the partners, and shall decide whether to approve the annual business plan, or to modify the annual business plan and approve it with such modifications. The decision of the Accountant on these matters shall have the same effect as the approval of the annual business plan by the executive committee. If the executive committee remains deadlocked with respect to its approval of the appointment of a general manager for a period of one month following the effective date of the resignation or removal of the previous general manager, then the executive committee shall assume the duties of the general manager until such time as the executive committee can reach a decision on the appointment and compensation of a new general manager. In exercising the duties of the general manager, the executive committee shall act and vote in accordance with the special voting procedures described above. If the executive committee remains deadlocked on the determination of the compensation of the general manager for a period of one month following the first meeting on the proposed compensation, then either partner may by written notice cause the determination of such compensation to be submitted to the Accountant for resolution. In that event, the Accountant shall consider the positions of the executive committee, and shall adopt a compensation arrangement consistent with the position advocated by at least one member of the executive committee. The decision of the Accountant on any matter which is subject to the special voting procedures shall be final and binding on the executive committee and the partners. Transfer of Partnership Interests Except as expressly permitted by the New Partnership Agreement, neither partner may transfer all or any portion of its interest in the Partnership or any rights therein without the unanimous consent of both partners. The New Partnership Agreement provides that a partner may transfer or convey all or any portion of its interest in the Partnership to an affiliate of such partner (subject to certain limitations), members of the partner's family (which includes the partner's spouse, natural or adoptive lineal descendants, and trusts for their benefit), another partner, 64 a personal representative of the partner or any person or entity approved by the unanimous consent of the partners. Unless otherwise agreed by Galleon, Donald L. Carano or a member of his immediate family acceptable to Galleon, which acceptance may not be unreasonably withheld, or an affiliate controlled by Donald L. Carano or a member of his immediate family acceptable to Galleon, which acceptance may not be unreasonably withheld, is required to be the manager of and control ELLC (or, if applicable, any entity that is a Permitted Transferee and to which ELLC has transferred its interest in the Partnership). Unless otherwise agreed by ELLC, which may not be unreasonably withheld, Galleon (or, if applicable, any entity that is a permitted transferee and to which Galleon has transferred its interest in the Partnership) is required to be controlled by Mandalay Resort Group. In the event the limitation in this paragraph with respect to either partner is breached, the other partner will have the right (but not be required) to exercise the buy-sell provisions described below. Limitation on Partners' Actions The New Partnership Agreement includes each partner's covenant and agreement not to (i) take any action to require partition or to compel any sale with respect to its Partnership interest, (ii) take any action to file a certificate of dissolution or its equivalent with respect to itself, (iii) take any action that would cause a bankruptcy of such partner, (iv) withdraw or attempt to withdraw from the Partnership, (v) exercise any power under the Nevada Uniform Partnership Act to dissolve the Partnership, (vi) transfer all or any portion of its interest in the Partnership (other than as permitted hereunder), (vii) petition for judicial dissolution of the Partnership, or (viii) demand a return of such partner's contributions or profits (or a bond or other security for the return of such contributions or profits) without the unanimous consent of the partners. The New Partnership Agreement also provides that if a partner attempts to (A) cause a partition or (B) withdraw from the Partnership or dissolve the Partnership, or otherwise take any action in breach of its aforementioned agreements, the Partnership shall continue and (1) the breaching partner shall immediately cease to have the authority to act as a partner, (2) the other partner shall have the right (but shall not be obligated unless it was so obligated prior to such breach) to manage the affairs of the Partnership, (3) the breaching partner shall be liable in damages, without requirement of a prior accounting, to the Partnership for all costs and liabilities that the Partnership or any partner may incur as a result of such breach, (4) distributions to the breaching partner shall be reduced to 75% of the distributions otherwise payable to the breaching partner and (5) the breaching partner shall continue to be liable to the Partnership for any obligations of the Partnership pursuant to the New Partnership Agreement, and to be jointly and severally liable with the other partners for any debts and liabilities (whether actual or contingent, known or unknown) of the Partnership existing at the time the breaching partner withdraws or dissolves. Buy-Sell Provision At any time on or after July 1, 2005 either partner (provided such partner is not in default of any of the provisions of the New Partnership Agreement) may make an offer to purchase ("Offer") the interest of the other partner, which will constitute an irrevocable offer by the partner giving the Offer either to (i) purchase all, but not less than all, of the interest of the Partnership of the other partner free of liens and encumbrances for the amount specified in the Offer (the "Sales Price"), or (ii) sell all, but not less than all, of its interest in the Partnership free of liens and encumbrances to the other partner for the amount specified in the Offer (the "Purchase Price"). The partner receiving an Offer will have a period of two months to accept the Offer to sell at the Sales Price or, in the alternative, to require that the offering partner sell its interest to the other partner at the Purchase Price. The closing of the transaction for the sale or purchase of the Partnership interest shall occur not later than six months after the notice of election or at such other time as may be required by the Nevada Gaming Authorities. Subject to any agreements to which the Partnership is a party, the partner purchasing the Partnership interest (the "Purchasing Partner") shall be entitled to encumber the Partnership property in order to finance the purchase, provided that the other partner (the "Selling Partner") will have no liability, contingent or otherwise, under such financing. The purchasing partner may assign all or part of its right to purchase the Partnership interest of the 65 Selling Partner to an affiliate of the purchasing partner, provided that no such assignment relieves the Purchasing Partner of its obligations in the event of a default by the affiliate. Dissolution, Winding Up and Liquidation The New Partnership Agreement provides that the Partnership shall dissolve and commence winding up and liquidating upon the first to occur of any of (i) January 1, 2053, (ii) the sale of all or substantially all of the Partnership property, (iii) the unanimous vote of the partners to dissolve, wind up, and liquidate the Partnership, (iv) the happening of any other event that makes it unlawful or impossible to carry on the business of the Partnership, (v) the occurrence of an Event of Bankruptcy (as defined the New Partnership Agreement) of a partner, or (vi) the partners are unable to agree upon a replacement managing partner as provided in the New Partnership Agreement (each, a "Liquidating Event"). The New Partnership Agreement also includes the partners' agreement that the Partnership shall not dissolve prior to the occurrence of a Liquidating Event, notwithstanding any provision of the Nevada Uniform Partnership Act to the contrary. If it is determined by a court of competent jurisdiction that the Partnership has dissolved prior to the occurrence of a Liquidating Event, the partners have agreed to continue the business of the Partnership without a winding up or liquidation. Upon the occurrence of a Liquidating Event, the Partnership will continue solely for the purpose of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and partners. The managing partner will be responsible for overseeing the winding up and liquidation of the Partnership, taking full account of the Partnership's liabilities and assets, causing the assets to be liquidated as promptly as is consistent with obtaining the fair market value thereof, and causing the proceeds therefrom, to the extent sufficient therefor, to be applied and distributed (i) first, to the payment and discharge of all of the Partnership's debts and liabilities to creditors other than partners, (ii) second, to the payment and discharge of all of the Partnership's debts and liabilities to partners, and (iii) the balance, if any, to the partners in the amount of their respective capital accounts, after giving effect to all contributions, distributions, and allocations for all periods or portions thereof. 66 THE EXCHANGE OFFER General As of the date of this prospectus, $160 million in principal amount of the old notes is outstanding. This prospectus, together with the letter of transmittal, is first being sent to holders on , 2002. Purpose of the Exchange Offer We issued the old notes on March 5, 2002 in a transaction exempt from the registration requirements of the Securities Act of 1933 (the "Securities Act"). Accordingly, the old notes may not be reoffered, resold, or otherwise transferred unless so registered or unless an applicable exemption from the registration and prospectus delivery requirements of the Securities Act is available. In connection with the sale of the old notes, we entered into a registration rights agreement, which requires us to: . file a registration statement with the Securities and Exchange Commission (the "Commission") relating to the exchange offer not later than 60 days after the date of issuance of the old notes; . to cause the registration statement relating to the exchange offer to become effective under the Securities Act within 150 days after the date of issuance of the old notes; and . to complete the exchange offer within 30 business days after the effective date of the registered statement or such longer period as may be required by the federal securities laws or, if obligated to file a shelf registration statement, to use our best efforts to file the shelf registration statement with the Commission as promptly as practicable after the filing obligation arises and to cause the shelf registration statement to be declared effective by the 90th day after such obligation arises. We have filed a copy of the registration rights agreement as an exhibit to the registration statement of which this prospectus is a part. We are making the exchange offer to satisfy our obligations under the registration rights agreement. Other than pursuant to the registration rights agreement, we are not required to file any registration statement to register any outstanding old notes. Holders of old notes who do not tender their old notes or whose old notes are tendered but not accepted in the exchange offer must rely on an exemption from the registration requirements under the securities laws, including the Securities Act, if they wish to sell their old notes. We are making the exchange offer in reliance on the position of the staff of the Commission as set forth in interpretive letters addressed to third parties in other transactions. However, we have not sought our own interpretive letter and we can provide no assurance that the staff would make a similar determination with respect to the exchange offer as it has in interpretive letters to third parties. Based on these interpretations by the staff, we believe that the exchange notes issued in the exchange offer in exchange for old notes may be offered for resale, resold and otherwise transferred by a holder other than any holder who is a broker-dealer or an "affiliate" of ours within the meaning of Rule 405 of the Securities Act, without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that: . the exchange notes are acquired in the ordinary course of the holder's business; . the holder has no arrangement or understanding with any person to participate in the distribution of the exchange notes; and . the holder is not engaged in, and does not intend to engage in a distribution of the exchange notes. For additional information, see the discussion in this section under the subheading "Resale of Exchange Notes." Each broker-dealer that receives exchange notes for its own account in exchange for old notes, where the broker-dealer acquired the old notes as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. For additional information, see the section "Plan of Distribution" in this prospectus. 67 Terms of the Exchange We are offering to exchange, subject to the conditions described in this prospectus and in the letter of transmittal accompanying this prospectus, $1,000 in principal amount of exchange notes for each $1,000 in principal amount of the old notes. The terms of the exchange notes are identical in all material respects to the terms of the old notes, except that the exchange notes will generally be freely transferable by holders of the exchange notes and will not be subject to the terms of the registration rights agreement. The exchange notes will evidence the same indebtedness as the old notes exchanged therefor and will be entitled to the benefits of the indenture. For additional information, see the section "Description of the Notes" in this prospectus. The exchange offer is not conditioned upon the tender of any minimum principal amount of old notes. We have not requested, and do not intend to request, an interpretation by the staff of the Commission as to whether the exchange notes issued in exchange for the old notes may be offered for sale, resold or otherwise transferred by any holder without compliance with the registration and prospectus delivery provisions of the Securities Act. Instead, based on an interpretation by the staff of the Commission set forth in a series of no-action letters issued to third parties, we believe that exchange notes issued in the exchange offer in exchange for old notes may be offered for sale, resold and otherwise transferred by any holder of exchange notes, other than any holder that is a broker-dealer or is an "affiliate" of ours within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that: . the exchange notes are acquired in the ordinary course of the holder's business; . the holder has no arrangement or understanding with any person to participate in the distribution of the exchange notes; and . the holder is not engaged in, and does not intend to engage in a distribution of the exchange notes. Since the Commission has not considered the exchange offer in the context of a no-action letter, we can provide no assurance that the staff of the Commission would make a similar determination with respect to the exchange offer. Any holder who is an affiliate of ours or who tenders old notes in the exchange offer for the purpose of participating in a distribution of the exchange notes cannot rely on the interpretation by the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of exchange notes. Each broker-dealer that receives exchange notes for its own account in exchange for old notes, where the broker-dealer acquired the old notes as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. For additional information, see the section "Plan of Distribution" in this prospectus. The exchange notes will accrue interest from the last interest payment date on which interest was paid on the old notes or, if no interest was paid on the old notes, from the date of issuance of the old notes, which was on March 5, 2002. Holders whose old notes are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the old notes. Tendering holders of the old notes will not be required to pay brokerage commissions or fees or, transfer taxes, except as specified in the instructions in the letter of transmittal, with respect to the exchange of the old notes in the exchange offer. Expiration Date; Extension; Termination; Amendment The exchange offer will expire at 5:00 p.m., New York City time, on , 2002, unless we, in our sole discretion, have extended the period of time for which the exchange offer is open. The time and date, as it may be extended, is referred to herein as the "expiration date." The expiration date will be at least 20 business 68 days after the commencement of the exchange offer in accordance with Rule 14e-1(a) under the Exchange Act. We expressly reserve the right, at any time or from time to time, to extend the period of time during which the exchange offer is open, and thereby delay acceptance for exchange of any old notes. We will extend the expiration date by giving oral or written notice of the extension to the exchange agent and by timely public announcement no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. During the extension, all old notes previously tendered will remain subject to the exchange offer unless properly withdrawn. We expressly reserve the right to: . terminate or amend the exchange offer and not to accept for exchange any old notes not previously accepted for exchange upon the occurrence of any of the events specified in this section under the subheading "Certain Conditions to the Exchange Offer" which have not been waived by us; and . amend the terms of the exchange offer in any manner which, in our good faith judgment, is advantageous to the holders of the old notes, whether before or after any tender of the old notes. If any termination or amendment occurs, we will notify the exchange agent and will either issue a press release or give oral or written notice to the holders of the old notes as promptly as practicable. For purposes of the exchange offer, a "business day" means any day other than Saturday, Sunday or a date on which banking institutions are required or authorized by New York State law to be closed, and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. Unless we terminate the exchange offer prior to 5:00 p.m., New York City time, on the expiration date, we will exchange the exchange notes for the old notes promptly following the expiration date. Procedures For Tendering Old Notes Our acceptance of old notes tendered by a holder will constitute a binding agreement between the tendering holder and us upon the terms and subject to the conditions described in this prospectus and in the accompanying letter of transmittal. All references in this prospectus to the letter of transmittal are deemed to include a facsimile of the letter of transmittal. A holder of old notes may tender the old notes by: . properly completing and signing the letter of transmittal; . properly completing any required signature guarantees; . properly completing any other documents required by the letter of transmittal; and . delivering all of the above, together with the certificate or certificates representing the old notes being tendered, to the exchange agent at its address set forth below on or prior to the expiration date; or . complying with the procedure for book-entry transfer described below; or . complying with the guaranteed delivery procedures described below. The method of delivery of old notes, letters of transmittal and all other required documents is at the election and risk of the holders. If the delivery is by mail, it is recommended that registered mail properly insured, with return receipt requested, be used. In all cases, sufficient time should be allowed to ensure timely delivery. Holders should not send old notes or letters of transmittal to us. The signature on the letter of transmittal need not be guaranteed if: . tendered old notes are registered in the name of the signer of the letter of transmittal; and 69 . the exchange notes to be issued in exchange for the old notes are to be issued in the name of the holder; and . any untendered old notes are to be reissued in the name of the holder. In any other case, the tendered old notes must be: . endorsed or accompanied by written instruments of transfer in form satisfactory to us; . duly executed by the holder; and . the signature on the endorsement or instrument of transfer must be guaranteed by a bank, broker, dealer, credit union, savings association, clearing agency or other institution, each an "eligible institution" that is a member of a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Exchange Act. If the exchange notes and/or old notes not exchanged are to be delivered to an address other than that of the registered holder appearing on the note register for the old notes, the signature in the letter of transmittal must be guaranteed by an eligible institution. The exchange agent will make a request within two business days after the date of receipt of this prospectus to establish accounts with respect to the old notes at The Depository Trust Company, the "book-entry transfer facility," for the purpose of facilitating the exchange offer. We refer to the Depository Trust Company in this prospectus as "DTC." Subject to establishing the accounts, any financial institution that is a participant in the book-entry transfer facility's system may make book-entry delivery of old notes by causing the book-entry transfer facility to transfer the old notes into the exchange agent's account with respect to the old notes in accordance with the book-entry transfer facility's procedures for the transfer. Although delivery of old notes may be effected through book-entry transfer into the exchange agent's account at the book-entry transfer facility, an appropriate letter of transmittal with any required signature guarantee and all other required documents, or an agent's message, must in each case be properly transmitted to and received or confirmed by the exchange agent at its address set forth below prior to the expiration date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. The exchange agent and DTC have confirmed that the exchange offer is eligible for the DTC Automated Tender Offer Program. We refer to the Automated Tender Offer Program in this prospectus as "ATOP." Accordingly, DTC participants may, in lieu of physically completing and signing the letter of transmittal and delivering it to the exchange agent, electronically transmit their acceptance of the exchange offer by causing DTC to transfer old notes to the exchange agent in accordance with DTC's ATOP procedures for transfer. DTC will then send an agent's message. The term "agent's message" means a message which: . is transmitted by DTC; . received by the exchange agent and forming part of the book-entry transfer; . states that DTC has received an express acknowledgment from a participant in DTC that is tendering old notes which are the subject of the book-entry transfer; . states that the participant has received and agrees to be bound by all of the terms of the letter of transmittal; and . states that we may enforce the agreement against the participant. If a holder desires to accept the exchange offer and time will not permit a letter of transmittal or old notes to reach the exchange agent before the expiration date or the procedure for book-entry transfer cannot be completed on a timely basis, the holder may effect a tender if the exchange agent has received at its address set forth below 70 on or prior to the expiration date, a letter, telegram or facsimile transmission, and an original delivered by guaranteed overnight courier, from an eligible institution setting forth: . the name and address of the tendering holder; . the names in which the old notes are registered and, if possible, the certificate numbers of the old notes to be tendered; and . a statement that the tender is being made thereby and guaranteeing that within three business days after the expiration date, the old notes in proper form for transfer, or a confirmation of book-entry transfer of such old notes into the exchange agent's account at the book-entry transfer facility and an agent's message, will be delivered by the eligible institution together with a properly completed and duly executed letter of transmittal and any other required documents. Unless old notes being tendered by the above-described method are deposited with the exchange agent, a tender will be deemed to have been received as of the date when: . the tendering holder's properly completed and duly signed letter of transmittal, or a properly transmitted agent's message, accompanied by the old notes or a confirmation of book-entry transfer of the old notes into the exchange agent's account at the book-entry transfer facility is received by the exchange agent; or . a notice of guaranteed delivery or letter, telegram or facsimile transmission to similar effect from an eligible institution is received by the exchange agent. Issuances of exchange notes in exchange for old notes tendered pursuant to a notice of guaranteed delivery or letter, telegram or facsimile transmission to similar effect by an eligible institution will be made only against deposit of the letter of transmittal and any other required documents and the tendered old notes or a confirmation of book-entry and an agent's message. All questions as to the validity, form, eligibility, including time of receipt, and acceptance of old notes tendered for exchange will be determined by us in our sole discretion, which determination will be final and binding. We reserve the absolute right to reject any and all tenders of any old notes not properly tendered or not to accept any old notes which acceptance might, in our judgment or the judgment of our counsel, be unlawful. We also reserve the absolute right to waive any defects or irregularities or conditions of the exchange offer as to any old notes either before or after the expiration date, including the right to waive the ineligibility of any holder who seeks to tender old notes in the exchange offer. The interpretation of the terms and conditions of the exchange offer, including the letter of transmittal and the instructions contained in the letter of transmittal, by us will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes for exchange must be cured within such reasonable period of time as we determine. Neither we, the exchange agent nor any other person has any duty to give notification of any defect or irregularity with respect to any tender of old notes for exchange, nor will any of us incur any liability for failure to give such notification. If the letter of transmittal is signed by a person or persons other than the registered holder or holders of old notes, the old notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders appear on the old notes. If the letter of transmittal or any old notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by us, such persons must submit proper evidence satisfactory to us of their authority to so act. By tendering, each holder represents to us that, among other things: . the exchange notes acquired pursuant to the exchange offer are being acquired in the ordinary course of business of the holder; 71 . the holder is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the exchange notes; and . the holder is not an "affiliate," as defined under Rule 405 of the Securities Act, of ours. Each broker-dealer that receives exchange notes for its own account in exchange for old notes, where the broker-dealer acquired the old notes as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. For additional information, see the section "Plan of Distribution" in this prospectus. Terms and Conditions of the Letter of Transmittal The letter of transmittal contains, among other things, the following terms and conditions, which are part of the exchange offer. The party tendering old notes for exchange exchanges, assigns and transfers the old notes to us and irrevocably constitutes and appoints the exchange agent as his agent and attorney-in-fact to cause the old notes to be assigned, transferred and exchanged. We refer to the party tendering notes herein as the "transferor." The transferor represents and warrants that it has full power and authority to tender, exchange, assign and transfer the old notes and to acquire exchange notes issuable upon the exchange of the tendered old notes, and that, when the same are accepted for exchange, we will acquire good and unencumbered title to the tendered old notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The transferor also warrants that it will, upon request, execute and deliver any additional documents deemed by the exchange agent or us to be necessary or desirable to complete the exchange, assignment and transfer of tendered old notes or transfer ownership of such old notes on the account books maintained by a book-entry transfer facility. The transferor further agrees that acceptance of any tendered old notes by us and the issuance of exchange notes in exchange for old notes will constitute performance in full by us of various of our obligations under the registration rights agreement. All authority conferred by the transferor will survive the death or incapacity of the transferor and every obligation of the transferor will be binding upon the heirs, legal representatives, successors, assigns, executors and administrators of the transferor. The transferor certifies that it is not an "affiliate" of ours within the meaning of Rule 405 under the Securities Act and that it is acquiring the exchange notes offered hereby in the ordinary course of the transferor's business and that the transferor has no arrangement with any person to participate in the distribution of the exchange notes. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of exchange notes. Each transferor which is a broker-dealer receiving exchange notes for its own account must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. By so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Withdrawal Rights Tenders of old notes may be withdrawn at any time prior to the expiration date. For a withdrawal to be effective, a written notice of withdrawal sent by telegram, facsimile transmission, with receipt confirmed by telephone, or letter must be received by the exchange agent at the address set forth in this prospectus prior to the expiration date. Any notice of withdrawal must: . specify the name of the person having tendered the old notes to be withdrawn; . identify the old notes to be withdrawn, including the certificate number or numbers and principal amount of such old notes; 72 . specify the principal amount of old notes to be withdrawn; . include a statement that the holder is withdrawing his election to have the old notes exchanged; . be signed by the holder in the same manner as the original signature on the letter of transmittal by which the old notes were tendered or as otherwise described above, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee under the indenture register the transfer of the old notes into the name of the person withdrawing the tender; and . specify the name in which any such old notes are to be registered, if different from that of the person who tendered the old notes. The exchange agent will return the properly withdrawn old notes promptly following receipt of the notice of withdrawal. If old notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn old notes or otherwise comply with the book-entry transfer facility procedure. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by us and our determination will be final and binding on all parties. Any old notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any old notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder without cost to the holder. In the case of old notes tendered by book-entry transfer into the exchange agent's account at the book-entry transfer facility pursuant to the book-entry transfer procedures described above, the old notes will be credited to an account with the book-entry transfer facility specified by the holder. In either case, the old notes will be returned as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn old notes may be retendered by following one of the procedures described in this section under the subheading "Procedures for Tendering Old Notes" at any time prior to the expiration date. Acceptance of Old Notes for Exchange; Delivery of Exchange Notes Upon satisfaction or waiver of all of the conditions to the exchange offer, we will accept, on the expiration date, all old notes properly tendered and will issue the exchange notes promptly after such acceptance. See the discussion in this section under the subheading "Certain Conditions to the Exchange Offer" for more detailed information. For purposes of the exchange offer, we will be deemed to have accepted properly tendered old notes for exchange when, and if, we have given oral or written notice of our acceptance to the exchange agent. For each old note accepted for exchange, the holder of the old note will receive an exchange note having a principal amount equal to that of the surrendered old note. In all cases, issuance of exchange notes for old notes that are accepted for exchange pursuant to the exchange offer will be made only after: . timely receipt by the exchange agent of certificates for the old notes or a timely book-entry confirmation of the old notes into the exchange agent's account at the book-entry transfer facility; . a properly completed and duly executed letter of transmittal, or a properly transmitted agent's message; and . timely receipt by the exchange agent of all other required documents. If any tendered old notes are not accepted for any reason described in the terms and conditions of the exchange offer or if old notes are submitted for a greater principal amount than the holder desires to exchange, the unaccepted or nonexchanged old notes will be returned without expense to the tendering holder of the old notes. In the case of old notes tendered by book-entry transfer into the exchange agent's account at the book- 73 entry transfer facility pursuant to the book-entry transfer procedures described above, the non-exchanged old notes will be credited to an account maintained with the book-entry transfer facility. In either case, the old notes will be returned as promptly as practicable after the expiration of the exchange offer. Certain Conditions to the Exchange Offer Notwithstanding any other provision of the exchange offer, or any extension of the exchange offer, we will not be required to accept for exchange, or to issue exchange notes in exchange for, any old notes and may terminate or amend the exchange offer, by oral or written notice to the exchange agent or by a timely press release, if at any time before the acceptance of the old notes for exchange or the exchange of the exchange notes for such old notes, any of the following conditions exist: . any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer which, in our judgment would reasonably be expected to impair our ability to proceed with the exchange offer; or . the exchange offer, or the making of any exchange by a holder, violates applicable law or any applicable interpretation of the staff of the Commission. Regardless of whether any of the conditions has occurred, we may amend the exchange offer in any manner which, in our good faith judgment, is advantageous to holders of the old notes. The conditions described above are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to the condition or we may waive any condition in whole or in part at any time and from time to time in our sole discretion. Our failure at any time to exercise any of the rights described above will not be deemed a waiver of the right and each right will be deemed an ongoing right which we may assert at any time and from time to time. If we waive or amend the conditions above, we will, if required by law, extend the exchange offer for a minimum of five business days from the date that we first give notice, by public announcement or otherwise, of the waiver or amendment, if the exchange offer would otherwise expire within the five business-day period. Any determination by us concerning the events described above will be final and binding upon all parties. The exchange offer is not conditioned upon any minimum principal amount of old notes being tendered. Exchange Agent The Bank of New York has been appointed as the exchange agent for the exchange offer. All executed letters of transmittal should be directed to the exchange agent at one of the addresses set forth below: By Registered Facsimile Transactions: By Hand or Overnight or Certified Mail: (Eligible Institutions Delivery: The Bank of New York Only) The Bank of New York Corporate Trust Department (212) 235-2261 Corporate Trust Department Reorganization Unit To Confirm by Telephone Reorganization Unit 15 Broad Street, 16th or for Information Call: 15 Broad Street, 16th Floor (212) 235-2354 Floor New York, New York 10007 New York, New York 10007 Attn: Ms. Carolle Attn: Ms. Carolle Montreuil Montreuil You should direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery to the exchange agent at the address and telephone number set forth in the letter of transmittal. 74 Delivery to an address other than as set forth on the letter of transmittal, or transmissions of instructions via a facsimile number other than the one set forth on the letter of transmittal, will not constitute a valid delivery. Solicitation of Tenders; Fees and Expenses We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. We, however, will pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. We will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this and other related documents to the beneficial owners of the old notes and in handling or forwarding tenders for their customers. We will pay the expenses to be incurred in connection with the exchange offer. We estimate the expenses to be approximately $175,000, which includes fees and expenses of the exchange agent and trustee, registration fees, and accounting, legal, printing and related fees and expenses. No person has been authorized to give any information or to make any representations in connection with the exchange offer other than those contained in this prospectus. If given or made, such information or representations should not be relied upon as having been authorized by us. Neither the delivery of this prospectus nor any exchange made pursuant to this prospectus, under any circumstances, creates any implication that there has been no change in our affairs since the respective dates as of which information is given in this prospectus. The exchange offer is not being made to, and tenders will not be accepted from or on behalf of, holders of old notes in any jurisdiction in which the making of the exchange offer or the acceptance of the exchange offer would not be in compliance with the laws of the jurisdiction. However, we may, at our discretion, take such action as we may deem necessary to make the exchange offer in the jurisdiction and extend the exchange offer to holders of old notes in the jurisdiction. In any jurisdiction the securities laws or blue sky laws of which require the exchange offer to be made by a licensed broker or dealer, the exchange offer is being made on our behalf by one or more registered brokers or dealers which are licensed under the laws of the jurisdiction. Transfer Taxes We will pay all transfer taxes, if any, applicable to the exchange of old notes pursuant to the exchange offer. However, the transfer taxes will be payable by the tendering holder if: . certificates representing exchange notes or old notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the old notes tendered; or . tendered old notes are registered in the name of any person other than the person signing the letter of transmittal; or . a transfer tax is imposed for any reason other than the exchange of old notes pursuant to the exchange offer. We will bill the amount of the transfer taxes directly to the tendering holder if satisfactory evidence of payment of the taxes or exemption therefrom is not submitted with the letter of transmittal. Accounting Treatment For accounting purposes, we will not recognize gain or loss upon the exchange of the exchange notes for old notes. We will amortize expenses incurred in connection with the issuance of the exchange notes over the term of the exchange notes. 75 Consequences Of Failure To Exchange Holders of old notes who do not exchange their old notes for exchange notes pursuant to the exchange offer will continue to be subject to the restrictions on transfer of the old notes as described in the legend on the old notes. Old notes not exchanged pursuant to the exchange offer will continue to remain outstanding in accordance with their terms. In general, the old notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not currently anticipate that we will register the old notes under the Securities Act. Participation in the exchange offer is voluntary, and holders of old notes should carefully consider whether to participate. Holders of old notes are urged to consult their financial and tax advisors in making their own decision on what action to take. As a result of the making of, and upon acceptance for exchange of all validly tendered old notes pursuant to the terms of, this exchange offer, we will have fulfilled a covenant contained in the registration rights agreement. Holders of old notes who do not tender their old notes in the exchange offer will continue to hold the old notes and will be entitled to all the rights and limitations applicable to the old notes under the indenture, except for any rights under the registration rights agreement that by their terms terminate or cease to have further effectiveness as a result of the making of this exchange offer. All untendered old notes will continue to be subject to the restrictions on transfer described in the indenture. To the extent that old notes are tendered and accepted in the exchange offer, the trading market for untendered old notes could be adversely affected. We may in the future seek to acquire, subject to the terms of the indenture, untendered old notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plan to acquire any old notes which are not tendered in the exchange offer. Resale of Exchange Notes We are making the exchange offer in reliance on the position of the staff of the Commission as set forth in interpretive letters addressed to third parties in other transactions. However, we have not sought our own interpretive letter and we can provide no assurance that the staff would make a similar determination with respect to the exchange offer as it has in such interpretive letters to third parties. Based on these interpretations by the staff, we believe that the exchange notes issued pursuant to the exchange offer in exchange for old notes may be offered for resale, resold and otherwise transferred by a holder, other than any holder who is a broker-dealer or an "affiliate" of ours within the meaning of Rule 405 of the Securities Act, without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that: . the exchange notes are acquired in the ordinary course of the holder's business; and . the holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution of the exchange notes. However, any holder who is: . an "affiliate" of ours; . who has an arrangement or understanding with respect to the distribution of the exchange notes to be acquired pursuant to the exchange offer; or . any broker-dealer who purchased old notes from us to resell pursuant to Rule 144A or any other available exemption under the Securities Act, could not rely on the applicable interpretations of the staff and must comply with the registration and prospectus delivery requirements of the Securities Act. A broker-dealer who holds old notes that were acquired for its own account as a result of market-making or other trading activities may be deemed to be an "underwriter" within the meaning of the Securities Act and must, therefore, deliver a prospectus meeting the requirements of the 76 Securities Act in connection with any resale of exchange notes. Each such broker-dealer that receives exchange notes for its own account in exchange for old notes, where the broker-dealer acquired the old notes as a result of market-making activities or other trading activities, must acknowledge, as provided in the letter of transmittal, that it will deliver a prospectus in connection with any resale of such exchange notes. For more detailed information, see the section "Plan of Distribution" in this prospectus. In addition, to comply with the securities laws of various jurisdictions, if applicable, the exchange notes may not be offered or sold unless they have been registered or qualified for sale in the jurisdiction or an exemption from registration or qualification is available and is complied with. We have agreed, pursuant to the registration rights agreement and subject to specified limitations therein, to register or qualify the exchange notes for offer or sale under the securities or blue sky laws of the jurisdictions as any holder of the exchange notes reasonably requests. The registration or qualification may require the imposition of restrictions or conditions, including suitability requirements for offerees or purchasers, in connection with the offer or sale of any exchange notes. Shelf Registration Statement If: . we are not permitted to consummate the exchange offer because the exchange offer is not permitted by applicable law or Commission policy; or . any holder of Transfer Restricted Securities notifies us prior to the 20th day following consummation of the exchange offer that: . it is prohibited by law or Commission policy from participating in the exchange offer; or . it may not resell the exchange notes required by it in the exchange offer to the public without delivering a prospectus and this prospectus is not appropriate or available for such resales; or . it is a broker-dealer and owns notes acquired directly from us or one of our affiliates, we will file with the Commission a shelf registration statement to cover resales of the notes by the holders thereof who satisfy certain conditions relating to the provision of information in connection with the shelf registration statement. For purposes of the preceding, "Transfer Restricted Securities" means each note until: . the date on which such note has been exchanged by a person other than a broker-dealer for an exchange note in the exchange offer; . following the exchange by a broker-dealer in the exchange offer of an old note for an exchange note, the date on which such exchange note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of this prospectus; . the date on which such note has been effectively registered under the Securities Act and disposed of in accordance with the shelf registration statement; or . the date on which such note is distributed to the public pursuant to Rule 144 under the Securities Act. If we become obligated to file a shelf registration statement, we will use our best efforts to file the shelf registration statement with the Commission as promptly as practicable after the filing obligation arises and to cause the shelf registration statement to be declared effective by the Commission on or prior to 90 days after the obligation arises. We will, in the event of the filing of a shelf registration statement, provide to each holder of the old notes copies of the prospectus which is a part of the shelf registration statement, notify each holder when the shelf 77 registration statement for the old notes has become effective and take other actions as are required to permit unrestricted resales of the old notes. A holder of old notes that sells the old notes pursuant to the shelf registration statement generally: . will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers; . will be subject to some of the civil liability provisions under the Securities Act in connection with the sales; and . will be bound by the provisions of the registration rights agreement which are applicable to the holder, including specified indemnification obligations. In addition, each holder of the old notes will be required to deliver information to be used in connection with the shelf registration statement and to provide comments on the shelf registration statement within the time periods specified in the registration rights agreement in order to have their old notes included in the shelf registration statement and to benefit from the provisions regarding liquidated damages described below. Liquidated Damages The registration rights agreement states that if: (a) any registration statement required by the registration rights agreement is not filed with the Commission on or prior to the applicable filing deadline specified in the registration rights agreement; (b) any registration statement is not declared effective on or prior to the date specified in the registration rights agreement for effectiveness; (c) the exchange offer is not consummated within 30 business days following the date on which the registration statement of which this prospectus is a part is declared effective; or (d) any registration statement required by the registration rights agreement is filed and declared effective but later ceases to be effective or usable for its intended purpose, we will pay liquidated damages to each holder of old notes with respect to the first 90-day period immediately following the occurrence of any of the events described in (a) through (d) above, each of which will constitute a registration default, up to an amount equal to $0.05 per week per $1,000 principal amount of old notes held by the holder. The amount of liquidated damages will increase by an additional $0.05 per week per $1,000 principal amount of old notes with respect to each subsequent 90-day period until all registration defaults have been cured, up to a maximum amount of liquidated damages for all registration defaults of $0.25 per week per $1,000 principal amount of old notes. Following the cure of all registration defaults, the accrual of liquidated damages will cease. The registration statement of which this prospectus is a part was filed within the period specified in the registration rights agreement. 78 DESCRIPTION OF THE NOTES The exchange notes will be issued under an Indenture among Circus and Eldorado Joint Venture (the "Partnership") and Silver Legacy Capital Corp. ("Capital"), as issuers (together, the "Issuers"), and The Bank of New York, as trustee (the "Trustee"), pursuant to which we issued the old notes (collectively with the exchange notes, referred to in the following description as the "Notes"). The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The following description is a summary of the material provisions of the Indenture, the Registration Rights Agreement and the Collateral Documents. Except as otherwise indicated, cross references in this description of the Notes are to subsections in this description of the Notes. The Indenture, the Registration Rights Agreement and the Collateral Documents, and not this description, determine the rights of holders of the Notes. Copies of the Indenture, the Registration Rights Agreement and the Collateral Documents have been filed as exhibits to the registration statement of which this prospectus is a part. Definitions of certain terms used in this description are found under the subheading "-- Certain Definitions." Certain defined terms used in this description but not defined below under "-- Certain Definitions" have the meanings assigned to them in the Indenture. Capital is a wholly owned subsidiary of the Partnership that was incorporated in Nevada for the purpose of serving as a co-issuer of the Notes in order to facilitate the issuance of the Notes. Capital has no operations or assets and will not have any revenues. As a result, investors should not expect Capital to participate in servicing the interest and principal obligations on the Notes. See "-- Certain Covenants." Brief Description of the Notes The Notes: . are senior secured obligations of the Issuers; . are secured by: (1) a security interest in substantially all of the Issuers' existing and future assets, other than certain licenses which may not be pledged under applicable law; and (2) subject to approval of the Nevada Gaming Authorities,will be secured by a pledge of the partnership interests of the Partnership; . rank pari passu in right of payment to any existing and future senior indebtedness of the Issuers; and . rank senior in right of payment with any of the Issuers' existing and future subordinated Indebtedness. The pledge of and security interest in the partnership interests and the security interest in the Issuers' existing and future assets securing the Issuers' obligation on the Notes will be junior to the pledge of and security interest in such assets securing the Partnership's obligations on the New Credit Facility and any refinancings of such facility that are permitted pursuant to the terms of the Indenture. Principal, Maturity and Interest The Notes are issued in denominations of $1,000 and integral multiples of $1,000 and have a maximum aggregate principal amount of $160.0 million. The Issuers will be permitted to issue additional notes from time to time under the Indenture; provided that the aggregate principal amount of Notes and the additional notes that are issued under the Indenture may not exceed $180.0 million. Any offering of additional notes will be subject to the covenant described under the caption "Certain Covenants -- Limitation on Indebtedness." The Notes and any additional notes subsequently issued under the Indenture will be treated as a single class for all purposes under the Indenture, including, without limitation, security, waivers, amendments, redemptions and offers to purchase. The Notes and any additional notes will mature on March 1, 2012. 79 Interest on the Notes will accrue at the rate of 10 1/8% per annum and will be payable semi-annually in arrears on March 1 and September 1, commencing on September 1, 2002. Interest payments will be made to the holders of record on the immediately preceding February 15 and August 15. Interest on the Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Methods of Receiving Payments on the Notes All payments on Notes will be made at the office or agency of the paying agent and registrar within the City and State of New York unless the Issuers elect to make interest payments by check mailed to the holders at their addresses set forth in the register of holders. Payments on the Notes shall be considered paid on the date they are due if the Trustee or paying agent (other than any Issuer or an Affiliate of any Issuer) holds for the benefit of the holders of the Notes, at the date and time due, in immediately payable funds deposited and designated for and sufficient to make all such payments then due. Paying Agent and Registrar for the Notes The Trustee is acting as paying agent and registrar. The Issuers may change the paying agent or registrar without prior notice to the holders. So long as no default has occurred under the Indenture, the Partnership or any of its Subsidiaries may act as paying agent or registrar. Transfer and Exchange A holder may transfer or exchange Notes in accordance with the Indenture. The registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents in connection with a transfer of Notes. Holders of Notes will be required to pay any taxes and fees required by law or permitted by the Indenture. The Issuers are not required to transfer or exchange any Note selected for redemption. Also, the Issuers are not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered holder of a Note will be treated as the owner of it for all purposes. Security for the Notes The Notes, except as described below, are secured by: (1) a mortgage on all of the real property comprising the Hotel/Casino Property, including all additions and improvements and component parts related to it and issues and profits from it; (2) a security interest in all furniture, fixtures and equipment which are part of the Hotel/Casino Property, whether now owned or hereafter acquired; (3) a security interest in all of the Partnership's accounts receivable, general intangibles, inventory and other personal property not contemplated by clause (2) above, whether now owned or hereafter acquired; (4) a collateral assignment of the Partnership's interests in the principal agreements entered into by it in connection with the acquisition, ownership or operation of the Silver Legacy Resort Casino; and (5) to the extent permitted by law, a pledge of all licenses and permits relating to the Silver Legacy Resort Casino. The pledge of and security interest in the partnership interests and the security interest in the Issuers' existing and future assets securing the Issuers' obligation on the Notes are subject to Permitted Liens and are junior to the pledge of and security interest in such assets securing the Partnership's obligations on the New 80 Credit Facility and any refinancings of such facility that are permitted pursuant to the terms of the Indenture. The pledge of, and the grant of a security interest in, all of the partnership interests of the Partnership to the Trustee for the benefit of the holders of the Notes will be subject to the approval of the Nevada Gaming Authorities, which may be granted or denied at the discretion of the Nevada Gaming Authorities. The Partnership and, as and when applicable, Eldorado Limited Liability Company and Galleon, Inc. (collectively, the "Pledging Parties") and the Subsidiary Guarantors, entered into the Collateral Documents that provided for a grant of a security interest and a pledge of the Collateral to the Trustee for the benefit of the holders of the Notes. These pledges and security interests secure the payment and performance when due of all the Obligations of the Issuers and, as and when applicable, the Subsidiary Guarantors, under the Indenture, the Notes, the Subsidiary Guarantees and the Collateral Documents, as applicable. In connection with the Partnership entering into the New Credit Facility, the Trustee entered into an Intercreditor Agreement which among other things provides that the security interest securing the Issuers' obligations under the Notes is subordinate to the lien securing indebtedness outstanding under the New Credit Facility. Following any event of default under the Indenture, the Intercreditor Agreement provides that, until our obligations under the New Credit Facility have been paid in full and the commitments under the New Credit Facility have been terminated, and for a period of 90 days following the date upon which the Trustee under the Indenture gives written notice to the administrative agent under the New Credit Facility and thereafter during any bankruptcy proceeding or following acceleration of the New Credit Facility, the Trustee and the holders of the Notes will not have the right to: (i) exercise any right of set-off; (ii) exercise any right of possession or attach, seize or realize upon any of the collateral; or (iii) exercise any right under the Uniform Commercial Code, including the right of strict foreclosure, but excluding the right of redemption of assets. Such liens and security interests may also be subordinate or junior to mechanics liens and may be subordinate to, or may exclude (if precluded by the terms of such security interest), assets with respect to which a security interest is granted in connection with up to $5.0 million of indebtedness incurred to purchase, construct, improve or lease furniture, fixtures and equipment. If an Event of Default occurs and is continuing, the Trustee, in addition to any rights and remedies available to it under the Indenture and the Collateral Documents, may, subject to the Intercreditor Agreement, take such action as it is instructed by the holders to take to protect and enforce its rights in the Collateral, including the institution of sale or foreclosure proceedings. While indebtedness is outstanding under the New Credit Facility, rights of the holders of Notes and the Trustee are subject to the terms of the Intercreditor Agreement. The proceeds received by the Trustee from any sale or foreclosure will be applied, subject to the Intercreditor Agreement, first to pay the expenses of the sale or foreclosure and fees or any other amounts then payable to the Trustee under the Indenture, and thereafter to pay amounts due and payable with respect to the Notes. So long as no Default or Event of Default shall have occurred and be continuing, and subject to certain terms and conditions in the Indenture and the Collateral Documents, the Partnership, the Pledging Parties and the Subsidiary Guarantors will be entitled to receive the benefit of all cash dividends, distributions, interest and other payments made upon or with respect to the Collateral pledged by them and to exercise any voting and other consensual rights pertaining to the Collateral pledged by them. Upon the occurrence and during the continuance of an Event of Default: (1) all rights of the Partnership, the Pledging Parties and the Subsidiary Guarantors to exercise such voting or other consensual rights shall cease, and, subject to the Intercreditor Agreement, all such rights shall become vested in the Trustee which, to the extent permitted by law, will have the sole right to exercise such rights; (2) all rights of the Partnership, the Pledging Parties and the Subsidiary Guarantors to receive all cash dividends, distributions, interest and other payments made upon or with respect to the Collateral will cease 81 and such cash dividends, distributions, interest and other payments will, subject to the Intercreditor Agreement, be paid to the Trustee; and (3) the Trustee may, subject to the Intercreditor Agreement, sell the Collateral or any part thereof in accordance with the terms of the Collateral Documents. Under the terms of the Indenture and the Collateral Documents, the holders of the Notes will instruct the Trustee, subject to the Intercreditor Agreement, as to the circumstances and manner in which the Collateral shall be disposed of, including, but not limited to, the determination of whether to release all or any portion of the Collateral from the Liens created by the Collateral Documents and whether to foreclose on the Collateral following an Event of Default. Moreover, upon the full and final payment and performance of all obligations of the Issuers and the Subsidiary Guarantors under the Indenture and the Notes, the Collateral Documents will terminate and the Collateral will be released. The proceeds of any sale of the Collateral pursuant to the Indenture and the related Collateral Documents following an Event of Default may not be sufficient, after payment of expenses of sale, to satisfy payments due on the Notes. Certain Gaming Law Limitations The Trustee's ability to foreclose upon the pledged partnership interests and other gaming collateral is limited by relevant gaming laws. Regulations of the Nevada Gaming Commission provide that no person may acquire an interest in a gaming licensee or enforce a security interest in a partnership which is the holder of a gaming license without the prior approval of the Nevada Gaming Commission. As such, neither the Trustee nor any Holder is permitted to operate or manage any gaming business or assets unless such person has been licensed under applicable law for such purpose. Nevada law requires that all persons who propose to own interests in licensed gaming operations must be found suitable by the Nevada Gaming Commission before acquiring ownership of such interests. Consequently, it would be necessary for the Trustee to file an application with the Nevada Gaming Commission requesting approval to enforce the security interest in the pledged partnership interests and obtain such approval before it may take any steps to enforce the security interest. Additionally, the Trustee must file applications with the Nevada Gaming Commission requesting approval to enforce a security interest in gaming assets before it may take steps to enforce the security interest. Moreover, it would be necessary for a prospective purchaser of the pledged partnership interests or of the assets comprising our gaming businesses to file the necessary applications, be investigated, and be found suitable by the Nevada Gaming Commission before acquiring the gaming assets or the pledged partnership interests through the foreclosure sale. Under Nevada law, the applicant for such approvals must file all applications required by the Nevada Gaming Commission, be investigated, provide all information requested by the investigating agency and pay all fees and costs charged by the Nevada Gaming Commission for such investigations. These requirements may therefore limit the number of potential bidders who would participate in any foreclosure sale and may delay the sale of the pledged partnership interests or other gaming assets, either of which could have an adverse effect on the proceeds received from such sales. Certain Bankruptcy Limitations The right of the Trustee to repossess and dispose of the Collateral upon the occurrence of an Event of Default is likely to be significantly impaired by applicable bankruptcy law if a bankruptcy case were to be commenced by or against either of the Issuers prior to the Trustee having repossessed and disposed of the Collateral. Under bankruptcy law, a secured creditor such as the Trustee is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of security repossessed from that debtor, without bankruptcy court approval. Moreover, bankruptcy law permits the debtor to continue to retain and to use collateral (and the proceeds, products, offspring, rents or profits of that collateral) even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given "adequate protection." The meaning of the term "adequate protection" may vary according to circumstances, but is intended in general 82 to protect the value of the secured creditor's interest in the collateral and may include, if approved by the court, cash payments or the granting of additional security for any diminution in the value of the collateral as a result of the stay of repossession or the disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. The court has broad discretionary powers in all these matters, including the valuation of the collateral. In addition, since the enforcement of the Lien of the Trustee in cash, deposit accounts and cash equivalents may be limited in a bankruptcy case, the holders of the Notes may not have any consent rights with respect to the use of those funds by either of the Issuers or any of their Subsidiaries during the pendency of the case. In view of these considerations, it is impossible to predict how long payments under the Notes could be delayed following commencement of a bankruptcy case, whether or when the Trustee could repossess or dispose of the Collateral or whether or to what extent holders of the Notes would be compensated for any delay in payment or loss of value of the Collateral. Subsidiary Guarantees The Partnership does not currently have any Subsidiaries other than Capital. If the Partnership forms or acquires any Subsidiaries in the future, each of such Subsidiaries that is a Restricted Subsidiary and has at any time Total Assets in excess of $1.0 million will jointly and severally guarantee the Issuers' obligations under the Notes. The Subsidiary Guarantees will be secured by a security interest in substantially all of the Subsidiary Guarantors' existing and future assets and a pledge to the Trustee for the benefit of the holders of the Notes of the Capital Stock of each such Subsidiary Guarantor. The security interest in the Subsidiary Guarantors' existing and future assets securing the obligations on the Subsidiary Guarantees will be junior to the security interest on such assets securing the Subsidiary Guarantors' obligations on the guarantees of the New Credit Facility and any refinancings of such facility that are permitted pursuant to the terms of the Indenture. The obligation of each Subsidiary Guarantor under its Subsidiary Guarantee is intended to be limited as necessary to prevent that Subsidiary Guarantee from becoming a fraudulent conveyance under applicable law. Optional Redemption At any time prior to March 1, 2005, the Issuers may, on any one or more occasions, redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture at a redemption price of 110.125% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date, with the net cash proceeds of one or more sales of Capital Stock of the Partnership resulting, for each such sale, in net cash proceeds to the Partnership in excess of $25 million, provided that: (1) at least 65% of the aggregate principal amount of Notes issued under the Indenture remains outstanding immediately after the occurrence of this redemption (excluding Notes held by the Partnership and Subsidiaries of the Partnership); and (2) the redemption must occur within 45 days of the date of the closing of such offering. Except pursuant to the preceding paragraph, the Notes will not be redeemable at the option of the Issuers prior to March 1, 2007. After March 1, 2007, the Issuers may redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on March 1 of the years indicated below:
Year Percentage ---- ----------- 2007.............................. 105.0625% 2008.............................. 103.3750% 2009.............................. 101.6875% 2010 and thereafter............... 100.0000%
83 Gaming Redemption Each holder, by accepting a Note, shall be deemed to have agreed that if the gaming authority of any jurisdiction in which the Partnership, either of its partners or any of their respective Affiliates, including Eldorado Resorts LLC and Mandalay Resort Group, currently conducts, or, in the future, may conduct, directly or through a subsidiary or joint venture, gaming notifies a holder or beneficial owner of the Notes that: (1) the holder or beneficial owner must be licensed, qualified or found suitable under any applicable gaming law and the holder or beneficial owner does not apply for that license, qualification or finding of suitability within 30 days, or any shorter period as may be required by the Gaming Authority; or (2) the holder or beneficial owner will not be licensed, qualified or found suitable under an applicable gaming law; then the Issuers, at their option, may: (1) require that the holder or beneficial owner dispose of the holder's or beneficial owner's Notes within 30 days, or any earlier date as may be required by the Gaming Authority, of (A) the termination of the 30-day period described above for the holder or beneficial owner to apply for a license, qualification or finding of suitability or (B) the receipt of the notice from the Gaming Authority that the holder or beneficial owner will not be licensed, qualified or found suitable; or (2) redeem the holder's or beneficial owner's Notes at a price equal to (A) the lesser of (1) 100% of the principal amount thereof, (2) the price at which the holder or beneficial owner acquired the Notes and (3) the fair market value of the Notes, together with, in either case, accrued and unpaid interest and Liquidated Damages, if any, thereon to the earlier of the date of redemption or such earlier date as may be required by the Gaming Authority or the date of the finding of unsuitability by such Gaming Authority, which may be less than 30 days following the notice of redemption, if so ordered by the Gaming Authority or (B) such other price as shall be ordered by the Gaming Authority. Immediately upon a determination that a holder or beneficial owner will not be licensed, qualified or found suitable, the holder or beneficial owner will have no further rights (1) to exercise any right conferred by the Notes, directly or indirectly, through any trustee, nominee or any other Person or entity, or (2) to receive any interest or other distribution or payment with respect to the Notes or any remuneration in any form from the Issuers for services rendered or otherwise, except the redemption price of the Notes. The holder or beneficial owner of Notes applying for a license, qualification or a finding of suitability must pay all costs of the licenses or investigation for this qualification or finding of suitability. The Issuers are not required to pay or reimburse any holder or beneficial owner of Notes who is required to apply for any license, qualification or finding of suitability. Mandatory Redemption The Issuers are not required to make mandatory redemption or sinking fund payments with respect to the Notes. Repurchase at the Option of Holders Change of Control If a Change of Control occurs, each holder of Notes will have the right to require the Issuers to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of that holder's Notes pursuant to a Change of Control offer on the terms set forth in the Indenture (the "Change of Control Offer"). In the Change of Control Offer, the Issuers will offer a payment in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the date of purchase 84 (the "Change of Control Payment"). Within 30 days following any Change of Control, the Issuers will mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in that notice (the "Change of Control Payment Date"). That date will be no earlier than 30 days and no later than 60 days from the date the notice is mailed, pursuant to the procedures required by the Indenture and described in the notice. The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Indenture, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the Indenture by virtue of that conflict. On the Change of Control Payment Date, the Issuers will, to the extent lawful: (1) accept for payment all Notes or portions thereof properly tendered under the Change of Control Offer; (2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes so tendered; and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Issuers. The paying agent will promptly mail to each holder of Notes so tendered the Change of Control Payment for those Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Issuers will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described above that require the Issuers to make a Change of Control Offer following a Change of Control will apply regardless of whether any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the holders of the Notes to require the Issuers to repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. The Issuers will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements outlined in the Indenture applicable to a Change of Control Offer made by the Issuers and purchases all Notes validly tendered and not withdrawn under that Change of Control Offer. The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the Issuers and all of their Subsidiaries properties or assets. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Issuers to repurchase those Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the Issuers' assets to another Person or group may be uncertain. 85 Asset Sales The Partnership will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) no Default or Event of Default exists or is continuing immediately prior to and after giving effect to the Asset Sale; (2) the Partnership or the Restricted Subsidiary, as the case may be, receives (i) consideration at the time of the Asset Sale at least equal to the fair market value, as determined in good faith by a majority of the members of the Partnership's Management Committee, of the assets or Equity Interests issued, sold or otherwise disposed of or (ii) in the case of a lease of assets that constitute an Asset Sale, a lease providing for rents or other consideration which are no less favorable to the Partnership or the Restricted Subsidiary, as the case may be, than the prevailing market conditions, as determined in good faith by a majority of the members of the Partnership's Management Committee; (3) if applicable, the fair market value is evidenced by a resolution of the Partnership's Management Committee set forth in an Officers' Certificate delivered to the Trustee; and (4) at least 75% of the consideration therefor received by the Partnership or the Restricted Subsidiary is in the form of cash or Cash Equivalents; provided that: (a) any liabilities (as shown on the Partnership's or the Restricted Subsidiary's most recent balance sheet) of the Partnership or the Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Subsidiary Guarantee) that are assumed by the transferee of any of those assets under a customary novation agreement that unconditionally releases the Partnership or the Restricted Subsidiary, as the case may be, from further liability will be deemed to be cash for purposes of this provision; and (b) any securities, notes or other obligations received by the Partnership or the Restricted Subsidiary from the transferee that are promptly, but in any event within 30 days of receipt, converted by the Partnership or the Restricted Subsidiary into cash will be deemed to be cash (to the extent of the cash received in that conversion) for purposes of this provision. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Partnership or the Restricted Subsidiary may apply such Net Proceeds to (a) make a capital expenditure, (b) improve real property, (c) acquire long-term assets that are used or useful in a line of business permitted by the covenant entitled "-- Business Activities" or (d) repay Indebtedness permitted by the Indenture to be incurred under (and permanently reduce, by the amount of principal repaid, the commitments, if any, under) the New Credit Facility in the following order of priority, first, Indebtedness incurred under the New Term Loan Facility, and second, Indebtedness incurred under the New Revolving Facility; provided, however, that the Partnership or the Restricted Subsidiary, as the case may be, grants to the Trustee, on behalf of the holders of Notes, a perfected security interest, subject to Permitted Liens, on any such property or assets acquired or constructed with the Net Proceeds of any such Asset Sale on the terms set forth in the Indenture and the Collateral Documents. Pending the final applications of any such Net Proceeds, the Partnership or the applicable Restricted Subsidiary may invest such Net Proceeds in Cash Equivalents which will be held in an account in which the Trustee has a perfected security interest, subject to Permitted Liens, for the benefit of the holders of Notes. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Issuers will be required to make an offer to all holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and will be payable in cash. The Issuers will commence an Asset Sale Offer with respect to Excess Proceeds within 10 business days after the date that the aggregate amount of Excess Proceeds not so applied within such 365 days exceeds $5.0 million by mailing the notice required pursuant to the 86 terms of the Indenture. If any Excess Proceeds remain after an Asset Sale Offer, they shall cease to be "Excess Proceeds" and the Partnership or the Restricted Subsidiary may use such proceeds for any purpose not prohibited by the Indenture or the Collateral Documents. If the aggregate principal amount of Notes surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee will select the Notes to be purchased in the manner described under the caption "Selection and Notice" below. The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sales provisions of the Indenture, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached the Issuers' obligations under the Asset Sale provisions of the Indenture by virtue of that conflict. Liens under the Collateral Documents on assets subject to an Asset Sale and permitted pursuant to the terms of the Indenture will be released concurrently with the consummation of such Asset Sale. Selection and Notice If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for redemption as follows: (1) if the Notes are listed, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or (2) if the Notes are not so listed, on a pro rata basis, by lot or by any other method as the Trustee deems fair and appropriate. No Notes of $1,000 or less may be redeemed in part unless all of the Notes of a holder are to be purchased or redeemed, in which case the entire outstanding amount of Notes held by such holder, even if not a multiple of $1,000, will be purchased or redeemed. Notices of redemption will be mailed by first class mail, postage prepaid, at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest and Liquidated Damages, if any, cease to accrue on Notes or portions of them called for redemption. Certain Covenants Restricted Payments The Indenture provides that the Partnership will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of the Partnership's or any Restricted Subsidiary's Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Partnership or any Restricted Subsidiary) or to the direct or indirect holders of the Partnership's or any Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Partnership or dividends or distributions payable to the Partnership or a Restricted Subsidiary); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Partnership or any Restricted Subsidiary) any Equity Interests of the Partnership or any direct or indirect parent or Affiliate of the Partnership; 87 (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value, any Indebtedness that is subordinated to the Notes or a Subsidiary Guarantee, except a payment of interest or principal at the Stated Maturity thereof; or (4) make any Restricted Investment (all payments and other actions set forth in clauses (1) through (4) being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to the Restricted Payment: (a) no Default or Event of Default has occurred and is continuing or would occur as a result thereof; (b) the Partnership would, at the time of the Restricted Payment and after giving pro forma effect thereto as if the Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption "-- Incurrence of Indebtedness and Issuance of Disqualified Stock"; and (c) the Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Partnership and its Restricted Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (2), (3), (4), (5) and (6) of the next succeeding paragraph), is less than the sum, without duplication, of: (i) 50% of the cumulative Consolidated Net Income of the Partnership for the period (taken as one accounting period) beginning on April 1, 2002 to the end of its most recently ended fiscal quarter for which internal financial statements are available at the time of the Restricted Payment (or, if such Consolidated Net Income for this period is a deficit, less 100% of this deficit); plus (ii) 100% of the aggregate net cash proceeds received by the Partnership subsequent to the issuance of the Notes as a contribution to the Partnership's common equity capital or from the issue or sale of Equity Interests of the Partnership (other than Disqualified Stock or warrants, options and other rights to acquire Disqualified Stock) or from the issue or sale of convertible or exchangeable debt securities of the Partnership that have been converted into or exchanged for Equity Interests of the Partnership (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary); plus (iii) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to that Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of that Restricted Investment; plus (iv) 50% of any dividends or distributions received by the Partnership or a Restricted Subsidiary after the date of the Indenture from an Unrestricted Subsidiary of the Partnership, to the extent that such dividends or distributions were not otherwise included in the Consolidated Net Income of the Partnership for such period; plus (v) $5.0 million. The preceding provisions will not prohibit: (1) if no Event of Default shall have occurred and be continuing or would be caused thereby, the payment of any dividend or distribution within 60 days after the date of declaration thereof, if at the date of declaration, the payment would have complied with the Indenture; (2) the redemption, repurchase, retirement, defeasance or other acquisition of subordinated Indebtedness of the Partnership or any of its Restricted Subsidiaries that is a Subsidiary Guarantor or of any Equity Interests of the Partnership in exchange for, or out of the net cash proceeds of, a substantially concurrent capital contribution or sale (other than to a Subsidiary of the Partnership) of, other Equity 88 Interests of the Partnership (other than Disqualified Stock or warrants, options and other rights to acquire Disqualified Stock); provided that the amount of the net cash proceeds that are utilized for any redemption, repurchase, retirement, defeasance or other acquisition will be excluded from clause (c)(ii) above; (3) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of the Partnership or any Restricted Subsidiary that is a Subsidiary Guarantor with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (4) so long as the Partnership is treated as a partnership or other pass-through entity for United States federal income tax purposes, distributions to equity owners of the Partnership in an amount with respect to any taxable year beginning with the 2001 taxable year not to exceed the Tax Amount for such taxable year and, in the case of 2001, only to the extent that such amounts have not been distributed prior to the date of the Indenture (it being understood that the Partnership may distribute the tax amount for any taxable year in four quarterly installments at times reasonably designed to enable its equity owners to pay estimated taxes on taxable income allocated to them by the Partnership with respect to such taxable year, the amount of each installment to be based on estimates of the excess of (x) the Tax Amount that would have been payable from the beginning of such taxable year through the end of the month preceding the date of such distribution being a taxable year over (y) distributions attributable to all prior periods during such taxable year with any over-distributions for a taxable year reducing the Tax Amount distributable with respect to the next succeeding taxable year); (5) distributions to equity owners of the Partnership made substantially concurrently with the initial issuance of the Notes in an amount not to exceed $30.0 million in the aggregate; (6) any redemption required pursuant to the provisions of the Indenture described under the captions "Gaming Redemption," "Repurchase at the Option of Holders -- Change of Control" and "-- Asset Sales" above; and (7) the redemption, repurchase, retirement or other acquisition of any Equity Interest of the Partnership to the extent required by a Gaming Authority. The amount of all Restricted Payments, other than cash, will be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued to or by the Partnership or the Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant will be determined in good faith by a majority of the Partnership's Management Committee whose resolution with respect thereto will be delivered to the Trustee. The determination of the Partnership's Management Committee must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value of assets (other than cash) or securities to be transferred or issued exceeds $5.0 million. Not later than the date of making any Restricted Payment, the Partnership will deliver to the Trustee an Officers' Certificate stating that the Restricted Payment is permitted and setting forth the basis upon which the calculations required by this "Restricted Payments" covenant were computed, together with a copy of any fairness opinion or appraisal required by the Indenture. Incurrence of Indebtedness and Issuance of Disqualified Stock The Partnership will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Partnership will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of Preferred Stock; provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of this Indebtedness, the Partnership may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock, if (x) the Fixed Charge Coverage Ratio for the Partnership's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which that additional Indebtedness is incurred would have been at least 2.0 to 1, determined on a pro-forma basis (including a pro-forma application of the net proceeds therefrom), 89 as if the additional Indebtedness had been incurred or the Disqualified Stock had been issued, as the case may be, at the beginning of the four-quarter period and (y) no Default or Event of Default will have occurred and be continuing at the time of or would occur after giving pro forma effect to such incurrence or issuance and the application of the proceeds therefrom. The first paragraph of this covenant will not prohibit the incurrence of any of the following (collectively, "Permitted Debt"): (1) (a) Indebtedness represented by the Notes to be issued on the date of the Indenture and the Exchange Notes to be issued pursuant to the Registration Rights Agreement, and (b) the respective obligations of the Partnership and its Restricted Subsidiaries arising under the Collateral Documents to the extent such obligations would represent Indebtedness; (2) Indebtedness incurred pursuant to the New Revolving Facility in an amount outstanding at any time not to exceed $20 million less any permanent reductions made pursuant to the provisions of the covenant entitled "Repurchase at the Option of Holders -- Asset Sales"; (3) Existing Indebtedness; (4) Permitted Refinancing Indebtedness; (5) so long as at the time of incurrence no Event of Default has occurred and is continuing, Indebtedness in one or more FF&E Financings and Capitalized Lease Obligations to acquire or refinance furniture, fixtures or equipment incident to and useful in the Gaming Business, in an aggregate principal amount not to exceed $5.0 million outstanding at any one time; (6) intercompany Indebtedness between or among the Partnership and any of its Restricted Subsidiaries as provided in the covenant entitled "Advances to Restricted Subsidiaries"; provided, however, that: (a) if the Partnership or any Subsidiary Guarantor is the obligor on that Indebtedness, the obligations to pay principal, interest or other amounts under such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes, in the case of the Partnership, or the Subsidiary Guarantee, in the case of a Subsidiary Guarantor; and (b) (i) any subsequent issuance or transfer of Equity Interests that results in any Indebtedness being held by a Person other than the Partnership or a Restricted Subsidiary and (ii) any sale or other transfer of any Indebtedness to a Person other than the Partnership or a Restricted Subsidiary, will be deemed, in each case, to constitute an incurrence of Indebtedness by the Partnership or the Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); (7) Hedging Obligations of the Partnership or any of its Restricted Subsidiaries that are incurred for the purpose of fixing, managing or hedging interest rate risk with respect to any Indebtedness that is permitted by the terms of the Indenture to be outstanding; provided, however, that, in each case, the Hedging Obligations are not incurred for speculative purposes; (8) to the extent that such incurrence does not result in the incurrence by the Partnership or any Restricted Subsidiary of any obligation for the payment of borrowed money of others, Indebtedness incurred solely as a result of the execution by the Partnership or its Restricted Subsidiaries of letters of credit relating to workers compensation or self insurance, performance bonds or similar instruments; provided, however, that the foregoing exception shall not be applicable to Indebtedness incurred in connection with the performance by the Partnership or its Restricted Subsidiaries of such bonds or instruments or payment of such letter of credit; and (9) Indebtedness represented by a Subsidiary Guarantee. The Partnership will not incur any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Partnership unless such Indebtedness is also 90 contractually subordinated in right of payment to the Notes on substantially identical terms; provided, however, that no Indebtedness of the Partnership shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Partnership solely by virtue of being unsecured. For purposes of determining compliance with this "Incurrence of Indebtedness and Issuance of Disqualified Stock" covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (9) above, or is entitled to be incurred under the first paragraph of this covenant, the Partnership will be permitted to classify the item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of the item of Indebtedness, in any manner that complies with this covenant. Liens The Indenture provides that the Partnership will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, or any proceeds, income or profits thereon, or assign or convey any right to receive income therefrom, except Permitted Liens. Dividend and Other Payment Restrictions Affecting Subsidiaries The Indenture provides that the Partnership will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to: (1) (A) pay dividends or make any other distributions on its Capital Stock to the Partnership or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or (B) pay any Indebtedness owed to the Partnership or any of its Restricted Subsidiaries; (2) make loans or advances to the Partnership or any of its Restricted Subsidiaries; or (3) sell, lease or transfer any of its properties or assets to the Partnership or any of its Restricted Subsidiaries. However, the restrictions above will not apply to encumbrances or restrictions existing under or by reason of: (1) the Indenture, the Notes, the Subsidiary Guarantees and the Collateral Documents; (2) the New Credit Facility and the collateral documents related thereto; (3) applicable law or any applicable rule or order; (4) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Partnership or any of its Restricted Subsidiaries as in effect at the time of the acquisition (except to the extent that Indebtedness was incurred in connection with or in contemplation of the acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person so acquired, and such acquired Person's subsidiaries, provided that, in the case of Indebtedness, the Indebtedness was permitted by the terms of the Indenture to be incurred; (5) customary non-assignment provisions in leases and other contracts entered into in the ordinary course of business; (6) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the sale, lease or transfer of the property so acquired; (7) any restriction or encumbrance contained in contracts for the sale of assets permitted by the Indenture, provided that such restrictions or encumbrances relate only to the assets being sold pursuant to these contracts; and 91 (8) Permitted Refinancing Indebtedness, provided that the restrictions on the ability of Restricted Subsidiaries to engage in activities described in the first paragraph of this covenant contained in the agreements governing Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced. Merger, Consolidation or Sale of Assets The Indenture provides that (1) neither the Partnership nor any Subsidiary Guarantor may, directly or indirectly, consolidate or merge with or into another Person; and (2) the Partnership will not directly or indirectly sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person, unless: (1) either: (a) the Partnership or the Subsidiary Guarantor is the surviving entity; or (b) the Person formed by or surviving any consolidation or merger or to which the sale, assignment, transfer, conveyance or other disposition shall have been made (in each case, if other than the Partnership or the Subsidiary Guarantor) is a limited liability company, limited partnership, partnership or corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (2) the Person formed by or surviving any consolidation or merger or the Person to which the sale, assignment, transfer, conveyance or other disposition shall have been made (in each case, if other than the Partnership or the Subsidiary Guarantor), assumes all the obligations of the Partnership or the Subsidiary Guarantor, as applicable, under the Notes, the Indenture, the Registration Rights Agreement, the Subsidiary Guarantee and the Collateral Documents pursuant to agreements reasonably satisfactory to the Trustee, in its reasonable discretion; (3) immediately before and immediately after giving effect to the transaction (including giving effect to any Indebtedness incurred or anticipated to be incurred in connection with or in respect of the transaction) no Default or Event of Default would exist or be continuing; (4) in the case of a consolidation or merger of the Partnership, the Partnership or the Person formed by or surviving any such consolidation or merger, or, in the case of a sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Partnership, the Person to whom such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (if other than the Partnership) will, or, in the case of a consolidation or merger of a Subsidiary Guarantor or the sale, assignment, transfer, lease, conveyance or other disposition of the property or assets of the Subsidiary Guarantor, the Partnership will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions, in each case, as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant entitled "-- Incurrence of Indebtedness and Issuance of Disqualified Stock"; (5) the transaction would not require any holder of Notes to obtain a Gaming License or be qualified under the laws of any applicable gaming jurisdiction which would not be required in the absence of such transaction; provided that a transaction involving a jurisdiction that does not require the licensing or qualification of any holder of Notes as a condition to such transaction, but reserves the discretionary right to require the licensing or qualification of any holder of Notes, shall not be prohibited pursuant to the terms of this clause (5); (6) the transaction would not result in the material impairment or loss of any qualification or any license necessary for any Gaming Business operated, or anticipated to be operated, by the Partnership or any of its Restricted Subsidiaries following the consummation of the proposed transaction; (7) the Partnership has delivered to the Trustee an Opinion of Counsel satisfactory to the Trustee in its reasonable discretion confirming that the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such transaction and will be subject to federal income 92 tax in the same manner and at the same time as would have been the case if such transaction had not occurred; and (8) the Partnership, the Subsidiary Guarantor or the resulting Person will have delivered to the Trustee (a) an Officers' Certificate and an Opinion of Counsel (which counsel may not be in-house counsel of either of the Issuers or any of their Affiliates), each stating that the consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with the transaction, the supplemental indenture, comply with this provision of the Indenture and the Collateral Documents and that all conditions precedent in the Indenture relating to the transaction have been satisfied and (b) a certificate from the Partnership's independent certified public accountants stating that the Partnership has made the calculations required by clause (4) above in accordance with the terms of the Indenture and the Collateral Documents. In addition, neither the Partnership nor any Subsidiary Guarantor may, and none of them may permit any Restricted Subsidiary to, directly or indirectly, lease all or substantially all of the respective properties or assets of the Partnership or a Subsidiary Guarantor, as applicable, in one or more related transactions, to any other Person. This "Merger, Consolidation or Sale of Assets" covenant will not apply to a sale, assignment, transfer, conveyance or other disposition of assets between or among the Partnership and any of its Restricted Subsidiaries. Designation of Restricted and Unrestricted Subsidiaries The Partnership's Management Committee may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by the Partnership and its Restricted Subsidiaries in the Restricted Subsidiary so designated will be deemed to be an Investment made as of the time of such designation and that designation will only be permitted if such Investment would be permitted at that time pursuant to the covenant entitled "-- Restricted Payments" and will reduce the amount available for Restricted Payments under the covenant entitled "-- Restricted Payments." That designation will only be permitted if such Restricted Payment would be permitted at that time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Partnership's Management Committee may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a Default. Transactions with Affiliates The Indenture provides that the Issuers will not, and will not permit any of their Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) to the extent that such transaction could be entered into with an unrelated Person, the Affiliate Transaction is on terms that are no less favorable to the Issuers or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Issuers or the Restricted Subsidiary with an unrelated Person; (2) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, prior to the time that the aggregate consolidation paid for such Affiliate Transaction or series of Affiliate Transactions exceeds $1.0 million, the Partnership delivers to the Trustee a resolution of its Management Committee set forth in an Officers' Certificate certifying that the Affiliate Transaction complies with this covenant and that the Affiliate Transaction has been approved by a majority of the members of its Management Committee, and, to the extent that there are members of the Management Committee that do not have a direct or indirect financial interest in such Affiliate Transaction and who were not appointed to the Management Committee by a Person that has a direct or 93 indirect financial interest in such Affiliate Transaction, by a majority of such disinterested members of the Management Committee; and (3) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration of $10.0 million or more, prior to the time that the aggregate consolidation paid for such Affiliate Transaction or series of Affiliate Transactions exceeds $10.0 million, the Partnership delivers to the Trustee an opinion as to the fairness to the Partnership or the relevant Restricted Subsidiary of that Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing who does not, and whose directors, officers, employees, and Affiliates do not, have a direct or indirect material financial interest in the Partnership or any Affiliate of the Partnership; provided that ownership of less than 5% of the outstanding equity interests of an Affiliate of the Partnership shall not constitute a material financial interest in the Partnership and the Partnership shall be entitled to rely on representations made by such accounting, appraisal or investment banking firm as to ownership of such equity interests. The following items will not be deemed to be Affiliate Transactions and will not be subject to the provisions of the prior paragraph: (1) to the extent not otherwise prohibited under the Indenture, transactions in the ordinary course of business consistent with past practices of the Partnership on terms that the Management Committee believes in its good faith judgment are commercially reasonable to the Issuers or the relevant Restricted Subsidiary; (2) to the extent not otherwise prohibited under the Indenture, transactions between or among the Partnership and/or its Restricted Subsidiaries, provided, that, in each case, no Affiliate of the Partnership (other than another Restricted Subsidiary or a director owning qualifying shares) owns Capital Stock of any such Restricted Subsidiary; (3) reasonable compensation paid to and indemnities provided on behalf of, officers, directors, employees or Management Committee members of the Partnership or any Restricted Subsidiary; and (4) Restricted Payments, Permitted Investments and other payments and distributions that are permitted by the provisions of the Indenture described above under the caption "Restricted Payments." Limitations on Issuances and Sales of Equity Interests in Restricted Subsidiaries The Indenture provides that all of the Partnership's Restricted Subsidiaries shall be wholly owned by the Partnership, by one or more of its Restricted Subsidiaries or by the Partnership and one or more of its Restricted Subsidiaries. The Partnership will not, and will not permit any of its Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Restricted Subsidiary of the Partnership to any Person (other than the Partnership or a Restricted Subsidiary of the Partnership), unless: (1) such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Restricted Subsidiary; and (2) the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant entitled "Repurchase at the Option of Holders -- Asset Sales." In addition, the Partnership will not permit any of its Restricted Subsidiaries to issue any of its Equity Interests to any Person other than to the Partnership or one or more of its Restricted Subsidiaries. Subsidiary Guarantees The Indenture provides that if the Partnership or any of its Restricted Subsidiaries acquires or creates a Subsidiary that is organized and existing under the laws of any state in the United States or the District of 94 Columbia after the date of the Indenture, then the newly acquired or created Subsidiary will execute a supplemental indenture setting forth its Subsidiary Guarantee, together with such Collateral Documents as are necessary to create and convey to the Trustee, for the benefit of the holders of the Notes, a perfected second-priority lien on all Collateral (subject to Permitted Liens) held by such Subsidiary, and deliver an Opinion of Counsel relating to the enforceability and authorization of that Subsidiary Guarantee and the perfection of the liens in favor of the Trustee on the Collateral owned by such Subsidiary Guarantor in accordance with the terms of the Indenture, pursuant to which that Restricted Subsidiary will become a Subsidiary Guarantor, on a senior secured basis, of the Issuers' payment obligations under the Notes and the Indenture; provided that this covenant will not apply to Capital or to any Subsidiary during a period when that Subsidiary (i) has been properly designated as an Unrestricted Subsidiary in accordance with the Indenture for so long as it continues to constitute an Unrestricted Subsidiary or (ii) has Total Assets of less than $1.0 million. In the event of a sale or other disposition of all of the assets of any Subsidiary Guarantor by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Subsidiary Guarantor, then that Subsidiary Guarantor (in the event of a sale or other disposition, by way of a merger, consolidation or otherwise, of all of the Capital Stock of that Subsidiary Guarantor) or the corporation or other Person acquiring the property (in the event of a sale or other disposition of all of the assets of that Subsidiary Guarantor) will be released and relieved of any obligations under that Subsidiary Guarantor's Subsidiary Guarantee; provided that the Net Proceeds of the sale or other disposition are applied in accordance with the Indenture. In addition, in the event the Partnership's Management Committee designates a Subsidiary Guarantor to be an Unrestricted Subsidiary, then that Subsidiary Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee; provided that the designation is made in accordance with the Indenture. Business Activities The Indenture provides that the Partnership will not, and will not permit any of its Restricted Subsidiaries to, engage, directly or indirectly, in any business other than a Gaming Business and any other business activities that are incidental to, related or complementary thereto. Neither the Partnership nor any of its Subsidiaries are permitted by the Indenture to conduct a Gaming Business in any gaming jurisdiction in which the Partnership or that Subsidiary is not licensed on the date of the Indenture if the holders of the Notes would be required to be licensed as a result thereof, provided that provisions described in this sentence will not prohibit the Partnership or its Restricted Subsidiary from conducting a Gaming Business in any jurisdiction that does not require licensing or qualification of all of the holders of the Notes as a condition to the conduct of business, but reserves the discretionary right to require or otherwise refuse the licensing or qualification of any holder of Notes. Restrictions on Activities of Capital The Indenture provides that Capital may not hold any material assets, become liable for any obligations or engage in any significant business activities; provided that Capital may be a co-obligor or guarantor with respect to Indebtedness if the Partnership is a primary obligor of that Indebtedness and the net proceeds of that Indebtedness are received by the Partnership. Advances to Restricted Subsidiaries The Indenture provides that all advances, other than equity contributions, to Restricted Subsidiaries made by the Partnership after the date of the Indenture will be evidenced by intercompany notes in favor of the Partnership. These intercompany notes are pledged pursuant to the Collateral Documents to the Trustee as Collateral to secure the Notes. Each intercompany note will be payable upon demand and will bear interest at a rate equal to the then current fair market interest rate. 95 Insurance The Indenture provides that until the Notes have been paid in full, the Partnership will, and will cause its Restricted Subsidiaries to, maintain insurance with carriers against such risks and in such amounts as is customarily carried by similar businesses with such deductibles, retentions, self insured amounts and coinsurance provisions as are customarily carried by similar businesses of similar size, including, without limitation, property and casualty, and will have provided insurance certificates evidencing such insurance to the Trustee prior to the issuance of the old notes and will thereafter provide such certificates prior to the anniversary or renewal date of each such policy, which certificate will expressly state the expiration date for each policy listed. Customary insurance coverage will be deemed to include, without limitation, the following: (1) workers' compensation insurance to the extent required to comply with all applicable state, territorial or United States laws and regulations, or the laws and regulations of any other applicable jurisdiction; (2) comprehensive general liability insurance with minimum limits of $1.0 million per occurrence; (3) umbrella or excess liability insurance providing excess liability coverages over and above the foregoing underlying insurance policies up to a minimum limit of $50.0 million; (4) business interruption insurance; and (5) property insurance protecting the property against losses or damages as is customarily covered by an "all-risk" policy or a property policy covering "special" causes of loss and losses resulting from earthquakes or floods for a business of similar type and size; provided, however, that such insurance will provide coverage of not less than the least of (a) 130% of the sum of (x) the outstanding principal amount of the Notes plus accrued and unpaid interest thereon and (y) the aggregate commitments under the New Credit Facility, (b) 100% of actual replacement value (as determined at each policy renewal based on the F.W. Dodge Building Index or some other recognized means) of any improvements customarily insured consistent with industry standards and (c) in the case of earthquake insurance, such coverage as is available on commercially reasonable terms and, in any event, is consistent with coverage obtained by businesses of a similar type and size and, in each case, with a deductible no greater than 3% of the insured value of the Hotel/Casino Property or such greater amount as is available on commercially reasonable terms. All insurance required by this covenant (except worker's compensation) will name the Issuers and the Trustee as additional insureds or loss payees, as the case may be, with losses in excess of $1.0 million payable jointly to the Issuers and the Trustee (unless a Default or Event of Default has occurred and is then continuing, in which case all losses are payable solely to the Trustee), with no recourse against the Trustee for the payment of premiums, deductibles, commissions or club calls, and will provide for at least 30 days notice of cancellation. All such insurance policies will be issued by carriers having an A.M. Best & Company, Inc. rating of A or higher and a financial size category of not less than X, or if such carrier is not rated by A.M. Best & Company, Inc., having the financial stability and size deemed appropriate by an opinion from a reputable insurance broker. The Issuers will deliver to the Trustee on each anniversary of the issuance of the old notes a certificate of an insurance agent describing the insurance policies obtained by the Issuers and their Restricted Subsidiaries, together with an Officers' Certificate stating that such policies comply with this covenant and the related applicable provisions of the Collateral Documents. 96 Further Assurances The Indenture provides that the Issuers will, and will cause each of their Restricted Subsidiaries to do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register, as applicable, any and all such further acts, deeds, conveyances, security agreements, mortgages, assignments, estoppel certificates, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as may be required from time to time in order to: (1) carry out more effectively the purposes of the Collateral Documents; (2) subject to the Liens created by any of the Collateral Documents any of the properties, rights or interests required to be encumbered thereby; (3) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and the Liens intended to be created thereby; and (4) better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Trustee any of the rights granted now or hereafter intended by the parties thereto to be granted to the Trustee under any other instrument executed in connection therewith or granted to the Issuers under the Collateral Documents or under any other instrument executed in connection therewith. Payments for Consent The Indenture provides that the Issuers will not, and will not permit any of their Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture, the Notes or the Collateral Documents unless that consideration is offered to be paid and is paid to all holders of the Notes that consent, waive or agree to amend in the time frame described in the solicitation documents relating to that consent, waiver or agreement, as applicable. Reports The Indenture provides that whether or not required by the Commission, so long as any Notes are outstanding (unless defeased in a Legal Defeasance) the Issuers will furnish to the holders of Notes, within the time periods specified in the Commission's rules and regulations: (1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Issuers were required to file those Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report on the annual financial statements by the Issuers certified independent accountants; and (2) all current reports that would be required to be filed with the Commission on Form 8-K if the Issuers were required to file such reports. In addition, whether or nor required by the Commission, the Issuers will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such filing) and make such information available to securities analysts and prospective investors upon request if not obtainable from the Commission. In addition, the Issuers and the Subsidiary Guarantors have agreed that, for so long as any Notes remain outstanding, they will furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144(d)(4) under the Securities Act if not obtainable from the Commission. If the Issuers have designated any of their Subsidiaries as Unrestricted Subsidiaries, then, to the extent that any such Unrestricted Subsidiary or group of Unrestricted Subsidiaries would (but for its or their being 97 designated as an Unrestricted Subsidiary or Subsidiaries) constitute a Significant Subsidiary or Subsidiaries, the quarterly and annual financial information required by the preceding paragraph shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the financial condition and results of operations of the Issuers and their Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Issuers. Events of Default and Remedies The Indenture provides that each of the following constitutes an Event of Default: (1) default for 30 days or more in the payment when due of interest on, or Liquidated Damages with respect to, the Notes; (2) default in payment when due, upon maturity, redemption or otherwise, of the principal of, or premium, if any, on the Notes; (3) failure by the Issuers or any of their Restricted Subsidiaries to comply with the provisions described under the captions "Repurchase at the Option of Holders -- Change of Control," "Repurchase at the Option of Holders -- Asset Sales," or "Certain Covenants -- Merger, Consolidation or Sale of Assets"; (4) failure by the Issuers or any of their Restricted Subsidiaries for 30 days after notice to comply with any of the other agreements, representations or warranties in the Indenture, the Notes or the Collateral Documents (other than a default set forth in clause (1), (2) or (3) above); (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Partnership or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Partnership or any of its Restricted Subsidiaries), whether the Indebtedness or guarantee now exists, or is created after the date of the Indenture, if that default: (a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (b) results in the acceleration of that Indebtedness prior to its express maturity, and, in each case, the principal amount of that Indebtedness, together with the principal amount of any other Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (6) failure by the Issuers or any of their Restricted Subsidiaries to pay final non-appealable judgments (other than any judgments or portions thereof as to which a reputable insurance company has accepted full liability in writing) aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (7) any Guarantee of a Subsidiary Guarantor shall be held in a judicial proceeding to be unenforceable or invalid or shall cease for any reason, other than pursuant to the terms of the Indenture, to be in full force and effect, or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Guarantee; (8) breach by either of the Issuers or any of the Subsidiary Guarantors in any material respect of any representation or warranty or agreement in any of the Collateral Documents or in any certificates delivered in connection therewith, the repudiation by any of them of any of its obligations under any of the Collateral Documents, the unenforceability of the Collateral Documents against any of them for any reason which continues for 30 days after written notice from the Trustee or holders of at least 25% in outstanding principal amount of Notes or the loss of the perfection or priority of the Liens granted by any of them pursuant to the Collateral Documents for any reason; 98 (9) any Gaming License is revoked, terminated or suspended or otherwise ceases to be effective resulting in the cessation or suspension of operation for a period of more than 30 days of any material portion or aspect of the Gaming Business of any Gaming Facility; (10) the Partnership fails to own 100% of the issued and outstanding Equity Interests of Capital; (11) cessation of gaming operations of Silver Legacy Resort Casino for a period of more than 180 consecutive days; or (12) certain events of bankruptcy or insolvency with respect to the Issuers or any of their Significant Subsidiaries or any group that, considered together, would constitute a Significant Subsidiary. In the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Issuers or any of their Restricted Subsidiaries, all outstanding Notes will become due and payable immediately and automatically without further action or notice. Subject to the terms of the Intercreditor Agreement, if any other Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest or Liquidated Damages, if any) if it determines that withholding notice is in their interest. The holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may, on behalf of the holders of all of the Notes, waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or Liquidated Damages, if any, on, or the principal of, the Notes. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by the Issuers or on their behalf with the intention of avoiding payment of the premium that the Issuers would have had to pay if the Issuers then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to March 1, 2007, by reason of any willful action (or inaction) taken (or not taken) by the Issuers or on their behalf with the intention of avoiding the prohibition on redemption of the Notes prior to March 1, 2007, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. The Issuers are required to deliver to the Trustee annually a statement regarding compliance with the Indenture. Upon becoming aware of any Default or Event of Default, the Issuers are required to deliver to the Trustee a statement specifying the Default or Event of Default. No Personal Liability of Partners, Management Committee Members, Officers, Employees and Stockholders Except as provided by agreements governing the pledge of the Capital Stock of the Partnership to the Trustee for the benefit of the holders of the Notes, the obligations of the Issuers with respect to the Notes shall be nonrecourse to the partners of the Partnership and no member, partner, Management Committee member, director, officer, employee, incorporator or stockholder of either of the Issuers or any of their Affiliates will have any liability for any of the Issuers' or the Subsidiary Guarantors' obligations under the Notes, the Indenture, the Subsidiary Guarantees, the Collateral Documents, or for any claim based on, in respect of, or by reason of, these obligations or their creation. Each holder of Notes by accepting a Note waives and releases these individuals from this liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws. 99 Legal Defeasance and Covenant Defeasance The Issuers may, at their option and at any time, elect to have their obligations with respect to the outstanding Notes and all obligations of the Subsidiary Guarantors discharged with respect to their Subsidiary Guarantees ("Legal Defeasance"). This means the Issuers shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, except for: (1) the rights of holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium and Liquidated Damages, if any, on, these Notes when these payments are due; (2) the Issuers' obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payments; (3) the rights, powers, trusts, duties and immunities of the Trustee, and the Issuers' and the Subsidiary Guarantors' obligations in connection therewith; and (4) the Legal Defeasance provisions of the Indenture. In addition, the Issuers may, at their option and at any time, elect to have their obligations and the obligations of the Subsidiary Guarantors released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) the Issuers must irrevocably deposit with the Trustee, in trust for the benefit of the holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in amounts that will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium and Liquidated Damages, if any, on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Issuers must specify whether the Notes are being defeased to maturity or to a particular redemption date; (2) in the case of Legal Defeasance, the Issuers will have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that (a) the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon, the Opinion of Counsel will confirm that, the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of the Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if that Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, the Issuers will have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of this Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the Covenant Defeasance had not occurred; (4) no Default or Event of Default has occurred and is continuing either: (a) on the date of deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); or (b) insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; 100 (5) the Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument, except with respect to the borrowing of funds as described in clause (4) above, or any other material agreement or instrument to which the Issuers or any of their Subsidiaries are a party or by which the Issuers or any of their Subsidiaries are bound; (6) the Issuers must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by them with the intent of preferring the holders of Notes over other creditors of the Issuers or with the intent of defeating, hindering, delaying or defrauding creditors of the Issuers or others; (7) the Issuers must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with; and (8) the Issuers must have delivered to the Trustee an Opinion of Counsel to the effect that: (a) the trust funds will not be subject to any rights of holders of Indebtedness of the Partnership other than the Notes, and (b) assuming no intervening bankruptcy by either of the Issuers or any Subsidiary Guarantor between the date of deposit and the 91st day following the deposit and assuming that no holder is an "insider" of either of the Issuers under applicable bankruptcy law, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. Amendment, Supplement and Waiver Except as provided in the next three succeeding paragraphs, the Indenture, the Notes, the Subsidiary Guarantees or the Collateral Documents may be amended or supplemented by the Issuers with the consent of the holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing default or compliance with any provision of the Indenture, the Notes, the Subsidiary Guarantees or the Collateral Documents may be waived with the consent of the holders of a majority in principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes). Without the consent of each holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting holder): (1) reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes; (3) reduce the rate of or change the time for payment of interest on any Note; (4) waive a Default or Event of Default in the payment of principal of, or interest or premium, or Liquidated Damages, if any, on the Notes (except a rescission of acceleration of the Notes by the holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration); (5) make any Note payable in money other than that stated in the Notes; (6) make any change in the provisions of the Indenture relating to waivers of past Defaults or Events of Default or the rights of holders of Notes to receive payments of principal of, or interest or premium or Liquidated Damages, if any, on the Notes; (7) release any Subsidiary Guarantor from any of its obligations under its Subsidiary Guarantee or the Indenture, except in accordance with the terms of the Indenture; 101 (8) waive a redemption payment with respect to any Note or modify the obligations of the Issuers to make offers to purchase Notes (i) upon a Change of Control after the occurrence of a Change of Control or (ii) from the proceeds of one or more Asset Sales after the aggregate amount of Excess Proceeds from such Asset Sales exceeds $5.0 million; (9) release all or substantially all of the Collateral from the Lien of the Indenture or the Collateral Documents (except in accordance with the provisions thereof); or (10) make any change in the preceding amendment and waiver provisions. Any amendment to, or waiver of, the provisions of any of the Collateral Documents relating to the covenant entitled "Liens" or the security provisions of the Indenture will require the consent of the holders of at least 66 2/3% in principal amount of the Notes then outstanding. Notwithstanding the foregoing, without the consent of any holder of Notes, the Issuers and the Trustee may amend or supplement the Indenture or the Notes: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes; (3) to provide for the assumption of the Issuers' or Subsidiary Guarantors' obligations to holders of Notes in the case of a merger or consolidation or sale of all or substantially all of an Issuer's or Subsidiary Guarantor's assets; (4) to make any change that would provide any additional rights or benefits to the holders of Notes or that does not adversely affect the legal rights under the Indenture of any holder; (5) to enter into additional or supplemental Collateral Documents; or (6) to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act; provided, however, that in the case of a change pursuant to clause (1) or (5) above, the Issuers have delivered to the Trustee an Opinion of Counsel stating that the change does not adversely affect the rights of any holder of Notes. Satisfaction and Discharge The Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder, when: (1) either: (a) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to us) have been delivered to the Trustee for cancellation; or (b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year and the Issuers or any Subsidiary Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in amounts sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and Liquidated Damages, if any, and accrued interest to the date of maturity or redemption; (2) no Default or Event of Default has occurred and is continuing on the date of the deposit or shall occur as a result of the deposit and the deposit will not result in a breach or violation of, or constitute a 102 default under, any other instrument to which either of the Issuers or any Subsidiary Guarantor is a party or by which any of them is bound; (3) the Issuers and each Subsidiary Guarantor have paid or caused to be paid all sums payable by them under the Indenture; and (4) the Issuers have delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be. In addition, the Issuers must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Concerning the Trustee If the Trustee becomes a creditor of the Issuers or any Subsidiary Guarantor, the Indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest as described in the Trust Indenture Act, it must eliminate that conflict within 90 days, apply to the Commission for permission to continue or resign. The holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default occurs and is continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of its own affairs. Subject to these provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any holder of Notes, unless that holder has offered to the Trustee security and indemnity satisfactory to it against any loss, costs, liability or expense that might be incurred by it in connection with the request or direction. Governing Law The Indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. Additional Information Anyone who receives this prospectus may obtain a copy of the Indenture, each of the Collateral Documents and the Registration Rights Agreement without charge by writing to Silver Legacy Resort Casino, 407 North Virginia Street, Reno, Nevada 89501, Attention: Bruce Sexton. Book-Entry, Delivery and Form The exchange notes initially will be represented by one or more Notes in registered, global form without interest coupons (the "Global Notes"). The Global Notes will be deposited upon issuance with the Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC. Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for Notes in certificated form except in the limited circumstances described below. See "-- Exchange of Global Notes for Certificated Notes." Except in the limited circumstances described below, owners of beneficial interests in the 103 Global Notes will not be entitled to receive physical delivery of Notes in certificated form. In addition, transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants, which may change from time to time. Depository Procedures The following description of the operations and procedures of DTC are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. The Issuers take no responsibility for these operations and procedures and urge investors to contact the system or their participants directly to discuss these matters. DTC has advised the Issuers that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the initial purchasers of the old notes), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. DTC has also advised the Issuers that, pursuant to procedures established by it: (1) upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the exchange agent with portions of the principal amount of the Global Notes; and (2) ownership of these interests in the Global Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Global Notes). The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to these Persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants, the ability of a Person having beneficial interests in a Global Note to pledge interests to Persons that do not participate in the DTC system, or otherwise take actions in respect of these interests, may be affected by the lack of a physical certificate evidencing these interests. Except as described below, owners of interests in the Global Notes will not have Notes registered in their names, will not receive physical delivery of Notes in certificated form and will not be considered the registered owners or holders thereof under the Indenture for any purpose. Payments in respect of the principal of, and interest and premium and Liquidated Damages, if any, on a Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the Issuers and the Trustee will treat the Persons in whose names the Notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving payments and for all other purposes. Consequently, neither the Issuers, the Trustee nor any of the Issuers' or the Trustee's agents has or will have any responsibility or liability for: (1) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interest in the Global Notes or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Notes; or 104 (2) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised the Issuers that its current practice, upon receipt of any payment in respect of securities such as the Notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date unless DTC has reason to believe it will not receive payment on the payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of Notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Trustee or the Issuers. Neither the Issuers nor the Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the Notes, and the Issuers and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes. Transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds. DTC has advised the Issuers that it will take any action permitted to be taken by a holder of Notes only at the direction of one or more Participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the Notes as to which the Participant or Participants has or have given such direction. However, if there is an Event of Default under the Notes, DTC reserves the right to exchange the Global Notes for legended Notes in certificated form, and to distribute these Notes to its Participants. Although DTC has agreed to the foregoing procedures to facilitate transfers of interests in the Global Notes among participants in DTC, it is under no obligation to perform or to continue to perform those procedures, and may discontinue those procedures at any time. Neither the Issuer nor the Trustee nor any of their respective agents will have any responsibility for the performance by DTC or its respective participants or indirect participants of its respective obligations under the rules and procedures governing its operations. Exchange of Global Notes for Certificated Notes A Global Note is exchangeable for definitive Notes in registered certificated form ("Certificated Notes") if: (1) DTC (a) notifies the Issuer that it is unwilling or unable to continue as depositary for the Global Notes and the Issuers fail to appoint a successor depositary or (b) has ceased to be a clearing agency registered under the Exchange Act; (2) the Issuers, at their option, notify the Trustee in writing that they elect to cause the issuance of the Certificated Notes; or (3) there has occurred and is continuing a Default or Event of Default with respect to the Notes. In addition, beneficial interests in a Global Note may be exchanged for Certificated Notes upon prior written notice given to the Trustee by or on behalf of DTC in accordance with the Indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures) and will bear the applicable restrictive legend unless that legend is not required by applicable law. Exchange of Certificated Notes for Global Notes Certificated Notes may not be exchanged for beneficial interests in any Global Note unless the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that the 105 transfer will comply with the appropriate transfer restrictions applicable to these Notes. See "Notice to Investors." Same Day Settlement and Payment The Issuers will make payments in respect of the Notes represented by the Global Notes (including principal, premium, if any, interest and Liquidated Damages, if any) by wire transfer of immediately available funds to the accounts specified by the Global Note holder. The Issuers will make all payments of principal, interest and premium and Liquidated Damages, if any, with respect to Certificated Notes by wire transfer of immediately available funds to the accounts specified by the holders thereof or, if no account is specified, by mailing a check to that holder's registered address. The Notes represented by the Global Notes are expected to be eligible to trade in the PORTAL market and to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary market trading activity in the Notes will, therefore, be required by DTC to be settled in immediately available funds. The Issuers expect that secondary trading in any Certificated Notes will also be settled in immediately available funds. Registration Rights; Liquidated Damages The following description is a summary of the material provisions of the Registration Rights Agreement. This summary is qualified in its entirety by reference to the Registration Rights Agreement, a copy of which has been filed as an exhibit to the registration statement of which this prospectus is a part. The Issuers entered into a registration rights agreement with the initial purchasers of the old notes (the "Registration Rights Agreement"). Pursuant to the Registration Rights Agreement, the Issuers agreed, at their cost, to file the registration statement of which this prospectus is a part with the Commission (the "Exchange Offer Registration Statement") with respect to this registered offer to exchange (the "Exchange Offer") the old notes for the exchange notes (the "Exchange Notes"). If: (1) the Issuers are not permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy; or (2) any holder of Transfer Restricted Securities notifies the Issuers prior to the 20th day following consummation of the Exchange Offer that: (a) it is prohibited by law or Commission policy from participating in the Exchange Offer; or (b) it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales; or (c) it is a broker-dealer and owns Notes acquired directly from the Issuers or one of their affiliates, the Issuers will file with the Commission a registration statement (the "Shelf Registration Statement") to cover resales of the Notes by the holders thereof who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. The Issuers will use their best efforts to cause the applicable registration statement to be declared effective as promptly as possible by the Commission. 106 For purposes of the preceding, "Transfer Restricted Securities" means each Note until: (1) the date on which such Note has been exchanged by a Person other than a broker-dealer for an Exchange Note in the Exchange Offer; (2) following the exchange by a broker-dealer in the Exchange Offer of a Note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement; (3) the date on which such Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement; or (4) the date on which such Note is distributed to the public pursuant to Rule 144 under the Securities Act. The Registration Rights Agreement provides that: (1) the Issuers will file an Exchange Offer Registration Statement with the Commission on or prior to 60 days after the issuance of the old notes; (2) the Issuers will use their best efforts to have the Exchange Offer Registration Statement declared effective by the Commission on or prior to 150 days after the issuance of the old notes; (3) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Issuers will (a) commence the Exchange Offer; and (b) use their best efforts to issue on or prior to 30 business days, or longer, if required by the federal securities laws, after the date on which the Exchange Offer Registration Statement was declared effective by the Commission, Exchange Notes in exchange for all Notes tendered prior thereto in the Exchange Offer; and if obligated to file the Shelf Registration Statement, the Issuers will use their best efforts to file the Shelf Registration Statement with the Commission as promptly as practicable after such filing obligation arises and to cause the Shelf Registration to be declared effective by the Commission on or prior to 90 days after such obligation arises. If: (1) the Issuers fail to file any of the registration statements required by the Registration Rights Agreement on or before the date specified for such filing; or (2) any of such registration statements is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"); or (3) the Issuers fail to consummate the Exchange Offer within 30 business days following the date on which the Exchange Offer Registration Statement is declared effective; or (4) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (1) through (4) above, a "Registration Default"), then the Issuers will pay liquidated damages ("Liquidated Damages") to each holder of Notes, with respect to the first 90-day period immediately following the occurrence of the first Registration Default in an amount equal to $0.05 per week per $1,000 principal amount of Notes held by such holder. 107 The amount of Liquidated Damages will increase by an additional $0.05 per week per $1,000 principal amount of Notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages for all Registration Defaults of $0.25 per week per $1,000 principal amount of Notes. The Issuers will pay all accrued Liquidated Damages on each damages payment date to the Global Note holder by wire transfer of immediately available funds or by federal funds check and to holders of Certificated Notes by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no such accounts have been specified. Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. Holders of Notes will be required to make certain representations to the Issuers (as described in the Registration Rights Agreement) in order to participate in the Exchange Offer and will be required to deliver certain information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Notes included in the Shelf Registration Statement and benefit from the provisions regarding Liquidated Damages set forth above. By acquiring Transfer Restricted Securities, a holder will be deemed to have agreed to indemnify the Issuers against certain losses arising out of information furnished by such holder in writing for inclusion in any Shelf Registration Statement. Holders of Notes will also be required to suspend their use of the prospectus included in the Shelf Registration Statement under certain circumstances upon receipt of written notice to that effect from the Issuers. See "The Exchange Offer." Certain Definitions Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all these terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time that other Person is merged with or into, became a Restricted Subsidiary of, or substantially all of its business and assets were acquired by, that specified Person, whether or not the Indebtedness is incurred in connection with, or in contemplation of, the other Person merging with or into, becoming a Restricted Subsidiary of, or substantially all of its business and assets being acquired by, that specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by that specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with the specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of that Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. "Applicable Tax Rate" means, with respect to any taxable year, the highest effective combined federal, state and local tax rates applicable to any equity holder of the Partnership, or, if such equity holder is a partnership or other pass-through entity for United States federal income tax purposes, the equity holders of such equity holders, during such taxable year with respect to income allocated to such equity holder by the Partnership, taking into account (i) the deductibility of state and local taxes for federal income tax purposes and the limitation 108 of Internal Revenue Code section 68 on such deductions, computed as if the equity holder's only income were that allocated to the equity holder by the Partnership and (ii) the highest statutory rates applicable to different categories of income allocated to such equity holder by the Partnership (e.g. tax-exempt income or long-term capital gains). "Asset Sale" means: (1) the sale, lease, conveyance, transfer or other disposition (whether in a single transaction or a series of related transactions) of any assets or rights (including but not limited to sale and leaseback transactions); provided that the sale, lease, conveyance, transfer or other disposition of all or substantially all of the assets of the Issuers and their Restricted Subsidiaries taken as a whole, or the sale of the Hotel/Casino Property, will be governed by the provisions of the Indenture described above under the caption "Repurchase at the Option of Holders -- Change of Control" and/or the provisions described above under the caption "Certain Covenants -- Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant; and (2) the issuance of Equity Interests by any Restricted Subsidiary or the sale of Equity Interests in any of the Partnership's Restricted Subsidiaries by the Partnership or any Restricted Subsidiary. Notwithstanding the foregoing, the following items will not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that involves assets having a fair market value of less than $1,000,000; (2) a transfer of assets between or among the Partnership and its Restricted Subsidiaries; (3) an issuance of Equity Interests by Capital to the Partnership or by a Restricted Subsidiary to the Partnership or to another Restricted Subsidiary; (4) the sale of inventory or obsolete furniture, fixtures, equipment or other assets in the ordinary course of business; (5) dispositions of gaming equipment in the ordinary course of business pursuant to an established program for the maintenance and upgrading of this equipment; (6) dispositions pursuant to the foreclosure of any Lien on assets securing any FF&E Financing or Capital Lease Obligation permitted pursuant to the provisions of the Indenture described above under the caption "Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock," provided that the FF&E Financing or Capital Lease Obligation is secured by a Lien that relates only to assets purchased with that FF&E Financing or Capital Lease Obligation, and provided further that each foreclosure or other remedy is conducted in a commercially reasonable manner or in accordance with applicable law; (7) the sale or other disposition of cash or Cash Equivalents; and (8) a Restricted Payment or Permitted Investment that is permitted by the covenant described above under the caption "Certain Covenants -- Restricted Payments." "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means: (1) in the case of a corporation, any and all shares of stock issued by the corporation; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; 109 (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Carano Interests" means Donald L. Carano, his spouse, lineal descendants (including adopted children and their lineal descendants) and any trust or entity that is owned exclusively by or established for the exclusive benefit of, or the estate of, any of the foregoing. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any commercial bank chartered or organized in the United States and having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in each case maturing within six months after the date of acquisition; and (6) a money market fund at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition, if such fund has assets of not less than $500 million. "Change of Control" means the occurrence of any of the following: (1) the Permitted Holders shall at any time cease to own, directly or indirectly, in the aggregate, at least 50% of the Voting Stock of the Partnership or any entity resulting from any merger or consolidation of the Partnership with any Person; (2) after an Initial Public Offering, the Partnership's becoming aware of (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy vote, written notice or otherwise) the acquisition by any Person or related group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision to either of the foregoing, including any "group" acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than the Permitted Holders, in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 35% or more of the Voting Stock of the Partnership, or such other Person surviving the transaction and, at such time, the Permitted Holders shall fail to beneficially own, directly or indirectly, securities representing greater than the combined voting power of the Partnership's or such other Person's Voting Stock as is beneficially owned by such Person or group; (3) the direct or indirect sale, transfer, conveyance or other disposition of the Hotel/Casino Property; (4) the first day on which the Partnership fails to own 100% of the issued and outstanding Equity Interest of Capital, other than by reason of a merger of Capital with and into a corporate successor to the Partnership; 110 (5) the first day on which a majority of the members of the Partnership's Management Committee are not Continuing Members; and (6) the adoption of a plan relating to the liquidation or dissolution of either of the Issuers. "Collateral" means all "collateral" referred to in the Collateral Documents and all other property or assets that become subject to a Lien in favor of the Trustee or the holders of the Notes. "Collateral Documents" means, collectively, all agreements, instruments, documents, pledges or filings executed in connection with granting, or that otherwise evidence, the Lien of the Trustee in the Collateral. "Commission" means the Securities and Exchange Commission. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of that Person for that period plus (without duplication): (1) an amount equal to any extraordinary loss plus the amount of any net loss realized by that Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent those losses were deducted in computing Consolidated Net Income; plus (2) provision for taxes based on income or profits of that Person and its Restricted Subsidiaries for the relevant period, to the extent that the provision for taxes was deducted in computing Consolidated Net Income or, so long as that Person is treated as a partnership or other pass through entity for United States federal income tax purposes, the Tax Amount of that Person and its Restricted Subsidiaries for the relevant period; plus (3) consolidated interest expense of that Person and its Restricted Subsidiaries for the relevant period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that this expense was deducted in computing Consolidated Net Income; plus (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of that Person and its Restricted Subsidiaries for the relevant period to the extent that depreciation, amortization and other non-cash expenses were deducted in computing Consolidated Net Income; minus (5) non-cash items increasing Consolidated Net Income for the relevant period, other than the accrual of revenue in the ordinary course of business. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Restricted Subsidiary of the Issuers will be added to Consolidated Net Income to compute Consolidated Cash Flow of the Issuers only to the extent that a corresponding amount would be permitted at the date of determination to be dividended to the Issuers by that Restricted Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Restricted Subsidiary or its stockholders. 111 "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of that Person and its Restricted Subsidiaries for that period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary thereof; (2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of its acquisition will be excluded; and (4) the cumulative effect of a change in accounting principles will be excluded. "Continuing Member" means, as of any date of determination, any member of the Management Committee who: (1) was a member of the Partnership's Management Committee on the date of the Indenture; or (2) was nominated for election or elected to the Partnership's Management Committee with the approval of a Permitted Holder. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Issuers to repurchase that Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of that Capital Stock provide that the Issuers may not repurchase or redeem any of that Capital Stock unless the repurchase or redemption complies with the covenant described above under the caption "Certain Covenants -- Restricted Payments." "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Indebtedness" means Indebtedness of the Issuers and their Restricted Subsidiaries (excluding Indebtedness under the New Revolving Facility but including Indebtedness under the New Term Loan Facility) outstanding or incurred immediately prior to or concurrently with the execution of the Indenture, until those amounts are repaid. "FF&E" means furniture, fixture and equipment, including gaming equipment, used in connection with any Gaming Business. 112 "FF&E Financing" means the incurrence of Indebtedness, the proceeds of which will be used to finance the acquisition by the Partnership or a Restricted Subsidiary of FF&E used in connection with any Gaming Facility whether or not secured by a Lien on such FF&E; provided that such Indebtedness does not exceed the cost of such FF&E at the time of its acquisition. "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of that Person for that period to the Fixed Charges of that Person for that period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary revolving credit borrowings) or issues, repurchases or redeems Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to that incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or that issuance, repurchase or redemption of Preferred Stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to that reference period and on or prior to the Calculation Date will be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for that reference period will be calculated on a pro forma basis in accordance with Regulation S-X under the Securities Act; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, will be excluded; and (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to those Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date. "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of that Person and its Restricted Subsidiaries for that period, whether paid or accrued, including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and the net effect of all payments made or received pursuant to Hedging Obligations; plus (2) the consolidated interest of that Person and its Restricted Subsidiaries that was capitalized during that period; plus (3) any interest expense on Indebtedness of another Person that is Guaranteed by that Person or one of its Restricted Subsidiaries or secured by a Lien on assets of that Person or one of its Restricted Subsidiaries, whether or not the Guarantee or Lien is called upon; plus (4) the product of (a) all dividends and distributions, whether paid or accrued and whether or not in cash, on any series of Preferred Stock of such Person or any of its Restricted Subsidiaries other than dividends or distributions on Equity Interests payable solely in Equity Interests of the Partnership (other than Disqualified Stock) or to the Partnership or a Restricted Subsidiary of the Partnership, and (b) a fraction, the numerator of which is one and the denominator of which is one minus the Applicable Tax Rate 113 for such Person with respect to the taxable year in which the distribution is made (calculated based on a reasonable estimate of the character of the income to be allocated to such person with respect to such distribution). "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in other statements by other entities that have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Gaming Authority" means any agency, authority, board, bureau, commission, department, office or instrumentality of any nature whatsoever of the United States federal or foreign government, any state, province or any city or the political subdivision or otherwise, and whether now or hereafter in existence, or any officer or official thereof, including the Nevada State Gaming Commission, the Nevada State Gaming Control Board and any other applicable gaming regulatory authority with authority to regulate any gaming operation (or proposed gaming operation) owned, managed or operated by the Partnership or any of its Subsidiaries. "Gaming Business" means the gaming business and includes all businesses necessary for, incident to, connected with or arising out of the operation of a gaming establishment or facility (including developing and operating lodging, retail and restaurant facilities, sports or entertainment facilities, transportation services or other related activities or enterprises and any additions or improvements thereto) and any businesses incident and useful to the Gaming Business, including without limitation food and beverage distribution operations to the extent that they are operated in connection with a gaming business. "Gaming Facility" means any tangible vessel, building, or other structure used or expected to be used to enclose space in which a Gaming Business is conducted and (i) wholly or partially owned, directly or indirectly, by the Partnership or any Restricted Subsidiary or (ii) any portion or aspect of which is managed or used, or expected to be managed or used, by the Partnership or any of its Restricted Subsidiaries; provided that the term Gaming Facility does not include any real property whether or not this vessel, building or other structure is located thereon or adjacent thereto or any furniture, fixtures and equipment, including gaming equipment, used in connection with any Gaming Business. "Gaming License" means any license, permit, franchise or other authorization from any Gaming Authority required on the date of the Indenture or at any time thereafter to own, lease, operate or otherwise conduct the Gaming Business of the Partnership and its Subsidiaries, including all licenses granted under the gaming laws of a jurisdiction or jurisdictions to which the Partnership or any of its Subsidiaries is, or may at any time after the date of the Indenture, be subject. "Government Securities" means securities that are (1) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged; or (2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and will also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such Government Security or a specific payment of principal of or interest on any such Government Security held by such custodian for the account of the holder of such depository receipt; provided, however, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to 114 the holder of such depository receipt from any amount received by the custodian in respect of the Government Security or the specific payment of principal of or interest on the Government Security evidenced by such depository receipt. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any specified Person, the obligations of that Person under interest rate swap agreements, interest rate cap agreements, interest rate collar agreements and other agreements or arrangements designed to manage interest rate risk. "Hotel/Casino Property" means that certain parcel of real property together with the improvements thereon operated as the Silver Legacy Resort Casino located at 404 North Virginia Street in the city of Reno, Nevada. "Indebtedness" means, with respect to any specified Person and without duplication, any liability of that Person, whether or not contingent: (1) for borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations; (5) representing the balance deferred and unpaid of the purchase price of any property, except any balance that constitutes an accrued expense or trade payable; (6) all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person); provided, however, that the amount of such Indebtedness shall be limited to the lesser of the fair market value of the assets or property to which such Lien attaches and the amount of the Indebtedness so incurred; (7) representing any Hedging Obligations; and (8) to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person, if and to the extent any of the preceding items (other than letters of credit, Hedging Obligations and the amount of that Person's obligation to the redemption, repayment or other repurchase of Disqualified Stock) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person). The amount of any Indebtedness outstanding as of any date will be: (1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and (2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Initial Public Offering" means the first underwritten public offering of Capital Stock of the Partnership (other than a public offering registered on Form S-8 under the Securities Act) that results in net proceeds of at least $20.0 million to the Partnership or its successor entity. 115 "Intercreditor Agreement" means that certain Intercreditor Agreement dated as of the date of the Indenture by and among Bank of America, N.A., as administrative agent, The Bank of New York, as trustee, and the Issuers. "Investments" means, with respect to any Person, all direct or indirect investments by that Person in other Persons (including Affiliates) in the forms of loans (including Subsidiary Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Partnership or any of its Restricted Subsidiaries sells or otherwise disposes of any Equity Interests of any Restricted Subsidiary such that, after giving effect to the sale or disposition, that Person is no longer a Restricted Subsidiary, then the Partnership or that Restricted Subsidiary will be deemed to have made an Investment on the date of the sale or disposition equal to the fair market value of the Equity Interests of that Subsidiary not sold or disposed of pursuant to the sale or disposition in an amount determined as provided in the final paragraph of the covenant described above under the caption "-- Certain Covenants -- Restricted Payments." If the Issuers or any of their Restricted Subsidiaries designate a Restricted Subsidiary to be an Unrestricted Subsidiary pursuant to the provisions of the Indenture, then the Issuers or that Restricted Subsidiary will be deemed to have made an Investment on the date of that designation equal to the greater of the book value and the fair market value of the Equity Interests of that Subsidiary in an amount determined as provided in the final paragraph of the covenant described above under the caption "Certain Covenants -- Restricted Payments." The acquisition by the Partnership or any Restricted Subsidiary of a Person that holds an Investment in any third Person will be deemed to be an Investment by the Partnership or the Restricted Subsidiary in that third Person in an amount equal to the fair market value of the Investment held by the acquired Person in that third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption "Certain Covenants -- Restricted Payments." "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of that asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Management Committee" means: (1) with respect to a corporation, the Board of Directors of the corporation; (2) with respect to the Partnership, the executive committee of the Partnership; (3) with respect to a limited partnership or partnership other than the Partnership, the Board of Directors of the general partner of the partnership; and (4) with respect to any other Person, the board or committee of that Person serving a similar function. "Net Income" means, with respect to any specified Person for any period, (i) the net income (loss) of that Person for that period, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends and distributions, excluding, however, (1) any gain (but not loss), together with any related provision for taxes on that gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by that Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of that Person or any of its Restricted Subsidiaries, including, with respect to the Partnership, premiums paid in connection with the purchase of Notes; and (2) any extraordinary gain (but not loss), together 116 with any related provision for taxes on that extraordinary gain (but not loss), less, (ii) in the case of any Person that is treated as a partnership or other pass through entity for United States federal or state income tax purposes, the Tax Amount of that Person for such period. "Net Proceeds" means the aggregate cash proceeds received by the Partnership or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to the Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result thereof, any taxes or Tax Distributions paid or payable by the Partnership as a result thereof, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Indebtedness under the New Credit Facility, secured by a Lien on the asset or assets that were the subject of the Asset Sale and any reserve for adjustment in respect of the sale price of the asset or assets established in accordance with GAAP. "New Credit Facility" means the New Term Loan Facility and the New Revolving Facility. "New Revolving Facility" means (a) the revolving portion of that certain Credit Agreement dated as of March 1, 2002 between the Partnership and the lenders thereunder (and any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith) and (b) any amendment, modification, supplement, restatement, refunding, refinancing, restructuring, replacement, renewal, repayment or extension thereof (whether with the original agent and lenders or other agents and lenders or otherwise and whether provided under the Credit Agreement or other credit agreements or otherwise) or additional revolving lines of credit with respect to which the principal lender is a commercial banking institution with over $500 million in assets. "New Term Loan Facility" means the term loan portion of that certain Credit Agreement dated as of March 1, 2002 between the Partnership and the lenders thereunder (and any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith) in an initial principal amount of $20.0 million. "Non-Recourse Indebtedness" means Indebtedness: (1) as to which neither the Partnership nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Notes) of the Partnership or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Partnership or any of its Restricted Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Holders" means the (1) Carano Interests, (2) Mandalay Resort Group and any Person into which Mandalay Resort Group merges or consolidates or that acquires all or substantially all of the assets and properties of Mandalay Resort Group and (3) any Wholly-Owned Subsidiary of any of the foregoing. 117 "Permitted Investments" means: (1) any Investment in the Partnership or in any of its Restricted Subsidiaries including, without limitation, any Investment in the Gaming Business of the Partnership or in the Gaming Business of any such Restricted Subsidiary; (2) the making of Investments in the Partnership by any Subsidiary (provided that any Indebtedness evidencing that Investment is subordinated and junior to the Notes); (3) any Investment in Cash Equivalents; (4) any Investment by the Partnership or any of its Restricted Subsidiaries in a Person, if as a result of that Investment: (a) the Person becomes a Restricted Subsidiary of the Partnership engaged in the Gaming Business; or (b) the Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Partnership or a Restricted Subsidiary engaged in the Gaming Business; (5) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "Repurchase at the Option of Holders -- Asset Sales"; (6) advances and loans to employees of the Partnership or a Restricted Subsidiary in the ordinary course of business not in excess of $500,000 at any one time outstanding; (7) Investments acquired by the Partnership or any of its Restricted Subsidiaries (a) in exchange for any other Investment or accounts receivable held by the Partnership or such Restricted Subsidiary in connection with or as a result of a bankruptcy workout, reorganization or recapitalization of the issuer of such Investment or accounts receivable or (b) as a result of a foreclosure by the Partnership or such Restricted Subsidiary or other transfer of title with respect to any secured Investment in default; or (8) Hedging Obligations otherwise permitted under the Indenture. "Permitted Liens" means: (1) Liens on the assets of the Issuers and any Subsidiary Guarantor created (a) by the Indenture and the Collateral Documents securing Notes issued on the date of the Indenture and, to the extent that additional Notes are issued to refinance amounts outstanding under the New Term Loan Facility, such additional Notes, the Exchange Notes and the Subsidiary Guarantees or (b) by the New Credit Facility; (2) Liens in favor of the Issuers or any of their Restricted Subsidiaries; (3) Liens on property of a Person existing at the time that Person is acquired by, merged with or into or consolidated with the Issuers or any of their Restricted Subsidiaries; provided that those Liens were in existence prior to the contemplation of the acquisition, merger or consolidation and do not extend to any assets other than those of the Person acquired by, merged into or consolidated with the Issuers or such Restricted Subsidiary; (4) Liens on property existing at the time of acquisition thereof by the Issuers or any of their Restricted Subsidiaries; provided that those Liens were in existence prior to the contemplation of the acquisition and do not extend to any assets other than the acquired property; (5) Liens or deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; 118 (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (5) of the second paragraph of the covenant entitled "Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock" covering only the assets acquired with or improved with the proceeds of that Indebtedness; (7) Liens to secure Indebtedness that is Permitted Refinancing Indebtedness incurred with respect to the New Term Loan Facility; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that can be paid without penalty or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (9) Liens incurred in the ordinary course of business of the Partnership or of any of its Restricted Subsidiaries with respect to obligations that do not at any time exceed 5% of the net book value of the total net assets of the Partnership as of the time of determination and that (A) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (B) do not in the aggregate materially detract from the value of the property or materially impair the use thereof by the Partnership or its Restricted Subsidiary; (10) leases or subleases that are not prohibited by the terms of the Indenture and that are granted to others in the ordinary course of business and do not in any material respect interfere with the business of the Partnership or any Restricted Subsidiary and deposits made in connection therewith; (11) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business and not overdue for a period of more than 90 days or which are being contested in good faith by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Partnership and its Restricted Subsidiaries in accordance with GAAP; (12) Liens incurred or pledges or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation; (13) easements, rights-of-way, restrictions and other similar encumbrances or charges which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary course of the business of the Partnership and its Restricted Subsidiaries, taken as a whole, and any exceptions to title set forth in any title policies; (14) Liens existing on the date of the Indenture; (15) Liens incurred in the ordinary course of business securing Hedging Obligations otherwise permitted under the terms of the Indenture; and (16) Liens securing Permitted Refinancing Indebtedness, provided, that, in each case, such Liens do not extend to any additional property or asset that did not secure the Indebtedness being extended, refinanced, renewed, replaced, deferred or refunded or that did not secure the Indebtedness affected by such amendment or renewal and do not have a higher priority than the Liens securing the Indebtedness being extended, refinanced, renewed, replaced, deferred or refunded. 119 "Permitted Refinancing Indebtedness" means any Indebtedness of the Partnership or of any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Issuers or of any of their Restricted Subsidiaries that was permitted by the Indenture to be incurred under the first paragraph of the covenant entitled "Certain Covenants --Incurrence of Indebtedness and Issuance of Disqualified Stock" or clause (3) of the second paragraph of such covenant; provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the sum of (a) the outstanding principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest thereon and the amount of all premiums and reasonable expenses incurred in connection therewith) less (b) all due and unpaid scheduled principal payments with respect thereto plus (c) the reasonable fees and expenses incurred in connection with obtaining such Permitted Refinancing Indebtedness; (2) the Permitted Refinancing Indebtedness has a final maturity date not earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, the Permitted Refinancing Indebtedness has a final maturity date not earlier than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the holders of the Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) the Indebtedness is incurred either by the Issuers or by the Restricted Subsidiary that is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Preferred Stock" means any Equity Interest with preferential right of payment of dividends or distributions or upon liquidation, dissolution or winding up. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of that Person that is not an Unrestricted Subsidiary. "Securities Act" means the Securities Act of 1933, as amended. "Significant Subsidiary" means a "significant subsidiary" of the Partnership as defined in Article I, Rule 1-02 of Regulation S-X promulgated under the Securities Act. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the original documentation governing that Indebtedness, and will not include any contingent obligations to repay, redeem or repurchase such interest or principal prior to the date originally scheduled for the payment thereof. 120 "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is that Person or a Subsidiary of that Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). "Subsidiary Guarantee" means a guarantee of the Issuers' payment obligations under the Notes and the Indenture by a Subsidiary Guarantor in accordance with the provisions of the Indenture. "Subsidiary Guarantor" means each Restricted Subsidiary that executes a Subsidiary Guarantee of the Issuers' payment obligations under the Notes and the Indenture in accordance with the provisions of the Indenture, and their respective successors and assigns. "Tax Amount" means, with respect to any taxable year, without duplication, the amount of taxable income of any Person for such period multiplied by the Applicable Tax Rate. "Tax Distribution" means a distribution in respect of taxes to the partners of the Partnership pursuant to clause (4) of the second paragraph of the covenant entitled "Restricted Payments." "Total Assets" means, with respect to any person, the aggregate of all assets of such Person and its subsidiaries as would be shown on the balance sheet of such Person prepared in accordance with GAAP. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. "Unrestricted Subsidiary" means any Subsidiary of the Partnership other than Capital that is designated by the Management Committee as an Unrestricted Subsidiary pursuant to a resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Indebtedness; (2) is not party to any agreement, contract, arrangement or understanding with the Partnership or any Restricted Subsidiary of the Partnership unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Partnership or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Partnership; (3) is a Person with respect to which neither the Partnership nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Partnership or any of its Restricted Subsidiaries. Any designation of a Subsidiary of the Partnership as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant entitled "Certain Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be 121 deemed to be incurred by a Restricted Subsidiary of the Partnership as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant entitled "Incurrence of Indebtedness and Issuance of Disqualified Stock," the Partnership shall be in default of such covenant. The Management Committee of the Partnership may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Partnership of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted under the covenant entitled "-- Incurrence of Indebtedness and Issuance of Disqualified Stock," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period and (2) no Default or Event of Default would be in existence following such designation. "Voting Stock" means any class of Capital Stock of any Person then outstanding normally entitled (without regard to the occurrence of any contingency) to vote in elections of the members of such Person's Management Committee. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between that date and the making of the payment; by (2) the then outstanding principal amount of that Indebtedness. 122 CERTAIN FEDERAL TAX CONSEQUENCES The following is a summary of the material United States federal income tax consequences of the ownership of the notes. It deals only with notes held as capital assets and acquired at original issuance and not with special classes of noteholders, such as dealers in securities or currencies, life insurance companies, tax exempt entities, and persons that hold a note in connection with an arrangement that completely or partially hedges the note. The discussion is based upon the Internal Revenue Code of 1986, as amended, and regulations, rulings and judicial decisions thereunder as of the date of this prospectus. These authorities may be repealed, revoked or modified, perhaps retroactively, so as to produce federal income tax consequences different from those discussed below. Prospective holders of notes should consult their own tax advisors concerning the United States federal income tax and any state or local income or franchise tax consequences in their particular situations, as well as any consequences under the laws of any other taxing jurisdiction. United States Holders For purposes of this discussion, a "United States holder" generally means . a citizen or resident of the United States; . a partnership, corporation or other entity created or organized in or under the law of the United States or of any State of the United States; . an estate the income of which is subject to United States federal income tax regardless of its source; or . a trust, if either (A) a court within the United States is able to exercise primary supervision over the administration of the trust, and one or more United States persons have the authority to control all substantial decisions of the trust or (B) the trust was in existence on August 20, 1996, was treated as a United States person on that date and elected to be treated as a United States person at all times thereafter. The term also includes certain former citizens of the United States whose income and gain on the notes will be subject to United States income tax. Payments of Interest. Payments of stated interest on a note will generally be taxable to a United States holder as ordinary interest income at the time it is received or accrued, depending on the noteholder's method of accounting for tax purposes. Additional Interest and Exchange Offer. We intend to take the position that the likelihood that additional interest will be paid is remote and that the amount of additional interest if paid, will be incidental. Accordingly, the special rules applicable to debt instruments with contingent payments would generally not apply. The additional interest described under "Registration Rights; Additional Interest" would be taxable to a United States holder as ordinary income in accordance with such United States holder's method of accounting for tax purposes. The IRS, however, may take a different position, which could affect the timing of both a United States holder's income and our deduction with respect to such additional interest and could also affect the character as ordinary or capital gain or loss of any income recognized on the disposition of a note. The exchange of a note by a United States holder for an exchange note will not constitute a taxable exchange of the note. As a result, a United States holder will not recognize taxable gain or loss upon receipt of an exchange note, a United States holder's holding period for an exchange note generally will include the holding period for the note so exchanged and such United States holder's adjusted tax basis in an exchange note generally will be the same as such United States holder's adjusted tax basis in the note so exchanged. 123 Backup Withholding and Information Reporting. In general, information reporting requirements will apply to payments of principal and interest on a note and the proceeds of the sale of a note before maturity within the United States to non-corporate United States holders. A 30% "backup withholding" tax will apply to such payments if the United States holder fails to provide certain documentation including an accurate taxpayer identification number or certification of exempt status and, in certain circumstances, a certification that it has not been notified by the Internal Revenue Service that, as a result of failing to report all interest and dividends required to be shown on its federal income tax return, it is subject to backup withholding. Amounts withheld may be allowable as a credit against a holder's federal income tax. Non-United States Holders As used herein, a "Non-United States holder" is a person or entity that, for United States federal income tax purposes, is not a United States holder. If the income or gain on the notes is "effectively connected with the conduct of a trade or business within the United States" by the Non-United States holder holding the note, such income or gain will be subject to tax essentially in the same manner as if the notes were held by a United States holder, as discussed above, and in the case of a Non-United States holder that is a foreign corporation, may also be subject to the United States branch profits tax. Such foreign corporations should consult their own tax advisors concerning the branch profits tax. If the income and gain on the notes is not "effectively connected with the conduct of a trade or business within the United States," then, under the portfolio interest exemption of current United States federal income tax law, payments of principal and interest on a note by us or any paying agent to a noteholder that is a Non-United States holder will not be subject to withholding of United States federal income tax, if the noteholder: . does not actually or constructively own 10% or more of the combined voting power of all classes of our stock; . is not a bank receiving interest pursuant to a loan agreement entered into in the ordinary course of its trade or business; . is not a controlled foreign corporation related to us through stock ownership; and . provides appropriate certification. Under current law, the certification requirement will be met if either: . in accordance with specified procedures, the Non-United States holder provides to us or our paying agent a Form W-8 (or a suitable substitute or successor form), that is signed under penalties of perjury, includes its name and address, and contains a certification that the holder is not a United States person; or . the Non-United States holder provides a Form W-8 (or a suitable substitute or successor form), signed under the penalties of perjury, to a qualified intermediary, such as a securities clearing organization, bank, or other financial institution who holds customers' securities in the ordinary course of its trade or business and holds the notes on behalf of a beneficial owner, and the qualified intermediary certifies to us, or our paying agent, under the penalties of perjury, that such statement has been received by it from the beneficial owner, directly or through another intermediary financial institution, and furnishes us or our paying agent with a copy. Recently finalized Treasury regulations that are applicable to interest paid after December 31, 2000, provide alternative documentation procedures for satisfying the certification requirement described above. These regulations add intermediary certification options for certain qualifying agents. For instance, under one option, a withholding agent would be allowed to rely on an IRS Form W-8IMY, or suitable substitute or successor form, furnished by a financial institution or other intermediary on behalf of one or more beneficial owners or other 124 intermediaries without having to obtain the beneficial owner certificate described in the preceding paragraph, provided that the financial institution or intermediary has entered into a withholding agreement with the IRS and thus is a qualified intermediary. If a Non-United States holder does not qualify for the portfolio interest exemption, interest payments to the Non-United States holder that are not effectively connected with the conduct of a U.S. trade or business would be subject to United States withholding at a 30% rate. The rate may be reduced or eliminated under applicable treaties. To claim the benefit of a treaty the Non-United States holder must furnish us with an appropriate form, e.g., Form W-8BEN. If the income and gain on the notes is not "effectively connected with the conduct of a trade or business within the United States," a noteholder that is a Non-United States holder will not be subject to United States federal income tax on gain realized on the sale, exchange or redemption of the note, unless in the case of a Non-United States holder who is a nonresident alien individual and holds the note as a capital asset, the holder is present in the United States for 183 or more days in the taxable year and certain other requirements are met. Under current United States estate tax law, a noteholder will not be subject to United States federal estate tax as a result of the death of a noteholder who is not a citizen or resident of the United States at the time of death, provided that the noteholder did not at the time of death actually or constructively own 10% or more of the combined voting power of all classes of our stock and, at the time of the noteholder's death, payments of interest on the note would not have been effectively connected with the conduct by the noteholder of a trade or business in the United States. United States information reporting requirements and backup withholding tax will not apply to payments on a note made outside the United States by us or any paying agent (acting in its capacity as such) to a noteholder that is a Non-United States holder provided that a certification of non-U.S. status, as discussed above, has been received and neither we nor our paying agent has actual knowledge that the payee is not a Non-United States holder. Information reporting requirements and backup withholding tax will not apply to any payment of the proceeds of the sale of a note effected outside the United States by a foreign office of a "broker" (as defined in applicable Treasury regulations), provided that the broker: . is a Non-United States holder; . derives less than 50% of its gross income for certain periods from the conduct of a trade or business in the United States; and . is not a controlled foreign corporation as to the United States or a foreign partnership doing business in the United States or in which United States persons own more than 50% of the income or capital interests ("foreign controlled person.") Payment of the proceeds of the sale of a note effected outside the United States by a foreign office of any broker that is not a foreign controlled person will not be subject to backup withholding tax, but will be subject to information reporting requirements unless such broker has documentary evidence in its records that the beneficial owner is a Non-United States holder and certain other conditions are met, or the beneficial owner otherwise establishes an exemption. 125 PLAN OF DISTRIBUTION Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. Broker-dealers may use this prospectus, as it may be amended or supplemented from time to time, in connection with the resale of exchange notes received in exchange for old notes where the broker-dealer acquired the old notes as a result of market-making activities or other trading activities. To the extent a broker-dealer participates in the exchange offer and so notifies us, we have agreed to make this prospectus, as amended or supplemented, available to the broker-dealer for use in connection with any such resale. We will promptly send additional copies of this prospectus and any amendment or supplement to any broker-dealer that requests the documents in the letter of transmittal. We will not receive any proceeds from any sale of exchange notes by broker-dealers or any other persons. Broker-dealers may sell exchange notes received by them for their own account pursuant to the exchange offer from time to time in one or more transactions: . in the over-the-counter market; . in negotiated transactions; . through the writing of options on the exchange notes; or . through a combination of the above methods of resale, at market prices prevailing at the time of resale, at prices related to the prevailing market prices or negotiated prices. Broker-dealers may resell exchange notes directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any broker-dealer and/or the purchasers of the exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of the exchange notes may be deemed to be "underwriters" within the meaning of the Securities Act and any profit on any resale of exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. We have agreed to pay all expenses incident to the exchange offer, other than commissions and concessions of any broker-dealer. We estimate the expenses we will incur in connection with the exchange offer to be approximately $175,000, which includes fees and expenses of the exchange agent and trustee, registration fees, and accounting, legal, printing and related fees and expenses. We also will provide indemnification against specified liabilities, including liabilities that may arise under the Securities Act, to broker-dealers that make a market in the old notes and exchange old notes in the exchange offer for exchange notes. By its acceptance of the exchange offer, any broker-dealer that receives exchange notes pursuant to the exchange offer agrees to notify us before using the prospectus in connection with the sale or transfer of exchange notes. The broker-dealer further acknowledges and agrees that, upon receipt of notice from us of the happening of any event which: . makes any statement in the prospectus untrue in any material respect; . requires the making of any changes in the prospectus to make the statements in the prospectus not misleading; or . may impose upon us disclosure obligations that may have a material adverse effect on us, which notice we agree to deliver promptly to the broker-dealer, the broker-dealer will suspend use of the prospectus until we have notified the broker-dealer that delivery of the prospectus may resume and have furnished copies of any amendment or supplement to the prospectus to the broker-dealer. 126 LEGAL MATTERS Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia, Pennsylvania will pass upon various legal matters for us in connection with the exchange notes offered hereby. Certain matters of Nevada law will be passed upon for us by McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP, Reno and Las Vegas, Nevada. Donald L. Carano, who owns an approximately 30.3% beneficial interest in Eldorado Limited Liability Company, one of the Partnership's two partners, and has owned a controlling interest in that entity's parent or its predecessor since 1973, maintains an "of counsel" relationship with McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP, but is not involved in the active practice of law or in the representation of the Partnership, Capital or any of their affiliates as an attorney. EXPERTS The consolidated financial statements and schedules of Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. as of December 31, 2001 and 2000 and for the three years in the period ended December 31, 2001 included in this prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. AVAILABLE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-4, including exhibits and schedules, under the Securities Act with respect to the exchange notes to be offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules which are part of the registration statement. The rules and regulations of the Commission allow us to omit certain information included in the registration statement from this prospectus. Accordingly, any statements made in this prospectus as to the contents of any agreement or other document are not necessarily complete. With respect to each agreement or other document filed as an exhibit to the registration statement, we refer you to the exhibit for a more complete description of the matter involved, and each statement in this prospectus shall be deemed qualified in its entirety by this reference. You may read and copy all or any portion of the registration statement or any reports, statements or other information in the files at the following public reference facility of the Commission: Judiciary Plaza 450 Fifth Street, N.W. Room 1024 Washington, D.C. 20549 You can request copies of these documents upon payment of a duplicating fee by writing to the Commission. You may call the Commission at 1-800-SEC-0330 for further information on the operation of its public reference rooms. Our filings, including the registration statement, will also be available to you on the Internet web site maintained by the Commission at http://www.sec.gov. We intend to furnish the holders of our notes with annual reports containing audited financial statements and quarterly reports for the first three quarters of each year containing unaudited interim financial information. 127 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants........................................................ F-2 Consolidated Balance Sheets as of December 31, 2001 and 2000.................................... F-3 Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999.......... F-4 Consolidated Statements of Partners' Equity for the years ended December 31, 2001, 2000 and 1999 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999...... F-6 Notes to Consolidated Financial Statements...................................................... F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Circus and Eldorado Joint Venture (doing business as Silver Legacy Resort Casino): We have audited the accompanying consolidated balance sheets of Circus and Eldorado Joint Venture (doing business as SILVER LEGACY RESORT CASINO) and subsidiary (the "Joint Venture") as of December 31, 2001 and 2000, and the related consolidated statements of income, partners' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Joint Venture's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Circus and Eldorado Joint Venture (doing business as SILVER LEGACY RESORT CASINO) and subsidiary as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. As explained in Note 1 to the financial statements, effective January 1, 2001, the Joint Venture changed its method of accounting for interest rate swaps to comply with Statement of Financial Accounting Standards No. 133. ARTHUR ANDERSEN LLP Las Vegas, Nevada February 8, 2002 (except with respect to the matter discussed in Note 13, as to which the date is March 5, 2002) F-2 CIRCUS AND ELDORADO JOINT VENTURE (doing business as Silver Legacy Resort Casino) CONSOLIDATED BALANCE SHEETS As of December 31, 2001 and 2000 (Amounts in Thousands)
2001 2000 -------- -------- ASSETS Current assets: Cash and cash equivalents................ $ 12,256 $ 11,125 Accounts receivable, net................. 4,300 4,787 Inventories.............................. 1,877 1,723 Prepaid expenses......................... 3,186 4,316 -------- -------- Total current assets........................ 21,619 21,951 Property and equipment, net................. 280,975 288,883 Other assets, net........................... 575 1,010 -------- -------- Total assets............................. $303,169 $311,844 ======== ======== LIABILITIES AND PARTNERS' EQUITY Current liabilities: Accounts payable......................... $ 3,797 $ 4,585 Current portion of long-term debt........ 10,000 6,500 Accrued interest......................... 130 1,389 Accrued and other liabilities............ 8,650 8,744 Accrued guarantee fees to related party.. 185 209 -------- -------- Total current liabilities................... 22,762 21,427 Long-term debt, less current portion........ 135,000 157,000 -------- -------- Total liabilities........................... 157,762 178,427 Commitments and contingencies Partners' equity............................ 145,407 133,417 -------- -------- Total liabilities and partners' equity... $303,169 $311,844 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 CIRCUS AND ELDORADO JOINT VENTURE (doing business as Silver Legacy Resort Casino) CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2001, 2000 and 1999 (Amounts in Thousands)
2001 2000 1999 -------- -------- -------- Operating revenues: Casino........................................................... $ 98,374 $109,641 $105,284 Rooms............................................................ 37,835 37,936 36,877 Food and beverage................................................ 35,558 36,832 35,632 Other............................................................ 7,508 8,786 7,748 -------- -------- -------- 179,275 193,195 185,541 Less: promotional allowances..................................... (14,598) (15,706) (15,193) -------- -------- -------- Net operating revenues........................................ 164,677 177,489 170,348 -------- -------- -------- Operating expenses: Casino........................................................... 45,820 48,723 46,724 Rooms............................................................ 12,166 12,867 12,634 Food and beverage................................................ 25,019 26,188 26,101 Other operating expenses......................................... 5,927 7,248 6,327 Selling, general and administrative.............................. 29,207 29,719 28,482 Depreciation and amortization.................................... 12,082 15,500 17,824 Write-off of debt issuance costs................................. 370 -- -- Loss on sale of assets........................................... 4 1 1 -------- -------- -------- Total operating expenses...................................... 130,595 140,246 138,093 -------- -------- -------- Operating income................................................. 34,082 37,243 32,255 -------- -------- -------- Other (income) expense: Insurance settlement proceeds.................................... (225) -- -- Interest income.................................................. (112) (248) (162) Interest expense, net............................................ 13,299 15,721 16,334 Interest rate swap, income....................................... (327) -- -- -------- -------- -------- Total other (income) expense.................................. 12,635 15,473 16,172 -------- -------- -------- Income before cumulative effect of change in accounting principle 21,447 21,770 16,083 Cumulative effect of change in accounting principle.............. (327) -- -- -------- -------- -------- Net income....................................................... $ 21,120 $ 21,770 $ 16,083 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 CIRCUS AND ELDORADO JOINT VENTURE (doing business as Silver Legacy Resort Casino) CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY For the Years Ended December 31, 2001, 2000 and 1999 (Amounts in Thousands)
Eldorado Galleon, Inc. Resorts, LLC Total ------------- ------------ -------- Balance December 31, 1998. $ 69,723 $50,841 $120,564 Net income............. 13,202 2,881 16,083 -------- ------- -------- Balance December 31, 1999. 82,925 53,722 136,647 Partners' distribution. (25,000) -- (25,000) Net income............. 9,835 11,935 21,770 -------- ------- -------- Balance December 31, 2000. 67,760 65,657 133,417 Partners' distribution. (4,565) (4,565) (9,130) Net income............. 10,560 10,560 21,120 -------- ------- -------- Balance December 31, 2001. $ 73,755 $71,652 $145,407 ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 CIRCUS AND ELDORADO JOINT VENTURE (doing business as Silver Legacy Resort Casino) CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001, 2000 and 1999 (Amounts in Thousands)
2001 2000 1999 -------- -------- -------- Cash flows from operating activities: Net income............................................................ $ 21,120 $ 21,770 $ 16,083 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization..................................... 12,082 15,500 17,824 Write-off of debt issuance costs.................................. 370 -- -- Amortization of deferred loan costs............................... 403 403 403 Insurance settlement proceeds..................................... (225) -- -- Loss on sale of assets............................................ 4 1 1 Changes in current assets and current liabilities: Increase (decrease) in accounts receivable, net of allowance...... 487 (995) (680) (Increase) decrease in inventories................................ (154) 264 (340) Increase (decrease) in prepaid expenses........................... 1,126 (796) (649) (Decrease) increase in accounts payable........................... (788) 94 (635) (Decrease) in accrued guarantee fees to related party............. (24) (13) (32) (Decrease) increase in accrued interest........................... (1,259) 255 (145) (Decrease) increase in accrued and other liabilities.............. (94) 1,027 215 -------- -------- -------- Total adjustments..................................................... 11,928 15,740 15,962 -------- -------- -------- Net cash provided by operating activities......................... 33,048 37,510 32,045 -------- -------- -------- Cash flows from investing activities: Proceeds from sale of assets.......................................... 6 32 -- Decrease (increase) in other assets................................... 32 (98) 54 Insurance settlement proceeds......................................... 225 -- -- Purchase of property and equipment.................................... (4,180) (4,158) (4,902) -------- -------- -------- Net cash used in investing activities............................. (3,917) (4,224) (4,848) -------- -------- -------- Cash flows from financing activities: Proceeds from Bank Credit Facility.................................... 3,000 25,000 -- Partners' distribution................................................ (9,130) (25,000) -- Debt issuance costs................................................... (370) -- -- Payments on Bank Credit Facility...................................... (21,500) (35,500) (24,500) -------- -------- -------- Net cash used in financing activities............................. (28,000) (35,500) (24,500) -------- -------- -------- Net increase (decrease) in cash and cash equivalents..................... 1,131 (2,214) 2,697 Cash and cash equivalents at beginning of year........................... 11,125 13,339 10,642 -------- -------- -------- Cash and cash equivalents at end of year................................. $ 12,256 $ 11,125 $ 13,339 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during year for interest.................................... $ 14,179 $ 15,075 $ 16,080 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 CIRCUS AND ELDORADO JOINT VENTURE (doing business as Silver Legacy Resort Casino) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies a. Principles of Consolidation/Operations Effective March 1, 1994, Eldorado Limited Liability Company (a Nevada limited liability company owned and controlled by Eldorado Resorts, LLC) and Galleon, Inc. (a Nevada corporation owned and controlled by Mandalay Resort Group formerly known as Circus Circus Enterprises, Inc.) (collectively, the "Partners"), entered into a joint venture agreement to establish the Silver Legacy Resort Casino (the "Joint Venture" or "Silver Legacy"), a Nevada general partnership. The Joint Venture consists of a casino and hotel located in Reno, Nevada, which began operations on July 28, 1995. The Eldorado Limited Liability Company contributed land to the Joint Venture with a fair value of $25,000,000 and cash of $26,900,000 for a total equity investment of $51,900,000. Galleon, Inc. contributed cash to the Joint Venture of $51,900,000 to comprise their total equity investment. Each partner has a 50% interest in the partnership. The consolidated financial statements include the accounts of Silver Legacy and its wholly-owned subsidiary, Silver Legacy Capital Corp. ("Capital"). All significant intercompany accounts and transactions have been eliminated in consolidation. b. Impact of Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that entities record all derivatives as assets or liabilities measured at fair value, with the change in fair value recognized in earnings or in other comprehensive income, depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS No. 133 amends or supersedes several current accounting statements. In July 1999, the FASB issued SFAS No. 137 which delayed the effective date of SFAS No. 133 from fiscal year 2000 to fiscal year 2001. During June 2000, the FASB issued SFAS No. 138 which amends certain sections of SFAS No. 133. As of January 1, 2001, the Joint Venture changed its method of accounting for interest rate swaps to comply with SFAS No. 133, and accordingly, changes to fair value of the interest rate swaps are recognized in earnings. On January 1, 2001, the Joint Venture recorded a liability of $327,000 for the fair value of its interest rate swaps at that date, with a corresponding cumulative effect adjustment in the statement of income. The interest rate swaps expired on October 29, 2001; accordingly, the Joint Venture recognized $327,000 as interest rate swap income for the year ended December 31, 2001. c. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. d. Cash and Cash Equivalents Cash and cash equivalents include investments purchased with an original maturity of 90 days or less. e. Inventories Inventories are stated at the lower of cost, using a first-in, first-out basis, or market value. F-7 CIRCUS AND ELDORADO JOINT VENTURE (doing business as Silver Legacy Resort Casino) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) f. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of the asset. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred. g. Capitalization of Interest The Joint Venture's policy is to capitalize interest on funds disbursed during the active construction and development phases of its facilities and other major projects. There was no interest capitalized in 2001, 2000 or 1999. h. Interest Rate Swaps The Joint Venture, from time to time, uses interest rate swaps to assist in managing interest incurred on its Bank Credit Facility. The interest rate swaps expired on October 29, 2001. The difference between amounts received and amounts paid under such agreements, as well as any costs or fees, is recorded as a reduction of, or addition to, interest expense as incurred over the life of the swaps. The interest rate swaps accounted for additional interest expense of $1,375,000 in 2001 and interest income of $(34,059) in 2000 and expense of $1,113,000 in 1999. i. Casino Revenue and Promotional Allowances In accordance with industry practice, the Joint Venture recognizes as casino revenue the net win from gaming activities, which is the difference between gaming wins and losses. The retail value of food, beverage, rooms and other services furnished to customers on a complimentary basis is included in gross revenues and then deducted as promotional allowances. The estimated costs of providing such promotional allowances are included in casino costs and expenses and consist of the following:
Years ended December 31, ------------------------ 2001 2000 1999 ------ ------ ------ (in thousands) Food and Beverage $6,589 $6,889 $6,521 Rooms............ 1,263 1,285 1,344 Other............ 867 1,230 1,008 ------ ------ ------ $8,719 $9,404 $8,873 ====== ====== ======
j. Advertising Advertising costs are expensed the first time the advertising takes place. Advertising costs included in selling, general and administrative expenses were $6,191,000, $6,748,000 and $6,088,000 for the years ended December 31, 2001, 2000, and 1999, respectively. k. Federal Income Taxes The Joint Venture is not subject to income taxes; therefore, no provision for income taxes has been made, as the Partners include their respective share of Joint Venture income in their income tax returns. The Joint Venture Agreement provides for the Joint Venture to make distributions to the Partners in an amount equal to the F-8 CIRCUS AND ELDORADO JOINT VENTURE (doing business as Silver Legacy Resort Casino) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) maximum marginal federal income tax rate applicable to any Partner multiplied by the income of the Joint Venture for the applicable period (see Note 13). The reported amounts of the Joint Venture's assets and liabilities exceeded the net tax basis by $44,151,000 and $43,494,000, at December 31, 2001 and 2000, respectively. l. Fair Value of Financial Instruments Management is of the opinion that the fair values of all its financial instruments are not materially different from their carrying values. The fair value of the interest rate swaps at December 31, 2001 and 2000 were $0 and $327,000, respectively. m. Reclassifications Certain reclassifications have been made to the prior year financial statements to conform to current year presentation which have no effect on net income. 2. Certain Risks and Uncertainties A significant portion of the Joint Venture's revenues and operating income are generated from patrons who are residents of Northern California. A change in general economic conditions or the extent and nature of casino gaming in California, Washington or Oregon could adversely affect the Joint Venture's operating results. On September 10, 1999, California lawmakers approved a constitutional amendment that would give Indian tribes the right to offer slot machines and a range of house-banked card games. On March 7, 2000, California voters approved the constitutional amendment which legalized "Nevada-style" gaming on Native American reservations. 3. Accounts Receivable Components of accounts receivable, net are as follows:
2001 2000 ------- ------- (in thousands) Casino receivables.......... $ 3,654 $ 3,846 Hotel receivables........... 1,783 1,888 Other receivables........... 167 130 ------- ------- 5,604 5,864 Less-allowance for bad debts (1,304) (1,077) ------- ------- Accounts receivable, net.... $ 4,300 $ 4,787 ======= =======
The provision for bad debt expense for the years ended December 31, 2001, 2000 and 1999, was $864,000, $596,000, and $508,000, respectively. Included in Other receivables is $95,000 and $36,000 due from Eldorado Hotel & Casino and $59,000 and $78,000 due from Circus Circus Hotel and Casino-Reno as of December 31, 2001 and 2000, respectively. F-9 CIRCUS AND ELDORADO JOINT VENTURE (doing business as Silver Legacy Resort Casino) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. Property and Equipment Property and equipment at December 31, 2001 and 2000 consisted of the following:
Estimated 2001 2000 Service Life --------- -------- ------------ (in thousands) (Years) Land and improvements....................... $ 28,405 $ 28,405 -- Buildings and other leasehold improvements.. 271,517 270,576 15-45 Furniture, fixtures, and equipment.......... 84,260 81,716 3-15 Construction in progress.................... 38 16 -- --------- -------- 384,220 380,713 Less-accumulated depreciation............... (103,245) (91,830) --------- -------- Property and equipment, net................. $ 280,975 $288,883 ========= ========
Substantially all property and equipment of the Joint Venture collateralize the Bank Credit Facility (see Note 7). 5. Other Assets Other assets, net at December 31, 2001 and 2000 consisted of the following:
2001 2000 ----- ------ (in thousands) China, glassware, silverware and linens................... $289 $ 246 Gaming chips and tokens................................... 46 49 Deferred loan costs....................................... 202 605 Other..................................................... 38 110 ---- ------ $575 $1,010 ==== ======
The initial inventory of china, glassware and silverware is being amortized to 50% of cost with the balance kept as base stock. Subsequent purchases of china, glassware and silverware are expensed as used. Gaming chips and tokens are being amortized over three years. Costs incurred to acquire the Bank Credit Facility were capitalized and are being amortized to interest expense over the term of the Bank Credit Facility agreement. The unamortized balance of $202,000 at December 31, 2001 will be amortized through June 30, 2003, the remaining term of the Bank Credit Facility (see Notes 7 and 13). Costs incurred in connection with the Notes Offering in the amount of $370,000 have been written-off due to the postponement of the offering for greater than 90 days (see Note 13). F-10 CIRCUS AND ELDORADO JOINT VENTURE (doing business as Silver Legacy Resort Casino) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. Accrued and Other Liabilities Accrued and other liabilities consist of the following (in thousands):
2001 2000 ------ ------ Accrued payroll and related..... $1,825 $1,854 Accrued vacation................ 1,512 1,465 Other........................... 5,313 5,425 ------ ------ Accrued and other liabilities... $8,650 $8,744 ====== ======
7. Long-Term Debt Long-term debt at December 31, 2001 and 2000 consisted of the following:
2001 2000 -------- -------- (in thousands) Amounts due under the Bank Credit Facility at floating interest rates, weighted average of 5.93% and 7.51% during 2001 and 2000, respectively; due June 30, 2003..................................... $145,000 $163,500 Less-current portion.................................................. (10,000) (6,500) -------- -------- $135,000 $157,000 ======== ========
The Bank Credit Facility contains various restrictive covenants including the maintenance of certain financial ratios and limitations on additional debt, distributions, disposition of property, mergers and similar transactions. As of December 31, 2001, the Joint Venture was in compliance with all loan agreement provisions. Scheduled maturities of long-term debt are as follows at December 31, 2001 (in thousands): 2002......... $ 10,000 2003......... 135,000 Thereafter... -- -------- $145,000 ========
On May 30, 1995, the Joint Venture entered into a $230,000,000 reducing, revolving credit facility with a consortium of banks (the "Bank Credit Facility"). On September 9, 1996, the Joint Venture amended its Bank Credit Facility to $220,000,000 and on November 24, 1997, amended the Bank Credit Facility to $230,000,000. Quarterly commitment reductions of $4,250,000 per quarter are due beginning March 31, 1998 through December 31, 2000; $5,500,000 per quarter beginning January 1, 2001 through December 31, 2002; $6,000,000 on March 31, 2003 and all remaining outstanding balances are due June 30, 2003. Required commitment reductions of $10,000,000 for fiscal year 2002 will reduce availability under the Bank Credit Facility to $135,000,000 as of December 31, 2002. The Joint Venture incurs commitment fees of 0.25% on the unused portion of the credit facility. The Bank Credit Facility is secured by a deed of trust on the Joint Venture's real property and by security interests in other assets of the Joint Venture (see Note 4). In order to limit its exposure to interest rate movements, the Joint Venture entered into agreements with members of its bank group to participate in interest rate swaps. In connection therewith, the Joint Venture agreed F-11 CIRCUS AND ELDORADO JOINT VENTURE (doing business as Silver Legacy Resort Casino) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) to pay the institutions a fixed interest rate of approximately 6.4% on a total notional amount of $100,000,000, in return for the institutions' commitment to pay the Joint Venture a floating interest rate equal to the three-month Eurodollar rate. These agreements expired on October 29, 2001. 8. Related Parties Silver Legacy is owned by our Partners, each of which operates a casino attached and adjacent to Silver Legacy. Our Partners may be deemed to be in a conflict of interest position with respect to decisions they make relating to the Joint Venture, the Eldorado Hotel & Casino and Circus Circus Hotel & Casino--Reno. The cost of the Silver Legacy, in excess of the equity contributions, was funded from a combination of cash generated from operations, the Bank Credit Facility and a loan from Mandalay Resort Group ("MRG"). The MRG loan, executed on May 31, 1995, was for an amount up to $75,000,000 and carried an annual interest rate of 10%. On September 9, 1996, the MRG loan was amended to change the maturity date to 367 days after the Bank Credit Facility is paid in full. On November 24, 1997, the entire principal balance of $35,104,000 was paid out of funds received from the Bank Credit Facility. As a condition to the Bank Credit Facility, MRG guaranteed completion of the Silver Legacy and, in addition, entered into a make-well agreement whereby it is obligated to make additional contributions to Silver Legacy as may be necessary to maintain a minimum coverage ratio (as defined). As compensation for the make-well agreement, MRG receives guarantee fees of 1 1/2% of the outstanding balance of the Bank Credit Facility. The Joint Venture made payments totaling $2,311,000, $2,523,000, and $2,838,000 on its guarantee fee commitment in 2001, 2000 and 1999 leaving an accrued balance of $185,000 and $209,000 of guarantee fees for the years ended December 31, 2001 and 2000, respectively. On May 16, 1996, Eldorado Resorts, LLC ("Eldorado"), entered into an agreement with the Joint Venture to operate a race and sports book (the "Book") located in the Silver Legacy. Eldorado supplied the management, employees and equipment associated with the operation of the Book. Revenues and expenses were apportioned according to a formula included in the race and sports book agreement. For the year ended December 31, 1999, the Joint Venture recorded $727,000 in revenues and $505,000 in expenses related to the operations of the Book. Effective November 23, 1999, the agreement with the Eldorado was terminated and the Joint Venture began operating the Book exclusively. Silver Legacy has utilized a King Air jet owned by Recreational Enterprises, Inc. ("REI") for the purpose of providing air service to select customers. During 2001, 2000 and 1999, the Joint Venture paid $31,000, $17,000 and $2,000, respectively. Although there is no agreement obligating the Joint Venture to utilize the plane or entitling it to do so, it is anticipated that the Joint Venture will continue to utilize this service from time to time in the future on terms mutually acceptable to the parties. REI, which owns 55% of Eldorado is owned by various members of the Carano family, including Gary L. Carano, Silver Legacy's General Manager, Glenn T. Carano, Silver Legacy's Executive Director of Marketing, and Gene R. Carano, a member of the Joint Venture's Executive Committee, each of whom owns an approximate 10.1% beneficial interest in REI, and Donald L. Carano, the father of Gary, Glenn and Gene Carano, who owns an approximate 49.5% interest in REI. Silver Legacy's marketing and sales departments have utilized a yacht owned by Sierra Adventure Equipment Leasing, Inc. ("Sierra Leasing") at a flat rate per trip of $2,500 for various promotional events. The payments made by the Joint Venture to Sierra Leasing for the use of the yacht totaled $21,000, $31,000 and $63,000 during 2001, 2000 and 1999, respectively. Although there is no agreement obligating the Joint Venture to utilize the yacht or entitling it to do so, it is anticipated that the Joint Venture will continue to utilize this F-12 CIRCUS AND ELDORADO JOINT VENTURE (doing business as Silver Legacy Resort Casino) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) service from time to time in the future on terms mutually acceptable to the parties. Sierra Leasing is owned by Donald L. Carano, the father of Gary L. Carano, Silver Legacy's General Manager, Glenn T. Carano, Silver Legacy's Executive Director of Marketing, and Gene R. Carano, a member of the Joint Venture's executive committee. In 1998, the Joint Venture began purchasing advertising materials from Lexicon Design, Inc., a corporation which is wholly-owned by the wife of Silver Legacy's Executive Director of Marketing. The payments made by the Joint Venture to Lexicon Design, Inc. were $428,000, $364,000 and $217,000 for the years ended December 31, 2001, 2000 and 1999, respectively. In April 2001, the Joint Venture began utilizing 235 spaces in the parking garage at Circus Circus Hotel and Casino-Reno. The spaces are utilized to provide parking for employees of Silver Legacy. In consideration for its use of the spaces, the Joint Venture pays Circus Circus Hotel and Casino-Reno rent in the amount of $5,000 per month. Although there is no agreement obligating the Joint Venture to continue utilizing the spaces or entitling it to do so, it is anticipated that the Joint Venture will continue this agreement for the foreseeable future. 9. 401(k) Plan The Joint Venture instituted a defined contribution 401(k) plan in September 1995 which covers all employees who meet certain age and length of service requirements and allows an employer contribution up to 25 percent of the first six percent of each participating employee's compensation. Plan participants can elect to defer before tax compensation through payroll deductions. Those deferrals are regulated under Section 401(k) of the Internal Revenue Code. The Joint Venture's matching contributions were $318,000, $320,000, and $278,000 for the fiscal years ended December 31, 2001, 2000 and 1999, respectively. 10. Supplemental Executive Retirement Plan The Joint Venture anticipates adopting a Supplemental Executive Retirement Plan ("SERP") for a select group of management and highly compensated employees. The SERP will be effective January 1, 2002 and will provide for a lifetime benefit at age 65, based on a formula which takes into account a participants' highest annual compensation, years of service, and executive level. The SERP will also provide an early retirement benefit at age 55 with at least four years of service, a disability provision, and a lump sum death benefit. The obligation is expected to be funded through life insurance contracts on the participants. There were neither accrued amounts nor a required deposit as of December 31, 2001. The Joint Venture anticipates that its required deposit upon inception of the plan will be approximately $700,000, its periodic pension cost for the year ended December 31, 2002 will be approximately $600,000 and the accumulated benefit obligation at inception of the Plan will be approximately $1,234,000. 11. Commitments and Contingencies a. Letters of Credit The Bank Credit Facility allows for the issuance of letters of credit of up to $5,000,000. As of December 31, 2001 and 2000, the Joint Venture had not drawn against these letters of credit. F-13 CIRCUS AND ELDORADO JOINT VENTURE (doing business as Silver Legacy Resort Casino) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) b. Operating Leases The Joint Venture leases land and equipment under operating leases. Future minimum payments (expiring from 2002 and thereafter) under noncancellable operating leases with initial terms of one year or more consisted of the following at December 31, 2001: 2002...... $167,000 2003...... 23,000 Thereafter -- -------- $190,000 ========
Total rental expense under operating leases was $548,000, $482,000, and $376,000 for the years ended December 31, 2001, 2000 and 1999, respectively. c. Litigation The Joint Venture is party to various litigation arising in the normal course of business. Management is of the opinion that the ultimate resolution of these matters will not have a material effect on the financial position or the results of operations of the Joint Venture. 12. Priority Allocation For so long as Eldorado Resorts, LLC has the right to select the General Manager of the Silver Legacy, as provided in the Joint Venture Agreement, Galleon, Inc. is entitled annually on a non-cumulative basis, commencing with the eight-month period ending December 31, 1997 and for each subsequent 12-month period, to a priority allocation of the Joint Venture's operating income (the "Priority Allocation") in an amount equal to approximately 11.54% of the average of the "Adjusted Initial Investment" (as defined) for the period. If, after deducting equal shares of interest expense, a Partner's share of the priority allocation is less than zero, additional operating income is allocated to that Partner to bring their allocation to zero. For purposes of determining the amount of the Priority Allocation for any period, the term "Adjusted Initial Investment" means $290,000,000 (the "Initial Investment") as adjusted at the end of each year by subtracting (i) the depreciation on the Initial Investment taken in such year in accordance with the depreciation schedule agreed to by the Partners and (ii) the principal payments which would have been made in repayment of the original bank financing utilized for the development, construction and completion of the Silver Legacy. As a result of the Priority Allocation, each of the Partners received 50% of the operating income through April 30, 1997 and Galleon, Inc. received 100% of the operating income for the remaining eight months ending December 31, 1997 and for the twelve months ending December 31, 1998. The total allocations to the two Partners for the years ended December 31, 2001, 2000 and 1999, are $10,560,000, $11,935,000, and $2,881,000 to Eldorado Resorts, LLC and $10,560,000, $9,835,000, and $13,202,000 to Galleon, Inc., respectively. The allocation to Eldorado Resorts, LLC for the year ended December 31, 2000 includes $1,050,000 to adjust for an excess allocation in the same amount to Galleon, Inc. for the year ended December 31, 1999. F-14 CIRCUS AND ELDORADO JOINT VENTURE (doing business as Silver Legacy Resort Casino) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13. Subsequent Events Notes Offering On March 5, 2002, the Joint Venture and Capital completed an offering of Mortgage Notes ("Notes") (the "Notes Offering") with a principal amount of $160 million. The Notes Offering was made to qualified investors pursuant to Rule 144A of the Securities Act of 1933. Within 60 days after the issue date of the Notes, a registration statement enabling holders to exchange their privately placed notes for publicly registered notes with identical terms, will be filed. The Notes are senior secured obligations which rank equally to all of the Joint Ventures' outstanding senior debt and senior to all of the Joint Venture's subordinated debt. Concurrent with the Notes Offering, the Joint Venture entered into a new senior secured credit facility. The proceeds from the Notes, together with borrowings under the new senior secured credit facility for $40 million, were used to repay amounts outstanding under the existing Bank Credit Facility, fund a distribution to the Partners and pay related fees and expenses of the transactions. Deferred loan costs of approximately $200,000 related to the existing Bank Credit Facility were written-off, as an extraordinary item, upon repayment in full of the existing Bank Credit Facility. Joint Venture Agreement The Joint Venture Partners executed an Amended and Restated Joint Venture Agreement. This Amended and Restated Joint Venture Agreement provides for, among other items, profits and losses to be allocated to the Partners in proportion to their percentage interests, separate capital accounts to be maintained for each Partner and provisions for management of the Joint Venture, payment of distributions and bankruptcy and/or dissolution of the Joint Venture. The Priority Allocation provisions included in the original Joint Venture Agreement have been eliminated from the Amended and Restated Joint Venture Agreement and will not apply in future periods. The Managing Partner, currently Mandalay Resort Group, will be given the ability to appoint the General Manager. Distributions Subsequent to year-end, the Joint Venture made a fourth quarter 2001 tax distribution to ELLC and Galleon of $1.2 million each, utilizing $0.9 million of cash from operations and $1.5 million borrowed under the existing credit facility. Prior to the issuance of the Notes Offering, the Joint Venture made distributions to ELLC and Galleon of (i) $5.2 million representing fiscal year 2000 tax distributions and (ii) $2.1 million representing the remaining Priority Allocation payment to Mandalay Resort Group to be made from borrowings under the existing credit facility. Concurrent with the Notes Offering, the Joint Venture made additional distributions to ELLC and Galleon of $10.0 million and $20.0 million, respectively. F-15 ================================================================================ CIRCUS AND ELDORADO JOINT VENTURE SILVER LEGACY CAPITAL CORP. Offer to Exchange up to $160,000,000 of their 10 1/8% Mortgage Notes due 2012 Which Have Been Registered Under the Securities Act of 1933, For up to $160,000,000 of their Outstanding 10 1/8% Mortgage Notes due 2012 ----------------- PROSPECTUS ----------------- , 2002 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification Of Directors And Officers. Section 6.1 of the Amended and Restated Joint Venture Agreement (the "Partnership Agreement") of Circus and Eldorado Joint Venture (the "Partnership") requires the Partnership to indemnify, hold harmless, and pay all judgments and claims of third parties against each of its partner or any officer, shareholder, member, partner, or director of either partner and members of the Partnership's executive committee relating to any liability or damage, including attorneys' fees, arising by reason of any action or failure to act by the partner, officer, shareholder, member, director or member of the Partnership's executive committee in connection with the business of the Partnership, except for any conduct of a partner that constitutes fraud, bad faith or breach of fiduciary duty. Section 6.2 of the Partnership Agreement further requires that the Partnership indemnify, hold harmless, and pay all expenses, costs, or liabilities of any partner who for the benefit of the Partnership makes any deposit, acquires any option, or makes any other similar payment or assumes any obligation in connection with any property proposed to be acquired by the Partnership in accordance with the Partnership Agreement and who suffers any financial loss as the result of such action. In the event that any provision of either Section 6.1 or 6.2 is determined to be invalid in whole or in part, the Partnership Agreement provides that the relevant section will be enforced to the maximum extent permitted by law. Section 78.7502 of the Nevada Revised Statutes (the "Nevada Law") permits a corporation to indemnify any of its directors, officers, employees and agents against costs and expenses arising from claims, suits and proceedings if such persons acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Notwithstanding the foregoing, no indemnification may be made in respect of any claim, issue or matter, as to which such person is adjudged to be liable to the corporation unless and only to the extent that a court of competent jurisdiction determines that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. In accordance with Nevada Revised Statutes 78.037, Article V of the Articles of Incorporation of Silver Legacy Capital Corp. ("Capital") provides that no director of Capital will be personally liable to Capital or its stockholders for damages for breach of fiduciary duty as a director, except for (a) acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or (b) the payment of dividends in violation of Nevada Revised Statutes Chapter 78. Article V further provides that each person who is or was a director of Capital (including the heirs, executors, administrators or estate of such person) will be indemnified by Capital as of right to the full extent permitted by Chapter 78 of the Nevada Law against any liability, cost or expense asserted against such director and incurred by such director by reason of the fact that such person is or was a director. The expenses of directors, past or present, incurred in defending a civil or criminal action, suit, or proceeding must be paid by Capital as incurred and in advance of the final disposition of the action, suit or proceeding upon receipt of an undertaking by or on behalf of the director to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by Capital. Article V provides that Capital, to the full extent of its power to do so, will indemnify all directors, officers, employees, and/or agents in accordance with the provisions the Nevada Law. Article V further provides that Capital will have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of Capital, or is or was serving at the request of Capital as a director, officer, employee, or agent or another corporation, partnership, joint venture, trust or other enterprise against any liability II-1 asserted against him in any such capacity or arising out of his status as such, whether or not Capital would have the power to indemnify him against such liability under the provisions of Nevada law. Article V also provides that any repeal or modification of all or any portion of the provisions of Article V by the stockholders of Capital will not adversely affect any right or protection of an officer or director of Capital existing at the time of such repeal or modification. Article V of Capital's Bylaws provides that each person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that such person or a person for whom such person is the legal representative is or was a director, officer, employee or agent of Capital or is or was serving at the request of Capital as a director, officer, member, manager, employee or agent of another corporation or of a partnership, limited liability company, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such Proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as a director, officer, employee or agent of Capital, will be indemnified and held harmless by Capital to the fullest extent permitted by the laws of the State of Nevada as the same exist or may hereafter be amended (but, in the case of such amendment, only to the extent that such amendment permits Capital to provide broader indemnification rights than such laws permitted Capital to provide before such amendment) against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement and amounts expended in seeking indemnification granted to such person under applicable law, Article V or any agreement with Capital) reasonably incurred or suffered by such person in connection therewith, and such indemnification will continue as to a person who has ceased to be a director, officer, employee or agent of Capital, or who served in any other capacity on behalf of Capital, and will inure to the benefit of such person's heirs, executors and administrators. Article X, Section 10.2 of the registrant's Restated Bylaws provides for mandatory indemnification of directors and officers to the fullest extent now or hereafter permitted by law. Item 21. Exhibits And Financial Statement Schedules. (a) Exhibits 3.1 Articles of Incorporation of Silver Legacy Capital Corp. 3.2 Bylaws of Silver Legacy Capital Corp. 3.3 Amended and Restated Agreement of Joint Venture of Circus and Eldorado Joint Venture between Eldorado Limited Liability Company and Galleon, Inc. 4.1 Indenture, dated as of March 5, 2002, among the Registrants and The Bank of New York, with respect to the 10 1/8% Mortgage Notes due 2012 (incorporated by reference to Exhibit 10.10.1 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.2 Deed of Trust, Fixture Filing and Security Agreement with Assignment of Rents, dated as of February 26, 2002, by Circus and Eldorado Joint Venture, to First American Title Company of Nevada for the benefit of The Bank of New York, as trustee (incorporated by reference to Exhibit 10.10.2 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.3 Security Agreement, dated as of March 5, 2002, by the Registrants for the benefit of The Bank of New York, as trustee (incorporated by reference to Exhibit 10.10.3 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.4 Assignment of Rent and Revenues, entered into as of February 26, 2002, between Circus and Eldorado Joint Venture and The Bank of New York, as trustee (incorporated by reference to Exhibit 10.10.4 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333- 11811) on Form 10-K for the year ended December 31, 2001)
II-2 4.5 Collateral Account Agreement, dated as of March 5, 2002, among the Registrants and The Bank of New York, as trustee (incorporated by reference to Exhibit 10.10.5 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.6 Environmental Indemnity, entered into as of March 5, 2002, by the Registrants (incorporated by reference to Exhibit 10.10.6 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.7 Registration Rights Agreement, dated as of March 5, 2002, among the Registrants and Banc of America Securities LLC 4.8 Second Amended and Restated Credit Agreement, dated as of March 5, 2002, among Circus and Eldorado Joint Venture, Bank of America, N.A., Bank of Scotland, and U.S. Bank National Association (incorporated by reference to Exhibit 10.9.2 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.9 Guaranty, dated as of March 5, 2002, made by Silver Legacy Capital Corp. in favor of Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.3 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.10 Second Amended and Restated Security Agreement, dated as of March 5, 2002, between Circus and Eldorado Joint Venture and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.4 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.11 Guarantor Security Agreement, dated as of March 5, 2002, between Silver Legacy Capital Corp. and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.5 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.12 Second Amended and Restated Construction Deed of Trust, Fixture Filing and Security Agreement with Assignment of Rents, dated as of February 26, 2002, but effective March 5, 2002, among Circus and Eldorado Joint Venture, First American Title Company of Nevada, as trustee, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.6 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
4.13 Second Amended and Restated Assignment of Rents and Revenues, entered into as of February 26, 2002, but effective as of March 5, 2002, between Circus and Eldorado Joint Venture and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.7 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
4.14 Second Amended and Restated Collateral Account Agreement, dated March 5, 2002, between Circus and Eldorado Joint Venture and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.8 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.15 Intercreditor Agreement, dated as of March 5, 2002, among Bank of America, N.A., as administrative agent, The Bank of New York, as trustee, and the Registrants (incorporated by reference to Exhibit 10.9.9 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 5 Opinions of Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia, Pennsylvania, and McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP, Reno and Las Vegas, Nevada
II-3 10* Silver Legacy Supplemental Executive Retirement Plan 12 Statement regarding Computation of Ratio of Earnings to Fixed Charges 21 Subsidiaries of Registrants 23.1 Consent of Wolf, Block, Schorr and Solis-Cohen LLP (included as part of Exhibit 5) 23.2 Consent of McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP (included as part of Exhibit 5) 23.3 Consent of Arthur Andersen LLP 24 Power of Attorney (included on Page II-5 of this Registration Statement) 25 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as trustee of the 10 1/8% Mortgage Notes due 2012 of the Registrants 99.1 Form of Letter of Transmittal with respect to the Exchange Offer 99.2 Form of Notice of Guaranteed Delivery with respect to the Exchange Offer 99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 99.4 Client Letter 99.5 Broker Dealer Letter 99.6 Letter to Commission pursuant to Temporary Note 3T to Article 3 of Regulation S-X
- -------- * This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit. In accordance with Regulation S-K 601(b)(4)(iii)(A), the registrants agree to file applicable agreements with the Securities and Exchange Commission upon request. (b) Financial Statement Schedules None. Item 22. Undertakings. (a) The undersigned registrants each hereby undertakes that insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned registrants each hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (c) The undersigned registrants each hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in II-4 the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) of the Act if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrants have duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Reno, State of Nevada, on April 26, 2002. CIRCUS AND ELDORADO JOINT VENTURE By: /s/ Gary L. Carano ------------------------------- Gary L. Carano, Chief Executive Officer SILVER LEGACY CAPITAL CORP. By: /s/ Gary L. Carano ----------------------------- Gary L. Carano, Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gary L. Carano and Bruce C. Sexton, and each of them, with full power to act without the other, such person's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including pre- and post-effective amendments) to this registration statement, and to file the same, with exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title(s) Date --------- -------- ---- /s/ Gary L. Carano Chief Executive Officer of April 26, 2002 - ----------------------------- Circus and Eldorado Joint Gary L. Carano Venture and President and Chief Executive Officer of Silver Legacy Capital Corp. (Principal Executive Officer of each Registrant) /s/ Bruce C. Sexton Controller and Chief April 26, 2002 - ----------------------------- Accounting and Financial Bruce C. Sexton Officer of Circus and Eldorado Joint Venture and Treasurer and Chief Accounting and Financial Officer of Silver Legacy Capital Corp. (Principal Accounting Officer and Principal Financial Officer of each Registrant) II-6 Signature Title(s) Date --------- -------- ---- /s/ Gene R. Carano Member of the Executive April 26, 2002 - ----------------------------- Committee of Circus and Gene R. Carano Eldorado Joint Venture and Director of Silver Legacy Capital Corp. /s/ Stephen J. Greathouse Member of the Executive April 26, 2002 - ----------------------------- Committee of Circus and Stephen J. Greathouse Eldorado Joint Venture and Director of Silver Legacy Capital Corp. /s/ Robert M. Jones Member of the Executive April 26, 2002 - ----------------------------- Committee of Circus and Robert M. Jones Eldorado Joint Venture and Director of Silver Legacy Capital Corp. /s/ Yvette E. Landau Member of the Executive April 26, 2002 - ----------------------------- Committee of Circus and Yvette E. Landau Eldorado Joint Venture and Director of Silver Legacy Capital Corp. /s/ Thomas D. Robinson Member of the Executive April 26, 2002 - ----------------------------- Committee of Circus and Thomas D. Robinson Eldorado Joint Venture and Director of Silver Legacy Capital Corp. II-7 INDEX TO EXHIBITS
Exhibit No. Description --- ----------- 3.1 Articles of Incorporation of Silver Legacy Capital Corp. 3.2 Bylaws of Silver Legacy Capital Corp. 3.3 Amended and Restated Agreement of Joint Venture of Circus and Eldorado Joint Venture between Eldorado Limited Liability Company and Galleon, Inc. 4.1 Indenture, dated as of March 5, 2002, among the Registrants and The Bank of New York, with respect to the 10 1/8% Mortgage Notes due 2012 (incorporated by reference to Exhibit 10.10.1 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333- 11811) on Form 10-K for the year ended December 31, 2001) 4.2 Deed of Trust, Fixture Filing and Security Agreement with Assignment of Rents, dated as of February 26, 2002, by Circus and Eldorado Joint Venture, to First American Title Company of Nevada for the benefit of The Bank of New York, as trustee (incorporated by reference to Exhibit 10.10.2 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.3 Security Agreement, dated as of March 5, 2002, by the Registrants for the benefit of The Bank of New York, as trustee (incorporated by reference to Exhibit 10.10.3 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.4 Assignment of Rent and Revenues, entered into as of February 26, 2002, between Circus and Eldorado Joint Venture and The Bank of New York, as trustee (incorporated by reference to Exhibit 10.10.4 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.5 Collateral Account Agreement, dated as of March 5, 2002, among the Registrants and The Bank of New York, as trustee (incorporated by reference to Exhibit 10.10.5 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.6 Environmental Indemnity, entered into as of March 5, 2002, by the Registrants (incorporated by reference to Exhibit 10.10.6 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.7 Registration Rights Agreement, dated as of March 5, 2002, among the Registrants and Banc of America Securities LLC 4.8 Second Amended and Restated Credit Agreement, dated as of March 5, 2002, among Circus and Eldorado Joint Venture, Bank of America, N.A., Bank of Scotland, and U.S. Bank National Association (incorporated by reference to Exhibit 10.9.2 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.9 Guaranty, dated as of March 5, 2002, made by Silver Legacy Capital Corp. in favor of Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.3 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.10 Second Amended and Restated Security Agreement, dated as of March 5, 2002, between Circus and Eldorado Joint Venture and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.4 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001)
Exhibit No. Description --- ----------- 4.11 Guarantor Security Agreement, dated as of March 5, 2002, between Silver Legacy Capital Corp. and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.5 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.12 Second Amended and Restated Construction Deed of Trust, Fixture Filing and Security Agreement with Assignment of Rents, dated as of February 26, 2002, but effective March 5, 2002, among Circus and Eldorado Joint Venture, First American Title Company of Nevada, as trustee, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.6 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333- 11811) on Form 10-K for the year ended December 31, 2001) 4.13 Second Amended and Restated Assignment of Rents and Revenues, entered into as of February 26, 2002, but effective as of March 5, 2002, between Circus and Eldorado Joint Venture and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.7 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.14 Second Amended and Restated Collateral Account Agreement, dated March 5, 2002, between Circus and Eldorado Joint Venture and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9.8 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 4.15 Intercreditor Agreement, dated as of March 5, 2002, among Bank of America, N.A., as administrative agent, The Bank of New York, as trustee, and the Registrants (incorporated by reference to Exhibit 10.9.9 to the Annual Report of Eldorado Resorts LLC and Eldorado Capital Corp. (Commission File No. 333-11811) on Form 10-K for the year ended December 31, 2001) 5 Opinions of Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia, Pennsylvania, and McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP, Reno and Las Vegas, Nevada 10* Silver Legacy Supplemental Executive Retirement Plan 12 Statement regarding Computation of Ratio of Earnings to Fixed Charges 21 Subsidiaries of Registrants 23.1 Consent of Wolf, Block, Schorr and Solis-Cohen LLP (included as part of Exhibit 5) 23.2 Consent of McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP (included as part of Exhibit 5) 23.3 Consent of Arthur Andersen LLP 24 Power of Attorney (included on Page II-5 of this Registration Statement) 25 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as trustee of the 10 1/8% Mortgage Notes due 2012 of the Registrants 99.1 Form of Letter of Transmittal with respect to the Exchange Offer 99.2 Form of Notice of Guaranteed Delivery with respect to the Exchange Offer 99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 99.4 Client Letter 99.5 Broker Dealer Letter 99.6 Letter to Commission pursuant to Temporary Note 3T to Article 3 of Regulation S-X
- -------- * This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit. EX-3.1 3 dex31.txt ARTICLES OF INCORPORATION EXHIBIT 3.1 ARTICLES OF INCORPORATION OF SILVER LEGACY CAPITAL CORP. The undersigned do hereby associate themselves into a corporation, under and by virtue of the Nevada Revised Statutes, Title 7, Chapter 78, as amended, and do hereby certify and adopt the following Articles of Incorporation: ARTICLE I --------- The name of the corporation is Silver Legacy Capital Corp. ARTICLE II ---------- The registered agent of the corporation is Sierra Corporate Services and the location of the registered office of the corporation in the State of Nevada is 241 Ridge Street, 4th Floor, Reno, Nevada. Branch offices may hereafter be established at such other place or places, either within or without the State of Nevada as may be determined from time to time by the Board of Directors. ARTICLE III ----------- The purpose for which said corporation is formed is to engage in any lawful activity. The corporation shall have all powers authorized by Title 7, Chapter 78, of the Nevada Revised Statutes, as amended, except as otherwise provided in these Articles or subsequent amendments thereto. ARTICLE IV ---------- The amount of the authorized capital stock of this corporation is 2,500 shares with no par value. Any and all shares of stock of this corporation of any class shall be paid in as the Board of Directors may designate and as provided by law, in cash, real or personal property, option to purchase, or any other valuable right or thing, for the uses and purposes of the corporation, and said shares of stock when issued in exchange therefor shall thereupon and thereby become and be fully paid, the same as though paid for in cash, and shall be nonassessable forever, and the judgment of the Board of Directors of the corporation concerning the value of the property, right or thing, acquired in purchase or exchange for capital stock shall be conclusive. No stockholder shall have any preemptive rights. ARTICLE V --------- Section 1. Directors The members of the governing board of the Corporation shall be designated as Directors. The board of directors shall consist of not less than one (1) director nor more than five (5) directors, the exact number of directors to be determined, from time to time, by resolution adopted by the Board of Directors. The number of directors of the Corporation may be increased or decreased from time to time as provided in the By-Laws of the Corporation. Section 2. Personal Liability Directors of the corporation shall not be personally liable to the corporation or its stockholders for damages for breach of fiduciary duty as a director, except for (i) acts or omissions which involve intentional misconduct, fraud, or a knowing violation of law; or (ii) the payment of dividends in violation of the provisions of Chapter 78 of the Nevada Revised Statutes. If Chapter 78 of the Nevada Revised Statutes is amended after approval by the stockholders of this article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the full extent permitted by Chapter 78 of the Nevada Revised Statutes, as so amended. Section 3. Indemnification Each person who is or was a director of the corporation (including the heirs, executors, administrators or estate of such person) shall be indemnified by the corporation as of right to the full extent permitted by Chapter 78 of the Nevada Revised Statutes against any liability, cost or expense asserted against such director and incurred by such director by reason of the fact that such person is or was a director. The expenses of directors, past or present, incurred in defending a civil or criminal action, suit, or proceeding must be paid by the corporation as incurred and in advance of the final disposition of the action, suit or proceeding upon receipt of an undertaking by or on behalf of the director to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. Section 4. Indemnification and Insurance The corporation to the full extent of its power to do so, shall indemnify all directors, officers, employees, and/or agents in accordance with the provisions the Nevada Revised Statutes. Further, the corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent or another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of Nevada law. Section 5. Modifications Any repeal or modification of all or any portion of the provisions of this Article by the stockholders of the corporation shall not adversely affect any right or protection of an officer or director of the corporation existing at the time of such repeal or modification. ARTICLE VI ---------- The name and address of the first Board of Directors of the corporation are as follows: Gary L. Carano P.O. Box 3920 Reno, Nevada 89505 Bruce Sexton P.O. Box 3920 Reno, Nevada 89505 ARTICLE VII ----------- The stock of this corporation, after the amount of the subscription price, or par value has been fully paid in, shall be nonassessable forever, and shall not be subject to pay the debts of the corporation. ARTICLE VIII ------------ The names and addresses of the incorporators signing these Articles of Incorporation are as follows: Alvin J. Hicks 241 Ridge Street, 4th Floor Reno, Nevada 89501 ARTICLE IX ---------- The corporation is to have perpetual existence. ARTICLE X --------- A resolution, in writing, signed by all of the members of the Board of Directors of the corporation, shall be and constitute action by the Board of Directors to the effect therein expressed with the same force and effect as though such resolution had been passed at a duly convened meeting, and it shall be the duty of the Secretary to record every such resolution in the Minute Book of the corporation under its proper date. ARTICLE XI ---------- The Directors shall have the power to make and alter the Bylaws of the corporation. Bylaws so made by the Directors under the power so conferred may be altered, amended or repealed by the Directors or by the Stockholders at any meeting called and held for that purpose. IN WITNESS WHEREOF, I have hereunto set my hand and executed these Articles of Incorporation this 17th day of August, 2001. /s/ Alvin J. Hicks ----------------------------------- Alvin J. Hicks STATE OF NEVADA ) ) ss. COUNTY OF WASHOE ) On this 17th day of August, 2001, personally appeared before the undersigned, a Notary Public in and for the County of Washoe, State of Nevada, Alvin J. Hicks, known to me to be the person described in and who executed the foregoing instrument freely and voluntarily and for the uses and purposes therein mentioned. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. /s/ Sarah Jo Smithson -------------------------------- Notary Public Sarah Jo Smithson Notary Public - State of Nevada Appointment Recorded in Washoe County 94-0236-2-Expires August 2, 2002 EX-3.2 4 dex32.txt BYLAWS Exhibit 3.2 BYLAWS FOR THE REGULATION, EXCEPT AS OTHERWISE PROVIDED BY STATUTE OR ITS ARTICLES OF INCORPORATION, OF SILVER LEGACY CAPITAL CORP., a Nevada corporation (the "Corporation") ARTICLE I Offices Section 1. Principal Executive Office. The principal executive office of -------------------------- the Corporation hereby is fixed and located at 407 North Virginia Street, Reno, Nevada 89501, with its principal mailing address being 407 North Virginia Street, Reno, Nevada 89501. The Board of Directors (the "Board") hereby is granted full power and authority to change the principal executive office of the Corporation from one location to another within or without the State of Nevada. Any such change shall be noted in these bylaws (these "Bylaws") by the Secretary of the Corporation, opposite this Section, or this Section may be amended to state the new location. Section 2. Other Offices. The Board at any time may establish other ------------- business offices wherever the Corporation is qualified to do business. ARTICLE II Meetings of the Stockholders Section 1. Place of Meetings. All annual or other meetings of the ----------------- Corporation's stockholders (the "Stockholders") shall be held at the principal executive office of the Corporation or at any other place within or without the State of Nevada that may be designated by the Board. Section 2. Annual Meetings. The annual meetings of the Stockholders shall --------------- be held on such date and at such time as may be fixed by the Board. At such meetings, directors shall be elected, reports of the affairs of the Corporation shall be considered, and any other business may be transacted that is within the powers of the Stockholders. Written notice of each annual meeting shall be given to each Stockholder entitled to vote thereat, either personally or by mail or other means of written communication, charges prepaid, addressed to such Stockholder at such Stockholder's address appearing on the books of the Corporation or given by such Stockholder to the Corporation for the purpose of notice. If any notice or report addressed to a Stockholder at the address of such Stockholder 1 appearing on the books of the Corporation is returned to the Corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver such notice or report to such Stockholder at such address, all future notices and reports shall be deemed to have been duly given to such Stockholder without further mailing if such notices and reports are made available for such Stockholder upon written demand of such Stockholder at the principal executive office of the Corporation for a period of ONE (1) year from the date of the giving of such notices and reports to all of the other Stockholders. If a Stockholder fails to provide the Corporation with an address, notice shall be deemed to have been given to such Stockholder if sent by mail or other means of written communication addressed to the place where the principal executive office of the Corporation is situated or if published at least once in some newspaper of general circulation in the county in which the principal executive office of the Corporation is located. All such notices shall be given to each Stockholder entitled thereto not less than TEN (10) nor more than SIXTY (60) days before each annual meeting. Every such notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. An affidavit of mailing of any such notice in accordance with the foregoing provisions, executed by the Secretary, Assistant Secretary or any transfer agent of the Corporation, shall be prima facie evidence that such notice was given. Such notices shall specify: (a) the place, the date and the hour of the annual meeting; (b) the purpose or purposes for which the meeting is called; and; (c) such other matters, if any, as may be required by statute. Section 3. Special Meetings. Special meetings of the Stockholders, for the ---------------- purpose of taking any action permitted by the Stockholders under Nevada Revised Statutes, Chapter 78 and the Corporation's Articles of Incorporation (the "Articles of Incorporation"), may be called at any time by the Board, the President or one or more Stockholders holding not less than TEN PERCENT (10%) of the outstanding shares of capital stock of the Corporation entitled to vote at the meeting. Upon request in writing that a special meeting of the Stockholders be called for any proper purpose, directed to the President, the Vice President or the Secretary of the Corporation by any person (other than the Board) entitled to call a special meeting of the Stockholders, written notice shall be given to all of the Stockholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting not less than THIRTY FIVE (35) nor more than SIXTY (60) days after receipt of the request. Except in special cases where other express provision is made by 2 statute, notice of such special meetings shall be given in the same manner as notice is to be given for the annual meetings of Stockholders. Section 4. Quorum. Except as otherwise provided by applicable law or by the ------ Articles of Incorporation, the presence in person or by proxy of the Stockholders entitled to vote a majority of the voting shares at any meeting shall constitute a quorum for the transaction of business. The chairman of a meeting or the inspector or inspectors of election appointed tor such meeting pursuant to Section 10 of this ARTICLE II, as the case may be, may determine that a quorum is present based on any reasonable evidence of the presence in person or by proxy of Stockholders holding a majority of the outstanding shares, including, without limitation, evidence from any record of the Stockholders or their proxies who have signed a register indicating their presence at the meeting. The Stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough Stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 5. Adjourned Meeting and Notice Thereof. Any Stockholders' meeting, ------------------------------------ annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares, the holders of which either are present in person or represented by proxy thereat, but in the absence of a quorum no other business may be transacted at such meeting, except as provided in Section 4 of this ARTICLE II. At such adjourned meeting at which a quorum is present or represented by proxy, any business may be transacted that could have been transacted at the meeting as originally noticed. When any Stockholders' meeting, either annual or special, is adjourned for FORTY FIVE (45) days or more, or if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting. Except as provided in the immediately-preceding sentence hereof, it shall not be necessary to give any notice of the time and place of the adjourned meeting or of the business to be transacted thereat other than by announcement of the time and place thereof at the meeting at which such adjournment is taken. Section 6. Voting. Unless a record date for voting purposes is fixed as ------ provided in Section 1 of ARTICLE VI of these Bylaws, only persons in whose names shares entitled to vote stand on the stock records of the Corporation at the close of business on the business day immediately preceding the day on which notice of a meeting is given, or, if such notice is waived, at the close of business on the business day immediately preceding the day on which a meeting of the Stockholders is held, shall be entitled to vote at such meeting, and such day shall be the record date for such meeting. Such vote may be by ballot or voice vote; provided, however, that all Stockholder elections for directors shall be by written ballot upon 3 demand therefor made by a Stockholder at any election before the voting begins, or if so directed by the chairman of the meeting or if the number of nominees exceeds the number of directors to be elected, and provided further that the Board in its discretion may require a written ballot for any vote. If a quorum is present, the affirmative vote of the majority of the shares represented at a meeting and entitled to vote thereat on any matter shall be the act of the Stockholders, unless the vote of a greater number or voting by classes is required by Nevada Revised Statutes, Chapter 78 or the Articles of Incorporation. Unless otherwise provided in the Articles of Incorporation, at every meeting of the Stockholders, each Stockholder shall be entitled to ONE (1) vote in person or by proxy for each share of capital stock of the Corporation having voting power held by such Stockholder. Section 7. Validation of Defectively Called or Noticed Meetings. The ---------------------------------------------------- transactions of any meeting of the Stockholders, either annual or special, however called and noticed, shall be as valid as if taken at a meeting duly held after regular call and notice if a quorum is present at such meeting either in person or by proxy and if, either before or after such meeting, all of the persons entitled to vote at such meeting but who are not present thereat in person or by proxy or who, although present, have, at the beginning of such meeting, properly objected to the transaction at such meeting of any business because such meeting was not lawfully called or convened, or to particular matters of business legally required to be included in the notice but not so included, sign a written waiver of notice or a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the records of the Corporation or made a part of the minutes of such meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of the Stockholders need be specified in any written waiver of notice. Section 8. Action Without a Meeting. Any action that under any provision of ------------------------ Nevada Revised Statutes, Chapter 78 may be taken at a meeting of the Stockholders may be taken without a meeting and without notice if a consent in writing setting forth the action so taken is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice shall be given of the taking of any Corporate action approved by the Stockholders without a meeting by less than unanimous written consent to those Stockholders entitled to vote who have not consented to such Corporate action in writing. Unless as provided in Section 1 of ARTICLE VI of these Bylaws the Board has fixed a record date for the determination of Stockholders entitled to give such written consent, the record date for such determination shall be the day on which the first written consent is given. All such written consents shall be filed with the Secretary of the Corporation. 4 Any Stockholder giving a written consent, or such Stockholder's proxy holder, or a transferee of the shares of such Stockholder, or a personal representative of such Stockholder or any such person's respective proxy holder may revoke such Stockholder's consent in writing received by the Corporation before the time at which written consents of the number of shares required to authorize a proposed Corporate action have been filed with the Secretary of the Corporation but not thereafter. Such revocation is effective upon its receipt by the Secretary of the Corporation. Section 9. Proxies. Every person entitled to vote shall have the right to ------- do so either in person or by one or more agents authorized by a written proxy executed by such person or such person's duly authorized agent. Any proxy duly executed is not revoked and continues in full force and effect until a written instrument revoking it or a duly executed proxy bearing a later date is filed with the Secretary of the Corporation before the vote pursuant thereto; provided, however, that no such proxy shall be valid after the expiration of SIX (6) months from the date of its execution unless it is coupled with an interest or unless the person executing it specifies therein the length of time for which such proxy is to continue in force, which time in no case shall exceed SEVEN (7) years from the date of such proxy's execution. Section 10. Manner of Conducting Meetings. To the extent not in conflict ----------------------------- with the provisions of Nevada Revised Statutes, Chapter 78 relating thereto, the Articles of Incorporation or any amendment thereto and these Bylaws, each meeting of the Stockholders shall be conducted pursuant to such rules as may be adopted by the chairman presiding at such meeting. Section 11. Inspectors of Election. In advance of any meeting of the ---------------------- Stockholders, the Board may appoint one or more persons other than nominees for office to act as inspectors of election at such meeting or any adjournment thereof. If inspectors of election are not so appointed, the chairman of any such meeting may, and at the request of any Stockholder or any Stockholder's proxy shall, make such appointment at such meeting. The number of inspectors shall be either ONE (1) or THREE (3). If appointed at a meeting at the request of one or more Stockholders or proxies of Stockholders, the majority of shares represented in person or by proxy shall determine whether ONE (1) or THREE (3) inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act as inspector, the vacancy may, and at the request of any Stockholder or a Stockholder's proxy shall, be filled by appointment by the Board in advance of the meeting or at the meeting by a chairman of the meeting. Inspectors of election need not be Stockholders, and any officer of the Corporation may be an inspector of election with respect to a vote to be taken on any matter other than a vote to be taken for or against a proposal in which such person has or will have a material interest. 5 The duties of inspectors shall include determining the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote: counting and tabulating all votes or consents; determining when the polls shall close; determining results; and such acts as may be proper to conduct the election or vote with fairness to all Stockholders. In the determination of the validity and effect of proxies, the dates contained on the forms of proxy presumptively shall determine the order of execution of the proxies, regardless of the postmark dates on the envelopes in which they were mailed. The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If THREE (3) inspectors of election are appointed, the decision, act or certificate of a majority of such inspectors is effective in all respects as the decision, act or certificate of all of such inspectors. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. Section 12. Stockholder Lists. At least TEN (10) days before every meeting ----------------- of the Stockholders, the officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make a complete list of the Stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each such Stockholder and the number of shares registered in the name of each such Stockholder. Such list shall be open to the examination of any Stockholder, for any purpose germane to a meeting, during ordinary business hours, for a period of at least TEN (10) days before such meeting, at a place within the city where such meeting is to be held, which place shall be specified in the notice of the meeting, and such list also shall be available throughout the duration of such meeting and may be inspected by any Stockholder who is present thereat. ARTICLE III Directors Section 1. Powers. Subject to limitations provided by the Articles of ------ Incorporation, these Bylaws and Nevada Revised Statutes, Chapter 78 as to actions to be authorized or approved by the Stockholders or the outstanding shares, and subject to the duties of directors as prescribed by these Bylaws, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be controlled by, the Board. The Board may delegate the management of the day-to-day operation of the business of the Corporation to management or other persons, provided that the business and affairs of the Corporation shall be managed and all Corporate powers shall be exercised under the ultimate 6 direction of the Board. Without prejudice to such general powers but subject to the same limitations, it hereby is declared that the directors shall have the following powers in addition to the other powers enumerated in these Bylaws: First - To select and remove all of the officers, agents and employees of ----- the Corporation, prescribe such powers and duties for them as are not inconsistent with law, the Articles of Incorporation or these Bylaws, fix their compensation and require from them security for faithful service. Second - To conduct, manage and control the affairs and business of the ------ Corporation and to make such rules and regulations therefor not inconsistent with law, the Articles of Incorporation or these Bylaws, as they deem best. Third - To change the principal executive office and principal office for ----- the transaction of the business of the Corporation from one location to another as provided in ARTICLE I, Section 1 of these Bylaws; to fix and locate from time to time one or more subsidiary offices of the Corporation within or without the State of Nevada, as provided in ARTICLE I, Section 2 of these Bylaws; to designate any place within or without the State of Nevada for the holding of any Stockholders' meeting; and to adopt, make and use a corporate seal, to prescribe the forms of certificates of stock of the Corporation and from time to time to alter the form of such seal and of such certificates, as in their judgment they deem best, provided that such seal and such certificates shall comply at all times with all applicable provisions of law. Fourth - Upon such terms as may be lawful, from time to time to authorize ------ the issuance of shares of stock of the Corporation. Fifth - To borrow money and incur indebtedness for the purposes of the ----- Corporation, and to cause to be executed and delivered therefor, in the Corporation's name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and security therefor. Sixth - By resolution adopted by a majority of the authorized number of ----- directors, to designate an executive committee and other committees, each consisting of TWO (2) or more directors, to serve at the pleasure of the Board, and to prescribe the manner in which proceedings of such committees shall be conducted. Unless the Board otherwise prescribes the manner of proceedings of any such committee, meetings of such committees may be scheduled regularly in advance and may be called at any time by any TWO (2) members thereof. Otherwise, the provisions of these Bylaws with respect to the notice and conduct of meetings of the Board shall govern. Minutes shall be kept of each meeting of each such committee. Any such committee, to the extent provided in a resolution of the Board, shall have all of the authority of the Board, except with respect to: 7 (a) the approval of any action for which Nevada Revised Statutes, Chapter 78 or the Articles of Incorporation also require Stockholder approval; (b) the filling of vacancies on the Board or in any committee; (c) the fixing of compensation of the directors for serving on the Board or on any committee; (d) the amendment or repeal of these Bylaws or the adoption of new Bylaws; (e) the amendment or repeal of any resolution of the Board; (f) any distribution to the Stockholders, except at a rate or in a periodic amount or within a price range determined by the Board; and (g) the appointment of other committees of the Board or the members thereof. Section 2. Number and Qualification of Directors. The authorized number of ------------------------------------- directors shall not be less than ONE (1) nor more than FIVE (5), except that, in cases where all of the shares of the Corporation are owned beneficially and of record by either ONE (1) or TWO (2) stockholders, the authorized number of directors may not be less than the number of the Corporation's stockholders. A director need not be a Stockholder, a citizen of the United States or a resident of the State of Nevada. Every director shall be at least EIGHTEEN (18) years of age. Section 3. Election and Term of Office of Directors. The directors shall be ---------------------------------------- elected at each annual meeting of the Stockholders, but if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of the Stockholders held for such purpose. All directors shall hold office until their respective successors are elected, subject to Nevada Revised Statutes, Chapter 78 and the provisions of these Bylaws with respect to vacancies on the Board. Section 4. Vacancies. A vacancy in the Board shall be deemed to exist in --------- case of the death, resignation or removal of any director, if a director has been declared of unsound mind by order of court or convicted of a felony, if the authorized number of directors is increased or if the Stockholders fail at any annual or special meeting of the Stockholders at which one or more directors are to be elected to elect the full authorized number of directors to be voted for at that meeting. 8 Vacancies in the Board may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual or a special meeting of the Stockholders. The Stockholders at any time may elect a director or directors to fill a vacancy or vacancies not filled by the directors. Any such election by written consent shall require the consent of holders of a majority of the outstanding shares entitled to vote. Any director may resign effective upon giving written notice to the Board, the President or the Secretary, unless the notice specifies a later time for the effectiveness of such resignation. If the Board accepts the resignation of a director tendered to take effect at a future time, the Board or the Stockholders shall have power to elect a successor to take office when such resignation is to become effective. No reduction of the authorized number of directors shall have the effect of removing any director before the expiration of such director's term of office. Section 5. Resignation of Directors. Any director may resign by giving ------------------------ written notice of such resignation to the Board, the President or the Secretary of the Corporation. Such resignation shall take effect at the time it specifies, and the acceptance of such resignation shall not be necessary to make it effective. Section 6. Place of Meetings. Regular meetings of the Board shall be ----------------- held at any place within or without the State of Nevada that from time to time has been designated by resolution of the Board or by written consent of all members of the Board. In the absence of such designation, regular meetings of the Board shall be held at the principal executive office of the Corporation. Special meetings of the Board may be held either at a place so designated or at the principal executive office of the Corporation. Section 7. Organization Meeting. Immediately following each annual meeting -------------------- of the Stockholders, the Board shall hold a regular meeting at the place of the annual meeting of the Stockholders or at such other place as may be fixed by the Board for the purpose of organization, appointment of officers and the transaction of other business. Call and notice of such meetings hereby are dispensed with. Section 8. Other Regular Meetings. Other regular meetings of the Board ---------------------- shall be held without call as provided in a resolution from time to time adopted by the Board; provided, however, that if the day of any such meeting falls upon a legal holiday, then such meeting shall be held at the scheduled time on the next business day thereafter. Notice of all such regular meetings of the Board hereby is dispensed with. 9 Section 9. Special Meetings. Special meetings of the Board for any purpose ---------------- or set of purposes may be called at any time by the President, any Vice President, the Secretary or by any TWO (2) directors of the Corporation. Special meetings of the Board shall be held upon FOUR (4) days' written notice or FORTY EIGHT (48) hours' notice given personally or by telephone, telegraph, telex or other similar means of communication. Any such notice shall be addressed or delivered to each director at such director's address as it is shown on the records of the Corporation or as may have been given to the Corporation by the director for the purpose of notice or, if such address is not shown on such records or is not readily ascertainable, at the place in which the meetings of the directors regularly are held. Notice by mail shall be deemed to have been given when a written notice is deposited in the United States mail, postage prepaid. Any other written notice shall be deemed to have been given at the time it is delivered personally to the recipient or is delivered to a common carrier for transmission or actually transmitted by the person giving the notice by electronic means to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe promptly will communicate it to the recipient. Section 10. Action Without a Meeting. Any action required or permitted to ------------------------ be taken by the Board or a committee thereof may be taken without a meeting if all members of the Board or such committee individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board or committee and shall have the same force and effect as a unanimous vote of the Board or committee. Section 11. Action at a Meeting: Quorum and Required Vote. Presence of a --------------------------------------------- majority of the authorized number of directors at a meeting of the Board constitutes a quorum for the transaction of business, except as hereinafter provided. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in a meeting as permitted in the immediately preceding sentence hereof constitutes presence in person at such meeting. Every act done or decision made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board, unless a greater number, or the same number after disqualifying one or more directors from voting, is required by law, by the Articles of Incorporation or by these Bylaws. A meeting at which a quorum initially is present may continue to transact business notwithstanding the withdrawal of directors, provided that any action taken is approved by at least a majority of the required quorum for such meeting. 10 Section 12. Validation of Defectively Called or Noticed Meetings. The ---------------------------------------------------- transactions effected at any meeting of the Board, however called and noticed or wherever held, shall be as valid as if effected at a meeting duly held after regular call and notice if a quorum is present at such meeting and if either before or after such meeting all of the directors who are not present at such meeting or who, although present at such meeting, have before such meeting or at its commencement protested the lack of proper notice to such meeting sign a written waiver of notice or a consent to the holding of such meeting or an approval of the minutes of such meeting. All such waivers, consents or approvals shall be filed with the Corporate records or made a part of the minutes of the meeting. Section 13. Adjournment. A quorum of the directors may adjourn any ----------- directors' meeting to meet again at a stated day and hour; provided, however, that, in the absence of a quorum, a majority of the directors present at any directors' meeting, either regular or special, from time to time may adjourn such meeting until the time fixed for the next regular meeting of the Board. Section 14. Notice of Adjournment. If a meeting is adjourned for more than --------------------- TWENTY FOUR (24) hours, notice of any adjournment to another time or place shall be given before the time of the adjourned meeting to the directors who were not present at the time of adjournment. Otherwise, notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place of such adjourned meeting is fixed at the meeting adjourned. Section 15. Fees and Compensation. Directors and members of committees may --------------------- receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board. Section 16. Rights of Inspection. Every director shall have the absolute -------------------- right at any reasonable time to inspect and copy all of the Corporation's books, records and documents of every kind and to inspect physical properties of the Corporation and of its subsidiary corporations, if any, domestic and foreign. Such inspection by a director may be made in person or by agent or attorney, and such inspection rights include the right to copy and obtain extracts. Section 17. Advisory Directors. The Board may appoint such additional ------------------ advisory directors, by whatever name designated, to advise the Board on such matters and in such fashion as the Board from time to time may request. Such advisory directors shall be entitled to notice of and to attend regular and special meetings of the Board but shall not be entitled to vote at such meetings. Such advisory directors may be appointed or removed at the pleasure of the Board and shall not be deemed to be regular members of the Board or employees of the Corporation for any purpose. 11 ARTICLE IV Officers Section 1. Officers. The officers of the Corporation shall be a President, -------- a Secretary and a Treasurer. The Corporation also may have, in the discretion of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers as may be appointed in accordance with the provisions of Section 3 of this ARTICLE IV. Section 2. Appointment. The officers of the Corporation, except such ----------- officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this ARTICLE IV, shall be appointed annually by the Board, and each such officer shall hold office until such officer resigns or is removed or otherwise is disqualified to serve, or until such officer's successor is appointed. Section 3. Subordinate Officers. Etc. The Board may appoint, and may -------------------- empower the President to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these Bylaws or as the Board from time to time may determine. Section 4. Removal and Resignation. Any officer may be removed, either with ----------------------- or without cause, by the Board at any regular or special meeting of the Board, or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board (subject, in each case, to the rights, if any, of an officer under any contract of employment). Any officer may resign at any time by giving written notice to the Board or to the President or the Secretary of the Corporation, without prejudice, however, to the rights, if any, of the Corporation under any contract to which such officer is a party. Any such resignation shall take effect on the date of the Corporation's receipt of such notice or at any later time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to such office. Section 6. President. The President, subject to the control of the Board --------- and the committees of the Board, is the general manager of the Corporation. The President shall have supervising authority over and may exercise general executive power concerning the 12 supervision, direction and control of the business and affairs of the Corporation, with the authority from time to time to delegate to the Vice President and other officers of the Corporation such executive powers and duties as the President may deem advisable. In the absence of a Chairman of the Board, duly appointed as such by the unanimous vote of all of the Corporation's directors, the President shall preside at all meetings of the Board and of the Stockholders. The President shall be ex officio a member of all the standing committees, including the executive committee, if any, shall have the general powers and duties of management usually vested in the office of President of a corporation and shall have such other powers and duties as may be prescribed by the Board, the committees of the Board or these Bylaws. Section 7. Vice Presidents. In the absence or disability of the President, --------------- the Vice Presidents in order of their rank as fixed by the Board or, if not ranked, the Vice President designated by the Board shall perform all the duties of the President and when so acting shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board, the committees of the Board or these Bylaws. Section 8. Secretary. The Secretary shall record or cause to be recorded, --------- and shall keep or cause to be kept, at the principal executive office and such other place as the Board may order, a book of minutes of actions taken at all meetings of directors and the Stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at the Stockholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the Corporation's transfer agent a share register, or a duplicate share register, showing the names of the Stockholders and their addresses, the number and class of shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all of the meetings of the Stockholders and of the Board required by these Bylaws or by law to be given, shall keep the seal of the Corporation in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board or by these Bylaws. Section 9. Treasurer. The Treasurer shall be the Chief Financial Officer of --------- the Corporation and shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and 13 shares. At all reasonable times the books of account shall be open to inspection by any director. The Treasurer shall deposit all monies and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board, shall render to the President and directors, whenever they request it, an account of all transactions effected by the Treasurer on behalf of the Corporation and of the financial condition of the Corporation and shall have such other powers and perform such other duties as may be prescribed by the Board, the committees of the Board or these Bylaws. ARTICLE V Indemnification Section 1. Right to Indemnification. Each person who was or is a party or ------------------------ is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that such person or a person for whom such person is the legal representative is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, member, manager, employee or agent of another corporation or of a partnership, limited liability company, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such Proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as a director, officer, employee or agent of the Corporation, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the laws of the State of Nevada as the same exist or may hereafter be amended (but in the case of such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such laws permitted the Corporation to provide before such amendment) against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement and amounts expended in seeking indemnification granted to such person under applicable law, this ARTICLE V or any agreement with the Corporation) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent of the Corporation, or who served in any other capacity on behalf of the Corporation, and shall inure to the benefit of such person's heirs, executors and administrators. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any Proceeding in advance of its final disposition; provided, however, that, if Nevada Revised -------- ------- Statutes, Chapter 78 so requires, the payment of such expenses incurred by a director or officer in such person's capacity as a director or officer (and not in any other capacity in which service was or is 14 rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a Proceeding shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it ultimately is determined by a court of competent jurisdiction that such director or officer is not entitled to be indemnified under this Section or otherwise. In no event shall anything herein contained be so construed as to permit the Board to authorize payment of, or the Corporation to pay, any amount for any purpose where a director or officer was engaged in any action or activity known by such person while so engaged to be unlawful or in any action or activity constituting willful misfeasance, bad faith, gross negligence or reckless disregard of such person's duties and obligations to the Corporation and the Stockholders. The rights set forth herein shall not be exclusive of other rights to which any director or officer may be entitled as a matter of law. The Corporation may, by action of the Board, provide indemnification to employees and agents of the Corporation with the same scope and effect as provided to the directors and officers of the Corporation pursuant to the foregoing provisions of these Bylaws. Section 2. Right of Claimant to Bring Suit. If a claim under Section 1 of ------------------------------- this ARTICLE V is not paid in full by the Corporation within THIRTY (30) days after a written claim has been received by the Corporation, at any time thereafter the claimant may bring suit against the Corporation to recover the unpaid amount of the claim, and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that a claimant has failed to meet a standard of conduct that makes it permissible under Nevada law for the Corporation to indemnify such claimant for the amount claimed. Neither the failure of the Corporation (including its Board, independent legal counsel or the Stockholders) to have made a determination before the commencement of such action that the indemnification of a claimant is permissible in the circumstances because such person has met such standard of conduct nor an actual determination by the Corporation (including the Board, independent legal counsel or the Stockholders) that the claimant has not met such standard of conduct shall be a defense to such action or create a presumption that such claimant has failed to meet such standard of conduct. Section 3. Non-Exclusivity of Rights. The right to indemnification and the ------------------------- payment of expenses incurred in defending a Proceeding in advance of its final disposition conferred in this ARTICLE V shall not be exclusive of any other right that any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation or these Bylaws, agreement, vote of the Stockholders or disinterested directors or otherwise. 15 Section 4. Insurance. The Corporation may maintain insurance, at its --------- expense, to protect itself and any director, officer, member, manager, employee or agent of the Corporation or another corporation, partnership, limited liability company, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under Nevada law. Section 5. Expenses as a Witness. To the extent that any director, officer, --------------------- employee or agent of the Corporation is by reason of such position, or a position with another entity at the request of the Corporation, a witness in any action, suit or proceeding, such person shall be indemnified against all costs and expenses actually and reasonably incurred by such person or on such person's behalf in connection therewith. Section 6. Indemnity Agreements. From time to time the Corporation may -------------------- enter into indemnity agreements with the persons who are members of the Board, and with such officers, employees and agents as the Board may designate, such indemnity agreements to provide in substance that the Corporation shall indemnify such persons to the full extent contemplated by this ARTICLE V. Section 7. Effect of Amendment. Any amendment, repeal or modification of ------------------- any provision of this ARTICLE V by the Stockholders and/or the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification. ARTICLE VI Miscellaneous Section 1. Record Date. The Board may fix a time in the future as a record ----------- date for the determination of the Stockholders entitled to notice of and to vote at any meeting of the Stockholders or entitled to give consent to corporate action in writing without a meeting, to receive any report, to receive any dividend or distribution or any allotment of rights or to exercise rights with respect to any change, conversion or exchange of shares. The record date so fixed shall not be more than SIXTY (60) days before the date of any meeting or before the date of any other event for which the record date is fixed. When a record date for a meeting is so fixed, only Stockholders of record on that date are entitled to notice of and to vote at such meeting, notwithstanding any transfer of shares on the books of the Corporation after such record date, except as otherwise provided in the Articles of Incorporation or in these Bylaws. 16 Section 2. Dividends. Subject to the provisions of the Articles of --------- Incorporation, dividends on the capital stock of the Corporation may be declared by the Board at any regular or special meeting of the Board, pursuant to law, and may be paid in cash, in property or in shares of capital stock. Before the payment of any dividend, the Board may set aside out of any funds of the Corporation available for dividends such sums as the Board from time to time in the Board's absolute discretion thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board determines to be in the best interests of the Corporation, and the Board may modify or abolish any such reserve in the manner in which it was created. Section 3. Inspection of Corporate Records. The books of account and all ------------------------------- financial records of the Corporation and any subsidiary of the Corporation shall be open to inspection upon at least FIVE (5) days' written demand by any current Stockholder or holder of a voting trust certificate of not less than FIFTEEN PERCENT (15 %) of all of the issued and outstanding shares of the Corporation; provided, however, that such inspection may be refused to any Stockholder who refuses to furnish the Corporation with an affidavit that such inspection is not for a purpose that is in the interest of a business or object other than the business of the Corporation and that such Stockholder has not at any time sold or offered for sale any list of stockholders of any domestic or foreign corporation or aided or abetted any person in procuring any such record of stockholders for any such purpose. Such inspection by a stockholder or holder of a voting trust certificate may be made in person or by agent or attorney, and such right of inspection includes the rights to copy, to conduct an audit and to make extracts. All costs of making extracts or conducting an audit shall be borne by the person exercising such rights. A Stockholder who has been a Stockholder of record for at least SIX (6) months before making such demand or a Stockholder or Stockholders holding at least FIVE (5%) percent in the aggregate of the outstanding shares of the Corporation shall have (in person or by agent or attorney) the right to inspect and copy the record of Stockholders' names and addresses and stockholdings during usual business hours upon FIVE (5) days' prior written demand upon the Corporation and to obtain from the transfer agent of the Corporation, upon written demand, a list of the Stockholders' names and addresses who are entitled to vote for the election of directors, and their stockholdings, as of the most recent record date for which such list of Stockholders has been compiled or as of a date specified by such demanding Stockholder or Stockholders after the date on which such Stockholder or Stockholders make such demand. Such list shall be made available on or before the later of FIVE (5) business days after such demand is received or the date specified therein as the date as of which such list is to be compiled. 17 Section 4. Checks. Drafts. Etc. All checks, drafts or other orders for ------------------- payment of money, notes or other evidences of indebtedness issued in the name of or payable by the Corporation shall be signed or endorsed by such person or persons and in such manner as from time to time shall be determined by resolution of the Board. Section 5. Annual Report to Stockholders. In the discretion of the Board, ----------------------------- annual or other periodic reports may be issued to the Stockholders. Section 6. Contracts. Etc.: How Executed. Except as otherwise provided in ----------------------------- these Bylaws, the Board may authorize any officer to enter into any contract or execute any instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances. Unless so authorized by the Board, no officer, agent or employee of the Corporation shall have any power or authority to bind the Corporation by any contract or engagement or to pledge the Corporation's credit or to render the Corporation liable for any purpose or for any amount. Section 7. Certificates for Shares. Every holder of shares of capital stock ----------------------- of the Corporation shall be entitled to have a certificate signed in the name of the Corporation by the President or Vice President and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or any Assistant Secretary of the Corporation, certifying the number of shares and the class or series of shares owned by such Stockholder. Any of the signatures on the certificate may be facsimile, provided that in such event at least one signature, including that of either officer or the Corporation's registrar or transfer agent, if any, shall be signed manually. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate ceases to be such officer, transfer agent or registrar before such certificate is issued, such certificate nevertheless may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar on the date of issuance. Any such certificate also shall contain such legends or other statements as may be required by applicable federal and state securities laws and by any agreement between the Corporation and the issuee thereof. Certificates for shares may be issued before full payment under such restrictions and for such purposes as the Board or these Bylaws may provide; provided, however, that any such certificate so issued before full payment shall state on its face the amount remaining unpaid and the terms of payment thereof. No new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and canceled at the same time; provided, however, that a new certificate shall be issued without the surrender and cancellation of the old certificate if (a) the old 18 certificate is lost, apparently destroyed or wrongfully taken; (b) the request for the issuance of the new certificate is made within a reasonable time after the owner of the old certificate has notice of its loss, destruction or theft; (c) the request for the issuance of a new certificate is made before the receipt of notice by the Corporation that the old certificate has been acquired by a bona fide purchaser; (d) the owner of the old certificate files a sufficient indemnity bond with or provides other adequate security to the Corporation; and (e) the owner of the old certificate satisfies any other reasonable requirement imposed by the Corporation. In the event of the issuance of a new certificate, the rights and liabilities of the Corporation and of the holders of the old and new certificates shall be governed by the provisions of the Uniform Commercial Code of Nevada. Section 8. Corporate Seal. It shall not be necessary to the validity of any -------------- instrument executed by any authorized officer or officers of the Corporation that the execution of such instrument be evidenced by the Corporate seal, and all documents, instruments, contracts and writings of all kinds signed on behalf of the Corporation by any authorized officer or officers of the Corporation shall be as effectual and binding on the Corporation without the Corporate seal as if the execution of the same had been evidenced by affixing the Corporate seal thereto. The Board may give general authority to any officer to affix the seal of the Corporation and to attest to such affixing by signature. Section 9. Representation of Shares of Other Corporations. The President or ---------------------------------------------- any Vice President and the Secretary or any Assistant Secretary of the Corporation are authorized to vote, represent and exercise on behalf of the Corporation all rights incident to all shares of any other corporation or corporations standing in the name of the Corporation. The authority herein granted to the officers of the Corporation to vote or represent on behalf of the Corporation all shares held by the Corporation in any other corporation or corporations may be exercised either by such officers in person or by any other person authorized to do so by proxy or power of attorney duly executed by such officers. Section 10. Inspection of Bylaws. The Corporation shall keep in its -------------------- principal executive office in Nevada, or, if its principal executive office is not in Nevada, then at its registered office in Nevada (or otherwise provide upon the Corporation's receipt of a written request for the same from any Stockholder), the original or a copy of these Bylaws as amended or otherwise altered to date, certified by the Secretary of the Corporation, which shall be open to inspection by the Stockholders at all reasonable times during office hours. Section 11. Construction and Definitions. Unless the context otherwise ---------------------------- requires, the general provisions, rules of construction and definitions contained in Nevada Revised Statutes, Chapter 78 shall govern the construction of these Bylaws. ARTICLE VII 19 Amendments Section 1. Power of Stockholders. New Bylaws may be adopted or these Bylaws --------------------- may be amended or repealed by the affirmative vote of a majority of the outstanding shares of capital stock of the Corporation entitled to vote or by the written consent of Stockholders entitled to vote such shares, except as otherwise provided by law or by the Articles of Incorporation. Section 2. Power of Directors. Subject to the right of Stockholders as ------------------ provided in Section 1 of this ARTICLE VII to adopt, amend or repeal Bylaws, new Bylaws may be adopted or these Bylaws may be amended or repealed by the Board. This power of the Board may not be delegated to any committee appointed by the Board in accordance with these Bylaws. [END OF BYLAWS] 20 CERTIFICATE OF SECRETARY I, the undersigned, hereby certify: 1. That I am the duly elected and acting Secretary of SILVER LEGACY CAPITAL CORP., a Nevada corporation (the "Corporation"); and 2. That the foregoing bylaws, comprising NINETEEN (19) pages, constitute the bylaws of the Corporation as duly adopted by the Board of Directors by an action by unanimous written consent dated August 20, 2001. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of the Corporation on this 20th day of August, 2001. /s/ Bruce Sexton ------------------------------- Bruce Sexton EX-3.3 5 dex33.txt AMENDED AND RESTATED AGEEMENT Exhibit 3.3 AMENDED AND RESTATED AGREEMENT OF JOINT VENTURE OF CIRCUS AND ELDORADO JOINT VENTURE This Amended and Restated Agreement (this "Agreement") of Joint Venture of Circus and Eldorado Joint Venture (the "Joint Venture") as originally executed as of March 1, 1994 (the "Original Agreement"), is amended and restated effective as of the 1st day of January, 2001, by and between ELDORADO LIMITED LIABILITY COMPANY ("E"), a Nevada limited liability company owned and controlled by ELDORADO RESORTS LLC, a Nevada limited liability company ("ERLLC"), and GALLEON, INC., a Nevada corporation ("C"), owned and controlled by MANDALAY RESORT GROUP, a Nevada corporation ("MRG"), pursuant to the provisions of the Nevada Uniform Partnership Act, on the following terms and conditions. This Agreement amends, restates and supercedes the Original Agreement in its entirety. R E C I T A L S - - - - - - - - 1. Pursuant to the provisions of the Original Agreement, the Joint Venture has made various priority allocations and distributions to C through December 31, 2000; 2. The Partners desire to resolve various ambiguities in the calculation of the priority allocations and distributions under the Original Agreement by fixing the relative Capital Accounts of the Partners as of January 1, 2001, and by eliminating such priority allocations and distributions as of January 1, 2001 (other than that certain distribution in the amount of $2,102,649 to be made to C before the execution of this Agreement, referred to herein as the "Remaining Priority Distribution"). 3. In addition, the Partners desire to effect certain changes in the management provisions of the Joint Venture, and certain other changes. THEREFORE, in consideration of the mutual covenants, agreements and promises made herein, the parties hereto agree as follows: Section 1 THE JOINT VENTURE ----------------- 1.1 Formation. The Joint Venture was formed as a Nevada general partnership --------- between E and C ("Partners") effective as of March 1, 1994, pursuant to the provisions of the Nevada Uniform Partnership Act ("Act"). 1.2 Name. The name of the Joint Venture is CIRCUS AND ELDORADO JOINT VENTURE ---- and all business of the Joint Venture shall be conducted in such name. The joint venture shall hold all of its property in the name of the Joint Venture and not in the name of any Partner. 1.3 Purpose. ------- (a) The purpose of the Joint Venture is to own and operate the Silver Legacy Resort & Casino in Reno, Nevada (the "Casino"). (b) The Joint Venture shall be a partnership only for the purpose specified in this Section 1.3. Except as otherwise provided in this Agreement, the Joint Venture shall not engage in any other activity or business and no Partner shall have any authority to hold himself out as the agent of the other Partner in any other business or activity. 1.4 Place of Business. The principal place of business of the Joint Venture ----------------- shall be at 407 North Virginia Street, Reno, Nevada or at such other place within Reno, Nevada, as may be determined by the Managing Partner. 1.5 Term. The term of the Joint Venture commenced on March 1, 1994 and shall ---- continue until the winding up and liquidation of the Joint Venture following a "Liquidating Event," as provided in Section 13 hereof. 1.6 Percentage Interest. The Percentage Interest of each Partner shall be ------------------- fifty percent (50%). 1.7 Statutory Compliance. The Joint Venture shall exist under and be governed -------------------- by, and this Agreement shall be construed in accordance with, the applicable laws of the State of Nevada including the Nevada Gaming Control Act embodied in Chapter 463 of the Nevada Revised Statutes and the regulations promulgated thereunder. The Partners shall make all filings and disclosures required by, and shall otherwise comply with, all such laws. The Partners shall execute and file in the appropriate records any assumed or fictitious name certificates and other documents and instruments as may be necessary or appropriate with respect to the formation of, and conduct of business by, the Joint Venture. 1.8 Title to Property. All real and personal property owned by the Joint ----------------- Venture shall be owned by and in the name of the Joint Venture as an entity and no Partner shall have any ownership interest in such property in its individual name or right, and each Partner's interest in the Joint Venture shall be personal property for all purposes. 1.9 Payments of Individual Obligations. The Joint Venture's credit and assets ---------------------------------- shall be used solely for the benefit of the Joint Venture, and no asset of the Joint Venture shall be transferred or encumbered for or in payment of any separate obligation of a Partner. 1.10 Independent Activities. ---------------------- (a) Each Partner shall be required to devote only such time to the affairs of the Joint Venture as such Partner determines in its sole discretion may be necessary to manage and operate the Joint Venture, and each Partner shall be free to serve any other Person or enterprise in any capacity that it may deem appropriate. Nothing in this Agreement shall prevent either Partner from engaging in other business ventures of every nature, including, but not limited to, the ownership, management, improvement, development and operation of any other hotels and/or casinos wherever located, and this Agreement shall grant neither the -2- Joint Venture nor any Partner any right in any such independent venture or business or to the income and profits derived therefrom. Each Partner specifically acknowledges that the other Partner or an Affiliate of the other Partner is the owner and operator of a competing hotel casino adjacent to the Casino and connected to the Casino, and that this Agreement shall not be deemed or construed to prevent, hinder or inhibit in any way the present operation or future expansion of said properties. (b) As used in this Agreement, the term "Affiliate," when used with respect to any entity, shall mean any other entity directly or indirectly controlling, controlled by or under common control with such entity. 1.11 Expenses of Partners. Except as specifically provided in this Agreement, -------------------- no Partner shall be paid for services rendered to the Joint Venture by such Partner. However, each party shall be entitled to reimbursement from the Joint Venture for the actual out-of-pocket expenses reasonably incurred by such Partner in furtherance of the Joint Venture's business to the extent such expenses are contemplated by a budget approved by the Partners, upon the presentation of reasonable supporting documentation of the amount and purpose of such expense. Section 2 CAPITAL CONTRIBUTIONS --------------------- 2.1 Capital Contributions. Each Partner has previously contributed or caused --------------------- to be contributed to the Joint Venture in connection with its formation, as its Capital Contribution, cash and/or property in the amount of $51.9 million and its Partner's Capital Account has been credited accordingly. In addition, each Partner's Capital Account has been adjusted through the date hereof, as provided in Section 2.3. The Partners further agree as follows: (i) as of January 1, 2001, the Capital Accounts of the Partners have the balances set forth on Schedule A attached hereto, which amounts do not reflect the distribution of the - ---------- Remaining Priority Distribution (but which do reflect the allocations pertaining thereto); (ii) this Agreement is intended to settle all disputes between the Partners concerning their relative Capital Accounts as of January 1, 2001, and it is intended that, following the distributions described in Section 4.3 and the distribution of the Remaining Priority Distribution, the Capital Account of E will exceed the Capital Account of C by $10,000,000; (iii) any accounting adjustments made with respect to periods prior to January 1, 2001, that would affect the Capital Accounts as of January 1, 2001, shall be allocated equally to C and E; and (iv) each Partner hereby releases any claim that it may have that the priority allocations or the priority distributions made under the Original Agreement with respect to periods prior to January 1, 2001, were incorrect and that therefore the difference between the Capital Accounts of the Partners as set forth on Exhibit A attached hereto should be altered or adjusted. --------- 2.2 No Further Capital Contributions. The Partners shall not be permitted or -------------------------------- required to contribute additional capital to the Joint Venture without the consent of both Partners, which consent may be given or withheld in each Partner's sole and absolute discretion. -3- 2.3 Capital Accounts. An individual Capital Account shall be established and ---------------- maintained for each Partner. The Capital Account of each Partner shall be equal to the aggregate amount of cash contributed by such Partner to the Joint Venture, increased by (i) the fair market value of property contributed by such Partner to the Joint Venture, net of liabilities secured by such property that the Joint Venture assumes or takes the property subject to, (ii) the amount of any Joint Venture liabilities assumed by such Partner other than liabilities secured by property distributed to such Partner, (iii) such Partner's allocable share of Profits of the Joint Venture, (iv) any items in the nature of income and gain which are excluded from the definitions of Profits and Losses and allocated to such Partner and (v) any other increases required by Treasury Regulation Section 1.704-1(b)(2)(iv), and reduced by (i) such Partner's distributive share of Losses, (ii) the amount of any distributions of cash to such Partner, (iii) the amount of liabilities of such Partner assumed by the Joint Venture, (iv) the fair market value of property (net of liabilities to which such distributed property is subject) distributed to such Partner, (v) any items in the nature of deductions or losses which are excluded from the definitions of Profits and Losses and allocated to such Partner and (vi) any other decreases required by Treasury Regulation Section 1.704-1(b)(2)(iv). The provisions of this Agreement relating to the maintenance of Capital Accounts have been included in this Agreement to comply with Section 704(b) of the Internal Revenue Code of 1986, as amended (the "Code") and the Treasury Regulations promulgated thereunder and will be interpreted and applied in a manner consistent with those provisions. 2.4 Other Matters. ------------- (a) Except as otherwise provided in this Agreement, no Partner shall demand or receive a return of his Capital Contributions or withdraw from the Joint Venture without the consent of all Partners. Under circumstances requiring a return of any Capital Contributions, no Partner shall have the right to receive property other than cash, except as may be specifically provided herein. (b) No Partner shall receive any interest, salary, or draws with respect to its Capital Contributions or its Capital Account or for services rendered on behalf of the Joint Venture or otherwise in its capacity as Partner, except as otherwise provided in this Agreement. (c) Except as provided in Section 10, no Person shall be admitted to the Joint Venture as a Partner without the unanimous consent of the Partners. (d) The Managing Partner, on behalf of the Joint Venture, may contract with an Affiliate of the Managing Partner for the provision of accounting, bookkeeping, computer services and management information and similar central office services at a cost not to exceed the reasonable direct costs incurred by such Affiliate in providing such services. Section 3 ALLOCATIONS ----------- -4- 3.1 Allocations of Profit and Loss. Items of income, gain, loss, deduction and ------------------------------ credit of the Joint Venture shall be allocated among the Partners in the manner specified in Section 12.3(f) and the Addendum hereto. Section 4 DISTRIBUTIONS ------------- 4.1 Net Cash From Operations. The term "Net Cash From Operations" for any ------------------------ period shall mean the gross cash proceeds received by the Joint Venture, less the following amounts: (i) cash operating expenses and payments of other expenses and obligations of the Joint Venture, including interest and scheduled principal payments on Joint Venture indebtedness, including indebtedness owed to the Partners, if any; (ii) all capital expenditures made by the Joint Venture, and (iii) such reasonable reserves as the Partners deem necessary in good faith and in the best interests of the Joint Venture to meet anticipated future obligations and liabilities of the Joint Venture (less any release of reserves previously established, as similarly determined). Subject to Sections 11.2(d) and 12.3(f) and to any contractual restrictions to which the Joint Venture is subject, and prior to the occurrence of a Liquidating Event, the Joint Venture shall make the following distributions: (a) The Managing Partner shall determine the estimated taxable income allocable to each Partner for the periods (each, an "Estimated Tax Period") beginning January 1 and ending March 31, May 31, August 31 and December 31 of each year, and not later than the fifteenth (15th) day of the following April, June, September and January, respectively, make the distributions described in this Section 4.1(a). To the extent of the sum of Net Cash from Operations for each Estimated Tax Period (reduced by any prior distributions pursuant to Section 4.1(a) with respect to such period) and available drawings under the Joint Venture's revolving credit line, the Joint Venture shall distribute to the Partners, in proportion to the Partners' Percentage Interests, an amount equal to the Tax Amount with respect to such Estimated Tax Period (as determined pursuant to Section 4.2 hereof). (b) As soon as practicable following the completion of each annual financial statement audit of the Joint Venture, the Net Cash From Operations for the year covered by such audit (reduced by any distributions pursuant to Section 4.1(a)) shall be distributed to the Partners in proportion to their Percentage Interests. (c) Nothing in this Section 4.1 shall be construed to limit the ability of the Joint Venture to distribute Net Cash From Operations in amounts or at times that differ from those set forth, provided that both Partners agree in writing to such distribution in advance thereof. 4.2 Tax Amount. The "Tax Amount" with respect to each Estimated Tax Period ---------- shall equal an amount necessary to cause the cumulative distributions by the Joint Venture with respect to the calendar year including such Estimated Tax Period (which for greater clarity, shall not include (i) distributions described in Section 4.1(b) made during such calendar year with respect to the prior calendar year; (ii) the Remaining Priority Distribution; and (iii) the distributions described in Section 4.3) to be no less than the result of the following -5- calculation when performed with respect to whichever Partner produces the largest Tax Amount: (a) twice the product of (i) the net taxable income of the Joint Venture for that Estimated Tax Period allocable to such Partner (plus any net taxable income of the Joint Venture allocable to such Partner with respect to any prior year pursuant to an audit adjustment that becomes final during that Estimated Tax Period, without duplication of any amount included in the calculation of any Tax Shortfall with respect to such Estimated Tax Period) (taking capital losses for the year into account only to the extent of capital gains), multiplied by (ii) the Applicable Tax Rate for that period, plus (b) any Tax Shortfall from the immediately preceding calendar year (provided that there shall be no Tax Shortfall for any period prior to January 1, 2001). The "Applicable Tax Rate" for an Estimated Tax Period shall equal the greater of the maximum marginal federal income tax rate applicable to individuals for such period or the maximum marginal federal income tax rate applicable to corporations for such period; provided, however, that if the State of Nevada -------- ------- enacts an income tax (including any franchise tax based on income), the Applicable Tax Rate for any Tax Amount subsequent to the effective date of such income tax shall be increased by the higher of the maximum marginal individual tax rate or corporate income tax rate imposed by such tax (after reduction for the federal tax benefit for the deduction of state taxes, using the maximum marginal federal individual or corporate rate, respectively). A "Tax Shortfall" with respect to a calendar year shall equal the excess, if any, of the aggregate of the Tax Amount with respect to that year over the distributions made pursuant to Section 4.1 with respect to that year. 4.3 Special Cash Distributions. Notwithstanding anything herein to the -------------------------- contrary, the Joint Venture shall make the following distributions within 3 business days following the execution of the Agreement: (a) $20,000,000 shall be distributed to C; and (b) $10,000,000 shall be distributed to E. Section 5 MANAGEMENT ---------- 5.1 Day-to-Day Management by Managing Partner. C shall be and hereby is ----------------------------------------- appointed the Managing Partner for the Joint Venture and is hereby charged with, and C hereby agrees to assume the responsibility and authority for, the prudent day-to-day management of the business affairs of the Joint Venture. Subject to the limitations and restrictions set forth in this Agreement and the Annual Business Plan, the Managing Partner may exercise the following specific rights and powers without any further consent of the other Partners being required: (a) Oversee and manage the day-to-day operations of the Casino and other Joint Venture business; -6- (b) Direct and oversee the legal, architectural, engineering, construction and other work necessary for the care and improvement of the Casino and other Joint Venture business; (c) Prepare budgets and appropriate development schedules for the improvement and operation of the Casino; (d) Implement decisions made by both Partners; (e) Utilize due diligence to operate, on behalf of and for the sole benefit of the Joint Venture, the Casino and such other business and activities which are customary and usual in connection with such operation; (f) Care for and distribute Joint Venture funds in accordance with the provisions of this Agreement; (g) Contract on behalf of the Joint Venture for the services of independent contractors such as lawyers and accountants; (h) Establish, maintain and supervise the deposit of monies or securities of the Joint Venture with federally insured banking institutions or other banking institutions as may be selected by the Managing Partner; the Managing Partner is authorized to sign on behalf of the Joint Venture on all accounts with such banking institutions; (i) Prepare and submit the Annual Business Plan for review and approval of the Executive Committee as provided herein (the Managing Partner shall provide the other Partner with an opportunity to provide its views on the Annual Business Plan, but the Managing Partner may in its sole and absolute discretion choose not to reflect such views in the Annual Business Plan); (j) Acquire by purchase, lease, or otherwise such personal property which may be necessary, convenient, or incidental to the accomplishment of the purposes of the Joint Venture consistent with the Annual Business Plan; and (k) Execute any and all agreements, contracts, documents, certifications, and instruments necessary or convenient in connection with the management, maintenance, and operation of the Casino, or in connection with managing the affairs of the Joint Venture, including, without limitation, adequate insurance as provided in the Annual Business Plan. 5.2 Annual Business Plan. No later than forty-five (45) days prior to the end -------------------- of the then current fiscal year, the Managing Partner shall cause to be prepared a business plan (the "Annual Business Plan") for the next fiscal year. The Annual Business Plan shall be subject to the review and approval of the Executive Committee. After approval of the Annual Business Plan, there shall be no material changes in the Annual Business Plan without the approval of the Executive Committee. The Annual Business Plan shall include, but not be limited to, the following: -7- (a) A narrative description of any activities proposed to be undertaken including the physical development of the Casino; (b) A projected annual income statement (accrual basis) on a monthly basis for the upcoming fiscal year; (c) A projected balance sheet as of the end of the upcoming fiscal year; (d) A capital budget and an operating budget for the Casino by department, including the establishment and amount of working capital, capital improvement, and contingency reserves; (e) A schedule of projected operating cash flow, including itemized operating revenues, Casino costs, expenses, and a schedule of projected operating deficits, if any, on a monthly basis; (f) A marketing plan indicating the nature, type and timing of advertising, public relations, complimentaries, and promotions (e.g., print, television, food/beverage, billboard, signage, and other media), contemplated distribution and amounts payable to contractors; (g) An operating plan, including executive and other key employee and department staffing needs; (h) An entertainment plan and budget; (i) Proposed personal property acquisitions; and (j) Anticipated insurance needs of the Joint Venture, including comprehensive, general liability, casualty, fire and extended coverage, workers' compensation, fidelity insurance protecting against employee loss or theft and business interruption insurance in an amount agreed to by all Partners, together with assurance that each Partner is named as an additional insured on the Joint Venture insurance policies. 5.3 Restrictions on the Partners. The following shall require the unanimous ---------------------------- approval of all Partners: (a) The admission of an additional Partner; (b) The purchase of additional real property; (c) Any other transaction which is unrelated to the purposes of the Joint Venture; (d) Except as otherwise provided herein, incurring any indebtedness that encumbers the real property of the Casino; (e) Sales or other dispositions of all or substantially all of the assets of the Joint Venture; -8- (f) Capital improvements in the aggregate in excess of $250,000, not included in the approved Annual Business Plan; (g) Refinancing existing indebtedness, or the incurrence of any indebtedness in excess of $250,000 other than in the ordinary course of business of the Joint Venture; (h) Any obligation, contract, agreement, or commitment of any type whatsoever with a Partner or an Affiliate of a Partner, other than those specifically described in this Agreement; (i) Except as provided in Section 10, the sale, assignment, pledge, mortgage, encumbrance or disposal of all or any portion of such Partner's interest in the Joint Venture; except as specifically provided herein, nothing herein shall prohibit or limit a Partner's right to assign or pledge its proceeds from the Joint Venture; (j) The assignment, pledge or transfer of any debt in excess of $250,000 due the Joint Venture or the release of any such debt, except on payment in full, other than in the ordinary course of the business of the Joint Venture; (k) The compromise of any claim due to the Joint Venture in excess of $250,000 or submission to arbitration of any dispute or controversy involving the Joint Venture, other than in the ordinary course of the business of the Joint Venture; (l) Transfer or conveyance of the Casino, or the grant of easements or other property rights relating to the Casino; and (m) Cancellation of any insurance as set forth in the approved Annual Business Plan. 5.4 Replacement of Managing Partner. (a) Except as provided herein, the ------------------------------- Managing Partner may only be changed by the unanimous agreement of all Partners. If the actual net operating results of the business of the Joint Venture for any four (4) consecutive quarters are less than eighty percent (80%) of the projected amount as set forth in the Annual Business Plan, after appropriate adjustments for factors affecting similar business in the vicinity of the Casino, then the other Partner may require the Managing Partner to resign. (b) In the event that there is any dispute with respect to whether the Managing Partner has performed in accordance with the standards set forth in this Section 5.4, such dispute shall be submitted to the CPA firm of Andersen (or such other nationally recognized accounting firm as is mutually agreeable to the Partners) (the "Accountant") for resolution. The Accountant shall consider the positions of both Partners and shall render a decision with respect to the performance of the Managing Partner, which decision shall be final and binding on the Partners. (c) The Managing Partner reserves the right to resign as the Managing Partner. In the event that the Managing Partner resigns, the other Partner will have the right and option to become the Managing Partner of the Joint Venture and assume all the obligations of the Managing Partner as required by this Agreement. In the event that the other Partner -9- does not exercise its option to become the Managing Partner, then the Partners shall attempt to appoint a third party ("Manager") to manage the day-to-day business affairs of the Joint Venture. In the event that the Partners are unable to agree on the Manager, then the Joint Venture shall be dissolved and liquidated in accordance with the provisions of Section 13, with the last active Managing Partner being responsible for the dissolution and liquidation as provided in Section 13. 5.5 Implementation of Annual Business Plan. The Managing Partner shall use due -------------------------------------- diligence to implement the Annual Business Plan. The Joint Venture will be conducted consistent with prudent business practices, with the objective of maximizing the profits of the Joint Venture, and each Partner will use due diligence to achieve that objective. The Managing Partner shall promptly notify the other Partner of any transaction, notice, event or proposal relating to the management and operation of the Casino which could significantly affect, either adversely or favorably, the Casino or the Joint Venture or otherwise cause a significant deviation from the Annual Business Plan. 5.6 Executive Committee. There shall be established an Executive Committee. ------------------- The Executive Committee shall consult with, review, monitor and oversee the performance of the management of the Casino. 5.7 Membership; Voting Executive Committee. -------------------------------------- (a) Membership. The Executive Committee shall consist of five (5) ---------- members, with three (3) members appointed by the Managing Partner and two (2) members appointed by the other Partner. In the event that neither of the Partners is the Managing Partner, then the Executive Committee shall consist of five (5) members, with two (2) members appointed by each party, and the Manager appointed pursuant to Section 5.4 shall be the fifth member of the Executive Committee. Each Partner may, at any time, appoint alternate members to the Executive Committee and such alternates will have all the powers of a regular committee member in the absence or inability of a regular committee member to serve. The current members of the Executive Committee are Stephen J. Greathouse, Thomas D. Robinson, Yvette E. Landau, Robert M. Jones and Gene Carano. Each Partner shall notify the other Partner in writing of its appointments to the Executive Committee within ten (10) business days of such appointment. (b) Voting. Except as provided below in subsections (c) and (d) of this ------ Section 5.7, each member of the Executive Committee shall have one vote on any decision of the Executive Committee. A member of the Executive Committee may give his written proxy to another member of the Executive Committee to vote on his behalf in his absence. All actions of the Executive Committee must be approved by a majority of all of the members of the Executive Committee, who may be present or voting by proxy. (c) Special Voting Rules for the Annual Business Plan. In voting to ------------------------------------------------- approve the Annual Business Plan as provided in Section 5.9 (a), below, the members of the Executive Committee appointed by the Managing Partner shall have two (2) votes and the members of the Executive Committee appointed by the other Partner shall have two (2) votes (and the Manager appointed pursuant to Section 5.4, if any, shall not have any vote). The Managing Partner shall designate which two of the three members of the Executive -10- Committee appointed by the Managing Partner are to exercise the two (2) votes, and such designation shall be recorded in the minutes of the Executive Committee. If the Executive Committee is deadlocked in deciding whether to approve the Annual Business Plan, then the meeting may be adjourned to another meeting date. If the Executive Committee remains deadlocked on such matters until the end of the second month of the fiscal year described in the Annual Business Plan, then either Partner may by written notice to the Company and the other Partner cause the approval of the Annual Business Plan to be submitted to the Accountant for resolution. The Accountant shall consider the positions of the members of the Executive Committee and the Partners, and shall decide whether to approve the Annual Business Plan, or to modify the Annual Business Plan and approve it with such modifications. The decision of the Accountant on these matters shall have the same effect as the approval of the Annual Business Plan by the Executive Committee, and that decision shall be final and binding on the Executive Committee and the Partners. (d) Special Voting Rules for the Appointment and Compensation of the ---------------------------------------------------------------- General Manager. In voting to approve the appointment of the General Manager and - --------------- the determination of the compensation of the General Manager, as provided in Section 5.9 (g), below, the members of the Executive Committee appointed by the Managing Partner shall have two (2) votes and the members of the Executive Committee appointed by the other Partner shall have two (2) votes (and the Manager appointed pursuant to Section 5.4, if any, shall not have any vote). The Managing Partner shall designate which two of the three members of the Executive Committee appointed by the Managing Partner are to exercise the two (2) votes, and such designation shall be recorded in the minutes of the Executive Committee. If the Executive Committee is deadlocked in deciding whether to approve the appointment of the General Manager or the determination of the compensation of the General Manager, then the meeting may be adjourned to another meeting date. If the Executive Committee remains deadlocked on the appointment of the General Manager for a period of one (1) month following the effective date of the resignation or removal of the previous the General Manager, then the Executive Committee shall assume the duties of the General Manager until such time as the Executive Committee can reach a decision on the appointment and compensation of a General Manager. In exercising the duties of the General Manager, the Executive Committee shall act and vote pursuant to the procedures and rules described in this Subsection 5.7(d) for approving the appointment of the General Manager. If the Executive Committee remains deadlocked on the determination of the compensation of the General Manager for a period of one (1) month following the first meeting on the proposed compensation, then either Partner may by written notice to the Company and the other Partner cause the determination of such compensation to be submitted to the Accountant for resolution. The Accountant shall consider the positions of the members of the Executive Committee, and shall adopt a compensation arrangement consistent with the position advocated by at least one member of the Executive Committee. The decision of the Accountant on these matters shall be final and binding on the Executive Committee and the Partners. 5.8 Meetings of the Executive Committee; Time and Place. Regular meetings of --------------------------------------------------- the Executive Committee shall be held quarterly at such time and at such place as the Executive Committee shall determine. At such regular meetings, the Managing Partner's representatives and the General Manager shall report on the financial performance and condition of the Joint Venture on a year-to-date basis (including cash flows, reserves, -11- outstanding loans, and compliance efforts), give progress reports on capital projects, compliance with the Annual Business Plan, material contracts entered into, material litigation, marketing efforts and such other matters relevant to the operation of the Joint Venture. The Executive Committee may make use of telephones and other electronic devices to hold meetings, provided that each member of the Executive Committee must simultaneously participate with all of the other members of the Executive Committee with respect to all discussions and votes of the Executive Committee. The Executive Committee may act without a meeting if the action taken is reduced to writing (either prior to or thereafter) and approved by members of the Executive Committee in accordance with the voting provisions of this Agreement. Written minutes shall be taken at each meeting of the Executive Committee. Any Partner may call for a special meeting of the Executive Committee by giving three (3) days prior written notice to all members of the Executive Committee. 5.9 Duties of the Executive Committee. Subject to the unanimous approval --------------------------------- requirements of Section 5.3, the duties of the Executive Committee shall include, but not be limited to, the following: (a) Reviewing, adjusting, approving, developing, and supervising the Annual Business Plan; (b) Reviewing and approving the terms of any loans made to the Joint Venture; (c) Determining, except as otherwise provided in this Agreement, the capital requirements of the Joint Venture; (d) Appointment of a firm of independent certified public accountants to perform an annual audit and issue an opinion letter with respect to the financial statements of the Joint Venture; (e) Appointment of those individuals who will have the authority to open and draw checks on bank accounts in the name of the Joint Venture, or endorse checks for deposit to such accounts; (f) Approving all material purchases, sales, leases or other dispositions of Joint Venture property, other than in the ordinary course of business; and (g) Approving of the appointment of the General Manager, who shall be the Chief Executive Officer of the Joint Venture, and the Controller, who shall be the Chief Financial Officer and Accounting Officer of the Joint Venture, and determining the compensation of the General Manager and the Controller. 5.10 General Manager. --------------- (a) The Managing Partner shall appoint the General Manager (subject to subsection (d) of Section 5.7, above) and other principal senior management of the Joint Venture and the Casino, who shall serve at the direction and pleasure of the Managing Partner (subject to subsection (c) of this Section 5.10). The General Manager and other -12- principal senior officers shall perform those functions, duties, and responsibilities as the Managing Partner may assign. (b) The General Manager shall consult with the Managing Partner on a weekly basis and review results of operations and proposals for future operations. (c) Either Partner may cause the Company to terminate the General Manager, which right may be exercised by providing to the Company and the other Partner thirty (30) days written notice of such decision. Such notice period shall not create any rights in the General Manager, and may be waived by the Company and the other Partner without the agreement of the General Manager. Section 6 INDEMNIFICATION OF PARTNERS --------------------------- 6.1 General. The Joint Venture shall indemnify, save harmless, and pay all ------- judgments and claims of third parties against each Partner or any officer, shareholder, member, partner, or director of such Partner and members of the Executive Committee relating to any liability or damage, including attorneys' fees to be paid as incurred, arising by reason of any act performed or omitted to be performed by such Partner, officer, shareholder, member, partner, director or member of the Executive Committee in connection with the business of the Joint Venture, except for any conduct of a Partner that constitutes fraud, bad faith or breach of fiduciary duty. 6.2 Joint Venture Expenses. ---------------------- (a) The Joint Venture shall indemnify, hold harmless, and pay all expenses, costs, or liabilities of any Partner who for the benefit of the Joint Venture makes any deposit, acquires any option, or makes any other similar payment or assumes any obligation in connection with any property proposed to be acquired by the Joint Venture in accordance with this Agreement and who suffers any financial loss as the result of such action. (b) Notwithstanding anything to the contrary in any of Sections 6.1 and 6.2, in the event that any provision in any of such Sections is determined to be invalid in whole or in part, such Section shall be enforced to the maximum extent permitted by law. Section 7 REPRESENTATIONS AND WARRANTIES ------------------------------ 7.1 Representations and Warranties. Each Partner hereby represents and ------------------------------ warrants that: (a) If such Partner is a corporation, limited liability company, or a partnership, it is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation or formation and has the corporate, company, statutory, or partnership -13- power and authority to own its property and carry own its business as owned and carried on at the date hereof and as contemplated hereby. (b) Such Partner has the individual, corporate, company, statutory, or partnership power and authority to execute and deliver this Agreement and to perform its obligations hereunder and, if such partner is a corporation, limited liability company, or partnership, the execution, delivery, and performance of this Agreement has been duly authorized by all necessary corporate, company, statutory, or partnership action. (c) This Agreement constitutes the legal, valid, and binding obligation of such Partner, and is enforceable in accordance with its terms and does not violate the terms and conditions of any law, regulation, order or award of any court of governmental agency or otherwise violate or result in a breach or default of the terms and conditions of any mortgage, agreement or other written document by which a Partner may be bound. Section 8 ACCOUNTING, BOOKS AND RECORDS ----------------------------- 8.1 Accounting, Books and Records. The Joint Venture shall maintain at its ----------------------------- principal place of business separate books of account for the Joint Venture which shall show a true and accurate record of all costs and expenses incurred, all charges made, all credits made and received, and all income derived in connection with the operation of the Joint Venture business in accordance with generally accepted accounting principles and casino industry guidelines consistently applied and, to the extent inconsistent therewith, in accordance with this Agreement. The Joint Venture shall use the accrual method of accounting in preparation of its annual reports and for tax purposes and shall keep its books accordingly. The Joint Venture's books and records shall be independently audited annually at the Joint Venture's expense. Each Partner shall, at its sole expense, have the right, without notice to any other Partner, to examine, copy, and audit the Joint Venture's books and records during normal business hours. 8.2 Reports. ------- (a) In General. The Managing Partner shall cause the General Manager and ---------- the Controller to be responsible for the preparation of financial reports of the Joint Venture and the coordination of financial matters of the Joint Venture with the Joint Venture's accountants. (b) Reports. Within ninety (90) days after the end of each fiscal year and ------- within forty-five (45) days after the end of any fiscal quarter, and within twenty (20) days after the end of any calendar month, the Managing Partner shall cause each Partner to be furnished with a copy of the balance sheet of the Joint Venture as of the last day of the applicable period, a statement of income or loss for the Joint Venture for such period, and a statement of the Joint Venture's cash flow for such period. The Managing Partner shall determine the fiscal year of the Joint Venture for financial reporting requirements and for federal income tax purposes. Annual statements shall also include a statement of the Partners' Capital -14- Accounts and changes therein for such fiscal year. Annual statements shall be examined by the Joint Venture's independent accountants. 8.3 Tax Returns; Information. The Managing Partner shall cause the Joint ------------------------ Venture's accountants to prepare all income and other tax returns of the Joint Venture and shall cause the same to be filed in a timely manner. The Managing Partner shall furnish to each Partner a copy of each such return, together with any schedules or other information which each Partner may require in connection with such Partner's own tax affairs. 8.4 Tax Matters Partner. The Managing Partner is specially authorized to act ------------------- as the "Tax Matters Partner" under the Code and any state or local law. If an agreement, settlement or compromise regarding any tax matter could materially and adversely affect a Partner, the Tax Matters Partner shall not enter into such agreement or settle or compromise such tax matter without the prior written consent of the affected Partner, which consent shall not be unreasonably withheld. Section 9 AMENDMENTS ---------- 9.1 Amendments. This Agreement may only be amended by the consent and approval ---------- of both Partners. Any such amendment shall be in writing and executed by both Partners. Section 10 TRANSFERS OF INTERESTS ---------------------- 10.1 Restrictions on Transfers. Except as expressly permitted by this ------------------------- Agreement, no Partner shall transfer all or any portion of its interest in the Joint Venture or any rights therein without the unanimous consent of the Partners. Any transfer or attempted transfer by any Partner in violation of the preceding sentence shall be null and void and of no force or effect whatever. The Partners acknowledge and agree that they are relying on the experience, expertise, reputation and financial condition of the other Partner in entering into this Agreement and that the nature of the relationship between the parties is personal. Each Partner hereby acknowledges the reasonableness of the restrictions on transfers imposed by this Agreement in view of the Joint Venture purposes and the relationship of the Partners. Accordingly, the restrictions on transfers contained herein shall be specifically enforceable. Each Partner hereby further agrees to hold the Joint Venture and each Partner (and each Partner's successors and assigns) wholly and completely harmless from any cost, liability, or damage (including, without limitation, liabilities for income taxes and costs of enforcing this indemnity) incurred by any of such indemnified Partners as a result of a transfer or an attempted transfer in violation of this Agreement. 10.2 Permitted Transfers. ------------------- (a) General. A Partner shall be entitled to transfer or convey all or any ------- portion of its interest in this Joint Venture to any of the following persons or entities ("Permitted Transferee"): -15- (i) An Affiliate of such Partner, subject to the provisions of Paragraph 10.3; (ii) Members of the Partner's family, which includes the Partner's spouse, natural or adoptive lineal descendants, and trusts for their benefit; (iii) Any other Partner; (iv) A personal representative of such Partner, which includes any person or entity who succeeds to the Partner's estate as a result of the Partner's death, legal incompetence or bankruptcy; and (v) Any person or entity approved by the unanimous consent of the Partners. (b) Admission of Permitted Transferee as a Partner. A Permitted Transferee ---------------------------------------------- of an interest in the Joint Venture shall be admitted as a Partner in the Joint Venture only upon the unanimous consent of the Partners, and only after executing this Agreement and assuming the obligations of the transferring Partner hereunder with respect to the interest so transferred. The rights of a Permitted Transferee who is not admitted as a Partner shall be limited to the right to receive allocations and distributions from the Joint Venture with respect to the interest transferred, as provided by this Agreement. A Permitted Transferee that is not admitted as a Partner shall not be a partner with respect to such interest and, without limiting the foregoing, shall not have the right to inspect the Joint Venture's books, act for or bind the Joint Venture, or otherwise interfere in its operations. (c) Effect of Permitted Transfer on Joint Venture. The Partners intend --------------------------------------------- that the Permitted Transfer of an interest in the Joint Venture shall not cause the dissolution of the Joint Venture under the Act; however, if determined by a court of competent jurisdiction that a dissolution has occurred, the Partners shall continue to hold the Joint Venture's assets and operate its business in Joint Venture form under this Agreement as if no such dissolution has occurred. (d) Notice and Costs of Transfer. In the event of any Permitted Transfer, ---------------------------- the Partner making the transfer shall notify the other Partner of the transfer and shall furnish the Joint Venture with the Permitted Transferee's tax identification number and sufficient information to determine the Permitted Transferee's interest and tax basis in the Joint Venture and any other information reasonably necessary to permit the Joint Venture to file all required federal and state tax returns. The Partner making a transfer permitted hereunder of all or a portion of his Joint Venture interest shall pay all costs and expenses incurred by the Joint Venture in connection with such transfer. 10.3 Limitation on Ownership of Partners. ----------------------------------- (a) Unless otherwise agreed by C, Donald L. Carano or one or more members of his immediate family acceptable to C, which acceptance will not be unreasonably withheld, or one or more Affiliates controlled by (i) Donald L. Carano, or (ii) one or more members of -16- his immediate family acceptable to C, which acceptance will not be unreasonably withheld, shall be the manager of and shall control E (and any Permitted Transferee to which E has transferred all or any portion of its interest in the Joint Venture, or any subsequent Permitted Transferee or such interest). Nothing herein shall prohibit, restrict or otherwise limit an Affiliate's right and ability to become a publicly traded entity so long as the above restriction on control of E is met. (b) Unless otherwise agreed by E, which shall not be unreasonably withheld, C (and any Permitted Transferee to which C has transferred all or any portion of its interest in the Joint Venture, or any subsequent Permitted Transferee or such interest) shall be controlled by MRG. (c) In the event that the provisions of this Section 10.3 are breached, the Non-Defaulting Partner shall have the right (but shall not be required) to exercise the Buy-Sell provisions of Sections 12.2 and 12.3. Section 11 WITHDRAWALS; ACTION FOR PARTITION; BREACHES ------------------------------------------- 11.1 Waiver of Partition and Covenant Not to Withdraw. Each Partner hereby ------------------------------------------------ covenants and agrees that the Partners have entered into this Agreement based on their mutual expectation that both Partners will continue as Partners and carry out the duties and obligations undertaken by them hereunder and that, except as otherwise expressly required or permitted hereby, each Partner hereby covenants and agrees not to (a) take any action to require partition or to compel any sale with respect to its Joint Venture interest, (b) take any action to file a certificate of dissolution or its equivalent with respect to itself, (c) take any action that would cause a bankruptcy of such Partner, (d) withdraw or attempt to withdraw from the Joint Venture, (e) exercise any power under the Act to dissolve the Joint Venture, (f) transfer all or any portion of its interest in the Joint Venture (other than as permitted hereunder), (g) petition for judicial dissolution of the Joint Venture, or (h) demand a return of such Partner's contributions or profits (or a bond or other security for the return of such contributions or profits) without the unanimous consent of the Partners. 11.2 Consequences of Violation of Covenants. If a Partner (a "Breaching -------------------------------------- Partner") attempts to (i) cause a partition or (ii) withdraw from the Joint Venture or dissolve the Joint Venture or otherwise take any action in breach of Section 11.1 hereof, the Joint Venture shall continue and such Breaching Partner shall be subject to this Section 11.2. In such event, the following shall occur: (a) The Breaching Partner shall immediately cease to have the authority to act as a Partner and shall have no further power to act for or bind the Joint Venture (including as Managing Partner); (b) The other Partner shall have the right (but shall not be obligated unless it was so obligated prior to such breach) to manage all of the affairs of the Joint Venture'; -17- (c) The Breaching Partner shall be liable in damages, without requirement of a prior accounting, to the Joint Venture for all costs and liabilities that the Joint Venture or any Partner may incur as a result of such breach; (d) Distributions to the Breaching Partner shall be reduced to seventy-five percent (75%) of the distributions otherwise payable to the Breaching Partner. The Joint Venture may apply any distributions otherwise payable to the Breaching Partner to satisfy any claims it may have against the Breaching Partner and the balance shall be distributed to the other Partners. (e) The Breaching Partner shall continue to be liable to the Joint Venture for any obligations of the Joint Venture pursuant to this Agreement, and to be jointly and severally liable with the other Partners for any debts and liabilities (whether actual or contingent, known or unknown) of the Joint Venture existing at the time the Breaching Partner withdraws or dissolves. Section 12 BUY-SELL -------- 12.1 Conditions Precedent to Buy-Sell. The Buy-Sell provisions of this Agreement -------------------------------- may not be instituted by any Partner until each of the following events or conditions have taken place: (a) Except as otherwise provided in this Agreement, on or after July 1, 2005; and (b) Such Partner is not in default of any of the provisions of this Agreement. 12.2 Exercise of Right to Buy or Sell. At any time after the occurrence of the -------------------------------- conditions precedent set forth in Paragraph 12.1, either Partner may make an offer to purchase ("Offer") the interest of the other Partner. The Offer shall be in writing and shall set forth a statement of the aggregate dollar amount (the "Specified Valuation Amount") which the offering Partner is willing to pay for all of the assets of the Joint Venture, free and clear of all monetary liabilities and obligations (other than non-delinquent property taxes and assessments secured by liens on the Joint Venture property) relating thereto. The Offer shall constitute an irrevocable offer by the Partner giving the Offer either to (i) purchase all, but not less than all, of the interest of the Joint Venture of the other Partner free of liens and encumbrances for an amount equal to the amount the other Partner would be entitled to receive if the Joint Venture sold all of its assets and business for the Specified Valuation Amount on the date of such notice and immediately thereafter the Joint Venture paid all monetary liabilities and monetary obligations of the Joint Venture, deducted customary closing costs that would be associated with a third-party sale, allocated all income, gain, loss, credit or other items therefrom in accordance with this Agreement, and distributed the net proceeds to each Partner in liquidation of the Joint Venture pursuant to Section 13.2(c) hereof (the "Sales Price"), or (ii) sell all, but not less than all, of its interest in the Joint Venture free of liens and encumbrances to the other Partner for an amount equal to the amount the offering Partner would be entitled to receive if the Joint Venture sold all of its assets and business for the Specified Valuation Amount on the date of such notice and -18- immediately thereafter the Joint Venture paid all monetary liabilities and monetary obligations of the Joint Venture, deducted customary closing costs that would be associated with a third party sale, allocated all income, gain, loss, credit or other items therefrom in accordance with this Agreement, and distributed the net proceeds to each Partner in liquidation of the Joint Venture pursuant to Section 13.2(c) hereof (the "Purchase Price"). The Partner receiving the Offer shall have a period of two (2) months to accept the Offer to sell at the Sales Price or, in the alternative, to require that the Offering Partner sell its interest to the other Partner at the Purchase Price. The Partner receiving the Offer shall give written notice ("Notice of Election") of its acceptance of the Offer to sell or purchase to the Offering Partner within two (2) months of the receipt of the Offer. Failure to give the Notice of Election within such two (2) month period shall constitute an acceptance of the Offer to sell to the Offering Partner on the terms set forth in the Offer, and for purposes of Section 12.3(f) shall be treated as the giving of a Notice of Election at the end of such two (2) month period. The closing of the transaction for the sale or purchase of the Joint Venture interest shall occur not later than six (6) months after the Notice of Election or at such other time as may be required by the Nevada Gaming Authorities. Subject to any agreements to which the Joint Venture is a party, the Partner purchasing the Joint Venture interest pursuant to this Section 12.2 (the "Purchasing Partner") shall be entitled to encumber the Joint Venture property in order to finance the purchase, provided that the other Partner (the "Selling Partner") shall have no liability, contingent or otherwise, under such financing. The Purchasing Partner may assign all or part of its right to purchase the Joint Venture interest of the Selling Partner to an Affiliate of the Purchasing Partner, provided that no such assignment shall relieve the Purchasing Partner of its obligations under this Section 12 in the event of a default by such Affiliate. In the event of such an assignment, references in this Section 12 to the Purchasing Partner shall include, where the context permits, such Affiliate. 12.3 Closing. ------- (a) At the closing of a transaction pursuant to this Section 12, the Partners shall execute such documents and instruments of conveyance as may be necessary or appropriate to confirm the transaction contemplated hereby, including, without limitation, the transfer of the Joint Venture interest of the Selling Partner and the assumption by the Purchasing Partner of the Selling Partner's obligations under the Agreement (other than any liability for past breaches of the Agreement). The reasonable costs of such transfer and closing, including, without limitation, attorneys' fees and filing fees, shall be divided equally between the Purchasing and Selling Partners. (b) The closing of the purchase and sale of the Partner's interest shall be subject to the approval of the Nevada Gaming Board and Commission. The Purchasing Partner shall file all necessary applications for approval of the transaction with the Nevada Gaming Board and Commission within sixty (60) days after the Notice of Election. The Purchasing Partner shall pay all costs and fees in connection with the approval of the Nevada Gaming Board and Commission. (c) At the close of the transaction contemplated under the provisions of Section 12.2, the Selling Partner shall assign to the Purchasing Partner all of the interest of the Selling Partner in the Joint Venture, free and clear of all liens, claims and encumbrances, -19- and shall execute and deliver to the Purchasing Partner an amended Certificate of Fictitious Name (or cancellation thereof), together with all other documents as may be reasonably required to give effect to the transfer of the Selling Partner's interest in the Joint Venture. In connection with such transfer, the Partners shall take all necessary action to discharge or release any Affiliate of the Selling Partner from any guarantee of any debt of the Joint Venture, but only if the Purchasing Partner expressly consented to the guaranty by the Affiliate. (d) The Purchasing Partner shall use its best efforts to use the assets of the Joint Venture to discharge all loans and other indebtedness, liabilities or other obligations of the Joint Venture (but shall not be required to prepay any obligations under any permanent loans secured by the Joint Venture property) for which the Selling Partner has any personal or corporate liability or otherwise obtain the release of the Selling Partner from any such liability. (e) The Purchasing Partner shall indemnify and hold harmless the Selling Partner from all indebtedness, liabilities and other obligations of the Joint Venture, whether the same arose prior to or after the purchase, except that such indemnification shall not apply to liabilities, if any, of the Joint Venture which were created by the Selling Partner while acting in fraud of either the Joint Venture or the rights of the Purchasing Partner or in violation of the terms of this Agreement. (f) Beginning with the day on which the Partner receiving the Offer gives the Notice of Election (the "Election Date"), the Percentage Interest of the Selling Partner shall be reduced to zero percent and no allocations of income, loss or other items (other than allocations of taxable income or loss pursuant to Section 704(c)) shall be made to the Selling Partner with respect to periods following the Election Date; provided, for greater clarity, that such change in the Percentage Interests shall not affect the determination of the Sales Price or the Purchase Price. From and after the Election Date, no distributions shall be made by the Joint Venture to the Selling Partner, except as provided in this Section 12.3(f). On the later of ten (10) business days following the Notice of Election or the end of the earliest Estimated Tax Period that includes the date of the Notice of Election, the Joint Venture shall distribute to the Selling Partner an amount equal to (i) the taxable income, if any, allocated to the Selling Partner for federal tax purposes for the calendar year including such Estimated Tax Period (other than allocations of taxable income or loss pursuant to Section 704(c)), (ii) multiplied by the maximum marginal federal income tax rate applicable to individuals for such period (if the Selling Partner is an individual or is a pass-through entity the income of which is taxable to individuals) or the maximum marginal federal income tax rate applicable to corporations for such period (if the Selling Partner is taxed as a Subchapter C corporation, or is a pass-through entity the income of which is taxable to an entity that is taxed as a Subchapter C corporation); provided, -------- however, that if the State of Nevada enacts an income tax (including any - ------- franchise tax based on income) that is effective for such Estimated Tax Period, the tax rate shall be increased by the effective increase in the combined maximum income tax applicable to the Selling partner (after reduction for the federal tax benefit for the deduction of state taxes), and (iii) reduced by any prior distributions to the Selling Partner pursuant to Section 4.1(a) with respect to the calendar year including such Estimated Tax Period. Allocations shall be made with respect to the period ending on the Election Date by means of a closing of the books of the Joint Venture as of the close of business on the -20- Election Date. After an Offer has been made, and until the Election Date, the Joint Venture shall provide each Partner with five (5) business days notice of any distribution to be made pursuant to Section 4.1(b), above. Section 13 DISSOLUTION AND WINDING UP -------------------------- 13.1 Liquidating Events. The Joint Venture shall dissolve and commence winding ------------------ up and liquidating upon the first to occur of any of the following ("Liquidating Events"): (a) January 1, 2053; (b) The sale of all or substantially all of the property of the Joint Venture; (c) The unanimous vote of the Partners to dissolve, wind up, and liquidate the Joint Venture; (d) The happening of any other event that makes it unlawful or impossible to carry on the business of the Joint Venture; (e) The occurrence of an Event of Bankruptcy (as defined in Section 14.1) of a Partner; or (f) The Partners are unable to agree upon a replacement Managing Partner as provided in Section 5.4. The Partners hereby agree that, notwithstanding any provision of the Act, the Joint Venture shall not dissolve prior to the occurrence of a Liquidating Event. If it is determined by a court of competent jurisdiction that the Joint Venture has dissolved prior to the occurrence of a Liquidating Event, the Partners hereby agree to continue the business of the Joint Venture without a winding up or liquidation. 13.2 Winding Up. Upon the occurrence of a Liquidating Event, the Joint Venture ---------- shall continue solely for the purpose of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Partners and no Partner shall take any action that is inconsistent with, or not necessary to or appropriate for, winding up the Joint Venture's business and affairs. To the extent not inconsistent with the foregoing, all covenants and obligations in this Agreement shall continue in full force and effect until such time as the Joint Venture property has been distributed pursuant to this Section and the Joint Venture has terminated. The Managing Partner shall be responsible for overseeing the winding up and liquidation of the Joint Venture, shall take full account of the Joint Venture's liabilities and assets, shall cause the assets to be liquidated as promptly as is consistent with obtaining the fair market value thereof, and shall cause the proceeds therefrom, to the extent sufficient therefor, to be applied and distributed in the following order: -21- (a) First, to the payment and discharge of all of the Joint Venture's debts and liabilities to creditors other than Partners; (b) Second, to the payment and discharge of all of the Joint Venture's debts and liabilities to Partners; and (c) The balance, if any, to the Partners in the amount of their respective Capital Accounts, after giving effect to all contributions, distributions, and allocations for all periods or portions thereof. The Managing Partner shall not receive any additional compensation for any services performed pursuant to this Section, but shall be entitled to reimbursement for all reasonable out-of-pocket costs and expenses incurred in connection therewith. Each Partner understands and agrees that by accepting the provisions of this Section setting forth the priority of the distribution of the assets of the Joint Venture to be made upon its liquidation, such Partner expressly waives any right which it, as a creditor of the Joint Venture, might otherwise have to receive distributions of assets pari passu with the other creditors of the Joint Venture in connection with a distribution of assets of the Joint Venture, and hereby subordinates to said creditors any such right. Any gains or losses on the disposition of properties of the Joint Venture in the process of liquidation shall be credited or charged to the Partners in accordance with the Addendum hereto. Any property distributed in kind in the liquidation shall be valued by agreement of the Partners and treated as though the property were sold and the cash proceeds distributed. The difference between the agreed value of the property distributed in kind and its book value shall be treated as a gain or loss on sale of the property and shall be credited or charged to the Partners in accordance with the Addendum hereto. 13.3 Compliance with Certain Requirements of Regulations. In the event the --------------------------------------------------- Joint Venture is "liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Section to the Partners who have positive Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2). It is the expectation of the Partners that, as a result of the operation of the provisions of this Agreement for allocation of income and loss, distributions pursuant to Section 4.1, and keeping of Capital Accounts, upon a liquidation of the Joint Venture (including a deemed liquidation pursuant to the provisions of Section 12.2), the Capital Account of E will exceed the capital account of C by $10 million and E receive $10 million more than C pursuant to Section 13.2(c) (or if the Capital Account of E has been reduced at the time of the liquidation to an amount less than $10 million, and the Capital Account of C is zero or less, then E will receive all distributions made pursuant to Section 13.2(c)). Accordingly, the Partners agree that this Agreement shall be interpreted consistently with such expectation. 13.4 Reserve for Contingent and Unforeseen Liabilities. In the discretion of ------------------------------------------------- the Managing Partner, a pro rata portion of the distributions that would otherwise be made to the Partners pursuant to this Section 13 may be: -22- (a) distributed to a trust that qualifies as a "liquidating trust" for federal income tax purposes established for the benefit of the Partners for the purposes of liquidating Joint Venture assets, collecting amounts owed to the Joint Venture, and paying any contingent or unforeseen liabilities or obligations of the Joint Venture or of the Partners arising out of or in connection with the Joint Venture. The assets of any such trust shall be distributed to the Partners from time to time, in the reasonable discretion of the Managing Partner, in the same proportions as the amount distributed to such trust by the Joint Venture would otherwise have been distributed to the Partners pursuant to this Section; or (b) withheld to provide a reasonable reserve for Joint Venture liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Joint Venture, provided that such withheld amounts shall be distributed to the Partners as soon as practicable. 13.5 Rights of Partners. Except as otherwise provided in this Agreement, (a) ------------------ each partner shall look solely to the assets of the Joint Venture for the return of its Capital Contributions and shall have no right or power to demand or receive property other than cash from the Joint Venture and (b) no Partner shall have priority over any other Partner as to the return of its Capital Contributions, distributions, or allocations. 13.6 Notice of Dissolution. In the event a Liquidating Event occurs, the --------------------- Managing Partner shall, within thirty (30) days thereafter, (a) provide written notice thereof to each of the Partners and to all other parties with whom the Joint Venture regularly conducts business (as determined in the discretion of the Managing Partner), and (b) publish notice of such dissolution in a newspaper of general circulation in each place in which the Joint Venture regularly conducts business. Section 14 BANKRUPTCY OR DISSOLUTION OF A PARTNER -------------------------------------- 14.1 Event of Bankruptcy. Considering the personal nature of the relationship ------------------- between the Partners of this Joint Venture, upon occurrence of an Event of Bankruptcy with respect to a Partner, the remaining Partner shall have the right and option to dissolve and liquidate the Joint Venture in accordance with Section 13 of this Agreement. For the purposes of this Agreement, any of the following shall constitute an "Event of Bankruptcy" with respect to the Partner involved: (i) the filing of an involuntary petition under the United States Bankruptcy Act or any other United States or state bankruptcy statute, as now in effect or as hereafter amended, against a Partner, which involuntary petition is not dismissed within 120 days after the filing thereof; (ii) the commencement by a Partner of any proceeding of any type under the United States Bankruptcy Act or any other United States or state bankruptcy statute; or -23- (iii) if a Partner makes an assignment for the benefit of creditors, or allows the appointment of a receiver, trustee, conservator or liquidator of all or any portion of the Partner or its assets. 14.2 Status of Bankruptcy Assignee. After the date of an Event of Bankruptcy, ----------------------------- the successor to the bankrupt Partner shall be considered an assignee of the bankrupt Partner's interest in the Joint Venture but shall not be entitled to interfere or participate in management or administration of the Joint Venture business or affairs, to receive or require information or an accounting with respect to the Joint Venture transactions or to inspect the books of the Joint Venture; provided, however, that the successor to the bankrupt Partner's -------- ------- interest in the Joint Venture may inspect the books of the Joint Venture at reasonable times with reasonable notice for the sole purpose of assuring that the successor receives the appropriate distribution of profits and losses. Section 15 MISCELLANEOUS ------------- 15.1 Notices. Unless otherwise provided, all notices, demands or other ------- communications hereunder shall be in writing and shall be deemed to have been given or submitted upon personal delivery or upon deposit in the United States mail by certified or registered mail, postage prepaid, with return receipt requested and addressed as follows: (a) If to C, at Galleon, Inc. 3950 Las Vegas Blvd. South Las Vegas, Nevada 89119 Attention: General Counsel (b) If to E, at Eldorado Limited Liability Company c/o Eldorado Hotel Casino 345 N. Virginia Street P.O. Box 3399 Reno, Nevada 89505 with a copy to: McDonald, Carano, Wilson, McCune, Bergin, Frankovich & Hicks P.O. Box 2670 Reno, Nevada 89505 Notices shall be deemed received upon personal delivery or three (3) days following deposit in the mail, if sent through the mail. Each Partner may designate, from time to time, another address in place of the address hereinabove set forth by notifying the other Partners of the new address in writing. 15.2 Binding Effect. Except as otherwise provided in this Agreement, every -------------- covenant, term, and provision of this Agreement shall be binding upon and inure to the benefit of the -24- Partners and their respective heirs, legatees, legal representatives, successors, transferees, and assigns. 15.3 Time. Time is of the essence with respect to this Agreement. ---- 15.4 Headings. Section and other headings contained in this Agreement are for -------- reference purposes only and are not intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision hereof. 15.5 Severability. Every provision of this Agreement is intended to be ------------ severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity or legality of the remainder of this Agreement. 15.6 Further Action. Each Partner agrees to perform all further acts and -------------- execute, acknowledge, and deliver any documents which may be reasonably necessary, appropriate, or desirable to carry out the provisions of this Agreement. 15.7 Attorneys' Fees. In case of any action or proceeding to compel compliance --------------- with, or for a breach of, the provisions of this Agreement, the prevailing party shall be entitled to recover all costs of such action or proceeding, including, but not limited to, reasonable attorneys' fees and court costs as determined by the court. 15.8 Governing Law. The laws of the State of Nevada shall govern the validity ------------- of this Agreement, the construction of its terms, and the interpretation of the rights and duties of the Partners. 15.9 Loans. Any Partner may, only with the approval of the Partners or as ----- provided by this Agreement, lend or advance money to the Joint Venture; provided, however, that a Partner may make a loan to the Joint Venture without the approval of the other Partner if (i) the Partner making such loan provides ten (10) business days notice to the other Partner of the proposed amount and terms of the loan, and within such ten day notice period the other Partner does not agree in writing that both Partners shall make such loan in an amount pro rata to the Partners' Percentage Interests; (ii) the terms of the loan are reasonable in light of the circumstances in which it is proposed; and (iii) the Partner proposing the loan has made reasonable efforts to arrange financing for the Joint Venture from a third party. If any Partner shall make any loan or loans to the Joint Venture or advance money on its behalf, the amount of any such loan or advance shall not be treated as a contribution to the capital of the Joint Venture, but shall be a debt due from the Joint Venture. The amount of any such loan or advance by a lending Partner shall be repaid in accordance with its terms or, after a Liquidating Event, as provided in Section 13.2. Except as otherwise provided herein, none of the Partners shall be obligated to make any loan or advance to the Joint Venture. -25- IN WITNESS WHEREOF, the parties have entered into this Agreement on the 22nd of April, 2002, effective as of January 1, 2001. ELDORADO LIMITED LIABILITY COMPANY GALLEON, INC. a Nevada limited liability company a Nevada corporation By: ELDORADO RESORTS LLC By: /s/ Glenn W. Schaeffer ----------------------- Its President Its Managing Member By: /s/ Donald L. Carano -------------------------------- Donald L. Carano, Presiding Manager By: RECREATIONAL ENTERPRISES, INC., MANAGER By: /s/ Donald L. Carano -------------------------------- Its President and By: HOTEL CASINO MANAGEMENT, INC. MANAGER By: /s/ Raymond J. Poncia, Jr. -------------------------------- Its President -26- Addendum ALLOCATIONS Terms not otherwise defined herein or in the Amended and Restated Agreement have the meanings set forth in Section A1.2(i). A1.1 Allocations of Net Profits and Net Losses. For each taxable year or portion thereof, Net Profits and Net Losses shall be allocated among the Partners in accordance with their Percentage Interests. A1.2 Special Allocations. The following special allocations shall be made in ------------------- the following order: (a) Minimum Gain Chargeback. Except as otherwise provided in Section ----------------------- 1.704-2(f) of the Income Tax Regulations promulgated under the Code, as amended from time to time ("Regulations"), notwithstanding any other provision of this Agreement, if there is a net decrease in Minimum Gain during any fiscal year, each Partner shall be specially allocated items of Joint Venture income and gain for such fiscal year (and, if necessary, subsequent fiscal years) in an amount equal to such Partner's share of the net decrease in Minimum Gain, determined in accordance with Regulations Section 1.704-2(f) and (g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section A1.2(a) is intended to comply with the minimum gain chargeback requirement in Section 1.704-1(f) of the Regulations and shall be interpreted consistently therewith. (b) Partner Nonrecourse Debt. Any item of Joint Venture loss, deduction ------------------------ or Section 705(a)(2)(B) expenditure that is attributable to Partner Nonrecourse Debt shall be allocated to the Partner or Partners that bear the economic risk of loss with respect to such Partner Nonrecourse Debt in accordance with Regulations Section 1.704-2(i). Notwithstanding any other provisions of this Agreement except Section A1.2(a) hereof, if there is a net decrease during any fiscal year in the minimum gain attributable to a Partner Nonrecourse Debt (within the meaning of Regulations Section 1.704-2(i)(3)), then any Partner with a share of the minimum gain attributable to such Partner Nonrecourse Debt at the beginning of such fiscal year shall be allocated items of Joint Venture income and gain for such fiscal year (and, if necessary, for subsequent fiscal years) equal to such Partner's share of the net decrease in Partner Nonrecourse Debt Minimum Gain as provided in Regulations Section 1.704-2(i)(4). (c) [Intentionally left blank] (d) Allocations Relating to Taxable Issuance of Joint Venture --------------------------------------------------------- Interests. Any income, gain, loss or deduction realized by the Joint Venture as - --------- a direct or indirect result of the issuance of an interest in the Joint Venture to a Partner (the "Issuance Items") shall be allocated among the Partners so that, to the extent possible, the net amount of such Issuance -27- Items, together with all other allocations under this Agreement to each Partner, shall be equal to the net amount that would have been allocated to each such Partner if the Issuance Items had not been realized. (e) Limitations on Allocation of Losses. Notwithstanding the provisions ----------------------------------- of this section, in no event shall any allocation of Net Losses (or any other loss, deduction or Section 705(a)(2)(B) expenditure) to any Partner cause such Partner to have or increase a deficit balance in its Capital Account. If Net Loss (or items thereof) are reallocated under this Section A1.2(e), subsequent allocations of Profits and Losses shall be made so that, to the extent possible, the net amount allocated under this Section A1.2(e) equals the amount that would have been allocated to each Partner if no reallocation had occurred under this Section A1.2(e). (f) Qualified Income Offset. If a Partner receives an adjustment, ------------------------ allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which creates or increases a deficit balance (taking into account distributions, other than distributions in liquidation of the Joint Venture, reasonably expected to be made) in the Partner's Capital Account (as provided in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6)), the Managing Partner shall allocate items of income or gain (as those terms are used in Regulations Section 1.704-1(b)(2)(ii)(d)) to such Partner in an amount and manner to eliminate the Partner's Capital Account deficit attributable to such adjustment, allocation or distribution as quickly as possible to the extent required by the "qualified income offset" provisions of such Regulations. (g) Capital Account Deficits. For purposes of determining whether a ------------------------ Partner has a deficit balance in its Capital Account in applying Sections A1.2(a), A1.2(b), A1.2(e) and A1.2(f) hereof, there shall be added to each Partner's Capital Account any amount such Partner is obligated to restore to its Capital Account under Regulations Section 1.704-1(b)(2)(ii)(c), as well as any addition thereto pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) after taking into account thereunder any changes during such fiscal year in Minimum Gain and Partner Nonrecourse Debt Minimum Gain. (h) [Intentionally left blank] (i) Definitions. For purposes of this Agreement, the following terms ----------- shall have the following meanings: "Depreciation" means, for each fiscal year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis. -28- "Gross Asset Value" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (a) the initial Gross Asset Value of any asset contributed by a Partner to the Joint Venture shall be the gross fair market value of such asset, as determined by the Partners; and (b) the Gross Asset Value of all assets whose Gross Asset Value has been adjusted pursuant to Section A1.5(a) hereof shall be adjusted pursuant to the last sentence of Section A1.5(a) hereof. It is intended that Gross Asset Value of an asset be commensurate with its "book value" as determined under Regulations Section 1.704-1(b). "Losses" means, for each taxable year or other period, an amount equal to the Joint Venture's items of taxable deduction and loss for such year or other period, determined in accordance with Section 703(a) of the Code (including all items of loss or deduction required to be stated separately under Section 703(a)(1) of the Code), with the following adjustments: (a) Any expenditures of the Joint Venture described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures under Treasury Regulation Section 1.704-1(b)(2)(iv)(i) , and not otherwise taken into account in computing Loss, will be considered an item of Loss; (b) Loss resulting from any disposition of Joint Venture property with respect to which gain or loss is recognized for federal income tax purposes will be computed by reference to the Gross Asset Value of such property, notwithstanding that the adjusted tax basis of such property may differ from its Gross Asset Value; (c) In lieu of depreciation, amortization and other cost recovery deductions taken into account in computing taxable income or loss, there will be taken into account Depreciation for the taxable year or other period; (d) Any items of deduction and loss comprising Regulatory Allocations (as defined in Section A1.3) shall not be considered in determining Loss; and (e) Any decrease to Capital Accounts as a result of any adjustment to the Gross Asset Value of Joint Venture assets pursuant to Treasury Regulation Section 1.704-1(b)(2) (iv)(f), (g) or (m) and Section A1.5 hereof shall constitute an item of Loss. "Minimum Gain" means "partnership minimum gain" as defined in Regulations Section 1.704-2(d). "Net Loss" means, for any period, the excess of Losses over Profits, if applicable, for such period. "Net Profit" means, for any period, the excess of Profits over Losses, if applicable, for such period. "Partner Nonrecourse Debt" means "partner nonrecourse debt" as defined in Regulations Section 1.704-2(b)(4). -29- "Partner Nonrecourse Debt Minimum Gain" means Minimum Gain attributable to Partner Nonrecourse Debt. "Profits" means, for each taxable year or other period, an amount equal to the Joint Venture's items of taxable income and gain for such year or other period, determined in accordance with Section 703(a) of the Code (including all items of income and gain required to be stated separately under Section 703(a)(1) of the Code), with the following adjustments: (a) Any income of the Joint Venture that is exempt from federal income tax and not otherwise taken into account in computing Profit will be added to Profit; (b) Gain resulting from any disposition of Joint Venture property with respect to which gain or loss is recognized for federal income tax purposes will be computed by reference to the Gross Asset Value of such property, notwithstanding that the adjusted tax basis of such property may differ from its Gross Asset Value; (c) Any items of deduction and loss comprising Regulatory Allocations (as defined in Section A1.3) shall not be considered in determining Profit; and (d) Any increase to Capital Accounts as a result of any adjustment to the Gross Asset Value of Joint Venture assets pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f), (g) or (m) and Section A1.5(a) hereof shall constitute an item of Profit. A1.3 Curative Allocations. The allocations set forth in Sections A1.2(a), -------------------- A1.2(b), A1.2(e) and A1.2(f) hereof (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Partners that, to the extent possible, over the life of the Joint Venture all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Joint Venture income, gain, loss, or deduction pursuant to this Section A1.3. Therefore, notwithstanding any other provision of this Agreement (other than the Regulatory Allocations), the Managing Partner shall make such offsetting special allocations of Joint Venture income, gain, loss or deduction so that, after such offsetting allocations are made, each Partner's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Partner would have had if the Regulatory Allocations were not part of the Agreement and all Joint Venture items were allocated pursuant to Section A1.1 hereof. In making allocations under this Section A1.3, the Managing Partner shall take into account future Regulatory Allocations under Section A1.2 that, although not yet made, are likely to offset other Regulatory Allocations previously made under Section A1.2. A1.4 Code Section 704(c) Allocations. ------------------------------- (a) Solely for federal income tax purposes and not with respect to determining any Partner's Capital Account, distributive share of profit or losses, distributions or other -30- items, a Partner's distributive share of income, gain, loss or deduction with respect to any property (other than money) contributed to the Joint Venture shall be determined in accordance with Code Section 704(c) and Regulations thereunder. (b) For purposes of allocation of income, gain, loss, or deduction under Code Section 704(c), the Joint Venture adopts the "traditional method with curative allocations" as identified in Regulations Section 1.704-3(c). (c) In the event the Gross Asset Value of any Joint Venture property is adjusted (other than for Depreciation) subsequent allocations of income, gain, loss and deduction with respect to such property shall take account of any variation between the adjusted basis of such property and its Gross Asset Value in the same manner as under Section 704(c) and the Regulations thereunder. Any elections or other decisions relating to such allocation shall be made in a manner that reasonably reflects the purpose and intention of this Agreement. A1.5 Other Allocation Rules. ---------------------- (a) The Gross Asset Values of all Joint Venture assets may be adjusted by the Managing Partner, after consultation with the other Partner, in accordance with Regulations Section 1.704-1(b)(2)(iv) to equal their respective gross fair market values as reasonably determined by the Managing Partner as of the following times: (i) the acquisition of an additional interest in the Joint Venture by any new or existing Partner in exchange for more than a de minimis capital contribution; (ii) the distribution by the Joint Venture to a retiring or continuing Partner as consideration for an interest in the Joint Venture of more than a de minimis amount of money or other Joint Venture property; and (iii) the liquidation of the Joint Venture. In such event, if the Gross Asset Value of an asset does not equal its adjusted basis for federal income tax purposes, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses. (b) The Partners are aware of the income tax consequences of the allocations made by this section and agree to be bound by the provisions of this section in reporting their shares of Joint Venture income and loss for income tax purposes. (c) For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Managing Partner using any permissible method under Code Section 706 and the Regulations thereunder. -31- EXHIBIT A CAPITAL ACCOUNT BALANCES AS OF JANUARY 1, 2001 - -------------------------------------------------------------------------------- Partner Capital Account as of January 1, 2001 - -------------------------------------------------------------------------------- E $65,657,230 - -------------------------------------------------------------------------------- C $67,759,879 - -------------------------------------------------------------------------------- -32- EX-4.7 6 dex47.txt REGISTRATION RIGHTS AGREEMENT Exhibit 4.7 REGISTRATION RIGHTS AGREEMENT dated as of March 5, 2002 between CIRCUS AND ELDORADO JOINT VENTURE and SILVER LEGACY CAPITAL CORP. as Issuers and BANC OF AMERICA SECURITIES LLC, as Representative for the Initial Purchasers TABLE OF CONTENTS 1. Definitions .................................................... 1 2. Exchange Offer ................................................. 4 3. Shelf Registration ............................................. 7 4. Liquidated Damages ............................................. 8 5. Registration Procedures ........................................ 9 6. Registration Expenses .......................................... 17 7. Indemnification ................................................ 18 8. Rules 144 and 144A ............................................. 21 9. Underwritten Registrations ..................................... 21 10. Miscellaneous .................................................. 22
This Registration Rights Agreement (the "Agreement") is dated as of March 5, 2002, by and between Circus and Eldorado Joint Venture, a Nevada general partnership (the "Partnership"), and Silver Legacy Capital Corp., a Nevada corporation ("Capital"), as the issuers ("Issuers"), and Banc of America Securities LLC, as representative ("Representative") for the initial purchasers listed on Schedule A of the Purchase Agreement (as defined below)(the "Initial Purchasers"). This Agreement is entered into in connection with the Purchase Agreement, dated as of February 22, 2002, between the Issuers and the Representative, on behalf of the Initial Purchasers (the "Purchase Agreement"), relating to the sale by the Issuers to the Initial Purchasers of $160,000,000 aggregate principal amount of the Issuers' 10 1/8% Mortgage Notes due 2012 (the "Notes"). In order to induce the Representative, on behalf of the Initial Purchasers, to enter into the Purchase Agreement, the Issuers have agreed to provide the registration rights set forth in this Agreement for the equal benefit of the Initial Purchasers and their respective direct and indirect transferees. The execution and delivery of this Agreement is a condition to the Initial Purchasers' obligation to purchase the Notes under the Purchase Agreement. The parties hereby agree as follows: 1. DEFINITIONS ----------- As used in this Agreement, the following terms shall have the following meanings: "Advice": See Section 5. "Applicable Period": See Section 2. "Capital": See the introductory paragraphs to this Agreement. "Closing Date": The closing of the offering of the Notes to the Initial Purchasers. "Commission": The United States Securities and Exchange Commission. "Effectiveness Date": The 150/th/ day after the Closing Date. "Effectiveness Target Date": See Section 4. "Effectiveness Period": See Section 3. "Event Date": See Section 4. "Exchange Act": The Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "Exchange Deadline": See Section 2. "Exchange Notes": See Section 2. "Exchange Offer": See Section 2. "Exchange Offer Registration Statement": See Section 2. "Filing Date": The 60/th/ day after the Closing Date. "Holder": Any holder of Transfer Restricted Securities. "Holders Counsel": See Section 5. "Indenture": The Indenture, dated as of March 5, 2002, between the Issuers and The Bank of New York, as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time in accordance with the terms thereof. "Initial Purchasers": See the introductory paragraph to this Agreement. "Initial Shelf Registration Statement": See Section 3. "Inspectors": See Section 5. "Issuers": See the introductory paragraph to this Agreement. "Liquidated Damages": See Section 4. "NASD": See Section 5. "Notes": See the introductory paragraphs to this Agreement. "Participant": See Section 7. "Participating Broker-Dealer": See Section 2. "Partnership": See the introductory paragraph to this Agreement. "Person": An individual, trustee, corporation, partnership, joint stock company, limited liability company, trust, unincorporated association, union, business association, firm or other legal entity. "Private Exchange": See Section 2. "Private Exchange Notes": See Section 2. "Prospectus": The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any 2 information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Transfer Restricted Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "Records": See Section 5. "Registration Default": See Section 4. "Registration Statement": Any registration statement of the Issuers, including, but not limited to, the Exchange Offer Registration Statement, that covers the distribution of any of the Transfer Restricted Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Rule 144": Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the Commission providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. "Rule 144A": Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the Commission providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. "Rule 415": Rule 415 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. "Securities Act": The Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Selling Holders": See Section 5. "Shelf Effectiveness Date": See Section 3. "Shelf Notice": See Section 2. "Shelf Registration Statement": See Section 3. "Subsequent Shelf Registration Statement": See Section 3. 3 "TIA": The Trust Indenture Act of 1939, as amended. "Transfer Restricted Security": Each Note until: (i) the date on which such Note has been exchanged by a Person other than a broker-dealer for an Exchange Note in the Exchange Offer; (ii) following the exchange by a broker-dealer in the Exchange Offer of a Note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the Prospectus contained in the Exchange Offer Registration Statement; (iii) the date on which such Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement; (iv) the date on which such Note is distributed to the public pursuant to Rule 144 under the Securities Act; or (v) the date on which such Note can be sold pursuant to paragraph (k) of Rule 144 under the Securities Act. "Trustee": The trustee under the Indenture and, if existent, the trustee under any indenture governing the Exchange Notes and Private Exchange Notes (if any). "Underwritten registration or underwritten offering": A registration in which securities of the Issuers are sold to an underwriter for reoffering to the public. 2. EXCHANGE OFFER -------------- (a) The Issuers agree to file with the Commission as soon as practicable after the Closing Date, but in no event later than the Filing Date, an offer to exchange (the "Exchange Offer") for any and all of the Transfer Restricted Securities a like aggregate principal amount of debt securities of the Issuers, the terms of which are substantially identical to the Notes (the "Exchange Notes") (and which are entitled to the benefits of the Indenture or a trust indenture which is identical to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with any requirements of the Commission to effect or maintain the qualification thereof under the TIA) in all material respects and which, in either case, has been qualified under the TIA), except that the Exchange Notes shall have been registered pursuant to an effective Registration Statement under the Securities Act. The Exchange Offer will be registered under the Securities Act on the appropriate form (the "Exchange Offer Registration Statement") and will comply with all applicable tender offer rules and regulations under the Exchange Act. Unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Issuers will commence the Exchange Offer and use their best efforts to (x) cause the Exchange Offer Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer open for at least 30 days (or longer if required by applicable law) after the date 4 that notice of the Exchange Offer is mailed to Holders; and (z) issue, on or prior to the later of (1) the 30th business day following the date on which the Exchange Offer Registration Statement was declared effective by the Commission, and (2) the earliest possible date following such 30th business day if a longer period is required by federal securities laws (such later date being the "Exchange Deadline"), Exchange Notes in exchange for all Notes tendered prior thereto in the Exchange Offer and not validly withdrawn. Each Holder who participates in the Exchange Offer will be required to represent that any Exchange Notes received by it will be acquired in the ordinary course of its business, that at the time of the consummation of the Exchange Offer such Holder will have no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes, and that such Holder is not an affiliate of either Issuer within the meaning of the Securities Act. Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Transfer Restricted Securities that are Private Exchange Notes and Exchange Notes held by Participating Broker-Dealers, and neither Issuer shall have any further obligation to register Transfer Restricted Securities (other than Private Exchange Notes) pursuant to Section 3 of this Agreement. (b) The Issuers shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution" reasonably acceptable to the Representative, which shall contain a summary statement of the positions taken or policies made by the Staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the Staff of the Commission or such positions or policies, in the judgment of the Representative, represent the prevailing views of the Staff of the Commission. Such "Plan of Distribution" section shall also allow the use of the Prospectus by all persons subject to the prospectus delivery requirements of the Securities Act, including all Participating Broker-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Notes. The Issuers shall use their best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein, in order to permit such Prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Notes, provided that such period shall not exceed 180 days (or such longer period if extended pursuant to the last paragraph of Section 5) (the "Applicable Period"). If, prior to the commencement or consummation of the Exchange Offer, any Initial Purchaser holds any Notes acquired by it and having the status as an unsold allotment in the initial distribution, the Issuers, upon the request of the Initial Purchaser, shall issue and deliver to such Initial Purchaser, in exchange (the "Private Exchange") for such Notes held by such Initial Purchaser, a like principal amount of debt securities of the Issuers that are identical to the Exchange Notes (the "Private Exchange Notes") (and which are issued pursuant to the same indenture as the Exchange Notes). The Private Exchange Notes shall bear the same CUSIP 5 number as the Exchange Notes. Interest on the Exchange Notes and Private Exchange Notes will accrue from the last interest payment date on which interest was paid to the Initial Purchasers on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the date of original issue. In connection with the Exchange Offer, the Issuers shall: (i) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (ii) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; and (iii) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last business day on which the Exchange Offer shall remain open. As soon as practicable after the close of the Exchange Offer or the Private Exchange, as the case may be, the Issuers shall: (1) accept for exchange all Notes tendered and not validly withdrawn pursuant to the Exchange Offer or the Private Exchange; (2) deliver to the Trustee for cancellation all Notes so accepted for exchange; and (3) cause the Trustee to authenticate and deliver promptly to each Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Notes of such Holder so accepted for exchange. The Exchange Notes and the Private Exchange Notes may be issued under (A) the Indenture or (B) an indenture substantially identical to the Indenture, which in either event will provide that the Exchange Notes will not be subject to the transfer restrictions set forth in the Indenture and that the Exchange Notes, the Private Exchange Notes and the Notes will vote and consent together on all matters as one class and that neither the Exchange Notes, the Private Exchange Notes nor the Notes will have the right to vote or consent as a separate class on any matter. (c) If (i) the Exchange Offer is not permitted by applicable law or Commission policy, (ii) any Holder of Transfer Restricted Securities notifies the Issuers prior to the 20/th/ day following the Exchange Offer that (A) such Holder is prohibited by law or Commission policy from participating in the Exchange Offer; (B) such Holder may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the Prospectus contained in the Exchange Offer Registration Statement is neither appropriate nor available for such resales; or (C) it is a broker-dealer and owns Notes acquired directly from the Issuers or an affiliate of either Issuer or (iii) the Exchange Offer is commenced and not 6 consummated within 180 days after the Closing Date for any reason, then the Issuers shall promptly deliver to the Holders and the Trustee written notice thereof (the "Shelf Notice") and shall file an Initial Shelf Registration Statement pursuant to Section 3. Following the delivery of a Shelf Notice to the Holders of Transfer Restricted Securities (only in the circumstances contemplated by clause (i) of the preceding sentence and only if the Issuers shall have satisfied their obligations, if any, pursuant to Section 5(w) below), the Issuers shall not have any further obligation to conduct the Exchange Offer or the Private Exchange under this Section 2. 3. Shelf Registration ------------------ If a Shelf Notice is delivered as contemplated by Section 2(c), then: (a) Initial Shelf Registration Statement. The Issuers shall prepare ------------------------------------ and file with the Commission a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Transfer Restricted Securities (the "Initial Shelf Registration Statement"). The Issuers shall use their best efforts to file such Initial Shelf Registration Statement with the Commission as promptly as practicable after such obligation arises and to cause the Shelf Registration Statement to be declared effective by the Commission on or prior to 90 days after such obligation arises (the "Shelf Effectiveness Date"). The Initial Shelf Registration Statement shall be on Form S-3 or another appropriate form permitting registration of such Transfer Restricted Securities for resale by such Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Issuers shall not permit any securities other than the Transfer Restricted Securities to be included in the Initial Shelf Registration Statement or any Subsequent Shelf Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Issuers in writing, within 15 business days after receipt of a request therefor, such information as the Issuers may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Transfer Restricted Securities shall be entitled to Liquidated Damages pursuant to Section 4 hereof unless and until such Holder shall have used its best efforts to provide all such reasonably requested information. Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Issuers all information to be disclosed in order to make the information previously furnished to the Issuers by such Holder not materially misleading. The Issuers shall use their best efforts to cause the Initial Shelf Registration Statement to be declared effective under the Securities Act on or prior to the Shelf Effectiveness Date and to keep the Initial Shelf Registration Statement continuously effective under the Securities Act until the date which is 24 months from the date that the Initial Shelf Registration Statement is declared effective (subject to extension pursuant to the last paragraph of Section 5 hereof) (the "Effectiveness Period"), or such shorter period ending when (i) all Transfer Restricted Securities covered by the Initial Shelf Registration Statement have been sold in the manner set forth and as contemplated in the Initial Shelf Registration Statement, (ii) a Subsequent Shelf Registration Statement covering all of the Transfer Restricted Securities has been declared effective under the Securities Act or (iii) during any period in which all Transfer Restricted Securities may be sold pursuant to Rule 144(k) under the Securities Act. 7 (b) Subsequent Shelf Registration Statements. If the Initial Shelf ---------------------------------------- Registration Statement or any Subsequent Shelf Registration Statement ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder or all of the securities registered thereunder are sold pursuant to Rule 144(k) under the Securities Act), the Issuers shall use their best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 45 days of such cessation of effectiveness amend the Shelf Registration Statement in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Registration Statement pursuant to Rule 415 covering all of the Transfer Restricted Securities (a "Subsequent Shelf Registration Statement"). If a Subsequent Shelf Registration Statement is filed, the Issuers shall use their best efforts to cause the Subsequent Shelf Registration Statement to be declared effective as soon as practicable after such filing and to keep such Registration Statement continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration Statement or any Subsequent Shelf Registration Statement was previously continuously effective or such period ending when (i) all Transfer Restricted Securities covered by the Initial Shelf Registration Statement have been sold in the manner set forth and as contemplated in the Initial Shelf Registration Statement, (ii) a Subsequent Shelf Registration Statement covering all of the Transfer Restricted Securities has been declared effective under the Securities Act or (iii) during any period in which all Transfer Restricted Securities may be sold pursuant to Rule 144(k) under the Securities Act. As used herein, the term "Shelf Registration Statement" means the Initial Shelf Registration Statement and any Subsequent Shelf Registration Statement. (c) Supplements and Amendments. The Issuers shall promptly supplement -------------------------- and amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration Statement, if required by the Securities Act, or if requested by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities covered by such Registration Statement or by any underwriter of such Transfer Restricted Securities. 4. LIQUIDATED DAMAGES ------------------ (a) If (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the applicable filing deadline specified for such filing where a specific deadline is specified, (ii) any such Registration Statement has not been declared effective by the Commission on or prior to the date specified herein for such effectiveness (the "Effectiveness Target Date"), (iii) the Exchange Offer has not been consummated within 30 days of the Effectiveness Target Date with respect to such Exchange Offer Registration Statement or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded immediately by a post-effective amendment to such Registration Statement that cures such failure and that is itself declared effective immediately (each such event referred to in clauses (i) through (iv), a "Registration Default"), then the Issuers hereby 8 agree to pay, jointly and severally, to each Holder of Transfer Restricted Securities affected thereby liquidated damages (the "Liquidated Damages") in an amount equal to $.05 per week per $1,000 in principal amount of Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the Liquidated Damages shall increase by an additional $.05 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages of $.25 per week per $1,000 in principal amount of Transfer Restricted Securities; provided that the Issuers shall in no event be required to pay Liquidated Damages for more than one Registration Default at any given time. Notwithstanding anything to the contrary set forth herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-effective amendment to the Registration Statement or an additional Registration Statement that causes the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement) to again be declared effective or made usable in the case of (iv) above, the Liquidated Damages payable with respect to the Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease. (b) The Issuers shall notify the Trustee within one business day after each and every date on which an event occurs in respect of which Liquidated Damages are required to be paid (an "Event Date"). Liquidated Damages shall be paid by depositing with the Trustee, in trust, for the benefit of the Holders thereof, on or before the applicable semi-annual interest payment date, immediately available funds in sums sufficient to pay the Liquidated Damages then due to Holders of Notes with respect to which the Trustee serves. The Liquidated Damages due shall be payable on each interest payment date to the record Holder of Notes entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Each obligation to pay Liquidated Damages shall be deemed to accrue on the applicable Event Date. The amount of Liquidated Damages will be determined by multiplying the applicable Liquidated Damages rate by a fraction, the numerator of which is the principal amount of the Notes and the denominator of which is $1,000, and further multiplying such product by a fraction, the numerator of which is the number of days such Liquidated Damages rate was applicable during such period and the denominator of which is 7. 5. Registration Procedures ----------------------- In connection with the registration of any Transfer Restricted Securities or Private Exchange Notes pursuant to Sections 2 or 3 hereof, the Issuers shall effect such registrations to permit the sale of such Transfer Restricted Securities or Private Exchange Notes in accordance with the intended method or methods of disposition thereof, and, pursuant thereto, the Issuers shall: (a) Prepare and file with the Commission, as soon as practicable after the date hereof but in any event prior to the Filing Date, a Registration Statement or Registration 9 Statements as prescribed by Section 2 or 3, and use its best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, that, if (1) such filing is pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuers shall, if requested, furnish to and afford the Holders of the Transfer Restricted Securities and each such Participating Broker-Dealer (the "Selling Holders"), as the case may be, covered by such Registration Statement, one special counsel for the Selling Holders (the "Holders Counsel") and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (at least 5 business days prior to such filing). The Issuers shall not file any Registration Statement or Prospectus or any amendments or supplements thereto in respect of which the Holders must be afforded an opportunity to review prior to the filing of such document, if the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities covered by such Registration Statement, or such Participating Broker-Dealer, as the case may be, the Holders Counsel, or the managing underwriters, if any, shall reasonably object. (b) Use their best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Section 2 or 3 of this Agreement, as applicable. Upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain an untrue statement of material fact or omit to state any material fact necessary to make the statements therein not misleading or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Issuers shall file promptly an appropriate amendment to such Registration Statement curing such defect, and, if Commission review is required, use its best efforts to cause such amendment to be declared effective as soon as practicable. (c) Prepare and file with the Commission such amendments and post- effective amendments to each Shelf Registration Statement or Exchange Offer Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act, the Exchange Act and the rules and regulations of the Commission promulgated thereunder applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus. The Issuers shall be deemed not to have used their best efforts to keep a Registration Statement effective during the Applicable Period if they voluntarily take any action that would result in Selling Holders of the Transfer Restricted Securities covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Transfer Restricted Securities or such Exchange Notes during that period unless such action is required by applicable law. 10 (d) If (1) a Shelf Registration Statement is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, the Issuers shall notify the Selling Holders, the Holders Counsel and the managing underwriters, if any, promptly (but in any event within two business days), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective (including in such notice a written statement that any Holder may, upon request, obtain, without charge, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Transfer Restricted Securities the representations and warranties of the Issuers contained in any agreement (including any underwriting agreement) contemplated by Section 5(o) below cease to be true and correct, (iv) of the receipt by the Issuers of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Transfer Restricted Securities or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Issuers' reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. (e) If (1) a Shelf Registration Statement is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use their best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Transfer Restricted Securities or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its best efforts to obtain the withdrawal of any such order at the earliest possible moment. (f) If a Shelf Registration Statement is filed pursuant to Section 3 and if requested by the managing underwriters, if any, or the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities being sold in connection with an underwritten offering, (i) 11 promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriters, if any, or such Holders or counsel reasonably request to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Issuers have received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement. (g) If (1) a Shelf Registration Statement is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, furnish to each Selling Holder who so requests and to the Holders Counsel and each managing underwriter, if any, without charge, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (h) If (1) a Shelf Registration Statement is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, deliver to each Selling Holder, their counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Issuers hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the Selling Holders, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Transfer Restricted Securities covered by or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to such Prospectus and any amendment or supplement thereto. (i) Prior to any public offering of Transfer Restricted Securities or any delivery of a Prospectus contained in the Exchange Offer Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, to use their best efforts to register or qualify, and to cooperate with the Selling Holders, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Transfer Restricted Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Selling Holder or the managing underwriters reasonably request in writing; provided, that where Exchange Notes held by Participating Broker-Dealers or Transfer Restricted Securities are offered other than through an underwritten offering, the Issuers agree to cause their counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(i); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or the Transfer Restricted Securities covered by the applicable Registration Statement; provided, further, that the Issuers shall not be required to (A) qualify generally to do business in any jurisdiction where it is 12 not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction. (j) If a Shelf Registration Statement is filed pursuant to Section 3, cooperate with the selling Holders of Transfer Restricted Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the managing underwriters, if any, or Holders may reasonably request. (k) Use their best efforts to cause the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Transfer Restricted Securities, except as may be required solely as a consequence of the nature of such selling Holder's business, in which case the Issuers will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals. (l) If (1) a Shelf Registration Statement is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(d)(v) or 5(d)(vi) above, as promptly as practicable prepare and (subject to Section 5(a) above) file with the Commission, at the expense of the Issuers, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Transfer Restricted Securities being sold thereunder or to the purchasers of the Exchange Notes to whom such Prospectus will be delivered by a Participating Broker-Dealer any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (m) Use their best efforts to cause the Transfer Restricted Securities covered by a Registration Statement or the Exchange Notes, as the case may be, to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of Transfer Restricted Securities covered by such Registration Statement or the Exchange Notes, as the case may be, or the managing underwriters, if any. (n) Prior to the effective date of the first Registration Statement relating to the Transfer Restricted Securities, (i) provide the Trustee with printed certificates for the Transfer Restricted Securities in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Transfer Restricted Securities. 13 (o) In the event of an underwritten offering of Transfer Restricted Securities pursuant to a Shelf Registration Statement, enter into an underwriting agreement as is customary in underwritten offerings and take all such other actions as are reasonably requested by the managing underwriters in order to expedite or facilitate the registration or the disposition of such Transfer Restricted Securities, and in such connection, (i) make such representations and warranties to the underwriters, with respect to the business of each Issuer and its subsidiaries and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Issuers and updates thereof in form and substance reasonably satisfactory to the managing underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by underwriters; (iii) obtain "cold comfort" letters and updates thereof in form and substance reasonably satisfactory to the managing underwriters from the independent certified public accountants of the Issuers (and, if necessary, any other independent certified public accountants of any subsidiary of either Issuer or of any business acquired by such Issuer for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings and such other matters as reasonably requested by underwriters; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to the Issuers and Holders of a majority in aggregate principal amount of Transfer Restricted Securities covered by such Registration Statement and the managing underwriters or agents) with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (p) If (1) a Shelf Registration Statement is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, make available for inspection by any Selling Holder, any underwriter participating in any such disposition of Transfer Restricted Securities, if any, and any attorney, accountant or other agent retained by any such Selling Holder or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of either Issuer and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of such Issuer and its subsidiaries to supply all information in each case reasonably requested by any such Inspector in connection with such Registration Statement. Records which such Issuer determines, in good faith, to be confidential and any Records which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) the information in such 14 Records has been made generally available to the public. Each Selling Holder will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Issuers unless and until such is made generally available to the public. Each Selling Holder will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Issuers and allow the Issuers to undertake appropriate action to prevent disclosure of the Records deemed confidential at their expense. (q) Provide an indenture trustee for the Transfer Restricted Securities or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a), as the case may be, to be qualified under the TIA not later than the effective date of the Exchange Offer or the first Registration Statement relating to the Transfer Restricted Securities; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Transfer Restricted Securities, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the Commission to enable such indenture to be so qualified in a timely manner. (r) Comply with all applicable rules and regulations of the Commission and make generally available to its securityholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Transfer Restricted Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Issuers after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (s) Upon consummation of an Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Issuers addressed to the Trustee for the benefit of all Holders of Transfer Restricted Securities participating in the Exchange Offer or the Private Exchange, as the case may be, and which includes an opinion that (i) each Issuer has duly authorized, executed and delivered the Exchange Notes and Private Exchange Notes and the related indenture, and (ii) each of the Exchange Notes or the Private Exchange Notes, as the case may be, and related indenture constitute a legal, valid and binding obligation of such Issuer, enforceable against such Issuer in accordance with its respective terms (with customary exceptions). (t) If an Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Transfer Restricted Securities by Holders to the Issuers (or to such other Person as directed by the Issuers) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Issuers shall mark, or cause to be marked, on such Transfer Restricted Securities that such Transfer Restricted Securities are being cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall such Transfer Restricted Securities be marked as paid or otherwise satisfied. 15 (u) Cooperate with each seller of Transfer Restricted Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Transfer Restricted Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). (v) Use their best efforts to take all other steps necessary to effect the registration of the Transfer Restricted Securities covered by a Registration Statement contemplated hereby. (w) If, following the date hereof there has been announced a change in Commission policy with respect to exchange offers such as the Exchange Offer, that in the reasonable opinion of counsel to the Issuers raises a substantial question as to whether the Exchange Offer is permitted by applicable federal law, seek a no-action letter or other favorable decision from the Commission allowing the Issuers to consummate an Exchange Offer for such Transfer Restricted Securities. The Issuers hereby agree to pursue the issuance of such a decision to the Commission staff level. In connection with the foregoing, the Issuers hereby agree to take all such other actions as may be requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (A) participating in telephonic conferences with the Commission, (B) delivering to the Commission staff an analysis prepared by counsel to the Issuers setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursuing a resolution by the Commission staff. The Issuers may require each seller of Transfer Restricted Securities or Participating Broker-Dealer as to which any registration is being effected to furnish to the Issuers such information regarding such seller or Participating Broker-Dealer and the distribution of such Transfer Restricted Securities or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, as the Issuers may, from time to time, reasonably request including, without limitation, a written representation to the Issuers (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement or Shelf Registration Statement, as applicable) stating that (A) it is not an affiliate of either Issuer, (B) the amount of Transfer Restricted Securities held by such Holder prior to the Exchange Offer, (C) the amount of Transfer Restricted Securities owned by such Holder to be exchanged in the Exchange Offer and representing that such Holder is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any Person to participate in, a distribution of the Exchange Notes to be issued and (D) it is acquiring the Exchange Notes in its ordinary course of business. The Issuers may exclude from such registration the Transfer Restricted Securities of any seller or Participating Broker-Dealer who unreasonably fails to furnish such information within 20 business days after receiving such request. Each Holder of Transfer Restricted Securities and each Participating Broker-Dealer agrees by acquisition of such Transfer Restricted Securities or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, that, upon receipt of any notice from the Issuers of the happening of any event of the kind described in Section 5(d)(ii), 5(d)(iv), 5(d)(v), or 5(d)(vi), such Holder will forthwith discontinue the use of any applicable Prospectus and disposition of such Transfer Restricted Securities covered by such Registration Statement or Prospectus or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may 16 be, until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(l), or until it is advised in writing (the "Advice") by the Issuers that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event the Issuers shall give any such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Transfer Restricted Securities covered by such Registration Statement or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(l) or (y) the Advice. 6. REGISTRATION EXPENSES --------------------- (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers shall be borne, jointly and severally by the Issuers, whether or not the Exchange Offer or a Shelf Registration Statement is filed or becomes effective, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of its counsel in connection with Blue Sky qualifications of the Transfer Restricted Securities or Exchange Notes and determination of the eligibility of the Transfer Restricted Securities or Exchange Notes for investment under the laws of such jurisdictions (x) where the Holders of Transfer Restricted Securities are located, in the case of the Exchange Notes, or (y) as provided in Section 5(i), in the case of Transfer Restricted Securities or Exchange Notes to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses (including, without limitation, expenses (A) of printing certificates for the Notes in a form eligible for deposit with The Depository Trust Company and (B) of printing prospectuses if the printing of prospectuses is requested by (I) the managing underwriters, if any, or, (II) in respect of Notes to be sold by any Participating Broker-Dealer during the Applicable Period, by the Holders of a majority in aggregate principal amount of the Notes included in any Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Issuers and fees and disbursements of the Holders Counsel (subject to the provisions of Section 6(b)), (v) fees and all independent certified public accountants referred to in Section 5(o)(iii) (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) the fees and expenses of any "qualified independent underwriter" or other independent appraiser participating in an offering pursuant to the rules and regulations of the NASD, (vii) rating agency fees, (viii) Securities Act liability insurance, if the Issuers desires such insurance, (ix) fees and expenses of all other Persons retained by the Issuers, (x) internal expenses of the Issuers (including, without limitation, all salaries and expenses of officers and employees of the Issuers performing legal or accounting duties), (xi) the expense of any annual or special audit, (xii) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange and (xiii) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, securities sales agreements, indentures and any other documents necessary in order to comply with this Agreement. 17 (b) In connection with any Shelf Registration Statement hereunder, the Issuers shall, jointly and severally, reimburse the Holders of the Transfer Restricted Securities being registered in such registration for the fees and disbursements of the Holders Counsel (in addition to appropriate local counsel) chosen by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities to be included in such Registration Statement and other out-of-pocket expenses of the Holders of Transfer Restricted Securities incurred in connection with the registration of the Transfer Restricted Securities. 7. INDEMNIFICATION --------------- (a) The Issuers will, jointly and severally, indemnify and hold harmless each Holder of Transfer Restricted Securities and each Participating Broker-Dealer selling Exchange Notes during the Applicable Period, the directors, officers, employees and agents of each person, and each person, if any, who controls any such person within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each a "Participant") from and against any and all losses, claims, liabilities, expenses and damages (including any and all investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted), to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or any amendment or supplement thereto or any preliminary prospectus or the omission or alleged omission to state in such document a material fact required to be stated in it or necessary to make the statements in it not misleading; provided, that a Participant will not be entitled to any such indemnification hereunder to the extent that such loss, claim, liability, expense or damage arises from and is based on an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to such Participant furnished in writing to the Issuers by such Participant expressly for inclusion therein or in the case of a Participating Broker-Dealer, if the person asserting any such loss, claim, liability, expense or damage purchased the Exchange Notes from such Participating Broker-Dealer but was not sent or given a copy of the Prospectus at or prior to the written confirmation of the sale of Exchange Notes to such person and such untrue statement or omission or alleged untrue statement or omission was cured in the Prospectus. (b) Each Participant will indemnify and hold harmless each Issuer, each person, if any, who controls such Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, each director or member of the executive committee of such Issuer and each officer, employee and agent of such Issuer to the same extent as the foregoing indemnity from the Issuers to each Participant, but only insofar as losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to such Participant furnished in writing to the Issuers by such Participant expressly for use in any Registration Statement or Prospectus or any amendment or supplement thereto or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Transfer Restricted Securities 18 giving rise to such obligations. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 7(b) with respect to any preliminary prospectus shall not inure to the benefit of any Participant if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the Prospectus, as then amended or supplemented, and the Issuers advised such Participant of such untrue statement or omission of material fact and provided such Participant with a corrected version of the Prospectus. (c) Any party that proposes to assert the right to be indemnified under this Section 7 will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 7, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party will not relieve it from any liability that it may have to any indemnified party under the foregoing provisions of this Section 7 unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified party or parties. All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they are incurred. An indemnifying party will not be liable for any settlement of any action or claim effected without its written consent (which consent will not be unreasonably withheld). 19 (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Section 7 is applicable in accordance with its terms but for any reason is held to be unavailable from either Issuer or any Participant, such Issuer and each Participant will contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by such Issuer from persons other than a Participant, such as persons who control such Issuer within the meaning of the Securities Act, officers of such Issuer and directors of such Issuer, who also may be liable for contribution) to which such Issuer and each Participant may be subject in such proportion as is appropriate to reflect the relative benefits received by such Issuer on the one hand and each Participant on the other. The relative benefits received by each Issuer on the one hand and each Participant on the other shall be deemed to be equal to (i) with respect to such Issuer, the total net proceeds from the initial offering (before deducting expenses) received by such Issuer, (ii) with respect to the initial purchaser in such offering, the total purchase discount and commissions, (iii) with respect to any other Holder of Transfer Restricted Securities, the proceeds received upon the sale of the Notes giving rise to the indemnification obligation and (iv) with respect to any underwriter, the total underwriting discounts and commissions with respect to such underwriting, in each case of clauses (i), (ii) or (iv), as set forth on the cover page of the applicable offering memorandum or prospectus. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of each Issuer on the one hand and each Participant on the other, with respect to the statements or omissions which resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by either Issuer or a Participant, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. Each Issuer and each Participant shall agree that it would not be just and equitable if contributions pursuant to this Section 7(d) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense or damage, or action in respect thereof, referred to above in this Section 7(d) shall be deemed to include, for purpose of this Section 7(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7(d), a Participant shall not be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Transfer Restricted Securities exceeds the amount of any damages that such Participant has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7(d), any person who controls a party to this Agreement within the meaning of the Securities Act will have the same rights to contribution as that party, and each 20 director, executive committee member, officer, employee or agent of each Issuer will have the same rights to contribution as such Issuer, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 7(d), will notify any such party or parties from whom contribution may be sought, but the omission so to notify will not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 7(d). No party will be liable for contribution with respect to any action or claim settled without its written consent (which consent will not be unreasonably withheld). (e) The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the indemnifying persons may otherwise have to the indemnified persons referred to above. 8. RULES 144 AND 144A ------------------ Each Issuer covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder in a timely manner and, if at any time such Issuer is not required to file such reports, it will, upon the request of any Holder of Transfer Restricted Securities, make publicly available other information so long as necessary to permit sales pursuant to Rule 144 and Rule 144A under the Securities Act. Such Issuer further covenants that it will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 and Rule 144A under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. 9. UNDERWRITTEN REGISTRATIONS -------------------------- If any of the Transfer Restricted Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities included in such offering and reasonably acceptable to the Issuers. No Holder of Transfer Restricted Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 21 10. MISCELLANEOUS ------------- (a) Remedies. In the event of a breach by either Issuer of any of its -------- obligations under this Agreement, each Holder of Transfer Restricted Securities, in addition to being entitled to exercise all rights provided herein, in the Indenture or, in the case of the Initial Purchasers, in the Purchase Agreement or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. Each Issuer agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. Neither Issuer has, as of the date -------------------------- hereof, and neither Issuer shall, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Transfer Restricted Securities in this Agreement or otherwise conflicts with the provisions hereof. Neither Issuer has entered or will enter into any agreement with respect to any of its securities which will grant to any Person piggy-back rights with respect to a Registration Statement. (c) Adjustments Affecting Transfer Restricted Securities. Neither ---------------------------------------------------- Issuer shall, directly or indirectly, take any action with respect to the Transfer Restricted Securities as a class that would adversely affect the ability of the Holders of Transfer Restricted Securities to include such Transfer Restricted Securities in a registration undertaken pursuant to this Agreement. (d) Amendments and Waivers. The provisions of this Agreement, including ---------------------- the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Issuers have obtained the written consent of Holders of at least a majority of the then outstanding aggregate principal amount of Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Transfer Restricted Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Transfer Restricted Securities may be given by Holders of at least a majority in aggregate principal amount of the Transfer Restricted Securities being sold by such Holders pursuant to such Registration Statement; provided, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. (e) Notices. All notices and other communications (including without ------- limitation any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or telecopier. (i) if to a Holder of Transfer Restricted Securities, at the most current address given by the Trustee to the Issuers; and 22 (ii) if to the Issuers, at: Circus and Eldorado Joint Venture 407 North Virginia Street Reno, Nevada 89501 Telecopy No.: (775) 325-7330 Attention: Gary Carano Silver Legacy Capital Corp. 407 North Virginia Street Reno, Nevada 89501 Telecopy No.: (775) 325-7330 Attention: Gary Carano with copies to: Wolf, Block, Schorr and Solis-Cohen LLP 1650 Arch Street, 22nd Floor Philadelphia, Pennsylvania 19103-2097 Telecopy No.: (215) 405-3834 Attention: Howell J. Reeves, Esq. and McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP 241 Ridge Street, 4th Floor Reno, Nevada 89501 Telecopy No.: (775) 788-2020 Attention: John Frankovich, Esq. All such notices and communications shall be deemed to have been duty given: when delivered by hand, if personally delivered; five business days after being deposited in the postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if telecopied. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in such Indenture. (f) Successors and Assigns. This Agreement shall inure to the ---------------------- benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided, that with respect to the indemnity and contribution agreements in Section 7, each Holder of Transfer Restricted Securities subsequent to the Initial Purchasers shall be bound by the terms thereof if such Holder elects to include Transfer Restricted Securities in a Shelf Registration Statement. 23 (g) Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ------------- ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS (i) APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (j) Severability. If any term, provision, covenant or restriction of this ------------ Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (k) Entire Agreement. This Agreement, together with the Purchase Agreement ---------------- and the Indenture, is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. (l) Notes Held by the Issuers or Their Affiliates. Whenever the consent or --------------------------------------------- approval of Holders of a specified percentage of Transfer Restricted Securities is required hereunder, Transfer Restricted Securities held by the Issuers or either Issuer's affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. 24 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. CIRCUS AND ELDORADO JOINT VENTURE By: /s/ Gary Carano --------------------------------------- Name: Gary Carano Title: Chief Executive Officer SILVER LEGACY CAPITAL CORP. By: /s/ Gary Carano --------------------------------------- Name: Gary Carano Title: President and Chief Executive Officer 25 BANC OF AMERICA SECURITIES LLC, on its own behalf and as representative of the Initial Purchasers By: /s/ Bruce R. Thompson ------------------------------- Bruce R. Thompson Managing Director 26 EX-5 7 dex5.txt OPINIONS Exhibit 5 [LETTERHEAD OF WOLF, BLOCK, SCHORR AND SOLIS-COHEN LLP] April 26, 2002 Circus and Eldorado Joint Venture Silver Legacy Capital Corp. 407 North Virginia Street Reno, Nevada 89501 Re: Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. Registration of 10-1/8% Mortgage Notes Due 2012 ----------------------------------------------- Ladies and Gentlemen: In connection with the registration by Circus and Eldorado Joint Venture, a Nevada general partnership, and Silver Legacy Capital Corp., a Nevada corporation (together, the "Issuers"), of $160,000,000 in aggregate principal amount of 10-1/8% Mortgage Notes due 2012 (the "Exchange Notes") on a Form S-4 registration statement (the "Registration Statement") to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "1933 Act"), you have requested our opinion with respect to the matters set forth below. The Exchange Notes will be issued pursuant to an indenture, dated as of March 5, 2002, by and among the Issuers and The Bank of New York, as trustee (the "Indenture"). Capitalized terms used herein without definition have the meanings given to them in the Indenture, a copy of which will be included as an exhibit to the Registration Statement. In our capacity as your counsel in connection with the preparation and filing of the Registration Statement, we are familiar with the proceedings taken and proposed to be taken by the Issuers in connection with the authorization and issuance of the Exchange Notes, and for purposes of this opinion, we have assumed such proceedings will be timely completed in the manner presently proposed and the terms of such issuance will otherwise be in compliance with law. As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of rendering the opinions expressed herein. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. April 26, 2002 Page 2 We have, in rendering the opinions expressed herein, to the extent such opinions involve matters of Nevada law, with your consent, and without any independent investigation, relied solely and completely on the opinion of McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP, a copy of which is included herewith as "Attachment A" (the "Nevada Opinion"). We are members of the Bar of the State of New York and the opinions expressed herein are limited to the effect on the subject transaction only of the federal laws of the United States, the laws of the State of New York and, to the extent that we have relied upon the Nevada Opinion, the laws of the State of Nevada, and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction, or as to any matters of municipal law or the laws of any other local agencies within any state. Our opinions specifically incorporate by this reference the respective limitations, qualifications and analyses set forth in the Nevada Opinion. Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof, the Exchange Notes, when authenticated by the Trustee and executed and delivered by the Issuers in accordance with the terms of the Registration Rights Agreement and the Indenture, will constitute legally valid and binding obligations of the Issuers, enforceable against the Issuers in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm contained under the heading "Legal Matters" in the prospectus included therein. In giving this consent, we do not hereby admit that we come within the category of persons whose consent is required under Section 7 of the 1933 Act or the rules and regulations thereunder. Very truly yours, /s/ WOLF, BLOCK, SCHORR & SOLIS-COHEN LLP Attachment A ------------ McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP 241 Ridge Street, 4th Floor Reno, Nevada 89501 Telephone: 775-788-2000 Fax: 775-788-2020 April 26, 2002 Circus and Eldorado Joint Venture Silver Legacy Capital Corp. 407 North Virginia Street Reno, Nevada 89501 Re: Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. Registration of 10-1/8% Mortgage Notes Due 2012 ---------------------------------------------------------------- Ladies and Gentlemen: You have requested our opinion in connection with the registration by Circus and Eldorado Joint Venture, a Nevada general partnership, and Silver Legacy Capital Corp., a Nevada corporation (together, the "Issuers"), of $160,000,000 in aggregate principal amount of 10-1/8% Mortgage Notes due 2012 (the "Exchange Notes") on a Form S-4 registration statement (the "Registration Statement") to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "1933 Act"). The Exchange Notes will be issued pursuant to an indenture, dated as of March 5, 2002, by and among the Issuers and The Bank of New York, as trustee (the "Indenture"). Capitalized terms used herein without definition have the meanings given to them in the Indenture, a copy of which will be included as an exhibit to the Registration Statement. In our capacity as your Nevada counsel in connection with the preparation and filing of the Registration Statement, we are familiar with the proceedings taken and proposed to be taken by the Issuers in connection with the authorization and issuance of the Exchange Notes, and for purposes of this opinion, we have assumed such proceedings will be timely completed in the manner presently proposed and the terms of such issuance will otherwise be in compliance with law. We have examined such matters of fact and questions of law as we have considered appropriate for purposes of rendering the opinions expressed herein. In our examination, we have assumed (i) the genuineness of all signatures, the authenticity of all documents submitted to April 26, 2002 Page 2 us as originals, and the conformity to authentic original documents of all documents submitted to us as certified, conformed, photostatic or facsimile copies; (ii) that each natural person executing any instrument, document, or agreement is legally competent to do so, (iii) there are no oral or written modifications of or amendments to the documents we have examined, and there has been no waiver of any of the provisions thereof, by actions or conduct of the parties or otherwise; and (iv) all corporate records made available to us by the Issuers and all public records we have reviewed are accurate and complete. We have been furnished with, and with your consent have relied upon, certificates of officers of the Issuers with respect to certain factual matters. In addition, we have obtained and relied upon such certificates and assurances from public officials as we have deemed necessary or appropriate for purposes of this opinion. We are qualified to practice law in the State of Nevada. The opinions set forth herein are expressly limited to the laws of the State of Nevada and we do not purport to be experts on, or to express any opinion herein concerning, or to assume any responsibility as to the applicability to or the effect on any of the matters covered herein of, the laws of any other jurisdiction or as to matters of municipal law or the laws of any other local agencies within the state. We express no opinion concerning, and we assume no responsibility as to laws or judicial decisions related to, or any orders, consents or other authorizations or approvals as may be required by, any federal law, including any federal securities law, or any state securities or "Blue Sky" laws. Based upon the foregoing, and having regard to legal considerations and other information that we deem relevant, we are of the opinion that: 1. Each of the Issuers is duly organized, validly existing, and in good standing under the laws of the State of Nevada. 2. Each of the Issuers has the power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and to enter into and perform its obligations under the Indenture and the Registration Rights Agreement. 3. The execution and delivery of the Exchange Notes, the Indenture and the Registration Rights Agreement have been duly authorized by each of the Issuers. We wish to advise you that Donald L. Carano, who owns an approximate 30.3% beneficial interest in Eldorado Limited Liability Company, one of the Partnership's two partners, and has owned a controlling interest in that entity's parent or its predecessor since 1973, maintains an "of counsel" relationship with our law firm. Mr. Carano is not involved in the active practice of law or in the representation of Eldorado Limited Liability Company or the Issuers, or any of their affiliates as an attorney. April 26, 2002 Page 3 We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and the reference to this firm therein under the caption "Legal Matters" in the prospectus included therein. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the 1933 Act or the rules and regulations of the Commission promulgated thereunder. Wolf, Block, Schorr and Solis-Cohen LLP may rely on this opinion for the sole purpose of issuing its opinion, of even date herewith, to the Issuers, which opinion will also be filed as an exhibit to the Registration Statement. Very truly yours, /s/ McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP EX-10 8 dex10.txt SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Exhibit 10 SILVER LEGACY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN -------------------------------------- Effective as of January 1, 2001 CIRCUS AND ELDORADO JOINT VENTURE, a Nevada general partnership (the "Company") composed of Eldorado Limited Liability Company, a Nevada limited liability company ("ELLC"), which is owned and controlled by Eldorado Resorts, LLC, a Nevada limited liability company ("ERL"), and Galleon, Inc., a Nevada corporation ("Galleon"), which is owned and controlled by Mandalay Resort Group, a Nevada corporation ("MRG"), hereby adopts the Silver Legacy Supplemental Executive Retirement Plan (the "Plan") for specified employees of the Company upon the terms and conditions set forth below. The Plan is effective on January 1, 2001. This Plan is adopted and is to be administered in connection with a related Trust to which amounts may be contributed hereunder. The funds of the Trust are and at all times will be subject to the claims of the general creditors of the Company in the event of the insolvency or bankruptcy of the Company, as provided in the Trust Agreement. It is intended that the Plan and Trust shall constitute an unfunded deferred compensation supplemental retirement arrangement for a select group of management or highly compensated employees for purposes of the Federal income tax laws and the Employee Retirement Income Security Act of 1974 ("ERISA"), and all documents, agreements or instruments made or given pursuant to the Plan shall be interpreted so as to effect such intent. 1. PURPOSE OF THE PLAN The purpose of this Plan is to attract and motivate key employees who render valuable services to the Company by: (i) improving the Company's overall compensation program and making it more competitive in the market; (ii) rewarding the loyalty of the most productive key employees of the Company; (iii) encouraging key employees by providing an attractive retirement benefit as a reward for continued service; (iv) providing an incentive for key employees to seek promotion within the Company; (v) offering a favorable recruiting tool for the hiring of key employees in mid-career; and (vi) providing a retirement incentive for key employees. 2. DEFINITIONS The capitalized terms defined in this Section 2 shall have the meanings set forth below: 2.1 Administrative Committee. The Administrative Committee of the Plan, as appointed from time to time by the Company. Initially, the Administrative Committee for the Tier II and Tier III participants in the Plan shall consist of a member of the Executive Committee of the Company elected by the Executive Committee, a person designated by the managing Partner of the company, and the General Manager. The Administrative Committee for Tier I participants shall consist of the Executive Committee of the Company. The Administrative Committee shall report to the Executive Committee each quarter. 2.2 Affiliate. Affiliate means with respect to any Person: (i) any Person directly or indirectly controlling, controlled by or under common control with such Person; or (ii) any other Person that owns beneficially, directly or indirectly, fifty percent (50%) or more of the outstanding capital stock, shares or equity interests of such Person; or (iii) any officer, director, general partner (or in the case of a limited liability company, manager) of such Person or any Person controlling or controlled by such Person. For purposes of this definition, the term "controls," "is controlled by," or "is under common control with" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. For the purposes of this Agreement, ELLC, ERL, Galleon and MRG are deemed Affiliates. 2.3 Beneficiary. The Beneficiary designated by the Participant to receive any Benefits due under the Plan after the Participants death. If no Beneficiary is designated, the Beneficiary shall be the Participant's surviving spouse or, if none, the Participant's estate. 2.4 Benefit. The benefits provided under this Plan. Benefit shall refer to the Normal Retirement Benefit, the Early Retirement Benefit, the Delayed Retirement Benefit, the Disability Benefit or the Death Benefit, as applicable. 2.5 Change of Control. A Change in Control of the Company shall mean: (i) any acquisition, beneficially or otherwise, by any Person (or any group of related Persons acting in concert) of more than fifty percent (50%) of the total combined voting power of the Company's then outstanding securities or more than fifty percent (50%) of partnership interests in the Company (a series of acquisitions by a Party shall be treated as a single transaction to the extent the aggregate number of securities and/or equity interests acquired in such a series exceeds fifty percent (50%); (ii) a merger, reorganization, divestiture, or consolidation in which the securities representing more than fifty percent (50%) of the total combined voting power of the Company's then outstanding securities, or more than fifty percent (50%) of the partnership interests of the Company are transferred to a Person or Persons; or (iii) the sale, transfer, or other disposition of all or substantially all of the Company's operating assets to any Person or Persons; provided, however, a "Change In Control" shall exclude customary lending transactions, transaction(s) between the existing partners of the Company, transaction(s) between existing partners and affiliates of that partner, transaction(s) between affiliate(s) of an existing partner with affiliates of another existing partner and any transaction whereby the existing parent entity of an existing partner, or an affiliate thereof, acquires, directly or indirectly, all or a portion of, the Company's then outstanding securities or partnership interests of another existing partner or an affiliate thereof. 2.6 Code. The Internal Revenue Code of 1986, as it may be amended from time to time. 2.7 Company. Circus and Eldorado Joint Venture, a Nevada general partnership, or any designated subsidiary, affiliate or successor corporation. 2.8 Compensation. Salary and bonus received by a Participant from the Company for a calendar year (or for such other period of 12 months as may be taken into account in determining Final Compensation) for his or her service as an employee, with bonus being no more than one hundred percent (100%) of salary for Tier II and III Participants and one hundred fifty percent (150%) of salary for Tier I Participants. In any year in which a Change of Control occurs, Compensation shall be annualized and used in the calculation of Final Compensation. 2.9 Disability. A mental or physical disability due to sickness or injury that renders a Participant permanently incapable of performing services as an employee of the Company. Evidence of disability satisfactory to the Administrative Committee will be required. 2.10 Early Retirement Age. Age 55. 2.11 Early Retirement Benefit. A Participant's Early Retirement Benefit is the Benefit payable to a Participant who has terminated employment with the Company and has attained an Early Retirement Date. A Participant's Early Retirement Benefit shall be determined by reducing the Participant's Normal Retirement Benefit by five percent (5%) for each year, and the fraction thereof, the Participant's Early Retirement Date precedes the Participant's attainment of age 60, up to a maximum reduction of 25% for any Early Retirement Benefit payable at the Early Retirement Age. 2.12 Early Retirement Date. A Participant's Early Retirement Date is the first day of the month immediately following the month in which both of the following events have occurred: the Participant's attainment of Early Retirement Age and the Participant's termination of employment with the Company. 2.13 Effective Date. The Plan is effective January 1, 2001. 2.14 Eligible Employee. An employee of the Company who meets the eligibility requirements of Section 3.1. 2.15 Executive Committee. The governing board of the Company. 2.16 Final Compensation. Final Compensation for any Participant shall be the highest total annual Compensation received by the Participant during any one of the following periods: Each of the Participant's last five (5) full calendar years with respect to which the Participant is credited with a Year of Service under the Plan (or such fewer number of full calendar years if the Participant has not been employed throughout five (5) full calendar years) and the 12 month period ending on the date of the Participant's termination of employment with the Company. 2.17 Normal Retirement Age. Age 65 2.18 Normal Retirement Benefit. A Participant's Normal Retirement Benefit is the annual Benefit payable to a Participant who terminates employment with the Company and has attained a Normal Retirement Date. A Participant's Normal Retirement Benefit is determined under Section 4. 2.19 Normal Retirement Date. A Participant's Normal Retirement Date is the first day of the month immediately following the month in which both of the following events have occurred: the Participant's attainment of Normal Retirement Age and the Participant's termination of employment with the Company. 2.20 Participant. Any Eligible Employee, current or former, who may receive benefits under the Plan. 2.21 Person. Person shall mean any individual, corporation, partnership, business trust, joint venture, association, joint stock company, limited liability company, trust, unincorporated organization or government or agency or political subdivision thereof. 2.22 Plan. This Silver Legacy Supplemental Executive Retirement Plan, as amended from time to time. 2.23 Plan Year. For the first Plan Year, the Plan Year will be the period from the date the Plan is approved by the Executive Committee to December 31, 2001. For subsequent Plan Years, the Plan Year will be the calendar year. 2.24 Trust. The Trust established in order to hold funds to provide the Benefits under this Plan. 2.25 Trust Agreement. The Trust Agreement, as amended from time to time, entered into between the Company and the Trustee with respect to the Trust. 2.26 Trustee. The trustee(s) of the Trust as designated by the Executive Committee. 2.27 Years of Service. A Year of Service for Vesting and Benefit accrual purposes shall mean twelve full months of service with the Company. An Eligible Employee shall be credited with a Year of Service for every twelve full months of employment with the Company. In determining Years of Service for these purposes, all Years of Service shall be taken into account except, with respect to those participants whose participation in the Plan commenced as of the date of the adoption of the Plan, Years of Service attributable to periods prior to January 1, 2001 shall be taken into account only up to a maximum of ten (10) Years of Service, and, with respect to those Participants whose participation in the Plan commenced or commences as of any date later than the date of the adoption of the Plan, Years of Service attributable to periods prior to such date of initial participation shall be taken into account only up to a maximum of ten (10) Years of Service. In determining Years of Service, partial years may be taken into account and aggregated in such a manner as the Administrative Committee determines is appropriate. The Administrative Committee, in its sole and absolute discretion, may include prior service with predecessor or acquired entities in determining Years of Service under the Plan and may make such other provisions for determining Years of Service for Participants on a case by case basis, as it determines, at its discretion, to be necessary or appropriate. 3. ELGIBILITY AND PARTICIPATION. 3.1 Eligible Employee. (a) An Eligible Employee is a manager or highly compensated employee who is selected by the Administrative Committee to participate in the Plan. Exhibit I summarizes the criteria that may be used by the Administrative Committee for selecting Eligible Employees for the initial Plan Year and identifying the Tier into which each Eligible Employee shall be placed. Such criteria may be changed by the Administrative Committee at any time and from time to time in its sole and absolute discretion. Notwithstanding anything contained herein to the contrary, no employee of the Company shall qualify as an Eligible Employee unless such employee is employed by the Company on or after the Effective Date on a substantially full-time basis. Whether an employee is employed on a full-time basis shall be determined by the Administrative Committee at it's discretion. (b) In all cases, the Administrative Committee's determination of eligibility and Tier level shall be final and binding on all persons. The Administrative Committee also may change an Eligible Employee from one Tier category to another or change an employee's status from eligible to ineligible; provided, however, that such a change shall not cause any vested benefits of such Eligible Employee to be reduced below the level of such Eligible Employee's Benefits determined immediately prior to the change in Tier category. (c) Each Eligible Employee who is an Eligible Employee on the Effective Date shall become a Participant in the Plan as of the Effective Date. Each Eligible Employee who becomes an Eligible Employee subsequent to the Effective Date shall become a Participant in the Plan of the first day of the month following the month in which such person becomes an Eligible Employee. 4. BENEFIT FORMULA. 4.1 Eligibility for Benefits. A Participant who is fully vested, as described in Section 5, shall be eligible to receive a Benefit under this Plan following his or her termination of employment with the Company. The amount, form and timing of a vested Participant's Benefit shall be determined in accordance with the terms of this Plan. 4.2 Amount of Benefit. An Eligible Employee's Normal Retirement Benefit payable under the Plan is an annual Benefit amount that shall be determined by multiplying the Eligible Employee's applicable percentage ("Applicable Percentage"), as determined from the following table based on the Eligible Employee's final Tier placement, times the Eligible Employee's Final Compensation.
Applicable Percentage ---------------------------------------------------------- Years of Service Tier I Tier II Tier III ---------------- ------ ------- -------- Less than four (4) 0% 0% 0% Four (4), but less than six (6) 20% 15% 5% Six (6), but less than eight (8) 25% 20% 10% Eight (8), but less than ten (10) 30% 25% 15% Ten (10), but less than twelve (12) 40% 30% 20% Twelve (12), but less than fourteen (14) 50% 35% 25% Fourteen (14) or more 60% 40% 30%
Notwithstanding the foregoing rule that the Applicable Percentage is determined by an Eligible Employee's final Tier placement, reduction in an Eligible Employee's Tier level shall not cause a reduction in the Eligible Employee's Applicable Percentage. Example (1): A Tier I Eligible Employee who has earned 10 Years of Service with the Company, who has reached his Normal Retirement Date and whose Final Compensation is $300,000 shall receive an annual Normal Retirement Benefit calculated under the following formula: 40% x $300,000 = $120,000 annual Benefit. Example (2): The Administrative Committee determines to change the status of an Eligible Employee who has earned 6 Years of Service from a Tier II to a Tier III Participant. At the time of the change in status, the Participant's applicable percentage was 20%. Following the change, the Participant's applicable status remains at 20% until the Participant earns 12 or more Years of Service, at which time the applicable percentage will be determined by reference to the schedule of applicable percentages for Tier III. 4.3 Subject to the provisions of Sections 5.1 and 5.2, or as otherwise approved by the Administrative Committee, an Eligible Employee who terminates employment with the Company prior to the Participant's Normal Retirement Age shall receive either the Early Retirement Benefit or the Normal Retirement Benefit as elected by the Participant. 4.4 A Participant who terminates employment with the Company after having attained the Normal Retirement Age shall receive a Delayed Retirement Benefit. A Delayed Retirement Benefit is payable upon a Participant's termination of employment with the Company. The Delayed Retirement Benefit for Tier II and Tier III Participants shall be equal to the Normal Retirement Benefit which would have been payable upon the Participant's Normal Retirement Age. The Delayed Retirement Benefit for Tier I Participants shall be determined based upon the Participant's Final Compensation and Years of Service at the Participant's actual termination of employment with the Company. 5. VESTING; FORFEITURE FOR COMPETITION. 5.1 Vesting. A Participant shall become fully vested in his or her Benefit under the Plan after the Participant has completed four (4) Years of Service. A Participant shall have no vested interest in Benefits under the Plan and shall receive no Benefits under the Plan prior to the Employee's completion of four (4) Years of Service. 5.2 Forfeiture for Competition. (a) Notwithstanding any provision of this Plan to the contrary except as specifically provided for in Sections 5.2(b) and 5.2(c), no Participant shall directly or indirectly engage in activities (similar or reasonably related to those in which the Participant engaged as an employee of the Company during the two years immediately preceding the termination of the Participant's employment with the Company) or render services (similar or reasonably related to those the Participant rendered to the Company during such two years), in either case with or to any firm or business organization which directly competes with the Company in any line of business engaged in (or planned to be engaged in) by the Company, whether now existing or hereafter established, or engage in such activities or render such services to any other person or entity engaged or about to become engaged in such activities to, for, or on behalf of, any such firm or business organization, or entice, induce or encourage any of the Company's other employees to engage in any activity which, were it done by the Participant, would violate this Section 5.2(a) or would violate any provision of any proprietary information agreement entered between the Participant and the Company. Any Participant who violates the provisions of this Section 5.2(a) shall forfeit Benefits under this Plan as follows: (i) a Participant who receives a lump sum payment under this Plan shall be obligated to restore such lump sum to the Plan upon engaging in any of the prohibited activities described above; and, (ii) a Participant who receives a form of benefit under the Plan other than a lump sum shall received no further payments of Benefits from the Plan following the date of the Company becomes aware that the Participant has engaged in any of the prohibited activities described above and shall be obligated to restore to the Plan any Benefits paid to the Participant prior to the date the Company became aware that the Participant has engaged in any of the prohibited activities described above. (b) Notwithstanding the foregoing, the Company may grant to a Participant written approval(s) to engage personally in any activity or render services referred to in Section 5.2(a) if it secures written assurances (satisfactory to the Company and its counsel) from the Participant and from the prospective employer(s) that the integrity of any proprietary information agreement entered into between the Participant and the Company will not in any way be jeopardized by such activities, provided the burden of so establishing the foregoing to the satisfaction of the Company and said counsel shall be upon the Participant and the Participant's prospective employer(s). (c) If, following the occurrence of a Change of Control, (i) the Company terminates a Participant's employment without Cause (as hereinafter defined), or (ii) a Participant terminates his or her employment with the Company for Good Reason (as hereinafter defined), such Participant shall not be subject to a forfeiture of benefits under Section 5.2(a). For purposes of this Section 5.2(c), the terms "Cause" and "Good Reason" shall have the following meanings: "Cause" shall mean fraud, misappropriation, embezzlement, or other act of material misconduct against the Company or any of its affiliates; substantial and willful failure to perform specific and lawful directives of the Executive Committee or of a supervisor; willful and knowing violation of any rules or regulations of any governmental or regulatory body, which may be materially injurious to the financial condition of the Company; conviction of or plea of guilty or nolo contendere to any felony; or any loss by the Participant of any personal gaming or related regulatory approval or license required to perform his or her duties. "Good Reason" shall mean a demotion of the Participant such that the Participant's overall annual compensation is forty percent (40%) less than his or her overall compensation for the one-year period ending on the date of the Change of Control; a reduction in the Participant's annual base salary in effect immediately prior to the Change of control by more than fifteen percent (15%); a change in the Participant's site of principal employment to a location that is more than 50 miles from the location at which he or she was principally employed immediately prior to the date of the Change of Control (not including required travel on the Company's business to an extent substantially consistent with the Participant's business travel obligations immediately prior to the Change of Control); any failure by the Company to pay to the Participant any portion of his or her compensation within fifteen (15) days of the date such compensation is due; or any failure of the Company to obtain the unqualified agreement from any successor to assume or adopt this Plan. Notwithstanding the foregoing, no event enumerated above shall constitute Good Reason if the Participant gives his or her express written consent to such change in the terms of his or her employment. In the event there is, following the occurrence of a Change of Control, any dispute between the Company and a Participant with respect to the provisions of this Section 5.2(c), such dispute shall not be subject to the claims procedures set forth in the Plan, but shall be settled by binding arbitration between the Participant and the Company in Reno, Nevada, before a panel of three (3) arbitrators pursuant to the rules and procedures of the American Arbitration Association in effect from time to time, or as otherwise may be agreed by the Participant and the Company. The arbitrators shall be as mutually agreed to by the Employer and the Participant, or as otherwise determined by the rules and procedures of the American Arbitration Association absent such agreement. The arbitrators shall render an opinion in writing setting forth the basis of their decision which shall be final and binding upon the parties hereto. The parties hereto specifically agree that neither party may appeal or subject the award or decision of any such arbitrator to appeal or review in any court of law or in equity or by any other tribunal, arbitration system, or otherwise. Judgment upon any award granted by such an arbitrator may be enforced in any court having jurisdiction thereof. (d) Notwithstanding anything set forth to the contrary in the preceding paragraphs of this Section 5.2, the Committee has the authority under this paragraph 5.2 (d) and under the general provisions for the administrative discretion of the Committee, as set forth in Section 8.3, to require the forfeiture of benefits otherwise payable under the terms of the Plan to any Participant who is determined by the Committee to have been discharged for cause or who may have engaged in any act or acts of disloyalty to the Company, which acts include, but are not limited to, fraud, embezzlement, theft, commission of a felony or any other act of dishonesty in the course of his or her employment, and any such act (whether committed during or following such Participant's employment with the Company) shall be treated for purposes of the plan in the same manner as any act that would otherwise constitute a violation of Section 5.2(a). 6. BENEFIT PAYMENT FORMS. 6.1 Retirement Benefits. A Participant shall elect the form in which the Participant's Benefit shall be distributed. If the Participant does not elect a distribution form, the Participant shall be deemed to have elected the Normal Retirement Benefit or Single Life Annuity, as defined below: 6.2 (a) Benefit Distribution Forms. A Participant may elect a distribution form from among the following forms of distribution: (i) Normal Retirement Benefit/Single Life Annuity. The Normal Retirement Benefit is the amount of the Participant's annual Benefit paid in equal quarterly installments for the life of the Participant, commencing on the first day of the calendar quarter coincident with or next following the Participant's Normal Retirement Date. Under the Normal Retirement Benefit, no Benefits shall be paid to any Beneficiary following the death of the Participant. (ii) Single Life Annuity. A Participant who retires on or after attainment of age 60 shall, absent an election to receive an Optional Form of Benefit, receive a Single Life Annuity determined using the formula set forth in the Plan (based only upon years of service, compensation and Tier), with no reduction for commencement prior to age 65. A Participant who retires before attainment of age 60 (but on or after attainment of age 55), shall, absent an election to receive an Optional Form of Benefit, receive a Single Life Annuity first determined under the formula set forth in the Plan and then reduced by the appropriate percentage described in Section 2.10 (e.g., 15% reduction if commencement is at age 57). Example: A Participant retiring with $300,000 Final Compensation and a 60% benefit level will have a Normal Retirement Benefit of $180,000 per year for life commencing at age 65. The Single Life Annuity payable to this Participant on retirement at age 60 would also be $180,000 per year for life, commencing at age 60. The Single Life Annuity payable to this Participant as an Early Retirement Benefit at age 55, would be $135,000 ($180,000 reduced by 5% per year of early retirement, 5 years, or 25%) per year for life commencing at age 55. (b) Optional Forms of Benefits. The Optional Forms of Benefit are described in this Section 6.2(b). Each Optional Form of Benefit shall be actuarially adjusted as described below: (i) Joint and Survivor Annuity. This Optional Form of Benefit is the Actuarial Equivalent of the Participant's Single Life Annuity as determined under Section 6.2(a)(i) paid in equal quarterly installments for the life of the Participant and after the Participant's death, a 50%, 75% or 100% continuation of such Benefit, as elected by the Participant, payable to the Participant's Beneficiary for life. (ii) Life Annuity with Term Certain. This Optional Form of Benefit is the Actuarial Equivalent of the Participant's Single Life Annuity as determined under Section 6.2 (a)(i) paid in equal quarterly installments for the life of the Participant with fixed payments over a period of 5, 10, 15, or 20 years, as elected by the Participant. (iii) Lump Sum. This Optional Form of Benefit pays a single Lump Sum to the Participant and is available only at the discretion of the Administrative Committee. The amount of this benefit payment shall be the Actuarial Equivalent of the Participant's Normal Retirement Benefit as determined in accordance with Sections 6.2(b)(vi) and 6.2(c). Example: Assume a Participant retires and elects a Lump Sum benefit at age 60, with $300,000 of Final Compensation and a 60% benefit level. The Normal Retirement Benefit of $180,000 per year commencing at age 65 would have a present value (determined as of the date the Participant would attain age 65 and assuming survival until age 65) of approximately $1,728,000. At age 60, this would have a present value of approximately $1,291,000 (reflecting a 6% discount rate over 5 years). (iv) Estate Preservation Alternative. A Participant may enter into such agreements or other documents as may be required by the Company in order to have the Participant's Benefit applied to the purchase of a life insurance policy or policies. If the Participant elects such life insurance alternative form of distribution, the Participant's Benefit payable under the Plan shall be determined by the terms of such agreements and documents, including, without limitation, the life insurance policy, and shall not be determined under the formulas specified in this Section 6. This Estate Preservation Alternative is available only at the discretion of the Administrative Committee and shall have a present value that is the Actuarial Equivalent of the Participant's Normal Retirement Benefit as determined in accordance with Sections 6.2(b)(vi) and 6.2(c). (v) Other Forms of Payment. Tier I Participants may request from the Administrative Committee, pursuant to Section 6.1, prior to the Participant's termination of employment, approval of a method of payment different from those listed in Section 6.2(a) or (b), which method of payment must be the Actuarial Equivalent of the Participant's Normal Retirement Benefit as determined in accordance with Sections 6.2(b)(vi) and 6.2(c) and must consist of substantially equal annual or quarterly payments over a period of no less than five (5) years. Such approval shall be within the full discretion of the Administrative Committee. (vi) Lump-Sum, Estate Preservation, Other Forms of Payment. These benefit forms are to be payable by first determining the amount of the benefit that would be payable as the Normal Retirement Benefit using the Participant's years of service, compensation and Tier. Where the calculation is determined with reference to a payment date prior to attainment by the Participant of age 65, the future value (using the Actuarial Equivalence assumptions in effect under the Plan as of the date of determination) of the Normal Retirement Benefit (determined as of the first date it would be payable following the attainment of age 65 by the Participant) is determined, and then reduced to a present value using the discount rate in effect under the Plan as of the date of determination (initially, 6%). This present value is the amount of the Lump Sum, the amount that would be payable for the purchase of an insurance policy (under the Estate Preservation form of benefit), or the amount used to determine the installment payments payable under Sections 6.2(b)(v). Example: Assume a Participant retires and elects an installment payment of his or her benefit in the form of 10 equal annual payments commencing at age 55, with $300,000 of Final Compensation and a 60% benefit level. Step 1 Calculate the Participant's Normal Retirement Benefit commencing at age 65. This will be an annual benefit of $180,000. Step 2 - Determine the value of the Normal Retirement Benefit at age 65 using the Plan's Actuarial Equivalence assumption then in effect. This equals approximately $1,728,000. Step 3 - Discount this amount at 6% per year to reflect the payment at age 55, 10 years before the assumed commencement date of the Participant's Normal Retirement Benefit. This yields a present value of approximately $964,000 at age 55. Step 4 - Determine the installment payments needed to amortize this amount over 10 years using a 6% factor. The annual payment equals approximately $123,000. (c) Actuarial Equivalence. For the purpose of calculating the Optional Forms of Benefit in Sections 6.2(b)(i) and (ii), Actuarial Equivalent shall be determined by using a discount rate and a mortality assumption adopted from time to time by the Administrative Committee. The initial factors to be used are a discount rate of 6% and a mortality assumption based upon the 1984 Uniform Pension Mortality Table. For the purpose of calculating the Optional Forms of Benefit in Sections 6.2(b)(iii), (iv) and (v), Actuarial Equivalent shall be determined by calculating the present value of the Normal Retirement Benefit as of the date the Participant would attain age 65 and assuming the survival until age 65, using the discount rate and mortality assumption identified in this Section 6(c), and then reducing that amount to a present value by using the discount rate in effect for this purpose under the Plan (initially, 6%). Where Actuarial Equivalent is determined with respect to an Optional Form of Benefit that is payable after the attainment by a Participant of age 65, the determination shall be made by reference to the Normal Retirement Benefit that would be payable to such Participant if no Optional Form of Benefit had been elected. 6.3 Time of Payment of Benefits Following Termination of Employment. (a) General Rule for Time Payments. A Participant who has a ------------------------------ vested interest in his or her Benefits under the Plan and who has terminated his or her employment with the Company prior to attaining age 60 shall, unless an alternative election concerning commencement of benefits has been validly and timely made, commence receiving Benefits upon the first day of the calendar quarter next following the Participant's attainment of age 60. A Participant who has a vested interest in his or her Benefits under the Plan and has attained age 60 as of his or her termination of employment with the Company shall commence receiving his or her Benefits as of the first day of the calendar quarter next following his or her termination of employment. A Participant shall be permitted to elect an alternate date as of which his or her Benefits are to commence; provided, however, that any such alternate commencement date shall not be earlier than the first day of the calendar quarter next following the Participant's Early Retirement Date, and provided, further, that any election of an alternate date for the commencement of benefits may be made by filing a written election with the Administrative Committee at least one year before both the date on which Benefit Payments would commence to be paid but for such written election and at least one year before the date Benefit Payments would commence pursuant to such written election. (b) Examples. If a Participant were to elect in writing upon -------- first becoming a Participant to have distribution of his or her Benefits commence as soon as permissible following termination of employment, and then terminates employment with a vested benefit having attained age 58, the Benefits payable to such Participant would commence to be distributed as of the first day of the calendar quarter following his or her termination of employment, and would be payable with a reduction to the periodic payment to take into account the commencement of payment prior to attaining age 60. If this same Participant files a new election in writing requesting that distribution of Benefits not commence until the first calendar quarter following the later of his or her attainment of age 60 or termination of employment, but filed this election only one month prior to terminating employment at age 58, Benefits payable under the Plan would commence to be distributed to the Participant as of the first day of the calendar quarter following termination of employment (i.e., the latter election would be disregarded) because the election was not filed one year prior to the date distribution of Benefits would have commenced but for the election. The original election, therefore, continues in effect without change. In contrast, if the later election were filed one year before the date on which the Participant terminates employment at age 58, distribution of Benefits would be deferred until the first day of the calendar quarter following the Participant's attainment of age 60, and would be paid without reduction to the periodic payments. (c) Discretion of Administrative Committee. -------------------------------------- Notwithstanding the foregoing, the Administrative Committee, in its sole discretion, and in accordance with section 8, may cause the benefits to be payable to a participant at an earlier or later date. 6.4 Disability Benefits. (a) If a Participant terminates employment with the Company prior to Normal Retirement Age as a result of the Participant's Disability, the Participant shall receive a Disability Benefit. The Disability Benefit payments shall commence on the first day of the calendar quarter coincident with or next following the date the Participant terminates or attains the Early Retirement Date, whichever is later. The Participant's Disability Benefit shall be calculated in the same manner as the Participant's Normal Retirement Benefit and shall be paid in the Normal Form of Benefit, unless the Participant previously elected, in accordance with Section 6.2, an alternate form of distribution. (b) If a Participant terminates employment with the Company as a result of the Participant's Disability coincident with or following the attainment of the Participant's Normal Retirement Age, the Participant's Disability Benefit shall be calculated in the same manner as the Participant Normal Retirement Benefit and shall be paid in the Normal Form of Benefit unless the Participant previously elected, in accordance with Section 6.2, an alternate form of distribution. The amount of the payments made to a Participant who has terminated employment as a result of his or her Disability shall not be subject to any reduction on account of the commencement of such payments prior to such Participant's Normal Retirement Age. (c) Notwithstanding the foregoing, no Participant shall be eligible for any Disability Benefit unless such Participant is fully vested under the Plan as of the date such Participant's employment terminates as a result of his or her Disability. In addition, for purposes of benefits payable as Disability Benefits under this Section 6.4, the Normal Form of Benefit payable to a disabled Participant who has made no election as to any alternative form of Benefit prior to his or her termination of employment on account of Disability shall, with respect to an unmarried Participant, be a Single Life Annuity as described in Section 6.2(a), and shall, with respect to a married Participant, be a 100% Joint and Survivor Annuity as described in Section 6.2(b)(i), with participant's spouse as the beneficiary. (d) If a Participant who has terminated employment with the Company as a result of his or her Disability ceases to suffer from a Disability on or after attainment of age 60, his or her Benefit shall continue to be paid without any adjustment. If a Participant who has terminated employment with the Company as a result of his or her Disability ceases to suffer from a Disability, as determined at the discretion of the Administrative Committee, prior to attainment of age 60, the Benefit payable to such Participant shall be adjusted on a prospective basis as follows: (i) If Disability Benefit payments have not already commenced, the Participant shall be paid in the same form of benefit as elected or otherwise paid under the provisions of this Section 6.4, but shall be adjusted in amount so as to be equal to the Benefit payment that would be made if the Participant had terminated his or her employment as of the date the Administrative Committee has determined the Participant's Disability ceased, with the Applicable Percentage and Final Compensation determined as of the date the Participant actually terminated employment as a result of his or her Disability. In all other respects, the Participant's Benefit shall be subject to all of the terms and conditions of the Plan, including but not limited to the provisions of Section 5.2 relating to Forfeiture for Competition. (ii) If Disability Benefit payments have already commenced in the Normal Form of Benefit as defined for purposes of this Section 6.4, the Benefit payments made on or after the date the Administrative Committee has determined the Participant's Disability ceased, shall be adjusted so that each such Benefit payment shall be equal to the amount that would have been payable under the Plan if the Participant had terminated employment as of the date his or her Disability is determined to have ceased with the Applicable Percentage and Final Compensation determined as of the date the Participant actually terminated employment as a result of his or her Disability, with commencement of Benefit payments immediately thereafter. In all other respects, the Participant's Benefit shall be subject to all of the terms and conditions of the Plan, including but not limited to the provisions of Section 5.2 relating to Forfeiture for Competition. (iii) If any Participant who has terminated his or her employment as a result of a Disability returns to employment, such Participant shall thereafter have no rights to any Disability Benefit unless his or her employment terminates subsequent to such reemployment under conditions that are determined to create a right to a Disability Benefit at that time. Any such re-employed Participant shall have his or her benefits determined under the Provisions of the Plan as generally applicable to Participants who have not terminated employment as a result of a Disability. No reduction in benefit payments shall be made on account of Disability Benefits, if any, paid to a Participant prior to his or her reemployment. 6.5 Death Benefits. If a Participant dies prior to or while receiving Benefits hereunder, Benefits, if any, shall be paid to the Participant's Beneficiary as follows: (a) If a Participant who is Vested in his or her Benefit under the Plan dies prior to terminating employment with the Company, a Lump Sum payment which is the Actuarial Equivalent of the Participant's Normal Retirement Benefit, shall be paid to the Participant's Beneficiary. (b) If a Participant dies after the Participant terminates employment with the Company, the death Benefit payable to the Participant's Beneficiary shall be determined by the distribution form of Benefit previously elected by the Participant. For this purpose, the Participant, if not yet in pay status at the time of his or her death, shall be deemed to have commenced receiving distributions on the day prior to the date of his or her death. 6.6 Section 280G Adjustments. (a) Notwithstanding any other provision of this Plan to the contrary, if any distribution received or to be received by a Participant pursuant to the Plan ("Distribution") would (i) constitute a "parachute payment" within the meaning of Section 280G of the Code and (ii) but for this subsection (a), be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then, subject to the provisions of subsection (b) hereof, such Distribution shall be reduced to the largest amount which the Participant, in his or her sole discretion, determines would result in no portion of the Distribution being subject to the Excise Tax. The determination by a Participant of any required reduction pursuant to this subsection (a) shall be conclusive and binding upon the Company. The Company shall reduce a Distribution in accordance with this subsection (a) only upon written notice by the Participant indicating the amount of such reduction, if any. If the Internal Revenue Service (the "IRS") determines that a Distribution is subject to the Excise Tax, then subsection (b) hereof shall apply, and the enforcement of subsection (b) shall be the exclusive remedy to the Company for a failure by the Participant to reduce the Distribution so that no portion thereof is subject to the Excise Tax. (b) If, notwithstanding any reduction described in subsection (a) hereof (or in the absence of any such reduction), the IRS determines that a Participant is liable for the Excise Tax as a result of the receipt of a Distribution, then the Participant shall be obligated to pay back to the Company, within 30 days after final IRS determination, an amount of the Distribution equal to the "Repayment Amount". The Repayment Amount with respect to a Distribution shall be the smallest such amount, if any, as shall be required to be paid to the Company so that the Participant's net proceeds with respect to any Distribution (after taking into account the payment of the Excise Tax imposed on such Distribution) shall be maximized. Notwithstanding the foregoing, the Repayment Amount with respect to a Distribution shall be zero if a Repayment Amount of more than zero would not eliminate the Excise Tax imposed on such Distribution. If the Excise Tax is not eliminated pursuant to this subsection (b), the Participant shall pay the Excise Tax. 7. SOURCE OF BENEFITS. 7.1 Benefits payable under this Plan shall be paid out of the Trust except to the extent such Benefits are paid by the Company out of the Company's general assets. 7.2 Notwithstanding any other provisions of this Plan or the Trust Agreement, the assets of the Trust are subject to the claims of the general creditors of the Company to the extent provided in the Trust Agreement. Participants shall have no preferred claim on or beneficial ownership interest in any Trust assets prior to the time actual payments of Benefits are received, and all rights of the Participants to Benefits are mere unsecured contractual rights against the Company. Except in the event of a Change of Control, as set forth in Section 10, the Company has no duty or obligation to fund the Trust. The Company may, however, in its discretion, make contributions of cash or property to the Trust in such amounts and from time to time as the Company shall determine. 8. ADMINISTRATION. 8.1 General. This Plan shall be administered by the Administrative Committee, which shall exercise all administrative powers and duties under the Plan in accordance with the terms and purposes of the Plan and the Trust Agreement, including, without limitation, the authority to amend or terminate the Plan. The Administrative Committee shall determine the amount of the Benefits due to or on behalf of each Participant of Beneficiary from this Plan and shall cause them to be paid accordingly. The Administrative Committee shall have the power to employ agents, attorneys, accountants or other persons (who also may be employed by the Company) and to allocate or delegate to them such powers, rights and duties as the Administrative Committee may consider necessary or advisable to properly carry out administration of the Plan, provided that such allocation or delegation and the acceptance thereof by such agents, attorneys, accountants or other person, shall be in writing. 8.2 Procedures. The Administrative Committee may adopt such rules and regulations not inconsistent with the provisions of the Plan as it deems necessary or appropriate for the proper administration of the Plan and shall have the authority, in its sole and absolute discretion, to interpret and construe any provision of the Plan. All such rules, regulations, interpretations and constructions shall be final and binding on all Participants and their legal representatives, beneficiaries, successors, and assigns, subject to review as provided in Section 8.4. 8.3 Administrative Committee Discretion. Notwithstanding anything set forth in the Plan to the contrary, the Administrative Committee shall have the right, at its sole discretion, to impose any conditions it deems appropriate, or to make any modifications it deems appropriate, with respect to the manner in which any individual participates in the Plan, which discretion shall include, but is not limited to, the right to modify the manner in which a Participant's service for either Vesting or for Benefit accrual is determined, to impose individual conditions which are required to be met prior to the payment of any Benefits under the Plan, the establishment of events which, with respect to any individual or any group of Participants, shall be events of forfeiture, the occurrence of which shall result in a forfeiture of all or a portion of the Benefits otherwise payable to a Participant or Participants; provided, however, that no change in the terms of a Participant's participation in the Plan shall be applicable to any Benefits that have accrued prior to the date such change is made by the Administrative Committee. 8.4 Claims. A submission of a written request for Benefits by the Participant of a Beneficiary (the "Claimant") will constitute a claim. If, after review, the claim is approved, the Benefits will be distributed as provided in the Plan. If the claim is denied in whole or in part, the Company will notify the Claimant in writing within 90 days after receiving the claim. In this event, the Company will provide the specific reasons for its decision and references to the Plan provisions on which the decision is based. The Company also will specify any additional information or material that must be submitted to prove the claim and explain how to appeal a denied claim. While the Company ordinarily has 90 days after receipt of a claim to respond in writing, there may be times when the Company requires more time to process the claim. Should this situation occur, the Company will notify the Claimant within the initial 90-day period that the Company requires an extension of time to make its decision. However, the extension of time will not exceed an additional 90 days from the end of the initial 90-day period. If the Claimant has not received a response from the Company within 90 days or any extension of such period, the Claimant may treat the claim as denied, and the Claimant may appeal and seek a review of the claim. Should a claim for Benefits be denied, or deemed denied, in whole or in part, the Claimant may appeal the denial by submitting a written request for review to the Company after receiving the denial (or the deemed denial). The written request should set forth all the grounds on which it is based. The Claimant, or the Claimant's representative, also may review pertinent Plan documents and submit issues and comments in writing to the Company. The Company will review the appeal, and will notify the Claimant of its decision in writing, ordinarily within 60 days. There may be times when the Company will require more time to review an appeal. If this happens, the Claimant will be notified within the initial 60-day period that the Company requires an extension of time to make its decision. The extension will be no longer than 120 days after receipt of the appeal. The Company's written response to the appeal will give the reasons for its decision and references to Plan provisions on which the decision is based. 8.5 Indemnification. To the extent permitted by applicable state law, the Company shall indemnify and save harmless the Administrative Committee and each member thereof, the Executive Committee and any delegate of the Administrative Committee who is an employee of the Company against any and all expenses, liabilities and claims, including legal fees to defend against such liabilities and claims arising out of their discharge in good faith of responsibilities under or incident to the Plan, other than expenses and liabilities arising out of willful misconduct or gross negligence. This indemnity shall not preclude such further indemnities as may be available under insurance purchased by the Company or provided by the Company under any bylaw, agreement or otherwise, as such indemnities are permitted under state law. 9. AMENDMENT AND TERMINATION. 9.1 Amendment or Termination. While the Company intends and expects the Plan to continue to fulfill its purposes and serve the best interests of the Company in its present form, the Company reserves the right to amend or terminate the Plan at any time, subject o the provisions of Section 9.2 and Section 10. The Company has delegated to the Administrative Committee the authority to amend or terminate the Plan. 9.2 Accrued Benefits. No termination of the Plan or Trust Agreement or any amendments thereto which affect Benefits under the Plan shall, without the written consent of a Participant, eliminate or reduce any Benefit of the Participant under the Plan to which, as of the date of such termination or amendment, such Participant would be entitled under the provisions of the Plan had he or she terminated employment with the Company immediately prior to such date. 10. CHANGE OF CONTROL OF THE COMPANY. In the event of a Change of Control of the Company, the Company shall make a contribution to the Trust in an amount necessary to fully fund the Trust in order to pay each Participant his or her Normal Retirement Benefit. For this full funding calculation, each Participant shall be deemed to have continued employment with the Company to the Participant's Normal Retirement Age (taking into account for this full funding calculation the Participant's enhanced Benefit as described in the next sentence). In addition, each Tier II and Tier III Participant in the Plan, as of the effective date of the Change of Control, shall receive enhanced Benefits under the Plan calculated as if the Participant had earned two additional Years of Service as of the effective date of the Change of Control. For example, if, upon the effective date of a Change of Control, a Participant has earned six (6) Years of Service, the Participant's Benefit shall, for all purposes under this Plan, effective as of and following the effective date of the Change of Control, be calculated as if the Participant had earned two (2) additional Years of Service. Each Tier I Participant in the Plan, as of the effective date of the Change of Control, shall receive Benefits determined at the Applicable Rate of sixty percent (60%). For purposes of this Section 10, a Participant's Tier level shall be determined as of the effective date of the Change of Control. In any event, no Change of Control shall, without the written consent of a Participant, eliminate or reduce any Benefit to which such Participant otherwise would be entitled under the terms of the Plan. For purposes of this paragraph, such Benefits shall be calculated as if the Participant had terminated employment as of the effective date of the Change of Control. 11. MISCELLANEOUS. 11.1 No Right to Continued Employment. Nothing contained in this Plan or in any agreement or instrument executed pursuant to the Plan shall be construed as conferring upon any Participant the right to continued employment with the Company or to interfere with the right of the Company to discharge any employee or any other person at any time or for any reason, which right is hereby reserved. 11.2 Successors and Assigns. This Plan shall be binding upon the Company and its successors and assigns. 11.3 Assignment or Alienation. Benefits of Participants under this Plan may not be anticipated, assigned (either by law or in equity), transferred, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process. 11.4 Headings. The headings herein are for reference only. In the event of a conflict between a heading and content of a Section of this Plan, the content of the Section shall control. 11.5 Gender and Number. Whenever used herein, the masculine shall be interpreted to include the feminine and neuter, the neuter to include the masculine and feminine, the singular to include the plural and the plural to include the singular, unless the context requires otherwise. 11.6 Governing Law. The place of administration of this Plan shall conclusively be deemed to be within the State of Nevada, and the Plan shall be governed by and in all respects construed in accordance with the substantive laws of the State of Nevada, except where such laws are superseded by applicable federal laws. IN WITNESS WHEREOF, the Company has executed this Plan effective as of January 1, 2001. CIRCUS AND ELDORADO JOINT VENTURE By: /s/ Gary Carano ------------------------------ Gary Carano EXHIBIT I SILVER LEGACY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Proposed Schedule of Eligibility Criteria for Initial 2001 Plan Year. The criteria presented in this Exhibit I may be used by the Administrative Committee for selecting Eligible Employees for the Plan's initial 2001 year. The Administrative Committee reserves the right to change the criteria presented in this Exhibit I at any time and from time to time, in its sole and absolute discretion. (a) Eligible Employees shall be classified as Tier I Eligible Employees, Tier II Eligible Employees or Tier III Eligible Employees. (i) Tier I Eligible Employees shall consist generally of employees who are Executive or Senior Vice Presidents or above, the General Manager of the Company and certain other key executives, in any case having total annual Compensation of not less than $250,000. (ii) Tier II Eligible Employees shall consist generally of employees who are major Department Heads, and other executive employees who are designated by the Administrative Committee as eligible to participate in the Plan at the Tier II level, in any case having a total annual Compensation of not less than $100,000. (iii) Tier III Eligible Employees shall consist generally of other Department Heads having total annual Compensation of not less than $100,000. EX-12 9 dex12.txt COMPUTATION Exhibit 12 Circus and Eldorado Joint Venture Computation of Ratio of Earnings to Fixed Charges (amounts in thousands)
Fiscal Years Ended December 31, ---------------------------------------------------------------- 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- Net income before cumulative effect of change in accounting principle 9,715 9,949 16,083 21,770 21,447 Fixed Charges: Interest Expense 20,998 18,584 16,172 15,473 13,187 Rentals representing an interest factor (1/3 of operating rental expense) 193 127 125 161 183 ---------------------------------------------------------------- Earnings as defined 30,906 28,660 32,380 37,404 34,817 ================================================================ Fixed Charges: Interest Expense 20,998 18,584 16,172 15,473 13,187 Rentals representing an interest factor (1/3 of operating rental expense) 193 127 125 161 183 ---------------------------------------------------------------- Fixed Charges as defined 21,191 18,711 16,297 15,634 13,370 ================================================================ Ratio of Earnings to Fixed Charges 1.5 1.5 2.0 2.4 2.6 ================================================================
EX-21 10 dex21.txt SUBSIDIARIES OF REGISTRANTS Exhibit 21 ---------- Subsidiaries of Circus and Eldorado Joint Venture - ------------------------------------------------- Silver Legacy Capital Corp., a Nevada corporation Subsidiaries of Silver Legacy Capital Corp. - ------------------------------------------- None EX-23.3 11 dex233.txt CONSENT OF ARTHUR ANDERSEN LLP Exhibit 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report (and to all references to our Firm) included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Las Vegas, Nevada April 24, 2002 EX-25 12 dex25.txt STATEMENT OF ELIGIBILITY Exhibit 25 FORM T-1 ============================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________ STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE _________________ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) _______ _________________ THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip Code) _________________ Circus and Eldorado Joint Venture Silver Legacy Capital Corp. Nevada 88-0310787 71-0868362 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 407 North Virginia Street Reno, Nevada 89501 (Address of principal executive offices) (Zip Code) 10 1/8% Series B Mortgage Notes due 2012 (Title of the indenture securities) ============================================ -2- 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. - -------------------------------------------------------------------------------- Name Address - -------------------------------------------------------------------------------- Superintendent of Banks of the 2 Rector Street, State of New York New York, N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 and rule 24 of the Commission's Rules of Practice. 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1, filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) -3- 4. A copy of the existing By-Laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019). 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 11th day of April, 2002. THE BANK OF NEW YORK By: /s/ Terence Rawlins -------------------------- Terence Rawlins Authorized Signer EXHIBIT 7 to T-1 ---------------- ________________________________________________________________________________ Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business December 31, 2001, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts ASSETS In Thousands Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ....................... $ 3,163,218 Interest-bearing balances ................................................ 5,923,554 Securities: Held-to-maturity securities .............................................. 1,210,537 Available-for-sale securities ............................................ 9,596,941 Federal funds sold and Securities purchased under agreements to resell ..................................................... 4,723,579 Loans and lease financing receivables: Loans and leases held for sale ........................................... 1,104,560 Loans and leases, net of unearned income ................................. 36,204,516 LESS: Allowance for loan and lease losses ................................ 608,227 Loans and leases, net of unearned income and allowance ................... 35,596,289 Trading Assets .............................................................. 8,039,857 Premises and fixed assets (including capitalized leases) .................... 836,786 Other real estate owned ..................................................... 1,292 Investments in unconsolidated subsidiaries and associated companies.......... 207,616 Customers' liability to this bank on acceptances outstanding ................ 292,295 Intangible assets Goodwill ................................................................. 1,579,965 Other intangible assets .................................................. 18,971 Other assets ................................................................ 5,723,285 ===========
Total assets ......................................................................... $78,018,745 =========== LIABILITIES Deposits: In domestic offices ............................................................... $28,786,182 Noninterest-bearing ............................................................... 12,264,352 Interest-bearing .................................................................. 16,521,830 In foreign offices, Edge and Agreement subsidiaries, and IBFs .......................................................... 27,024,257 Noninterest-bearing ............................................................... 407,933 Interest-bearing .................................................................. 26,616,325 Federal funds purchased and securities sold under agreements to repurchase ........... 1,872,762 Trading liabilities .................................................................. 2,181,529 Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases) ......... 1,692,630 Bank's liability on acceptances executed and outstanding ............................. 336,900 Subordinated notes and debentures .................................................... 1,940,000 Other liabilities .................................................................... 7,217,748 ----------- Total liabilities .................................................................... $71,052,008 =========== EQUITY CAPITAL Common stock ......................................................................... 1,135,284 Surplus .............................................................................. 1,050,729 Retained earnings .................................................................... 4,266,676 Accumulated other comprehensive income ............................................... 13,733 Other equity capital components ...................................................... 0 ----------- Total equity capital ................................................................. 6,466,422 ----------- Total liabilities and equity capital ................................................. $78,015,745 ===========
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro, Senior Vice President and Comptroller We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Renyi Gerald L. Hassell Alan R. Griffith Directors ________________________________________________________________________________ EX-99.1 13 dex991.txt FORM OF LETTER OF TRANSMITTAL Exhibit 99.1 LETTER OF TRANSMITTAL With Respect to Tender of Any and All Outstanding 10 1/8% Mortgage Notes due 2012 In Exchange For 10 1/8% Mortgage Notes due 2012 of CIRCUS AND ELDORADO JOINT VENTURE and SILVER LEGACY CAPITAL CORP. Pursuant to the Prospectus dated , 2002 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2002, UNLESS EXTENDED (SUCH TIME AND DATE, AS THE SAME MAY BE EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. The Exchange Agent is: THE BANK OF NEW YORK By Registered or Facsimile Transactions: By Hand or Overnight Certified Mail: (Eligible Institutions Delivery: The Bank of New York Only) The Bank of New York Corporate Trust Department (212) 235-2261 Corporate Trust Department Reorganization Unit Reorganization Unit To Confirm by Telephone 15 Broad Street, 16th or for Information Call: 15 Broad Street, 16th Floor (212) 235-2354 Floor New York, New York 10007 New York, New York 10007 Attn: Ms. Carolle Attn: Ms. Carolle Montreuil Montreuil Delivery of this Letter of Transmittal to an address other than as set forth above or transmission to a facsimile number other than the one listed above will not constitute valid delivery to the exchange agent. The instructions set forth in this Letter of Transmittal should be read carefully before this Letter of Transmittal is completed. The undersigned acknowledges that he or she has received and reviewed the prospectus dated , 2002, of Circus and Eldorado Joint Venture, a Nevada general partnership, and Silver Legacy Capital Corp., a Nevada corporation (collectively, the "Issuers"), and this Letter of Transmittal (the "Letter of Transmittal"), which together constitute the Issuers' offer (the "Exchange Offer") to exchange $1,000 principal amount of their 10 1/8% Mortgage Notes due 2012 (the "Exchange Notes") that have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for each $1,000 principal amount of their outstanding 10 1/8% Mortgage Notes due 2012 (the "Old Notes"). Recipients of the prospectus should read the requirements described in the prospectus with respect to eligibility to participate in the Exchange Offer. Capitalized terms used but not defined herein have the meaning given to them in the prospectus. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE CHECKING ANY BOX BELOW. This Letter of Transmittal is to be used by a holder of Old Notes: . if certificates representing tendered Old Notes are to be forwarded herewith; or . if a tender is made pursuant to the guaranteed delivery procedures in the section of the prospectus entitled "The Exchange Offer--Procedures for Tendering Old Notes." Holders that are tendering by book-entry transfer to the exchange agent's account at DTC can execute the tender through ATOP for which the Exchange Offer will be eligible. DTC participants that are accepting the Exchange Offer must transmit their acceptance to DTC which will verify the acceptance and execute a book-entry delivery to the exchange agent's account at DTC. DTC will then send an agent's message forming part of a book-entry transfer in which the participant agrees to be bound by the terms of the Letter of Transmittal (an "Agent's Message") to the exchange agent for its acceptance. Transmission of the Agent's Message by DTC will satisfy the terms of the Exchange Offer as to execution and delivery of a Letter of Transmittal by the participant identified in the Agent's Message. In order to properly complete this Letter of Transmittal, a holder of Old Notes must: . complete the box entitled "Description of Old Notes Tendered;" . if appropriate, check and complete the boxes relating to book-entry transfer, guaranteed delivery, Special Issuance Instructions and Special Delivery Instructions; . sign the Letter of Transmittal by completing the box entitled "Sign Here;" and . complete the Substitute Form W-9. Each holder of Old Notes should carefully read the detailed instructions below prior to completing the Letter of Transmittal. Holders of Old Notes who desire to tender their Old Notes for exchange and whose Old Notes are not immediately available or who cannot deliver their Old Notes, this Letter of Transmittal and all other documents required hereby to the exchange agent or complete the procedures for book-entry transfer on or prior to the Expiration Date, must tender the Old Notes pursuant to the guaranteed delivery procedures set forth in the section of prospectus entitled "The Exchange Offer--Procedures for Tendering Old Notes." See Instruction 2. Delivery of documents to DTC does not constitute delivery to the exchange agent. In order to ensure participation in the Exchange Offer, Old Notes must be properly tendered prior to the Expiration Date. Holders of Old Notes who wish to tender their Old Notes for exchange must complete columns (1) through (3) in box below entitled "Description of Old Notes Tendered," and sign the box below entitled "Sign Here." If only those columns are completed, such holder of Old Notes will have tendered for exchange all Old Notes listed in column (3) below. If the holder of Old Notes wishes to tender for exchange less than all of such Old Notes, column (4) must be completed in full. In such case, such holder of Old Notes should refer to Instruction 5. The Exchange Offer may be extended, terminated or amended, as provided in the prospectus. During any such extension of the Exchange Offer, all Old Notes previously tendered and not withdrawn pursuant to the Exchange Offer will remain subject to such Exchange Offer. The Exchange Offer is scheduled to expire at 5:00 p.m., New York City time, on , 2002, unless extended by the Issuer. The undersigned hereby tenders for exchange the Old Notes described in the box entitled "Description of Old Notes Tendered" below pursuant to the terms and conditions described in the prospectus and this Letter of Transmittal. DESCRIPTION OF OLD NOTES TENDERED
- ------------------------------------------------------------------------------------------------- Aggregate Principal Principal Amount Name(s) and Address(es) of Registered Holder(s) Certificate Amount Represented Tendered for (Please fill in, if blank) Number(s) by Certificate(s)(A) Exchange(B) - ------------------------------------------------------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- - ------------------------------------------------------------------------------------------------- Total Principal Amount Tendered
(A) Unless otherwise indicated in this column, any tendering holder will be deemed to have tendered the entire principal amount represented by the Old Notes indicated in the column labeled "Aggregate Principal Amount Represented by Certificate(s)." See Instruction 5. (B) The minimum permitted tender is $1,000 in principal amount of Old Notes. All other tenders must be integral multiples of $1,000. 2 [_] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH. [_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY): Name(s) of Registered Holder(s) ____________________________________________ Window Ticket Number (if any) ______________________________________________ Date of Execution of Notice of Guaranteed Delivery _________________________ Name of Institution that guaranteed delivery _______________________________ Only registered holders are entitled to tender their Old Notes for exchange in the Exchange Offer. Any financial institution that is a participant in DTC's system and whose name appears on a security position listing as the record owner of the Old Notes and who wishes to make book-entry delivery of Old Notes as described above must complete and execute a participant's letter (which will be distributed to participants by DTC) instructing DTC's nominee to tender such Old Notes for exchange. Persons who are beneficial owners of Old Notes but are not registered holders and who seek to tender Old Notes should: . contact the registered holder of such Old Notes and instruct such registered holder to tender on his or her behalf; . obtain and include with this Letter of Transmittal, Old Notes properly endorsed for transfer by the registered holder or accompanied by a properly completed bond power from the registered holder, with signatures on the endorsement or bond power guaranteed by a firm that is a member of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., a commercial bank or trading company having an office in the United States or certain other eligible guarantors (each, an "Eligible Institution"); or . effect a record transfer of such Old Notes from the registered holder to such beneficial owner and comply with the requirements applicable to registered holders for tendering Old Notes prior to the Expiration Date. See the section entitled "The Exchange Offer--Procedures for Tendering Old Notes" in the prospectus. SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. 3 Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Issuers for exchange the Old Notes indicated above. Subject to, and effective upon, acceptance for purchase of the Old Notes tendered herewith, the undersigned hereby sells, assigns, transfers and exchanges to the Issuers all right, title and interest in and to all such Old Notes tendered for exchange hereby. The undersigned hereby irrevocably constitutes and appoints the exchange agent as the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that the exchange agent also acts as agent of the Issuers) with respect to such Old Notes, with full power of substitution and resubstitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to: . deliver certificates representing such Old Notes, or transfer ownership of such Old Notes on the account books maintained by DTC, together, in each such case, with all accompanying evidences of transfer and authenticity to the Issuers; . present and deliver such Old Notes for transfer on the books of the Issuers; and . receive all benefits or otherwise exercise all rights and incidents of beneficial ownership of such Old Notes, all in accordance with the terms of the Exchange Offer. The undersigned represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Old Notes and to acquire Exchange Notes issuable upon the exchange of such tendered Old Notes, and that, when the same are accepted for exchange, the Issuers will acquire good and unencumbered title to the tendered Old Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned also warrants that it will, upon request, execute and deliver any additional documents deemed by the exchange agent or the Issuers to be necessary or desirable to complete the exchange, assignment and transfer of tendered Old Notes or transfer ownership of such Old Notes on the account books maintained by the book-entry transfer facility. The undersigned further agrees that acceptance of any and all validly tendered Old Notes by the Issuers and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Issuers of their obligations under the Registration Rights Agreement. By tendering, each holder of Old Notes represents that the Exchange Notes acquired in the exchange will be obtained in the ordinary course of such holder's business, that such holder has no arrangement with any person to participate in the distribution of such Exchange Notes, that such holder is not an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act and that such holder is not engaged in, and does not intend to engage in, a distribution of the Exchange Notes. Any holder of Old Notes who is an affiliate of the Issuers or who tenders Old Notes in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes cannot rely on the position of the staff of the Securities and Exchange Commission (the "Commission") enunciated in its series of interpretive "no-action" letters with respect to exchange offers and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer holding Old Notes that were acquired for its own account as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Notes received in respect of such Old Notes pursuant to the Exchange Offer, however, by so acknowledging and by delivering a prospectus in connection with the exchange of Old Notes, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. All authority conferred or agreed to be conferred pursuant to this Letter of Transmittal and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy, and personal and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. Old Notes properly tendered may be withdrawn at any time prior to the Expiration Date in accordance with the terms of this Letter of Transmittal. 4 The Exchange Offer is subject to certain conditions, each of which may be waived or modified by the Issuers, in whole or in part, at any time and from time to time, as described in the prospectus under the caption "The Exchange Offer--Certain Conditions to the Exchange Offer." The undersigned recognizes that as a result of such conditions the Issuers may not be required to accept for exchange, or to issue Exchange Notes in exchange for, any of the Old Notes properly tendered hereby. In such event, the tendered Old Notes not accepted for exchange will be returned to the undersigned without cost to the undersigned at the address shown below the undersigned's signature(s) unless otherwise indicated under "Special Issuance Instructions" below. Unless otherwise indicated under "Special Issuance Instructions" below, please return any certificates representing Old Notes not tendered or not accepted for exchange in the names(s) of the holders(s) appearing under "Description of Old Notes Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail any certificates representing Old Notes not tendered or not accepted for exchange (and accompanying document, as appropriate) to the address(es) of the holder(s) appearing under "Description of Old Notes Tendered." In the event that both the "Special Issuance Instructions" and the "Special Delivery Instructions" are completed, please issue the certificates representing the Exchange Notes issued in exchange for the Old Notes accepted for exchange in the name(s) of, and return any Old Notes not tendered or not accepted for exchange to, the person or persons so indicated. Unless otherwise indicated under "Special Issuance Instructions," in the case of a book-entry delivery of Old Notes, please credit the account maintained at DTC with any Old Notes not tendered or not accepted for exchange. The undersigned recognizes that the Issuers do not have any obligation pursuant to the Special Issuance Instructions, to transfer any Old Notes from the name of the holder thereof if the Issuers do not accept for exchange any of the Old Notes so tendered or if such transfer would not be in compliance with any transfer restrictions applicable to such Old Notes. 5 SPECIAL ISSUANCE INSTRUCTIONS (See Instructions 1, 6, 7 and 8) To be completed ONLY if (i) Exchange Notes issued for Old Notes, certificates for Old Notes in a principal amount not exchanged for Exchange Notes, or Old Notes (if any) not tendered for exchange are to be issued in the name of someone other than the undersigned, or (ii) Old Notes tendered by book-entry transfer which are not exchanged are to be returned by credit to an account maintained at DTC other than the account indicated above. Issue to: Name: _______________________________________________________________________ (Please Print) Address: ____________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Include Zip Code) _______________________________________________________________________________ (Taxpayer Identification or Social Security Number) Credit Old Notes not exchanged and delivered by book-entry transfer to the DTC account set forth below: _______________________________________________________________________________ (Account Number) SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 6, 7 and 8) To be completed ONLY if the Exchange Notes issued for Old Notes, certificates for Old Notes in a principal amount not exchanged for Exchange Notes, or Old Notes (if any) not tendered for exchange are to be sent to someone other than the undersigned or to the undersigned at an address other than that shown above. Mail to: Name: _______________________________________________________________________ (Please Print) Address: ____________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Include Zip Code) _______________________________________________________________________________ (Taxpayer Identification or Social Security Number) 6 SIGN HERE TO TENDER YOUR OLD NOTES IN THE EXCHANGE OFFER _____________________________________________________________________________ _____________________________________________________________________________ Signature(s) of Holder(s) of Old Notes Dated: ____________________________________________________________________ (Must be signed by the registered holder(s) of the Old Notes exactly as their name(s) appear(s) on certificate(s) representing the Old Notes or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by attorney-in-fact, executor, administrator, trustee, guardian, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 6.) Capacity (Full Title) _____________________________________________________ Name(s) ___________________________________________________________________ _____________________________________________________________________________ (Please Type or Print) Address ___________________________________________________________________ _____________________________________________________________________________ (Include Zip Code) Area Code and Telephone Number ( ) ___________________________________ Tax Identification or Social Security No. _________________________________ GUARANTEE OF SIGNATURE(S) (If required--see Instructions 1 and 6) Authorized Signature ______________________________________________________ Name ______________________________________________________________________ (Please Type or Print) Title _____________________________________________________________________ Name of Firm ______________________________________________________________ Address ___________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ (Include Zip Code) Area Code and Telephone Number ( ) ___________________________________ Dated: ____________________________________________________________________ IMPORTANT: COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 IN THIS LETTER OF TRANSMITTAL 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. Guarantee of Signatures. Signatures on this Letter of Transmittal need not be guaranteed if the Old Notes tendered hereby are tendered: . by the registered holder(s) thereof, unless such holder has completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" above; or . to the account of a firm that is an Eligible Institution. In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. Persons who are beneficial owners of Old Notes but are not the registered holder(s) and who seek to tender Old Notes for exchange should: . contact the registered holder(s) of such Old Notes and instruct such registered holder(s) to tender on such beneficial owner's behalf; . obtain and include with this Letter of Transmittal, Old Notes properly endorsed for transfer by the registered holder(s) or accompanied by a properly completed bond power from the registered holder(s) with signatures on the endorsement or bond power guaranteed by an Eligible Institution; or . effect a record transfer of such Old Notes from the registered holder(s) to such beneficial owner and comply with the requirements applicable to registered holder(s) for tendering Old Notes for exchange prior to the Expiration Date. See Instruction 6. 2. Delivery of this Letter of Transmittal and Certificates for Old Notes or Book-Entry Confirmations; Guaranteed Delivery Procedures. This Letter of Transmittal is to be completed by registered holder(s) if certificates representing Old Notes are to be forwarded herewith. All physically delivered Old Notes, as well as a properly completed and duly executed Letters of Transmittal (or manually signed facsimiles thereof) and any other required documents, must be received by the exchange agent at its address set forth on the cover of this Letter of Transmittal prior to the Expiration Date or the tendering holder must comply with the guaranteed delivery procedures set forth below. Delivery of the documents to DTC does not constitute delivery to the exchange agent. The method of delivery of this Letter of Transmittal, Old Notes and all other required documents to the exchange agent is at the election and risk of the holder thereof. If such delivery is by mail, it is suggested that holders use properly insured registered mail, return receipt requested, and that the mailing be sufficiently in advance of the Expiration Date, to permit delivery to the exchange agent prior to such date. Except as otherwise provided below, the delivery will be deemed made when actually received or confirmed by the exchange agent. This Letter of Transmittal and Old Notes tendered for exchange should be sent only to the exchange agent, not to the Issuers. A holder who desires to tender Old Notes for exchange and who cannot comply with the procedures set forth herein for tender on a timely basis or whose Old Notes are not immediately available must comply with the guaranteed delivery procedures described below. If holders desire to tender Old Notes for exchange pursuant to the Exchange Offer and: . certificates representing such Old Notes are not lost but are not immediately available; . time will not permit this Letter of Transmittal, certificates representing Old Notes or other required documents to reach the exchange agent prior to the Expiration Date; or . the procedures for book-entry transfer cannot be completed prior to the Expiration Date, such holder may effect a tender of Old Notes for exchange in accordance with the guaranteed delivery procedures set forth in the prospectus under the caption "The Exchange Offer--Procedures for Tendering Old Notes." 8 Pursuant to the guaranteed delivery procedures: (a) such tender must be made by or through an Eligible Institution (defined as an institution that is a recognized member in good standing of a Medallion Signature Guarantee Program recognized by the exchange agent, i.e., the Securities Transfer Agent's Medallion Program, the Stock Exchange's Medallion Program and the New York Stock Exchange's Medallion Signature Program); (b) prior to the Expiration Date, the exchange agent must have received from such Eligible Institution, at one of the addresses of the exchange agent set forth herein, a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile, mail or hand delivery) substantially in the form provided by the Issuers setting forth the name(s) and address(es) of the registered holder(s) of such Old Notes, the certificate number(s) and the principal amount of Old Notes being tendered for exchange and stating that the tender is being made thereby and guaranteeing that, within three (3) New York Stock Exchange trading days after the Expiration Date, a properly completed and duly executed Letter of Transmittal, or a facsimile thereof, together with certificates representing the Old Notes (or confirmation of book-entry transfer of such Old Notes into the exchange agent's account with DTC and an Agent's Message) and any other documents required by this Letter of Transmittal and the instructions hereto, will be deposited by such Eligible Institution with the exchange agent; and (c) this Letter of Transmittal or a facsimile thereof, properly completed together with duly executed certificates for all physically delivered Old Notes in proper form for transfer (or confirmation of book-entry transfer of such Old Notes into the exchange agent's account with DTC as described above) and all other required documents must be received by the exchange agent within three (3) New York Stock Exchange trading days after the date of the Notice of Guaranteed Delivery. All tendering holders, by execution of this Letter of Transmittal, waive any right to receive any notice of the acceptance of their Old Notes for exchange. 3. Inadequate Space. If the space provided in the box entitled "Description of Old Notes Tendered" above is inadequate, the certificate numbers and principal amounts of Old Notes tendered should be listed on a separate signed schedule affixed hereto. 4. Withdrawal of Tenders. A tender of Old Notes may be withdrawn at any time prior to the Expiration Date by delivery of written or facsimile (receipt confirmed by telephone) notice of withdrawal to the exchange agent at the address set forth on the cover of this Letter of Transmittal. To be effective, a notice of withdrawal must: . specify the name of the person having tendered the Old Notes to be withdrawn (the "Depositor"); . identify the Old Notes to be withdrawn (including the certificate number or numbers and principal amount of such Old Notes); . specify the principal amount of Old Notes to be withdrawn; . include a statement that such holder is withdrawing his election to have such Old Notes exchanged; . be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered or as otherwise described above (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the trustee under the Indenture register the transfer of such Old Notes into the name of the person withdrawing the tender; and . specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. The exchange agent will return the properly withdrawn Old Notes promptly following receipt of notice of withdrawal. If Old Notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at the book-entry transfer facility. All questions as to the validity of notices of withdrawals, including, time of receipt, will be determined by the Issuers and such determination will be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be 9 returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the exchange agent's account at the book-entry transfer facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account with such book-entry transfer facility specified by the holder) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under the caption "The Exchange Offer--Procedures for Tendering Old Notes" in the prospectus at any time prior to the Expiration Date. 5. Partial Tenders (Not Applicable To Holders Of Old Notes Who Tender By Book-Entry Transfer). Tenders of Old Notes will be accepted only in integral multiples of $1,000 principal amount. If a tender for exchange is to be made with respect to less than the entire principal amount of any Old Notes, fill in the principal amount of Old Notes which are tendered for exchange in column (4) of the box entitled "Description of Old Notes Tendered," as more fully described in the footnotes thereto. In the case of a partial tender for exchange, a new certificate, in fully registered form, for the remainder of the principal amount of the Old Notes, will be sent to the holders of Old Notes unless otherwise indicated in the boxes entitled "Special Issuance Instructions" or "Special Delivery Instructions" above, as soon as practicable after the expiration or termination of the Exchange Offer. 6. Signatures on This Letter of Transmittal; Bond Powers and Endorsements. If this Letter of Transmittal is signed by the holder(s) of the Old Notes tendered for exchange hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If any of the Old Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Old Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal and any necessary or required documents as there are names in which certificates are held. If this Letter of Transmittal or any certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Issuers of its authority so to act must be submitted, unless waived by the Issuers. If this Letter of Transmittal is signed by the holder(s) of the Old Notes listed and transmitted hereby, no endorsements of certificates or separate bond powers are required unless certificates for Old Notes not tendered or not accepted for exchange are to be issued or returned in the name of a person other than for the holder(s) thereof. Signatures on such certificates must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Old Notes, the certificates representing such Old Notes must be properly endorsed for transfer by the registered holder or be accompanied by a properly completed bond power from the registered holder, in either case signed by such registered holder(s) exactly as the name(s) of the registered holder(s) of the Old Notes appear(s) on the certificates. Signatures on the endorsement or bond power must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). 7. Transfer Taxes. Except as set forth in this Instruction 7, the Issuers will pay or cause to be paid any transfer taxes applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any transfer taxes (whether imposed on the registered holder(s) or any other persons) will be payable by the tendering holder. If satisfactory evidence of the payment of such taxes or exemptions therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. 8. Special Issuance and Delivery Instructions. If the Exchange Notes are to be issued or if any Old Notes not tendered or not accepted for exchange are to be issued or sent to a person other than the person(s) signing this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Holders of Old Notes tendering Old Notes by book-entry transfer may request that Old Notes not accepted for exchange be credited to such account maintained at DTC as such holder may designate. 10 9. Irregularities. All questions as to the forms of all documents and the validity of (including time of receipt) and acceptance of the tenders and withdrawals of Old Notes will be determined by the Issuers, in their sole discretion, which determination shall be final and binding. Alternative, conditional or contingent tenders will not be considered valid. The Issuers reserve the absolute right to reject any or all tenders of Old Notes that are not in proper form or the acceptance of which would, in the Issuers' opinion, be unlawful. The Issuers also reserve the right to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Issuers' interpretations of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) will be final and binding. Any defect or irregularity in connection with tenders of Old Notes must be cured within such time as the Issuers determine, unless waived by the Issuers. Tenders of Old Notes shall not be deemed to have been made until all defects or irregularities have been waived by the Issuers or cured. Neither the Issuers, the exchange agent, nor any other person will be under any duty to give notice of any defects or irregularities in tenders of Old Notes, or will incur any liability to registered holders of Old Notes for failure to give such notice. 10. Waiver of Conditions. To the extent permitted by applicable law, the Issuers reserve the right to waive any and all conditions to the Exchange Offer as described under "The Exchange Offer--Certain Conditions to the Exchange Offer" in the prospectus, and accept for exchange any Old Notes tendered. 11. Tax Identification Number and Backup Withholding. Federal income tax law generally requires that a holder of Old Notes whose tendered Old Notes are accepted for exchange or such holder's assignee (in either case, the "Payee"), provide the exchange agent (the "Payor") with such Payee's correct Taxpayer Identification Number ("TIN"), which, in the case of a Payee who is an individual, is such Payee's social security number. If the Payor is not provided with the correct TIN or an adequate basis for an exemption, such Payee may be subject to a $50 penalty imposed by the Internal Revenue Service and backup withholding in an amount equal to 30% of the gross proceeds received pursuant to the Exchange Offer. If withholding results in an overpayment of taxes, a refund may be obtained. To prevent backup withholding, each Payee must provide such Payee's correct TIN by completing the "Substitute Form W-9" set forth herein, certifying that the TIN provided is correct (or that such Payee is awaiting a TIN) and that: . the Payee is exempt from backup withholding; . the Payee has not been notified by the Internal Revenue Service that such Payee is subject to backup withholding as a result of a failure to report all interest or dividends; or . the Internal Revenue Service has notified the Payee that such Payee is no longer subject to backup withholding. If the Payee does not have a TIN, such Payee should consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for instructions on applying for a TIN, write "Applied For" in the space for the TIN in Part 1 of the Substitute Form W-9, and sign and date the Substitute Form W-9 and the Certificate of Awaiting Taxpayer Identification Number set forth herein. If the Payee does not provide such Payee's TIN to the Payor within 60 days, backup withholding will begin and continue until such Payee furnishes such Payee's TIN to the Payor. Note: Writing "Applied For" on the form means that the Payee has already applied for a TIN or that such Payee intends to apply for one in the near future. If Old Notes are held in more than one name or are not in the name of the actual owner, consult the W-9 Guidelines for information on which TIN to report. Exempt Payees (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. To prevent possible erroneous backup withholding, an exempt Payee must enter its correct TIN in Part I of the Substitute Form W-9, write "Exempt" in Part 2 of such form and sign and date the form. See the W-9 Guidelines for additional instructions. In order for a nonresident alien or foreign entity to qualify as exempt, such person must submit a completed Form W-8, "Certificate of Foreign Status," signed under penalty of perjury attesting to such exempt status. Such form may be obtained from the Payor. 11 12. Mutilated, Lost, Stolen or Destroyed Old Notes. Any holder of Old Notes whose Old Notes have been mutilated, lost, stolen or destroyed should contact the exchange agent at the address or telephone number set forth on the cover of this Letter of Transmittal for further instructions. 13. Requests for Assistance or Additional Copies. Requests for assistance or for additional copies of the prospectus, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be directed to the exchange agent at its address set forth on the cover of this Letter of Transmittal. IMPORTANT--This Letter of Transmittal, together with certificates for tendered Old Notes and all other required documents, with any required signature guarantees and all other required documents must be received by the exchange agent prior to the Expiration Date. 12 PAYOR'S NAME: The Bank of New York - --------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE Part 1--PLEASE PROVIDE YOUR TIN _______________________ TIN IN THE BOX AT RIGHT AND (Social Security Number Form W-9 CERTIFY BY SIGNING AND or Employer DATING BELOW. Identification Number) --------------------------------------------------- -------------------------------------------------------------------------------------------------------- Department of the Part 2--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING PLEASE Treasury WRITE "EXEMPT" HERE (SEE INSTRUCTIONS). Internal Revenue Service ----------------------------------------------------------- Payor's Request for Part 3--CERTIFICATION--UNDER PENALTIES OF PERJURY, I Taxpayer CERTIFY THAT (1) the number shown on this form is my Identification correct TIN (or I am waiting for a number to be issued to Number me), and (2) I am not subject to backup withholding ("TIN") and because: (a) I am exempt from backup withholding, or (b) I Certification have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or (c) the IRS has notified me that I am no longer subject to backup withholding. SIGNATURE _____________________________________ DATE _________________________________________ - ----------------------------------------------------------------------------------------------------------------------------
You must cross out item (2) of Part 3 above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN PART 1 OF THE SUBSTITUTE FORM W-9 - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and that I mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administrative Office (or I intend to mail or deliver an application in the near future). I understand that if I do not provide a taxpayer identification number to the Payor within 60 days, the Payor is required to withhold 30 percent of all cash payments made to me thereafter until I provide a number. SIGNATURE _________________________________________ DATE ____________________ - -------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 30 PERCENT OF ANY CASH PAYMENTS. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
13 EX-99.2 14 dex992.txt FORM OF NOTICE OF GUARANTEED DELIVERY Exhibit 99.2 NOTICE OF GUARANTEED DELIVERY With Respect to Tender of Any and All Outstanding 10 1/8% Mortgage Notes due 2012 In Exchange For 10 1/8% Mortgage Notes due 2012 of Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. Pursuant to the Prospectus dated , 2002 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2002, UNLESS EXTENDED (SUCH TIME AND DATE, AS THE SAME MAY BE EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. The Exchange Agent is: THE BANK OF NEW YORK By Registered or Facsimile Transactions: By Hand or Overnight Certified Mail: (Eligible Institutions Delivery: The Bank of New York Only) The Bank of New York Corporate Trust Department (212) 235-2261 Corporate Trust Department Reorganization Unit Reorganization Unit 15 Broad Street, 16th To Confirm by Telephone 15 Broad Street, 16th Floor or for Information Call: Floor New York, New York 10007 (212) 235-2354 New York, New York 10007 Attn: Ms. Carolle Attn: Ms. Carolle Montreuil Montreuil Delivery of this Notice of Guaranteed Delivery to an address, or transmission via facsimile, other than as set forth above will not constitute valid delivery. As set forth in the prospectus dated , 2002 of Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. (collectively, the "Issuers") and in the accompanying Letter of Transmittal and instructions thereto (the "Letter of Transmittal"), this form or one substantially equivalent hereto must be used to accept the Issuers' offer (the "Exchange Offer") to exchange new 10 1/8% Mortgage Notes due 2012 ("Exchange Notes") that have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for all of their outstanding 10 1/8% Mortgage Notes due 2012 (the "Old Notes") if the Letter of Transmittal or any other documents required thereby cannot be delivered to the exchange agent, or Old Notes cannot be delivered or if the procedures for book-entry transfer cannot be completed prior to the Expiration Date. This form may be delivered by an Eligible Institution (as defined in the prospectus) by mail or hand delivery or transmitted, via facsimile, to the exchange agent as set forth above. Capitalized terms used but not defined herein shall have the meaning given to them in the prospectus. This form is not to be used to guarantee signatures. If a signature on the Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the Letter of Transmittal. 1 Ladies and Gentlemen: The undersigned hereby tender(s) to the Issuers, upon the terms and subject to the conditions set forth in the prospectus and the related Letter of Transmittal (receipt of which is hereby acknowledged), the principal amount of Old Notes specified below pursuant to the guaranteed delivery procedures set forth in the prospectus and in Instruction 2 of the Letter of Transmittal. By so tendering, the undersigned does hereby make, at and as of the date hereof, the representations and warranties of a tendering holder of Old Notes set forth in the Letter of Transmittal. The undersigned understands that tenders of Old Notes may be withdrawn if the exchange agent receives at one of its addresses specified on the cover of this Notice of Guaranteed Delivery, not later than 5:00 p.m., New York City time on the Expiration Date, a facsimile transmission or letter setting forth the name of the holder, the aggregate principal amount of Old Notes the holder delivered for exchange, the certificate number(s) (if any) of the Old Notes and a statement that such holder is withdrawing his election to have such Old Notes or any portion thereof exchanged, in accordance with the procedures set forth in the prospectus. All authority conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall not be affected by, and shall survive, the death or incapacity of the undersigned, and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, executors, administrators, trustees in bankruptcy, personal and legal representatives, successors and assigns of the undersigned. 2 PLEASE SIGN AND COMPLETE Signature(s) of registered holder(s) or Date: ______________________________________ Authorized Signatory: _________________________ Address: ___________________________________ _______________________________________________ ____________________________________________ _______________________________________________ ____________________________________________ Name(s) of registered holder(s): ______________ Area Code and Telephone No.: _______________ If Old Notes will be delivered by book-entry _______________________________________________ transfer,check trust company below: _______________________________________________ _______________________________________________ Principal Amount of Old Notes Tendered: _______ _______________________________________________ [_] The Depository Trust Company Certificate No.(s) of Old Notes (if available): _______________________________________________ Depository Account No. _____________________
DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL. This Notice of Guaranteed Delivery must be signed by the registered holder(s) of the Old Notes exactly as their name(s) appear on certificate(s) for the Old Notes or, if tendered by a participant in one of the book-entry transfer facilities, exactly as such participant's name appears on a security position listing as the owner of Old Notes, or by person(s) authorized to become registered holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If the signature above is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information: Please print name(s) and address(es) Name: _____________________________________________________________________ ___________________________________________________________________________ Capacity: _________________________________________________________________ Address(es): ______________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ 3 GUARANTEE OF DELIVERY (Not to be used for Signature Guarantee) The undersigned, a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program (each, an "Eligible Institution"), hereby (i) represents that the above-named persons are deemed to own the Old Notes tendered hereby within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (ii) represents that such tender of Old Notes complies with Rule 14e-4 and (iii) guarantees that the Old Notes tendered hereby in proper form for transfer or confirmation of book-entry transfer of such Old Notes into the exchange agent's account at the book-entry transfer facility, in each case together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signature guarantees and any other documents required by the Letter of Transmittal, will be received by the exchange agent at its address set forth above within three New York Stock Exchange trading days after the date of execution hereof. The Eligible Institution that completes this form must communicate the guarantee to the exchange agent and must deliver the Letter of Transmittal and Old Notes to the exchange agent within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. Name of Firm: _____________________________________________________________ ___________________________________________________________________________ Authorized Signature: _____________________________________________________ Title: ____________________________________________________________________ Address: __________________________________________________________________ ___________________________________________________________________________ (Zip Code) Area Code and Telephone Number: ___________________________________________ 4 EX-99.3 15 dex993.txt GUIDELINES FOR CERTIFICATION Exhibit 99.3 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number to Give the Payer --Social Security Numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer Identification Numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the type of number to give the payer.
Give the Give the EMPLOYER SOCIAL SECURITY IDENTIFICATION For this type of account: number of-- For this type of account: number of-- - -------------------------- -------------------------- ------------------------- ------------------------- 1. An individual's account The individual 8. Sole proprietorship The owner (4) account 2. Two or more The actual owner of the 9. A valid trust, estate The legal entity (Do not individuals account or, if combined or pension trust furnish the identifying (joint account) funds, any one of the number of the personal individuals (1) representative or trustee unless the legal entity itself is not designated in the account title) (5) 3. Husband and wife The actual owner of the 10. Corporate account The corporation (joint account) account or, if joint funds, either person (1) 4. Custodian account of a The minor (2) 11. Religious, The organization minor (Uniform Gift to charitable, or Minors Act) educational organization account 5. Adult and minor (joint The adult or, if the 12. Partnership account The partnership account) minor is the only held in the name of contributor, the minor (1) the business 6. Account in the name of The ward, minor, or 13. Association, club, or The organization guardian or committee incompetent person (3) other tax-exempt for a designated ward, organization minor, or incompetent person 7.a. The usual revocable The grantor-trustee (1) 14. A broker or The broker or nominee savings trust account registered nominee (grantor is also trustee) b. So-called trust The actual owner (1) 15. Account with the The public entity account Department of that is not a legal or Agriculture in the valid trust under State name of a public law entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- --------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) You must show your individual name, but you may also enter your business or "doing business" name. You may use either your Social Security Number or Employer Identification Number. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Obtaining a Number If you do not have a taxpayer identification number or if you do not know your number, obtain Form SS-5, Application for Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service (the "IRS") and apply for a number. Payees Exempt from Backup Withholding Payees specifically exempted from backup withholding on ALL payments by brokers include the following: . A corporation. . A financial institution. . An organization exempt from a tax under Section 501(a), or an individual retirement plan or a custodial account under Section 403(b)(7) if the account satisfies the requirements of Section 401(F)(2). . The United States or any agency or instrumentality thereof. . A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . An international organization or any agency or instrumentality thereof. . A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. . A real estate investment trust. . A common trust fund operated by a bank under Section 584(a). . An entity registered at all times under the Investment Company Act of 1940. . A foreign central bank of issue. . A futures commission merchant registered with the Commodity Futures Trading Commission. . A person registered under the Investment Advisors Act of 1940 who regularly acts as a broker. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under Section 1441. . Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. . Payments of patronage dividends where the amount received is not paid in money. . Payments made by certain foreign organizations. . Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including exempt-interest dividends under Section 852). . Payments described in Section 6049(b)(5) to nonresident aliens. . Payments on tax-free covenant bonds under Section 1451. . Payments made by certain foreign corporations. . Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, CHECK "EXEMPT" IN PART II OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under Section 6041, 6041(A)(a), 6045, and 6050A. Privacy Act Notice.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 2002, payers must generally withhold 30% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. Penalties (1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Failure to Report Certain Dividend and Interest Payments.--If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under-payment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) Civil Penalty for False Information With Respect to Withholding.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) Criminal Penalty for Falsifying Information.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. 2 EX-99.4 16 dex994.txt CLIENT LETTER Exhibit 99.4 Letter to Beneficial Holders Regarding the Offer to Exchange Any and All Outstanding 10 1/8% Mortgage Notes due 2012 for 10 1/8% Mortgage Notes due 2012 of Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. Pursuant to the Prospectus dated , 2002 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2002 UNLESS EXTENDED (SUCH TIME AND DATE, AS THE SAME MAY BE EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. , 2002 To Our Clients: Enclosed for your consideration is the prospectus dated , 2002 and the accompanying Letter of Transmittal (the "Letter of Transmittal") that together constitute the offer (the "Exchange Offer") by Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. (collectively, the "Issuers"), to exchange new 10 1/8% Mortgage Notes due 2012 ("Exchange Notes") that have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for all of their outstanding 10 1/8% Mortgage Notes due 2012 (the "Old Notes"), upon the terms and subject to the conditions set forth in the prospectus. The prospectus and the Letter of Transmittal more fully describe the Exchange Offer. Capitalized terms used but not defined herein have the respective meanings ascribed to them in the prospectus. To participate in the Exchange Offer, persons in whose names Old Notes are registered on the books of the registrar ("Registered Holders") must either: . cause to be delivered to The Bank of New York (the "Exchange Agent"), at the address set forth in the Letter of Transmittal, Old Notes in proper form for transfer, together with a properly executed Letter of Transmittal; or . cause a DTC Participant to tender such holder's Old Notes to the Exchange Agent's account maintained at the Depository Trust Company ("DTC") for the benefit of the Exchange Agent through the DTC's Automated Tender Offer Program ("ATOP"), including transmission of an agent's message in which the Registered Holder acknowledges and agrees to be bound by the terms of the Letter of Transmittal. By complying with DTC's ATOP procedures with respect to the Exchange Offer, the DTC Participant confirms on behalf of itself and the beneficial owners of tendered Old Notes all provisions of the Letter of Transmittal applicable to it and such beneficial owners as fully as if it completed, executed and returned the Letter of Transmittal to the Exchange Agent. We are the holder of Old Notes held for your account. A tender of such Old Notes can be made only by us as the holder for your account and pursuant to your instructions. The enclosed Letter of Transmittal is furnished to you for your information only and cannot be used to tender Old Notes. We request instructions as to whether you wish to tender any or all of the Old Notes held by us for your account, pursuant to the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal. Your instructions to us should be forwarded as promptly as possible in order to permit us to tender your Old Notes on your behalf in accordance with the provisions of the prospectus and the Letter of Transmittal. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 2002, unless extended by Mandalay. Old Notes properly tendered may be withdrawn at any time prior to the Expiration Date. The Exchange Offer is not conditioned upon any minimum number of Old Notes being tendered. 1 Pursuant to the Letter of Transmittal, each holder of Old Notes must represent to the Issuers that: . the Exchange Notes to be acquired by such holder pursuant to the Exchange Offer are being acquired in the ordinary course of business of the holder; . such holder is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes; . such holder is not an "affiliate," as defined under Rule 405 of the Securities Act, of either of the Issuers; . such holder acknowledges that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended, or who tenders Old Notes in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction and cannot rely on the position of the staff of the Securities and Exchange Commission enunciated in its series of interpretive "no-action" letters with respect to exchange offers; . if the holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Old Notes, it must represent that the Old Notes to be exchanged for Exchange Notes were acquired as a result of market-making activities or other trading activities and must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Notes received in respect of such Old Notes pursuant to the Exchange Offer; however, by so acknowledging and by delivering a prospectus, the holder will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act; and . if the holder is not a broker-dealer, it must represent that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. The enclosed "Instruction to Registered Holder or DTC Participant from Beneficial Owner" form contains an authorization by you, as the beneficial owner of Old Notes, for us to make the foregoing representations on your behalf. We urge you to read the enclosed Letter of Transmittal in conjunction with the Exchange Offer carefully before instructing us to tender your Old Notes. Your attention is directed to the following: 1. The Exchange Offer is described in and subject to the terms and conditions set forth in the prospectus dated , 2002. 2. Subject to the terms and conditions of the Exchange Offer, the Issuers will accept for exchange on the Expiration Date all Old Notes properly tendered and will issue Exchange Notes promptly after such acceptance. 3. If you desire to tender any Old Notes pursuant to the Exchange Offer, we must receive your instructions in ample time to permit us to effect a tender of the Old Notes on your behalf prior to the Expiration Date. 4. Any brokerage fees, commissions or transfer taxes will be borne by the Issuers, except as otherwise provided in Instruction 7 of the Letter of Transmittal. If you wish to tender any or all of the Old Notes held by us for your account, please so instruct us by completing, executing, detaching and returning to us the instruction form attached hereto. If you authorize the tender of your Old Notes, all such Old Notes will be tendered unless otherwise specified on the instruction form. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf on or prior to the Expiration Date. The specimen Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Old Notes held by us for your account. The Issuers are not aware of any jurisdiction in which the making of the Exchange Offer or the tender of Old Notes in connection therewith would not be in compliance with the laws of such jurisdiction. If the Issuers become aware of any jurisdiction in which the making of the Exchange Offer would not be in compliance with such laws, the Issuers will make a good faith effort to comply with any such laws or seek to have such laws declared inapplicable to the Exchange Offer. If, after such good faith effort, the Issuers cannot comply with any such laws, the Exchange Offer will not be made to the Registered Holders residing in such jurisdiction. 2 Instructions to Registered Holder or DTC Participant from Beneficial Owner of 10 1/8 Mortgage Notes due 2012 of Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. The undersigned hereby acknowledges receipt of the prospectus dated , 2002 of Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. (collectively, the "Issuers") and the accompanying Letter of Transmittal, that together constitute the Issuers' offer (the "Exchange Offer"). This will instruct you, the registered holder, as to the action to be taken by you relating to the Exchange Offer with respect to the 10 1/8% Mortgage Notes due 2012 (the "Old Notes") held by you for the account of the undersigned, on the terms and subject to the conditions in the prospectus and Letter of Transmittal. The aggregate face amount of the Old Notes held by you for the account of the undersigned is (fill in the amount): $________ of the Old Notes. With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box): [_] To TENDER the following Old Notes held by you for the account of the undersigned (insert principal amount of Old Notes to be tendered, if any): $________ of the Old Notes. [_] NOT to TENDER any Old Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Old Notes held by you for the account of the undersigned, it is understood that you are authorized: . to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner of the Old Notes, including but not limited to the representations that: . the undersigned is acquiring the Exchange Notes in the ordinary course of business of the undersigned; . the undersigned is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes; . the undersigned is not an "affiliate," as defined under Rule 405 of the Securities Act of 1933, as amended ("Securities Act"), of either of the Issuers; . the undersigned acknowledges that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended, or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act, in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Securities and Exchange Commission enunciated in its series of interpretative no-action letters with respect to exchange offers; . if the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Old Notes, it represents that the Old Notes to be exchanged for the Exchange Notes were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act; and . if the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of the Exchange Notes; and . to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and . to take such other action as necessary under the prospectus or the Letter of Transmittal to effect the valid tender of Old Notes. 3 SIGN HERE Name of Beneficial Owner(s): ______________________________________________ Signature(s): _____________________________________________________________ Name(s) (please print): ___________________________________________________ Address: __________________________________________________________________ _____________________________________________________________________________ Telephone Number(s): ______________________________________________________ Taxpayer Identification or Social Security Number(s): _____________________ Date: _____________________________________________________________________ 4 EX-99.5 17 dex995.txt BROKER DEALER LETTER Exhibit 99.5 Letter to DTC Participants Regarding the Offer to Exchange Any and All Outstanding 10 1/8% Mortgage Notes due 2012 for 10 1/8% Mortgage Notes due 2012 of CIRCUS AND ELDORADO JOINT VENTURE and SILVER LEGACY CAPITAL CORP. Pursuant to the Prospectus dated , 2002 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2002 UNLESS EXTENDED (SUCH TIME AND DATE, AS THE SAME MAY BE EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. , 2002 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. (collectively, the "Issuers") to act as exchange agent in connection with their offer (the "Exchange Offer") to exchange new 10 1/8% Mortgage Notes due 2012 ("Exchange Notes") that have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for all of their outstanding 10 1/8% Mortgage Notes due 2012 (the "Old Notes"), upon the terms and subject to the conditions set forth in the prospectus dated , 2002 and in the accompanying Letter of Transmittal (the "Letter of Transmittal") which together constitute the Exchange Offer. Capitalized terms used but not defined herein have the respective meanings ascribed to them in the prospectus. Enclosed herewith are copies of the following documents: 1. The prospectus dated , 2002; 2. The Letter of Transmittal for your use and for the information of your clients, together with guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup Federal income tax withholding; 3. The Notice of Guaranteed Delivery to be used to accept the Exchange Offer if the Old Notes and all other required documents cannot be delivered to the exchange agent prior to the Expiration Date; 4. A form of letter which may be sent to your clients for whose account you hold Old Notes in your name or in the name of a nominee, with space provided for obtaining such clients' instructions with regard to the Exchange Offer; and 5. A return envelope addressed to the exchange agent. DTC Participants will be able to execute tenders and deliver consents through the DTC Automated Tender Offer Program. Please note that the Exchange Offer will expire at 5:00 p.m., New York City time, on , 2002, unless extended by the Issuers. We urge you to contact your clients as promptly as possible. You will be reimbursed for customary mailing and handling expenses incurred by you in forwarding the enclosed materials to your clients. 1 Additional copies of the enclosed materials may be obtained from the exchange agent, at the address and telephone numbers set forth below. Very truly yours, The Bank of New York Corporate Trust Department Reorganization Unit 15 Broad Street, 16th Floor New York, New York 10007 Attn: Ms. Carolle Montreuil (212) 235-2354 Nothing contained herein or in the enclosed documents shall constitute you or any other person as the agent of the Issuers or the exchange agent or authorize you or any other person to give any information or make any representation on behalf of any of them with respect to the Exchange Offer not contained in the prospectus or the Letter of Transmittal. 2 EX-99.6 18 dex996.txt LETTER TO COMMISSION Exhibit 99.6 April 23, 2002 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. - Form S-4 Registration Statement Registering 10-1/8% Series B Mortgage Notes Due 2012 Ladies and Gentlemen: This letter is being provided pursuant to Temporary Note 3T to Article 3 of Regulation S-X. Circus and Eldorado Joint Venture and Silver Legacy Capital Corp. (the "Registrants") have received from their independent auditor, Arthur Andersen LLP ("Andersen") representations to the effect that the audit of the Registrants' consolidated balance sheet as of December 31, 2001 and the related consolidated statements of income, partners' equity and cash flows for the year ended December 31, 2001 was subject to Andersen's quality control system for its United States accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards, that there was appropriate continuity of Andersen personnel working on the audit and availability of national office consultation. Availability of personnel at foreign affiliates of Andersen was not relevant to the audit of the aforementioned financial statements. Very truly yours, /s/ Bruce C. Sexton ------------------------------------------------- Bruce C. Sexton, Controller and Chief Accounting and Financial Officer of Circus and Eldorado Joint Venture and Treasurer and Chief Accounting and Financial Officer of Silver Legacy Capital Corp. -----END PRIVACY-ENHANCED MESSAGE-----