sec document
As filed with the Securities and Exchange Commission on December 12, 2003.
Registration No. 333-109146
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------------------------
EMPIRE RESORTS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 5810 13-4141279
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
c/o Monticello Raceway
Route 17B
P.O. Box 5013
Monticello, New York 12701
Telephone: (845) 794-4100, ext. 478
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
Scott A. Kaniewski
Chief Financial Officer
Empire Resorts, Inc.
707 Skokie Boulevard, Suite 600
Northbrook, Illinois 60062
Telephone: (847) 418-3804
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------
COPIES TO:
Robert H. Friedman, Esq. Raymond Y. Lin, Esq.
Olshan Grundman Frome Rosenzweig & Wolosky LLP Latham & Watkins LLP
505 Park Avenue 885 Third Avenue
New York, New York 10022-1170 New York, New York 10022-4802
(212) 753-7200 (212) 906-1200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective and
prior to the effective time of the proposed merger described in 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 of 1933, as amended
(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. / /
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. / /
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
ii
Information Statement/Prospectus
This information statement/prospectus is being furnished to you in
connection with Empire Resorts, Inc.'s ("EMPIRE RESORTS") proposed acquisition
of Monticello Raceway Management, Inc. ("MONTICELLO RACEWAY MANAGEMENT"),
Monticello Casino Management, LLC ("MONTICELLO CASINO MANAGEMENT"), Monticello
Raceway Development Company, LLC ("MONTICELLO RACEWAY DEVELOPMENT") and Mohawk
Management, LLC ("MOHAWK MANAGEMENT") for 80.25% of Empire Resorts' common
stock, calculated on a post-consolidation, fully diluted basis. Presently,
Monticello Raceway Management is a wholly owned subsidiary of Catskill
Development, L.L.C. ("CATSKILL DEVELOPMENT"), each of Monticello Casino
Management and Mohawk Management is 60% owned by Catskill Development and 40%
owned indirectly by Empire Resorts and Monticello Raceway Development is 50%
owned by Americas Tower Partners, 41% by Robert A. Berman, Empire Resorts' chief
executive officer, a member of its board of directors and its former chairman,
7.65% by Scott A. Kaniewski, Empire Resorts' chief financial officer and a
former member of its board of directors, .05% by two affiliates of Mr. Kaniewski
and 1.3% by Philip B. Berman, Empire Resorts' vice president of project
coordination. Immediately after consummation of the consolidation, each of
Monticello Raceway Management, Monticello Casino Management, Monticello Raceway
Development and Mohawk Management will become wholly owned subsidiaries of
Empire Resorts and the members of both Catskill Development and Monticello
Raceway Development will, together, hold a controlling interest in Empire
Resorts.
On July 1, 2003, Empire Resorts' board of directors approved the
consolidation, subject to a recommendation from its independent special
committee, consisting of a disinterested director. The special committee has
evaluated the consolidation and has recommended that Empire Resorts' board of
directors proceed with the consolidation. In its evaluation of the proposed
consolidation, the special committee was provided with independent legal advice
from the law firm of Wollmuth Maher & Deutsch, LLP, and received an opinion
from an independent valuation consulting firm as to the fairness, from a
financial point of view, of the consolidation's terms to Empire Resorts and its
stockholders. On November 11, 2003, the board of directors also approved:
o an amendment to Empire Resorts' certificate of incorporation
that provides for a staggered board of directors;
o an amendment to Empire Resorts' certificate of incorporation
that provides the holders of Series E Preferred Stock with
certain voting rights; and
o the nomination of three Class I, three Class II and three Class
III directors.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND
US A PROXY
By executing an irrevocable written consent on November 25, 2003,
Robert A. Berman, Philip B. Berman, Scott A. Kaniewski, Paul A. deBary, Joseph
E. Bernstein, Herbert F. Kozlov, Reed Smith LLP and certain of their affiliates
(collectively, the "CONTROLLING STOCKHOLDERS"), have already approved:
o the restated contribution agreement;
o an amendment to Empire Resorts' certificate of incorporation
providing for a staggered board of directors;
o an amendment to Empire Resorts' certificate of incorporation
providing the holders of Series E Preferred Stock with certain
voting rights; and
o the election of three Class I, three Class II and three Class
III directors.
As the Controlling Stockholders control enough shares of Empire Resorts' voting
stock to approve each of these matters, regardless of how Empire Resorts' other
stockholders vote, no further vote of Empire Resorts' stockholders is necessary
to consummate the consolidation or any other matter listed above. Consequently,
we are not asking you for a proxy and you are not requested to send us a proxy.
As we explain in this information statement/prospectus, however, completion of
the consolidation remains subject to the satisfaction or waiver of numerous
conditions. We cannot predict with certainty when we will complete the
consolidation, but we anticipate to complete it in the fourth quarter of 2003.
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF
MATTERS RELATING TO AN INVESTMENT IN EMPIRE RESORTS' COMMON STOCK.
This information statement/prospectus is also Empire Resorts'
prospectus for the resale of up to approximately 18,219,075 shares of common
stock being issued to certain members of Catskill Development and Monticello
Raceway Development pursuant to the consolidation. These selling stockholders
may reoffer these shares of common stock under this information
statement/prospectus at any of the following prices, which may reflect discounts
from the prevailing market prices at the time of sale:
o fixed prices that may be changed;
o prices related to such prevailing market prices;
o negotiated prices; or
o varying prices determined at the time of sale.
Empire Resorts will not receive any proceeds from the resale of
these shares of common stock.
2
Empire Resorts' common stock currently trades on the Nasdaq SmallCap
Market and Boston Stock Exchange under the symbols "NYNY" and "NYN,"
respectively, and the shares of common stock to be issued in the consolidation
will be listed on the Nasdaq SmallCap Market.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF THE CONSOLIDATION OR THE SECURITIES TO BE ISSUED
UNDER THIS INFORMATION STATEMENT/PROSPECTUS OR DETERMINED IF THIS INFORMATION
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This information statement/prospectus is dated ____________, 2003, and it
is first being mailed to Empire Resorts' stockholders on or about ________, 2003.
3
IMPORTANT
This document, which is sometimes referred to as the information
statement/prospectus, constitutes an information statement of Empire Resorts
with respect to the consolidation and a prospectus of Empire Resorts for the
shares of Empire Resorts' common stock that Empire Resorts will issue to the
members of both Catskill Development and Monticello Raceway Development as part
of the consolidation. As permitted under the rules of the Securities and
Exchange Commission, this information statement/prospectus incorporates
important business and financial information about Empire Resorts and its
affiliates that is contained in documents filed with the Securities and Exchange
Commission and that is not included in or delivered with this information
statement/prospectus. You may obtain copies of these documents, without charge,
from the website maintained by the Securities and Exchange Commission at
www.sec.gov, as well as other sources. See "Where You Can Find More Information"
beginning on page 184. You may also obtain copies of these documents, without
charge, from Empire Resorts by writing or calling:
Empire Resorts, Inc.
c/o Monticello Raceway
Route 17B
P.O. Box 5013
Monticello, New York 12701
(845) 794-4100, ext. 478
Attention: Corporate Secretary
IN ORDER TO OBTAIN DELIVERY OF THESE DOCUMENTS PRIOR TO COMPLETION
OF THE CONSOLIDATION, YOU SHOULD REQUEST SUCH DOCUMENTS NO LATER THAN
_____________________, 2003.
4
Table of Contents
Page
----
Questions and Answers about the Consolidation................................ 1
Summary...................................................................... 4
Price Range of Common Stock..................................................17
Cautionary Statement Concerning Forward Looking Statements...................18
Risk Factors.................................................................18
Risks Related to the Consolidation..............................19
Risks Related to the Combined Enterprise........................23
The Consolidation............................................................30
General.........................................................30
Background of the Consolidation.................................32
Reasons to Combine Companies....................................36
Recommendation of Empire Resorts' Special Committee.............43
Opinion of Kane Reece Associates, Inc...........................50
Financial Projections...........................................60
Interests of Certain Persons in the Consolidation...............62
Material Federal Income Tax Consequences........................66
Accounting Treatment............................................67
Regulatory Approvals............................................67
Certain Non-Voting Members Relinquish their Interests
in Catskill Development.......................................68
The Restated Contribution Agreement..........................................68
General Terms of the Contribution Agreement.....................68
The Transaction.................................................69
Representations and Warranties..................................69
Covenants.......................................................74
Registration Statement, Stockholder Vote, and
Bryanston Litigation..........................................76
Conditions to Closing...........................................77
Survival of Representations and Warranties......................81
Indemnification.................................................83
Termination.....................................................84
Miscellaneous...................................................84
Material Conditions to Closing...............................................85
Redemption of Empire Resorts' Interest in Catskill
Development...................................................85
Distribution by Catskill Development of its Interests
in Monticello Raceway Management, Monticello
Casino Management and Mohawk Management.......................86
Formation of Litigation Trust...................................86
Redemption of Certain Shares of Common Stock....................89
Listing of Common Stock on Nasdaq...............................90
Unaudited Pro Forma Consolidated Condensed Financial Statements..............90
Business.....................................................................96
Empire Resorts..................................................96
Monticello Raceway Management...................................97
Monticello Casino Management...................................103
Table of Contents
Monticello Raceway Development.................................109
Mohawk Management..............................................115
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................119
Empire Resorts.................................................119
Catskill Development and Acquired Companies....................119
Recend Developments.........................................................121
Loan and Security Agreement and Term Note......................122
Ground Lease and Land Purchase Agreeement......................123
Leasehold Mortgage.............................................124
Non-Distrurbance and Attornment Agreement......................127
Surety Agreement...............................................127
Guarantee Agreement............................................129
Security Agreement.............................................129
Selling Stockholders........................................................130
Plan of Distribution........................................................137
Comparison of Stockholder Rights............................................139
Amendment to Certificate of Incorporation
to Create a Staggered Board of Directors..................................162
Amendment of Certificate of Incorporation
to Provide the Holders of Series E Preferred Stock with Voting Rights.....164
Empire Resorts Post-Consolidation Management and Principal Stockholders.....167
Corporate Governance........................................................176
Experts.....................................................................184
Legal Matters...............................................................184
Where You Can Find More Information.........................................184
Incorporation of Documents by Reference.....................................185
Index to Financial Statements...............................................F-1
Appendix A: Amended and Restated Securities Contribution Agreement
ii
QUESTIONS AND ANSWERS ABOUT THE CONSOLIDATION
Q: WHAT IS THE PROPOSED TRANSACTION?
A: Empire Resorts is proposing to acquire all of the outstanding
membership interests and capital stock of Monticello Raceway Management,
Monticello Casino Management, Monticello Raceway Development and Mohawk
Management from the members of both Catskill Development and Monticello Raceway
Development in exchange for 80.25% of Empire Resorts' common stock, calculated
on a post-consolidation, fully diluted basis.
Q: WHY IS EMPIRE RESORTS ACQUIRING MONTICELLO RACEWAY MANAGEMENT,
MONTICELLO CASINO MANAGEMENT, MONTICELLO RACEWAY DEVELOPMENT AND MOHAWK
MANAGEMENT?
A: Collectively, Empire Resorts, Monticello Raceway Management,
Monticello Casino Management and Monticello Raceway Development own all of the
development and management rights with respect to 229 acres of land in
Monticello, New York owned by Catskill Development. Currently, Catskill
Development's operating agreement allocates profits and losses among its members
by different percentages according to various lines of business and provides for
priority returns to certain investors (See "Background of the Consolidation"
beginning on page 32). In order to improve the existing gaming facilities, to
install video lottery terminals and/or develop a Native American casino on this
land, these entities will need to raise a significant amount of financing from
outside investors. Empire Resorts and the members of both Catskill Development
and Monticello Raceway Development believe that combining the operations and
assets of Empire Resorts, Monticello Raceway Management, Monticello Casino
Management, Monticello Raceway Development and Mohawk Management into an
integrated public company structure will better align the interests of the
various members, improve management decision making, improve administrative
efficiency and facilitate raising the necessary financing and the ability to
enter into strategic relationships with other companies. The result of this
consolidation will be a publicly traded company owning all of the development
and management rights for 229 acres of land in Monticello, New York compared
with a group of interrelated private companies with separate rights over this
land. Furthermore, as a result of the consolidation, Empire Resorts would
immediately and directly own an operating business, providing it with direct
access to revenue streams as opposed to relying on dividend payments and
distributions from its minority owned subsidiaries, which interests are
subordinate to certain priority obligations to other parties. For a more
detailed discussion of Empire Resorts' reasons for the consolidation, as well as
the acquired companies' reasons for the consolidation, please see "The
Consolidation--Reasons to Combine Companies" beginning on page 36.
Q: IS THERE ANY PRE-EXISTING RELATIONSHIP BETWEEN EMPIRE RESORTS AND
THE COMPANIES BEING ACQUIRED?
A: Yes. Empire Resorts, through its wholly owned subsidiary, Alpha
Monticello, Inc. ("ALPHA MONTICELLO"), presently owns approximately a 25%
economic ownership interest of Catskill Development, which in turn owns 100% of
the equity interests of Monticello Raceway Management and 60% of the membership
interests of both Monticello Casino Management and Mohawk Management. Alpha
Monticello owns the remaining 40% membership interest in Monticello Casino
1
Management and Alpha Casino Management, Inc. ("ALPHA CASINO MANAGEMENT"),
another wholly owned subsidiary of Empire Resorts, owns the remaining 40%
membership interest in Mohawk Management. Currently, Empire Resorts does not
have any development rights for the 229 acres of land in Monticello, New York
owned by Catskill Development. Certain officers and directors of Empire Resorts
also have significant equity interests in Catskill Development and the members
of both Catskill Development and Monticello Raceway Development. See "The
Consolidation - Interests of Certain Persons in the Consolidation" beginning on
page 62.
Q: WHAT WILL I RECEIVE AS A RESULT OF THE CONSOLIDATION?
A: Empire Resorts' stockholders will not receive any direct
consideration as part of the consolidation. However, Empire Resorts does believe
that its stockholders will receive an indirect benefit from the consolidation in
light of the present and anticipated future value of the companies being
acquired.
Q: WHO ARE THE CONTROLLING STOCKHOLDERS AND WHAT WILL THEY RECEIVE
IN THE CONSOLIDATION?
A: The Controlling Stockholders consist of Robert A. Berman, Scott
A. Kaniewski, Philip B. Berman, Paul A. deBary, Joseph E. Bernstein, Herbert F.
Kozlov, Reed Smith LLP and each of their affiliates. Pursuant to the terms of
the restated contribution agreement, these parties and their affiliates,
collectively, are expected to receive approximately 40% of the shares of Empire
Resorts' common stock being issued pursuant to the consolidation. See "The
Consolidation - Interests of Certain Persons in the Consolidation" beginning on
page 62.
Q: IS ANY FURTHER VOTE OF EMPIRE RESORTS' STOCKHOLDERS NEEDED TO
APPROVE THE CONSOLIDATION?
A: No. Delaware law allows stockholders to act by written consent in
lieu of holding a meeting, unless prohibited by the company's certificate of
incorporation. Empire Resorts' certificate of incorporation does not prohibit
stockholder action by written consent. Since Empire Resorts' Controlling
Stockholders, who collectively control a sufficient amount of Empire Resorts'
voting stock to approve the consolidation, have previously executed a written
consent approving it, no further vote by Empire Resorts' stockholders is
required.
Q: WILL I HAVE APPRAISAL RIGHTS IN CONNECTION WITH THE
CONSOLIDATION?
A: No. Under Delaware law, holders of Empire Resorts' common stock
will not have appraisal rights in connection with the consolidation.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTION?
A: The parties to the restated contribution agreement intend that
neither Empire Resorts nor any of Empire Resorts' stockholders recognize any
gain or loss as a direct result of the consolidation. See "The
Consolidation--Material Federal Income Tax Consequences" beginning on page 66.
2
Q: WILL THE MEMBERS OF CATSKILL DEVELOPMENT AND MONTICELLO RACEWAY
DEVELOPMENT BE ABLE TO IMMEDIATELY RESELL THE SHARES OF EMPIRE RESORTS' COMMON
STOCK ISSUED TO THEM PURSUANT TO THE CONSOLIDATION?
A: Yes. All the shares of common stock issued by Empire Resorts to
the members of Catskill Development and Monticello Raceway Development pursuant
to the consolidation will be freely transferable, except for those shares of
Empire Resorts' common stock received by officers, directors and certain other
affiliates of Catskill Development and Monticello Raceway Development. However,
the registration statement of which this information statement/prospectus is a
part registers the resale of those shares of common stock, thus allowing such
shares to also be sold into the open market after the closing.
Q: WHAT DO I NEED TO DO NOW?
A: Nothing, other than to carefully read this information
statement/prospectus, as each of Empire Resorts' board of directors and
Controlling Stockholders has already approved the consolidation and all related
matters.
Q: WHEN DOES EMPIRE RESORTS EXPECT TO COMPLETE THE CONSOLIDATION?
A: Empire Resorts expects to complete the consolidation on or after
the 20th day following distribution of this information statement/prospectus to
its stockholders, provided all closing conditions have been either satisfied or
waived. See "The Contribution Agreement - Conditions to Closing" beginning on
page 77.
Q: WHERE CAN I FIND MORE INFORMATION?
A: You can obtain more information from various sources, as provided
under "Where You Can Find More Information" beginning on page 184.
3
SUMMARY
This summary highlights selected information from this document and
may not contain all of the information that is important to you. To better
understand the consolidation and for a more complete description of the legal
terms of the consolidation, you should carefully read this entire document and
the documents to which you have been referred.
THE COMPANIES
EMPIRE RESORTS, INC.
C/O MONTICELLO RACEWAY
ROUTE 17B
P.O. BOX 5013
MONTICELLO, NEW YORK 12701
(845) 794-4100, EXT. 478
ATTENTION: INVESTOR RELATIONS
Empire Resorts is a Delaware corporation with no direct operations
or meaningful assets other than a 48.31% economic ownership interest, 36.88%
economic ownership interest and 25% economic ownership interest, respectively,
in Catskill Development's casino and wagering operations, horse racing and other
pari-mutuel activities and real estate ownership and development operations.
Catskill Development is the owner of approximately 229 acres of land in
Monticello, New York, the sole stockholder of Monticello Raceway Management and
the controlling member of Monticello Casino Management and Mohawk Management.
Empire Resorts had no operating revenue during the fiscal year ended
December 31, 2002 and during the nine months ended September 30, 2003, and
sustained net operating losses of approximately $9.5 million and $5.4 million,
respectively, during such periods. Furthermore, the opinion of Friedman Alpren &
Green LLP, Empire Resorts' independent auditors with respect to Empire Resorts'
financial statements as of December 31, 2002, contains an explanatory paragraph
that expresses substantial doubt as to Empire Resorts' ability to continue as a
going concern.
MONTICELLO RACEWAY MANAGEMENT, INC.
C/O MONTICELLO RACEWAY
ROUTE 17B
MONTICELLO, NEW YORK 12701
(845) 794-4100, EXT. 400
ATTENTION: INVESTOR RELATIONS
Monticello Raceway Management is a New York corporation that
operates Monticello Raceway, a harness horse racing facility located in
Monticello, New York, and holds a leasehold interest in 200 of the 229 acres of
land owned by Catskill Development in Monticello, New York. While Monticello
Raceway Management is currently a wholly owned subsidiary of Catskill
Development, immediately prior to the consolidation's closing, Catskill
Development will distribute all of its interest in Monticello Raceway Management
to Catskill Development's then current members. Monticello Raceway Management,
4
which reports its financial results with Catskill Development on a consolidated
basis, had revenue of approximately $11.4 million and $7.5 million,
respectively, for the fiscal year ended December 31, 2002 and for the nine
months ended September 30, 2003, and sustained net operating losses of
approximately $1.9 million and $1.5 million, respectively, during such periods.
MONTICELLO CASINO MANAGEMENT, LLC
C/O MONTICELLO RACEWAY
ROUTE 17B
MONTICELLO, NEW YORK 12701
(845) 794-4100, EXT. 400
ATTENTION: INVESTOR RELATIONS
Monticello Casino Management is a New York limited liability company
with the exclusive right to manage, on behalf of the Cayuga Nation of New York,
any Class III Gaming operations and related activities that may occur on 29 of
the 229 acres of land presently owned by Catskill Development in Monticello, New
York. Currently, Monticello Casino Management has no operations, employees or
assets other than its gaming management rights. Catskill Development owns 60% of
the membership interests of Monticello Casino Management and Empire Resorts,
through a wholly owned subsidiary, owns 40% of the membership interests of
Monticello Casino Management. However, immediately prior to the consolidation's
closing, Catskill Development will distribute all of its interest in Monticello
Casino Management to Catskill Development's then current members. Since
inception, Monticello Casino Management has had no reportable revenue, net
income or losses.
MONTICELLO RACEWAY DEVELOPMENT COMPANY, LLC
C/O MONTICELLO RACEWAY
ROUTE 17B
MONTICELLO, NEW YORK 12701
(845) 794-4100, EXT. 400
ATTENTION: INVESTOR RELATIONS
Monticello Raceway Development is a New York limited liability
company with the exclusive right to design, engineer, develop, construct, and
furnish a Class III Gaming facility that is developed on 29 of the 229 acres of
land presently owned by Catskill Development in Monticello, New York. Monticello
Raceway Development also has the exclusive right to develop the remaining 200
acres of land to provide for activities supportive of gaming, such as lodging,
food service and retail. Currently, Monticello Raceway Development has no
operations, employees or assets other than its development rights. Monticello
Raceway Development's membership interests are owned 50% by Americas Tower
Partners, an affiliate of Catskill Development and partially owned indirectly by
Morad Tahbaz, Empire Resorts' president and a member of its board of directors,
41% by Robert A. Berman, Empire Resorts' chief executive officer, a member of
its board of directors and its former chairman, 7.65% by Scott A. Kaniewski,
Empire Resorts' chief financial officer and a former member of its board of
directors, .05% by two affiliates of Mr. Kaniewski and 1.3% by Philip B. Berman,
Empire Resorts' vice president of project coordination. Since inception,
Monticello Raceway Development has had no reportable revenue, net income or
losses.
5
MOHAWK MANAGEMENT, LLC
C/O MONTICELLO RACEWAY
ROUTE 17B
MONTICELLO, NEW YORK 12701
(845) 794-4100, EXT. 400
ATTENTION: INVESTOR RELATIONS
Mohawk Management is a New York limited liability company originally
formed to operate, in conjunction with the St. Regis Mohawk Tribe, a Class III
Gaming facility on 29 of the 229 acres of land presently owned by Catskill
Development in Monticello, New York. Currently, Mohawk Management has no
operations, employees or assets other than claims against Park Place
Entertainment Corporation, Gary Melius, Ivan Kaufman and Walter Horn for
tortious interference with contractual and business relations and fraud.
Catskill Development owns 60% of the membership interests of Mohawk Management
and Empire Resorts, through a wholly owned subsidiary, owns 40% of the
membership interests of Mohawk Management. However, immediately prior to the
consolidation's closing, Catskill Development will distribute all of its
interest in Mohawk Management to Catskill Development's then current members.
Since inception, Mohawk Management has had no reportable revenue, net income or
losses.
A diagram summarizing the current ownership structure of Empire
Resorts, Monticello Raceway Management, Monticello Casino Management, Monticello
Raceway Development and Mohawk Management, both before and after the proposed
consolidation, is provided on the following pages.
6
GRAPHIC OMITTED
------------
(1) Includes a .025% membership interest held by the Kaniewski Family Limited
Partnership, with respect to which Mr. Kaniewski is the general partner and a 1%
limited partner (with sole voting and disposition rights) and a .025% membership
interest held by the KFP Trust, with respect to which Stacey B. Kaniewski, Mr.
Kaniewski's wife, is the sole trustee, and with respect to which, Mr.
Kaniewski's children are its sole beneficiaries. Mr. Kaniewski disclaims
beneficial ownership of all interests held by the KFP Trust.
7
(2) The diagram shows only those partners of Americas Tower Partners and
Watertone Holdings, L.P. ("WATERTONE HOLDINGS") that served as officers or
directors of Empire Resorts at the time the consolidation's principal terms were
negotiated and approved by Empire Resorts' board of directors.
(3) Certain members of Catskill Development, owning in the aggregate less than
2.5% of the membership interests of Catskill Development, are not shown in this
diagram.
(4) Catskill Development has three classes of economic ownership interests, with
each class corresponding to one of Catskill Development's three businesses.
Class A economic ownership interests represent the right to receive
distributions and allocations from Catskill Development's casino and wagering
operations; Class B economic ownership interests represent the right to receive
distributions and allocations from Catskill Development's horseracing and other
pari-mutuel activities; and Class C economic ownership interests represent the
right to receive distributions and allocations from Catskill Development's real
estate ownership and development operations. Of Catskill Development's seven
members, the vast majority of these economic ownership interests are held by
Alpha Monticello, Watertone Holdings, Americas Tower Partners and Monticello
Realty L.L.C. ("MONTICELLO REALTY"). Specifically, Alpha Monticello, which is a
wholly owned subsidiary of Empire Resorts, holds approximately 48%, 37% and 25%,
respectively, of Catskill Development's Class A, Class B and Class C economic
ownership interests; Watertone Holdings, which is controlled by Robert A.
Berman, Empire Resorts' chief executive officer, a member of its board of
directors and its former chairman, Philip B. Berman, Empire Resorts' vice
president of project coordination, and Scott A. Kaniewski, Empire Resorts' chief
financial officer and a former member of its board of directors, holds
approximately 15%, 13% and 25%, respectively, of Catskill Development's Class A,
Class B and Class C economic ownership interests; Americas Tower Partners, which
is controlled and/or managed by Joseph E. Bernstein, a member of Empire Resorts'
board of directors, Ralph J. Bernstein, a member of Empire Resorts' board of
directors, and Morad Tahbaz, Empire Resorts' president and a member of its board
of directors, holds approximately 33%, 25% and 25%, respectively, of Catskill
Development's Class A, Class B and Class C economic ownership interests and
Monticello Realty holds approximately 33%, 22.5% and 22.5%, respectively, of
Catskill Development's Class A, Class B and Class C economic ownership
interests. In addition, under Catskill Development's operating agreement, Alpha
Monticello, Watertone Holdings, Americas Tower Partners and Monticello Realty
are the only members of Catskill Development with voting rights, with each of
these four members entitled to one vote on all matters submitted to members for
a vote.
8
Post-Consolidation(1)
------------------
GRAPHIC OMITTED
(1) As Catskill Development will be redeeming all of Alpha Monticello's
interests in Catskill Development in exchange for 40% of the outstanding capital
stock of Monticello Raceway Management and then distributing all of its
remaining ownership interests in Monticello Raceway Management and its interests
in Monticello Casino Management and Mohawk Management to Catskill Development's
then current members prior to the consolidation's closing, Catskill Development
has been omitted from the post-consolidation ownership diagram. Americas Tower
Partners, Watertone Holdings, Monticello Realty, Robert A. Berman, Philip B.
9
Berman and Scott A. Kaniewski have been listed as the owners of Empire Resorts,
as these parties will receive the vast majority of the shares of Empire Resorts'
common stock being issued to Catskill Development's members and Monticello
Raceway Development's members at the consolidation's closing in exchange for
such members' interests in Monticello Raceway Management, Monticello Casino
Management, Monticello Raceway Development and Mohawk Management.
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REASONS FOR THE CONSOLIDATION
Collectively, Empire Resorts, Monticello Raceway Management,
Monticello Casino Management, Monticello Raceway Development and Mohawk
Management own all of the development and management rights with respect to 229
acres of land in Monticello, New York owned by Catskill Development. Currently,
Catskill Development's operating agreement allocates profits and losses among
its members by different percentages according to various lines of business and
provides for priority returns to certain investors (See "Background of the
Consolidation" beginning on page 32). In order to improve the existing gaming
facilities, to install video lottery terminals and/or develop a Native American
casino on this land, these entities will need to raise a significant amount of
financing from outside investors. Empire Resorts and the members of both
Catskill Development and Monticello Raceway Development believe that combining
the operations and assets of Empire Resorts, Monticello Raceway Management,
Monticello Casino Management, Monticello Raceway Development and Mohawk
Management into an integrated public company structure will better align the
interests of the various parties, improve management decision making, improve
administrative efficiency and facilitate raising the necessary financing and the
ability to enter into strategic relationships with other companies. The result
of this consolidation will be a publicly traded company owning all of the
development and management rights for 229 acres of land in Monticello, New York
compared with a group of interrelated private companies with separate rights
over this land. Furthermore, as a result of the consolidation, Empire Resorts
would immediately and directly own an operating business, providing it with
direct access to revenue streams as opposed to relying on dividend payments and
distributions from its minority owned subsidiaries, which interests are
subordinate to certain priority obligations to other parties. For a more
detailed discussion of Empire Resorts' reasons for the consolidation, as well as
the acquired companies' reasons for the consolidation, please see "The
Consolidation--Reasons to Combine Companies" beginning on page 36.
THE PROPOSED TRANSACTION
In the proposed consolidation, the members of both Catskill
Development and Monticello Raceway Development shall contribute all of their
respective ownership interests in Monticello Raceway Management, Monticello
Casino Management, Monticello Raceway Development and Mohawk Management,
together with all of their right, title and interest in and to the business of
Monticello Raceway, including all of the assets and liabilities of Catskill
Development, except for its interest in 229 acres of land in Monticello, New
York and its right to certain litigation claims, to Empire Resorts in exchange
for, in the aggregate, 80.25% of Empire Resorts' common stock, calculated on a
post-consolidation, fully diluted basis. As a result of the consolidation, each
of Monticello Raceway Management, Monticello Casino Management, Monticello
Raceway Development and Mohawk Management will become wholly owned subsidiaries
of Empire Resorts and the members of both Catskill Development and Monticello
Raceway Development, together, will become Empire Resorts' controlling
stockholders.
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NO FURTHER STOCKHOLDER APPROVAL REQUIRED; EMPIRE RESORTS BOARD APPROVAL
We are not asking you to vote on the consolidation. On November 25,
2003, Empire Resorts' Controlling Stockholders, who collectively control 51% of
Empire Resorts' voting stock, executed a written consent:
o adopting the restated contribution agreement, which sets forth
the legal terms and structure of the consolidation;
o approving the consolidation;
o amending Empire Resorts' certificate of incorporation to
provide for a staggered board of directors, pursuant to which
only a portion of Empire Resorts' board of directors would be
elected each year rather than all at once;
o amending Empire Resorts' certificate of incorporation to
provide the holders of Series E Preferred Stock with one vote
for every four shares of Series E Preferred Stock held by them
on all matters submitted to a vote of stockholders; and
o electing three Class I, three Class II and three Class III
directors, with the members of each class serving an initial
term of one, two and three years, respectively, and each
subsequent term for all classes being three years.
Except for amending Empire Resorts' certificate of incorporation to provide the
holders of its Series E Preferred Stock with certain voting rights, approval of
each of the above listed items is a condition to the consolidation's closing.
Moreover, the written consent that approved these five items satisfied all
applicable stockholder approval requirements under Delaware law, Empire Resorts'
certificate of incorporation and Empire Resorts' bylaws.
Empire Resorts' board of directors believes that the consolidation
is advisable and in Empire Resorts' best interest. The board of directors has
unanimously approved:
o the restated contribution agreement;
o the consolidation;
o an amendment to Empire Resorts' certificate of incorporation
providing for a staggered board of directors;
o the amendment to Empire Resorts' certificate of incorporation
providing the holders of Series E Preferred Stock with certain
voting rights; and
o the nomination of those persons elected by Empire Resorts'
Controlling Stockholders as Class I, Class II and Class III
directors.
A special committee of the board of directors, consisting of an
independent director and advised by an independent counsel and by an independent
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financial advisor retained for the purpose of delivering a fairness opinion to
the special committee, has reviewed the transaction and has recommended that the
board of directors proceed with the consolidation.
Empire Resorts will pay all of the costs associated with the
printing, handling and mailing of this information statement/prospectus, which
costs are estimated to be approximately $40,000. Empire Resorts will also, upon
request, reimburse brokers, banks and similar organizations for reasonable
out-of-pocket expenses incurred in forwarding this information
statement/prospectus to their clients.
FAIRNESS OPINION
Empire Resorts' special committee received a written opinion from
Kane Reece Associates, Inc. ("KANE REECE ASSOCIATES"), an independent valuation
consulting firm, attesting to the fairness of the consolidation's terms to
Empire Resorts and each of its stockholders from a financial point of view. The
full text of the opinion is available for inspection and copying at Empire
Resorts' principal executive offices during regular business hours by any
interested stockholder of Empire Resorts or any representative who has been so
designated in writing. PLEASE NOTE, HOWEVER, THAT KANE REECE ASSOCIATES' OPINION
IS DIRECTED TO THE SPECIAL COMMITTEE AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER AS TO ANY MATTERS RELATING TO THE CONSOLIDATION.
THE CONSOLIDATION
THE RESTATED CONTRIBUTION AGREEMENT (SEE PAGE 68)
The restated contribution agreement is the legal document that
governs the consolidation. It is attached to this information
statement/prospectus as Appendix A, and you are urged to carefully read it in
its entirety. The following is a summary of its terms and omits numerous
details.
WHAT EMPIRE RESORTS IS RECEIVING (SEE PAGE 68)
Under the terms of the consolidation, in exchange for issuing that
number of shares of common stock equal to 80.25% of Empire Resorts' common
stock, calculated on a post-consolidation, fully diluted basis, Empire Resorts
will receive:
o all of the issued and outstanding membership interests in
Monticello Casino Management that it does not already own;
o all of the issued and outstanding membership interests in
Mohawk Management that it does not already own;
o all of the issued and outstanding membership interests in
Monticello Raceway Development;
o all of the issued and outstanding capital stock of Monticello
Raceway Management and Monticello Raceway Management's
leasehold interest in 200 of the 229 acres of land in
Monticello, New York; and
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o all of the rights in and to the business of Monticello Raceway,
including all of the assets and liabilities of Catskill
Development, except for its interest in 229 acres of land in
Monticello, New York and its right to certain litigation
claims.
CONDITIONS TO THE CONSOLIDATION (SEE PAGE 77)
The completion of the consolidation depends upon meeting a number of
conditions, including:
o approval for listing on the Nasdaq SmallCap Market of the
shares of Empire Resorts' common stock being issued in the
consolidation;
o no outstanding statute, rule, law, injunction, order or other
legal restraint preventing the consolidation;
o approvals and consents from various third parties, as well as
other material regulatory approvals and consents;
o receipt of a legal opinion about certain tax consequences of
the consolidation;
o representations and warranties of Empire Resorts, Catskill
Development and the members of both Catskill Development and
Monticello Raceway Development contained in the restated
contribution agreement remaining true and correct at the
consolidation's closing;
o due execution by Monticello Raceway Management and Catskill
Development of an amendment to that certain 48 year ground
lease, dated October 29, 2003, with respect to those certain
200 acres of land in Monticello, New York now owned by Catskill
Development (i) increasing the amount of land subject to the
purchase option under the lease from 200 acres to 229 acres,
without any increase in the purchase option price, and (ii)
reducing the purchase option price by any amount received by
Catskill Development (or its successor) if the adjacent 29
acres now owned by Catskill Development are sold pursuant to
that certain Land Purchase Agreement between Catskill
Development and the Cayuga Nation of New York dated April 3,
2003;
o Catskill Development having redeemed all of Empire Resorts'
interest, whether direct or indirect, in Catskill Development;
o the creation of a litigation trust and the assignment to it by
each of Catskill Development, Mohawk Management and Monticello
Raceway Development of its right to any proceeds from the
ongoing litigation against Park Place Entertainment
Corporation, Gary Melius, Ivan Kaufman and Walter Horn;
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o subsequent to (1) the redemption by Catskill Development of
Empire Resorts' interests in Catskill Development and (2) the
creation of a litigation trust and the assignment to such trust
by Catskill Development, Monticello Raceway Development and
Mohawk Management of all of their rights to the proceeds from
their claims against Park Place Entertainment Corporation, Gary
Melius, Ivan Kaufman and Walter Horn, Catskill Development
having contributed all of its rights, title and interest in and
to the business of Monticello Raceway and all of its other
assets and liabilities, except for Catskill Development's
interest in 229 acres of land in Monticello, New York, to
Monticello Casino Management and Catskill Development having
subsequently distributed all of its interests in Monticello
Raceway Management, Monticello Casino Management and Mohawk
Management to Catskill Development's then current members;
o Empire Resorts having redeemed Empire Resorts' common stock
held by The Bryanston Group, Inc. ("THE BRYANSTON GROUP") and
certain shares of Empire Resorts' common stock held by Beatrice
Tollman;
o adoption of certain amendments to Empire Resorts' certificate
of incorporation and bylaws that provide for the creation of a
staggered board of directors; and
o each of Empire Resorts, Catskill Development and the members of
both Catskill Development and Monticello Raceway Development
having complied in all material respects with its covenants
under the restated contribution agreement.
REGULATORY APPROVALS (SEE PAGE 67)
Empire Resorts and Monticello Raceway Management are both required
to make filings with or obtain approvals from certain state regulatory
authorities in connection with the consolidation, including the New York State
Racing and Wagering Board. Empire Resorts believes that all material
notifications, filings and approvals have been made or obtained, or will be made
or obtained prior to the date of the consolidation's closing (or, if
appropriate, after the consolidation is effective).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 66)
Each of the parties to the restated contribution agreement intends
that the consolidation be a tax free transaction for Empire Resorts and its
stockholders. Moreover, it is a condition to the consolidation's closing that
the parties to the restated contribution agreement receive a legal opinion
stating that the consolidation will be treated as a transfer of property under
Section 351(a) of the Internal Revenue Code, and that no party to the restated
contribution agreement will recognize any gain or loss for federal income tax
purposes as a result of the consolidation.
ACCOUNTING TREATMENT (SEE PAGE 67)
The consolidation will be accounted for as a "reverse merger" and an
"affiliated transaction" for accounting and financial reporting purposes.
Accordingly, Empire Resorts will book Catskill Development's current assets and
liabilities and its ownership interests in Monticello Raceway Management,
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Monticello Casino Management and Mohawk Management according to their cost basis
at the closing.
TERMINATION (SEE PAGE 84)
The restated contribution agreement may be terminated, and the
consolidation abandoned, in only a very limited number of circumstances,
including:
o if the consolidation is not completed by January 31, 2004;
o by Empire Resorts, on the one hand, or Catskill Development and
the members of both Catskill Development and Monticello Raceway
Development, on the other hand, if the other is in material
breach of its representations, warranties, covenants or
agreements;
o if any governmental entity issues an order, decree or ruling or
takes any action permanently enjoining or otherwise prohibiting
the consolidation, and such order, ruling or other action has
become final and nonappealable; or
o if the parties mutually agree to terminate the restated
contribution agreement.
INTERESTS OF CERTAIN PERSONS IN THE CONSOLIDATION (SEE PAGE 62)
You should be aware that a number of Empire Resorts' principals had
a significant interest in each of Catskill Development, Monticello Raceway
Development and Americas Tower Partners at the time the consolidation's
principal terms were negotiated and approved by Empire Resorts' board of
directors. Such interests may have led Empire Resorts' to receive a less
favorable result than it would have if the acquired companies had been
contributed by an independent third party following arm's length negotiations.
VOTING CONTROL (SEE PAGE 31)
At the time Empire Resorts' Controlling Stockholders approved the
consolidation, there were 5,984,651 shares of Empire Resorts' common stock and
44,258 shares of its Series B Preferred Stock issued and outstanding and
entitled to vote. Each share of common stock entitles its holder to one vote and
each share of Series B Preferred Stock entitles its holder to eight-tenths
(8/10) of one vote. At the time the Controlling Stockholders approved the
consolidation, Empire Resorts' directors and executive officers, together with
their affiliates, controlled 2,964,203 shares of Empire Resorts' common stock,
representing 51% of Empire Resorts' voting stock. The affirmative vote of the
holders of a majority of Empire Resorts' voting stock on the date Empire
Resorts' Controlling Stockholders approved the consolidation was required to
approve the consolidation, the proposed amendments to Empire Resorts'
certificate of incorporation and the election of three Class I, three Class II
and three Class III directors.
Pursuant to Catskill Development's operating agreement, only four of
its seven members, Americas Tower Partners, Watertone Holdings, Monticello
Realty and Alpha Monticello, have voting rights, with each voting member being
entitled to one vote. However, on February 3, 2003, Americas Tower Partners,
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Watertone Holdings, Monticello Realty and Alpha Monticello unanimously voted to
allow Catskill Development's non-voting members to vote on whether to approve
the consolidation, and gave each non-voting member one vote for this occasion.
Soon thereafter, Catskill Development's seven members unanimously approved the
consolidation. On June __, 2003, Catskill Development's directors and executive
officers, together with their affiliates, controlled 100% of Catskill
Development's voting members, but had no interest in its non-voting members. The
affirmative vote of at least four of Catskill Development's seven members was
required to approve the consolidation.
On December __, 2003, each of Americas Tower Partners' general
partners, Americas Towers Limited Partners Limited Partnership, NYL Development
Corporation and NYL Limited Partners Limited Partnership, being all of Americas
Tower Partners' general partners, approved the consolidation.
NO DISSENTERS' RIGHTS (SEE PAGE 31)
Delaware law does not provide for any dissenters' rights to an
appraisal for Empire Resorts stockholders in connection with the consolidation.
SELLING STOCKHOLDERS; PLAN OF DISTRIBUTION (SEE PAGE 130)
This document also relates to the offer and resale by certain
affiliates of Catskill Development and Monticello Raceway Development of up to
approximately 18,219,075 shares of Empire Resorts' common stock being issued to
them in connection with the consolidation. Furthermore, Empire Resorts has
agreed to maintain the effectiveness of the resale registration statement, of
which this information statement/prospectus forms a part, for up to two years
after the consolidation, thus permitting these affiliates of Catskill
Development and Monticello Raceway Development to immediately resell the shares
of Empire Resorts' common stock they receive in the consolidation. These selling
stockholders have not advised Empire Resorts of any specific plans for the
distribution of these shares. It is anticipated that the sale or distribution of
all or any portion of the shares offered hereby will be effected from time to
time by the selling stockholders directly, indirectly to or through brokers or
dealers, or in a distribution by one or more underwriters on a firm commitment
or best efforts basis, on the Nasdaq SmallCap Market, in the over-the-counter
market, on any national securities exchange on which the shares are listed or
traded, in privately negotiated transactions, or otherwise, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices.
PRICE RANGE OF COMMON STOCK
Empire Resorts' common stock has been trading on the Nasdaq SmallCap
Market and the Boston Stock Exchange under the symbols "NYNY" and "NYN,"
respectively, since 1993 and is expected to continue trading on the Nasdaq
SmallCap Market after the consolidation's closing. None of Monticello Raceway
Management's, Monticello Casino Management's, Monticello Raceway Development's
nor Mohawk Management's equity interests are traded in any established market.
The table below sets forth, for the calendar quarters indicated, the range of
high and low per share sales prices for Empire Resorts' common stock as reported
by Nasdaq. These quotations reflect the inter-dealer prices, without retail
17
markups, markdowns or commissions and may not necessarily represent actual
transactions. No equivalent market price data is available for Monticello
Raceway Management, Monticello Casino Management, Monticello Raceway Development
or Mohawk Management.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
Fiscal 2003
HIGH $ 10.97 $ 11.23 $ 18.00 N/A
LOW $ 1.77 $ 7.05 $ 9.15 N/A
Fiscal 2002
HIGH $ 13.74 $ 13.20 $ 8.47 $ 2.33
LOW $ 10.50 $ 5.40 $ 0.95 $ 1.17
Fiscal 2001
HIGH $ 12.18 $ 10.40 $ 11.39 $21.00
LOW $ 6.87 $ 6.20 $ 4.31 $ 6.11
On February 3, 2003, the last trading day before the consolidation
was announced, Empire Resorts' common stock closed at $7.49 per share. On
___________, 2003, the last practicable day before the printing of this
information statement/prospectus, Empire Resorts' common stock closed at
$_____________ per share. You may obtain more recent stock price quotes from
most newspapers or other financial sources and you are encouraged to do so.
CAUTIONARY STATEMENT
CONCERNING FORWARD-LOOKING STATEMENTS
Certain information included or incorporated by reference in this
information statement/prospectus may be deemed to be "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements, other than statements of historical facts, that address activities,
events or developments that Empire Resorts, Catskill Development or the members
of both Catskill Development and Monticello Raceway Development intend, expect,
project, believe or anticipate will or may occur in the future are forward
looking statements. Such statements are characterized by terminology such as
"believe," "hope," "anticipate," "should," "intend," "plan," "will," "expect,"
"estimate," "project," "positioned," "strategy," and similar expressions. These
statements are based on assumptions and assessments made by management of Empire
Resorts, Catskill Development, and Monticello Raceway Development in light of
their experience and their perception of historical trends, current conditions,
expected future developments and other factors they believe to be appropriate.
These forward looking statements are subject to a number of risks and
uncertainties, including, but not limited to, those set forth below.
RISK FACTORS
As a result of the consolidation, Empire Resorts' business will be
subject to the following new or increased risks related to the consolidation
and/or the businesses of Monticello Raceway Management, Monticello Casino
Management, Monticello Raceway Development and Mohawk Management. In addition to
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the risks described below, the combined enterprise will continue to be subject
to the risks described in the documents that Empire Resorts has previously filed
with the Securities and Exchange Commission and that are incorporated by
reference into this information statement/prospectus. If any of the risks
described below or in the documents incorporated by reference into this
information statement/prospectus actually occur, the business, financial
condition, results of operations or cash flow of the combined enterprise could
be materially adversely affected. The risks below should be considered along
with the other information included or incorporated by reference into this
information statement/prospectus.
RISKS RELATED TO THE CONSOLIDATION
VARIOUS CONFLICTS OF INTEREST EXISTED WHILE THE TERMS OF THE
CONSOLIDATION WERE NEGOTIATED.
While the terms of the consolidation were being negotiated, each of
Empire Resorts, Catskill Development, Monticello Raceway Development and
Americas Tower Partners were under some level of common control. Specifically,
Catskill Development has three classes of economic ownership interests, with
each class corresponding to one of Catskill Development's three businesses.
Class A economic ownership interests represent the right to receive
distributions and allocations from Catskill Development's casino and wagering
operations; Class B economic ownership interests represent the right to receive
distributions and allocations from Catskill Development's horseracing and other
pari-mutuel activities; and Class C economic ownership interests represent the
right to receive distributions and allocations from Catskill Development's real
estate ownership and development operations. At the time the consolidation's
principal terms were negotiated and approved by Empire Resorts' board of
directors, Empire Resorts indirectly held approximately 48%, 37% and 25%,
respectively, of Catskill Development's Class A, Class B and Class C economic
ownership interests. Watertone Holdings, which is controlled by Robert A.
Berman, Empire Resorts' chief executive officer, a member of its board of
directors and its former chairman (at the time the consolidation's principal
terms were negotiated and approved by Empire Resorts' board of directors), and
Scott A. Kaniewski, Empire Resorts' chief financial officer and a former member
of its board of directors (at the time the consolidation's principal terms were
negotiated and approved by Empire Resorts' board of directors), held
approximately 15%, 13% and 25%, respectively, of Catskill Development's Class A,
Class B and Class C economic ownership interests. Furthermore, Morad Tahbaz,
Catskill Development's president, Empire Resorts' president and a member of
Empire Resorts' board of directors, held a 20% interest in Americas Tower
Partners, a general partnership that held approximately 33%, 25% and 25%,
respectively, of Catskill Development's outstanding Class A, Class B and Class C
economic ownership interests at the time the consolidation's principal terms
were negotiated and approved by Empire Resorts' board of directors. Furthermore,
Monticello Raceway Development was owned 50% by Americas Tower Partners, 41% by
Robert A. Berman, 7.65% by Scott A. Kaniewski, .05% by two affiliates of Mr.
Kaniewski and 1.3% by Philip B. Berman, Empire Resorts' vice president of
project coordination, at the time the consolidation's principal terms were
negotiated and approved by Empire Resorts' board of directors.
Given these facts, Empire Resorts' principals that negotiated the
consolidation were subject to various conflicts of interest, possibly causing
them to advocate different positions from what they would have advocated if
Empire Resorts had been their only interest in the consolidation. Moreover,
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since a number of these individuals also had various personal interests in the
consideration being paid to the members of both Catskill Development and
Monticello Raceway Development, they may have refrained from negotiating the
best deal possible for Empire Resorts. The terms of the consolidation were
reviewed by a special committee of the board of directors of Empire Resorts
consisting of an independent director, and that special committee retained an
independent counsel and retained an independent financial advisor for the
purpose of delivering a fairness opinion relating to the consolidation's
fairness from a financial point of view. The special committee did not, however,
negotiate the terms of the consolidation, which had been negotiated and set
forth in a letter of intent before the special committee was constituted.
Therefore, while the special committee reviewed the fairness of the
consolidation's terms, that review does not eliminate the possibility that
Empire Resorts' is receiving a less favorable deal than if the acquired
companies had been contributed by an independent third party following arm's
length negotiations.
FOLLOWING THE CONSOLIDATION, EMPIRE RESORTS' COMMON STOCK COULD BE
EXCLUDED FROM THE NASDAQ SMALLCAP MARKET.
Empire Resorts' common stock presently trades on the Nasdaq SmallCap
Market. Under the Nasdaq Stock Market Marketplace Rules, in certain
circumstances Nasdaq requires its issuers to comply with the initial inclusion
requirements (rather than continued inclusion) when an issuer merges with a
non-Nasdaq entity that results in a change in control of the issuer. As the
proposed consolidation with Monticello Raceway Management, Monticello Casino
Management, Monticello Raceway Development and Mohawk Management will result in
a change in control of Empire Resorts, for Empire Resorts' common stock to
continue being listed on the Nasdaq SmallCap Market, Empire Resorts may be
required to satisfy the following requirements after the consolidation:
o net tangible assets (total assets, excluding goodwill, minus
total liabilities) must be at least $5 million, or market
capitalization must be at least $50 million, or net income in
the latest fiscal year or two of the last three fiscal years
must be at least $750,000;
o "public float" must be at least 1 million shares not including
shares held directly or indirectly by officers or directors or
by any other person who beneficially owns more than ten percent
of Empire Resorts' total outstanding shares;
o the market value of Empire Resorts' public float must be at
least $5 million;
o the minimum bid price of Empire Resorts' common stock must be
at least $4 per share;
o there must be at least three market makers for Empire Resorts'
common stock;
o there must be at least 300 stockholders of Empire Resorts'
common stock with each such stockholder holding at least 100
shares of common stock;
o Empire Resorts must have an operating history of at least one
year; and
20
o Empire Resorts must meet specific corporate governance tests
promulgated by Nasdaq.
There can be no assurance that Empire Resorts will meet these
requirements following the consolidation. Moreover, even if Empire Resorts does
satisfy these requirements, Nasdaq may nevertheless, in its sole discretion,
still preclude Empire Resorts' common stock from being listed on the Nasdaq
SmallCap Market or apply additional or more stringent listing conditions.
Accordingly, there can be no assurance that Empire Resorts' common stock will
continue to be reported on the Nasdaq SmallCap Market after the consolidation.
Should Empire Resorts fail to maintain its Nasdaq SmallCap listing, it would
become more difficult to obtain accurate quotes for Empire Resorts' common stock
and to locate interested buyers and sellers. Consequently, Empire Resorts'
stockholders may not be able to readily liquidate their Empire Resorts' common
stock in the future at desired times and prices.
THE PRICE OF EMPIRE RESORTS' COMMON STOCK IS VOLATILE AND THERE WILL
BE NO ADJUSTMENT TO THE NUMBER OF SHARES RECEIVED BY THE MEMBERS OF EITHER
CATSKILL DEVELOPMENT AND MONTICELLO RACEWAY DEVELOPMENT IF THE MARKET PRICE OF
EMPIRE RESORTS' COMMON STOCK CHANGES.
In connection with the closing of the consolidation, the members of
both Catskill Development and Monticello Raceway Development will receive, in
the aggregate, that number of shares of Empire Resorts' common stock equal to
80.25% of Empire Resorts' common stock, calculated on a post-consolidation,
fully diluted basis. No adjustment to this figure will be made as a result of
changes in the market price of Empire Resorts' common stock. In addition, no
party to the restated contribution agreement may terminate or renegotiate its
terms solely because of a change in the common stock's market price. Therefore,
if the price of Empire Resorts' common stock increases, the members of both
Catskill Development and Monticello Raceway Development may receive more value
at the completion of the consolidation than the parties intended or than would
otherwise be fair.
FOLLOWING THE CONSOLIDATION, EMPIRE RESORTS' USE FOR FEDERAL INCOME
TAX PURPOSES OF ITS ACCUMULATED NET OPERATING LOSSES TO OFFSET FUTURE INCOME
WILL BE LIMITED.
As of September 30, 2003, Empire Resorts had net operating loss
carryforwards of approximately $59,000,000 set to expire between 2008 and 2022.
The consolidation, however, will trigger certain provisions of the Internal
Revenue Code that will limit the future utilization of Empire Resorts' net
operating loss carryforwards to offset its future federal taxable income.
Generally speaking, following the consolidation, Empire Resorts will only be
permitted to utilize that portion of its net operating loss carryforwards per
year (subject to certain carryforward rules) equal to the fair market value of
its stock immediately prior to the consolidation, multiplied by the federal
long-term tax exempt rate on such date (currently 4.74% for the month of
November 2003).
FUTURE SALES OF EMPIRE RESORTS' COMMON STOCK MAY NEGATIVELY AFFECT
ITS MARKET PRICE.
The approximately 18,219,075 shares of Empire Resorts' common stock
that are to be issued pursuant to the consolidation will be immediately eligible
for resale by the members of Catskill Development and Monticello Raceway
Development. If the holders of these shares were to attempt to sell a
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substantial amount of their holdings at once, the market price of Empire
Resorts' common stock would likely decline. Empire Resorts also has outstanding
options to purchase an aggregate of 852,528 shares of common stock at an
exercise price of $2.67 per share. As these exercise prices are well below the
current market price of Empire Resorts' common stock, these options are likely
to be exercised, causing existing stockholders to experience substantial
dilution, and, most likely, a consequential drop in the common stock's market
price. Moreover, the perceived risk of this potential dilution could cause
stockholders to attempt to sell their shares and investors to "short" the stock,
a practice in which an investor sells shares that he or she does not own at
prevailing market prices, hoping to purchase shares later at a lower price to
cover the sale. As each of these events would cause the number of shares of
Empire Resorts' common stock being offered for sale to increase, the common
stock's market price would likely further decline. All of these events could
combine to make it very difficult for Empire Resorts to sell equity or
equity-related securities in the future at a time and price that it deems
appropriate.
AS PART OF THE CONSOLIDATION, EMPIRE RESORTS IS OBLIGATED TO REDEEM
2,392,857 SHARES OF ITS COMMON STOCK, CAUSING THE POSSIBLE ASSUMPTION OF
LIABILITIES.
One of the conditions to the consolidation's closing is for Empire
Resorts to redeem from The Bryanston Group and Beatrice Tollman an aggregate of
2,392,857 shares of common stock at $2.12 per share. The total cost of this
redemption is $5,072,284, which Empire Resorts can pay in cash, by issuing a
note, or any combination of the two. As Empire Resorts does not have a
significant amount of cash on hand, to redeem these shares Empire Resorts will
likely need to issue a note for the full $5,072,284. The terms of this note
would require approximately 13% of the principal to be paid on the first
anniversary of issuance and for the whole note to be repaid within three years.
No assurance can be given that Empire Resorts will have enough revenue or cash
on hand to repay this indebtedness when it becomes due.
A SUBSTANTIAL NUMBER OF SHARES OF EMPIRE RESORTS' COMMON STOCK WILL
BE ISSUED PURSUANT TO THE TERMS OF THE CONTRIBUTION AGREEMENT, SUBSTANTIALLY
DILUTING EMPIRE RESORTS' CURRENT STOCKHOLDERS' OWNERSHIP POSITION.
Under the terms of the contribution agreement, Empire Resorts will
issue that number of shares of common stock to the members of both Catskill
Development and Monticello Raceway Development equal to, in the aggregate,
80.25% of Empire Resorts' outstanding common stock, calculated on a
post-consolidation, fully diluted basis. As a result of this issuance, Empire
Resorts' existing stockholders will go from controlling approximately 60% of
Empire Resorts' outstanding common stock prior to the redemption of The
Bryanston Group's and Beatrice Tollman's Empire Resorts' common stock, as
described in the preceding risk factor, to holding just 19.75% after completion
of the consolidation. Thus, Empire Resorts' existing stockholders will remain as
minority stockholders, but with less power or influence over Empire Resorts'
future direction.
22
RISKS RELATED TO THE COMBINED ENTERPRISE
EMPIRE RESORTS CURRENTLY FACES A LIQUIDITY SHORTFALL.
Empire Resorts had no revenue in 2002, and at October 1, 2003 its
current liabilities exceed current assets by $1,018,743. In addition, to begin
the development of a Native American casino, Empire Resorts will need to raise
substantial capital from outside investors. Empire Resorts expects to raise
these needed funds through either debt or equity financing. Empire Resorts'
ability to secure debt financing, however, is questionable, as it will likely
have over $5 million in subordinated debt at closing due to the redemption of
the common stock held by The Bryanston Group and Beatrice Tollman, and its
assets will consist almost entirely of Monticello Raceway, a small harness horse
racing facility located in Monticello, New York, and various contractual rights
related to the development of a Native American casino, which contracts may not
be directly financeable until some of them have been approved by the National
Indian Gaming Commission and/or the Bureau of Indian Affairs. See "Risk Factors
- Risks Related to the Combined Enterprise - Monticello Casino Management and
Monticello Raceway Development have entered into agreements with the Cayuga
Nation of New York which may not be financeable until some of them are approved
by the National Indian Gaming Commission and/or the Bureau of Indian Affairs, a
process that could take years" beginning on page 27. Nevertheless, should Empire
Resorts be able obtain debt financing, such debt will likely contain
restrictions that may limit or prohibit future actions, and allow the lender to
accelerate the loan upon a default. Empire Resorts' ability to secure equity
financing is also highly uncertain, given current market conditions and the fact
that neither Empire Resorts nor its subsidiaries have significant casino gaming
experience. In addition, any future equity financing will dilute the equity
position of Empire Resorts' stockholders and no assurance can be given that
equity financing can be obtained on reasonable terms or at all.
EMPIRE RESORTS HAS RECEIVED AN OPINION FROM ITS AUDITORS THAT
EXPRESSES DOUBT ABOUT EMPIRE RESORTS' ABILITY TO CONTINUE AS A GOING CONCERN.
The opinion of Friedman Alpren & Green LLP, Empire Resorts'
independent auditors with respect to Empire Resorts' financial statements as of
December 31, 2001 and 2002, contains an explanatory paragraph that expresses
substantial doubt as to Empire Resorts' ability to continue as a going concern.
This opinion indicates that substantial doubt exists regarding Empire Resorts'
ability to continue to remain in business as currently structured. Such an
opinion may adversely affect Empire Resorts' ability to obtain new financing on
reasonable terms or at all.
FOLLOWING THE CONSOLIDATION, EMPIRE RESORTS WILL BE STRUCTURED AS A
HOLDING COMPANY, DEPENDENT ON THE OPERATIONS OF MONTICELLO RACEWAY MANAGEMENT,
MONTICELLO CASINO MANAGEMENT, MONTICELLO RACEWAY DEVELOPMENT AND MOHAWK
MANAGEMENT, AND THEIR ABILITY TO PAY DIVIDENDS OR MAKE DISTRIBUTIONS, IN ORDER
TO GENERATE INTERNAL CASH FLOW.
Following the consolidation, Empire Resorts will be a holding
company, owning all the capital stock or membership interests, as the case may
be, of Monticello Raceway Management, Monticello Casino Management, Monticello
Raceway Development and Mohawk Management. Empire Resorts will therefore be
dependent on these companies to pay dividends or make distributions in order to
23
generate internal cash flow and to satisfy its obligations. There can be no
assurance, however, that these subsidiaries will generate enough revenue to pay
cash dividends or make cash distributions. In addition, these subsidiaries may
enter into contracts that limit or prohibit their ability to pay dividends or
make distributions.
THE ABILITY OF EMPIRE RESORTS TO SUCCESSFULLY MANAGE AND DEVELOP A
NATIVE AMERICAN CASINO IS UNCERTAIN GIVEN EMPIRE RESORTS' LACK OF EXPERIENCE
WITH NATIVE AMERICAN CASINOS.
Empire Resorts has no experience in managing or developing Native
American casinos. Native American casinos are unique gaming ventures that
require highly skilled and knowledgeable managers given the complexity of
regulation governing their operation. In addition, as the respective interests
of the Native American tribe and the casino's management company are not always
aligned, avoiding disputes can sometimes prove difficult. As a result of these
special features, several companies with gaming experience that have tried to
become involved in the management and/or development of Native American casinos
have been unsuccessful. No assurance can be given that Empire Resorts, given its
lack of Native American gaming experience, will be able to avoid the pitfalls
that have befallen other companies in order to create a successful gaming
enterprise in conjunction with the Cayuga Nation of New York.
THE CONTINUING DECLINE IN THE POPULARITY OF HORSE RACING AND
INCREASING COMPETITION IN SIMULCASTING COULD ADVERSELY IMPACT THE BUSINESS OF
THE COMBINED ENTERPRISE.
There has been a general decline in the number of people attending
and wagering at live horse races at North American racetracks due to a number of
factors, including increased competition from other forms of gaming,
unwillingness of customers to travel a significant distance to racetracks and
the increasing availability of off-track wagering. The declining attendance at
live horse racing events has prompted racetracks to rely increasingly on
revenues from inter-track, off-track and account wagering markets. The
industry-wide focus on inter-track, off-track and account wagering markets has
increased competition among racetracks for outlets to simulcast their live
races. A continued decrease in attendance at live events and in on-track
wagering, as well as increased competition in the inter-track, off-track and
account wagering markets, could lead to a decrease in the amount wagered at
Monticello Raceway. Empire Resorts' post-consolidation business plan anticipates
the possibility of Monticello Raceway attracting new customers due to casino
development or video lottery terminal operations. However, there can be no
assurances that new customers will be attracted to Monticello Raceway, and, even
if the numerous arrangements, approvals and legislative changes necessary for
casino development or video lottery terminal operations occur, Monticello
Raceway may not be able to maintain profitable operations. Public tastes are
unpredictable and subject to change. Any decline in interest in horse racing or
any change in public tastes may adversely affect Monticello Raceway's revenues
and, therefore, limit its ability to make a positive contribution to Empire
Resorts' future results.
CERTAIN STOCKHOLDERS OF EMPIRE RESORTS MAY BE ENTITLED TO CERTAIN
RESCISSION RIGHTS.
There is a possibility that Empire Resorts may have offered and sold
certain shares of common stock in violation of Section 5 of the Securities Act
of 1933, as amended. As a result, the purchasers of such shares may be entitled
to a number of remedies, including a one year rescission right with respect to
24
any shares of common stock which have been improperly sold to them.
Specifically, the transactions in question relate to the sale of 579,149 shares
of common stock from April 15, 2003 through September 2003, that had an
aggregate purchase price of $4,632,649. Such purchasers could be entitled to
have the aggregate purchase price of such shares refunded by Empire Resorts,
plus interest. Empire Resorts cannot assure investors that it has, or will be
able to obtain, capital sufficient to fund any such repurchases, if required.
Currently, Empire Resorts has reported this risk of rescission as a
contingent liability in the notes to its financial statement. However, if it
becomes likely that a rescission offer will have to be made, Empire Resorts will
have to adjust its financial statements to reclassify up to $4,632,649 from
stockholders' equity to a liability.
GAMING ACTIVITIES ARE DEPENDENT ON GOVERNMENTAL REGULATION AND
APPROVALS. CHANGES IN SUCH REGULATION OR THE FAILURE TO OBTAIN OR MAINTAIN SUCH
APPROVALS COULD ADVERSELY AFFECT EMPIRE RESORTS.
The current or future gaming operations of Empire Resorts and its
subsidiaries are highly regulated and contingent upon continued governmental
approval as forms of legalized gaming. Empire Resorts and/or its subsidiaries
may be unable to obtain, maintain or renew governmental licenses, registrations,
permits and approvals necessary for the operation of their pari-mutuel wagering
and other gaming activities. For example, a license to conduct live horse racing
and simulcast wagering must be obtained annually by Monticello Raceway
Management from the State of New York. A significant change to current racing
law, or the loss, or non-renewal, of licenses, registrations, permits or
approvals could materially impact Monticello Raceway Management's revenue, limit
the number of races it can conduct or the form or types of pari-mutuel wagering
it offers, resulting in a material adverse effect on its business. In addition,
Monticello Raceway Management currently devotes significant financial and
management resources to complying with the various governmental regulations to
which its operations are subject. Any significant increase in governmental
regulation would increase the amount of its resources devoted to governmental
compliance, substantially restrict its business, and, consequently, materially
adversely affect its results.
THE GAMING INDUSTRY IN THE NORTHEASTERN UNITED STATES OF AMERICA IS
HIGHLY COMPETITIVE, WITH MANY OF EMPIRE RESORTS' COMPETITORS BETTER KNOWN AND
FINANCIALLY STRONGER.
The gaming industry in the northeastern United States of America is
highly competitive and increasingly run by multinational corporations that enjoy
widespread name recognition, established brand loyalty, decades of casino
operation experience and a diverse portfolio of gaming assets. Atlantic City is
only two hours away and Park Place Entertainment Corporation, the world's
largest gaming conglomerate, and Trading Cove Associates, the developers of the
Mohegan Sun casino in Connecticut, are currently trying to develop a Native
American casino on properties that neighbor Monticello Raceway. In contrast,
Empire Resorts has limited financial resources and, following the consolidation,
will initially be limited to the operation of a harness horse racing facility in
Monticello, New York. No assurance can be given that Empire Resorts will be able
to compete successfully with the established Atlantic City casinos, or the
casinos proposed to be developed by Park Place Entertainment Corporation and
Trading Cove Associates in the Catskills region, for local gaming customers.
25
IF EMPIRE RESORTS DOES NOT MEET CERTAIN REGULATORY SUITABILITY
REQUIREMENTS, IT MAY BE FORCED TO SELL ITS OWNERSHIP INTEREST IN CERTAIN GAMING
ACTIVITIES AT A DISCOUNT.
Empire Resorts is required to be licensed or otherwise approved in
each jurisdiction where a gaming entity in which Empire Resorts has a
significant ownership interest operates. Obtaining such a license normally
involves Empire Resorts receiving a determination of "suitability."
Consequently, should Empire Resorts ever be found to be unsuitable by the State
of New York to participate in gaming operations, Empire Resorts would be forced
to liquidate all of its interests in Monticello Raceway Management, Monticello
Casino Management and Monticello Raceway Development in a prescribed period of
time, as each of these entities is either involved in, or plans to be involved
in, gaming activities in the State of New York. Moreover, should Empire Resorts
ever be ordered by the State of New York to sell all of its interests in
Monticello Raceway Management, Monticello Casino Management and Monticello
Raceway Development within a relatively short period of time, Empire Resorts
would likely be forced to sell these interests at a discount, thus causing the
value of its stock to diminish.
SEVERAL OF EMPIRE RESORTS' FORMER OFFICERS AND DIRECTORS HAVE BEEN
INDICTED ON FRAUD CHARGES, AND EMPIRE RESORTS' SUITABILITY DETERMINATION TO
PARTICIPATE IN GAMING ACTIVITIES COULD ACCORDINGLY BE ADVERSELY AFFECTED.
During 2002, certain affiliates of The Bryanston Group, Empire
Resorts' largest stockholder, and six of Empire Resorts' former officers and
directors were indicted for various counts of tax and bank fraud. Moreover, on
September 5, 2003, one of these former directors who is also an affiliate of The
Bryanston Group, Brett Tollman, pleaded guilty to felony tax fraud. In December
2002, Empire Resorts entered into an agreement with The Bryanston Group and
certain of these individuals pursuant to which Empire Resorts acquired a three
year option to repurchase most of their interests in Empire Resorts and Robert
A. Berman, Empire Resorts' chief executive officer, acquired the voting rights
to these shares for three years. See "Material Conditions to Closing -
Redemption of Certain Shares of Common Stock" beginning on page 89. While none
of the acts these individuals have been charged with relate to their former
positions with or ownership interests in Empire Resorts, there can be no
assurance that none of the various governmental agencies that now, or in the
future may, regulate and license Empire Resorts' gaming related activities will
factor in these indictments in evaluating Empire Resorts' suitability. Should a
regulatory agency fail to acknowledge that these indictments are not related to
Empire Resorts' operations, Empire Resorts could lose its gaming licenses or be
forced to liquidate certain or all of its gaming interests. See "Risk Factors -
Risks Related to the Combined Enterprise - If Empire Resorts does not meet
certain regulatory suitability requirements, it may be forced to sell its
ownership interest in certain gaming activities at a discount" beginning on page
26.
EACH OF MONTICELLO CASINO MANAGEMENT AND MONTICELLO RACEWAY
DEVELOPMENT HAS ENTERED INTO AGREEMENTS WITH THE CAYUGA NATION OF NEW YORK FOR
THE PURPOSE OF JOINTLY DEVELOPING A CASINO IN MONTICELLO, NEW YORK. THE
ENFORCEMENT OF THESE CONTRACTUAL RIGHTS AGAINST THE CAYUGA NATION OF NEW YORK,
HOWEVER, MAY BE DIFFICULT.
Federally recognized Native American tribes are independent
governments, subordinate to the United States of America, with sovereign powers,
except as those powers may have been limited by treaty or the United States
26
Congress. Such tribes maintain their own governmental systems and often their
own judicial systems and have the right to tax, and to require licenses and to
impose other forms of regulation and regulatory fees, on persons and businesses
operating on their lands. As sovereign nations, federally recognized Native
American tribes are generally subject only to federal regulation. States do not
have the authority to regulate them, unless such authority has been specifically
granted by Congress, and state laws generally do not directly apply to them and
to activities taking place on their lands, unless they have a specific agreement
or compact with the state or federal government allowing for the application of
state law. Each of the contracts that Monticello Casino Management and
Monticello Raceway Development has entered into with the Cayuga Nation of New
York for the joint development of a casino provides that the law of the State of
New York will be the governing law of such contract. Empire Resorts cannot
guarantee, however, that these choice of law clauses will be enforceable,
causing Monticello Casino Management's and Monticello Raceway Development's
rights and remedies under such contracts to be uncertain.
Federally recognized Native American tribes also generally enjoy
sovereign immunity from lawsuit similar to that of the states and the United
States federal government. In order to sue a Native American tribe (or an agency
or instrumentality of a Native American tribe), the Native American tribe must
have effectively waived its sovereign immunity with respect to the matter in
dispute. Moreover, even if a Native American tribe effectively waives its
sovereign immunity, there exists an issue as to the forum in which a lawsuit can
be brought against the tribe. Federal courts are courts of limited jurisdiction
and generally do not have jurisdiction to hear civil cases relating to matters
concerning Native American lands or the internal affairs of Native American
governments. Federal courts may have jurisdiction if a federal question is
raised by the lawsuit, but that is unlikely in a typical contract dispute.
Diversity of citizenship, another common basis for federal court jurisdiction,
is not generally present in a suit against a tribe because a Native American
tribe is not considered a citizen of any state. Accordingly, in most commercial
disputes with tribes, the jurisdiction of the federal courts may be difficult or
impossible to obtain. Therefore, while the Cayuga Nation of New York has waived
its right to sovereign immunity and consented to the jurisdiction of state and
federal courts located in the State of New York, and arbitration with respect to
certain disputes, there can be no assurance that any of these provisions and the
contractual rights under these agreements will be enforceable.
MONTICELLO CASINO MANAGEMENT AND MONTICELLO RACEWAY DEVELOPMENT HAVE
ENTERED INTO AGREEMENTS WITH THE CAYUGA NATION OF NEW YORK WHICH MAY NOT BE
FINANCEABLE UNTIL SOME OF THEM ARE APPROVED BY THE NATIONAL INDIAN GAMING
COMMISSION AND/OR THE BUREAU OF INDIAN AFFAIRS, A PROCESS THAT COULD TAKE YEARS.
Monticello Casino Management and Monticello Raceway Development have
entered into a management and development agreement with the Cayuga Nation of
New York, giving Monticello Casino Management and Monticello Raceway Development
exclusive management and development rights over any gaming enterprise on 29
acres of land adjacent to Monticello Raceway that is developed by the Cayuga
Nation of New York. In order for Monticello Casino Management and Monticello
Raceway Development to carry out their obligations under these agreements,
Empire Resorts will likely need to raise financing from outside investors.
However, such financing is not likely to be available on reasonable terms, or at
all, until the management agreement has been approved by the National Indian
Gaming Commission and the Bureau of Indian Affairs has approved the transfer of
27
those 29 acres of land to the United States of America in trust for the Cayuga
Nation of New York. See "The Consolidation - General" beginning on page 30.
Obtaining such approvals, however, can take several years and no assurance can
be given that these approvals will be obtained at all. While Empire Resorts
expects these agreements to receive an expedited review from the National Indian
Gaming Commission and Bureau of Indian Affairs, as the Bureau of Indian Affairs
has previously approved a similar arrangement with respect to the same site,
prompt approval cannot be assured.
CATSKILL DEVELOPMENT AND/OR MONTICELLO RACEWAY MANAGEMENT MAY NOT BE
ABLE TO TRANSFER LAND TO THE UNITED STATES OF AMERICA IN TRUST FOR THE CAYUGA
NATION OF NEW YORK FOR THE PURPOSE OF DEVELOPING A NATIVE AMERICAN CASINO.
The Indian Gaming Regulatory Act provides that all "off-reservation"
gambling projects on lands to be transferred and held in trust by the United
States of America for the benefit of a Native American tribe must be expressly
authorized by the Bureau of Indian Affairs. Specifically, the statute states
that gaming may not be conducted on lands acquired by the United States of
America in trust for the benefit of a Native American tribe after October 17,
1988, unless the Bureau of Indian Affairs, after consultation with the tribe and
appropriate state and local officials, determines that a gaming establishment on
newly acquired lands would be in the best interest of the tribe and its members,
would not be detrimental to the surrounding community, and the governor of the
state in which the gaming activity is to be conducted concurs with the Bureau of
Indian Affair's determination. While in 2000, the Bureau of Indian Affairs
approved an application to transfer the same 29 acres of land subject to the
Land Purchase Agreement (see "Recent Developments - Ground Lease and Land
Purchase Agreement" beginning on page 123) to the United States of America in
trust for the benefit of the St. Regis Mohawk Tribe, no assurance can be given
that the Bureau of Indian Affairs will again approve such a transfer. Absent
this approval, it would be very difficult for Empire Resorts to execute its
current business plan of jointly developing a Native American casino with the
Cayuga Nation of New York.
PENDING LAWSUITS COULD THREATEN THE VIABILITY OF EMPIRE RESORTS'
POST-CONSOLIDATION BUSINESS PLAN.
Empire Resorts' ability to help develop and manage a Native American
casino in conjunction with the Cayuga Nation of New York could be hampered by
the outcome of two pending lawsuits that seek to enjoin the State of New York
from permitting the construction of any new Native American casinos within the
State of New York's borders. While the trial court recently dismissed both of
these cases, the plaintiffs have appealed this decision. Should an appellate
court overrule the trial court and reinstate these lawsuits, and should the
plaintiffs ultimately prevail, Empire Resorts' business would be restricted to
the operation of Monticello Raceway and video lottery terminals. Moreover, a
reinstatement of these lawsuits, even prior to a definitive ruling on the merits
of the cases, would hamper fundraising efforts and adversely affect the
implementation of Empire Resorts' business plan, as the Cayuga Nation of New
York and investors might abandon the Native American casino project or be
reluctant to invest given the uncertainty that such a holding would create.
28
EMPIRE RESORTS DEPENDS ON ITS KEY PERSONNEL AND THE LOSS OF THEIR
SERVICES COULD ADVERSELY AFFECT ITS OPERATIONS.
If Empire Resorts is unable to maintain its key personnel and
attract new employees following the consolidation, the execution of Empire
Resorts' business strategy may be hindered and its growth limited. If one or
more of these individuals were unable or unwilling to continue in their present
positions, Empire Resorts' and/or its subsidiaries' business could be seriously
harmed.
THE MARKET PRICE OF EMPIRE RESORTS' COMMON STOCK IS VOLATILE,
LEADING TO THE POSSIBILITY OF ITS VALUE BEING DEPRESSED AT A TIME WHEN
STOCKHOLDERS WANT TO SELL THEIR HOLDINGS.
The market price of Empire Resorts' common stock has in the past
been, and may in the future continue to be, volatile. Between January 1, 2001
and December 11, 2003, the closing price of Empire Resorts' common stock has
ranged between $.95 and $20.00. A variety of events can cause the market price
of Empire Resorts' common stock to fluctuate significantly, including, but not
necessarily limited to:
o quarter to quarter variations in operating results;
o adverse news announcements; and
o changes in market conditions in the gaming industry.
In addition, the stock market in recent years has experienced
significant price and volume fluctuations for reasons unrelated to operating
performance. These market fluctuations may adversely affect the price of Empire
Resorts' common stock at a time when an investor wants to sell its interest.
CERTAIN PROVISIONS OF EMPIRE RESORTS' CERTIFICATE OF INCORPORATION
AND BYLAWS DISCOURAGE UNSOLICITED TAKEOVER PROPOSALS AND COULD PREVENT YOU FROM
REALIZING A PREMIUM RETURN ON YOUR INVESTMENT IN EMPIRE RESORTS' COMMON STOCK.
Concurrently with the closing of the consolidation, Empire Resorts
is amending its certificate of incorporation and bylaws in order to divide its
board of directors into three classes of directors, with each class constituting
one-third of the total number of directors and the members of each class serving
staggered three-year terms. The classification of the board of directors will
make it more difficult for stockholders to change the composition of the board
of directors because only a minority of the directors can be elected at once.
The classification provisions could also discourage a third party from
accumulating Empire Resorts' stock or attempting to obtain control of Empire
Resorts, even though this attempt might be beneficial to Empire Resorts and
some, or a majority, of its stockholders. Accordingly, under certain
circumstances Empire Resorts' stockholders could be deprived of opportunities to
sell their shares of common stock at a higher price than might otherwise be
available.
In addition, pursuant to Empire Resorts' certificate of
incorporation, Empire Resorts' board of directors has the authority, without
further action by the stockholders, to issue up to 3,269,304 shares of preferred
stock on such terms and with such rights, preferences and designations,
29
including, without limitation, restricting dividends on Empire Resorts' common
stock, dilution of the common stock's voting power and impairing the liquidation
rights of the holders of Empire Resorts' common stock, as its board of directors
may determine. Issuance of such preferred stock, depending upon its rights,
preferences and designations may also have the effect of delaying, deterring or
preventing a change in control.
FOLLOWING THE CLOSING OF THE CONSOLIDATION, THE MEMBERS OF BOTH
CATSKILL DEVELOPMENT AND MONTICELLO RACEWAY DEVELOPMENT, TOGETHER, WILL BE ABLE
TO CONTROL THE OUTCOME OF ALL MATTERS REQUIRING STOCKHOLDER APPROVAL.
Following the closing of the consolidation, the members of both
Catskill Development and Monticello Raceway Development will, together, control
more than 80% of Empire Resorts' voting stock. These stockholders, when acting
together, will therefore be able to determine the outcome of all matters
requiring stockholder approval, including the election of directors and the
approval of significant corporate transactions, such as mergers or other
business combinations. This concentration of ownership may lead to actions being
taken by Empire Resorts that are inconsistent with the best interests of the
public stockholders such as lax corporate governance or resistance to
acquisition offers.
THE CONSOLIDATION
GENERAL
This information statement/prospectus is being furnished to you in
connection with Empire Resorts' proposed acquisition of Monticello Raceway
Management, Monticello Casino Management, Monticello Raceway Development and
Mohawk Management for 80.25% of Empire Resorts' common stock, calculated on a
post-consolidation, fully diluted basis. Presently, Monticello Raceway
Management is a wholly owned subsidiary of Catskill Development. Each of
Monticello Casino Management and Mohawk Management is 60% owned by Catskill
Development and 40% owned indirectly by Empire Resorts. Monticello Raceway
Development is 50% owned by Americas Tower Partners, 41% by Robert A. Berman,
Empire Resorts' chief executive officer, a member of its board of directors and
its former chairman, 7.65% by Scott A. Kaniewski, Empire Resorts' chief
financial officer and a former member of its board of directors, .05% by two
affiliates of Mr. Kaniewski and 1.3% by Philip B. Berman, Empire Resorts' vice
president of project coordination. Upon completion of the consolidation, each of
Monticello Raceway Management, Monticello Casino Management, Monticello Raceway
Development and Mohawk Management will become wholly owned subsidiaries of
Empire Resorts, and the members of both Catskill Development and Monticello
Raceway Development, together, will hold a controlling interest in Empire
Resorts.
The mechanics of the consolidation will be carried out as provided
in the amended and restated securities contribution agreement, dated as of
December 12, 2003, by and among Empire Resorts, Catskill Development and the
members of both Catskill Development and Monticello Raceway Development. A copy
of the restated contribution agreement is attached to this information
statement/prospectus as Appendix A and is incorporated by reference into this
information statement/prospectus.
30
EMPIRE RESORTS' STOCKHOLDERS WILL NOT BE ENTITLED TO STATUTORY
DISSENTERS' APPRAISAL RIGHTS IN CONNECTION WITH THE CONSOLIDATION.
The purpose of this information statement/prospectus is to inform
you of the consolidation. Your vote is not required to approve the consolidation
or any related matter, as Empire Resorts' Controlling Stockholders have already
executed a written consent:
o adopting the restated contribution agreement;
o approving the consolidation;
o amending Empire Resorts' certificate of incorporation to
provide for a staggered board of directors;
o amending Empire Resorts' certificate of incorporation to
provide the holders of Series E Preferred Stock with certain
voting rights; and
o electing three Class I, three Class II and three Class III
directors.
At the time Empire Resorts' Controlling Stockholders signed the
written consent, they controlled, collectively, approximately 51% of Empire
Resorts' voting stock, which represented enough votes to have approved each of
these items at a meeting of Empire Resorts' stockholders. As a result, no
meeting or further approval of Empire Resorts' stockholders is necessary to
effect these matters, which will become effective on or after the 20th day
following distribution of this information statement/prospectus to Empire
Resorts' stockholders, provided all closing conditions have been either
satisfied or waived.
This information statement/prospectus also constitutes a prospectus
of Empire Resorts, which is a part of the registration statement on Form S-4
filed by Empire Resorts with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, in order to register the shares of Empire
Resorts' common stock to be issued to the members of both Catskill Development
and Monticello Raceway Development pursuant to the consolidation.
Pursuant to the consolidation, Empire Resorts will issue
approximately 18,219,074 shares of its common stock to the members of both
Catskill Development and Monticello Raceway Development. The aggregate value of
such shares, based on the closing price per share of Empire Resorts' common
stock on December 12, 2003 of $9.71, is approximately $176,9907,209.
This information statement/prospectus has been sent to you because
on November 25, 2003, the day Empire Resorts' Controlling Stockholders executed
the written consent:
o adopting the restated contribution agreement;
o approving the consolidation;
31
o amending Empire Resorts' certificate of incorporation to
provide for a staggered board of directors;
o amending Empire Resorts' certificate of incorporation to
provide the holders of Series E Preferred Stock with certain
voting rights; and
o electing three Class I, three Class II and three Class III
directors,
you were a holder of record of Empire Resorts' common stock.
To the extent that certain holders may be required to deliver a
prospectus in connection with the reoffering and resale of shares of Empire
Resorts' common stock issued in the consolidation, the registration statement of
which this information statement/prospectus forms a part will also cover any
such reoffering and resale.
BACKGROUND OF THE CONSOLIDATION
EMPIRE RESORTS' AND CATSKILL DEVELOPMENT'S JOINT EFFORT TO BRING
CASINO GAMBLING TO NEW YORK STATE
Casino gambling is illegal in New York State. However, a federal
statute, the Indian Gaming Regulatory Act, permits different types of gaming,
including casino gambling, on Native American land under specified conditions.
The Indian Gaming Regulatory Act classifies gaming activities into three
different categories. Native American tribes have exclusive jurisdiction over
Class I gaming, which includes social games and traditional forms of Indian
gaming connected to tribal ceremonies. Class II gaming, defined by the Indian
Gaming Regulatory Act to include "the game of chance commonly known as bingo
(whether or not electronic, computer or other technologic aids are used in
connection therewith) ... including (if played in the same location) pull-tabs,
lotto, punch boards, tip jars, instant bingo, and other games similar to bingo
....," is regulated by the National Indian Gaming Commission ("CLASS II GAMING").
All other gaming activity (including both electronic gaming devices and
traditional casino games, such as card tables, craps, roulette, and slot
machines) is Class III gaming ("CLASS III GAMING").
The Indian Gaming Regulatory Act permits Native American tribes to
petition the governor of their host state for a so-called "compact" that would
allow Class III Gaming on reservation lands and/or on lands to be acquired and
held in trust by the United States of America for the benefit of the tribe.
These compacts define which types of Class III Gaming activities the tribes can
conduct, and usually provide that a portion of the gaming revenues will go to
the state. Any compact between the state and the tribe must be approved by the
Bureau of Indian Affairs. To date, only three tribes in New York have
successfully petitioned the governor for compacts: the Oneida Nation in 1992,
the St. Regis Mohawk Tribe in 1993 and the Seneca Nation of Indians in 2002.
Following the signing of these compacts, the Oneida Nation opened a casino in
western New York, near Syracuse, the St. Regis Mohawk Tribe opened a casino on
their Akwesasne Reservation near the Canadian border, and on January 1, 2003,
the Seneca Nation of Indians opened an 82,500 square foot casino in Niagara
Falls.
32
In 1995, leaders of the St. Regis Mohawk Tribe opened discussions
with Empire Resorts and a group of Sullivan County, New York businessmen who
were looking to develop a gaming enterprise, using Monticello Raceway in
Monticello, New York as a cornerstone for the operation. In October 1995, these
businessmen and Empire Resorts formed a coalition which created Catskill
Development to pursue this project and seek federal approval for the plan.
Catskill Development planned to sell 29 acres of land to the St. Regis Mohawk
Tribe, which would transfer the land to the United States of America to hold in
trust for the St. Regis Mohawk Tribe. Catskill Development would then help the
St. Regis Mohawk Tribe operate the casino, and in return take a share of the
revenues.
Catskill Development acquired Monticello Raceway and its surrounding
land for $10 million on June 3, 1996. Of the real property purchased, 29 acres
adjacent to Monticello Raceway were set aside for the casino. At the same time,
Catskill Development and Empire Resorts created Mohawk Management to provide
technical and financial expertise to assist the St. Regis Mohawk Tribe in
obtaining financing and to manage, operate, and maintain the casino. The parties
also created Monticello Raceway Development to develop the casino property, and
to assist the St. Regis Mohawk Tribe in obtaining a loan to finance the
construction, equipping, and operation of the casino. As the coordinating
entity, Catskill Development acted for both Mohawk Management and Monticello
Raceway Development in seeking the necessary local, state and federal approvals
needed to build and operate the casino.
On July 31, 1996, the St. Regis Mohawk Tribe, Catskill Development,
Mohawk Management and Monticello Raceway Development entered into a number of
agreements, which were last amended in 1999. The agreements were as follows:
o a land purchase agreement between the St. Regis Mohawk Tribe
and Catskill Development pursuant to which, in exchange for $10
million, Catskill Development would transfer 29 acres of land
adjacent to Monticello Raceway to the United States of America
in trust for the St. Regis Mohawk Tribe;
o a gaming facility management agreement granting Mohawk
Management the exclusive right to manage the day-to-day
operations of the contemplated casino;
o a shared facilities agreement between the St. Regis Mohawk
Tribe and Catskill Development, under which the St. Regis
Mohawk Tribe agreed to develop and build the casino, and
Catskill Development agreed to improve and operate the
racetrack; and
o a development and construction agreement between the St. Regis
Mohawk Tribe and Monticello Raceway Development, in which the
St. Regis Mohawk Tribe granted Monticello Raceway Development
the right to plan and to build the casino, and Monticello
Raceway Development agreed to help the St. Regis Mohawk Tribe
obtain financing for the construction.
33
RECEIPT OF REGULATORY APPROVALS
Before work could begin under any of these agreements, however, the
parties needed to receive a number of state and federal regulatory approvals.
Specifically, pursuant to the Indian Gaming Regulatory Act, gaming management
contracts for Class III Gaming, and all collateral arrangements, must first be
approved by the National Indian Gaming Commission. In addition, the Indian
Gaming Regulatory Act provides that off-reservation gaming projects on lands to
be transferred and held in trust by the United States of America for the benefit
of a Native American tribe must be expressly authorized by the Bureau of Indian
Affairs and the governor of the state in which the gaming activity is to be
conducted.
On August 2, 1996, Catskill Development and the St. Regis Mohawk
Tribe applied to the National Indian Gaming Commission for approval of the
gaming facility management agreement and to the Bureau of Indian Affairs to
transfer the land adjacent to Monticello Raceway to the United States of America
in trust for the benefit of the St. Regis Mohawk Tribe. After reviewing the land
to trust transfer application for 3 1/2 years, the Bureau of Indian Affairs
approved it on April 6, 2000 and requested that New York State Governor George
Pataki concur with its findings. However, before Governor Pataki had time to
concur or the National Indian Gaming Commission had a chance to approve the
casino management agreement, Park Place Entertainment Corporation induced the
leadership of the St. Regis Mohawk Tribe to enter into an exclusive agreement
with Park Place Entertainment Corporation (the "PARK PLACE AGREEMENT")
concerning casino development in New York. The terms of the Park Place Agreement
effectively terminated all of the St. Regis Mohawk Tribe's agreements with
Catskill Development, Mohawk Management and Monticello Raceway Development.
Following these events, Catskill Development, Mohawk Management and Monticello
Raceway Development each began searching for a new Native American partner and
sued Park Place Entertainment Corporation, and certain individuals, for
intentional interference with contractual relations and interference with
business relations. See "Material Conditions to Closing - Formation of
Litigation Trust" beginning on page 86 for a more detailed discussion of this
litigation.
DISCUSSIONS WITH CAYUGA NATION OF NEW YORK AND APPROVAL OF VIDEO
LOTTERY TERMINALS
The status of the agreement signed by Catskill Development and its
affiliates with the St. Regis Mohawk Tribe was complicated by a dispute between
two factions of the St. Regis Mohawk Tribe over which of two factions was
entitled to federal recognition as the true government of the St. Regis Mohawk
Tribe. These agreements had originally been committed to by both factions in the
dispute, however, only one faction had abandoned the agreements and the issue of
recognition had not yet been finally determined by the Bureau of Indian Affairs.
While renewed discussions were undertaken with several Native American tribes
following the Park Place Agreement, Catskill Development ultimately decided,
pending the final determination of the Bureau of Indian Affairs, to maintain its
relationship with the faction of the St. Regis Mohawk Tribe that opposed the
Park Place Agreement. A final determination adverse to this faction was made in
July of 2002 and Catskill Development then renewed its discussions with other
Native American tribes for developing a casino in Monticello, New York.
While there are a number of Native American tribes with historical
ties to New York that expressed interest in the casino project, the principals
of Catskill Development and Empire Resorts believed that the State of New York
34
was most interested in awarding gaming compacts to tribes that actually
maintained a presence in the State of New York. Of such tribes, several had
previously expressed no interest in conducting gaming activities. Discussions,
however, were held with three interested tribes, two of which had proceeded or
were proceeding with plans to develop unrelated casinos in western New York.
Negotiations proceeded furthest with a third tribe, the Cayuga
Nation of New York. Catskill Development considered the Cayuga Nation of New
York as its preferred partner for several reasons. First, Catskill Development
had previously engaged in cordial and productive discussions with the Cayuga
Nation of New York prior to deciding to proceed with the St. Regis Mohawk Tribe.
Second, although its government is federally recognized and has significant land
claims in New York, the Cayuga Nation of New York does not have its own
reservation lands and thus could be expected to have some degree of priority
with respect to a land to trust application. In addition, it was agreed that the
framework for the venture and the application materials could be substantially
similar to those used in connection with the St. Regis Mohawk Tribe. These
materials included an agreement to purchase and then donate to the federal
government in trust the same 29 acres of land that were to be sold to the St.
Regis Mohawk Tribe for $10 million following the Bureau of Indian Affairs'
approval of the usage of such site for a Native American casino, a seven year
management agreement providing for management fees of up to 35% of net revenues
and a development agreement with respect to the casino providing for development
fees equal to 5% of development costs. The Cayuga Nation of New York, which was
also granted 300,000 shares of Empire Resorts' common stock, payable in
installments while the applications were pending, has agreed to designate a
hotel to be acquired or developed by Empire Resorts in the future as a
"preferred provider" to the casino and has the right to participate as an equity
investor at cost in certain potential commercial development projects by Empire
Resorts and its affiliates in the five mile area surrounding the casino site.
See "Empire Resorts Post-Consolidation Management and Principal Stockholders -
Certain Relationships and Related Transactions" beginning on page 174.
Accordingly, in October of 2002, Catskill Development signed a
confidential, non-binding letter of intent with the Cayuga Nation of New York
(the "CAYUGA LETTER OF INTENT") to develop a Class III Gaming enterprise under
the same basic terms and conditions as were agreed to with the St. Regis Mohawk
Tribe. Empire Resorts was subsequently made a party to the Cayuga Letter of
Intent, and on April 3, 2003, Catskill Development, Empire Resorts, Monticello
Casino Management, a newly formed entity jointly held by Catskill Development
and Empire Resorts, Monticello Raceway Development and the Cayuga Nation of New
York entered into a series of agreements virtually identical to the ones
previously entered into with the St. Regis Mohawk Tribe. As with the St. Regis
Mohawk Tribe, Catskill Development agreed to transfer 29 acres of land to the
United States of America in trust for the Cayuga Nation of New York for $10
million and Monticello Casino Management (whose ownership is identical to Mohawk
Management) and Monticello Raceway Development were granted exclusive management
and development rights for the casino and agreed to help the Cayuga Nation of
New York secure any required financing. On April 10, 2003, all of the agreements
that require federal approval were once again submitted to the Bureau of Indian
Affairs and National Indian Gaming Commission.
35
REASONS TO COMBINE COMPANIES
EVALUATION OF BUSINESS ALTERNATIVES
Empire Resorts' efforts to restructure its capital base and
ownership and realign its business interests allowed it to consider taking a
different role with respect to its participation in Catskill Development.
Although steps had been taken to reduce Empire Resorts' debt burden and
expenses, Empire Resorts had no operations which could produce recurrent income
to meet its current obligations. Although its interest in Catskill Development
had proved to be Empire Resorts' only significant valuable asset, the existing
structure of Catskill Development and the nature of Empire Resorts' interests in
Catskill Development made it unlikely that Empire Resorts would receive
distributions from Catskill Development in the near future sufficient to cover
its operating costs.
Under Catskill Development's operating agreement, amounts
contributed by certain members, including Empire Resorts through its wholly-
owned subsidiary Alpha Monticello, to purchase the Monticello Raceway, its
surrounding property and the payment of certain development costs are treated as
preferred contributions that accrue interest and are entitled to be returned on
a priority basis at 10%, compounded annually. In addition, under the terms of a
settlement in an arbitration proceeding that Empire Resorts had filed in
September 1999, two members of Catskill Development, Americas Tower Partners and
Monticello Realty, were granted a $5,000,000 mortgage on the Monticello Raceway
property with interest compounded annually at 10%. This senior mortgage
obligation, together with the preferred capital contributions, and the interest
thereon, are to be repaid no later than September 15, 2004, and must be repaid
before any earnings from any of Catskill Development's lines of business would
be available for distribution to Empire Resorts. By September 2003, such
obligations exceeded $45 million. As a result, Empire Resorts' ability to
generate near term cash flow from its interest in Catskill Development is
limited to the return of its own preferred capital contributions and the
interest thereon, while amounts being generated by the operation of Monticello
Raceway are being retained by Catskill Development for working capital purposes
and to fund litigation and development expenses in conjunction with other
potential gaming operations at the track.
As a result, Empire Resorts encouraged Catskill Development to
review its strategic alternatives and consider a broad restructuring of Catskill
Development's interests and Catskill Development undertook an informal process
to select an investment banking firm to assist in the review. Joseph E.
Bernstein, Ralph J. Bernstein and Robert A. Berman suggested candidates to carry
out this function and Morad Tahbaz, Catskill Development's president suggested
CIBC World Markets ("CIBC") based on that firm's work in a recent transaction
for Air Methods Corp., a company for which Mr. Tahbaz serves as a director.
CIBC, which has had no other relationships with Empire Resorts or Catskill
Development, is a full service investment banking firm active in North America
with a significant client base among United States gaming operators. In October
of 2002, Catskill Development entered into a ninety day agreement which retained
CIBC to act as Catskill Development's financial advisor in connection with a
possible sale or merger of all or a portion of Catskill Development's assets, or
a possible joint venture, management agreement or similar agreement between
Catskill Development and a third party to own and/or operate a Native American
gaming facility at Monticello Raceway. CIBC examined what it viewed as the full
36
range of options available to Catskill Development, including alternative ways
of using the existing racetrack asset and/or the additional real estate, either
by contributing the asset to a joint venture, entering into a recapitalization
transaction, or an outright sale, as well as the use of project finance
techniques in structuring financing arrangements for the project. Neither Empire
Resorts nor Catskill Development has engaged CIBC to advise it with respect to
the consolidation or received any report, appraisal or opinion with respect
thereto from CIBC, including any report, opinion or appraisal relating to the
fairness of the consideration to be paid to any party in connection with the
consolidation or of the fairness of the transaction to the stockholders of any
entity or any other party.
After the signing of the Cayuga Letter of Intent, CIBC's efforts
increasingly focused on potential partnership arrangements with existing casino
gaming operators. From November 2002 through January 2003, Empire Resorts
participated with Catskill Development in discussions with several established
gaming companies, including five that performed some level of due diligence and
two that made specific proposals to Empire Resorts. These proposals, although
preliminary in nature, were highly unsatisfactory from Empire Resorts'
perspective. Although these companies offered to provide brand name recognition
and management expertise to the venture, each requested a substantial stake in,
and immediate control over the venture, while conditioning any investment of
their own funds on further development efforts by Catskill Development that
would require substantial additional investment by Catskill Development. As a
result, the dilution in Empire Resorts' and Catskill Development's overall
interest in any subsequently developed gaming enterprise was expected to
substantially exceed 50%. Furthermore, in its efforts to fashion
counter-proposals to these offers, Catskill Development found that the differing
interests of its voting members in Catskill Development's various businesses
made it difficult for the voting members to agree on a common response.
Another major impediment to moving forward with any of the strategic
alternatives proposed by CIBC was the fact that on April 17, 2002 six of Empire
Resorts' former officers and directors, including Stanley Tollman and Monty
Hundley, were indicted for various counts of tax and bank fraud. Each of Stanley
Tollman and Monty Tollman is a direct affiliate of The Bryanston Group, which is
Empire Resorts' largest stockholder and was, at the time, one of Catskill
Development's four voting members. As these indictments directly affected major
equity holders of both Empire Resorts and Catskill Development, the parties
recognized that under their current structure it would be very difficult for
either Empire Resorts or Catskill Development to operate in a highly regulated
field such as gaming or to find a third party interested in some sort of sale or
joint venture.
In an attempt to remove The Bryanston Group and its affiliates from
any position of control over either Empire Resorts or Catskill Development, in
December 2002, pursuant to a recapitalization agreement (the "BRYANSTON
RECAPITALIZATION"), Empire Resorts (i) issued an aggregate 336,496 shares of
non-voting Series E preferred stock to each of The Bryanston Group, Stanley
Tollman and Monty Hundley in full satisfaction of an outstanding note and as
deferred compensation, (ii) issued 1,394,200 shares of non-voting Series E
Preferred Stock to The Bryanston Group in exchange for The Bryanston Group's
voting membership interest and preferred capital account in Catskill
Development, (iii) received a three year option to redeem all or any portion of
(a) the Series E preferred stock issued to The Bryanston Group, Stanley Tollman
37
and Monty Hundley, as described above, at its liquidation value ($10 per share)
plus all accrued and unpaid dividends and (b) subject to stockholder approval,
which was obtained on January 31, 2003, The Bryanston Group's 2,326,857 shares
of common stock and 66,000 of Beatrice Tollman's shares of common stock at a
price of $2.12 per share. During this three year redemption period, The
Bryanston Group and Beatrice Tollman granted Robert A. Berman irrevocable
proxies to vote their shares of common stock, with full powers of substitution
and revocation.
During CIBC's evaluation period and while the terms of the Bryanston
Recapitalization were being negotiated, Robert A. Berman, Empire Resorts' chief
executive officer and Joseph E. Bernstein, a managing director of Americas Tower
Partners, conducted initial discussions to improve the alignment of their
business interests and to improve the management structure of the proposed
gaming enterprise. The discussions resulted in a proposed redraft of Catskill
Development's operating agreement, but was conditioned upon the satisfactory
resolution of Empire Resorts' restructuring with The Bryanston Group. This
restated operating agreement proposed replacing the various separate percentage
interests of each member in Catskill Development's different lines of business
with a single percentage held by each member in all of the combined businesses.
At the time, Empire Resorts owned 48.31% and 25.00%, respectively, of the casino
and real estate operations of Catskill Development. These interests were
subordinate to approximately $47 million of preferred payments, the majority of
which were due to other members of Catskill Development. Given the nature of the
structure of Catskill Development and its related entities, it was difficult to
allocate future profits, therefore the parties agreed to a single percentage of
37.59% for Empire Resorts. This agreement was based on an approximate 50%
allocation to the casino and 50% to the real estate operations, adjusted for
certain fee income for development and management services payable to Monticello
Raceway Development and others multiplied by Empire Resorts' economic ownership
interests in the casino and real estate operations. Empire Resorts' position was
that the $47 million of preferred payments should be expunged, but Joseph E.
Bernstein insisted they remain in tact. Under the best case scenario, Empire
Resorts projected, other than its preferred capital balance, receiving little
future distributions from Catskill Development. Ultimately, the proposal was
abandoned because of the unwillingness of The Bryanston Group and Americas Tower
Partners/Monticello Realty to give mutual releases of potential claims under the
existing operating agreement.
During December 2002 and January 2003, CIBC continued its efforts to
arrange for a potential joint venture arrangement on terms acceptable to Empire
Resorts. These efforts resulted in initial proposals from two gaming companies
and a meeting in New York City on January 29, 2003 with a potential joint
venture partner, its attorneys and financial advisors. This meeting was attended
by representatives of, and attorneys for, Catskill Development, the chief
executive officer, chief financial officer and other representatives of Empire
Resorts and representatives of and counsel for CIBC. However, this meeting ended
without an agreement and the parties thereafter terminated their discussions.
Immediately following this meeting the representatives of Catskill
Development and Empire Resorts discussed the process of negotiation with the two
potentially interested parties, and concluded that there was no one interested
in doing a transaction with Catskill Development unless Catskill Development
continued to underwrite the costs and risks of obtaining the requisite approvals
38
to execute its business plan, that the parties would need to unify their efforts
and speak with one voice in order to best deploy their own assets and raise the
necessary capital and that the lack of suitable partners indicated that there
was no further need for CIBC's services.
Later on the afternoon of January 29, 2003, Robert A. Berman called
Joseph E. Bernstein to suggest a possible restructuring of Catskill Development
and Empire Resorts and/or consolidation of interests. Soon thereafter, each of
Robert A. Berman, Scott A. Kaniewski, Paul A. deBary and Thomas W. Aro, for
Empire Resorts, and Joseph E. Bernstein, Ralph J. Bernstein and Morad Tahbaz, on
Catskill Development's behalf, returned to meet at Empire Resorts' offices in
New York City for further discussions. By the end of the meeting a general
agreement was reached that a unified, corporate structure would be a more
effective vehicle for the venture to move forward, because it could unite the
ownership of Catskill Development's members' various assets, provide a single
decision structure for implementing strategic plans, broaden the asset base for
potential financings and provide a more understandable entity to potential
business partners and investors. It was also agreed that Empire Resorts could
assume primary responsibility for managing the various operations and projects
of Catskill Development if (1) the members of Catskill Development could be
represented on Empire Resorts' board of directors, (2) outside directors with
relevant experience could be recruited to sit on Empire Resorts' board of
directors and (3) Empire Resorts relinquished its economic ownership interest in
Catskill Development's real estate holdings.
Accordingly, the members of Catskill Development commenced intense
negotiations from January 30, 2003 through February 2, 2003 with the intent of
accomplishing a new corporate structure for the venture. Initially, discussions
were held between Robert A. Berman and Joseph E. Bernstein in a series of
telephone conversations that took place between January 30 and January 31, 2003.
These negotiations were also attended or participated in by telephone by Paul A.
deBary and Scott A. Kaniewski on behalf of Empire Resorts and Ralph J.
Bernstein, Morad Tahbaz and Maurice Dabbah on behalf of Americas Tower Partners
and Monticello Realty. Although these conversations included broad discussions
regarding valuations, preferred capital and corporate governance, there was a
basic broad agreement among the members regarding several areas. These included:
o replacing the various separate percentage interests of each
member in Catskill Development's different lines of business
with a single percentage held by each member in all of the
combined businesses. The percentages that had been proposed and
found acceptable by both parties in connection with the
discontinued negotiations for an amended operating agreement
were used as a basis for determining the appropriate percentage
share interests to be given to the other members of Catskill
Development by Empire Resorts in exchange for Catskill
Development's operating and development assets. See page 38.
However, these percentages were adjusted for the elimination of
the approximate $47 million of preferred payments, the transfer
to Empire Resorts of certain fee income for development and
management services payable to Monticello Raceway Development
and others and the settlement of future claims regarding The
39
Bryanston Group's legal issues. These percentages were further
adjusted to account for the proportionate assumption by the
other members of Catskill Development of the debt to be
incurred by Empire Resorts to buy out the interests of The
Bryanston Group in Empire Resorts and Catskill Development and
the relinquishment by Empire Resorts of its economic ownership
interests in Catskill Development's real estate holdings, all
resulting in an agreement that Empire Resorts should own 19.75%
of the post-consolidated company;
o the need to develop a more unified corporate style management
structure and to attract the participation of experienced
corporate managers in both the existing racing and wagering
operations and the development efforts of the venture;
o the confidence of the members of Catskill Development in the
ability of the current management of Empire Resorts in moving
forward with the most important projects that the venture was
involved in,
o the importance of securing Catskill Development's existing
investment in its 229 acres of land in Monticello, New York
through a long term ground lease, with a purchase option at a
price that Catskill Development's members believed was fair in
view of the risks of entering into the consolidation. The prior
agreement between Catskill Development's members includes
provisions for all capital to accrue a 10% annual return. At
the time of the negotiations, the members of Catskill
Development, other than Empire Resorts, had a total capital
account of approximately $16 million. Catskill Development
believed that the ground rent should be based on a 30% current
return on capital invested, while Empire Resorts felt that a
return closer to 6% was appropriate. The parties eventually
settled on approximately 11% and a buyout option of the ground
lease based on a 5% capitalization rate of the then current
year's rent. The parties settled on a 48 year ground lease in
order to avoid the real estate transfer taxes that would have
been imposed had the lease been 49 years or longer;
o the importance of structuring the consolidation as a tax free
transaction;
o the need to complete the buy-out of the equity interests of The
Bryanston Group and related entities in Empire Resorts as a
condition of the consolidation; and
o the value of transferring Catskill Development's litigation
claims against Park Place Entertainment Corporation to a
liquidating trust in order to allow Empire Resorts to focus its
energies on its operations and future development activities.
Over the weekend of January 31, 2003 through February 2, 2003,
Joseph E. Bernstein on behalf of Catskill Development and Paul A. deBary on
behalf of Empire Resorts exchanged drafts of a memorandum of terms to reflect
the progress of the negotiations and raise issues. These drafts were distributed
to the officers and directors of Empire Resorts and the members of Catskill
Development and various comments were communicated through further exchanges of
drafts and on conference calls between the principal negotiators, Robert A.
Berman and Messrs. Bernstein and deBary. On the afternoon of February 2, 2003, a
teleconference was conducted to update the members of both sides and to discuss
open issues. Participants on the call were Robert A. Berman, Paul A. deBary and
Scott A. Kaniewski on behalf of Empire Resorts and Joseph E. Bernstein, Ralph J.
Bernstein, and Morad Tahbaz on behalf of Catskill Development. The majority of
the conference call was spent discussing and negotiating the proposed terms of
the ground lease. The call resulted in an agreed upon structure and financial
terms. Numerous drafts of a memorandum describing this proposed approach were
circulated and discussed. By late afternoon on February 2, 2003, it appeared an
agreement was within reach. The proposal was reviewed with CIBC for the purpose
of advising CIBC that Catskill Development would no longer be pursuing
40
discussions with third parties so that CIBC's services would no longer be
needed. Following this, Robert A. Berman, then Empire Resorts' chairman of the
board, called a telephonic meeting of Empire Resorts' board of directors. The
members of Empire Resorts' board of directors subsequently participated in a
telephonic meeting, with no other participants, and Empire Resorts' board of
directors was given an oral presentation of the proposed consolidation. Empire
Resorts' board members were polled on their willingness to proceed and
additional points for negotiations were raised. These newly raised issues by
Empire Resorts' board members lead to further telephonic negotiations between
the parties' principal representatives, now including Maurice Dabbah, president
of the managing member of Monticello Realty, a member of Catskill Development. A
second meeting of Empire Resorts' board of directors was then held on the
morning of February 3, 2003, at which additional points were discussed,
including the inclusion of a condition to closing of the receipt of an
independent fairness opinion for the transaction. The final points were then
agreed to, which led to the drafting of a letter of intent and its subsequent
approval by Empire Resorts' board of directors and Catskill Development's
members. The final letter of intent was signed on Tuesday, February 4, 2003 (the
"LETTER OF INTENT").
While the Letter of Intent was being negotiated by Catskill
Development and Empire Resorts, simultaneous negotiations were being held
between the voting and non-voting members of Catskill Development over whether
the non-voting members, whose interests were subject to the priority return and
senior obligations discussed above, should receive any shares of Empire Resorts'
common stock. Under the structure then in effect, the non-voting members would
not have been entitled to any shares of Empire Resorts' common stock due to
their subordinated membership interests in Catskill Development. Nevertheless,
an agreement was soon reached among the parties pursuant to which the non-voting
members of Catskill Development agreed to surrender all of their interests in
Catskill Development at the consolidation's closing in exchange for that number
of shares of Empire Resorts' common stock that they would have been entitled to
had their interests not been subordinated.
Following the signing of the Letter of Intent, extensive
negotiations were undertaken by Empire Resorts and the other members of Catskill
Development. Considerable attention was given to domestic and foreign tax
considerations, the specific terms and conditions of the ground lease
arrangement concerning leasehold mortgages and other interests and the rights
and obligations of the lessee with respect to maintenance and improvements to
the property, and the mechanics for the creation of the liquidating trust with
respect to the ongoing litigation against Park Place Entertainment Corporation.
These negotiations resulted in the execution of definitive agreements with
respect to the consolidation on July 3, 2003.
41
OTHER REASONS FOR THE CONSOLIDATION
In addition to allowing Catskill Development to streamline its
management structure and better align the economic interests of its members,
Alpha Monticello, the wholly-owned subsidiary of Empire Resorts and Catskill
Development's other members considered the proposed consolidation advantageous
for a number of other reasons. Specifically, Alpha Monticello, the wholly-owned
subsidiary of Empire Resorts and the members of Catskill Development believed
that should Empire Resorts, Monticello Casino Management and Monticello Raceway
Management be combined into a single public company, it would expedite the
review of its casino management and land purchase agreements by the Bureau of
Indian Affairs and/or the National Indian Gaming Commission, because much of the
information required by these agencies is already contained within Empire
Resorts' required Securities and Exchange Commission filings. Moreover, each of
Catskill Development, Monticello Raceway Development and the board of Empire
Resorts believed that the review of their casino management and land purchase
agreements would be expedited since they and their affiliates had previously
entered into a series of similar Native American gaming agreements with the St.
Regis Mohawk Tribe that were previously reviewed by the Bureau of Indian Affairs
and the National Indian Gaming Commission.
If, as anticipated, quick approvals of their Native American gaming
agreements are received, the members of Catskill Development and the board of
Empire Resorts recognized that they would soon need to raise significant amounts
of financing from investors to begin the actual development of gaming
facilities. Moreover, these parties believe that it would be much easier to
raise this financing by selling publicly traded securities in a single public
company that owned all of the management and development rights with respect to
the proposed Native American casino, rather than securities from either a
private partnership or a public company with no operating business or assets
other than a minority interest in a number of interrelated closely held
companies that separately, held these management and development rights. The
enhanced ability to raise money in a single integrated public company, coupled
with the belief that a single integrated public company would expedite the
federal gaming regulatory review process, encouraged Empire Resorts and the
members of both Catskill Development and Monticello Raceway Development to
support the consolidation.
The reasons to combine became more compelling on May 15, 2003, when
the New York State legislature enacted a bill enhancing the incentives for
racetracks to participate in New York State's video lottery terminal program.
While New York State had approved the installation of video lottery terminals at
certain racetracks, including Monticello Raceway, in 2001, the operating
conditions imposed on those racetracks by the state made installing video
lottery terminals financially impractical. However, the new incentives now make
the implementation of a video lottery terminal program at Monticello Raceway a
potentially lucrative endeavor. Catskill Development and Empire Resorts estimate
that it will cost about $20 million to develop the infrastructure at Monticello
Raceway to begin a video lottery terminal program. Catskill Development and
Empire Resorts believe that the best way to raise this needed financing is
through the sale to the public of equity securities in an integrated public
company that has the rights to operate both Monticello Raceway and the
neighboring casino.
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SPECIFIC EMPIRE RESORTS' REASONS FOR THE CONSOLIDATION
While it is believed that the proposed consolidation will benefit
all the members of Catskill Development by making it easier to secure financing
for the effort to develop a Native American casino and participate in New York
State's video lottery program, the consolidation is expected to provide
additional advantages to Empire Resorts. In particular, it will alleviate
concerns about Empire Resorts' ability to continue as a going concern, because
it will allow Empire Resorts to obtain 100% direct ownership of Monticello
Raceway Management, an existing company with profitable operations and the
ability to achieve substantial growth through its participation in New York
State's video lottery terminal program. In addition, it will give Empire Resorts
100% direct ownership of Monticello Casino Management and Monticello Raceway
Development, two companies that Empire Resorts anticipates will be highly
profitable if the required federal and state approvals to begin development of
the proposed Native American casino are received.
Empire Resorts currently has no direct operations or significant
assets other than its ownership interest in Catskill Development, Monticello
Casino Management and Mohawk Management, and therefore its only existing
potential source of revenue is distributions from Catskill Development. However,
as Empire Resorts has only a minority interest in Catskill Development, it
cannot compel Catskill Development to make distributions to its members.
Moreover, as discussed above, any distributions by Catskill Development to its
members under its current operating agreement are subject to the payment of
priority obligations. Therefore, even assuming reasonably prompt success in
implementing the video lottery terminal and casino projects, Empire Resorts
estimates that, absent the consolidation, it is not likely to have a positive
cash flow until at least 2009. In connection with the consolidation, however,
these priority obligations will be effectively financed through a 48 year lease
obligation and Empire Resorts will have access to any net operating income from
Monticello Raceway, subject to the Security Agreement (as described in page 129)
and the potential returns from the video lottery and casino development and
management operations.
RECOMMENDATION OF EMPIRE RESORTS' SPECIAL COMMITTEE
When the Letter of Intent was approved by Empire Resorts' board of
directors, the directors required that the delivery of a fairness opinion be
made a condition to the consolidation's closing. All of the directors of Empire
Resorts at that time were either current officers of Empire Resorts, had direct
or indirect business interests in Catskill Development or had provided
professional services to Empire Resorts or related parties, directly or
indirectly, in the past. On February 20, 2003, Jay A. Holt was appointed a
director of Empire Resorts. Mr. Holt had no prior or current ownership interest
in Catskill Development or business relationships with Empire Resorts. He had
been a law partner of another director, Paul A. deBary, in the 1980's and had
subsequently had a career in banking. At a directors' meeting following Empire
Resorts' annual meeting on March 25, 2003, Mr. Holt was asked to serve on a
special committee of the board for the purpose of evaluating the fairness of the
consolidation. On March 25, 2003, Empire Resorts' board of directors adopted a
resolution, that was subsequently amended on April 17, 2003, to form a special
committee to (1) review and evaluate the terms and conditions, and determine the
advisability of the consolidation, (2) determine whether the consolidation is
fair to, and in the best interests of, Empire Resorts and its stockholders, and
(3) recommend to the full board of directors what action, if any, should be
43
taken by Empire Resorts with respect to the consolidation. This resolution also
authorized the special committee to hire a financial advisory firm to provide a
fairness opinion and to retain independent legal counsel. Thomas W. Aro, an
officer of Empire Resorts who had no interest in or business relationship with
Catskill Development other than as an officer of Empire Resorts, was also
appointed to serve on the special committee. Mr. Aro was, however, a member of
the board of directors of Monticello Raceway Management and was a member of the
board of managers of both Monticello Casino Management and Mohawk Management.
Following a review of the structure of the special committee by its
counsel, the special committee delivered a report to Empire Resorts' board of
directors on June 26, 2003 recommending that Mr. Aro be removed as a member of
the special committee and serve only as a liaison to the special committee. The
board of Empire Resorts effected this recommendation and on July 1, 2003
authorized Empire Resorts to sign the initial contribution agreement and all
related documents (prior to the special committee's review having been
completed), subject to receiving a favorable report from the special committee
with respect to its original mandate.
Thus, following the July 1, 2003 resolution, the special committee
consisted solely of Mr. Holt, who was considered the only director who qualified
as completely independent with respect to the transaction. It should be noted
that the special committee was not formed to evaluate the consolidation's
fairness solely with respect to Empire Resorts' unaffiliated stockholders, but
rather with respect to both Empire Resorts and its stockholders. However, in
evaluating the fairness of the consolidation with respect to Empire Resorts'
stockholders, the special committee considered the perspective of each Empire
Resorts' stockholder, both affiliated and unaffiliated. Therefore, according to
the special committee, if the special committee had concluded that the
consolidation was unfair to any or all of the unaffiliated stockholders, it
would have concluded that the consolidation was not fair to Empire Resorts'
stockholders. In light of this understanding, on September 9, 2003, the special
committee delivered a report to Empire Resorts' board of directors in which it
concluded that the consolidation is fair and in the best interests of Empire
Resorts and its stockholders and recommended that Empire Resorts' board of
directors instruct Empire Resorts' management to complete the consolidation.
In its report, the special committee reviewed the history of Empire
Resorts' failed gaming ventures, and noted that since May 2002, Empire Resorts
financial statements disclosed doubt about its ability to continue as a going
concern. The report also examined the history of Empire Resorts' involvement
with Catskill Development including their joint failure to develop a Native
American casino with the St. Regis Mohawk Tribe or obtain compensation therefore
through litigation, prior disagreements between Empire Resorts and other members
of Catskill Development, the indictment of certain of Empire Resorts' former
officers and directors, Empire Resorts' receipt of notices of its possible
delisting from the Nasdaq SmallCap Market and the recent efforts by Empire
Resorts' new management to restructure the company. The report of the special
committee also noted that in Empire Resorts' filings with the Securities and
Exchange Commission since March of 2002, Empire Resorts had disclosed that it
faces a liquidity crisis and had no sources of revenue, indicating that the
44
combination of Empire Resorts' financial condition and its lack of monetizable
assets, together with the indictments of its prior management, made it
impossible for Empire Resorts "to obtain funds in any acceptable debt or equity
market."
Specifically, the special committee cited, among other things, that
Empire Resorts sustained net losses in 2002, that its current liabilities
exceeded its current assets by more than $7,500,000, and that at the end of
2002, Empire Resorts had an accumulated deficit of $110,445,000. The special
committee also noted the recent success of Catskill Development in executing
agreements with the Cayuga Nation of New York to develop a Native American
casino in Monticello, New York and the eligibility of Monticello Raceway to
participate in the State of New York's proposed video lottery terminal program.
The special committee report also summarized Empire Resorts'
existing interests in Catskill Development, including a 25% voting interest and
its 48.31%, 36.88% and 25% economic ownership interests, respectively, in
Catskill Development's casino and wagering operations, horse racing and other
pari-mutuel activities and real estate ownership and development operations,
concluding that these interests were Empire Resorts' only meaningful assets at
the time the Letter of Intent was executed. In its report, however, the special
committee noted that before Catskill Development could make any significant
economic distributions to Empire Resorts as a member of Catskill Development, a
senior mortgage obligation had to be paid to other members of Catskill
Development and certain preferred capital contributions were required to be
repaid, mostly to other members of Catskill Development. In addition, the report
noted that under Catskill Development's operating agreement, Empire Resorts' may
not transfer its interest in Catskill Development (except to an affiliate)
without the consent of Catskill Development's other voting members.
The report of the special committee also reviewed the principal
terms of the consolidation and the post-consolidation structure of Empire
Resorts. The report noted that, although the receipt of a fairness opinion is
required as a condition to the consolidation's closing, the special committee's
evaluation focused on the condition of Empire Resorts' business and finances,
the realistic alternatives available to Empire Resorts other than the
consolidation, and that the special committee's analysis was done independently
of its valuation consultant and was based primarily on the following critical
factors: (1) Empire Resorts' illiquidity and possible insolvency; (2) Empire
Resorts' financing requirements compared to its financing capacity; and (3) the
absence, in the view of the special committee, of any realistic alternatives to
Empire Resorts' stockholders and creditors other than the consolidation.
The special committee report notes that the Letter of Intent was
entered into following the conclusion of Catskill Development's unsuccessful
search for a gaming industry partner and identified certain critical financial
factors facing Empire Resorts at that time, including the discontinuance of any
significant operations of Empire Resorts other than its efforts to develop
gaming activities with Catskill Development in Monticello, New York, the fact
that Empire Resorts' current liabilities exceeded current assets by $7,591,000,
that Empire Resorts continued to sustain losses, that Empire Resorts had
significant working capital and other financial obligations, that Empire
Resorts' investment in Catskill Development was not liquid, and that Empire
Resorts' credit had been adversely affected by the indictments of much of its
prior senior management.
45
In its review of alternatives to the consolidation, the special
committee examined the potential of project finance or whether bankruptcy or
insolvency proceedings could preserve value for Empire Resorts' creditors and
stockholders. Specifically, the special committee found that Empire Resorts
lacked any financeable assets, and that a Chapter 11 reorganization or
liquidation would not likely return any meaningful value to either Empire
Resorts' creditors or stockholders. While the special committee considered it
possible for Empire Resorts to survive a Chapter 11 proceeding, the special
committee felt that such survival was unlikely since Empire Resorts has no asset
or revenue source that could form the basis for a debtor-in-possession borrowing
to satisfy the administrative and operational costs of a Chapter 11
reorganization. The special committee was also concerned whether, in a Chapter
11 reorganization, there could be any preservation of value for Empire Resorts'
stockholders due to the development stage of the proposed gaming projects in
Monticello, New York, Empire Resorts' debt and the continuing existence of
certain preferences and barriers to transferring its interests in Catskill
Development. Moreover, the special committee concluded that, given the nature of
Empire Resorts' assets, there was no realistic liquidation scenario for Empire
Resorts that would have resulted in acceptable payments to Empire Resorts'
creditors and/or return any value to Empire Resorts' stockholders.
The special committee also noted several key factors concerning
Catskill Development's position at the time that the Letter of Intent was
executed, including the fact that that Catskill Development's assets and
liabilities at December 31, 2002 were $13,730,000 and $2,300,000, respectively,
that Catskill Development had cash flow from the operations of the Monticello
Raceway which it was retaining for working capital and casino development
purposes, that Catskill Development's business prospects included the addition
of video lottery terminals at Monticello Raceway and that Catskill Development
had entered into the Cayuga Letter of Intent with the Cayuga Nation of New York
to develop a Native American casino (although the special committee noted that
this letter of intent required Catskill Development to secure a brand name
casino operator to manage the proposed casino, and that Catskill Development had
failed to find an established casino operator who would join the project on
acceptable terms).
In its overall evaluation, the special committee also considered,
after assuming the successful future operations of Monticello Raceway, its
planned video lottery terminal program, and a Native American casino, whether
Empire Resorts' stockholders would be better off absent the consolidation. The
special committee considered that, under Catskill Development's current
structure, Empire Resorts had a 48.31% interest in the net results of Catskill
Development's casino and wagering operations, a 36.88% interest in Catskill
Development's net results of horse racing and other pari-mutuel activities, and
a 25% interest in Catskill Development's net results of real estate ownership
and development operations, which might be expected to produce a greater return
per share for Empire Resorts' existing stockholders than would be realized
post-consolidation when the same stockholders would own 19.75% of Empire.
However, the special committee felt that a comparison of the 19.75%
ownership interest in a post-consolidated Empire Resorts in contrast to full
control over the pre-consolidated Empire Resorts was not valid because the
number of shares that would comprise the 19.75% is significantly smaller than
the number of shares that today make-up Empire Resorts. The redemption of The
Bryanston Group's common stock, which is a condition of the consolidation's
closing, will reduce the number of shares outstanding by approximately 34%.
46
Although Empire Resorts has the right to redeem these shares for $2.12 per
share, in order to be able to afford to exercise this right, Empire Resorts
needs to obtain the control over productive assets with the potential to produce
positive cash flow. In addition, post-consolidation, Empire Resorts will
directly own 100% of Monticello Casino Management, of which it had previously
owned indirectly only 40%; and 100% of Monticello Raceway Management, in which
it previously had only an indirect 38% interest through Catskill Development,
and in both cases those pre-consolidation interests were subject to a senior
mortgage obligation, preferred capital contributions and priority payments.
Empire Resorts, post-consolidation, would also own 100% of Monticello Raceway
Development, in which it previously had no interest at all. Monticello Raceway
Development has the exclusive right (under grant from Catskill Development
through the year 2020) to develop the 229 acres of land owned by Catskill
Development in Monticello, New York that is intended to be the site of the
proposed Cayuga Nation of New York Native American casino, along with any hotel
facilities, restaurants, retail shops, or other activities ancillary to the
gaming project.
After evaluating the above factors, the special committee
considered, among other things, the following as positive results for Empire
Resorts in its evaluation of the fairness of the consolidation:
o Empire Resorts will own 100% of Monticello Raceway Management,
the manager of Monticello Raceway, and all of Catskill
Development's other rights with respect to Monticello Raceway,
giving Empire Resorts an immediate source of cash flow. In
addition, as Empire Resorts will own this asset directly, the
preferential system of distributions under the Catskill
Development's operating agreement will be extinguished.
o Empire Resorts, independently and through Alpha Monticello, its
a wholly-owned subsidiary, will increase its ownership of
Monticello Casino Management from 40% to 100%, allowing it to
earn a management fee of up to 35% of the net revenues for any
casino that is built on Catskill Development's land by the
Cayuga Nation of New York for up to seven years.
o Empire Resorts will own 100% of Monticello Raceway Development,
which has the exclusive right to develop Catskill Development's
229 acres of land in Monticello, New York for 25 years and
receive a developer's fee of 5% of the total project costs, a
monthly property management fee, and leasing commissions.
Moreover, Monticello Raceway Development has the exclusive
right to develop a Native American casino on this land for the
Cayuga Nation of New York in exchange for 5% of the first $505
million of project costs. Absent the consolidation, Empire
Resorts would receive none of those fees.
o Empire Resorts, through Monticello Raceway Management, will get
the right to lease 200 of the 229 acres of land in Monticello,
New York owned by Catskill Development for 48 years at
approximately $1,800,000 per annum, together with an option to
purchase all 229 acres of land.
47
o The shares of Empire Resorts' common stock held by The
Bryanston Group will be redeemed by the issuance of a note in
the amount of approximately $5 million, reducing the number of
Empire Resorts' pre-consolidation shares by 34%.
Notwithstanding each of the positive outcomes of the consolidation
highlighted above, the special committee in its evaluation also perceived
certain risks as factors to be considered with respect to the fairness of the
transaction. Specifically:
o Monticello Raceway Management might not be able to meet its
payment obligations to Catskill Development under the 48 year
ground lease if appropriate state and federal approvals are not
promptly received for the development of a Native American
casino and/or the implementation of a video lottery terminal
program, or if such operations fail to produce the anticipated
revenue.
o Following the receipt of all regulatory approvals for the
development of a Native American casino and a video lottery
terminal program, Empire Resorts will have substantial
financing requirements, both in the immediate future and as
development progresses. There can be no assurance that Empire
Resorts will be able to meet these financing requirements,
possibly leading to a default under the lease with Catskill
Development and/or management and development agreements with
the Cayuga Nation of New York.
o In connection with the closing of the consolidation, the
members of both Catskill Development and Monticello Raceway
Development will receive, in the aggregate, that number of
shares of Empire Resorts' common stock equal to 80.25% of
Empire Resorts' common stock, calculated on a
post-consolidation, fully diluted basis. No adjustment to this
figure will be made as a result of changes in the market price
of Empire Resorts' common stock. In addition, no party to the
contribution agreement may terminate or renegotiate its terms
solely because of a change in the common stock's market price.
o Moreover, as of September, 2003, Empire Resorts had net
operating loss carryforwards of approximately $59,000,000 set
to expire between 2008 and 2022. The consolidation, however,
will trigger certain provisions of the Internal Revenue Code
that will limit the future utilization of Empire Resorts' net
operating loss carryforwards to offset its future federal
taxable income. Generally speaking, following the
consolidation, Empire Resorts will only be permitted to utilize
that portion of its net operating loss carryforwards per year
(subject to certain carryforward rules) equal to the fair
market value of its stock immediately prior to the
consolidation, multiplied by the federal long-term tax exempt
rate on such date.
The special committee took each of these "positive effects" and
"risks", among other matters described in this "Recommendation of Empire
Resorts' Special Committee" subsection into account in determining the fairness
of the consolidation. Specifically, after considering all of the above described
factors and alternative scenarios, the special committee concluded that absent
48
the consolidation, Empire Resorts would not be able to realize upon the
potential value of its economic interests in Catskill Development because of the
adverse combination of:
o Empire Resorts' overall financial condition, liquidity crisis,
inability to access debt and equity markets, lack of a track
record of success in the gaming industry and the effects of the
indictments of its former executives, albeit in relation to
business matters not involving Empire Resorts;
o Empire Resorts' minority voting interest in Catskill
Development; and
o the likelihood that any disposition by Empire Resorts of its
interests in Catskill Development would be at a substantial
minority interest discount even though Empire Resorts would
retain the risks associated with the development of a Native
American gaming enterprise in Monticello, New York (through its
minority interest in Monticello Casino Management) and the
installation of video lottery terminals at Monticello Raceway.
The special committee also reviewed Empire Resorts'
post-consolidation business plan and found that there was a reasonable basis for
believing that Empire Resorts will be able to execute its post-consolidation
business plan of jointly developing a Native American casino in Monticello, New
York with the Cayuga Nation of New York and implementing a video lottery
terminal program at Monticello Raceway. As a result, the special committee
believes that the consolidation will, among other advantages:
o enhance the ability of Empire Resorts to realize upon the
potential value of the development of a Native American gaming
enterprise in Monticello, New York and the installation of
video lottery terminals at Monticello Raceway to an extent
greater than a sale of its interests in Catskill Development;
o provide Empire Resorts with a measure of liquidity to meet its
present liquidity crisis;
o provide Empire Resorts with a basis for financing arrangements
that should enable it to proceed with the video lottery
terminal project and, in due course, the casino project with
the Cayuga Nation of New York or another Native American tribe
or nation; and
o provide Empire Resorts' creditors with the only realistic
prospect of having their debts satisfactorily paid or settled
within a reasonable period of time, or at all.
As a result of these findings, the special committee concluded that,
although many difficulties lie ahead, including financing requirements that will
be substantial even for the newly consolidated company, it would appear "that
the path of consolidation was the most reasonable alternative available to
Empire Resorts; indeed, it appears to have been the only course available to
Empire Resorts that held any prospect of paying its creditors on reasonable
terms and providing value to its stockholders." The special committee further
49
concluded that the proposed terms for the consolidation transaction "are fair
to, and in the best interests of, Empire, its stockholders, and its creditors"
and recommended management be directed to complete and close the consolidation.
It should be noted that certain members of management have conflicts relating to
their interests in Catskill Development and other parties to the transaction and
that, although the special committee reached the above conclusions regarding the
overall transaction, the special committee did not evaluate the specific terms
of the individual agreements between the parties to determine whether, in a
similar arrangement between unrelated parties entered into on an arms length
basis, better terms might have been obtained.
As compensation for the time it spent in evaluating the fairness of
the consolidation's terms, Empire Resorts paid the special committee a fee of
$50,000.
OPINION OF KANE REECE ASSOCIATES, INC.
Empire Resorts' special committee engaged Kane Reece Associates to
act as its financial advisor in connection with the proposed consolidation. In
connection with its engagement, the special committee requested that Kane Reece
Associates evaluate the fairness of the consolidation's principal terms, whereby
Empire Resorts will acquire all of the outstanding equity of Monticello Raceway
Management, Monticello Casino Management, Monticello Raceway Development and
Mohawk Management in exchange for 80.25% of Empire Resorts' common stock, to
Empire Resorts and each of its stockholders from a financial point of view. On
September 8, 2003, Kane Reece Associates delivered a written opinion to Empire
Resorts' special committee stating that, as of that date and based on and
subject to the matters described in its opinion, the consolidation's terms were
fair, from a financial point of view, to the holders of Empire Resorts' common
stock. The Kane Reece Associates opinion was based on economic, financial and
market conditions as they existed on the date the opinion was rendered and can
only be evaluated as of such date, and Kane Reece Associates' has assumed no
responsibility to update or revise its opinion based upon events or
circumstances occurring after that date.
In arriving at its opinion, Kane Reece Associates:
o reviewed the contribution agreement and related documents;
o held discussions with senior officers, directors and other
representatives and advisors of Empire Resorts and senior
officers, representatives and advisors of Catskill Development
concerning the businesses, operations and prospects of Empire
Resorts and Catskill Development;
o examined publicly available business and financial information
relating to Empire Resorts;
o examined financial forecasts and other information and data of
Empire Resorts and Catskill Development which were provided to
or otherwise discussed with Kane Reece Associates by the
management of both Empire Resorts and Catskill Development;
o considered the financial terms of certain recently completed
transactions that it deemed relevant in evaluating the
consolidation, which transactions are further discussed below
50
under the subheading "Analysis of Selected Precedent
Transactions";
o analyzed financial, stock market and other publicly available
information relating to the businesses of other companies whose
operations it considered relevant in evaluating those of Empire
Resorts and Catskill Development;
o reviewed the 10-year financial projections provided by Empire
Resorts; and
o conducted other analyses and examinations and considered other
financial, economic and market criteria it deemed appropriate
in arriving at its opinion.
In rendering its opinion, Kane Reece Associates assumed and relied,
without independent verification, on the accuracy and completeness of all
financial and other information and data that it reviewed or considered. With
respect to the financial forecasts and projections that were made available to
Kane Reece Associates and used in its analyses, Kane Reece Associates assumed
that they were reasonably prepared on bases reflecting the best currently
available estimates and judgments of Empire Resorts and Catskill Development.
Kane Reece Associates' opinion was based on economic, market and other
conditions existing on, and the information made available to Kane Reece
Associates as of, the date of its opinion.
In connection with its opinion, Kane Reece Associates was not
requested to, and did not, participate in the negotiation or structuring of the
consolidation, and Kane Reece Associates was not authorized to, and did not,
solicit interest from any party with respect to the acquisition of all or part
of Empire Resorts. Kane Reece Associates expressed no view as to, and its
opinion does not address, the relative merits of the consolidation as compared
to any alternative business strategies that might exist for Empire Resorts or
the effect of any other transaction in which Empire Resorts might engage.
In preparing its opinion, Kane Reece Associates used traditional
valuation methodologies in valuing the various operations of the combined
enterprise. These methodologies included the income (or discounted cash flow)
approach and the market approach (the analysis of precedent transactions). Both
of these methods are generally accepted valuation techniques and ones that Kane
Reece Associates has a significant amount of experience utilizing. Furthermore,
Kane Reece Associates believes that these are the two most accurate techniques
or methodologies for valuing businesses.
The summary of Kane Reece Associates' analyses which follows is not
a complete description of the analyses underlying Kane Reece Associates'
opinion. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, a fairness opinion is not readily susceptible to
summary description. Accordingly, Kane Reece Associates believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and factors, without considering all analyses and factors, could create
a misleading or incomplete view of the processes underlying its analyses and
opinion.
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In its analyses, Kane Reece Associates considered industry
performance, general business, economic, market and financial conditions and
other matters existing as of the date of its opinion, many of which are beyond
the control of Empire Resorts and Catskill Development. No company, transaction
or business used in those analyses as a comparison is identical to Empire
Resorts, Catskill Development or the proposed consolidation, nor is an
evaluation of those analyses entirely mathematical; rather, the analyses involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
being analyzed.
The estimates contained in Kane Reece Associates' analyses and the
valuation ranges resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by the analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, Kane Reece Associates' analyses
and estimates are inherently subject to substantial uncertainty.
Kane Reece Associates' opinion and analyses were only one of many
factors considered by Empire Resorts' special committee in its evaluation of the
consolidation and should not be viewed as determinative of the views of Empire
Resorts' special committee with respect to the proposed consolidation.
The full text of Kane Reece Associates' written opinion dated
September 8, 2003, which describes the assumptions made, matters considered and
limitations of the review undertaken, is available for inspection and copying at
Empire Resorts' principal executive offices during regular business hours by any
interested stockholder of Empire Resorts or any representative who has been so
designated in writing. PLEASE NOTE, HOWEVER, THAT KANE REECE ASSOCIATES' OPINION
IS DIRECTED TO THE SPECIAL COMMITTEE AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER AS TO ANY MATTERS RELATING TO THE CONSOLIDATION. The summary of
Kane Reece Associates' opinion described below is qualified in its entirety by
reference to the full text of its opinion.
The following is a summary of the material financial analyses
performed by Kane Reece Associates in connection with its opinion to the special
committee:
DISCOUNTED CASH FLOW ANALYSIS.
Kane Reece Associates considered the results of a discounted cash
flow analysis of the following discrete businesses:
o video lottery terminals at Monticello Raceway;
o Monticello Raceway's racetrack operations; and
o management of a Native American casino owned by the Cayuga
Nation of New York.
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Kane Reece Associates calculated the net present value of the video
lottery terminals' projected ten-year stream of unleveraged free cash flows and
projected a continuing value multiple of year ten (2014) debt-free cash flow
based on the financial projections provided to Kane Reece Associates by the
management of both Empire Resorts and Catskill Development. A ten year model was
used by Kane Reece Associates, as management had provided Kane Reece Associates
with 10-year forecasts, and Kane Reece Associates was informed by management
that this 10-year model had also been submitted to the video lottery terminal
regulatory authorities. Two scenarios were contemplated; the first being that
the casino venture is successful, i.e., the Cayuga Nation of New York's casino
opens for business, thus entitling the Cayuga Nation of New York to purchase a
1/3 interest in the video lottery terminal operations of Monticello Raceway at
cost (estimated at $5 million). The second scenario assumed that the casino
never opens, and Empire Resorts is entitled to 100% of the cash flows from the
video lottery terminal operations at Monticello Raceway. Kane Reece Associates
applied a discount rate of 20% and a continuing value multiple of 7.3 times year
eleven after-tax cash flow. This analysis resulted in a fair market enterprise
value of the video lottery terminal operations of $37.9 million under scenario
one and $48.3 million under scenario two. Assuming a debt level of $15 million
under both scenarios, the equity value of the video lottery terminal operations
are $22.8 million and $33.3 million under scenarios one and two, respectively.
With respect to its discounted cash flow analysis of the video
lottery terminal operations, Kane Reece Associates examined four scenarios. The
first, or base case, was management's 10-year plan. The other three scenarios
were: revenues being 10% higher than base case revenues; revenues being 10%
lower than base case revenues; and revenues remaining static upon the opening of
a casino in conjunction with the Cayuga Nation of New York. With respect to its
discounted cash flow analysis of the Monticello Raceway's operations, Kane Reece
Associates did not consider any hypothetical scenarios, given Monticello
Raceway's long history of operations.
The financial projections used in this analysis were based on
management's survey of the impact on revenue that video lottery terminal
programs have had at similarly situated racetracks in other states. Kane Reece
Associates elected to utilize the management provided financial projections as
its "base case" after verifying their reasonableness through independent
analysis and extensive discussions with management. Specifically, from various
publicly and privately available resources, Kane Reece Associates determined
that video lottery terminal operations in Delaware averaged approximately $294
in per terminal daily winnings, that video lottery terminal operations in West
Virginia averaged $248 in per terminal daily winnings, and that video lottery
terminal operations in Rhode Island averaged $254 in per terminal daily
winnings. Moreover, in 2003 video lottery terminal operations at racetracks in
the State of New York (other than Aqueduct Race Track, Yonkers Raceway, and
Monticello Raceway) are projected to earn between $200 and $250 in per terminal
daily winnings (with an average of $217), with each video lottery terminal at
Monticello Raceway expected to average of $250 in per terminal daily winnings.
Kane Reece Associate's research also indicated that video lottery terminal
operations have historically performed at expected near-term projected levels.
The near-term projections provided to Kane Reece Associates for the proposed
video lottery terminal operation at Monticello Raceway fall within the above
parameters at $224 in per terminal daily winnings for year one and $268 in per
terminal daily winnings for year two. A 10% downward adjustment on the $224
53
figure was then used to create a scenario that would put the proposed video
lottery terminal operation at Monticello Raceway at the low end of the data
range, and a 10% upward adjustment was made to the $268 figure to create a
scenario that would put the proposed video lottery terminal operation at
Monticello Raceway at the high end of the data range.
CAPITALIZATION OF INCOME
Monticello Raceway's existing operations were valued by Kane Reece
Associates under a capitalization of income model. Cash flow, defined as net
income less capital expenditures plus depreciation, was calculated from the 2001
and 2002 financial statements. A discount rate of 12% was applied as was a 3%
long term growth rate, yielding a capitalization multiple of 11.4x. The fair
market value of Monticello Raceway's operations under the capitalization of
income approach was calculated by Kane Reece Associates to be $11.4 million.
NET PRESENT VALUE
Kane Reece Associates calculated the net present value of Empire
Resorts' prospective casino management operations, post-closing, based on the
financial projections provided by the management of both Empire Resorts and
Catskill Development and the term of the seven year Gaming Facility Management
Agreement. See "Business - Monticello Casino Management - Gaming Facility
Management Agreement" beginning on page 103. In its analysis, Kane Reece
Associates adjusted the management fee projected under the Gaming Facility
Management Agreement for a 2% expense factor, tax effected the cash flow stream,
and applied a 20% discount rate. Kane Reece Associates also assumed a 40%
probability of the casino successfully opening with a commencement date of
January 1, 2006. This 40% probability figure relating to the eventual opening of
the Cayuga Nation of New York's casino was developed through interviews of
management by Kane Reece Associates. These interviews and conversations related
to a series of sequential events, each of which had their own set of
probabilities. This led Kane Reece Associates to apply a probability lower than
management's estimates, understanding that a higher probability estimate would
yield a greater expected value to each stockholder. Such 40% probability figure,
however, should in no way be interpreted as Kane Reece Associates' opinion of
the actual likelihood that a Native American casino will ever open on the land
adjacent to Monticello Raceway.
In reaching this conclusion, Kane Reece Associates ran a total of
three scenarios, each with a set of four probabilities of the casino opening,
centered on the 40% figure discussed above. The first scenario was based on
management's projections, which became Kane Reece Associates' base case. The
second model assumed the base case revenue, reduced by 10%. The third scenario
assumed the base case, with the opening delayed by one year. Under these
scenarios, the values of the Gaming Facility Management Agreement ranged from a
high of $146.3 million to a low of $103.9 million, with the base case being
$140.0 million. Kane Reece Associates then, based on its analyses, concluded
that the fair market value of the seven year Gaming Facility Management
Agreement was $140.0 million. In reaching this conclusion, the fair market value
of the Gaming Facility Management Agreement was weighted heavily towards the
base case, as management's projections (which are the base case) were very much
in line with the revenue being generated by table games and slot machines at
comparable casinos in Connecticut, New Jersey and New York.
54
Based on these assumptions, Kane Reece Associates concluded that the
current fair market value of the Gaming Facility Management Agreement, based on
the financial projections provided by the managements of both Empire Resorts and
Catskill Development, was $146.3 million.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS
Kane Reece Associates also analyzed the consideration paid in
several merger and acquisition transactions which Kane Reece Associates deemed
to be reasonably similar to the operations of Monticello Raceway. In selecting
these transactions, Kane Reece Associates searched for comparable transactions
on BVMarketData.com and in the 2002 and 2003 print versions of Mergerstat
Review. In researching transactions from the databases available at
BVMarketData.com, Kane Reece Associates utilized the following criteria:
o the acquired company was in North American Industry
Classification System (NAICS) code 711212 (Racetracks) and
derived the majority of its revenue specifically from horse
racetrack operations,
o the acquired company's operations were located in the United
States of America, and
o the transaction occurred between January 1, 2001 and September
8, 2003 (the date of the fairness opinion); and
in researching transactions from Mergerstat Review, Kane Reece Associates
utilized the following criteria:
o the acquired company was in the Leisure and Entertainment
industry group and derived the majority of its revenue
specifically from horse racetrack operations,
o the acquired company's operations were located in the United
States, and
o the transaction occurred between January 1, 2001 and September
8, 2003.
Only three transactions met the above criteria; information on these
transactions is presented in the following tables.
Date Buyer Seller Seller Business Description
---- ----- ------ ---------------------------
12/24/2002 MTR Gaming Group Inc. Scioto Downs Inc. Operates horse racetracks
06/11/2001 Gameco Inc. Colonial Holdings Inc. Operates horse racetracks
04/05/2001 Magna Entertainment Corp. Ladbroke Racing Involved in racetrack and related
Corporation operations involving harness racing
events
55
Total Invested
Capital
Price Net
(TIC) Sales EBITDA EBIT Income
Date Buyer Seller ($mil) ($mil) ($mil) ($mil) ($mil)
---- ----- ------ ------ ------ ------ ------ ------
12/24/2002 MTR Gaming Group Inc. Scioto Downs Inc. $22.7 $14.1 NEG NEG NEG
06/11/2001 Gameco Inc. Colonial Holdings Inc. $35.0 $29.7 $1.7 $(0.0) $(2.8)
04/05/2001 Magna Entertainment Corp. Ladbroke Racing $53.0 $70.6 $10.4 $ 8.2 $ 4.9
Corporation
TIC/Net
Date Buyer Seller TIC/Sales TIC/EBITDA TIC/EBIT Income
---- ----- ------ --------- ---------- -------- -------
12/24/2002 MTR Gaming Group Inc. Scioto Downs Inc. 1.6 n/a n/a n/a
06/11/2001 Gameco Inc. Colonial Holdings Inc. 1.2 20.9 n/a n/a
04/05/2001 Magna Entertainment Corp. Ladbroke Racing 0.8 5.1 6.5 10.9
Corporation
Average 1.2 13.0 6.5 10.9
Note: NEG indicates the number was negative; a specific number was not reported.
Sources: BVMarketData.com, Mergerstat Review 2003 and 2002, public company SEC
filings.
Kane Reece Associates noted that, while all three of the above
acquired companies had more revenue than Monticello Raceway, none had revenue
greater than $70.6 million. Therefore, Kane Reece Associates did not consider
these size discrepancies sufficient to eliminate these transactions from
consideration.
In its review of the comparable transactions, Kane Reece Associates
considered multiples that compare the transactions' entity value to the subject
company's revenue and EBITDA. The comparable transactions yielded an average
total invested capital to sales multiple of 1.2x and an average total invested
capital to EBITDA multiple of 13.0x. These multiples were applied to the 2001
and 2002 average Monticello Raceway revenue and EBITDA to yield values of $14.5
million and $22.2 million, respectively. Kane Reece Associates then weighted the
revenue multiple higher, yielding a fair market value of $17.0 million for
Monticello Raceway under the comparable transaction method.
For each transaction, wherever possible, Kane Reece Associates
calculated multiples of Total Invested Capital ("TIC") to Sales (or revenue),
earnings before interest, taxes, depreciation and amortization ("EBITDA"),
earnings before interest and taxes ("EBIT"), and Net Income. Only in one
transaction were all four multiples able to be calculated. Since only one
transaction had positive EBIT and Net Income, Kane Reece Associates did not
utilize these multiples in its value indication for Monticello Raceway under the
market transactions method. Kane Reece Associates did utilize the TIC/Sales and
TIC/EBITDA.
56
Kane Reece weighted the revenue multiple higher for two reasons.
First, only two transactions involved companies with positive EBITDA, and
correspondingly enabled calculation of EBITDA multiples, while revenue multiples
could be generated for all three transactions. Second, the revenue multiples
were in a relatively tight range (specifically, 0.8x to 1.6x), whereas the
EBITDA multiples were quite disparate (specifically, 5.1x to 20.9x).
DISCOUNT RATES, GROWTH RATES AND MULTIPLES USED
In the above analyses, discount rates were determined through a
weighted average cost of capital analysis, at September 8, 2003. See the
schedules on the following pages:
57
Empire Resorts Racetrack
Weighted Average Cost of Capital as of September 8, 2003
COST OF EQUITY
Risk Free Rate (20-year Treasury Notes on September 8, 2003) 5.33%
(Source: Federal Reserve Statistical Release)
Equity Risk Premium Intermediate Term (S&P 500) 7.4%
(Source: Ibbotson Associates, 2003 Yearbook)
Market Beta
0.59
----
(Source: Ibbotson Associates Cost of Capital
Quarterly Supplement, June 2003)
Adjusted Equity Risk Premium 4.37%
Small Stock Premium (Low-Capitalization) 3.53%
(Source: Ibbotson Associates, 2003 Yearbook)
Unsystematic Company Risk 1.00%
-----
Cost of Equity 14.23%
======
COST OF DEBT
Prime Rate plus 300 basis points 7.00%
(At September 8, 2003-- Source: Federal Reserve Statistical Release)
Less Tax Effect at 40.00% 2.80%
-----
After-Tax Cost of Debt 4.20%
=====
WEIGHTING
% % of Capital Weighted Average
Return Structure Cost of Capital
------ --------- ---------------
Equity 14.23% 78.4% 11.15%
Debt 4.20% 21.6% 0.91%
-----
WEIGHTED AVERAGE COST OF CAPITAL 12.06%
======
WEIGHTED AVERAGE COST OF CAPITAL (ROUNDED) 12.00%
======
58
Empire Resorts Casino
Weighted Average Cost of Capital as of September 8, 2003
COST OF EQUITY
Risk Free Rate (20-year Treasury Notes on September 8, 2003) 5.33%
(Source: Federal Reserve Statistical Release)
Equity Risk Premium Intermediate Term (S&P 500) 7.4%
(Source: Ibbotson Associates, 2003 Yearbook)
Market Beta
0.79
----
(Source: Ibbotson Associates Cost of Capital
Quarterly Supplement, June 2003)
Adjusted Equity Risk Premium 5.85%
Small Stock Premium (Low-Capitalization) 3.53%
(Source: Ibbotson Associates, 2003 Yearbook)
Unsystematic Company Risk 20.00%
------
Cost of Equity 34.71%
======
COST OF DEBT
Prime Rate plus 300 basis points 10.00%
(At September 8, 2003-- Source: Federal Reserve
Statistical Release)
Less Tax Effect at 40.00% 4.00%
-----
After-Tax Cost of Debt 6.00%
=====
WEIGHTING
% % of Capital Weighted Average
Return Structure Cost of Capital
------ --------- ---------------
Equity 34.71% 44.9% 15.58%
Debt 6.00% 55.1% 3.31%
-----
WEIGHTED AVERAGE COST OF CAPITAL 18.89%
======
WEIGHTED AVERAGE COST OF CAPITAL (ROUNDED) 20.00%
======
Discount rates utilized ranged from 12% for the operations of Monticello Raceway
to 20% for both the video lottery terminal and casino operations. Growth rates
were based on an analysis of historical operations and industry expectations for
the operations of Monticello Raceway and an analysis of management's prepared
projections and industry expectations for the video lottery terminal operations.
59
Growth rates were not calculated for the casino operations beyond the projection
period, as Kane Reece Associates was only valuing a seven year Gaming Facility
Management Agreement. Multiples used in valuing the operations of Monticello
Raceway and the video lottery terminal operations were derived from the
"Dividend Discount Model" which calculates the continuing value multiples as the
inverse of the difference between discount rates and long-term growth rates.
CONCLUSION
Based on the results of its valuation analyses, Kane Reece
Associates concluded that the consolidation provided each of Empire Resorts'
stockholders with the potential to realize increased value in its Empire
Resorts' equity holdings than would otherwise be possible absent the
consolidation, thereby supporting the fairness of the consolidation.
Kane Reece Associates is a very active financial consulting firm
engaged in the valuation of businesses and their securities in connection with
merger and acquisition transactions, and has substantial experience in
transactions similar to the proposed consolidation. The special committee
selected Kane Reece Associates to deliver a fairness opinion based on Kane Reece
Associates' reputation and expertise.
Under the terms of Kane Reece Associates' engagement, Empire Resorts
agreed to pay Kane Reece Associates an aggregate fee of $75,000 for its opinion
and an additional $8,000 to respond to the Securities and Exchange Commission's
comments of this information statement/prospectus. In addition, Empire Resorts
agreed to reimburse Kane Reece Associates for its reasonable travel and other
out-of-pocket expenses, and to indemnify Kane Reece Associates against
liabilities, including liabilities under the federal securities laws, relating
to, or arising out of, Kane Reece Associates' engagement.
FINANCIAL PROJECTIONS
The financial projections referred to in the prior section entitled
"Opinion of Kane Reece Associates" that were provided to Kane Reece Associates
by the management of Empire Resorts and Catskill Development were as follows:
60
MONTICELLO RACEWAY & VLT PROJECTIONS
July 2003 - 2008
2003 July August September October November December Total
GROSS REVENUES
Raceway $1,283,005 $ 945,116 $ 947,032 $ 857,616 $ 800,841 $ 1,097,810 $5,931,420
VLTs
-------------------------------------------------------------------------------------------------------------
Total $1,283,005 $ 945,116 $ 947,032 $ 857,616 $ 800,841 $ 1,097,810 $5,931,420
-------------------------------------------------------------------------------------------------------------
EBITDA
Raceway $ 310,366 $ 157,495 $ 112,626 $ 70,547 $ 25,136 $ 139,820 $ 815,990
VLTs
-------------------------------------------------------------------------------------------------------------
Total $ 310,366 $ 157,495 $ 112,626 $ 70,547 $ 25,136 $ 139,820 $ 815,990
=============================================================================================================
2004 January February March April May June July
GROSS REVENUES
Raceway $ 867,152 $ 848,740 $ 834,646 $ 772,013 $ 939,768 $ 948,308 $1,186,102
VLTs 2,237,980 2,625,509 2,629,487 2,774,001 2,803,027 2,956,355
------------------------------------------------------------------------------------------------------------
Total $ 867,152 $3,086,720 $3,460,155 $3,401,500 $3,713,769 $3,751,335 $4,142,457
------------------------------------------------------------------------------------------------------------
EBITDA
Raceway $ 39,555 $ 34,525 $ 4,447 $ 18,416 $ 111,816 $ 116,242 $ 261,589
VLTs 5,391 457,409 525,420 644,982 599,141 720,008
------------------------------------------------------------------------------------------------------------
Total $ 39,555 $ 39,916 $ 461,856 $ 543,836 $ 756,798 $ 715,383 $ 981,597
============================================================================================================
2004 August September October November December Total
GROSS REVENUES
Raceway $ 914,116 $ 893,674 $ 876,402 $ 851,209 $1,067,816 $10,999,946
VLTs 3,064,186 2,970,302 3,064,186 2,976,710 3,057,778 31,159,521
--------------------------------------------------------------------------------------------
Total $3,978,302 $3,863,976 $3,940,588 $3,827,919 $4,125,594 $42,159,467
--------------------------------------------------------------------------------------------
EBITDA
Raceway $ 133,844 $ 94,425 $ 79,889 $ 48,297 $ 125,001 $1,068,046
VLTs 751,204 674,730 754,704 675,868 757,065 6,565,922
-------------------------------------------------------------------------------------------
Total $ 885,048 $ 769,155 $ 834,593 $ 724,165 $ 882,066 $7,633,968
===========================================================================================
2005 6 Mos '03 2006
GROSS REVENUES For the Year Thru 2005 For the Year
Raceway $12,279,834 $ 29,211,200 $12,617,200
VLTs 41,230,897 72,390,418 47,106,392
----------- ------------ -----------
Total $53,510,731 $101,601,618 $59,723,592
----------- ------------ -----------
EBITDA
Raceway $ 1,691,808 $ 3,575,844 $ 1,803,108
VLTs 11,851,969 18,417,891 16,567,741
----------- ------------ -----------
Total $13,543,777 $21,993,735 $18,370,849
=========== ============ ============
Total
2007 2008 6 Mos '03
GROSS REVENUES For the Year For the Year Thru 2008
Raceway $12,995,736 $13,385,608 $ 55,214,008
VLTs 49,107,473 51,729,122 171,225,932
----------- ----------- ------------
Total $62,103,209 $65,114,730 $226,439,940
----------- ----------- ------------
-
EBITDA
-
Raceway $ 1,857,201 $ 1,912,917 $ 7,291,869
VLTs 17,351,594 18,694,987 53,680,619
----------- ----------- ------------
Total $19,208,795 $20,607,904 $60,972,488
=========== =========== ===========
61
Moreover, such projections were the product of the following:
o Projected gaming revenues provided by consultants retained by
Catskill Development to assess the overall gaming market in the
Catskills and the site specific market for the planned casino.
The Innovation Group (f/k/a Urban Systems), a highly regarded
consulting firm in the gaming industry, conducted an in depth
study of the market including demographic analyses by zip
codes, road arteries leading to the site and distances to
competitive facilities. The Innovation Group maintains an
extensive database on gaming operations around the country and
continuously updates it as relevant data becomes available.
From this database, trends and specific results are readily
discernable that are relevant to the study at hand. Among other
factors, from this database they determine the number of adults
in the study area and then refine this raw statistic by
stratifying it by age groups and then applying "propensity to
gamble rates" and "frequency of visits rates" culminating in
the anticipated number of gaming visits they expect the
facility will experience. The visitation numbers are then
assigned a value based on the further analyses of household and
individual incomes in the target area. Projected results are
then compared to actual results experienced in similar
jurisdictions.
o Revenue sharing expenses with the State of New York were
estimated from the recent compact rates between the State of
New York and the Seneca Nation in the Seneca Nation's Niagara
Falls casino. Local impact fees were based on the negotiated
memorandum of understanding with the Village of Monticello.
o Payroll expenses compiled by establishing staffing guides for
the various departments and sub-departments. Individual job
classifications from janitor to chief executive officer were
quantified in this exercise and assigned a rate of
compensation.
o Projected costs of food and beverages were based on industry
averages.
Other major operating expenses were also identified and projected
accordingly.
INTERESTS OF CERTAIN PERSONS IN THE CONSOLIDATION
You should be aware of the interests that certain executive
officers, directors and stockholders of Empire Resorts have in the
consolidation, as these interests, in certain respects, are different from your
interests as stockholders. Specifically, at the time the consolidation's
principal terms were negotiated and approved by Empire Resorts' board of
directors, each of Empire Resorts, Catskill Development, Monticello Raceway
Development and Americas Tower Partners were under some level of common control.
As discussed above, Catskill Development has three classes of economic ownership
interests, with each class corresponding to one of Catskill Development's three
businesses. Class A economic ownership interests represent the right to receive
distributions and allocations from Catskill Development's casino and wagering
operations; Class B economic ownership interests represent the right to receive
distributions and allocations from Catskill Development's horseracing and other
pari-mutuel activities; and Class C economic ownership interests represent the
62
right to receive distributions and allocations from Catskill Development's real
estate ownership and development operations. At the time the consolidation's
principal terms were negotiated and approved by Empire Resorts' board of
directors, Empire Resorts held approximately 48%, 37% and 25%, respectively, of
Catskill Development's Class A, Class B and Class C economic ownership
interests. Watertone Holdings, which is controlled by Robert A. Berman, Empire
Resorts' chief executive officer, a member of its board of directors and its
former chairman (at the time the consolidation's principal terms were negotiated
and approved by Empire Resorts' board of directors), Philip B. Berman, Empire
Resorts' vice president of project coordination (at the time the consolidation's
principal terms were negotiated and approved by Empire Resorts' board of
directors), and Scott A. Kaniewski, Empire Resorts' chief financial officer and
a former member of its board of directors (at the time the consolidation's
principal terms were negotiated and approved by Empire Resorts' board of
directors), held approximately 15%, 13% and 25%, respectively, of Catskill
Development's Class A, Class B and Class C economic ownership interests, which
interests shall each increase to approximately 33% immediately before closing as
a result of Catskill Development's redemption of Empire Resorts' economic
ownership interests in Catskill Development. Furthermore, Morad Tahbaz, Catskill
Development's president and Empire Resorts' president, was a member of Empire
Resorts' board of directors and held a 20% partnership interest in Americas
Tower Partners, a general partnership that held approximately 33%, 25% and 25%,
respectively, of Catskill Development's Class A, Class B and Class C economic
ownership interests at the time the consolidation's principal terms were
negotiated and approved by Empire Resorts' board of directors, which interests
shall each increase to approximately 33% immediately before closing as a result
of Catskill Development's redemption of Empire Resorts' economic ownership
interests in Catskill Development. Furthermore, Monticello Raceway Development
was owned 50% by Americas Tower Partners, 41% by Robert A. Berman, 7.65% by
Scott A. Kaniewski, .05% by two affiliates of Mr. Kaniewski and 1.3% by Philip
B. Berman, at the time the consolidation's principal terms were negotiated and
approved by Empire Resorts' board of directors. Finally, Thomas W. Aro, Empire
Resorts' chief operating officer, secretary and a former member of its board of
directors (at the time the consolidation's principal terms were negotiated and
approved by Empire Resorts' board of directors), was a member of Monticello
Raceway Management's board of directors and both Robert A. Berman and Thomas W.
Aro were members of Monticello Casino Management's and Mohawk Management's board
of managers at the time the consolidation's principal terms were negotiated and
approved by Empire Resorts' board of directors.
Moreover, it is expected that each of these interested individuals
will beneficially own the following number of shares of Empire Resorts' common
stock after the consolidation:
Common Stock Beneficially Owned (1)
-----------------------------------
Shares Percentage
------ ----------
Robert A. Berman 4,605,334(2) 20.04%
Scott A. Kaniewski 1,000,610(3) 4.35%
Thomas W. Aro 43,500(4) *
63
Common Stock Beneficially Owned (1)
-----------------------------------
Shares Percentage
------ ----------
Paul A. deBary 187,684(5) *
Morad Tahbaz 1,337,359(6) 5.81%
Philip B. Berman 273,143(7) 1.20%
-----------
* less than 1%
(1) A person is deemed to be the beneficial owner of voting securities
that can be acquired by such person within 60 days after the record
date upon the exercise of options and warrants and the conversion of
convertible securities. Each beneficial owner's percentage of
ownership is determined by assuming that all options, warrants or
convertible securities held by such person (but not those held by
any other person) that are currently exercisable or convertible
(i.e., that are exercisable or convertible within 60 days after the
record date) have been exercised or converted.
(2) Includes 1,094,004 shares of common stock owned directly by Robert
A. Berman, options that are currently exercisable into 279,189
shares of common stock and 3,232,141 shares of common stock held
directly by Watertone Holdings. Robert A. Berman directly holds a
46.305% limited partnership interest in Watertone Holdings,
representing an indirect beneficial ownership interest in 2,113,828
shares of such 3,232,141 shares of Empire Resorts' common stock
directly held by Watertone Holdings. Through BKB, LLC, 82% of which
is owned by Robert A. Berman, Robert A. Berman indirectly holds a
general partnership interest of .0082% of Watertone Holdings,
representing an indirect beneficial ownership interest in an
additional 37,433 shares of such 3,232,141 shares of Empire Resorts'
common stock held directly by Watertone Holdings, and through Avon
Road Partners, LP, Robert A Berman indirectly beneficially holds an
addition 23.678% limited partnership interest in Watertone Holdings,
representing an indirect beneficial ownership interest in an
additional 1,080,880 of such 3,232,141 shares of Empire Resorts'
common stock held directly by Watertone Holdings. Avon Road
Partners, LP is 88% owned by Robert A. Berman, 3% by Debbie N.
Berman and 9% by the Berman Family Trust whose beneficiaries are
Robert A. Berman's children. Debbie N. Berman, Robert A. Berman's
wife, and Philip B. Berman, Robert A. Berman's brother, are
co-trustees of the Berman Family Trust and have joint voting and
dispositive power with respect to its holdings. Robert A. Berman
disclaims beneficial ownership of all shares of common stock held by
the Berman Family Trust.
(3) Includes 134,096 shares of common stock owned directly by Scott A.
Kaniewski, options that are currently exercisable into 295,689
shares of common stock, 506,899 shares of common stock held directly
by Watertone Holdings, 28,940 shares of common stock held directly
by The Kaniewski Family Limited Partnership and 34,986 shares of
common stock held directly by The KFP Trust. Through BKB, LLC, 15.3%
64
of which is owned by Scott A. Kaniewski, Scott A. Kaniewski
indirectly holds a general partnership interest of .00153% of
Watertone Holdings, representing an indirect beneficial ownership
interest in an additional 6,984 shares of such 506,899 shares of
Empire Resorts' common stock held directly by Watertone Holdings.
The Kaniewski Family Limited Partnership, with respect to which Mr.
Kaniewski is a 1% limited partner and the general partner with sole
voting and dispositive power, holds a 4.95% limited partnership
interest in Watertone Holdings, representing an indirect beneficial
ownership interest in 225,968 shares of such 506,899 shares of
Empire Resorts' common stock held directly by Watertone Holdings,
and through BKB, LLC, 0.05% of which is owned by The Kaniewski
Family Limited Partnership, The Kaniewski Family Limited Partnership
indirectly holds a general partnership interest of .000005% of
Watertone Holdings, representing an indirect beneficial ownership
interest in an additional 23 shares of such 506,899 shares of Empire
Resorts' common stock held directly by Watertone Holdings. Scott A.
Kaniewski disclaims beneficial ownership of all the shares of common
stock owned by the Kaniewski Family Limited Partnership for any
purpose other than voting and dispositive powers. The KFP Trust,
whose sole trustee is Stacey B. Kaniewski, Scott A. Kaniewski's
wife, and whose sole beneficiaries are Scott A. Kaniewski's
children, holds a 6.00% limited partnership interest in Watertone
Holdings, representing an indirect beneficial ownership interest in
273,901 shares of such 506,899 shares of Empire Resorts' common
stock held directly by Watertone Holdings, and through BKB, LLC,
0.05% of which is owned by The KFP Trust, The KFP Trust indirectly
holds a general partnership interest of .000005% of Watertone
Holdings, representing an indirect beneficial ownership interest in
an additional 23 shares of such 506,899 shares of Empire Resorts'
common stock held directly by Watertone Holdings. Scott A. Kaniewski
disclaims beneficial ownership of all shares of common stock held by
The KFP Trust.
(4) Represents options that are currently exercisable into 43,500 shares
of common stock.
(5) Includes 52,103 shares of common stock owned directly by Paul A.
deBary and 135,581 shares of common stock held directly by Watertone
Holdings. Mr. deBary directly holds a 2.97% limited partnership
interest in Watertone Holdings, representing an indirect beneficial
interest in such 135,581 shares of Empire Resorts' common stock held
directly by Watertone Holdings.
(6) Includes options that are currently exercisable into 17,500 shares
of common stock and 1,319,859 shares of common stock of Empire
Resorts held directly by Americas Tower Partners. Morad Tahbaz
beneficially owns a 20% partnership interest of Americas Tower
Partners, representing an indirect beneficial interest in such
1,319,859 shares of Empire Resorts' common stock held directly by
Americas Tower Partners.
(7) Includes 45,988 shares of common stock owned directly by Philip B.
Berman and 227,155 shares of common stock held directly by Watertone
Holdings. Philip B. Berman directly holds a 4.95% limited
partnership interest in Watertone Holdings, representing an indirect
beneficial ownership interest in 227,155 shares of such 227,155
shares of Empire Resorts' common stock held directly by Watertone
Holdings, and through BKB, LLC, 2.6% of which is owned by Philip B.
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Berman, Philip B. Berman indirectly holds a general partnership
interest of .00026% of Watertone Holdings, representing an indirect
beneficial ownership interest in an additional 1,187 shares of such
227,155 shares of Empire Resorts' common stock held directly by
Watertone Holdings.
Given these facts, a number of Empire Resorts' principals that
negotiated the consolidation's terms were subject to various conflicts of
interest, possibly causing them to advocate different positions from what they
would have otherwise advocated had they been truly independent. Moreover, since
a number of these individuals also had a personal interest in the consideration
being paid to the members of both Catskill Development and Monticello Raceway
Development, they may have refrained from negotiating the best deal possible for
Empire Resorts. The special committee's review of the results of the
negotiations does not eliminate the possibility that Empire Resorts is receiving
a less favorable deal than if the acquired companies had been contributed by an
independent third party following arm's length negotiations.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion, which is based on the opinion of Olshan
Grundman Frome Rosenzweig & Wolosky LLP, counsel to Empire Resorts, summarizes
the material U.S. federal income tax consequences of the consolidation to Empire
Resorts, Catskill Development's members and Monticello Raceway Development's
members. Except as is specifically set forth below, this discussion does not
address all aspects of taxation that may be relevant to the members of both
Catskill Development and Monticello Raceway Development in light of their
personal investment or tax circumstances or to persons that are subject to
special treatment under the federal income tax laws. Furthermore, this
discussion does not address any state, local or foreign tax considerations. The
members of both Catskill Development and Monticello Raceway Development are
urged to consult their own tax advisors as to the specific tax consequences of
the consolidation, including the applicable federal, state, local and foreign
tax consequences of the consolidation.
This discussion is based on the Internal Revenue Code, applicable
Department of Treasury regulations, judicial authority, and administrative
rulings and practice, all as of the date of this information
statement/prospectus, as well as representations as to factual matters made by,
among others, Empire Resorts. Future legislative, judicial, or administrative
changes or interpretations, or the failure of any such factual representation to
be true, correct and complete in all material respects, may adversely affect the
accuracy of the statements and conclusions described in this document. Any such
changes or interpretations could be applied retroactively and could affect the
tax consequences of the consolidation. Empire Resorts is currently not aware of
any facts or circumstances that would cause any representations made by it to
Olshan Grundman Frome Rosenzweig & Wolosky LLP to be untrue or incorrect in any
material respect.
The material federal income tax consequences of the consolidation
are as follows:
o the consolidation will constitute a tax-free exchange under
Section 351(a) of the Internal Revenue Code;
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o no gain or loss will be recognized by Empire Resorts as a
result of the consolidation; and
o no gain or loss will be recognized by the members of either
Catskill Development or Monticello Raceway Development as a
result of the consolidation.
The obligation to complete the consolidation is conditioned upon,
among other things, receipt of an opinion from Olshan Grundman Frome Rosenzweig
& Wolosky LLP that the consolidation will constitute a tax-free exchange under
Section 351(a) of the Internal Revenue Code. The opinion of counsel will be
based in part upon representations, made as of the effective time of the
consolidation, by Empire Resorts, which counsel will assume to be true, correct
and complete. If the representations are inaccurate, the opinion of counsel
could be adversely affected. Empire Resorts has not requested nor will it
request a private letter ruling from the Internal Revenue Service as to whether
the consolidation qualifies as a tax-free transaction under Section 351(a) of
the Internal Revenue Code. The opinion of counsel will not be binding upon the
Internal Revenue Service or any court.
ACCOUNTING TREATMENT
The consolidation will be accounted for as a "reverse merger" for
accounting and financial reporting purposes. Although Empire Resorts is the
legal acquirer and will survive as the legal post-consolidation entity, Catskill
Development is considered the acquirer for accounting purposes. The
consolidation is also considered a "related party transaction" for accounting
and financial reporting purposes. Accordingly, the transfer of certain of
Catskill Development's current assets and liabilities and its ownership
interests in Monticello Raceway Management, Monticello Casino Management and
Mohawk Management, first to its members and then to Empire Resorts, will be
recorded at Catskill Development's historical costs basis determined under
generally accepted accounting principles.
REGULATORY APPROVALS
Section 303 of the New York Racing, Pari-Mutuel Wagering and
Breeding Law provides that upon the transfer of the stock of any entity licensed
to conduct harness horse race meetings at which pari-mutuel betting is
conducted, the issuer must submit to the New York State Racing and Wagering
Board an affidavit from the transferee stating that the transferee is the sole
beneficial owner of the transferred stock, and whether or not the transferee:
o has been convicted of a crime involving moral turpitude;
o has been engaged in bookmaking or other forms of illegal
gambling;
o has been found guilty of any fraud or misrepresentation in
connection with racing or breeding;
o has been found guilty of any violation or attempt to violate
any law, rule or regulation of any racing jurisdiction for
which suspension from racing might be imposed in such
jurisdiction; or
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o has violated any rule, regulation or order of the New York
State Racing and Wagering Board.
While the transferee does not need to subsequently wait for any
formal ruling by the New York State Racing and Wagering Board as to its
suitability to complete a transfer, the New York State Racing and Wagering Board
is empowered, if the board so determines that it is inconsistent with the public
interest, convenience or necessity, or with the best interests of racing
generally, that any transferee continue to be a stockholder of record or the
beneficial owner of any association or corporation licensed to conduct harness
horse racing in New York, or which owns 25% or more of the stock of such
licensee, to order or direct such transferee or beneficial owner, irrespective
of the time when such transferee or beneficial owner acquired its stock, to
dispose of such stock. As Monticello Raceway Management is a corporation
licensed to conduct harness horse race meetings in the State of New York at
which pari-mutuel betting is conducted, Empire Resorts will have to submit an
affidavit as described above and will be subject to a ruling that its ownership
of Monticello Raceway Management is inconsistent with the public interest or
racing in general. While Empire Resorts is not required to, it intends to
attempt to obtain an informal, non-binding, opinion from the New York State
Racing and Wagering Board prior to consummating the consolidation that the New
York State Racing and Wagering Board will not object to Empire Resorts becoming
the sole stockholder of Monticello Raceway Management.
CERTAIN NON-VOTING MEMBERS RELINQUISH THEIR INTERESTS IN CATSKILL DEVELOPMENT
In connection with the closing of the consolidation, and in exchange
for shares of Empire Resorts' common stock received in connection with the
consolidation, Clifford A. Ehrlich, Shamrock Strategies, Inc. and Fox-Hollow
Lane, L.L.C., the three non-voting members of Catskill Development, will
relinquish their membership interests in Catskill Development.
THE RESTATED CONTRIBUTION AGREEMENT
The following summary highlights selected information and may not
contain all of the information contained within the restated contribution
agreement. The following description does not purport to be complete and is
qualified in its entirety by reference to the contribution agreement, which has
been incorporated into this document by reference.
GENERAL TERMS OF THE CONTRIBUTION AGREEMENT
On December 12, 2003, Empire Resorts, Catskill Development and the
members of both Catskill Development and Monticello Raceway Development, entered
into an amended and restated securities contribution agreement pursuant to which
the members of both Catskill Development and Monticello Raceway Development
agreed to contribute all of their respective interests in Monticello Raceway
Management, Monticello Casino Management, Monticello Raceway Development and
Mohawk Management, together with all of their right, title and interest in and
to the business of Monticello Raceway, including all of the assets and
liabilities of Catskill Development, except for its interest in 229 acres of
land in Monticello, New York and its right to certain litigation claims, to
Empire Resorts in exchange for, in the aggregate, 80.25% of Empire Resorts'
common stock, calculated on a post-consolidation, fully-diluted basis.
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Immediately after consummating this consolidation, Monticello Raceway
Management, Monticello Casino Management, Monticello Raceway Development and
Mohawk Management will become wholly owned subsidiaries of Empire Resorts and
the members of both Catskill Development and Monticello Raceway Development,
together, will become Empire Resorts' controlling stockholders.
THE TRANSACTION
At the closing time, the members of both Catskill Development and
Monticello Raceway Development shall deliver their respective interests (by
delivery of stock certificates, limited liability company interest assignments
or other evidence of ownership) in Monticello Raceway Management, Monticello
Casino Management, Monticello Raceway Development and Mohawk Management to
Empire Resorts, and Empire Resorts shall deliver to the members of both Catskill
Development and Monticello Raceway Development registered stock certificates
representing, in the aggregate, 80.25% of Empire Resorts' common stock,
calculated on a post-consolidation, fully-diluted basis.
REPRESENTATIONS AND WARRANTIES
In the restated contribution agreement, the parties made
representations and warranties to each other about their respective companies.
Catskill Development, and each of its members, represented and
warranted to the following:
o capital structure of Monticello Raceway Management, Monticello
Casino Management and Mohawk Management;
o interests to be contributed being validly issued, fully paid,
nonassessable and not subject to any preemptive rights;
o no declared or unpaid dividends with respect to the interests
being contributed;
o interests being contributed by Catskill Development's members
on the closing date representing all of Catskill Development's
interests in Monticello Raceway Management, Monticello Casino
Management and Mohawk Management on the date the restated
contribution agreement was executed; and
o ownership of and power to transfer free and clear title to the
interests being contributed.
Catskill Development further represented and warranted to its
knowledge, without any obligation to inquire as to the accuracy of such
representations and warranties, to the following:
o corporate existence of Monticello Raceway Management,
Monticello Casino Management and Mohawk Management as a
corporation and limited liability companies, respectively, and
their qualification to do current and proposed business;
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o power and authority to enter into and carry out obligations
under the restated contribution agreement;
o with respect to itself and each of Monticello Raceway
Management, Monticello Casino Management and Mohawk Management,
absence of conflict or breach of any laws, contracts, leases or
other material agreements, including any organizational
documents, as a result of execution of the restated
contribution agreement or the contribution of interests in
accordance with the restated contribution agreement;
o required governmental or third party consents and approvals for
the execution and delivery of the restated contribution
agreement and related agreements or for the consummation of the
transactions contemplated therein;
o absence of subsidiaries of Catskill Development other than
Monticello Raceway Management, Monticello Casino Management and
Mohawk Management;
o accuracy of information supplied in the financial statements
for the year ending December 31, 2002 and for the quarter
ending March 31, 2003;
o with respect to Monticello Raceway Management, Monticello
Casino Management and Mohawk Management, absence of material
changes since March 31, 2003;
o absence of undisclosed material contracts of Monticello Raceway
Management, Monticello Casino Management and Mohawk Management;
o Monticello Raceway Management's, Monticello Casino Management's
and Mohawk Management's full ownership or adequate license to
use, without payment, all proprietary rights;
o absence of material undisclosed liabilities, debts or
obligations of Monticello Raceway Management, Monticello Casino
Management or Mohawk Management;
o absence of any event that has resulted in a material breach or
default of a material contract of Monticello Raceway
Management, Monticello Casino Management or Mohawk Management;
o substantial compliance by Monticello Raceway Management,
Monticello Casino Management and Mohawk Management with any
relevant laws, and absence of any notices regarding the breach
of any relevant laws;
o absence of pending or threatened litigation or any reasonable
basis therefor against Monticello Raceway Management,
Monticello Casino Management and Mohawk Management;
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o material taxes of Monticello Raceway Management, Monticello
Casino Management and Mohawk Management having been paid,
filed, reported, withheld, collected and accounted for, except
those being contested in good faith;
o no finder, broker, or investment banker being entitled to any
fee or commission in connection with the restated contribution
agreement or related transactions;
o valid title or leasehold rights of Monticello Raceway
Management, Monticello Casino Management and Mohawk Management
with respect to any real, personal or leased property;
o material compliance by Monticello Raceway Management,
Monticello Casino Management and Mohawk Management with all
relevant laws; and
o absence of material employment issues or labor activities and
practices that would adversely affect the business or financial
conditions of Monticello Raceway Management, Monticello Casino
Management or Mohawk Management.
Each member of Monticello Raceway Development represented and
warranted, severally and not jointly, on an individual basis, to the following:
o Monticello Raceway Development's capital structure;
o interests to be contributed being validly issued, fully paid,
nonassessable and not subject to any preemptive rights;
o no declared or unpaid dividends with respect to the interests
being contributed; and
o ownership of and power to transfer free and clear title to the
interests being contributed.
Each member of Monticello Raceway Development represented and
warranted to its or his knowledge, without any obligation to inquire as to the
accuracy of such representations and warranties, severally and not jointly, on
an individual basis, to the following:
o valid existence of Monticello Raceway Development as a limited
liability company and its qualification to do current and
proposed business;
o power and authority to enter into and carry out its obligations
under the restated contribution agreement and the
enforceability of the restated contribution agreement;
o with respect to itself and Monticello Raceway Development,
absence of conflict or breach of any laws, contracts, leases or
other material agreements, including its organizational
documents, as a result of execution of the restated
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contribution agreement or the contribution of interests under
the restated contribution agreement;
o required governmental or third party consents and approvals for
the execution and delivery of the restated contribution
agreement and related agreements or for the consummation of the
transactions contemplated therein;
o absence of ownership or control of any other business entity;
o Monticello Raceway Development's absence of employees, material
operations, assets or other contractual rights, other than the
right to develop a 229 acre parcel of land in Monticello, New
York;
o absence of undisclosed material contracts of Monticello Raceway
Development;
o Monticello Raceway Development's full ownership or adequate
license to use, without payment, all proprietary rights;
o absence of material undisclosed liabilities, debts or
obligations of any kind of Monticello Raceway Development;
o absence of any event that has resulted in a material breach or
default of a material contract of Monticello Raceway
Development;
o substantial compliance of Monticello Raceway Development with
any relevant laws, and absence of any notices regarding the
breach of any relevant laws;
o absence of pending or threatened litigation or any reasonable
basis therefor against Monticello Raceway Development;
o material taxes of Monticello Raceway Development having been
paid, filed, reported, withheld, collected and accounted for,
except those being contested in good faith;
o no finder, broker, or investment banker being entitled to any
fee or commission in connection with the restated contribution
agreement or related transactions; and
o material compliance by Monticello Raceway Development with all
relevant laws.
Empire Resorts (on behalf of itself and any subsidiaries where
relevant) represented and warranted to the following:
o corporate existence and qualification to do current and
proposed business;
o power and authority to enter into and carry out its obligations
under the restated contribution agreement and the
enforceability of the restated contribution agreement;
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o absence of conflict or breach of any laws, contracts, leases or
other material agreements, including its organizational
documents, as a result of execution of the restated
contribution agreement or the issuance of its shares under the
restated contribution agreement;
o required governmental or third party consents and approvals;
o no finder, broker, or investment banker being entitled to any
fee or commission in connection with the restated contribution
agreement or related transactions;
o material compliance of all Securities and Exchange Commission
filings;
o absence of material changes since March 31, 2003;
o capital structure;
o shares of common stock to be issued pursuant to the restated
contribution agreement being validly authorized, issued and
fully paid;
o shares of common stock to be issued pursuant to the restated
contribution agreement representing 80.25% of Empire Resorts'
outstanding common stock as of the closing date;
o to the best of its knowledge and belief, without any obligation
to inquire as to the accuracy of such representation and
warranty, the absence of undisclosed material obligations;
o to the best of its knowledge and belief, without any obligation
to inquire as to the accuracy of such representation and
warranty, absence of any undisclosed outstanding civil judgment
or court order (past, current or pending) against Stanley
Tollman, Beatrice Tollman, Monty Hundley or The Bryanston
Group, in favor of the U.S. Attorney, S.D.N.Y.;
o recapitalization agreement between Empire Resorts, Alpha
Monticello, The Bryanston Group, Stanley Tollman, Beatrice
Tollman and Monty Hundley being duly authorized and executed;
o to the best of its knowledge and belief, material taxes having
been paid, filed, reported, withheld, collected and accounted
for, except for those being contested in good faith;
o absence of any action, agreement, plan or circumstances that
would prevent the consolidation from qualifying as a
contribution and exchange under Section 351(a) of the Internal
Revenue Code;
o not being an investment company;
73
o material compliance with all relevant laws;
o disclosure of all reasonably related available information;
o absence of any omissions, untrue, or misleading statements by
it in the restated contribution agreement; and
o investigation or the opportunity to investigate and understand
the consolidation and associated risks.
COVENANTS
Each of the parties to the restated contribution agreement has
agreed that from the date of the restated contribution agreement through the
consolidation's closing or restated contribution agreement's termination, to,
among other things:
o provide each other with access to information;
o notify each other of current or potential material breaches to
the representations, warranties and covenants;
o use commercially reasonable efforts to consummate the
consolidation;
o obtain all consents or approvals necessary to complete the
consolidation and other transactions contemplated by the
restated contribution agreement;
o cooperate with the valuation firm in preparation of the
fairness opinion;
o assign, or cause to be assigned, to the extent it or its
subsidiaries is a plaintiff in the ongoing litigation against
Park Place Entertainment Corporation, Gary Melius, Ivan Kaufman
and Walter Horn, all claims against Park Place Entertainment
Corporation, Gary Melius, Ivan Kaufman and Walter Horn, its
rights to the proceeds from any settlement or judgment in such
litigation to a grantor trust; and
o take no actions to jeopardize the transactions contemplated in
the restated contribution agreement to qualify as a transaction
described in Section 351(a) of the Internal Revenue Code.
Empire Resorts further covenants in the restated contribution
agreement to, among other things:
o nominate certain directors; and
o amend certain employment agreements.
Except as contemplated by the restated contribution agreement, from
the date of the restated contribution agreement through the consolidation's
closing or restated contribution agreement's termination, Empire Resorts further
covenants that it will not, and Catskill Development and the members of both
74
Catskill Development and Monticello Raceway Development further covenant that
they will cause Monticello Raceway Management, Monticello Casino Management,
Monticello Raceway Development and Mohawk Management not to, without the other
party's consent:
o take any action that would reasonably be expected to result in
any of the conditions to closing not being satisfied;
o amend any organizational document;
o declare or pay any dividends or distribute any capital stock or
equity interests;
o alter any capital stock or equity interests, through, among
other things, stock splits, combinations, and issuances;
o repurchase, redeem or otherwise acquire any capital stock or
equity interests;
o merge or consolidate with another business organization;
o acquire the assets, an equity interest or the capital stock of
another business organization;
o incur, issue or guarantee any indebtedness;
o amend any material contract or agreement;
o authorize any capital expenditures or fixed asset purchases
exceeding $100,000 in the aggregate;
o grant any additional compensation or termination pay for
officers or employees, except in the ordinary course of
business in accordance with past practice;
o enter into additional employment agreements, transactions or
policies benefiting past and present directors, officers or
employees, other than as required by law;
o pay or discharge any material obligations or liabilities
inconsistent with past business practices;
o adopt any plan of reorganization;
o settle or compromise any material litigation;
o make any material tax election;
o take any action that would limit the ability to acquire shares,
vote shares or restrict business combinations; or
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o agree or take any action to do any of the foregoing.
Empire Resorts further agrees that, from the date of the restated
contribution agreement through the consolidation's closing or restated
contribution agreement's termination, except as contemplated by the restated
contribution agreement, it will conduct its business in the ordinary course
consistent with past practice. In addition, among other things and subject to
certain exceptions, Empire Resorts will not, without the consent of the members
of both Catskill Development and Monticello Raceway Development:
o issue, deliver, sell, pledge or dispose of any shares of
capital stock, including options or warrants (other than the
issuance of shares of common stock upon the exercise of
employee stock option outstanding on the date the restated
contribution agreement was executed; or
o dispose, sell or pledge any material asset.
Catskill Development and the members of both Catskill Development
and Monticello Raceway Development have further agreed that, from the date of
the restated contribution agreement through the consolidation's closing or
restated contribution agreement's termination, except as contemplated by the
restated contribution agreement, they will cause each of Monticello Raceway
Management, Monticello Casino Management, Monticello Raceway Development and
Mohawk Management to conduct its business in the ordinary course consistent with
past practice. In addition, among other things and subject to certain
exceptions, Catskill Development and the members of both Catskill Development
and Monticello Raceway Development will cause each of Monticello Raceway
Management, Monticello Casino Management, Monticello Raceway Development and
Mohawk Management not to, without Empire Resorts' prior consent:
o issue, deliver, pledge, dispose of, encumber or sell any
capital stock, or options, warrants, convertible securities, or
other capital interests; or
o dispose, sell or pledge any material asset.
REGISTRATION STATEMENT, STOCKHOLDER VOTE, AND BRYANSTON LITIGATION
The parties to the restated contribution agreement have agreed to
provide one another with any information reasonably requested in connection with
the S-4 registration statement.
Empire Resorts will further:
o promptly take any action required to file the S-4 registration
statement and have it declared effective as soon as possible;
o make any modifications to the S-4 registration statement
reasonably requested by the members of either Catskill
Development or Monticello Raceway Development prior to filing
it with the Securities and Exchange Commission;
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o notify the other parties of comments received from the
Securities and Exchange Commission concerning the S-4
registration statement;
o cause the S-4 registration statement to remain effective until
the earlier of (i) the date on which all of the shares of
common stock being issued pursuant to the consolidation have
been sold to the public or (ii) the date on which all of such
shares can be freely sold to the public pursuant to Rule 144 of
the Securities Act of 1933, as amended, without any volume
limitations;
o prepare and file with the Securities and Exchange Commission
such amendments (including post-effective amendments) and
supplements to the S-4 registration statement and the
prospectus used in connection with the S-4 registration
statement as may be necessary to keep the S-4 registration
statement effective and to comply with the provisions of the
Securities Act of 1933, as amended, with respect to the
disposition of all of the shares of common stock being issued
pursuant to the consolidation at all times during the period
for which Empire Resorts is required to maintain the
effectiveness of the S-4 registration statement;
o cause the shares of common stock being issued to be listed on
the Nasdaq SmallCap Market;
o take all action necessary to obtain stockholder approval of the
consolidation; and
o redeem the shares of common stock held by The Bryanston Group
and certain shares of common stock held by Beatrice Tollman.
Catskill Development and the members of both Catskill Development
and Monticello Raceway Development will further provide Empire Resorts with a
list of Catskill Development's and Monticello Raceway Development's
"affiliates," including any changes to the list, prior to completion of
consolidation. Empire Resorts will receive from each "affiliate" an agreement to
comply with the restrictions of Rule 145 under the Securities Act of 1933, as
amended.
CONDITIONS TO CLOSING
The obligations of each party to complete the consolidation are
subject to the satisfaction or waiver of various conditions, which include, in
addition to other closing conditions, the following:
o Empire Resorts shall have obtained all required consents or
approvals;
o all required authorizations, consents or approvals of, or
registrations with, any governmental entity shall have been
obtained or made;
o no statute, rule, regulation, order, judgment, decree,
injunction, or ruling shall be in effect that prohibits the
consolidation;
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o the parties shall have received an opinion of Olshan Grundman
Frome Rosenzweig & Wolosky LLP, which opinion shall have been
confirmed by Olshan Grundman Frome Rosenzweig & Wolosky LLP (in
writing) as of the closing date, that none of the parties will
recognize any income, gain or loss for tax purposes as a result
of the consolidation;
o Empire Resorts shall have redeemed the shares of common stock
held by The Bryanston Group and certain shares of common stock
held by Beatrice Tollman;
o New York Gaming, LLC shall have distributed all its interest in
Catskill Development to Alpha Monticello, a wholly owned
subsidiary of Empire Resorts;
o subsequent to New York Gaming, LLC's distribution of its
interests in Catskill Development to Alpha Monticello, a wholly
owned subsidiary of Empire Resorts, Catskill Development shall
have redeemed all interests in itself held by Alpha Monticello,
a wholly owned subsidiary of Empire Resorts;
o a grantor trust shall have been created and Catskill
Development, Monticello Raceway Development and Mohawk
Management shall have assigned to such trust their rights to
the proceeds from any settlement or judgment related to their
claims against Park Place Entertainment Corporation, Gary
Melius, Ivan Kaufman and Walter Horn;
o amendments to the certificate of incorporation and bylaws of
Empire Resorts providing for a staggered board of directors
shall have been approved;
o the S-4 registration statement shall have been declared
effective and shall not be the subject of any stop order, and
no proceedings shall have been brought or, to the knowledge of
the parties, threatened for that purpose;
o consummation of the consolidation shall have been deemed by the
parties to the restated contribution agreement to be consistent
with the Cayuga Nation of New York's prior approval in the
Gaming Facility Management Agreement;
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o the Cayuga Nation of New York shall have deemed the
consolidation to be consistent with its prior approval in the
Gaming Facility Management Agreement; and
o all material agreements and covenants required to be performed
before closing shall have been performed.
Except as may be waived in writing by Empire Resorts, the obligation
of Empire Resorts to effect the consolidation is further subject to the
satisfaction of the following conditions:
o representations and warranties of Catskill Development and its
members in the restated contribution agreement shall be true
and correct in all material respects, and not subject to any
knowledge qualification, and Empire Resorts shall have received
a certificate executed by an officer of Catskill Development
and each member of Catskill Development to such effect;
o representations and warranties of Monticello Raceway
Development's members contained in the restated contribution
agreement shall be true and correct in all material respects,
and Empire Resorts shall have received a certificate executed
by each member of Monticello Raceway Development to such
effect;
o each affiliate shall have executed and delivered to Empire
Resorts an affiliate agreement;
o the special committee of the board of directors of Empire
Resorts shall have received an opinion from Kane Reece
Associates, which opinion shall have been confirmed by Kane
Reece Associates (in writing) as of the closing date, that the
consolidation is fair to Empire Resorts and its stockholders
from a financial point of view;
o Monticello Raceway Management and Catskill Development shall
have executed an amendment to that certain 48 year ground
lease, dated October 29, 2003, with respect to those certain
200 acres of land in Monticello, New York now owned by Catskill
Development (the "LEASE") (i) increasing the amount of land
subject to the purchase option under the lease from 200 acres
to 229 acres, without any increase in the purchase option
price, and (ii) reducing the purchase option price by any
amount received by Catskill Development (or its successor) if
the adjacent 29 acres now owned by Catskill Development are
sold pursuant to that certain Land Purchase Agreement between
Catskill Development and the Cayuga Nation of New York dated
April 3, 2003;
o Monticello Raceway Management shall have become a co-party to
that certain Shared Facilities Agreement, entered into as of
April 3, 2003, by and between the Cayuga Catskill Gaming
Authority and Catskill Development;
o Empire Resorts' special committee shall have approved the
consolidation;
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o subsequent to (1) Catskill Development's redemption of all
interests in itself held by Alpha Monticello, a wholly owned
subsidiary of Empire Resorts and (2) the creation of a
litigation trust and the assignment to such trust by Catskill
Development, Monticello Raceway Development and Mohawk
Management of all of their rights to the proceeds from their
claims against Park Place Entertainment Corporation, Gary
Melius, Ivan Kaufman and Walter Horn, Catskill Development
shall have contributed all of its rights, title and interest in
and to the business of Monticello Raceway and all of its other
assets and liabilities, except for Catskill Development's
interest in 229 acres of land in Monticello, New York, to
Monticello Casino Management and then shall have distributed
all of its interests in Monticello Raceway Management,
Monticello Casino Management and Mohawk Management to Catskill
Development's then current members;
o Catskill Development and the members of both Catskill
Development and Monticello Raceway Development shall have
provided Empire Resorts with all audited financial statements
required to be included in the S-4 registration statement;
o Empire Resorts shall have received an opinion from a law firm
reasonably acceptable to it as to certain legal matters;
o Empire Resorts shall have received a certificate from Catskill
Development, dated the closing date, as to the capitalization
of Monticello Raceway Management, Monticello Casino Management
and Mohawk Management; and
o to the knowledge of the members of both Catskill Development
and Monticello Raceway Development, since July 3, 2003, there
shall not have been any change in or any potential change in
the business, operations or financial condition of Monticello
Raceway Management, Monticello Casino Management, Monticello
Raceway Development or Mohawk Management, having or reasonably
likely to have a material adverse effect on Monticello Raceway
Management, Monticello Casino Management, Monticello Raceway
Development or Mohawk Management.
Except as may be waived in writing by Catskill Development and the
members of both Catskill Development and Monticello Raceway Development, the
obligation of Catskill Development and the members of both Catskill Development
and Monticello Raceway Development to effect the consolidation is further
subject to the satisfaction of the following conditions:
o representations and warranties of Empire Resorts contained in
the restated contribution agreement shall be true and correct
in all material respects, and Catskill Development and the
members of both Catskill Development and Monticello Raceway
Development shall have received a certificate executed by an
officer of Empire Resorts to such effect;
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o Catskill Development and its members shall have received a
legal opinion from Olshan Grundman Frome Rosenzweig & Wolosky
LLP;
o the shares of common stock being issued by Empire Resorts shall
have been approved for listing on the Nasdaq SmallCap Market;
o there shall be no outstanding or pending civil judgment or
court order against Stanley Tollman, Beatrice Tollman, Monty
Hundley or The Bryanston Group in favor of the U.S. Attorney
affecting consummation of the consolidation;
o since July 3, 2003, there shall have been no change in, or the
knowledge of a potential change in, the business, operation or
financial condition of Empire Resorts having or reasonably
likely to have a material adverse effect on Empire Resorts;
o Catskill Development and its members shall have received a
certificate from Empire Resorts verifying Empire Resorts'
capitalization;
o Catskill Development shall have received an assignment and
assumption agreement from Empire Resorts reflecting Empire
Resorts' assumption of certain liabilities;
o certain employment agreements shall have been amended; and
o Empire shall have executed a guaranty of lease, guaranteeing
Monticello Raceway Management's obligations under the Lease.
SURVIVAL OF REPRESENTATION AND WARRANTIES
The representations and warranties made by Catskill Development and
its members in the restated contribution agreement will not survive the closing
date except for the representations and warranties with respect to the matters
below (which will terminate on the first anniversary of the closing date), but
the accuracy of all of Empire Resorts' representations and warranties forms the
basis of a condition to closing regarding the obligations of Catskill
Development and the members of both Catskill Development and Monticello Raceway
Development:
o capitalization of Empire Resorts;
o the shares of Empire Resorts' common stock being issued
pursuant to the consolidation being validly issued, fully paid,
nonassessable, not subject to any preemptive rights and
constituting 80.25% of Empire Resorts' common stock on a
post-consolidation, fully diluted basis;
o power and authority to enter into and carry out its obligations
under the restated contribution agreement and all related
agreements;
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o absence of conflict or breach of any laws, contracts, leases or
other material agreements, including any organizational
documents, as a result of execution of the restated
contribution agreement or the consummation of the transactions
contemplated therein; and
o required governmental or third party consents and approvals for
the execution and delivery of the restated contribution
agreement and related agreements or for the consummation of the
transactions contemplated therein.
The representations and warranties made by Catskill Development and
its members in the restated contribution agreement will not survive the closing
date except for the representations and warranties with respect to the matters
below (which will terminate on the first anniversary of the closing date), but
the accuracy of all of Catskill Development's and its members' representations
and warranties forms the basis of a condition to closing regarding the
obligations of Empire Resorts:
o capital structure of Monticello Raceway Management, Monticello
Casino Management and Mohawk Management;
o interests to be contributed being validly issued, fully paid,
nonassessable and not subject to any preemptive rights;
o no declared or unpaid dividends with respect to the interests
being contributed;
o ownership of and power to transfer free and clear title to the
interests being contributed;
o power and authority to enter into and carry out their
obligations under the restated contribution agreement and all
related agreements;
o with respect to themselves and each of Monticello Raceway
Management, Monticello Casino Management and Mohawk Management,
absence of conflict or breach of any laws, contracts, leases or
other material agreements, including any organizational
documents, as a result of execution of the restated
contribution agreement or the consummation of the transactions
contemplated therein;
o required governmental or third party consents and approvals for
the execution and delivery of the restated contribution
agreement and related agreements or for the consummation of the
transactions contemplated therein; and
o absence of subsidiaries of Catskill Development other than
Monticello Raceway Management, Monticello Casino Management and
Mohawk Management.
The representations and warranties made by the members of Monticello
Raceway Development in the restated contribution agreement will not survive the
closing date except for the representations and warranties with respect to the
matters below (which will terminate on the first anniversary of the closing
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date), but the accuracy of all of the representations and warranties forms the
basis of a condition to closing regarding the obligations of Empire Resorts:
o capital structure of Monticello Raceway Development;
o interests to be contributed being validly issued, fully paid,
nonassessable and not subject to any preemptive rights;
o no declared or unpaid dividends with respect to the interests
being contributed;
o ownership of and power to transfer free and clear title to the
interests being contributed;
o power and authority to enter into and carry out their
obligations under the restated contribution agreement and all
related agreements;
o with respect to themselves and Monticello Raceway Development,
absence of conflict or breach of any laws, contracts, leases or
other material agreements, including any organizational
documents, as a result of execution of the restated
contribution agreement or the consummation of the transactions
contemplated therein; and
o required governmental or third party consents and approvals for
the execution and delivery of the restated contribution
agreement and related agreements or for the consummation of the
transactions contemplated therein.
INDEMNIFICATION
o the members of both Catskill Development and Monticello Raceway
Development will, severally and not jointly, indemnify and hold
harmless Empire Resorts from any losses, liabilities and
damages (financial or otherwise, including reasonable attorneys
fees and other costs) due to inaccuracies or the breach of any
surviving representation or warranty of Catskill Development,
Catskill Development's members or Monticello Raceway
Development's members, or the non-performance by Catskill
Development, Catskill Development's members or Monticello
Raceway Development's members of any covenant or obligation
under the restated contribution agreement; provided that none
of the members of Catskill Development nor Monticello Raceway
Development shall be required to indemnify Empire Resorts for
any losses in excess of the value (as of closing time) of the
shares of Empire Resorts' common stock issued to it at closing.
o Empire Resorts will indemnify and hold harmless Catskill
Development and each of the members of both Catskill
Development and Monticello Raceway Development for any losses,
liabilities and damages (financial or otherwise, including
reasonable attorney fees and other costs) due to inaccuracies
or the breach of any surviving representation or warranty of
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Empire Resorts or the non-performance by Empire Resorts of any
covenant or obligation under the restated contribution
agreement, provided that Empire Resorts shall not be required
to indemnify Catskill Development and the members of both
Catskill Development and Monticello Raceway Development for any
losses that exceed the value (as of closing time) of the shares
to be issued by Empire Resorts at closing.
TERMINATION
The restated contribution agreement can be terminated at any time
prior to the closing time by:
o mutual written consent;
o by any of the parties if the consolidation has not been
completed by January 31, 2004, provided that a party cannot
terminate the restated contribution agreement if such party's
actions or failure to act caused or resulted in the failure of
the consolidation's timely closing;
o by any party not in breach if another party materially breaches
any of its representations, warranties, covenants or agreements
contained in the restated contribution agreement; or
o by any of the parties if a court of competent jurisdiction or
other governmental entity issues an order, decree or ruling
(which is final and nonappealable), or takes any other action,
having the effect of permanently restraining, enjoining or
otherwise prohibiting the consolidation.
If the restated contribution agreement is terminated by mutual
consent or the failure to close by January 31, 2004, then the agreement is void
and there will be no liability or cause of action as a result of terminating the
agreement. If the restated contribution agreement is terminated by a
non-breaching party following a material breach, however, the parties reserve
their right to take legal action.
MISCELLANEOUS
Other provisions of the restated contribution agreement include the
following:
o the parties have the right to seek a temporary restraining
order, injunction or other equitable remedy due to the nature
of the agreement;
o there shall be no public announcements related to the
consolidation and other transactions contemplated by the
restated contribution agreement prior to the closing;
o the restated contribution agreement supersedes all prior
agreements, whether written or oral;
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o the restated contribution agreement will inure to the benefit
of and be binding upon the parties and their respective
successors and assigns;
o the restated contribution agreement may not be assigned without
the prior written consent of the other parties;
o the restated contribution agreement shall be subject to New
York law and the jurisdiction of New York courts (state and
federal);
o sections in the restated contribution agreement are severable
if a court of competent jurisdiction declares a section to be
void, illegal or unenforceable, with the remainder of the
agreement in full force. The parties agree to replace such
severed provisions with a valid provision; and
o the parties may not interpret the ambiguities in the restated
contribution agreement against the party that drafted the
agreement.
MATERIAL CONDITIONS TO CLOSING
As indicated above, the restated contribution agreement provides for
various actions that must occur before the consolidation can be effectuated. A
number of these actions will have a material impact on Empire Resorts existing
business structure, the rights of its stockholders and its post-consolidation
objectives. These closing conditions, therefore, are described below in greater
detail.
REDEMPTION OF EMPIRE RESORTS' INTEREST IN CATSKILL DEVELOPMENT
Alpha Monticello, a wholly owned subsidiary of Empire Resorts, is
currently a member of Catskill Development and holds a 48.31% economic ownership
interest in its casino and wagering operations, a 36.88% economic ownership
interest in its horseracing and other pari-mutuel activities and a 25% economic
ownership interest in its real estate ownership and development operations.
Immediately prior to the consolidation's closing, but following New York Gaming,
LLC's contribution of its interests in Catskill Development to Alpha Monticello,
a wholly owned subsidiary of Empire Resorts, Catskill Development will redeem
all of Empire Resorts' indirect membership interests in Catskill Development in
exchange for 40 shares of Monticello Raceway Management, representing 40% of
Monticello Raceway Management's outstanding capital stock. As a result of this
redemption, Empire Resorts' will not receive, directly or indirectly, any of the
shares of Empire Resorts' common stock to be issued to the members of Catskill
Development pursuant to the consolidation. Moreover, Catskill Development's
redemption of Empire Resorts' indirect interest will result in Americas Tower
Partners' and Watertone Holdings' (both of which are controlled by or affiliated
with certain officers and directors of Empire Resorts) membership interest in
Catskill Development increasing to approximately 33% each, giving them and the
other members of Catskill Development the right to receive a greater percentage
of the consideration to be received by Catskill Development's members as part of
the consolidation.
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DISTRIBUTION BY CATSKILL DEVELOPMENT OF ITS INTERESTS IN MONTICELLO RACEWAY
MANAGEMENT, MONTICELLO CASINO MANAGEMENT AND MOHAWK MANAGEMENT
Catskill Development currently owns all of the issued and
outstanding common shares of Monticello Raceway Management and 60% of the
outstanding membership interests of both Monticello Casino Management and Mohawk
Management. Immediately following Catskill Development's redemption of all
interests in itself held by Alpha Monticello, a wholly owned subsidiary of
Empire Resorts (as described in the prior paragraph), but prior to the
consolidation's closing, Catskill Development will contribute all of its rights,
title and interest in and to the business of Monticello Raceway and all of its
other assets and liabilities, except for Catskill Development's interest in 229
acres of land in Monticello, New York and its right to certain litigation
claims, to Monticello Casino Management and Catskill Development shall
subsequently distribute all of its interests in Monticello Raceway Management,
Monticello Casino Management and Mohawk Management to Catskill Development's
then current members. Catskill Development's members will then, in turn,
contribute all of these equity interests to Empire Resorts in exchange for
shares of Empire Resorts' common stock. As a result of this distribution by
Catskill Development, at the consolidation's closing, Catskill Development will
neither be contributing any assets to Empire Resorts nor receiving any shares of
Empire Resorts' common stock. Rather, Catskill Development's members will be
transferring all of Catskill Development's current equity interests in
Monticello Raceway Management, Monticello Casino Management and Mohawk
Management to Empire Resorts in exchange for a direct issuance of shares of
Empire Resorts' common stock. Furthermore, as a result of this distribution, at
the time of the consolidation's closing, Catskill Development will not have any
assets other than 229 acres of land in Monticello, New York.
FORMATION OF LITIGATION TRUST
Another material condition to the consolidation's closing is for
each of Catskill Development, Monticello Raceway Development and Mohawk
Management to assign to a grantor trust (the "LITIGATION TRUST") all of their
claims under or related to the alienation and frustration of their agreements
and business relations with the St. Regis Mohawk Tribe and their rights to any
proceeds from any judgment or settlement that may arise from any litigation
relating to that claim, including (1) that certain litigation entitled Catskill
Development, L.L.C., Mohawk Management, L.L.C., and Monticello Raceway
Development Company, L.L.C., Plaintiffs. v. Park Place Entertainment
Corporation, Defendant. (Civil Action No. 00CIV8660 (CM)(GAY)) (United States
District Court Southern District Of New York) (the "PARK PLACE LITIGATION") and
(2) that certain litigation entitled Catskill Development, L.L.C., Mohawk
Management, L.L.C., and Monticello Raceway Development Company, L.L.C.,
Plaintiffs. against Gary Melius, Ivan Kaufman, Walter Horn, President R.C. - St.
Regis Management Company, et al, Defendants. (Index No. 891/03) (Supreme Court
of the State of New York County of Sullivan) (the "MELIUS LITIGATION").
BACKGROUND OF LITIGATION CLAIMS
As mentioned above in "The Consolidation - Background of the
Consolidation" beginning on page 32, in 1996, a group of businessmen formed a
coalition with Empire Resorts and two other entities and commenced negotiations
with the St. Regis Mohawk Tribe about developing a Class III Gaming casino on
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land adjacent to Monticello Raceway. This coalition then formed three entities
to accomplish distinct aspects of the project:
o Catskill Development was formed to acquire the land on which
the casino would be built and obtain approval for and implement
the transfer of the land to the United States of America in
trust for the St. Regis Mohawk Tribe for off-reservation
gaming.
o Monticello Raceway Development was formed to develop the casino
property, and provide technical expertise for the planning,
design, engineering, and construction of the casino. It would
also help the St. Regis Mohawk Tribe in obtaining financing for
the casino undertaking.
o Mohawk Management was formed to manage the casino.
Each party negotiated a separate contract with the St. Regis Mohawk
Tribe to cover its role. Thus, Catskill Development, after itself acquiring
title to Monticello Raceway and the surrounding property for $10 million,
negotiated a land purchase agreement; Mohawk Management negotiated a gaming
facility management agreement; and Monticello Raceway Development negotiated a
gaming facility development and construction agreement. Each of the land
purchase agreement and gaming facility management agreement were subject to
certain regulatory approvals from the Bureau of Indian Affairs, the National
Indian Gaming Commission and the State of New York.
On August 2, 1996, Catskill Development applied to the Bureau of
Indian Affairs and National Indian Gaming Commission to place 29 acres of land
adjacent to Monticello Raceway in trust status and to approve the land for Class
III Gaming. The Bureau of Indian Affairs then spent 3 1/2 years reviewing and
processing the application, finally approving it on April 6, 2000 and
simultaneously requesting that New York State Governor George Pataki concur.
Before the Governor could formally concur or the National Indian
Gaming Commission could approve the casino management agreement, Park Place
Entertainment Corporation, the world's largest gaming corporation and Atlantic
City's largest casino operator, entered into an agreement providing for the St.
Regis Mohawk Tribe to commit their future casino development efforts exclusively
to Park Place Entertainment Corporation, which conflicted with their agreements
with Catskill Development, Monticello Raceway Development and Mohawk Management.
In an agreement executed on April 14, 2000, the St. Regis Mohawk Tribe promised
to work exclusively with Park Place Entertainment Corporation for consideration,
among other things, of $3,000,000 in cash and Park Place Entertainment
Corporation's promise to indemnify the St. Regis Mohawk Tribe against any
litigation that may result. For a new casino project at another location in the
Catskills, Park Place Entertainment Corporation and the St. Regis Mohawk Tribe
agreed to enter into agreements very similar to those between Catskill
Development, Monticello Raceway Development and Mohawk Management and the St.
Regis Mohawk Tribe, substituting Park Place Entertainment Corporation's name for
that of Catskill Development, Monticello Raceway Development and Mohawk
Management.
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In response to these events, each of Catskill Development,
Monticello Raceway Development and Mohawk Management sued Park Place
Entertainment Corporation, asserting claims under New York law for intentional
interference with contractual relations and interference with business
relations. The trial court subsequently dismissed the claim for intentional
interference with contractual relations on the grounds that the contracts were
subject to certain approvals and granted Park Place Entertainment Corporation's
motion for summary judgment with respect to the interference with business
relations complaint on the grounds that insufficient evidence of causation or
wrongful conduct had been produced, effectively dismissing the entire case.
These court rulings, however, have been appealed. In addition, on October 7,
2003, after receiving a remand of jurisdiction from the Second Circuit Court of
Appeals, the trial court granted the plaintiffs' motion to vacate the earlier
decision granting summary judgment to Park Place Entertainment Corporation, in
order to allow additional discovery proceedings with respect to evidence that
the plaintiffs had not received in connection with their earlier discovery
requests prior to the summary judgment decision.
Separately, on April 11, 2003, each of Catskill Development,
Monticello Raceway Development and Mohawk Management filed suit against Gary
Melius, Ivan Kaufman and Walter Horn, each of whom served as an intermediary
between the St. Regis Mohawk Tribe and Park Place Entertainment Corporation
during Park Place Entertainment Corporation's successful effort to induce the
St. Regis Mohawk Tribe to renounce their agreements with Catskill Development,
Monticello Raceway Development and Mohawk Management and commit their casino
efforts exclusively to Park Place Entertainment Corporation. In this lawsuit,
the plaintiffs have alleged that the defendants engaged in a conspiracy to
restrain and interfere with the plaintiffs' efforts to develop a casino in
Monticello, New York with the St. Regis Mohawk Tribe. In addition, the
plaintiffs have alleged that the defendants engaged in a fraud and conspiracy by
withholding material evidence from the plaintiffs in connection with their
lawsuit against Park Place Entertainment Corporation. The plaintiffs are seeking
$2 billion in damages. This lawsuit is still in its preliminary stages.
ASSIGNMENT OF LITIGATION CLAIMS
In order to better focus on the development of a video lottery
terminal program at Monticello Raceway and current business arrangements with
the Cayuga Nation of New York, while at the same time not abandoning the
interests of their stakeholders in the claims against Park Place Entertainment
Corporation, Gary Melius, Ivan Kaufman and Walter Horn, the parties have made it
a condition to the consolidation's closing that Catskill Development, Monticello
Raceway Development and Mohawk Management assign all of their claims emanating
from the above described actions against Park Place Entertainment Corporation,
Gary Melius, Ivan Kaufman and Walter Horn, along with their rights to any
proceeds from any judgment or settlement that may arise from any litigation
relating to such subject matter, to a grantor trust in which Empire Resorts'
common stockholders of record immediately before the consolidation's closing
(but following the redemption of the common stock held by The Bryanston Group
and Beatrice Tollman) will have a 19.75% interest, with the members of Catskill
Development and Monticello Raceway Development immediately before the
consolidation's closing owning the remaining 80.25%. Empire Resorts will
separately enter into an agreement with the Litigation Trust pursuant to which
Empire Resorts will provide the trust with a $2,500,000 line of credit to
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finance the litigation. However, aside from performing its obligations under
this line of credit, neither Empire Resorts nor any of its post-consolidation
subsidiaries will have any future involvement with the ongoing litigation or any
future suits that may arise. Paul A. deBary, a member of Empire Resorts' board
of directors, and Joseph E. Bernstein, a member of Empire Resorts' board of
directors and a managing director of Americas Tower Partners, have agreed to
serve as co-trustees for the Litigation Trust. For these services, Messrs.
deBary and Bernstein will each receive $60,000 per year and 1% and 4%,
respectively, of any proceeds that the Litigation Trust receives from the
ongoing litigation, or any future litigation that may be brought by the
Litigation Trust. Moreover, any proceeds received by the Litigation Trust shall
first be applied to pay the expenses of the Litigation Trust, including
compensation of the trustees, second, to provide for a reserve, if necessary,
for future expenses of the Litigation Trust, third to repay Empire Resorts, in
addition to any amounts borrowed under the line of credit, up to $7,500,000 to
compensate Empire Resorts for other previously incurred expenses in connection
with the Park Place and Melius Litigations, and then for the remaining amount to
be distributed pro rata to the Litigation Trust's beneficiaries.
REDEMPTION OF CERTAIN SHARES OF COMMON STOCK
On April 17, 2002, a 44 count federal indictment was issued for an
alleged $42 million bank and tax fraud scheme that named as defendants, among
others, Stanley Tollman, Empire Resorts' former chairman and chief executive
officer, Brett Tollman, a former member of its board of directors, Monty
Hundley, Empire Resorts' former president and chief executive officer and two of
Empire Resorts' former vice presidents, James Cutler and Sanford Freedman.
Although all of these people have resigned from Empire Resorts at various points
over the previous two years, the allegations in the indictment include charges
that the defendants improperly misrepresented their ownership of Empire Resorts'
stock and the ownership of The Bryanston Group, Empire Resorts' largest
stockholder. In addition, the indictment includes a substitution of asset
provision stating that the U.S. Attorney plans to try to seize any Empire
Resorts stock owned by the defendants and The Bryanston Group. These indictments
had an immediate negative impact on Empire Resorts, as the New York State Racing
and Wagering Board commenced an investigation of the ownership of Catskill
Development, Empire Resorts' auditors resigned and Empire Resorts' principal
lender began contemplating an acceleration of Empire Resorts' outstanding debt.
In light of these indictments, on December 10, 2002, in an effort to
remove the principal defendants from any position of control or influence over
Empire Resorts, Empire Resorts entered into a recapitalization agreement with
Stanley Tollman, Beatrice Tollman (Stanley Tollman's wife), Monty Hundley, The
Bryanston Group and Alpha Monticello, a wholly owned subsidiary of Empire
Resorts. Under this agreement, each of The Bryanston Group and Beatrice Tollman
granted Empire Resorts a three year option to redeem from them up to 2,326,857
and 66,000 shares of Empire Resorts' common stock, respectively, at a redemption
price of $2.12 per share, payable in cash or by promissory note. The Bryanston
Group and Beatrice Tollman also granted Robert A. Berman, Empire Resorts' chief
executive officer, an irrevocable three year proxy to vote these shares of
common stock at his discretion.
Prior to the closing of the consolidation, in accordance with the
terms of the restated contribution agreement, Empire Resorts is required to
redeem all of the shares of Empire Resorts' common stock that are subject to the
recapitalization agreement and that are held by The Bryanston Group and Beatrice
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Tollman. In order to consummate this redemption, Empire Resorts will need to pay
to these parties, either in cash, by issuance of a promissory note, or any
combination of the two, the sum of $5,072,284. Should Empire Resorts pay any
portion of this amount by issuing a promissory note, such note would be payable
over three years pursuant to the following schedule:
Date Amount
---- ------
(1 Year Anniversary of Note) (13.33% of the Note Amount)
(18 Month Anniversary of Note) (17.78% of the Note Amount)
(2 Year Anniversary of Note) (22.22% of the Note Amount)
(30 Month Anniversary of Note) (26.67% of the Note Amount)
(3 Year Anniversary of Note) (20.00% of the Note Amount)
In addition, under the terms of the note, interest would accrue on
the outstanding principal amount at the rate of 7% per annum, and upon each
principal amount payment, Empire Resorts would also be required to pay all
unpaid accrued interest with respect to such principal amount payment.
LISTING OF COMMON STOCK ON NASDAQ
In the restated contribution agreement, Empire Resorts has agreed to
use all reasonable efforts to cause the shares of Empire Resorts' common stock
which are to be issued pursuant to the consolidation to be listed for trading on
the Nasdaq SmallCap Market. Such listing is a condition to the obligations of
Catskill Development and the members of both Catskill Development and Monticello
Raceway Development to consummate the consolidation.
UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statement of
operations for the period ended December 31, 2002 and for the period ended
September 30, 2003 was prepared as if the consolidation was effective as of
January 1, 2002. The pro forma consolidated balance sheet as of September 30,
2003 was prepared as if the consolidation was effective as of such date.
The unaudited pro forma consolidated financial statements should be
read in conjunction with the historical financial statements and notes thereto
incorporated by reference for Empire Resorts, and included herein for Catskill
Development and Monticello Raceway Development. The pro forma financial
information is presented for illustrative purposes only and is not necessarily
indicative of the future financial position or future results of operations of
the combined enterprise after the consolidation of Empire Resorts with
Monticello Raceway Management, Monticello Casino Management, Mohawk Management
and Monticello Raceway Development, or of the financial position or results of
operations of the combined enterprise that would have actually occurred had the
consolidation been effected as of the dates described above. The consolidation
will be accounted for as a reverse acquisition wherein Catskill Development and
the members of Monticello Raceway Development will be treated as the acquirer
for accounting purposes since the members of both Catskill Development and
Monticello Raceway Development will control the combined enterprise.
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Condensed Consolidated Pro Forma Balance Sheet
as of September 30, 2003
(in thousands, except for per share data)
Pro Forma
(Consolidated
Empire Resorts
Empire Catskill and Catskill
Resorts Development Adjustments Development)
-------- ----------- ----------- --------------
ASSETS
Current Assets
Cash .................................. $ 126 $ 809 -- $ 935
Receivables and other current assets .. 12 1,045 -- 1,057
--------- --------- --------- ------------
Total current assets .................. 138 1,854 -- 1,992
Net property and equipment ............ -- 5,856 (5,856) A --
Investments and advances in affiliates 7,651 -- (7,651) C --
Development costs Cayuga Nation ....... 1,056 -- -- 1,056
Deferred costs - leased property
development ........................... -- 7,645 -- 7,645
---------- --------- --------- ------------
Total assets .................... $ 8,845 $ 15,355 13,507) $ 10,693
========== ========= ========= ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable and accrued expenses . $ 1,048 $ 3,389 -- $ 4,437
Accrued payroll and related liabilities 108 -- -- 108
--------- --------- --------- -------------
Notes payablle......................... -- 7,321 (7,321) D --
Total current liabilities ....... 1,156 10,710 (7,321) 4,545
--------- --------- --------- ------------
Long-term debt
Notes payable ......................... -- (5,073) F 5,073
Capital
Common stock .......................... 59 -- 166 B 225
Contributed capital and other ......... -- 18,320 (18,320) G --
Preferred stock ....................... 6,855 -- -- 6,855
Paid in capital ....................... 116,774 -- (7,651) C
(115,999) E
7,321 D
(166) B
(5,856) A
18,320 G 12,743
Deficit ............................... (15,999) (13,675) 115,999 E (13,675)
Treasury stock ........................ -- -- (5,073) F (5,073)
---------- --------- ---------- ----------
Total capital ................... 7,689 4,645 (11,259) 1,075
---------- --------- ---------- ----------
Total liabilities and capital ... $ 8,845 $ 15,355 $ (13,507) $ 10,693
========= ========= ========== ==========
91
Condensed Consolidated Pro Forma Statements of Operations
for the year ended December 31, 2002
(in thousands, except for per share data)
Pro Forma
(Consolidated
Empire Resorts
Empire Catskill and Catskill
Resorts Development Adjustments Development)
-------- ----------- ----------- --------------
Revenues ............................... $ -- $ 11,359 $ -- $ 11,359
-------- -------- --------- -----------
Costs and Expenses
Pari-mutuel wagering purses .......... -- 3,932 -- 3,932
Rent - Monticello Raceway lease ...... -- -- 1,800 J 1,800
Selling, general, administrative and
other ................................ 2,627 7,991 -- 10,618
Interest ............................. 459 620 (620)I 814
355 H
Depreciation ......................... 77 756 (756)K 77
Pre-opening and development costs .... 24 -- -- 24
-------- -------- --------- -----------
Total costs and expenses ......... 3,187 13,299 779 17,265
-------- -------- --------- -----------
Other income (loss)
Interest Income 7 7
Impairment loss - Casino Ventures .... (3,000) -- -- (3,000)
Gain on sale of investments and related
management contract .................. 3,277 -- -- 3,277
Impairment loss on investment........... (6,934) -- 6,934 M --
Gain on extinguishment of debt ....... 326 -- -- 326
-------- -------- --------- -----------
Total other net income (loss)..... (6,331) 7 6,934 610
-------- -------- --------- -----------
Net loss before minority interest ...... (9,518) (1,933) 6,155 (5,296)
Minority interest ...................... 18 -- -- 18
-------- -------- --------- -----------
Net loss ............................... (9,500) (1,933) 6,155 $ (5,278)
======== ======== ========= ===========
Cumulative undeclared dividends on ..... (174) -- -- (174)
preferred stock
Loss applicable to common shares ....... (9,674) (1,933) 6,155 $ (5,452)
======== ======== ========= ===========
Weighted average common shares
outstanding, basic and diluted ......... 4,615 16,643 (2,393)B 18,865
======== ======== ========= ===========
Loss per common share, basic
and diluted............................. $ (2.10) $ (0.12) $ -- $ (0.29)
======== ======== ========= ==========
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Condensed Consolidated Pro Forma Statements of Operations
for the nine months ended September 30, 2003
(in thousands, except for per share data)
Pro Forma
(Consolidated
Empire Resorts
Empire Catskill and Catskill
Resorts Development Adjustments Development)
-------- ----------- ----------- --------------
Revenues ............................... $ -- $ 7,472 $ -- $ 7,472
-------- -------- --------- -----------
Costs and Expenses
Pari-mutuel wagering purses .......... -- 2,524 -- 2,524
Rent - Monticello Raceway lease ...... -- -- 1,200 J 1,200
Selling, general, administrative and
other ................................ 5,474 5,448 -- 10,922
Interest ............................. 556 500 (500)I 822
266 H
Depreciation ........................... -- 526 (526)K --
--------- -------- ----------- ----------
Total costs and expenses ......... 6,030 8,998 440 15,468
--------- -------- ----------- ----------
Other income (loss)
Interest Income 3 3
Equity in loss of affiliate ............ (381) -- 381 L --
Gain on sale of investments and related
management contract .................... 135 -- -- 135
Gain on extinguishment of debt ......... 389 -- -- 389
Recovery of insurance proceeds ......... 500 -- -- 500
--------- -------- ----------- ----------
Total other net income ........... 643 3 381 1,027
--------- -------- ----------- ----------
Net loss ............................... (5,387) (1,523) (59) (6,969)
========= ======== =========== ==========
Cumulative undeclared dividends on
preferred stock ........................ (1,161) -- -- (1,161)
Net loss applicable to common shares ... $ (6,548) $ (1,523) $ (59) $(8,130)
========= ======== =========== ==========
Weighted average common shares
outstanding, basic and diluted ......... 5,351 16,643 (2,393) B 19,601
========= ======== =========== ============
Loss per common share,
basic and diluted...................... $ (1.23) $ (0.09) $ -- $ (0.41)
========= ======== =========== ============
Notes to Pro Forma Condensed Consolidated Financial Statements
The following are brief descriptions of the pro forma adjustments to
the balance sheets and statements of operations of Empire Resorts and Catskill
Development to reflect the consolidation. Empire Resorts is acquiring from
Catskill Development's members certain assets and liabilities and all of their
equity holdings of Monticello Casino Management, Monticello Raceway Management
and Mohawk Management. After the distribution of Empire Resorts' stock to the
members of both Catskill Development and Monticello Raceway Development pursuant
to the consolidation, the members of Monticello Raceway Development and Catskill
Development will hold 80.25% of the outstanding common stock of Empire Resorts.
93
Although Empire Resorts is the legal survivor in the consolidation
and remains the registrant with the Securities and Exchange Commission, under
the accounting principals generally accepted in the United States, the merger is
to be accounted for as a reverse acquisition. Catskill Development is considered
the "Acquirer" of Empire Resorts for financial reporting purposes as its members
will control more than 50% of the post transitory combined company. Among other
things, this requires Empire Resorts to present all financial statements after
completion of the consolidation, prior historical financial and other
information of Catskill Development and requires a retroactive restatement of
Catskill Development's historical members' investment for the equivalent number
of shares of common stock received in the consolidation.
The pro forma financial statements that represent the consolidated
financial position of Catskill Development and Empire Resorts includes
estimates. These estimates could and most likely will vary, possibly
substantially, from the actual results that will be reported in future reporting
periods after the date of the closing. Prior to the formal closing, new
approvals, regulations, ratification of contracts and certified appraisals may
be disclosed in future public filings, possibly changing a reader's evaluation
of the consolidation. In addition, subsequent public filings may contain
information different from the information in these pro forma financial
statements.
The condensed consolidated pro-forma balance sheet is based upon the
historical balance sheets of Empire Resorts, Monticello Raceway Development and
Catskill Development as of September 30, 2003 and assumes the consolidation took
place on that date. The condensed statements of operations for the year ended
December 31, 2002 and the for the nine months ended September 30, 2003 are based
upon the historical statements of Empire Resorts, Monticello Raceway Development
and Catskill Development for those periods. The pro forma statements of
operations have been adjusted to reflect the assumption that the consolidation
took place on January 1, 2002.
The unaudited pro forma financial statements should be read together
with the financial statements and notes of Empire Resorts, which are
incorporated by reference from Empire Resorts' Annual Report on Form 10-KSB for
the year ended December 31, 2002 and Quarterly Reports on Form 10-QSB for the
quarters ended March 31, June 30 and September 30, 2003, and the consolidated
financial statements of Catskill Development for the year ended December 31,
2002 and the nine months ended September 30, 2003.
PRO FORMA ADJUSTMENTS TO THE CONDENSED CONSOLIDATED BALANCE SHEET ARE AS
FOLLOWS:
(A) Net property and equipment of Catskill Development distributed to
the members of Catskill Development following the consolidation
(which will no longer include Empire Resorts).
(B) Issuance of approximately 16,643,000 shares of Empire Resorts'
common stock in connection with the consolidation. The table below
summarizes the changes to Empire Resorts' capitalization that will
result from the consolidation. The outstanding balance of common
stock and options outstanding as of July 2003 was used for the
presentation of these pro forma financial statements. At the date of
the closing of the consolidation, the shares of common stock issued
will reflect the actual amount of shares outstanding as of that
date.
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Number of shares of common stock outstanding prior to the
consolidation (approximated)................................ 5,711,000
Number of shares of common stock to be redeemed (see note F).(2,393,000)
Outstanding options (approximated)........................... 778,000
Shares issued in consolidation to members of both Catskill
Development and Monticello Raceway
Development (approximated)...................................16,643,000
Total percentage of shares to be issued pursuant to
the consolidation (actual).................................... 80.25%
Reconciliation of Actual Shares Outstanding as of December 31, 2002 and
September 30, 2003 to present
December 31, 2002 September 30, 2003
(in thousands) (in thousands)
Original outstanding shares as reported 4,615 5,351
Elimination of shares redeemed (See F) (2,393) (2,393)
Shares issued to Catskill members in connection with the
consolidation 16,643 16,643
------ ------
Pro forma outstanding shares 18,865 19,601
====== ======
(C) To eliminate Empire Resorts' investment in Catskill Development
recorded on Empire Resorts' balance sheet at September 30, 2003 in
the amount of $7,651,000.
(D) Contribution of long term debt and related interest by certain
members of Catskill Development to the new consolidated entity in
consideration of the consolidation.
(E) Elimination of Empire Resorts' recorded deficit, as the accounting
acquiree.
(F) Redemption of Empire Resorts' common stock of certain stockholders
in exchange for approximately $5,073,000 of individual long-term
non-convertible 7% notes payable, which was a condition of the
consolidation.
(G) Elimination of contributed capital of Catskill Development as the
accounting acquirer.
PRO FORMA ADJUSTMENTS TO THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS ARE
AS FOLLOWS:
(H) Records the interest expense for the year ended December 31, 2002
and the nine months ended September 30, 2003 as a result of Item F
above.
(I) Elimination of interest on long term debt (see (D)) related to
certain members of Catskill Development.
95
(J) Reflects recognition of rent expense to be paid to Catskill
Development for the year ended December 31, 2002 and for the nine
months ended September 30, 2003.
(K) Elimination of depreciation of net property and equipment
distributed by Catskill Development to its members not including
Empire Resorts.
(L) Elimination of Empire Resorts' recorded loss in equity of affiliate
for the nine months ended September 30. 2003 included in the
operations of Catskill Development.
(M) Elimination of loss based upon impairment recognized in 2002 on the
investment in Catskill Development.
BUSINESS
EMPIRE RESORTS
For a detailed discussion of the following items and further
information concerning Empire Resorts, please see Empire Resorts' Annual Report
on Form 10-KSB for the year ended December 31, 2002, Empire Resorts' Proxy
Statement dated February 21, 2003 for its 2003 Annual Meeting of Stockholders on
Schedule 14A and Empire Resorts' Quarterly Report on Form 10-QSB for the quarter
ended September 30, 2003, copies of which accompany this information
statement/prospectus:
o Empire Resorts' business;
o Empire Resorts' property;
o pending legal proceedings involving Empire Resorts, its
principal stockholders and/or managers;
o matters submitted to a vote of Empire Resorts' stockholders
during the fourth quarter of 2002;
o the market for Empire Resorts' common stock and sales of
unregistered securities;
o Empire Resorts' disclosure controls and procedures;
o Empire Resorts' directors and executive officers;
o Empire Resort's executive compensation;
o security ownership of certain beneficial owners and management
of Empire Resorts and related stockholder matters;
o changes in and disagreements with accountants in accounting and
financial disclosure;
96
o certain relationships and related transactions involving Empire
Resorts; and
o fees paid to Empire Resorts' principal accountants in 2002 and
the services that were performed.
For further information, please also review the documents that are
incorporated by reference into this information statement/prospectus. See "Where
You Can Find More Information" beginning on page 184 and "Incorporation of
Documents by Reference" beginning on page 185.
BUSINESS AFTER THE CONSOLIDATION
Following the consolidation, each of Monticello Raceway Management,
Monticello Casino Management, Monticello Raceway Development and Mohawk
Management will become wholly owned subsidiaries of Empire Resorts. Empire
Resorts intends to manage these holdings in a manner consistent with their
existing businesses and plans of operation. See "Business - Monticello Raceway
Management" beginning on page 97, "Business - Monticello Casino Management"
beginning on page 103, "Business - Monticello Raceway Development" beginning on
page 109 and "Business - Mohawk Management" beginning on page 115. Empire
Resorts does not have any additional business plans following the consolidation
other than overseeing its investment in these acquired companies.
MONTICELLO RACEWAY MANAGEMENT
GENERAL
Monticello Raceway Management is a New York corporation whose sole
business is the operation of Monticello Raceway, a harness horseracing facility
located in Monticello, New York, approximately 90 miles northwest of New York
City in the Catskills Mountains.
RACETRACK OPERATIONS
Monticello Raceway began operation in 1958 and offers pari-mutuel
wagering on live harness horseracing throughout the year, along with year round
simulcasting from various harness and thoroughbred racetracks across the
country. Monticello Raceway derives its revenue principally from (i) wagering at
Monticello Raceway on live races run at the track; (ii) fees from wagering at
out-of-state locations on races run at Monticello Raceway using export
simulcasting; (iii) revenue allocations, as prescribed by law, from betting
activity at "off-track betting" facilities located in New York City, Nassau
County and the Catskills region; (iv) wagering at Monticello Raceway on races
broadcast from out-of-state racetracks using import simulcasting; and (v)
admission fees, program and racing form sales, the sale of food and beverages
and certain other ancillary activities. Some of Monticello Raceway's off-track
betting revenue, however, is shared with Yonkers Raceway, a harness horse racing
facility located in Yonkers, New York.
97
VIDEO LOTTERY TERMINALS
Video lottery terminals are video gaming devices generally operated
under the auspices of a state lottery. To the patron, these devices are very
similar in appearance to a traditional slot machine. During the past decade, the
operation of these gaming devices at racetracks in several states outside New
York has been authorized, with a portion of the revenues dedicated to increasing
purses. The operation of these devices has generally improved the economics of
the racetracks' operations.
On October 31, 2001, the State of New York enacted a bill granting
seven racetracks across the state, including Monticello Raceway, the right to
have the New York State Lottery install video lottery terminals on their
premises. The video lottery terminal operation will be conducted by the New York
State Lottery with the racetracks functioning largely as agents for the New York
State Lottery. Under the initial New York video lottery terminal laws,
Monticello Raceway would be permitted to retain 25% of the revenues generated by
video lottery terminal operations after the payout of prizes, but must apply 35%
of its revenue from video lottery terminals in their first year of operation to
enhancing purses at the track (escalating to 45% of revenue in years two and
three), and to surrender an additional 5% of such revenue to a state breeding
development fund. Monticello Raceway, under additional legislation, is
authorized to enter into an agreement with the organizations representing its
horsemen to reduce the percentages of its vendor fees dedicated to enhance
purses at such track during the initial three years, to an amount not less than
25% of any gross revenues received by Monticello Raceway. The initial law allows
Monticello Raceway to operate its video lottery terminals from 10:00 a.m. to
10:00 p.m. on weekdays and midnight on weekends. Also, the initial law was set
to expire December 31, 2007.
Monticello Raceway Management has submitted a business plan to the
New York State Lottery, in accordance with New York State Lottery procedures,
based upon the initial legislation and certain assumptions recommended by the
New York State Lottery and other estimates considered preliminary by Monticello
Raceway Management. Based upon this business plan, the New York State Lottery
has made an initial allocation of 1,800 video lottery terminals to Monticello
Raceway. Using these estimates and assumptions, the plan did not show levels of
operating income currently considered adequate by Monticello Raceway Management
to go forward with the project. The New York State Lottery has not yet
established a firm start date or adopted regulations with regard to the program.
On May 15, 2003, New York State enacted legislative amendments that
extend the initial term of the program to 10-years from the date of inception
and that permit year round operations with extended hours. Approximately 29% of
total video lottery terminal revenue received is to be distributed to the tracks
and their horsemen/breeders' associations. A percentage of video lottery
terminal revenues is to be made available to provide gradually increasing purses
for the horsemen and for a breeding fund, thus improving the quality of racing
at the track. During the initial eighteen months of the program, the New York
State Lottery has the ability to approve the opening of temporary video lottery
terminal structures, while more comprehensive construction takes place.
98
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Monticello Raceway Management's directors and executive officers are
as follows:
Name Age Position
---- --- --------
Philip B. Berman 47 Director
Thomas W. Aro 60 Director
Philip Carter 52 Director
Clifford A. Ehrlich 43 President, Treasurer and Director
Morad Tahbaz 47 Vice President, Secretary and Director
The principal occupation for the past five years and current public
directorships of each of Monticello Raceway Management's directors and executive
officers are as follows:
PHILIP B. BERMAN. Philip B. Berman is the vice president of project
coordination of Empire Resorts. From 1995 to 2003, Mr. Berman was the director
of project operations for Watermark Group, Inc. Prior to that, he was a regional
manager of the insurance division at Markel Rhulen Insurance Corporation and was
the operations manager at Maranatha Associates, a civil engineering,
construction development and consulting firm. Mr. Berman holds the professional
designations of project management professional and certified internet
webmaster. Mr. Berman has a B.A. in business management from the University of
Miami, Florida and is completing his studies and thesis for an M.S. in strategic
management from Manhattanville College.
THOMAS W. ARO. Thomas W. Aro is Empire Resorts' chief operating
officer and secretary and was a member of its board of directors from 1994
through July 2003. Mr. Aro was also Empire Resorts' executive vice president
since its formation in 1993 through November 11, 2003 and has served as its
secretary since 1998. Mr. Aro also serves as chief operating officer of Empire
Resorts' gaming subsidiaries and has over 30 years experience in the hospitality
and gaming industries. Mr. Aro received his B.S. from the University of Arizona
and is a certified public accountant.
PHILIP CARTER. Philip Carter is a member of the State Bars of New
York and California, specializing in real estate and partnership taxation. Mr.
Carter began his legal career working on Wall Street at the law firms of Emmett,
Marvin & Martin and Rosenman & Colin, before starting his own law firm,
Bernstein & Carter, in 1980. Mr. Carter was a member of the ownership and
development team that built Americas Tower at 1177 Avenue of the Americas, is a
partner in Americas Tower Partners and is involved in the racetrack and casino
development at Monticello Raceway. Since 1996, Mr. Carter has been involved on
an almost daily basis with the track operations. Mr. Carter is a member of the
Catskill Development Executive Committee in charge of operations at Monticello
Raceway. Mr. Carter is also the chairman and chief executive officer of Urban
Partners, an owner and developer of real estate in Manhattan. Mr. Carter
received both a B.S. in political science and a J.D. from the University of San
Francisco and attended the masters of law taxation program at the New York
University School of Law.
CLIFFORD A. EHRLICH. Clifford A. Ehrlich has served as Monticello
Raceway Management's president and general manager since 1995. From 1981 to
1994, Mr. Ehrlich was vice president and an owner of the Pines Resort Hotel &
99
Conference Center, a legendary year-round resort hotel in the Catskills. Over
the years, Mr. Ehrlich has also held the position of executive committee member
of the Sullivan County Tourism Advisory Board and served as president of the
Catskill Resort Association. Mr. Ehrlich graduated with a Bachelors Degree in
business administration with an emphasis in management and marketing from the
University of Colorado Business School in 1981.
MORAD TAHBAZ. Morad Tahbaz is the president of Catskill Development,
a member of Monticello Raceway's Operating Board, the president of Empire
Resorts and a director of Empire Resorts. Mr. Tahbaz also serves on the board of
directors of Air Methods Corporation, a publicly traded company that provides
air medical emergency transport services and systems throughout the United
States of America. In 1983, Mr. Tahbaz joined Americas Partners, at which time
he became primarily responsible for acquisitions. Subsequently, Mr. Tahbaz took
on the added responsibility of the development of Americas Tower, a 1,000,000
square foot office building in New York that is the headquarters for
PriceWaterhouseCoopers. Mr. Tahbaz remains a partner in Americas Partners. Mr.
Tahbaz holds a B.A. in philosophy and fine arts from Colgate University and
attended the Institute for Architecture and Urban Studies in New York. He also
holds an M.B.A. in finance from Columbia University Graduate School of Business,
where throughout his career, he has conducted a series of lectures on real
estate development and finance for graduate students.
EXECUTIVE COMPENSATION
The following table provides certain information for the year ended
December 31, 2002 concerning compensation awarded to, earned by or paid to
Monticello Raceway Management's president. Other than Monticello Raceway
Management's president, none of its executive officers received compensation in
excess of $100,000 during fiscal 2002.
Long Term
Annual Compensation Compensation
------------------- ------------
Securities
Name and Principal Other Annual Underlying
Position Year Salary ($) Bonus Compensation ($)(1) Options
--------- ---- ------ ----- ------------ -------
Clifford A. Ehrlich
President and Secretary 2002 $120,000 -- -- --
(1) Perquisites and other personal benefits, securities or property did
not exceed the lesser of $50,000 or 10% of such executive's salary
and bonus.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of
Monticello Raceway Management's capital stock, as of November 5, 2003, by (i)
each person known to be the beneficial owner of more than five percent of its
capital stock, (ii) each director and executive officer required to be named
hereunder and (iii) all directors and executive officers as a group. Unless
100
otherwise noted, each person listed below has sole voting and dispositive power
with respect to the shares beneficially owned by him and his address is c/o
Monticello Raceway, Route 17B, P.O. Box 5013, Monticello, NY, 12701.
Common Stock Beneficially Owned(1)
Name and Address Shares(2) Percentage(2)
---------------- --------- -------------
Robert A. Berman(3) 11.56 11.56%
Joseph E. Bernstein(4) 8.75 8.75%
Ralph J. Bernstein(5) 8.75 8.75%
JB Trust(4) 8.58 8.58%
Maurice Dabbah(6) 7.88 7.88%
Morad Tahbaz(7) 5.00 5.00%
Clifford A. Ehrlich(8) 1.38 1.38%
Philip Carter 2.50 2.50%
Thomas W. Aro -- --
Philip B. Berman 6.46 6.46%
All Directors and Executive
Officers as a Group (5
persons) (7)(8) 66.90 66.90%
--------------
(1) A person is deemed to be the beneficial owner of voting securities
that can be acquired by such person within 60 days after the record
date upon the exercise of options and warrants and the conversion of
convertible securities. Each beneficial owner's percentage of
ownership is determined by assuming that all options, warrants or
convertible securities held by such person (but not those held by
any other person) that are currently exercisable or convertible
(i.e., that are exercisable or convertible within 60 days after the
record date) have been exercised or converted.
(2) As Monticello Raceway Management is a wholly owned subsidiary of
Catskill Development, except as otherwise noted, each person's
beneficial ownership is determined by his beneficial ownership in
Catskill Development.
(3) Robert A. Berman beneficially owns a 67.66% limited partnership
interest of Watertone Holdings, which owns an economic ownership
interest of 15%, 13% and 25%, respectively, of Catskill
Development's casino and wagering operations; horseracing and other
pari-mutuel activities; and real estate ownership and development
operations. Mr. Berman also beneficially owns 383,037 shares of
Empire Resorts' common stock, which owns an economic ownership
interest of 48.31%, 36.88% and 25%, respectively, of Catskill
Development's casino and wagering operations; horseracing and other
pari-mutuel activities; and real estate ownership and development
operations. Mr. Berman is a member of Catskill Development's board
of directors.
(4) Joseph E. Bernstein beneficially owns a 1% economic interest and 50%
voting power in Americas Tower Partners, and the JB Trust, in which
Mr. Bernstein's mother, Helen Bernstein, is sole trustee and Mr.
Bernstein's children are ultimate beneficiaries, beneficially owns a
49% economic interest, with no voting rights. Joseph E. Bernstein
and the JB Trust beneficially own, 2% and 98%, respectively, of 35%
101
of the interests of Americas Tower Partners in Catskill Development,
which comprises of an economic ownership interest of 33%, 25% and
25%, respectively, of Catskill Development's casino and wagering
operations, horseracing and other pari-mutuel activities, and real
estate ownership and development operations. By virtue of a 50%
voting control position in Americas Tower Partners, Joseph E.
Bernstein is deemed to be the beneficial owner of 35% of the
interest of Americas Tower Partners in Catskill Development. Mr.
Bernstein disclaims beneficial ownership of the assets of the JB
Trust.
(5) Ralph J. Bernstein beneficially owns a 35% partnership interest of
Americas Tower Partners, which owns an economic ownership interest
of 33%, 25% and 25%, respectively, of Catskill Development's casino
and wagering operations; horseracing and other pari-mutuel
activities; and real estate ownership and development operations.
Mr. Bernstein is a member of Catskill Development's board of
directors.
(6) Maurice Dabbah beneficially owns 35% of the membership interests of
Monticello Realty, which owns an economic ownership interest of 33%,
22.5% and 22.5%, respectively, of Catskill Development's casino and
wagering operations; horseracing and other pari-mutuel activities;
and real estate ownership and development operations. Mr. Dabbah is
a member of Catskill Development's board of directors.
(7) Morad Tahbaz beneficially owns a 20% partnership interest of
Americas Tower Partners, which owns an economic ownership interest
of 33%, 25% and 25%, respectively, of Catskill Development's casino
and wagering operations; horseracing and other pari-mutuel
activities; and real estate ownership and development operations.
(8) Clifford A. Ehrlich owns an economic ownership interest of 1.38% of
Catskill Development's casino and wagering operations; horseracing
and other pari-mutuel activities; and real estate ownership and
development operations.
MARKET FOR MONTICELLO RACEWAY MANAGEMENT'S CAPITAL STOCK, DIVIDENDS AND RELATED
MATTERS
At this time, there is no public trading market for Monticello
Raceway Management's capital stock, nor is any such public market expected to
develop. As indicated above, Monticello Raceway Management is presently a wholly
owned subsidiary of Catskill Development.
There are no outstanding options or warrants to purchase, or
securities convertible into, Monticello Raceway Management's capital stock.
No shares of Monticello Raceway Management's capital stock can be
sold pursuant to Rule 144 under the Securities Act of 1933, as amended, and
neither Empire Resorts nor Monticello Raceway Management has agreed to register
any shares of Monticello Raceway Management's capital stock under the Securities
Act of 1933, as amended, for sale by security holders. Furthermore, neither
Empire Resorts nor Monticello Raceway Management has any intention to publicly
offer any capital stock of Monticello Raceway Management now or in the future.
102
Monticello Raceway Management has not declared a dividend on its
common shares and does not have an equity compensation plan.
MONTICELLO CASINO MANAGEMENT
GENERAL
Monticello Casino Management was formed by Empire Resorts and
Catskill Development in July 2000 for the stated purpose of managing the
operations of a casino and related gaming activities on those 29 acres of land
subject to the Land Purchase Agreement.
GAMING FACILITY MANAGEMENT AGREEMENT
On April 3, 2003, Monticello Casino Management entered into a gaming
facility management agreement with the Cayuga Nation of New York and the Cayuga
Catskill Gaming Authority (the "GAMING FACILITY MANAGEMENT AGREEMENT"), an
instrumentality of the Cayuga Nation of New York which was formed to develop and
conduct gaming operations on the 29 acres of land subject to the Land Purchase
Agreement. Under this agreement, the Cayuga Catskill Gaming Authority has
retained Monticello Casino Management to manage all Class III Gaming activities,
other than horseracing, that may be conducted on the land for seven years
commencing upon the National Indian Gaming Commission's approval of the
agreement. Monticello Casino Management has also been retained to manage all
lawful commercial activities on the land related to gaming such as automatic
teller machines, food service, lodging and retail. At the same time, Monticello
Casino Management has agreed to assist the Cayuga Catskill Gaming Authority
obtain financing for the gaming enterprise and all related commercial
activities. In exchange for these services, Monticello Casino Management is
entitled to receive a management fee equal to 35% of the net revenues derived
from the operations it manages. This 35% figure was agreed to by each of the
parties to the Gaming Facility Management Agreement as it is consistent with
other management fees that have been granted to third parties in similar Native
American gaming facility management agreements. For instance, in the Amended and
Restated Gaming Facility Management Agreement dated, August 30, 1995, between
the Mohegan Tribe of Indians of Connecticut and Trading Cove Associates, Inc.,
Trading Cove Associates, Inc. was entitled to a management fee ranging from 30%
to 40%, depending on the level of the net revenues generated by the Mohegan Sun
Casino (See page F-8 of the Registration Statement on Form S-1/A, No. 033-80655,
filed by the Mohegan Tribal Gaming Authority with the Securities and Exchange
Commission on June 3, 1996).
Monticello Casino Management is entitled to pay itself its
management fee on or before the 25th day of each calendar month. However, before
Monticello Casino Management can pay itself its fee, it must first pay to the
Cayuga Catskill Gaming Authority a minimum return of $516,666.66 per month.
These minimum priority payments are to be charged against the Cayuga Catskill
Gaming Authority's distribution of net revenues and, when there is insufficient
net revenues in a given month to pay the minimum return, Monticello Casino
Management is obligated to advance the funds necessary to compensate for the
deficiency, with the Cayuga Catskill Gaming Authority reimbursing Monticello
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Casino Management in the next succeeding month or months. The minimum return is
required to be paid to the Cayuga Catskill Gaming Authority every month gaming
is conducted, including on a pro rata basis during those months when gaming is
conducted only for part of a month.
While the terms of the Gaming Facility Management Agreement provide
Monticello Casino Management with wide discretion as to the day-to-day
management of the gaming facilities, all major decisions or expenditures must
first be approved by a management business board to be comprised of four
persons, two of whom are to be appointed by the Cayuga Catskill Gaming Authority
and the other two of whom are to be appointed by Monticello Casino Management.
In addition, absent approval from this management business board, Monticello
Casino Management's operational expenses for any fiscal year must stay within
the budget that has been agreed to by the board for that fiscal year. Finally,
under the Gaming Facility Management Agreement, the Cayuga Catskill Gaming
Authority is entitled to select a reasonable number of inspectors that shall
have full access, without notice, to all aspects of the gaming enterprise,
including the daily operations of the enterprise, and the right to verify the
daily gross revenues and all income of the gaming enterprise. Monticello Casino
Management is also required to have the gaming enterprise's books and records
audited each year by a nationally recognized independent certified public
accounting firm with casino industry experience.
In carrying out its duties as manager of the gaming facility,
Monticello Raceway Management is required to provide the Cayuga Nation of New
York and other recognized Native American tribes with certain preferences. For
instance, under the Gaming Facility Management Agreement, Monticello Casino
Management must:
o give preference in recruiting, training and employment first to
qualified members of the Cayuga Nation of New York, and
secondly to other qualified Native Americans and the local
community;
o provide training programs for members of the Cayuga Nation of
New York;
o use reasonable commercial efforts to recruit and train members
of the Cayuga Nation of New York, including, without
limitation, providing job fairs for members of the Cayuga
Nation of New York and clearly specifying in all job
advertisements the preference for members of the Cayuga Nation
of New York; and
o in entering into contracts for the supply of goods and services
for the gaming enterprise, give preference first to qualified
members of the Cayuga Nation of New York, and qualified
business entities certified by the Cayuga Catskill Gaming
Authority or the Cayuga Nation of New York as being controlled
by members of the Cayuga Nation of New York, and second to
other qualified Native Americans and qualified business
entities certified by the Cayuga Catskill Gaming Authority to
be controlled by Native Americans and to the local community.
104
PLAN OF OPERATIONS
Monticello Casino Management does not have any plan of operations
for the next twelve months, other than waiting for the National Indian Gaming
Commission and Bureau of Indian Affairs to approve the terms of the Gaming
Facility Management Agreement and Land Purchase Agreement, respectively. Until
the National Indian Gaming Commission approves the terms of the Gaming Facility
Management Agreement and the Land Purchase Agreement, Monticello Casino
Management will not have any cash requirements nor the need to raise any
additional funds. Following approval of the Gaming Facility Management Agreement
and the Land Purchase Agreement, Monticello Casino Management intends to carry
out its duties under the Gaming Facility Management Agreement as the manager of
all Class III Gaming on the 29 acres of land subject to the Land Purchase
Agreement, and to assist the Cayuga Catskill Gaming Authority in its effort to
obtain financing for the gaming facility and all ancillary activities. As
Monticello Casino Management's obligations under the Gaming Facility Management
Agreement do not require any meaningful initial expenditures, Monticello Casino
Management does not expect its capital needs to change should the Gaming
Facility Management Agreement and Land Purchase Agreement be approved within the
next twelve months. Initially, Monticello Casino Management anticipates that it
will only need to hire three to five employees, whose salaries would be covered
by the management fees Monticello Casino Management is entitled to under the
Gaming Facility Management Agreement. Alternatively, these funds will be
provided by Empire Resorts, either directly from Empire Resorts' cash-on-hand,
or from the issuance by Empire Resorts of additional equity and/or debt
securities. Also, Monticello Casino Management plans to use office space located
within a building at Monticello Raceway at no cost, as both Monticello Casino
Management and Monticello Raceway will be owned and leased by Empire Resorts,
respectively, at closing.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Monticello Casino Management's managers and executive officers are
as follows:
Name Age Position
---- --- --------
Robert A. Berman 43 Manager
Ralph J. Bernstein 46 Manager
Thomas W. Aro 60 Manager
Morad Tahbaz 47 Manager
The principal occupation for the past five years and current public
directorships of each of Monticello Casino Management's managers are as follows:
ROBERT A. BERMAN. Robert A. Berman is Empire Resorts' chief
executive officer, a member of its board of directors and its former chairman.
As the managing director of Watermark Investments Limited from 1994 to 2000, Mr.
Berman oversaw a number of private partnerships investing in real estate,
technology and basic industries. From 1998 to 1999, Mr. Berman was vice chairman
and a director of Executone Information Systems, a telecommunications company.
From 1995 to 1999, Mr. Berman served as chairman of the board and chief
executive officer of Hospitality Worldwide Services, Inc., a hotel services
company with average annual sales above $150 million.
105
RALPH J. BERNSTEIN. Ralph J. Bernstein is a co-founder and general
partner of Americas Partners, an investment and venture capital firm, and, since
1981 has been responsible for the acquisition, renovation, development and
financing of several million square feet of commercial space. Mr. Bernstein
started his career in agribusiness with a large European multi-national trading
and real estate development company, where he was later responsible for that
company's U.S. real estate activities. Mr. Bernstein also serves as a director
for Air Methods Corporation, a publicly traded company that provides air medical
emergency transport services and systems throughout the United States of
America. Mr. Bernstein holds a Bachelor of Arts degree in economics from the
University of California at Davis.
THOMAS W. ARO. Thomas W. Aro is Empire Resorts' chief operating
officer and secretary and was a member of its board of directors from 1994
through July 2003. Mr. Aro was also Empire Resorts' executive vice president
since its formation in 1993 through November 11, 2003 and has served as its
secretary since 1998. Mr. Aro also serves as chief operating officer of Empire
Resorts' gaming subsidiaries and has over 30 years experience in the hospitality
and gaming industries. Mr. Aro received his B.S. from the University of Arizona
and is a certified public accountant.
MORAD TAHBAZ. Morad Tahbaz is the president of Catskill Development,
a member of Monticello Raceway's Operating Board, the president of Empire
Resorts and a director of Empire Resorts. Mr. Tahbaz also serves on the board of
directors of Air Methods Corporation, a publicly traded company that provides
air medical emergency transport services and systems throughout the United
States of America. In 1983 Mr. Tahbaz joined Americas Partners, at which time he
became primarily responsible for acquisitions. Subsequently, Mr. Tahbaz took on
the added responsibility of the development of Americas Tower, a 1,000,000
square foot office building in New York that is the headquarters for
PriceWaterhouseCoopers. Mr. Tahbaz remains a partner in Americas Partners. Mr.
Tahbaz holds a B.A. in philosophy and fine arts from Colgate University and
attended the Institute for Architecture and Urban Studies in New York. He also
holds an M.B.A. in finance from Columbia University Graduate School of Business,
where throughout his career, he has conducted a series of lectures on real
estate development and finance for graduate students.
EXECUTIVE COMPENSATION
Monticello Casino Management has never had any meaningful operations
or engaged in any business other than the negotiation and execution of the
Gaming Facility Management Agreement. Consequently, Monticello Casino Management
has never elected or appointed any officers, or persons acting in a similar
capacity. Moreover, Monticello Casino Management has never had any employees and
no member, manager or other person has ever received any form of compensation
from Monticello Casino Management.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of
Monticello Casino Management's membership interests, as of November 5, 2003, by
(i) each person known to be the beneficial owner of more than five percent of
Monticello Casino Management's membership interests, (ii) each manager and
executive officer required to be named hereunder and (iii) all managers and
106
executive officers as a group. Unless otherwise noted, each person listed below
has sole voting and dispositive power with respect to the interests beneficially
owned by him and his address is c/o Monticello Raceway, Route 17B, P.O. Box
5013, Monticello, NY, 12701.
Percentage Membership Interests
Name and Address Beneficially Owned(1)
---------------- ---------------------
Catskill Development 60.00%
Alpha Monticello 40.00%
Empire Resorts(2) 40.00%
Robert A. Berman(3) 9.74%
Maurice Dabbah(4) 7.00%
Joseph E. Bernstein(5) 7.00%
Ralph J. Bernstein(6) 7.00%
JB Trust(5) 6.79%
Morad Tahbaz(7) 4.00%
Thomas W. Aro *
All Managers and Executive Officers as a Group (4
persons) (4)(6)(7) 20.74%
--------------
* less than 1%
(1) A person is deemed to be the beneficial owner of voting securities
that can be acquired by such person within 60 days after the record
date upon the exercise of options and warrants and the conversion of
convertible securities. Each beneficial owner's percentage of
ownership is determined by assuming that all options, warrants or
convertible securities held by such person (but not those held by
any other person) that are currently exercisable or convertible
(i.e., that are exercisable or convertible within 60 days after the
record date) have been exercised or converted.
(2) These membership interests are held by Alpha Monticello, a wholly
owned subsidiary of Empire Resorts.
(3) Robert A. Berman beneficially owns a 67.66% limited partnership
interest of Watertone Holdings, which owns an economic ownership
interest of 15%, 13% and 25%, respectively, of Catskill
Development's casino and wagering operations; horseracing and other
pari-mutuel activities; and real estate ownership and development
operations. Mr. Berman also beneficially owns 383,037 shares of
Empire Resorts' common stock, which owns an economic ownership
interest of 48.31%, 36.88% and 25%, respectively, of Catskill
Development's casino and wagering operations; horseracing and other
pari-mutuel activities; and real estate ownership and development
operations. Catskill Development owns 60% of Monticello Casino
Management and Empire Resorts, through a wholly owned subsidiary,
beneficially owns a 40% membership interest of Monticello Casino
Management.
(4) Maurice Dabbah beneficially owns 35% of the membership interests of
Monticello Realty, which owns an economic ownership interest of 33%,
22.5% and 22.5%, respectively, of Catskill Development's casino and
107
wagering operations; horseracing and other pari-mutuel activities;
and real estate ownership and development operations. Catskill
Development, in turn, owns a 60% membership interest of Monticello
Casino Management.
(5) Joseph E. Bernstein beneficially owns a 1% economic interest and 50%
voting power in Americas Tower Partners, and the JB Trust, in which
Mr. Bernstein's mother, Helen Bernstein, is sole trustee and Mr.
Bernstein's children are ultimate beneficiaries, beneficially owns a
49% economic interest, with no voting rights. Joseph E. Bernstein
and the JB Trust beneficially own, 2% and 98%, respectively, of 35%
of the interests of Americas Tower Partners in Catskill Development,
which comprises of an economic ownership interest of 33%, 25% and
25%, respectively, of Catskill Development's casino and wagering
operations, horseracing and other pari-mutuel activities, and real
estate ownership and development operations. By virtue of a 50%
voting control position in Americas Tower Partners, Joseph E.
Bernstein is deemed to be the beneficial owner of 35% of the
interest of Americas Tower Partners in Catskill Development.
Catskill Development, in turn, owns a 60% membership interest of
Monticello Casino Management. Mr. Bernstein disclaims beneficial
ownership of the assets of the JB Trust.
(6) Ralph J. Bernstein beneficially owns a 35% partnership interest of
Americas Tower Partners, which owns an economic ownership interest
of 33%, 25% and 25%, respectively, of Catskill Development's casino
and wagering operations; horseracing and other pari-mutuel
activities; and real estate ownership and development operations.
Catskill Development, in turn, owns a 60% membership interest of
Monticello Casino Management.
(7) Morad Tahbaz beneficially owns a 20% partnership interest of
Americas Tower Partners, which owns an economic ownership interest
of 33%, 25% and 25%, respectively, of Catskill Development's casino
and wagering operations; horseracing and other pari-mutuel
activities; and real estate ownership and development operations.
Catskill Development, in turn, owns a 60% membership interest of
Monticello Casino Management.
MARKET FOR MONTICELLO CASINO MANAGEMENT'S MEMBERSHIP INTERESTS, DIVIDENDS AND
RELATED MATTERS
At this time, there is no public trading market for Monticello
Casino Management's membership interests, nor is any such public market expected
to develop. As indicated above, Monticello Casino Management's membership
interests are presently owned 60% by Catskill Development and 40% by Alpha
Monticello, a wholly owned subsidiary of Empire Resorts.
There are no outstanding options or warrants to purchase, or
securities convertible into, Monticello Casino Management's membership
interests.
No equity interests of Monticello Casino Management can be sold
pursuant to Rule 144 under the Securities Act of 1933, as amended, and neither
Empire Resorts nor Monticello Casino Management has agreed to register any
membership interest of Monticello Casino Management under the Securities Act of
108
1933, as amended, for sale by any of its members. Furthermore, neither Empire
Resorts nor Monticello Casino Management has any intention to publicly offer any
membership interests of Monticello Casino Management now or in the future.
Monticello Casino Management has never made a distribution of
profits or losses to its members, though it intends to do so once the Gaming
Facility Management Agreement and Land Purchase Agreement are approved by the
National Indian Gaming Commission and the Bureau of Indian Affairs,
respectively, and Monticello Casino Management commences full-time operations.
Monticello Casino Management does not have an equity compensation
plan.
MONTICELLO RACEWAY DEVELOPMENT
GENERAL
Monticello Raceway Development was originally formed by Americas
Tower Partners and BKB, LLC, an affiliate of Robert A. Berman and Scott A.
Kaniewski, in October 1995 for the stated purpose of developing and constructing
a casino, a raceway, lodging facilities, retail, entertainment and amusement
facilities on those 229 acres of land in Monticello, New York that are owned by
Catskill Development.
DEVELOPMENT, LEASING AND PROPERTY MANAGEMENT AGREEMENT
On December 1, 1995, Monticello Raceway Development and Catskill
Development entered into a development leasing and property management agreement
(the "DEVELOPMENT LEASING AND PROPERTY MANAGEMENT AGREEMENT"), pursuant to which
Catskill Development granted Monticello Raceway Development the exclusive right
for 25 years to develop, lease and manage Catskill Development's 229 acres of
land in Monticello, New York. Specifically, Monticello Raceway Development was
made responsible for all improvements to the property, including a casino, a
hotel, an attached/incorporated raceway facility, retail, entertainment and
amusement facilities. This agreement also contemplated the conveyance of land to
the United States of America in trust for a Native American tribe to operate a
Class II and Class III Gaming facility. In such event, the parties agreed that
Monticello Raceway Development would be the exclusive developer of the casino
buildings and related facilities for the Native American tribe.
For these services, Monticello Raceway Development is entitled to
receive the following compensation:
o for development, construction, rehabilitation, renovation or
tenant improvement, a developer's fee of 5% of the total
project costs;
o a monthly property management fee that is consistent with
property management fees charged for similar services in the
Monticello area; and
o leasing commissions that are consistent with leasing commission
rates for similar properties in the Monticello area.
109
The terms of payment under this agreement provide that the
developer's fee shall be payable in accordance with Catskill Development's
approved budget and schedule of payments for each project approved by Catskill
Development. Fees for property management and leasing commissions shall be paid
on a monthly basis. Fees earned, but not paid, shall accrue interest at the rate
of 1% per month until paid.
GAMING FACILITY DEVELOPMENT AND CONSTRUCTION AGREEMENT
On April 3, 2003, Monticello Raceway Development entered into a
gaming facility development and construction agreement with the Cayuga Gaming
Authority and the Cayuga Nation of New York (the "GAMING FACILITY DEVELOPMENT
AND CONSTRUCTION AGREEMENT"), pursuant to which the Cayuga Catskill Gaming
Authority granted Monticello Raceway Development the exclusive right to design,
engineer, construct, furnish and develop the gaming facility to be opened on
those 29 acres of land subject to the Land Purchase Agreement, and Monticello
Raceway Development agreed to help arrange financing of the project. In exchange
for these services, the Cayuga Catskill Gaming Authority has agreed to pay
Monticello Raceway Development a development fee equal to 5% of the first $505
million of the project's costs, payable monthly as the project costs are
incurred. However, the Cayuga Catskill Gaming Authority is entitled to retain
10% of such development fees until the project is 50% completed and then 5%
until the project is completed. On the completion date, the Cayuga Catskill
Gaming Authority is required to pay Monticello Raceway Development these
retained fees.
Similar to the Gaming Facility Management Agreement among Monticello
Casino Management, the Cayuga Nation of New York and the Cayuga Catskill Gaming
Authority, in the execution of its duties under the Gaming Facility Development
and Construction Agreement, Monticello Raceway Development must first seek
approval from a development business board before any major decisions or
unapproved material expenditures are made. The development business board shall
be comprised of four persons, two of whom are to be appointed by the Cayuga
Catskill Gaming Authority and the other two of whom are to be appointed by
Monticello Raceway Development. In addition, absent prior approval from the
development business board, Monticello Raceway Development must operate within
the objectives, schedule requirements, design criteria, space requirements,
special equipment, design requirements and budget that is approved by the
development business board before the commencement of development activities.
Finally, similar to the covenants of the Gaming Facility Management Agreement,
the Gaming Facility Development and Construction Agreement provides that any
general contractor hired by Monticello Raceway Development shall use its
reasonable best efforts to give and to cause subcontractors to give, a hiring
preference to qualified members of the Cayuga Nation of New York.
PLAN OF OPERATIONS
Monticello Raceway Development does not have any plan of operations
for the next twelve months, other than waiting for the Bureau of Indian Affairs
to approve the terms of the Land Purchase Agreement and continuing to serve as a
plaintiff in the Park Place and Melius Litigations (subject to the terms and
conditions of the declaration of trust of the Litigation Trust). As the cost of
the Park Place and Melius Litigations has been, and through the closing will be,
financed by Catskill Development, at which point the litigation will be financed
110
by Empire Resorts, until the Bureau of Indian Affairs approves the terms of the
Land Purchase Agreement, Monticello Raceway Development will not have any cash
requirements nor the need to raise any additional funds. Following approval of
the Land Purchase Agreement, Monticello Raceway Development intends to carry out
its duties under the Gaming Facility Development and Construction Agreement as
the exclusive developer of the 29 acres of land subject to the Land Purchase
Agreement and to help the Cayuga Catskill Gaming Authority secure financing for
the design, development and construction of a gaming facility to be built on
that land. As Monticello Raceway Development's obligations under the Gaming
Facility Development and Construction Agreement do not require any meaningful
initial expenditures, Monticello Raceway Development does not expect that its
capital needs will change should the Land Purchase Agreement be approved within
the next twelve months. Initially, Monticello Raceway Development anticipates
that it will only need to hire three to five employees, whose salaries would be
covered by the development fees Monticello Raceway Development is entitled to
under the Gaming Facility Development and Construction Agreement. Alternatively,
these funds will be provided by Empire Resorts, either directly from Empire
Resorts' cash-on-hand, or from the issuance by Empire Resorts of additional
equity and/or debt securities. Also, Monticello Raceway Development plans to use
office space located within a building at Monticello Raceway at no cost, as both
Monticello Raceway Development and Monticello Raceway will be owned and leased
by Empire Resorts, respectively, at closing. Monticello Raceway Development does
not plan to develop any of the other 200 acres of land subject to the
Development Leasing and Property Management Agreement during the next twelve
months.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Monticello Raceway Development's managers and executive officers are
as follows:
Name Age Position
---- --- --------
Joseph E. Bernstein 54 Manager
Ralph J. Bernstein 46 Manager
Philip B. Berman 47 Manager
Scott A. Kaniewski 39 Manager
The principal occupation for the past five years and current public
directorships of each of Monticello Raceway Development's managers are as
follows:
PHILIP B. BERMAN. Philip B. Berman is the vice president of project
coordination of Empire Resorts. From 1995 to 2003, Mr. Berman was the director
of project operations for Watermark Group, Inc. Prior to that, he was a regional
manager of the insurance division at Markel Rhulen Insurance Corporation and was
the operations manager at Maranatha Associates, a civil engineering,
construction development and consulting firm. Mr. Berman holds the professional
designations of project management professional and certified internet
webmaster. Mr. Berman has a B.A. in business management from the University of
Miami, Florida and is completing his studies and thesis for an M.S. in strategic
management from Manhattanville College.
JOSEPH E. BERNSTEIN. Joseph E. Bernstein started his career as a
corporate tax attorney on Wall Street at Cahill Gordon & Reindel and as an
international tax attorney at Rosenman & Colin. He later started his own
111
international tax practice. Since the early 1980s, Mr. Bernstein (along with his
brother Ralph, and their partner, Morad Tahbaz, through their jointly-owned
entity, Americas Tower Partners) has been involved in the development of three
million square feet of commercial property in Manhattan, including Americas
Tower, a 50-story office building on Avenue of the Americas and 46th Street,
serving as world headquarters to PriceWaterhouseCoopers and US headquarters to
Israel's largest bank, Bank Hapoalim. Americas Tower Partners is presently
developing AQUARIA Entertainment City, a $375 million tourism project in Eilat,
Israel, and the $100 million Mt. Arbel Resort & Residence Club, with 36 holes of
golf designed by Robert Trent Jones II, overlooking the Sea of Galilee. Mr.
Bernstein holds a B.A. in economics from the University of California at Davis;
a B.A. in agricultural business management from the University of California at
Davis; an M.B.A. in Finance from UCLA Graduate School of Management; a J.D. from
the University of California at Davis School of Law; and, a Master of Laws
Degree (LL.M.) in taxation from the New York University School of Law.
RALPH J. BERNSTEIN. Ralph J. Bernstein is a co-founder and general
partner of Americas Partners, an investment and venture capital firm, and, since
1981 has been responsible for the acquisition, renovation, development and
financing of several million square feet of commercial space. Mr. Bernstein
started his career in agribusiness with a large European multi-national trading
and real estate development company, where he was later responsible for that
company's U.S. real estate activities. Mr. Bernstein also serves as a director
for Air Methods Corporation, a publicly traded company that provides air medical
emergency transport services and systems throughout the United States of
America. He holds a Bachelor of Arts degree in economics from the University of
California at Davis.
SCOTT A. KANIEWSKI. Scott A. Kaniewski is the chief financial
officer of Empire Resorts and was a member of its board of directors from March
2002 through July 2003. Mr. Kaniewski was a director of Watermark Investments
Limited from 1995 to 2000. From 1995-1999, Mr. Kaniewski served as a director of
Hospitality Worldwide Services, Inc. and president of its real estate advisory
group from 1998 to 1999. From 1989 to 1995, Mr. Kaniewski held several positions
with VMS Realty Partners, a real estate investment and development company,
including vice president of hotel investments. Mr. Kaniewski received his B.S.
from Indiana University and is a certified public accountant.
EXECUTIVE COMPENSATION
Monticello Raceway Development has never had any meaningful
operations or engaged in any business other than the negotiation and execution
of a gaming facility development and construction agreement with both the St.
Regis Mohawk Tribe and the Cayuga Nation of New York. Consequently, Monticello
Raceway Development has never elected or appointed any officers, or persons
acting in a similar capacity. Moreover, Monticello Raceway Development has never
had any employees and no member, manager or other person has ever received any
form of compensation from Monticello Raceway Development.
112
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of
Monticello Raceway Development's membership interests, as of November 5, 2003,
by (i) each person known to be the beneficial owner of more than five percent of
Monticello Raceway Development's membership interests, (ii) each manager and
executive officer required to be named hereunder and (iii) all managers and
executive officers as a group. Unless otherwise noted, each person listed below
has sole voting and dispositive power with respect to the interests beneficially
owned by him and his address is c/o Monticello Raceway, Route 17B, P.O. Box
5013, Monticello, NY, 12701.
Percentage Membership Interest
Name and Address Beneficially Owned(1)
---------------- ---------------------
Americas Tower Partners 50.00%
Joseph E. Bernstein(2) 17.50%
Ralph J. Bernstein(3) 17.50%
JB Trust(2) 17.15%
Morad Tahbaz(4) 10.00%
Robert A. Berman 41.00%
Phillip Carter (5) 5.00%
Phillip B. Berman 1.30%
Scott A. Kaniewski(6) 7.70%
All Managers and Executive Officers as a Group (4
persons) (2)(3)(6) 44.00%
--------------
* less than 1%
(1) A person is deemed to be the beneficial owner of voting securities
that can be acquired by such person within 60 days after the record
date upon the exercise of options and warrants and the conversion of
convertible securities. Each beneficial owner's percentage of
ownership is determined by assuming that all options, warrants or
convertible securities held by such person (but not those held by
any other person) that are currently exercisable or convertible
(i.e., that are exercisable or convertible within 60 days after the
record date) have been exercised or converted.
(2) Joseph E. Bernstein beneficially owns a 1% economic interest and 50%
voting power in Americas Tower Partners, and the JB Trust, in which
Mr. Bernstein's mother, Helen Bernstein, is sole trustee and Mr.
Bernstein's children are ultimate beneficiaries, beneficially owns a
49% economic interest, with no voting rights. Joseph E. Bernstein
and the JB Trust beneficially own, 2% and 98%, respectively, of 35%
of Americas Tower Partners' 50% membership interest in Monticello
Raceway Development. By virtue of a 50% voting control position in
Americas Tower Partners, Joseph E. Bernstein is deemed to be the
beneficial owner of 35% of the interest of Americas Tower Partners
in Catskill Development. Mr. Bernstein disclaims beneficial
ownership of the assets of the JB Trust.
113
(3) Ralph J. Bernstein beneficially owns a 35% partnership interest of
Americas Tower Partners, which owns a 50% membership interest of
Monticello Raceway Development.
(4) Morad Tahbaz beneficially owns a 20% partnership interest of
Americas Tower Partners, which owns a 50% membership interest of
Monticello Raceway Development.
(5) Philip Carter beneficially owns a 10% partnership interest of
Americas Tower Partners, which owns a 50% membership interest of
Monticello Raceway Development.
(6) Includes a 0.025% membership interest held by Kaniewski Family
Limited Partnership, with respect to which Mr. Kaniewski is the
general partner and a 1% limited partner (with sole voting and
disposition rights) and a 0.025% membership interest held by KFP
Trust, with respect to which Stacey Kaniewski, Mr. Kaniewski's wife,
is the sole trustee, and with respect to which, Mr. Kaniewski's
children are its sole beneficiaries. Mr. Kaniewski disclaims
beneficial ownership of all shares of common stock held by KFP
Trust.
MARKET FOR MONTICELLO RACEWAY DEVELOPMENT'S MEMBERSHIP INTERESTS, DIVIDENDS AND
RELATED MATTERS
At this time, there is no public trading market for Monticello
Raceway Development's membership interests, nor is any such public market
expected to develop. Monticello Raceway Development's membership interests are
presently owned 50% by Americas Tower Partners, 41% by Robert A. Berman, Empire
Resorts' chief executive officer, a member of its board of directors and its
former chairman, 7.65% by Scott A. Kaniewski, Empire Resorts' chief financial
officer and a former member of its board of directors, 0.05% by two affiliates
of Mr. Kaniewski and 1.30% by Philip B. Berman, Empire Resorts' vice president
of project coordination.
There are no outstanding options or warrants to purchase, or
securities convertible into, Monticello Raceway Development's membership
interests.
No membership interests of Monticello Raceway Development can be
sold pursuant to Rule 144 under the Securities Act of 1933, as amended, and
neither Empire Resorts nor Monticello Raceway Development has agreed to register
any membership interest of Monticello Raceway Development under the Securities
Act of 1933, as amended, for sale by any of its members. Furthermore, neither
Empire Resorts nor Monticello Raceway Development has any intention to publicly
offer any membership interests of Monticello Raceway Development now or in the
future.
Monticello Raceway Development has never made a distribution of
profits or losses to its members, though it intends to do so once the Land
Purchase Agreement is approved by the Bureau of Indian Affairs and Monticello
Raceway Development commences full-time operations.
Monticello Raceway Development does not have an equity compensation
plan.
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MOHAWK MANAGEMENT
GENERAL
Mohawk Management was formed in May 1996 by Catskill Development and
Empire Resorts to manage the operations of a casino and related gaming
activities on 29 acres of land in Monticello, New York, in accordance with the
terms of a gaming facility management agreement, dated July 31, 1996, between
Mohawk Management and the St. Regis Mohawk Tribe. Aside from aiding in the
preparation and filing of the required applications in order for the National
Indian Gaming Commission to approve this management contract, Mohawk Management
has never had any operations. In addition, since the St. Regis Mohawk Tribe
withdrew from the management agreement in 2000 to pursue a casino project with
Park Place Entertainment Corporation, Mohawk Management has had no business or
operations except for serving as a plaintiff in the Park Place and Melius
Litigations. See "Material Conditions to Closing- Formation of Litigation Trust"
beginning on page 86 for a more detailed description of the Park Place and
Melius Litigations.
PLAN OF OPERATIONS
Mohawk Management has no plan of operation for the next twelve
months other than to continue serving as a plaintiff in the Park Place and
Melius Litigations, subject to the terms and conditions of the declaration of
trust of the Litigation Trust. As the cost of the Park Place and Melius
Litigations has been, and through the closing will be, financed by Catskill
Development, at which point the litigation will be financed by Empire Resorts,
over the next twelve months, Mohawk Management will not have any cash
requirements nor the need to raise any additional funds.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Mohawk Management's managers and executive officers are as follows:
Name Age Position
---- --- --------
Ralph J. Bernstein 46 Manager
Robert A. Berman 43 Manager
Thomas W. Aro 60 Manager
Morad Tahbaz 47 Manager
The principal occupation for the past five years and current public
directorships of each of Mohawk Management's managers are as follows:
ROBERT A. BERMAN. Robert A. Berman is Empire Resorts' chief
executive officer, a member of its board of directors and its former chairman.
As the managing director of Watermark Investments Limited from 1994 to 2000, Mr.
Berman oversaw a number of private partnerships investing in real estate,
technology and basic industries. From 1998 to 1999, Mr. Berman was vice chairman
and a director of Executone Information Systems, a telecommunications company.
From 1995 to 1999, Mr. Berman served as chairman of the board and chief
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executive officer of Hospitality Worldwide Services, Inc., a hotel services
company with average annual sales above $150 million.
RALPH J. BERNSTEIN. Ralph J. Bernstein is a co-founder and general
partner of Americas Partners, an investment and venture capital firm, and, since
1981 has been responsible for the acquisition, renovation, development and
financing of several million square feet of commercial space. Mr. Bernstein
started his career in agribusiness with a large European multi-national trading
and real estate development company, where he was later responsible for that
company's U.S. real estate activities. Mr. Bernstein also serves as a director
for Air Methods Corporation, a publicly traded company that provides air medical
emergency transport services and systems throughout the United States of
America. Mr. Bernstein holds a Bachelor of Arts degree in economics from the
University of California at Davis.
THOMAS W. ARO. Thomas W. Aro is Empire Resorts' chief operating
officer and secretary and was a member of its board of directors from 1994
through July 2003. Mr. Aro was also Empire Resorts' executive vice president
since its formation in 1993 through November 11, 2003 and has served as its
secretary since 1998. Mr. Aro also serves as chief operating officer of Empire
Resorts' gaming subsidiaries and has over 30 years experience in the hospitality
and gaming industries. Mr. Aro received his B.S. from the University of Arizona
and is a certified public accountant.
MORAD TAHBAZ. Morad Tahbaz is the president of Catskill Development,
a member of Monticello Raceway's Operating Board, the president of Empire
Resorts and a director of Empire Resorts. Mr. Tahbaz also serves on the board of
directors of Air Methods Corporation, a publicly traded company that provides
air medical emergency transport services and systems throughout the United
States of America. In 1983, Mr. Tahbaz joined Americas Partners, at which time
he became primarily responsible for acquisitions. Subsequently, Mr. Tahbaz took
on the added responsibility of the development of Americas Tower, a 1,000,000
square foot office building in New York that is the headquarters for
PriceWaterhouseCoopers. Mr. Tahbaz remains a partner in Americas Partners. Mr.
Tahbaz holds a B.A. in philosophy and fine arts from Colgate University and
attended the Institute for Architecture and Urban Studies in New York. He also
holds an M.B.A. in finance from Columbia University Graduate School of Business,
where throughout his career, he has conducted a series of lectures on real
estate development and finance for graduate students.
EXECUTIVE COMPENSATION
As stated above, Mohawk Management has never had any meaningful
operations or engaged in any business other than the negotiation and execution
of a gaming facility management agreement with the St. Regis Mohawk Tribe and
serving as a plaintiff in the Park Place and Melius Litigations. Consequently,
Mohawk Management has never elected or appointed any officers, or persons acting
in a similar capacity. Moreover, Mohawk Management has never had any employees
and no member, manager or other person has ever received any form of
compensation from Mohawk Management.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of
Mohawk Management's membership interests, as of November 5, 2003, by (i) each
person known to be the beneficial owner of more than five percent of Mohawk
Management's membership interests, (ii) each manager and executive officer
required to be named hereunder and (iii) all managers and executive officers as
a group. Unless otherwise noted, each party listed below has sole voting and
dispositive power with respect to the interests beneficially owned by him and
his address is c/o Monticello Raceway, Route 17B, P.O. Box 5013, Monticello, NY,
12701.
Percentage Membership Interests
Name and Address Beneficially Owned(1)
---------------- ---------------------
Catskill Development 60.00%
Alpha Casino Management, Inc. 40.00%
Empire Resorts(2) 40.00%
Robert A. Berman(3) 9.74%
Maurice Dabbah(4) 7.00%
Joseph E. Bernstein(5) 7.00%
Ralph J. Bernstein(6) 7.00%
JB Trust(5) 6.79%
Morad Tahbaz(7) 4.00%
Thomas W. Aro *
All Managers and Executive Officers as a Group (4
persons) (4)(6)(7) 20.74%
--------------
* less than 1%
(1) A person is deemed to be the beneficial owner of voting securities
that can be acquired by such person within 60 days after the record
date upon the exercise of options and warrants and the conversion of
convertible securities. Each beneficial owner's percentage of
ownership is determined by assuming that all options, warrants or
convertible securities held by such person (but not those held by
any other person) that are currently exercisable or convertible
(i.e., that are exercisable or convertible within 60 days after the
record date) have been exercised or converted.
(2) These membership interests are held by Alpha Casino Management, Inc,
a wholly owned subsidiary of Empire Resorts.
(3) Robert A. Berman beneficially owns a 67.66% limited partnership
interest of Watertone Holdings, which owns an economic ownership
interest of 15%, 13% and 25%, respectively, of Catskill
Development's casino and wagering operations; horseracing and other
pari-mutuel activities; and real estate ownership and development
operations. Mr. Berman also beneficially owns 383,037 shares of
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Empire Resorts' common stock, which owns an economic ownership
interest of 48.31%, 36.88% and 25%, respectively, of Catskill
Development's casino and wagering operations; horseracing and other
pari-mutuel activities; and real estate ownership and development
operations. Catskill Development owns 60% of Mohawk Management and
Empire Resorts, through a wholly owned subsidiary, beneficially owns
a 40% membership interest of Mohawk Management.
(4) Maurice Dabbah beneficially owns 35% of the membership interests of
Monticello Realty, which owns an economic ownership interest of 33%,
22.5% and 22.5%, respectively, of Catskill Development's casino and
wagering operations; horseracing and other pari-mutuel activities;
and real estate ownership and development operations. Catskill
Development, in turn, owns a 60% membership interest of Mohawk
Management.
(5) Joseph E. Bernstein beneficially owns a 1% economic interest and 50%
voting power in Americas Tower Partners, and the JB Trust, in which
Mr. Bernstein's mother, Helen Bernstein, is sole trustee and Mr.
Bernstein's children are ultimate beneficiaries, beneficially owns a
49% economic interest, with no voting rights. Joseph E. Bernstein
and the JB Trust beneficially own, 2% and 98%, respectively, of 35%
of the interests of Americas Tower Partners in Catskill Development,
which comprises of an economic ownership interest of 33%, 25% and
25%, respectively, of Catskill Development's casino and wagering
operations, horseracing and other pari-mutuel activities, and real
estate ownership and development operations. By virtue of a 50%
voting control position in Americas Tower Partners, Joseph E.
Bernstein is deemed to be the beneficial owner of 35% of the
interest of Americas Tower Partners in Catskill Development.
Catskill Development, in turn, owns a 60% membership interest of
Monticello Casino Management. Mr. Bernstein disclaims beneficial
ownership of the assets of the JB Trust.
(6) Ralph J. Bernstein beneficially owns a 35% partnership interest of
Americas Tower Partners, which owns an economic ownership interest
of 33%, 25% and 25%, respectively, of Catskill Development's casino
and wagering operations; horseracing and other pari-mutuel
activities; and real estate ownership and development operations.
Catskill Development, in turn, owns a 60% membership interest of
Mohawk Management.
(7) Morad Tahbaz beneficially owns a 20% partnership interest of
Americas Tower Partners, which owns an economic ownership interest
of 33%, 25% and 25%, respectively, of Catskill Development's casino
and wagering operations; horseracing and other pari-mutuel
activities; and real estate ownership and development operations.
Catskill Development, in turn, owns a 60% membership interest of
Mohawk Management.
MARKET FOR MOHAWK MANAGEMENT'S MEMBERSHIP INTERESTS, DIVIDENDS AND RELATED
MATTERS
At this time, there is no public trading market for Mohawk
Management's membership interests, nor is any such public market expected to
develop. As indicated above, Mohawk Management's membership interests are
presently owned 60% by Catskill Development and 40% by Alpha Casino Management,
a wholly owned subsidiary of Empire Resorts.
There are no outstanding options or warrants to purchase, or
securities convertible into, Mohawk Management's membership interests.
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No membership interests of Mohawk Management can be sold pursuant to
Rule 144 under the Securities Act of 1933, as amended, and neither Empire
Resorts nor Mohawk Management has agreed to register any membership interest of
Mohawk Management under the Securities Act of 1933, as amended, for sale by any
of its members. Furthermore, neither Empire Resorts nor Mohawk Management has
any intention to publicly offer any membership interests of Mohawk Management
now or in the future.
Mohawk Management has never made a distribution of profits or losses
to its members, nor does it intend to do so in the future.
Mohawk Management does not have an equity compensation plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EMPIRE RESORTS
For Empire Resorts' management's discussion and analysis of
financial condition and results of operations, please see Empire Resorts' Annual
Report on Form 10-KSB for the year ended December 31, 2002, Empire Resorts'
Proxy Statement dated February 21, 2003 for its 2003 Annual Meeting of
Stockholders on Schedule 14A and Empire Resorts' Quarterly Report on Form 10-QSB
for the quarter ended September 30, 2003, copies of which accompany this
information statement/prospectus. For further information, please also review
the documents that are incorporated by reference into this information
statement/prospectus. See "Where You Can Find More Information" beginning on
page 184 and "Incorporation of Documents by Reference" beginning on page 185.
CATSKILL DEVELOPMENT AND ACQUIRED COMPANIES
As none of Monticello Casino Management, Monticello Raceway
Development and Mohawk Management has had revenue from operations in either of
the last two fiscal years, no management's discussion and analysis of financial
condition and results of operations has been provided for these companies.
Rather, in lieu of such disclosure, a plan of operations for each of Monticello
Casino Management, Monticello Raceway Development and Mohawk Management for the
next twelve months has been described above under the heading Business. See
"Business - Monticello Casino Management - Plan of Operations" beginning on page
105; "Business - Monticello Raceway Development - Plan of Operations" beginning
on page 110; and "Business - Mohawk Management - Plan of Operations" beginning
on page 115.
Monticello Raceway Management has had revenue from operations in
each of the last two fiscal years. However, rather than providing a management's
discussion and analysis of financial condition and results of operations of
Monticello Raceway Management on a stand-alone basis, Empire Resorts believes
that a management's discussion and analysis of financial condition and results
of operations covering Catskill Development, currently Monticello Raceway
Management's sole stockholder, provides more informative disclosure. While
Empire Resorts is technically purchasing assets from Catskill Development's
members as part of the consolidation, Empire Resorts is effectively acquiring
Catskill Development since the consolidation will leave Catskill Development
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with only an interest in a 229 acre parcel of land in Monticello, New York, in
which Empire Resorts will hold a leasehold interest and a purchase option.
Empire Resorts believes that providing a management's discussion and analysis of
financial condition and results of operations for Catskill Development, on a
combined basis, is more informative to stockholders and investors in
understanding the consolidation.
BACKGROUND
Catskill Development was formed as a New York limited liability
company in 1995 to pursue the development of gaming operations in Monticello,
New York. Catskill Development's business plan envisioned three distinct lines
of business: casino activities with a Native American tribe, real estate related
activities and gaming operations related to Monticello Raceway including
pari-mutuel wagering and video lottery terminal operations. Catskill Development
currently owns all of the issued and outstanding capital stock of Monticello
Raceway Management, the licensed operator of Monticello Raceway, and a 60%
membership interest of both Mohawk Management and Monticello Casino Management.
As stated above, both Mohawk Management and Monticello Casino Management are
inactive at this time.
Currently, Catskill Development, through Monticello Raceway
Management, conducts pari-mutuel wagering on live harness horse race meetings
and participates in intrastate and interstate simulcast wagering at Monticello
Raceway. Monticello Raceway Management is also pursuing the development of a
video lottery terminal program. See "Business - Monticello Raceway Management"
beginning on page 97. Catskill Development currently owns approximately 229
acres of land in Monticello, New York, encompassing Monticello Raceway, and is a
party to a land purchase agreement pursuant to which Catskill Development has
proposed to transfer 29 acres of this land to the United States of America in
trust for the Cayuga Nation of New York for the purpose of Class III Gaming. See
"Recent Developments - Ground Lease and Land Purchase Agreement" beginning on
page 123. Finally, Catskill Development is seeking to manage a Native American
casino on these 29 acres once the land is transferred to the United States of
America in trust for the Cayuga Nation of New York. See "Business - Monticello
Casino Management" beginning on page 103.
DISCUSSION
The following discussion should be read in conjunction with the
consolidated financial statements of Catskill Development and notes thereto
included elsewhere in this information statement/prospectus.
For the years ended December 31, 2002 and December 31, 2001,
Catskill Development had net cash used in operating activities which mainly
consisted of the expenses associated with the Park Place Litigation of $215,489
and $533,096, respectively. Both years resulted in losses of $1,932,924 and
$2,071,232, respectively. The accrued and unpaid interest for the periods due to
Monticello Realty and Americas Tower Partners, the co-holders of a note secured
by a mortgage, and members of Catskill Development, was $620,125 on December 31,
2002 and $563,750 on December 31, 2001 on a balance of $5,637,500 at January 1,
2001 and depreciation recorded was $755,601 and $743,716, respectively. Other
current assets increased in both periods by $562,486 to $1,368,792 on December
31, 2002 and $126,507 to $806,306 on December 31, 2001. Restricted cash
decreased by $35,694 on December 31, 2002 and $213,052 On December 31, 2001.
Accounts payable and accrued expenses increased in both periods by $865,682 and
$144,125, respectively.
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Cash used for investing activities in the years ended December 31,
2002 and December 31, 2001, amounted to $499,116 and $254,986, respectively, and
consisted of $171,246 and $143,521 which was used to purchase property and
equipment and $327,870 and $111,465, which was used for real estate development,
the main pursuit of the entity.
Cash from additional member contributions in 2001 amounted to
$1,024,800 which was used to assist in funding the Park Place Litigation and
operating expenses. There were no additional contributions by members during
2002.
For the nine months ended September 30, 2003, Catskill Development
had net cash provided by operating activities of $953,518 and for the nine
months ended September 30, 2002 used in operating activities a total of
$217,826. Both periods resulted in a net loss of $1,522,617 and $1,913,797,
respectively. The accrued interest not paid for the periods due to Monticello
Realty and Americas Tower Partners, the co-holders of a note secured by a
mortgage, and members of Catskill Development, was $499,125 and $453,750 on a
balance of $6,821,375 at January 1, 2003 and $6,201,250 at January 1, 2002, and
depreciation recorded was $526,408 and $566,390, respectively. Other current
assets decreased in both periods by $16,847 and $1,427, respectively. Restricted
cash increased by $94,841 and decreased by $36,508, respectively. Accounts
payable and accrued expenses increased in both periods by $632,473 and $957,720,
respectively, from starting balances of $2,585,909 at January 1, 2003 and
$1,720,227 at January 1, 2002.
Cash used in investing activities for the nine months ended
September 30, 2003 and September 30, 2002 consisted of $2,102,701 and $185,139,
respectively, of which $525,957 and $149,523 was used to purchase property and
equipment, and $1,576,744 and $35,607 was used for real estate development,
increasing the balance to $6,068,469 at January 1, 2003 and $5,740,599 at
January 1, 2002.
Cash provided by financing activities for the nine months ended
September 30, 2003 amounted to $1,314,498, which was used to assist in funding
the Park Place Litigation and operating expenses. The January 1, 2002 balance
remained unchanged in 2002.
RECENT DEVELOPMENTS
Monticello Raceway Management, which is presently owned by Catskill
Development and will become a wholly owned subsidiary of Empire Resorts
following the consolidation, Empire Resorts, Catskill Development, Robert A.
Berman, Empire Resorts' chief executive officer and a member of its board of
directors, and The Berkshire Bank entered into a series of agreements on October
29, 2003 in order to provide Empire Resorts and Monticello Raceway Management
with short-term secured financing. Set forth below is a summary of each of these
agreements. Please note, however, that the summaries below do not purport to be
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complete and are qualified in their entirety by reference to the provisions of
the actual agreement being summarized. The complete text of each agreement
summarized below has been filed as an exhibit to the registration statement of
which this information statement/prospectus forms a part.
LOAN AND SECURITY AGREEMENT AND TERM LOAN NOTE
THE LOAN
Pursuant to that certain Loan and Security Agreement, dated October
29, 2003 (the "LOAN AGREEMENT"), The Berkshire Bank advanced $3,500,000 (the
"LOAN") to Monticello Raceway Management, and concurrently, Monticello Raceway
Management issued a term note (the "TERM NOTE") to The Berkshire Bank for the
original principal amount of the Loan.
INTEREST
The unpaid principal balance of the Loan bears interest at a per
annum rate equal to 8.75%. Interest on the Loan is payable monthly, in arrears,
on the first day of each calendar month, beginning on December 1, 2003. Upon and
during the continuance of an event of default under the Loan Agreement, the Loan
shall bear interest at a rate that is five percent (5%) in excess of the rate
otherwise applicable at such time.
REPAYMENT; PREPAYMENT
The principal amount of the Loan together with interest must be paid
in twenty-three (23) consecutive monthly installments of $55,868.72, commencing
on December 1, 2003, with the final payment and all accrued but unpaid interest,
fees, costs and expenses due on November 1, 2005.
Monticello Raceway Management may prepay the Loan in whole or in
part. However, if the Loan is prepaid in whole or in part prior to October 29,
2004, Monticello Raceway Management must pay a prepayment fee of 2.5% of the
principal balance of the Loan then being prepaid. In addition, any prepayment
must be accompanied by all accrued and unpaid interest. Moreover, under the
terms of the Loan Agreement, Catskill Development has the right to purchase the
Loan from The Berkshire Bank for the unpaid principal balance plus all accrued
but unpaid interest, fees and expenses, subject to the payment of any applicable
prepayment fees.
SECURITY
Monticello Raceway Management has collateralized its obligations
under the Loan Agreement by its grant of a lien on and security interest in
substantially all of its assets, whether now owned or acquired in the future.
COVENANTS
Until all of Monticello Raceway Management's obligations under the
Loan Agreement and Term Note have been irrevocably satisfied in full, the Loan
Agreement requires Monticello Raceway Management to perform or comply with
certain covenants, including, without limitation, covenants relating to (i)
limitations on indebtedness, (ii) limitations on liens, (iii) notice and
information delivery requirements, (iv) the payment of taxes and claims, (v) the
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maintenance of assets and properties, (vi) the maintenance of insurance policies
and (vii) compliance with laws.
ATM MACHINES
Under the Loan Agreement, The Berkshire Bank was granted the
exclusive right to install and operate ATM machines on 200 acres of land owned
by Catskill Development and all improvements on such land for ten (10) years
after the signing of the Loan Agreement. Monticello Raceway Management, however,
is entitled to 25% of the net income generated by these ATM machines.
EVENTS OF DEFAULT
The Loan Agreement contains customary events of default including,
without limitation, (i) the failure to pay principal or interest on the Loan
when due, (ii) any representation or warranty proving to have been materially
false when made, (iii) the failure to comply with any other term, covenant or
agreement of the Loan Agreement, (iv) defaults with respect to certain other
indebtedness, (v) entry of material judgments against Monticello Raceway
Management, (vi) default or breach under any agreements related to the Loan
Agreement, (vii) bankruptcy and insolvency and (viii) the failure of the Loan
Agreement or any collateral documents to remain in full force and effect and to
create a valid and perfected first priority security interest in the collateral
securing the Loan.
GROUND LEASE AND LAND PURCHASE AGREEMENT
Catskill Development currently owns approximately 229 acres of land
in Monticello, New York, encompassing Monticello Raceway. A 29 acre parcel of
this land is presently subject to a land purchase agreement that was entered
into by Catskill Development and the Cayuga Catskill Gaming Authority, an
affiliate of the Cayuga Nation of New York, on April 3, 2003 (the "LAND PURCHASE
AGREEMENT"). Pursuant to the terms of the Land Purchase Agreement, Catskill
Development has agreed to convey this 29 acre parcel of land to the United
States of America to be held in trust for the benefit of the Cayuga Nation of
New York following the Bureau of Indian Affairs' approval of the transfer and
its authorization to use such land for Class II and Class III Gaming purposes.
At the same time, Catskill Development and the Cayuga Catskill Gaming Authority
also entered into a shared facilities agreement, whereby the Cayuga Catskill
Gaming Authority agreed, among other things, not to use the property for any
purpose other than Class II or Class III Gaming, and activities incidental to
gaming such as the operation of entertainment, parking, restaurant or retail
facilities. However, if the required approvals for the land transfer are not
received by Catskill Development and the Cayuga Nation of New York by May 1,
2004, the Land Purchase Agreement shall terminate.
On October 29, 2003, Catskill Development and Monticello Raceway
Management entered into a 48 year ground lease (the "GROUND LEASE") with respect
to 200 acres of land in Monticello, New York and all buildings and improvements
located on such land owned by Catskill Development that are not subject to the
Land Purchase Agreement (the "LEASED PROPERTY"). Under the terms of the Ground
Lease, Monticello Raceway Management will pay Catskill Development $1,800,000
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per year, subject to annual adjustments consistent with the consumer price
index, payable in equal monthly installments. During the first year of the
lease, however, Monticello Raceway Management has the right, at its option, to
defer its monthly rental payments for up to 12 months, with such deferred rent
accruing interest at the rate of 4.5% per annum.
During the first three years of the Ground Lease, Monticello Raceway
Management may, at its option, purchase the Leased Property for a purchase price
equal to the sum of (x) the rent payable for the year in which Monticello
Raceway Management exercises this purchase option divided by 5% (which would
equal $36,000,000 in the first year of the Ground Lease) and (y) an amount equal
to all transfer taxes and closing costs incurred by Catskill Development as
seller. Monticello Raceway Management may not assign its rights under the Ground
Lease, sublet any part of the Leased Property, nor enter into a transaction or
series of transactions that would result in a change of control of Monticello
Raceway Management without the consent of Catskill Development. However, in the
event that Catskill Development withholds its consent to such assignment of the
Ground Lease or the subletting of all or part of the Leased Property, Monticello
Raceway Management may exercise its option to purchase the Leased Property even
after the first three years of the Ground Lease have expired.
Under the terms of the Ground Lease, absent Catskill Development's
prior written consent, Monticello Raceway Management is required to use the
Leased Property solely for racing, gaming, entertainment, retail, lodging, food
service, any other use related to so-called "tourism" and other ancillary and
related activities.
In the event that The Berkshire Bank declares an "event of default"
under the Loan Agreement, or commences a foreclosure proceeding with regard to
the Leasehold Mortgage (as defined below), or succeeds to the interests of
Monticello Raceway Management under the Ground Lease, The Berkshire Bank shall
also have the right, at its option, to defer its monthly rental payments until
the date that the Loan has been repaid in full, with such deferred rent accruing
interest at the rate of 4.5% per annum. This right, however, shall expire upon
any refinancing/purchase of the Leasehold Mortgage in which the Leasehold
Mortgage is assigned to a new entity that pays the full amount outstanding under
the Leasehold Mortgage.
In addition, in the event that The Berkshire Bank succeeds to the
interests of Monticello Raceway Management under the Ground Lease, then (i) any
net revenues received by The Berkshire Bank or its successor thereafter, shall
be deemed to be payments in reduction of the Loan, and (ii) The Berkshire Bank
shall have a one-time right to assign and transfer its rights under the Ground
Lease, without the prior consent of Catskill Development, provided such assignee
or transferee is not (i) in competition with Catskill Development, (ii) in the
gaming industry, (iii) currently in litigation with Catskill Development or any
of its constituent members, (iv) in default under any agreement it may have with
Catskill Development or any of its constituent members, or (v) listed on the
specially designated Nationals and Blocked Persons List maintained in accordance
with the so-called "Patriot Act."
LEASEHOLD MORTGAGE
In order to secure the repayment of the Loan and the performance of
all of its obligations under the Loan Agreement, Term Note and any other related
agreement, Monticello Raceway Management has entered into a Leasehold Mortgage,
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Security Agreement, Assignment of Leases and Rents and Fixture Filings (the
"LEASEHOLD MORTGAGE"), as mortgagor, with The Berkshire Bank.
PROPERTY MORTGAGED
Under the Leasehold Mortgage, Monticello Raceway Management has
granted The Berkshire Bank a security interest in all of Monticello Raceway
Management's property, rights, interests and estates now owned, or acquired in
the future, including, among others things:
o Monticello Raceway Management's leasehold interest in the
Ground Lease;
o Monticello Raceway Management's leasehold interest in all
additional lands, estates and development rights acquired in
the future by Monticello Raceway Management for use in
connection with the Leased Property and the development of the
Leased Property;
o Monticello Raceway Management's personal property located on
the Leased Property;
o all leases and other agreements affecting the use, enjoyment or
occupancy of the Leased Property (a "LEASE" or "LEASES") and
all right, title and interest, if any, of Monticello Raceway
Management, of all rents, additional rents, revenues, issues
and profits from the Leased Property (the "RENTS") and all
proceeds from the sale or other disposition of the Leases;
o all awards or payments made with respect to the Leased
Property, whether from the exercise of the right of eminent
domain, or for a change of grade, or for any other injury to or
decrease in the value of the Leased Property;
o all proceeds of and any unearned premiums on any insurance
policies covering the Leased Property;
o all refunds, rebates or credits in connection with a reduction
in real estate taxes and assessments charged against the Leased
Property; and
o all agreements, contracts, certificates, instruments,
franchises, permits, licenses, plans, specifications and other
documents entered into pertaining to the use, occupation,
construction, management or operation of the Leased Property or
with respect to any business or activity conducted on the
Leased Property.
In addition to the foregoing, under the Leasehold Mortgage,
Monticello Raceway Management assigned its right, title and interest in and to
all current and future Leases and Rents to The Berkshire Bank. However,
Berkshire Bank has granted Monticello Raceway Management a revocable license to
collect and receive the Rents.
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MATERIAL COVENANTS
The Leasehold Mortgage incorporates by reference each of the
covenants of the Loan Agreement and the Term Note and all other documents
executed by Monticello Raceway Management and/or others and by or in favor of
The Berkshire Bank, which wholly or partially secure or guaranty payment of the
Loan.
In addition, without The Berkshire Bank's prior written consent,
Monticello Raceway Management may not, among other things,
o execute any Lease (i) demising in excess of 10,000 square feet,
individually or when combined with any other Leases, or (ii)
for a term of more than one year;
o construct, demolish or materially alter any improvements on the
Leased Property;
o execute any agreements (other than the Leases) for a term
longer than the Loan, unless such agreements are terminable
without penalty upon 30 days' notice (and in addition, if The
Berkshire Bank is dissatisfied with the management of the
Leased Property under any property management agreement
existing at the time, it may direct Monticello Raceway
Management to terminate such agreement and to hire a management
company that it deems acceptable);
o use the Leased Property for anything other than its current use
or for racing, gaming, entertainment, retail, hotel,
restaurants, any other use related to so-called "tourism" and
other ancillary and related activities thereto; and
o except as expressly permitted in the Loan Agreement, sell,
convey, mortgage, grant, bargain, encumber, pledge, assign, or
otherwise transfer the Leased Property or any part thereof.
GROUND LEASE
Under the Leasehold Mortgage, Monticello Raceway Management must
enforce the Ground Lease and not terminate, modify, cancel, change, supplement,
alter or amend the Ground Lease, or waive, excuse, condone or in any way release
or discharge Catskill Development of or from any of the material covenants and
conditions to be performed or observed by Catskill Development. Moreover, under
the Leasehold Mortgage, Monticello Raceway Management has granted a lien to The
Berkshire Bank, on all of Monticello Raceway Management's interests in the
Ground Lease.
Upon the acquisition of the fee title or any other estate, title or
interest in the Leased Property by Monticello Raceway Management, The Berkshire
Bank has the right to cause the Leasehold Mortgage to automatically attach to
and cover and be a lien upon such other estate so acquired, and for such other
estate to be considered as mortgaged, assigned and conveyed to The Berkshire
Bank.
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NONDISTURBANCE AND ATTORNMENT AGREEMENT
Catskill Development is indebted to Americas Tower Partners and
Monticello Realty, in equal portions, in the total original principal amount of
$5,000,000, which indebtedness continues to bear interest at the rate of ten
percent (10%) compounded annually and is due and payable on September 15, 2004
and is secured by a mortgage (the "SENIOR MORTGAGE") dated October 1, 1999 on
Catskill Development's fee interest in the Leased Property. Americas Tower
Partners, Monticello Realty, Monticello Raceway Management, Catskill Development
and The Berkshire Bank entered into a Nondisturbance and Attornment Agreement
dated as of October 29, 2003 to confirm the rights and obligations of Americas
Tower Partners and Monticello Realty if they exercise any of their rights and
remedies as holder of the Senior Mortgage and become the owner of the Leased
Property, and also to confirm the rights and obligations of The Berkshire Bank
in the event of any attempted termination of the Ground Lease. Under the
conditions described in the Nondisturbance and Attornment Agreement, even after
Americas Tower Partners and Monticello Realty become the owner of the Leased
Property, the Ground Lease shall continue in full force and effect as a direct
lease between Americas Tower Partners and Monticello Realty, as landlord, and
Monticello Raceway Management, as tenant. In addition, in the event that
Americas Tower Partners and Monticello Realty, as landlord, desire to terminate
the Ground Lease, The Berkshire Bank shall have the opportunity to perform any
obligation of, or remedy any default by, Catskill Development, and if the Ground
Lease is terminated for any reason, The Berkshire Bank may require Americas
Tower Partners and Monticello Realty, as landlord, to enter into a new ground
lease with the Berkshire Bank, on the same terms and conditions as are contained
in the Ground Lease.
SURETY AGREEMENT
GENERAL
To induce The Berkshire Bank to make the Loan to Monticello Raceway
Management, Empire Resorts has executed a surety agreement (the "SURETY
AGREEMENT") in favor of The Berkshire Bank, pursuant to which Empire Resorts has
guaranteed Monticello Raceway Management's performance of its obligations under
the Loan Agreement and Term Note.
SCOPE OF SURETY
The Surety Agreement constitutes a guarantee of payment and not of
collection. For example, The Berkshire Bank may institute a legal proceeding
directly against Empire Resorts to enforce its rights under the Surety Agreement
without first instituting a legal proceeding against Monticello Raceway
Management. Furthermore, under the Surety Agreement, Empire Resorts has
acknowledged that its obligations under the Surety Agreement will not be
reduced, impaired or affected in any way by reason of, among other things:
o the invalidity, unenforceability or voidability of any
obligations, liens or rights in any property pledged by any
person in connection with the Loan;
127
o the existence or nonexistence of any defenses which may be
available to Monticello Raceway Management with respect to its
obligations under the Loan Agreement and Term Note;
o any delay by The Berkshire Bank in making a demand upon
Monticello Raceway Management or any delay in enforcing, or any
failure to enforce, any rights against Monticello Raceway
Management or any other person or persons liable for any or all
of Monticello Raceway Management's obligations under the Loan
Agreement and Term Note, even if such demand rights are lost
due to such delay or failure; or
o any other fact, event, condition or omission which may give
rise to a suretyship defense.
Under the Surety Agreement, Empire Resorts has further acknowledged
that its obligations under the Surety Agreement will not be affected, in any
way, by any of the following events:
o an extension or change in the time, manner, place or terms of
payment of any or all of Monticello Raceway Management's
obligations,
o the amendment, supplement, restatement or replacement of the
Loan Agreement or any related agreements,
o the renewal or extension of any financing reflected in the Loan
Agreement,
o the modification of the terms and conditions under which loans
and extensions of credit may be made to Monticello Raceway
Management, or
o the settlement, compromise or releases from liabilities of
Monticello Raceway Management for any obligations.
COVENANTS
Until all of Monticello Raceway Management's obligations under the
Loan Agreement and Term Note have been irrevocably satisfied in full, the Surety
Agreement requires Empire Resorts to perform or comply with certain covenants,
including, without limitation, covenants relating to (i) limitations on
indebtedness, (ii) limitations on liens, (iii) notice and information delivery
requirements, (iv) the payment of taxes and claims, (v) the maintenance of
assets and properties, (vi) the maintenance of insurance policies and (vii)
compliance with laws.
EVENTS OF DEFAULT
The Surety Agreement contains customary events of default including,
without limitation, (i) the failure to make any payments when due, (ii) any
representation or warranty proving to have been false when made, (iii) the
failure to comply with any other term, covenant or agreement of the Surety
Agreement, (iv) defaults with respect to certain other indebtedness, (v) entry
128
of material judgments against Empire Resorts, (vi) default or breach under any
agreements related to the Loan Agreement, and (vii) bankruptcy and insolvency.
GUARANTEE AGREEMENT
To induce The Berkshire Bank to make the Loan to Monticello Raceway
Management, Robert A. Berman, Empire Resorts' chief executive officer and a
member of its board of directors, has executed a Guarantee Agreement in favor of
The Berkshire Bank, on terms substantially similar to the above described Surety
Agreement, pursuant to which Mr. Berman has guaranteed Monticello Raceway
Management's performance of its obligations under the Loan Agreement and Term
Note. However, in contrast to the Surety Agreement, The Berkshire Bank may not
exercise any of its rights or remedies against Mr. Berman under the Guarantee
Agreement unless and until Mr. Berman beneficially owns (directly or indirectly
through immediate family members, trusts or interest in partnerships or limited
liabilities companies) less than ten percent (10%) of the outstanding common
voting stock of either Empire Resorts or Monticello Raceway Management.
Immediately upon such an occurrence, however, all of The Berkshire Bank's rights
and remedies under the Guarantee Agreement shall be immediately available to The
Berkshire Bank, without further notice to Mr. Berman.
SECURITY AGREEMENT
Pursuant to a Security Agreement, dated as of October 29, 2003, by
and between Catskill Development and The Berkshire Bank, Catskill Development
has agreed to grant The Berkshire Bank a lien on and a security interest in
substantially all of its assets that relate to Monticello Raceway (the "Raceway
Assets"), whether now owned or acquired in the future. In connection with this
Security Agreement, Catskill Development has agreed, except as is contemplated
by the consolidation's terms, not to, among other things:
o merge or consolidate with any other person;
o commence a dissolution or liquidation;
o sell any Raceway Assets; or
o cause or consent to any of its Raceway Assets, at any time, to
become subject to any claim, encumbrance, lien or security
interest.
Catskill Development has also acknowledged in the Security Agreement
that its liability under the Security Agreement will not be reduced, impaired or
affected in any way by reason of, among other things:
o the invalidity, unenforceability or voidability of any
obligations, liens or rights in any property pledged by any
person in connection with the Loan;
o the existence or nonexistence of any defenses which may be
available to the Monticello Raceway Management with respect to
its obligations under the Loan Agreement and Term Note;
129
o any delay by The Berkshire Bank in making a demand upon
Monticello Raceway Management or any delay in enforcing, or any
failure to enforce, any rights against Monticello Raceway
Management or any other person or persons liable for any or all
of Monticello Raceway Management's obligations under the Loan
Agreement and Term Note, even if such demand rights are lost
due to such delay or failure; or
o any other fact, event, condition or omission which may give
rise to a defense against The Berkshire Bank.
Under the Security Agreement, Catskill Development has further
acknowledged that its obligations under the Security Agreement will not be
affected, in any way, by any of the following events:
o an extension or change in the time, manner, place or terms of
payment of any or all of Monticello Raceway Management's
obligations,
o the amendment, supplement, restatement or replacement of the
Loan Agreement or any related agreements,
o the renewal or extension any financing reflected in the Loan
Agreement,
o the modification of the terms and conditions under which loans
and extensions of credit may be made to Monticello Raceway
Management, or
o the settlement, compromise or releases from liabilities of
Monticello Raceway Management for any obligations.
SELLING STOCKHOLDERS
The shares of Empire Resorts' common stock issued in the
consolidation will be registered under the Securities Act of 1933, as amended.
These shares will be freely transferable under the Securities Act of 1933, as
amended, except for shares issued to persons who may be deemed to be
"affiliates" of Catskill Development or Monticello Raceway Development for
purposes of Rule 145 under the Securities Act of 1933, as amended.
Affiliates may not sell their shares of Empire Resorts' common stock
acquired in connection with the consolidation except pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
those shares or in compliance with Rule 145 under the Securities Act of 1933, as
amended, or another applicable exemption to the registration requirements of the
Securities Act of 1933, as amended. Persons who may be deemed to be affiliates
of Catskill Development or Monticello Raceway Development generally include
individuals or entities that control, are controlled by or are under common
control with Catskill Development or Monticello Raceway Development and may
include officers and certain beneficial holders of Catskill Development and
Monticello Raceway Development.
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Pursuant to the restated contribution agreement, each of Catskill
Development and Monticello Raceway Development agreed to cause each of its
affiliates under Section 2(11) of the Securities Act of 1933, as amended, and
Rule 145, to deliver an executed "affiliate agreement" to Empire Resorts.
Pursuant to these affiliate agreements, no affiliate of Catskill Development or
Monticello Raceway Development may sell, transfer or otherwise dispose of any
shares of Empire Resorts' common stock issued to that affiliate, directly or
indirectly, in connection with the consolidation, except in compliance with the
applicable provisions of the Securities Act of 1933, as amended, and the rules
and regulations thereunder. Because the selling stockholders listed in the table
below may be deemed to be affiliates of Catskill Development or Monticello
Raceway Development, the registration statement of which this information
statement/prospectus is a part will also cover any offers or sales of the resale
shares sold by the selling stockholders. The affiliates of Catskill Development
and Monticello Raceway Development and any other holder of such shares who
relies on this information statement/prospectus, as so amended or supplemented,
in connection with any such offer or sale is referred to below as a "selling
stockholder." Notwithstanding the transfer restrictions set forth in the
affiliate agreements, for so long as the registration statement of which this
information statement/prospectus is a part is effective, the affiliates of
Catskill Development and Monticello Raceway Development will be able, pursuant
to the registration statement, to sell, transfer or otherwise dispose of their
shares of Empire Resorts' common stock received in the consolidation.
This information statement/prospectus may be used by affiliates of
Catskill Development and Monticello Raceway Development and by any other holder
of the Empire Resorts' common stock acquired in connection with the
consolidation to cover the public offering and resale of Empire Resorts' common
stock to be issued in connection with the consolidation. Pursuant to the
registration statement of which this information statement/prospectus is a part,
Empire Resorts has registered under the Securities Act of 1933, as amended, the
issuance of its common stock to the members of both Catskill Development and
Monticello Raceway Development pursuant to the consolidation.
Empire Resorts does not know when or in what amounts the selling
stockholders may offer shares for sale. The selling stockholders may choose not
to sell any of the shares offered by this prospectus. Because the selling
stockholders may offer all or some of the shares pursuant to this offering, and
because there are currently no agreements, arrangements or understandings with
respect to the sale of any of the shares, Empire Resorts cannot estimate the
number of the shares that the selling stockholders will hold after completion of
the offering. For purposes of the table below, Empire Resorts has assumed that
the selling stockholders will sell all of the shares covered by this prospectus.
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The following table, which sets forth information with respect to
the selling stockholders, gives effect to the issuance of Empire Resorts' common
stock upon the closing of the consolidation and also assumes the number of
shares of Empire Resorts' common stock outstanding at the effective time of the
consolidation is the same as the number of shares outstanding on the record date
for determining the stockholders of Empire Resorts entitled to receive this
information statement/prospectus:
Shares of Empire
Resorts' Shares of Empire Resorts'
Common Stock to be Shares of Empire Common Stock to be Owned
Owned Immediately Resorts' after the Offering
Name of Selling after the Common Stock -----------------------
Stockholder Consolidation to be Offered Amount Percent
---------------- ----------------- ---------------- ----------- ----------
Americas Tower
Partners 6,599,294 6,599,294 -- --
Watertone
Holdings 4,565,010 4,565,010 -- --
Monticello
Realty 5,732,261 5,732,261 -- --
Robert A.
Berman 605,334(1) 710,967 3,894,367(2) 16.93%
Scott A.
Kaniewski 1,000,610(3) 132,656 867,954(4) 3.77%
KFP Trust 308,910(5) 434 308,476(6) 1.36%
Kaniewski
Family Limited
Partnership 254,931(7) 434 254,497(8) 1.12%
Philip B. Berman 273,143(9) 22,542 250,601(10) 1.10%
Clifford A.
Ehrlich 250,512 250,512 -- --
Fox-Hollow Lane, LLC 182,191 182,191 -- --
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Shares of Empire
Resorts' Shares of Empire Resorts'
Common Stock to be Shares of Empire Common Stock to be Owned
Owned Immediately Resorts' after the Offering
Name of Selling after the Common Stock -----------------------
Stockholder Consolidation to be Offered Amount Percent
---------------- ----------------- ---------------- ----------- ----------
Shamrock Strategies, Inc. 22,774 22,774 -- --
----------
* less than 1%
(1) Includes 1,094,004 shares of common stock owned directly by Robert
A. Berman, options that are currently exercisable into 279,189
shares of common stock and 3,232,141 shares of common stock held
directly by Watertone Holdings. Robert A. Berman directly holds a
46.305% limited partnership interest in Watertone Holdings,
representing an indirect beneficial ownership interest in 2,113,828
shares of such 3,232,141 shares of Empire Resorts' common stock held
directly by Watertone Holdings. Through BKB, LLC, 82% of which is
owned by Robert A. Berman, Robert A. Berman indirectly holds a
general partnership interest of .0082% of Watertone Holdings,
representing an indirect beneficial ownership interest in an
additional 37,433 shares of such 3,232,141 shares of Empire Resorts'
common stock held directly by Watertone Holdings, and through Avon
Road Partners, LP, Robert A Berman indirectly beneficially holds an
addition 23.678% limited partnership interest in Watertone Holdings,
representing an indirect beneficial ownership interest in an
additional 1,080,880 of such 3,232,141 shares of Empire Resorts'
common stock held directly by Watertone Holdings. Avon Road
Partners, LP is 88% owned by Robert A. Berman, 3% by Debbie N.
Berman and 9% by the Berman Family Trust whose beneficiaries are
Robert A. Berman's children. Debbie N. Berman, Robert A. Berman's
wife, and Philip B. Berman, Robert A. Berman's brother, are
co-trustees of the Berman Family Trust and have joint voting and
dispositive power with respect to its holdings. Robert A. Berman
disclaims beneficial ownership of all shares of common stock held by
the Berman Family Trust.
(2) Includes 383,037 shares of common stock owned directly by Robert A.
Berman, options that are currently exercisable into 279,189 shares
of common stock and 3,232,141 shares of common stock held directly
by Watertone Holdings. Robert A. Berman directly holds a 46.305%
limited partnership interest in Watertone Holdings, representing an
indirect beneficial ownership interest in 2,113,828 shares of such
3,232,141 shares of Empire Resorts' common stock held directly by
Watertone Holdings. Through BKB, LLC, 82% of which is owned by
Robert A. Berman, Robert A. Berman indirectly holds a general
partnership interest of .0082% of Watertone Holdings, representing
an indirect beneficial ownership interest in an additional 37,433
shares of such 3,232,141 shares of Empire Resorts' common stock held
directly by Watertone Holdings, and through Avon Road Partners, LP,
Robert A Berman indirectly beneficially holds an addition 23.678%
limited partnership interest in Watertone Holdings, representing an
133
indirect beneficial ownership interest in an additional 1,080,880 of
such 3,232,141 shares of Empire Resorts' common stock held directly
by Watertone Holdings. Avon Road Partners, LP is 88% owned by Robert
A. Berman, 3% by Debbie N. Berman and 9% by the Berman Family Trust
whose beneficiaries are Robert A. Berman's children. Debbie N.
Berman, Robert A. Berman's wife, and Philip B. Berman, Robert A.
Berman's brother, are co-trustees of the Berman Family Trust and
have joint voting and dispositive power with respect to its
holdings. Robert A. Berman disclaims beneficial ownership of all
shares of common stock held by the Berman Family Trust.
(3) Includes 134,096 shares of common stock owned directly by Scott A.
Kaniewski, options that are currently exercisable into 295,689
shares of common stock, 506,899 shares of common stock held directly
by Watertone Holdings, 28,940 shares of common stock held directly
by The Kaniewski Family Limited Partnership and 34,986 shares of
common stock held directly by The KFP Trust. Through BKB, LLC, 15.3%
of which is owned by Scott A. Kaniewski, Scott A. Kaniewski
indirectly holds a general partnership interest of .00153% of
Watertone Holdings, representing an indirect beneficial ownership
interest in an additional 6,984 shares of such 506,899 shares of
Empire Resorts' common stock held directly by Watertone Holdings.
The Kaniewski Family Limited Partnership, with respect to which Mr.
Kaniewski is a 1% limited partner and the general partner with sole
voting and dispositive power, holds a 4.95% limited partnership
interest in Watertone Holdings, representing an indirect beneficial
ownership interest in 225,968 shares of such 506,899 shares of
Empire Resorts' common stock held directly by Watertone Holdings,
and through BKB, LLC, 0.05% of which is owned by The Kaniewski
Family Limited Partnership, The Kaniewski Family Limited Partnership
indirectly holds a general partnership interest of .000005% of
Watertone Holdings, representing an indirect beneficial ownership
interest in an additional 23 shares of such 506,899 shares of Empire
Resorts' common stock held directly by Watertone Holdings. Scott A.
Kaniewski disclaims beneficial ownership of all the shares of common
stock owned by the Kaniewski Family Limited Partnership for any
purpose other than voting and dispositive powers. The KFP Trust,
whose sole trustee is Stacey B. Kaniewski, Scott A. Kaniewski's
wife, and whose sole beneficiaries are Scott A. Kaniewski's
children, holds a 6.00% limited partnership interest in Watertone
Holdings, representing an indirect beneficial ownership interest in
273,901 shares of such 506,899 shares of Empire Resorts' common
stock held directly by Watertone Holdings, and through BKB, LLC,
0.05% of which is owned by The KFP Trust, The KFP Trust indirectly
holds a general partnership interest of .000005% of Watertone
Holdings, representing an indirect beneficial ownership interest in
an additional 23 shares of such 506,899 shares of Empire Resorts'
common stock held directly by Watertone Holdings. Scott A. Kaniewski
disclaims beneficial ownership of all shares of common stock held by
The KFP Trust.
(4) Includes 1,440 shares of common stock owned directly by Scott A.
Kaniewski, options that are currently exercisable into 295,689
shares of common stock, 506,899 shares of common stock held directly
by Watertone Holdings, 28,940 shares of common stock held directly
by The Kaniewski Family Limited Partnership and 34,986 shares of
common stock held directly by The KFP Trust. Through BKB, LLC, 15.3%
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of which is owned by Scott A. Kaniewski, Scott A. Kaniewski
indirectly holds a general partnership interest of .00153% of
Watertone Holdings, representing an indirect beneficial ownership
interest in an additional 6,984 shares of such 506,899 shares of
Empire Resorts' common stock held directly by Watertone Holdings.
The Kaniewski Family Limited Partnership, with respect to which Mr.
Kaniewski is a 1% limited partner and the general partner with sole
voting and dispositive power, holds a 4.95% limited partnership
interest in Watertone Holdings, representing an indirect beneficial
ownership interest in 225,968 shares of such 506,899 shares of
Empire Resorts' common stock held directly by Watertone Holdings,
and through BKB, LLC, 0.05% of which is owned by The Kaniewski
Family Limited Partnership, The Kaniewski Family Limited Partnership
indirectly holds a general partnership interest of .000005% of
Watertone Holdings, representing an indirect beneficial ownership
interest in an additional 23 shares of such 506,899 shares of Empire
Resorts' common stock held directly by Watertone Holdings. Scott A.
Kaniewski disclaims beneficial ownership of all the shares of common
stock owned by the Kaniewski Family Limited Partnership for any
purpose other than voting and dispositive powers. The KFP Trust,
whose sole trustee is Stacey B. Kaniewski, Scott A. Kaniewski's
wife, and whose sole beneficiaries are Scott A. Kaniewski's
children, holds a 6.00% limited partnership interest in Watertone
Holdings, representing an indirect beneficial ownership interest in
273,901 shares of such 506,899 shares of Empire Resorts' common
stock held directly by Watertone Holdings, and through BKB, LLC,
0.05% of which is owned by The KFP Trust, The KFP Trust indirectly
holds a general partnership interest of .000005% of Watertone
Holdings, representing an indirect beneficial ownership interest in
an additional 23 shares of such 506,899 shares of Empire Resorts'
common stock held directly by Watertone Holdings. Scott A. Kaniewski
disclaims beneficial ownership of all shares of common stock held by
The KFP Trust.
(5) Includes 34,986 shares of common stock held directly by The KFP
Trust and 273,924 shares of common stock held directly by Watertone
Holdings. The KFP Trust holds a 6.00% limited partnership interest
in Watertone Holdings, representing an indirect beneficial ownership
interest in 273,901 shares of such 273,924 shares of Empire Resorts'
common stock held directly by Watertone Holdings, and through BKB,
LLC, .05% of which is owned by The KFP Trust, The KFP Trust
indirectly holds a general partnership interest of .000005% of
Watertone Holdings, representing an indirect beneficial ownership
interest in an additional 23 shares of such 273,924 shares of Empire
Resorts' common stock held directly by Watertone Holdings.
(6) Includes 34,552 shares of common stock held directly by The KFP
Trust and 273,924 shares of common stock held directly by Watertone
Holdings. The KFP Trust holds a 6.00% limited partnership interest
in Watertone Holdings, representing an indirect beneficial ownership
interest in 273,901 shares of such 273,924 shares of Empire Resorts'
common stock held directly by Watertone Holdings, and through BKB,
LLC, .05% of which is owned by The KFP Trust, The KFP Trust
indirectly holds a general partnership interest of .000005% of
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Watertone Holdings, representing an indirect beneficial ownership
interest in an additional 23 shares of such 273,924 shares of Empire
Resorts' common stock held directly by Watertone Holdings.
(7) Includes 28,940 shares of common stock held directly by The
Kaniewski Family Limited Partnership and 225,991 shares of common
stock held directly by Watertone Holdings. The Kaniewski Family
Limited Partnership holds a 4.95% limited partnership interest in
Watertone Holdings, representing an indirect beneficial ownership
interest in 225,968 shares of such 225,991 shares of Empire Resorts'
common stock held directly by Watertone Holdings, and through BKB,
LLC, .05% of which is owned by The Kaniewski Family Limited
Partnership, The Kaniewski Family Limited Partnership indirectly
holds a general partnership interest of .000005% of Watertone
Holdings, representing an indirect beneficial ownership interest in
an additional 23 shares of such 225,991 shares of Empire Resorts'
common stock held directly by Watertone Holdings.
(8) Includes 28,506 shares of common stock held directly by The
Kaniewski Family Limited Partnership and 225,991 shares of common
stock held directly by Watertone Holdings. The Kaniewski Family
Limited Partnership holds a 4.95% limited partnership interest in
Watertone Holdings, representing an indirect beneficial ownership
interest in 225,968 shares of such 225,991 shares of Empire Resorts'
common stock held directly by Watertone Holdings, and through BKB,
LLC, .05% of which is owned by The Kaniewski Family Limited
Partnership, The Kaniewski Family Limited Partnership indirectly
holds a general partnership interest of .000005% of Watertone
Holdings, representing an indirect beneficial ownership interest in
an additional 23 shares of such 225,991 shares of Empire Resorts'
common stock held directly by Watertone Holdings.
(9) Includes 45,988 shares of common stock owned directly by Philip B.
Berman and 227,155 shares of common stock held directly by Watertone
Holdings. Philip B. Berman directly holds a 4.95% limited
partnership interest in Watertone Holdings, representing an indirect
beneficial ownership interest in 225,968 shares of such 227,155
shares of Empire Resorts' common stock held directly by Watertone
Holdings, and through BKB, LLC, 2.6% of which is owned by Philip B.
Berman, Philip B. Berman indirectly holds a general partnership
interest of .00026% of Watertone Holdings, representing an indirect
beneficial ownership interest in an additional 1,187 shares of such
227,155 shares of Empire Resorts' common stock held directly by
Watertone Holdings.
(10) Includes 23,446 shares of common stock owned directly by Philip B.
Berman and 227,155 shares of common stock held directly by Watertone
Holdings. Philip B. Berman directly holds a 4.95% limited
partnership interest in Watertone Holdings, representing an indirect
beneficial ownership interest in 225,968 shares of such 227,155
shares of Empire Resorts' common stock held directly by Watertone
Holdings, and through BKB, LLC, 2.6% of which is owned by Philip B.
Berman, Philip B. Berman indirectly holds a general partnership
interest of .00026% of Watertone Holdings, representing an indirect
beneficial ownership interest in an additional 1,187 shares of such
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227,155 shares of Empire Resorts' common stock held directly by
Watertone Holdings.
Americas Tower Partners is beneficially owned 35% by Joseph E.
Bernstein, a member of Empire Resorts' board of directors, 35% by Ralph J.
Bernstein, a member of Empire Resorts' board of directors, and 20% by Morad
Tahbaz, Empire Resorts' president and a member of its board of directors. Joseph
E. Bernstein and Ralph J. Bernstein share voting and dispositive power over
Americas Tower Partners' assets.
Watertone Holdings is beneficially owned 70% by Robert A. Berman,
Empire Resorts' chief executive officer, a member of its board of directors and
its former chairman, and 11% by Scott A. Kaniewski, Empire Resorts' chief
financial officer and a former member of its board of directors. The general
partner of Watertone Holdings is BKB, LLC, and through BKB, LLC, Robert A.
Berman, Philip B. Berman and Scott A. Kaniewski share voting and dispositive
power over Watertone Holdings' assets.
Scott Kaniewski is a 1% limited partner and the general partner of
the Kaniewski Family Limited Partnership with sole voting and dispositive power
over its assets.
Stacey B. Kaniewski, Scott A. Kaniewski's wife, is the sole trustee
of the KFP Trust with sole voting and dispositive power over its assets, and
whose sole beneficiaries are Scott A. Kaniewski's children.
Philip B. Berman is Empire Resorts' vice president of project
coordination, and Robert A. Berman and Philip B. Berman are brothers.
Charles Degliomini, Empire Resorts' vice president of
communications, is the managing member of Fox-Hollow Lane, LLC, a limited
liability company owned by Mr. Degliomini's immediate family. Mr. Degliomini has
sole voting and dispositive power over Fox-Hollow Lane, LLC's assets.
Christopher Cushing has sole voting and dispositive power over
Shamrock Strategies, Inc.'s assets.
PLAN OF DISTRIBUTION
Empire Resorts will not receive any of the proceeds of any resale of
Empire Resorts' common stock by the selling stockholders pursuant to the
registration statement of which this information statement/prospectus forms a
part. The selling stockholders will receive all of the proceeds.
The selling stockholders, including their pledgees, transferees,
assignees, donees or other successors in interest, may, from time to time, sell
any or all of their shares of Empire Resorts' common stock, at fixed or
negotiated prices, using one or more of the following methods:
o on the NASDAQ SmallCap Market, or on any other stock exchange,
market or trading facility on which Empire Resorts' common
stock may from time to time be trading;
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o in the over-the-counter market;
o in privately negotiated transactions or otherwise;
o a distribution to a selling stockholder's partners, members or
stockholders;
o through agents or underwriters;
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o through the writing of options on the shares;
o short sales;
o broker-dealers may agree with the selling stockholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 of the
Securities Act of 1933, as amended, if available, rather than under this
registration statement of which this information statement/prospectus forms a
part.
The selling stockholders may also engage in short sales against the
box, puts and calls and other transactions in the securities or derivatives of
Empire Resorts and may sell or deliver shares in connection with these trades.
The selling stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a selling stockholder defaults on a
margin loan, the broker may, from time to time, offer and sell the pledged
shares.
Broker-dealers engaged by the selling stockholders may arrange for
other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated.
The selling stockholders and any broker-dealers or agents who
publicly offer or sell the shares will be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended, in connection with such
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sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act of 1933, as
amended. To the extent the selling stockholders may be deemed to be
underwriters, the selling stockholders are, or may be subject to statutory
liabilities, including, but not limited to, liability under Sections 11, 12 and
17 of the Securities Act of 1933, as amended and Rule 10b-5 under the Securities
Exchange Act of 1934, as amended. Specifically, under the Securities Act of
1933, as amended, and other laws and court decisions with respect to
underwriters' liability and limitations on indemnification of underwriters by
issuers, an underwriter is subject to substantial potential liability for
material misstatements or omissions in prospectuses and other communications
with respect to underwritten offerings or deemed underwritten offerings.
To comply with the securities laws of certain jurisdictions,
registered or licensed brokers or dealers may need to offer or sell the shares
offered by this registration statement of which this information
statement/prospectus forms a part. The applicable rules and regulations under
the Securities Exchange Act of 1934, as amended, may limit any person engaged in
a distribution of the shares of common stock covered by this registration
statement of which this information statement/prospectus forms a part in its
ability to engage in market activities with respect to such shares. A selling
stockholder, for example, will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
it, which provisions may limit the timing of purchases and sales of any shares
of common stock by that selling stockholder.
COMPARISON OF STOCKHOLDER RIGHTS
Empire Resorts is a Delaware corporation subject to the General
Corporation Law of the State of Delaware. Monticello Raceway Management is a New
York corporation subject to the New York Business Corporation Law. Each of
Monticello Casino Management, Monticello Raceway Development and Mohawk
Management are New York limited liability companies subject to the New York
Limited Liability Company Law. Stockholders of Monticello Raceway Management,
whose rights are currently governed by Monticello Raceway Management's
certificate of incorporation, bylaws and the New York Business Corporation Law
and members of Monticello Casino Management, Monticello Raceway Development and
Mohawk Management, whose rights are governed by their respective operating
agreements and the New York Limited Liability Company Law, will, upon completion
of the consolidation, become stockholders of Empire Resorts and their rights
will be governed by Empire Resorts' certificate of incorporation, bylaws and the
Delaware General Corporation Law.
The following description summarizes the material differences that
may affect the rights of stockholders and members, as the case may be, of Empire
Resorts, Monticello Raceway Management, Monticello Casino Management, Monticello
Raceway Development and Mohawk Management, but does not purport to be a complete
statement of all those differences, or a complete description of the specific
provisions referred to in this summary. Stockholders should carefully review the
relevant provisions of New York law, Delaware law, Empire Resorts' certificate
of incorporation and bylaws, Monticello Raceway Management's certificate of
incorporation and bylaws and the operating agreements of Monticello Casino
Management, Monticello Raceway Development and Mohawk Management.
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OWNERSHIP INTEREST
EMPIRE RESORTS
A stockholder's interest in Empire Resorts is represented by the
ownership of its capital stock. The authorized capital stock of Empire Resorts
consists of 75,000,000 shares of common stock and 5,000,000 shares of preferred
stock, of which 821,496 shares have been designated Series B Preferred Stock,
$.01 par value per share, 137,889 shares have been designated Series C Preferred
Stock, $.01 par value per share, 4,000 shares have been designated Series D
Preferred Stock, $.01 par value per share and 1,730,697 shares have been
designated Series E Preferred Stock, $.01 par value per share.
MONTICELLO RACEWAY MANAGEMENT
A stockholder's interest in Monticello Raceway Management is
represented by the ownership of its capital stock. The authorized capital stock
of Monticello Raceway consists of 200 shares at no par value.
MONTICELLO CASINO MANAGEMENT, MONTICELLO RACEWAY DEVELOPMENT AND
MOHAWK MANAGEMENT
A member's interest in each of Monticello Casino Management,
Monticello Raceway Development and Mohawk Management is represented by the
ownership of percentage membership interests and the member's capital account. A
member's capital account consists of the amount of capital contributed by the
member to Monticello Casino Management, Monticello Raceway Development and
Mohawk Management, as the case may be, increased for, among other things,
allocations of profit, and reduced for, among other things, allocations of loss
and distributions to the member. In general, distributions to members are made
according to their percentage membership interests.
RIGHTS OF REDEMPTION
EMPIRE RESORTS
Under the Delaware General Corporation Law, with certain
limitations, a corporation's stock may be made redeemable by the corporation at
its option, at the option of the holders of the stock or upon the happening of a
specified event.
The Certificate of Designations for Empire Resorts' Series C
Preferred Stock provides that Empire Resorts may, within 120 days after the
occurrence of a "capital event," elect to redeem all or a pro rata portion of
the outstanding Series C Preferred Stock for the redemption price of $72 per
share, plus all unpaid accrued dividends. A "capital event" is defined as a sale
of assets of Empire Resorts which results in at least a $5,000,000 excess of the
purchase price paid for the assets and Empire Resorts' basis in such assets.
The Certificate of Designations for Empire Resorts' Series D
Preferred Stock provides that on or after February 8, 2005, the holders of
Empire Resorts' Series D Preferred Stock can demand that their Series D
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Preferred Stock be redeemed for that number of shares of Empire Resorts' common
stock equal to the product of (a) the number of shares of Series D Preferred
Stock surrendered and (b) a fraction, the numerator of which is the common
stock's current market price and the denominator of which is the lesser of $6.00
and the average of the two lowest closing prices of the common stock during the
preceding 30 days. The holders of Empire Resorts' Series D Preferred Stock can
also demand that their shares be redeemed if Empire Resorts defaults in
effecting a conversion of shares of Series D Preferred Stock in accordance with
the Certificate of Designations and such default continues for 10 days, or if
Empire Resorts defaults in the payment of the stated value ($1,000 per share) or
of dividends when due and such default continues for 10 days. Upon a redemption
following such a default described in the prior sentence, Empire Resorts must
pay the holders of Series D Preferred Stock demanding redemption, in cash,
$1,250 per share of Series D Preferred Stock plus all accrued unpaid dividends.
Finally, between the date Empire Resorts announces its intention to effectuate a
change in its control until three days prior to such change in control, the
holders of Series D Preferred Stock may demand that their Series D Preferred
Stock be redeemed for 125% of the number of shares of Empire Resorts' common
stock to which their Series D Preferred Stock would otherwise be convertible.
The Certificate of Designations for Empire Resorts' Series E
Preferred Stock provides that Empire Resorts, at its option, may redeem all or
part of the Series E Preferred Stock at any time for the redemption price of
$10.00 per share, plus all accrued unpaid dividends, in cash or by delivery of a
promissory note payable over three years.
MONTICELLO RACEWAY MANAGEMENT
Under the New York Business Corporation Law, subject to several
limitations, a corporation's certificate of incorporation may provide for one or
more classes or series of shares to be redeemable at the option of the
corporation, the holders of the class or series, other persons or upon the
happening of a specified event, for cash, other property, debt or other
securities of the same or another corporation, at the time or times, price or
prices, or rate or rates, and with any adjustments, that are stated in the
certificate of incorporation. Monticello Raceway Management's certificate of
corporation does not provide for the redemption of any stock.
MONTICELLO CASINO MANAGEMENT, MONTICELLO RACEWAY DEVELOPMENT AND
MOHAWK MANAGEMENT
Neither the operating agreements of Monticello Casino Management,
Monticello Raceway Development, Mohawk Management, nor the New York Limited
Liability Company Law provide Monticello Casino Management, Monticello Raceway
Development or Mohawk Management with any rights of redemption, or their
respective members with the right to demand redemption.
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LIQUIDATION
EMPIRE RESORTS
Under the Delaware General Corporation Law, with certain
limitations, the certificate of incorporation can provide the holders of
preferred stock with special rights upon the dissolution of, or upon the
distribution of any assets of, the corporation.
Pursuant to Empire Resorts' certificate of incorporation, upon the
liquidation, dissolution or winding up of Empire Resorts, no distribution shall
be made (i) to the holders of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series B, Series C, Series D
and Series E Preferred Stock unless, prior thereto, the holders of Series B,
Series C, Series D and Series E Preferred Stock shall have received a
liquidation preference of $29, $72, $1,000 and $10 per share, respectively, plus
an amount equal to all accrued unpaid dividends thereon, if any, through the
date of such payment or (ii) to the holders of stock ranking on parity (either
as to dividends or upon liquidation, dissolution or winding up) with the Series
B, Series C, Series D and Series E Preferred Stock, except distributions made
ratably on the Series B, Series C, Series D and Series E Preferred Stock and all
such other parity stock in proportion to the total amounts to which the holders
of such shares are entitled to upon a liquidation, dissolution or winding up.
MONTICELLO RACEWAY MANAGEMENT
Under the New York Business Corporation Law, the certificate of
incorporation may deny, limit or otherwise define the liquidation rights of
shares of any class, but no such limitation or definition of liquidation rights
will be effective unless at the time one or more classes of outstanding shares,
singly or in the aggregate, are entitled to unlimited liquidation rights.
However, each share in a particular class shall have equal liquidation rights
with every other share in that class.
As Monticello Raceway Management's certificate of incorporation
provides for only one class of stock, there are no preferential liquidation
rights.
MONTICELLO CASINO MANAGEMENT, MONTICELLO RACEWAY DEVELOPMENT AND
MOHAWK MANAGEMENT
Under the New York Limited Liability Company Law, except as provided
in the operating agreement, distributions pursuant to a liquidation or
dissolution shall be made first to members for the return of their
contributions, to the extent not previously returned, and second, with respect
to the member's membership interests, in the proportions in which the members
share in distributions.
The operating agreements for each of Monticello Casino Management,
Monticello Raceway Management and Mohawk Management provide that upon a
dissolution, the company's property and assets or the proceeds from a
liquidation of its properties and assets shall be distributed to the members in
accordance with the positive balances in their respective capital accounts
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determined after allocating all items for periods prior to and including the
date of distribution and after taking into account all prior distributions.
DIVIDENDS
EMPIRE RESORTS
Under the Delaware General Corporation Law, a board of directors may
authorize a corporation to declare and pay dividends and other distributions to
its stockholders, subject to any restrictions contained in the corporation's
certificate of incorporation, either out of surplus, or, if there is no surplus,
out of net profits for the current or preceding fiscal year in which the
dividend is declared. However, a distribution out of net profits is not
permitted if a corporation's capital is less than the amount of capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, until the deficiency has been
repaired.
The Certificate of Designations for Empire Resorts' Series B and
Series C Preferred Stock provides that the holders of shares of Series B and
Series C Preferred Stock shall be entitled to receive, out of assets legally
available for payment, a cash dividend of $2.90 and $5.76 per annum per share of
Series B and Series C Preferred Stock, respectively. This Series B and Series C
Preferred Stock dividend shall accrue from the date of initial issuance and be
payable on the first day of each January, April, July and October. If any
dividend on any share shall for any reason not be paid at the time such dividend
becomes due, such dividend in arrears shall be paid as soon as payments are
permissible under Delaware law. However, any dividend payment which is not made
by Empire Resorts on or before January 30 of the following calendar year shall
be payable in the form of shares of Empire Resorts' common stock in such number
of shares as shall be determined by dividing (A) the product of (x) the amount
of the unpaid dividend and (y) 1.3 by (B) the fair market value of the common
stock.
The Certificate of Designations for Empire Resorts' Series D
Preferred Stock provides that the holders of shares of Series D Preferred Stock
are entitled to receive a dividend of $70 per annum per share of Series D
Preferred Stock, which shall increase to $150 per annum per share of Series D
Preferred Stock upon the conversion of the outstanding Series D Preferred Stock
into more than 330,000 shares of Empire Resorts' common stock. Dividends with
respect to a share of Series D Preferred Stock are payable in arrears on the
earlier to occur of the conversion or redemption of such share of Series D
Preferred Stock. At the option of Empire Resorts, Series D Preferred Stock
dividends are payable in cash or, subject to certain limitations, by delivery of
that number of shares of common stock that the amount of accrued dividends
payable would entitle the Series D Preferred Stock holder to acquire at a price
per share of common stock equal to the lesser of $6.00 and the average of the
two lowest closing prices of the common stock during the preceding 30 days.
The Certificate of Designations for Empire Resorts' Series E
Preferred Stock provides that the holders of shares of Series E Preferred Stock
are entitled to receive, when and as declared by the board of directors, out of
assets legally available for payment, a cash dividend of $.80 per annum per
share of Series E Preferred Stock. Dividends with respect to a share of Series E
Preferred Stock shall accrue from the date of initial issuance and be payable
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(whether or not declared by the board of directors) upon the earliest of (i) the
redemption of such share of Series E Preferred Stock or (ii) the liquidation,
dissolution or winding up of Empire Resorts.
MONTICELLO RACEWAY MANAGEMENT
Under the New York Business Corporation Law, a corporation may
declare and pay dividends or make other distributions, except when it is
insolvent or would thereby be made insolvent, or when the declaration, payment
or distribution would be contrary to any restrictions contained in its
certificate of incorporation. Except as otherwise provided in the New York
Business Corporation Law, dividends may be declared and paid and other
distributions may only be made out of surplus, so that the net assets of the
corporation remaining after the declaration, payment or distribution must at
least equal the amount of its stated capital.
Monticello Raceway Management's certificate of incorporation does
not contain any restrictions on the declaration, payment or distribution of
dividends.
MONTICELLO CASINO MANAGEMENT, MONTICELLO RACEWAY DEVELOPMENT AND
MOHAWK MANAGEMENT
The New York Limited Liability Company Law provides that
distributions of cash or other assets of a limited liability company shall be
allocated among the members, and among classes of members, if any, in the manner
provided in the operating agreement.
The operating agreements for each of Monticello Casino Management,
Monticello Raceway Management and Mohawk Management provide that the company
shall distribute all available cash to its members each fiscal quarter in
accordance with their respective percentage membership interests.
STATE ANTI-TAKEOVER STATUTES
EMPIRE RESORTS
Delaware General Corporation Law Section 203, in general, prohibits
a business combination between a corporation and an interested stockholder
within three years of the time the stockholder became an interested stockholder,
unless:
o prior to the time the stockholder became an interested
stockholder, the board of directors of the corporation approved
either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
o upon completion of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction began,
exclusive of shares owned by directors who are also officers
and by employee stock plans; or
o at or after the time the stockholder became an interested
stockholder, the business combination is approved by the board
of directors and authorized at an annual or special
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stockholders' meeting by the affirmative vote of at least
66.67% of the outstanding voting stock which is not owned by
the interested stockholder.
The term "business combination" is defined to include, among other
transactions between an interested stockholder and the corporation or any direct
or indirect majority owned subsidiary of the corporation:
o a merger or consolidation;
o a sale, pledge, transfer or other disposition (including as
part of a dissolution, but other than to the interested
stockholder proportionately as a stockholder) of assets having
an aggregate market value equal to 10% or more of either the
aggregate market value of all assets of the corporation on a
consolidated basis or the aggregate market value of all the
outstanding stock of the corporation;
o transactions that would increase the interested stockholder's
proportionate share ownership of the stock of any class or
series of the corporation or majority owned subsidiary; and
o any receipt by the interested stockholder (other than
proportionately as a stockholder) of the benefit of any loans,
advances, guarantees, pledges or other financial benefits
provided by or through the corporation or any majority owned
subsidiary.
In general, and subject to several exceptions, an "interested
stockholder" is any person who is the owner of 15% or more of the outstanding
voting stock (or, in the case of a corporation with classes of voting stock with
disparate voting power, 15% or more of the voting power of the outstanding
voting stock) of the corporation, and the affiliates and associates of that
person.
The term "owner" is broadly defined to include any person that,
individually, with or through that person's affiliates or associates, among
other things, beneficially owns the stock, or has the right to acquire the
stock, whether or not the right is immediately exercisable, under any agreement
or understanding or upon the exercise of warrants or options or otherwise or has
the right to vote the stock under any agreement or understanding, or has an
agreement or understanding with the beneficial owner of the stock for the
purpose of acquiring, holding, voting or disposing of the stock.
The restrictions in Section 203 do not apply to corporations that
have elected, in the manner provided in Section 203, not to be subject to
Section 203 of the Delaware General Corporation Law or, with certain exceptions,
which do not have a class of voting stock that is listed on a national
securities exchange or authorized for quotation on the Nasdaq Stock Market or
held of record by more than 2,000 stockholders. Empire Resorts' certificate of
incorporation and bylaws do not opt out of Section 203.
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MONTICELLO RACEWAY MANAGEMENT
Section 912 of the New York Business Corporation Law prohibits any
"business combination" (defined to include a variety of transactions, including
mergers, sales or dispositions of assets, issuances of stock, liquidations,
reclassifications and benefits from the corporation, including loans or
guarantees) with, involving or proposed by any "interested stockholder" for a
period of five years after the date on which the interested stockholder became
an interested stockholder. "Interested stockholder" is defined generally as any
person who, directly or indirectly, beneficially owns 20% or more of the
outstanding voting stock of a New York corporation. These restrictions do not
apply, however, to any business combination with an interested stockholder if
the business combination, or the purchase of stock by the interested stockholder
that caused the stockholder to become an interested stockholder was approved by
the board of directors of the New York corporation prior to the date on which
the interested stockholder became an interested stockholder. After the five-year
period, a business combination between a New York corporation and the interested
stockholder is prohibited unless either the "fair price" provisions set forth in
Section 912 are complied with or the business combination is approved by a
majority of the outstanding voting stock not beneficially owned by the
interested stockholder or its affiliates and associates.
A New York corporation may adopt an amendment to its bylaws,
approved by the affirmative vote of a majority of the outstanding voting stock,
excluding the voting stock of interested stockholders and their affiliates and
associates, expressly electing not to be governed by Section 912. The amendment
will not, however, be effective until 18 months after the stockholder vote and
will not apply to any business combination with a stockholder who was an
interested stockholder on or prior to the effective date of the amendment.
Monticello Raceway Management's bylaws do not contain a provision electing not
to be governed by Section 912.
MONTICELLO CASINO MANAGEMENT, MONTICELLO RACEWAY DEVELOPMENT AND
MOHAWK MANAGEMENT
The New York Limited Liability Company Law does not contain any
provision comparable to either Section 203 of the Delaware General Corporation
Law or Section 912 of the New York Business Corporation Law.
VOTING RIGHTS
EMPIRE RESORTS
The Delaware General Corporation Law provides that, unless otherwise
provided in the certificate of incorporation, each stockholder shall be entitled
to one vote for each share of capital stock held by such stockholder.
The Certificate of Designations for Empire Resorts' Series B
Preferred Stock provides that the holders of shares of Series B Preferred Stock
are entitled to vote on all matters submitted to the vote of the holders of
common stock and each share of Series B Preferred Stock shall represent 8/10 of
one share of common stock for voting purposes.
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The Certificate of Designations for Empire Resorts' Series C
Preferred Stock provides that the holders of shares of Series C Preferred Stock
are entitled to vote on all matters submitted to the vote of the holders of
common stock and each share of Series C Preferred stock shall represent 2.4
shares of common stock for voting purposes.
The Certificate of Designations for Empire Resorts' Series D
Preferred Stock provides that prior to conversion, the holders of Series D
Preferred Stock shall not be entitled to vote on any matter except as required
by Delaware law.
The Certificate of Designations for Empire Resorts' Series E
Preferred Stock provides that the holders of Series E Preferred Stock shall not
be entitled to vote on any matter except as required by Delaware law. However,
pursuant to the amendment to Empire Resorts' certificate of incorporation that
will take effect prior to the closing of the consolidation and is described in
this information statement/prospectus, the holders of shares of Series E
Preferred Stock will be entitled to vote on all matters submitted to the vote of
the holders of common stock and each share of Series E Preferred Stock shall
represent 1/4 of one share of common stock for voting purposes.
MONTICELLO RACEWAY MANAGEMENT
The New York Business Corporation Law provides that, unless
otherwise provided in the certificate of incorporation, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.
MONTICELLO CASINO MANAGEMENT, MONTICELLO RACEWAY DEVELOPMENT AND
MOHAWK MANAGEMENT
Under the New York Limited Liability Company Law, except as provided
in the operating agreement, in managing the affairs of the limited liability
company, electing managers or voting on any other matter that requires the vote
at a meeting of the members, each member of a limited liability company shall
vote in proportion to such member's share of the current profits of the limited
liability company. Further, under New York law, except as provided in the
operating agreement, whether or not a limited liability company is managed by
the members or by one or more managers, the vote of a majority in interest of
the members entitled to vote thereon shall be required to:
o admit a person as a member and issue such person a membership
interest in the limited liability company;
o approve the incurrence of indebtedness by the limited liability
company other than in the ordinary course of its business;
o adopt, amend, restate or revoke the articles of organization or
operating agreement;
o approve the dissolution of the limited liability company;
147
o approve the sale, exchange, lease, mortgage, pledge or other
transfer of all or substantially all of the assets of the
limited liability company; or
o approve a merger or consolidation of the limited liability
company with or into another limited liability company or
foreign limited liability company.
Under each of Monticello Casino Management's, Monticello Raceway
Development's, and Mohawk Management's operating agreement, the affairs of the
company shall be managed by a board of managers, but such board may not, without
the consent of all members:
o acquire or sell real property;
o sell, exchange, pledge, encumber or dispose of all assets or
any substantial asset of the company;
o admit any person as a member; or
o amend the operating agreement in any respect.
Under each of Monticello Casino Management's and Mohawk Management's
operating agreement, the board of managers also may not, without the consent of
all members:
o enter into any contract or agreement not in existence with any
member or affiliate of a member or any contract or agreement to
merge or consolidate with any other entity; or
o approve annual budgets or approve any act which is unrelated to
the business of the company.
Under Monticello Raceway Development's operating agreement, the
board of managers also may not, without the consent of all members:
o enter into any contract or agreement to merge or consolidate
with another entity; or
o do any act which is unrelated to the business of the company.
NUMBER AND ELECTION OF DIRECTORS
EMPIRE RESORTS
The Delaware General Corporation Law permits a corporation's
certificate of incorporation or bylaws to contain provisions governing the
number and terms of directors. However, if the certificate of incorporation
contains provisions fixing the number of directors, the number may not be
changed without amending the certificate of incorporation. Delaware law also
permits a corporation's certificate of incorporation or bylaws adopted by the
stockholders to provide that directors be divided into one, two or three
148
classes, with the term of office of one class of directors to expire each year
and with the terms of office of no two classes expiring the same year.
Pursuant to Empire Resorts' bylaws, the number of directors
constituting the whole board of directors shall be seven, which may be changed
by the affirmative vote of a majority of the whole board of directors. Directors
shall be elected at the annual meeting by a plurality of the stockholders to
hold office. Pursuant to the amendment to Empire Resorts' certificate of
incorporation that will take effect on or before closing and which is described
in this information statement/prospectus, the number of directors constituting
the whole board of directors shall be fixed exclusively by the board of
directors pursuant to a resolution adopted by a majority of the total number of
directors that Empire Resorts would have if there were no vacancies. Directors
shall be elected by a plurality of votes cast, and the directors shall be
divided into three classes, as nearly equal in number as possible, with the
initial term of office of the first class of directors to expire at the 2004
annual meeting of stockholders of Empire Resorts, the initial term of office of
the second class of directors to expire at the 2005 annual meeting of
stockholders of Empire Resorts and the initial term of office of the third class
of directors to expire at the 2006 annual meeting of stockholders of Empire
Resorts. Commencing with the 2004 annual meeting of stockholders of Empire
Resorts, directors elected to succeed those directors whose terms have thereupon
expired shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders of Empire Resorts after their election.
MONTICELLO RACEWAY MANAGEMENT
Under the New York Business Corporation Law, the number of directors
of a corporation may be fixed by a corporation's bylaws, by action of the
stockholders or by action of the board under the specific provision of a bylaw
adopted by the stockholders. At each annual meeting of the stockholders,
directors are to be elected to hold office until the next annual meeting, except
for corporations with classified boards. The New York Business Corporation Law
also permits a corporation's certificate of incorporation or specified
provisions of a bylaw adopted by the stockholders, to provide that directors be
divided into either two, three or four classes. All classes must be as nearly
equal in number as possible. The term of office of one class of directors shall
expire each year, with the terms of office of no two classes expiring the same
year.
Pursuant to Monticello Raceway Management's certificate of
incorporation and bylaws, Monticello Raceway Management shall have 5 directors.
When less than three stockholders own all of the shares, the number of directors
may be less than three but not less than the number of stockholders. At each
annual meeting of stockholders, the stockholders shall elect directors to hold
office until the next annual meeting. Each director shall hold office until the
expiration of the term for which he is elected and until his successor has been
elected and qualified, or until his prior resignation or removal.
MONTICELLO RACEWAY DEVELOPMENT, MONTICELLO CASINO MANAGEMENT AND
MOHAWK MANAGEMENT
Under the New York Limited Liability Company Law, if the articles of
organization provide that the management of the limited liability company shall
be vested in a manager or managers or class or classes of managers, then the
management of the limited liability company shall be vested in one or more
149
managers or classes of managers, subject to any provisions in the operating
agreement.
The operating agreement of each of Monticello Casino Management,
Monticello Raceway Development and Mohawk Management provides that the company
shall be managed by a board of managers and not the members. The board of
managers for each of Monticello Casino Management and Mohawk Management shall
consist of 5 individuals, 2 of whom shall be designated and appointed by
Catskill Development, and 2 of whom shall be designated and appointed by Empire
Resorts. Each of the four appointed managers shall serve as a manager until his
successor shall have been appointed, or until his earlier death, resignation or
removal. The fifth manager shall be a disinterested third party elected by a
majority vote of the four appointed members of the board of managers for a term
of one (1) year. The board of managers of Monticello Raceway Development shall
consist of 5 individuals, 2 of whom shall be designated and appointed by
Americas Tower Partners, and 2 of whom shall be designated and appointed by
Robert A. Berman, Scott A. Kaniewski and Philip B. Berman. The fifth manager
shall be nominated and elected by a majority vote of the four appointed members
of the board of managers.
REMOVAL OF DIRECTORS
EMPIRE RESORTS
The Delaware General Corporation Law provides that a corporation's
director or directors may be removed with or without cause by the holders of a
majority of the shares then entitled to vote at an election of directors, except
that:
o members of a classified board may be removed only for cause,
unless the certificate of incorporation provides otherwise, and
o in the case of a corporation having cumulative voting, if less
than the entire board is to be removed, no director may be
removed without cause if the votes cast against the director's
removal would be sufficient to elect the director if then
cumulatively voted at an election of the entire board of
directors or of the class of directors of which the director is
a part.
Pursuant to Empire Resorts' bylaws, any one or more of Empire
Resorts' directors may be removed, with or without cause, by the vote or written
consent of the holders of a majority of the shares entitled to vote at an
election of directors. Pursuant to the amendment to Empire Resorts' certificate
of incorporation that will take effect on or before the closing and which is
described in this information statement/prospectus, any director or the entire
board of directors may be removed by the stockholders only for cause, and such
removal must be approved by the affirmative vote of 80% of Empire Resorts'
voting stock, voting together as a single class, or the affirmative vote of at
least a majority of the total number of directors that Empire Resorts would have
if there were no vacancies.
150
MONTICELLO RACEWAY MANAGEMENT
The New York Business Corporation Law provides that any or all of
the directors may be removed for cause by a vote of the stockholders. The
certificate of incorporation or bylaws may provide for the removal by action of
the board, except in the case of any director elected by cumulative voting, or
by the holders of the shares of any class or series, or holders of bonds, voting
as a class, when so entitled by the certificate of incorporation. If the
certificate of incorporation or the bylaws so provide, any or all of the
directors may be removed without cause by a vote of the stockholders. Further,
the removal of directors, with or without cause, is subject to the following:
o in the case of a corporation having cumulative voting, no
director may be removed unless the votes cast against the
director's removal would be sufficient to elect the director if
voted cumulatively, and
o if a director is elected by the holders of shares of any class
or series, the director may be removed only by the applicable
vote of the holders of the shares of that class or series
voting as a class.
An action to procure a judgment removing a director for cause may be
brought by the attorney general or by the holders of 10% of the outstanding
shares, whether or not entitled to vote.
Pursuant to Monticello Raceway Management's bylaws, any or all of
the directors may be removed for cause by the vote of the stockholders or by
action of the board. Directors may be removed without cause only by the vote of
the stockholders.
MONTICELLO RACEWAY DEVELOPMENT, MONTICELLO CASINO MANAGEMENT AND
MOHAWK MANAGEMENT
Under the New York Limited Liability Law, except as provided in the
operating agreement, any or all managers of a limited liability company may be
removed or replaced with or without cause by a vote of a majority in interest of
the members entitled to vote thereon.
Pursuant to each of Monticello Casino Management's, Mohawk
Management's and Monticello Raceway Development's operating agreement, a manager
may be removed and replaced, at any time, by those who elected or appointed him,
except the fifth manager who may be replaced by a majority vote of the other
managers, or by a coin toss.
VACANCIES ON THE BOARD OF DIRECTORS
EMPIRE RESORTS
The Delaware General Corporation Law provides that, unless otherwise
provided in the certificate of incorporation or the bylaws, vacancies on the
board of directors and newly created directorships resulting from an increase in
the authorized number of directors may be filled by a majority of the directors
then in office, although less than a quorum, or by the sole remaining director.
In the case of a classified board, such vacancies and newly created
151
directorships may be filled by a majority of the directors elected by the class,
or by the sole remaining director so elected. In the case of a classified board,
directors elected to fill vacancies or newly created directorships shall hold
office until the next election of the class for which they have been chosen, and
until their successors have been duly elected and qualified. In addition, the
Delaware Court of Chancery may summarily order an election to fill any such
vacancy or newly created directorship, or replace the directors chosen by the
directors then in office if:
o at the time of any such vacancy or newly created directorship,
the directors in office constitute less than a majority of the
whole board as constituted immediately before the increase; and
o any stockholder holding at least 10% of the total number of
outstanding shares entitled to vote for the directors applies
to the Delaware Court of Chancery for the order.
Pursuant to Empire Resorts' bylaws, vacancies and newly created
directorships resulting from any resignation, removal or increase in the
authorized number of directors may be filled only by a majority vote of the
directors then in office, although less than a quorum, or by the sole remaining
director.
MONTICELLO RACEWAY MANAGEMENT
Under New York Business Corporation Law, newly created directorships
resulting from an increase in the number of directors and vacancies occurring in
the board for any reason except the removal of directors without cause may be
filled by a vote of the board of directors then in office, though less than a
quorum. However, the certificate of incorporation or bylaws may provide that
such newly created directorships or vacancies are to be filled by the vote of
the stockholders. Unless the certificate of incorporation or bylaws adopted by
the stockholders provide that the board of directors may fill vacancies
occurring on the board of directors by reason of the removal of directors
without cause, such vacancies may be filled only by the vote of the
stockholders.
MONTICELLO RACEWAY DEVELOPMENT, MONTICELLO CASINO MANAGEMENT AND
MOHAWK MANAGEMENT
Under the New York Limited Liability Company Law, except as provided
in the operating agreement, if management of the limited liability company is
vested in a group of managers, any vacancies occurring in such group may be
filled by the vote of a majority in interest of the members entitled to vote
thereon. Moreover, except as provided in the operating agreement:
o a manager chosen to fill a vacancy shall serve the unexpired
term of his or her predecessor;
o any manager's position filled by reason of an increase in the
number of managers shall be filled by the vote of a majority in
interest of the members entitled to vote thereon; and
152
o a manager chosen to fill a position resulting from an increase
in the number of managers shall hold office until the next
annual meeting of members or until a successor has been elected
and qualified.
Pursuant to each of Monticello Casino Management's, Mohawk
Management's and Monticello Raceway Development's operating agreement, any
manager who is removed, dies or resigns shall be replaced by an individual
elected or appointed in the same manner as the departed manager was appointed or
elected. Each manager shall hold office until his successor shall have been
appointed or elected, or until the earlier of his death, resignation or
replacement.
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
EMPIRE RESORTS
Under the Delaware General Corporation Law, unless a corporation's
certificate of incorporation requires a greater vote, a proposed amendment to a
corporation's certificate of incorporation requires an affirmative vote of a
majority of the voting power of the outstanding stock entitled to vote on the
amendment and a majority of the voting power of the outstanding stock of any
class entitled to vote on the amendment separately as a class.
Except as described below, if a proposed amendment to the
certificate of incorporation would change the aggregate number of authorized
shares of any class of capital stock, the par value of the shares of any class
of capital stock, or alter or change the powers, preferences or special rights
of the shares of any class of capital stock so as to affect them adversely, the
Delaware General Corporation Law requires that the amendment be approved by the
holders of a majority of the outstanding shares of the affected class, voting
separately as a class, whether or not the class is entitled to vote on the
amendment by the certificate of incorporation. If a proposed amendment would
alter or change the powers, preferences or special rights of one or more series
of any class so as to affect them adversely, but would not affect the remainder
of the class, then only the shares of the series so affected would be entitled
to vote as a separate class on the proposed amendment. The authorized number of
shares of any class of stock may be increased or decreased (but may not be
decreased below the number of outstanding shares in the class) without a
separate vote of stockholders of the class if so provided in the original
certificate of incorporation or in any amendment thereto that created the class
of stock or that was adopted prior to the issuance of any shares of the class,
or in an amendment authorized by a majority vote of the holders of shares of the
class.
While Empire Resorts' certificate of incorporation does not
currently provide for any greater voting requirements than is required by the
Delaware General Corporation Law, the proposed amendment to be adopted on or
before closing that is described in this information statement/prospectus would
require, unless waived by a vote of 75% of the board of directors, the
affirmative vote of 80% of the total number of votes entitled to be cast by
stockholders to approve any amendment to the provisions that establish a
staggered board of directors.
153
MONTICELLO RACEWAY MANAGEMENT
Under the New York Business Corporation Law, proposed amendments to
a certificate of incorporation must be authorized by a New York corporation's
board of directors and generally must be approved by the vote of a majority of
all outstanding shares entitled to vote on the proposed amendment at a
stockholders' meeting. The approval of a majority of the votes of all
outstanding shares of any class of capital stock of a corporation, voting
separately as a class, is required to approve a proposed amendment to a
corporation's certificate of incorporation, whether or not the holders are
otherwise entitled to vote on the amendment by the certificate of incorporation,
that:
o would decrease the par value of the shares of the class, change
any shares of the class into a different number of shares of
the same class or into the same or a different number of shares
of a different class, alter or change the designation, relative
rights, preferences or limitations of the shares of the class
or provide new conversion rights or the alteration of any
existing conversion rights, so as to affect them adversely;
o would exclude or limit the voting rights of the shares of the
class, except as such rights may be limited by voting rights
given to new shares then being authorized of any existing or
new class or series of shares; or
o would subordinate the rights of the shares of the class by
authorizing shares having preferences superior to the rights of
the existing shares.
If a proposed amendment would have any of the effects discussed in
the last sentence of the previous paragraph only on one or more series of any
class so as to affect them adversely, but would not affect the remainder of the
class, then only the shares of the series affected by the proposed amendment
would be entitled to vote as a separate class on the proposed amendment.
Monticello Raceway Management's certificate of incorporation does
not currently provide for any greater voting requirements than is required by
the New York Business Corporation Law.
MONTICELLO RACEWAY DEVELOPMENT, MONTICELLO CASINO MANAGEMENT AND
MOHAWK MANAGEMENT
Under each of Monticello Casino Management's, Monticello Raceway
Development's and Mohawk Management's operating agreement, the operating
agreement may only be amended upon a unanimous vote of the members. If any
matter requiring a unanimous vote of the members is deadlocked, the members have
agreed that any member shall have the right to submit such matter to binding
arbitration for resolution.
154
AMENDMENTS TO THE BYLAWS
EMPIRE RESORTS
Pursuant to Delaware General Corporation Law, stockholders entitled
to vote have the power to adopt, amend or repeal bylaws. In addition, a
corporation may, in its certificate of incorporation, confer this power on the
board of directors. Nevertheless, the stockholders always have the power to
adopt, amend or repeal the bylaws, even though the board may also be delegated
the power.
Empire Resorts' certificate of incorporation authorizes the board of
directors or the stockholders to alter, amend or repeal bylaws by a majority
vote.
MONTICELLO RACEWAY MANAGEMENT
The New York Business Corporation Law provides that a corporation's
bylaws may be amended, repealed or adopted by a majority of votes cast by the
shares entitled to vote in the election of any directors. When so provided in
the certificate of incorporation or bylaws, a corporation's bylaws may be
amended, repealed or adopted by the board, but any bylaw adopted by the board
may be amended or repealed by the stockholders.
Under Monticello Raceway Management's bylaws, any bylaw may be
amended, repealed or adopted by a vote of the holders of the shares at the time
entitled to vote in the election of any directors. Bylaws may also be amended,
repealed or adopted by the board, but the stockholders entitled to vote may
amend any bylaw adopted by the board.
MONTICELLO CASINO MANAGEMENT, MONTICELLO RACEWAY DEVELOPMENT AND
MOHAWK MANAGEMENT
This section is not applicable to Monticello Casino Management,
Monticello Raceway Development and Mohawk Management.
SPECIAL MEETINGS
EMPIRE RESORTS
The Delaware General Corporation Law provides that a special meeting
of stockholders may be called by the board of directors or by any person or
persons as may be authorized by a corporation's certificate of incorporation or
bylaws.
Under Empire Resorts' bylaws, a special meeting of stockholders may
be called at any time by the board of directors or its chairman.
MONTICELLO RACEWAY MANAGEMENT
The New York Business Corporation Law provides that, if, for a
period of one month after the date fixed by or under the bylaws for the annual
stockholders' meeting or, if no date has been so fixed, for a period of 13
months after the last annual meeting, there is a failure to elect a sufficient
155
number of directors to conduct the corporation's business, the board of
directors must call a special meeting for the election of directors. If the
board of directors does not call a special meeting within two weeks after the
expiration of the 13 month period or if it is called but directors are not
elected for a period of two months after the expiration of the 13 month period,
holders of 10% of the votes of the shares entitled to vote in an election of
directors may, in writing, demand the call of a special meeting for the election
of directors. The New York Business Corporation Law provides that a
corporation's board of directors or any person authorized by a corporation's
certificate of incorporation or bylaws may call a special stockholders' meeting.
Under Monticello Raceway Management's bylaws, special meetings of
the stockholders may be called by the board of directors or by the president.
MONTICELLO RACEWAY DEVELOPMENT, MONTICELLO CASINO MANAGEMENT AND
MOHAWK MANAGEMENT
Neither the New York Limited Liability Company Law nor the operating
agreements for each of Monticello Raceway Development, Monticello Casino
Management and Mohawk Management contain comparable provisions with respect to
the right to call special meetings of members.
ACTION BY WRITTEN CONSENT
EMPIRE RESORTS
Delaware General Corporation Law provides that, unless otherwise
stated in the certificate of incorporation, any action which may be taken at an
annual meeting or special meeting of stockholders may be taken without a
meeting, if a consent, setting forth the action so taken in writing is signed by
the holders of the outstanding stock having at least the minimum number of votes
necessary to authorize the action at a meeting of stockholders at which all
shares entitled to vote at the meeting were present and voted.
Empire Resorts' bylaws do not place any limitations on the rights of
stockholders to act by written consent in lieu of a meeting of stockholders.
MONTICELLO RACEWAY MANAGEMENT
Under the New York Business Corporation Law, whenever stockholders
are required or permitted to vote on a matter, such action may be taken without
a meeting on written consent, signed by the holders of all outstanding shares
entitled to vote on such matter or, if the certificate of incorporation so
permits, signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize such matter at a
meeting at which all shares entitled to vote on such matter were present and
voted.
Monticello Raceway Management's certificate of incorporation does
not permit the stockholders to act by less than unanimous written consent in
lieu of a meeting of stockholders.
156
MONTICELLO RACEWAY DEVELOPMENT, MONTICELLO CASINO MANAGEMENT AND
MOHAWK MANAGEMENT
Under the New York Limited Liability Company Law, whenever members
of a limited liability company are required or permitted to take any action by a
vote, except as provided in the operating agreement, such action may be taken
without a meeting, without prior notice and without a vote, if a consent is in
writing, setting forth the action so taken and signed by the members who hold
the voting interests 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 of the
members entitled to vote therein were present and voted.
The operating agreements of each of Monticello Casino Management,
Monticello Raceway Development and Mohawk Management do not restrict the right
of their members to act by written consent in lieu of a meeting.
LIMITATIONS OF PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
EMPIRE RESORTS
The Delaware General Corporation Law provides that a corporation's
certificate of incorporation may include a provision limiting a director's
personal liability to the corporation or its stockholders for monetary damages
for breach of his or her fiduciary duty as a director. However, the certificate
of incorporation may not contain a provision that eliminates or limits a
director's liability for:
o any breach of the director's duty of loyalty to the corporation
or its stockholders;
o acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law;
o violation of certain provisions of the Delaware General
Corporation Law;
o any transaction from which the director derived an improper
personal benefit; or
o any act or omission that occurred before the provision limiting
director liability was adopted.
Empire Resorts' certificate of incorporation provides that no
director shall be personally liable to Empire Resorts or its stockholders for
monetary damages for the breach of his or her fiduciary duty as a director to
the fullest extent permitted by Delaware law.
MONTICELLO RACEWAY MANAGEMENT
The New York Business Corporation Law provides that a corporation's
certificate of incorporation may contain a provision eliminating or limiting a
director's personal liability to the corporation or its stockholders for damages
for any breach of duty in his or her capacity as a director. However, the
certificate of incorporation may not contain a provision that eliminates or
limits a director's liability:
157
o if a judgment or other final adjudication adverse to the
director establishes that the director's acts or omissions were
in bad faith or involved intentional misconduct or a knowing
violation of law, that the director personally gained in fact a
financial profit or other advantage to which the director was
not legally entitled, or that the director's acts violated
certain provisions of the New York Business Corporation Law; or
o for any act or omission that occurred before the provision
limiting director liability was adopted.
Monticello Raceway Management's certificate of incorporation does
provide for the elimination or limitation of its directors' personal liability
to Monticello Raceway Management for damages for any breach of duty in his or
her capacity as a director.
MONTICELLO RACEWAY DEVELOPMENT, MONTICELLO CASINO MANAGEMENT AND
MOHAWK MANAGEMENT
Under the New York Limited Liability Company Law, the operating
agreement of a New York limited liability company may set forth a provision
eliminating or limiting the personal liability of managers to the limited
liability company or its members for damages for any breach of duty in such
capacity, provided that no such provision shall eliminate or limit:
o the liability of any manager if a judgment or other final
adjudication adverse to him or her establishes that his or her
acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law or that he or she
personally gained in fact a financial profit or other advantage
to which he or she was not legally entitled or that with
respect to a distribution to its members, his or her acts were
not performed in good faith and with that degree of care that
an ordinary prudent person in a like position would use under
similar circumstances; or
o the liability of any manager for any act or omission prior to
the adoption of a provision authorized by this subdivision.
The operating agreements of each of Monticello Casino Management,
Monticello Raceway Development and Mohawk Management provide that no manager
shall be liable to the company or any member for any loss or damage sustained by
the company or any member solely by reason of being such manager, and acting or
omitting to act in such capacity in the conduct of the business of the company,
provided such manager has performed his or her duties in good faith and with
that degree of care that an ordinary prudent person in a like position would use
under similar circumstances.
158
INDEMNIFICATION OF DIRECTORS AND OFFICERS
EMPIRE RESORTS
The Delaware General Corporation Law generally permits a corporation
to indemnify its directors and officers against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with a
third party action, other than a derivative action, and against expenses
actually and reasonably incurred in the defense or settlement of a derivative
action, provided that there is a determination that the individual acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation. The determination must be made, in the case of an
individual who is a director or officer at the time of determination, by:
o a majority of the directors who are not parties to the action,
suit or proceeding, even though less than a quorum;
o a committee of these directors designated by a majority vote of
these directors, even though less than a quorum;
o independent legal counsel, regardless of whether a quorum of
these directors exists; or
o a majority vote of the stockholders, at a meeting at which a
quorum is present.
Without court approval, however, an individual may not be indemnified in any
claim, issue or matter in a derivative action as to which the individual is
adjudged liable to the corporation. In addition, Delaware law requires
indemnification of directors and officers for expenses relating to a successful
defense on the merits or otherwise of a derivative or third-party action.
Further, Delaware law permits a corporation to advance expenses incurred in the
defense of any proceeding to directors and officers contingent upon an
undertaking by or on behalf of the individuals' to repay any advances if it is
determined ultimately that the individuals are not entitled to be indemnified.
Under Delaware law, the rights to indemnification and advancement of expenses
provided under the law are non-exclusive, in that, subject to public policy
issues, indemnification and advancement of expenses beyond that provided by
statute may be provided by bylaw, agreement, vote of stockholders, disinterested
directors or otherwise.
Empire Resorts' certificate of incorporation and bylaws provide that
its officers and directors shall be indemnified to the fullest extent permitted
by applicable law, and that Empire Resorts shall pay the expenses incurred in
defending any proceeding in advance of its final disposition. However, the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding will be made only upon the receipt of an
undertaking by the director or officer to repay all amounts advanced if it
should be ultimately determined that the director or officer is not entitled to
be indemnified.
159
MONTICELLO RACEWAY MANAGEMENT
Under the New York Business Corporation Law, a corporation may
indemnify its directors and officers that are made, or are threatened to be
made, a party to any action or proceeding, except for stockholder derivative
suits, against judgments, fines, amounts paid in settlement and reasonable
expenses incurred as a result of the action or proceeding if the director or
officer acted in good faith, for a purpose that he or she reasonably believed to
be in the best interests of the corporation or, in the case of service to
another corporation or enterprise, not opposed to the best interests of the
corporation. In criminal proceedings, in addition to the preceding conditions,
the director or officer must not have had reasonable cause to believe that his
or her conduct was unlawful. In the case of stockholder derivative suits, the
corporation may indemnify a director or officer if he or she acted in good faith
for a purpose that he or she reasonably believed to be in or, in the case of
service to another corporation or enterprise, not opposed to the best interests
of the corporation, except that, in either case, no indemnification may be made
in respect of:
o a threatened action, or a pending action that is settled or
otherwise disposed of; or
o any claim, issue or matter as to which such individual has been
adjudged to be liable to the corporation, unless and only to
the extent that the court in which the action was brought, or,
if no action was brought, any court of competent jurisdiction,
determines, upon application, that, in view of all the
circumstances of the case, the individual is fairly and
reasonably entitled to indemnity for such portion of the
settlement amount and expenses as the court deems proper.
Any individual who has been successful on the merits or otherwise in
the defense of a civil or criminal action or proceeding will be entitled to
indemnification. Except as provided in the preceding sentence, unless ordered by
a court pursuant to the New York Business Corporation Law, any indemnification
under the New York Business Corporation Law pursuant to the above paragraph may
be made only if authorized in the specific case and after a finding that the
director or officer met the applicable standard of conduct by the disinterested
directors if a quorum is available, or if the quorum so directs or is
unavailable, by the board of directors upon the written opinion of independent
legal counsel, or the stockholders.
A corporation may advance expenses incurred by a director or officer
in defending any action or proceeding prior to its final disposition upon
receipt of an undertaking by or on behalf of the officer or director to repay
the advance to the extent the advance exceeds the indemnification to which the
officer or director is entitled.
The indemnification described above under the New York Business
Corporation Law is not exclusive of other indemnification rights to which a
director or officer may be entitled, whether contained in the certificate of
incorporation or bylaws, or, when authorized by the certificate of incorporation
or bylaws contained in:
o a resolution of stockholders;
o a resolution of directors; or
160
o an agreement providing for indemnification,
provided that indemnification may not be made to or on behalf of any director or
officer if a judgment or other final adjudication adverse to the director or
officer establishes that his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he or she personally gained in fact a financial
profit or other advantage to which he or she was not legally entitled.
Monticello Raceway Management's certificate of incorporation and
bylaws do not provide for the indemnification of its directors and officers.
MONTICELLO RACEWAY DEVELOPMENT, MONTICELLO CASINO MANAGEMENT AND
MOHAWK MANAGEMENT
Under the New York Limited Liability Company Law, subject to the
standards and restrictions, if any, set forth in its operating agreement, a
limited liability company may, and shall have the power to, indemnify and hold
harmless, and advance expenses to, any manager or any testator or intestate of
such manager from and against any and all claims and demands whatsoever;
provided, however, that no indemnification may be made to or on behalf of any
manager if a judgment or other final adjudication adverse to such manager
establishes:
o that his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to
the cause of action so adjudicated, or
o that he or she personally gained in fact a financial profit or
other advantage to which he or she was not legally entitled.
The operating agreements for each of Monticello Casino Management,
Monticello Raceway Development and Mohawk Management provide that so long as a
manager acts in good faith and with a degree of care that an ordinary prudent
person in a like position would use under similar circumstances, the company
shall indemnify and hold harmless each manager from and against any and all
claims and demands whatsoever; provided, however, that no indemnification may be
made to or on behalf of any manager if a judgment or other final adjudication
adverse to such manager establishes:
o that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause
of action so adjudicated, or
o that he personally gained a financial profit or other advantage
to which he was not legally entitled.
This indemnity includes reimbursement of actual expenses incurred in
the defense of such matters.
161
AMENDMENT OF CERTIFICATE OF INCORPORATION TO CREATE A
STAGGERED BOARD OF DIRECTORS
As discussed above, the adoption of an amendment to Empire Resorts'
certificate of incorporation and bylaws which provides for the creation of a
staggered board is a condition to consummation of the consolidation. On November
12, 2003, Empire Resorts' board of directors adopted and approved such an
amendment, which amendment was subsequently approved by Empire Resorts'
Controlling Stockholders as part of the written consent approving the
consolidation and restated contribution agreement.
REASONS FOR THE AMENDMENT
In addition to being a necessary condition to consummating the
consolidation, Empire Resorts' board of directors believes that a staggered
board serves the best interests of Empire Resorts and its stockholders, as it
promotes the continuity and stability of Empire Resorts and its existing
business plan. The staggered election of directors assures that at any given
time two-thirds of the directors will have had prior experience on Empire
Resorts' board of directors. Empire Resorts' board of directors also believes
that staggering will enhance Empire Resorts' ability to attract and retain
well-qualified individuals who are able to commit the time and resources to
understand Empire Resorts, its business affairs and operations. The continuity
and quality of leadership that results from a staggered board of directors
should, in the opinion of Empire Resorts, promote the long-term value of Empire
Resorts. Staggered terms for directors would also moderate the pace of change in
the board of directors by extending the time required to elect a majority of
directors from one to two years. This delay reduces the vulnerability of Empire
Resorts to unsolicited takeover attempts and attempts to compel Empire Resorts'
restructuring or otherwise force it into an extraordinary transaction. Empire
Resorts believes that this delay also serves the best interests of Empire
Resorts and its stockholders by forcing most potential acquirers to negotiate
with the board of directors rather than acting unilaterally. Empire Resorts'
believes that under most circumstances it can obtain the best terms for Empire
Resorts and its stockholders if the board of directors is in a position to
negotiate effectively on the stockholders' behalf.
Except with respect to the consolidation, Empire Resorts is not
aware, at present, of any effort to accumulate shares of Empire Resorts' common
stock or to obtain control of Empire Resorts by means of a merger, tender offer,
solicitation in opposition to management, or otherwise. Empire Resorts believes,
however, that it is appropriate to adopt provisions for its certificate of
incorporation that may have an antitakeover effect at a time when there is no
pending threat of an unsolicited takeover so that both the board of directors
and the stockholders will be able to make a more careful and reasoned evaluation
of the advantages and disadvantages of including such provisions in Empire
Resorts' certificate of incorporation.
Simultaneous with its approval and recommendation that stockholders
adopt this amendment to Empire Resorts certificate of incorporation, Empire
Resorts' board of directors also approved an identical amendment to Empire
Resorts' bylaws. Except as described in this paragraph, this amendment is not
part of a plan to implement any additional anti-takeover measures.
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DESCRIPTION OF THE AMENDMENT
The election of directors of Empire Resorts is currently governed by
Empire Resorts' bylaws, which provide that all directors are to be elected
annually for a term of one year, to hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified. This
amendment to Empire Resorts' certificate of incorporation and bylaws provides
for the division of the board of directors into three classes to allow for
staggered terms of office, with one class of directors elected each year and
each director so elected serving for a term of three years. Section 141(d) of
the Delaware General Corporation Law permits either the certificate of
incorporation or the bylaws of a corporation to provide for the classification
of directors for staggered terms of office. Neither Empire Resorts' certificate
of incorporation nor its bylaws, in their current form, contain any such
provision.
The proposed amendments provide for the creation of three classes of
directors, as nearly equal in size as possible. Upon their initial election, the
Class I directors will hold office for a term expiring in one year, at the 2004
annual meeting of stockholders; Class II directors will hold office for a term
expiring in two years, at the 2005 annual meeting of stockholders; and Class III
directors will hold office for a term expiring in three years, at the 2006
annual meeting of stockholders. Commencing at the 2004 annual meeting of
stockholders, the stockholders will elect only one class of directors each year,
beginning with Class I directors, with each director so elected holding office
for a three-year term. The result of this process is that approximately
one-third of the board of directors will be up for election each year.
POSSIBLE NEGATIVE EFFECTS OF IMPLEMENTING A STAGGERED BOARD OF DIRECTORS
Although the creation of a staggered board of directors is designed
as a protective measure for Empire Resorts' stockholders, the creation of a
staggered board of directors may have the effect of preventing stockholders from
realizing an opportunity to sell their shares of capital stock at higher than
market prices by deterring unsolicited takeover offers or other efforts to
obtain control of Empire Resorts.
In addition, staggered board provisions will generally delay, deter
or impede changes in control of the board of directors or the approval of
certain stockholder proposals that might have the effect of facilitating changes
in control of the board of directors, even if the holders of a majority of
Empire Resorts' voting securities believe the changes or actions would be in the
best interests of Empire Resorts and its stockholders. For example, staggering
terms of the members of the board of directors would operate to increase the
time required for someone to obtain control of Empire Resorts without the
cooperation or approval of the incumbent board of directors, even if that person
holds or acquires a majority of the voting power. Moreover, by possibly
deterring future takeover offers, the creation of a staggered board of directors
might have the incidental effect of inhibiting certain changes in incumbent
management, some or all of whom may be replaced in the course of a change in
control of Empire Resorts' board of directors.
Delaware law provides that, unless a corporation's certificate of
incorporation specifically provides otherwise, if a corporation has a staggered
board, the directors of the corporation may only be removed by the stockholders
for cause. The certificate of incorporation will not have a provision allowing
163
removal of directors other than for cause. Elimination of the right of
stockholders to remove directors without cause will make the removal of any
director more difficult (unless cause is readily apparent), even if a majority
of the stockholders believe removal is in their best interest.
The board of directors of Empire Resorts has considered the
potential adverse impact of the proposed amendment and concluded that such
adverse effects are outweighed by the benefits the amendment would afford Empire
Resorts and its stockholders.
FILLING BOARD VACANCIES AND REMOVAL OF DIRECTORS
The staggered board amendment also provides that any vacancy on the
board of directors, whether by reason of removal, resignation, death or
otherwise shall be filled exclusively by a vote of no less than a majority of
the remaining directors. Any director appointed by a majority of the remaining
directors shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurred and until such director's successor is
elected and qualified.
Permitting directors rather than stockholders to fill vacancies is
consistent with, and supportive of, the purposes of adopting a staggered board
since together the two provisions tend to moderate the pace at which Empire
Resorts' board of directors could be changed and is a further deterrent to the
strategy of removing existing directors and replacing them with persons chosen
by a takeover bidder. In addition, because the board of directors fixes the
number of directors, it would also prevent those seeking majority representation
on Empire Resorts' board of directors from attempting to obtain such
representation through expanding the size of the board of directors and filling
the new directorships with their nominees.
EFFECTIVENESS OF AMENDMENT
This amendment to Empire Resorts' certificate of incorporation shall
become effective on or after the 20th day following the date on which this
information statement/prospectus is sent to Empire Resorts' stockholders.
AMENDMENT OF CERTIFICATE OF INCORPORATION TO PROVIDE THE
HOLDERS OF SERIES E PREFERRED STOCK WITH VOTING RIGHTS
On November 12, 2003, Empire Resorts' board of directors adopted and
approved an amendment to its certificate of incorporation that would provide
each holder of its Series E Preferred Stock with one vote for every four shares
of Series E Preferred Stock held by such holder on all matters submitted to a
vote of stockholders. This amendment was subsequently approved by Empire
Resorts' Controlling Stockholders by a majority written consent.
REASONS FOR THE AMENDMENT
Section 303 of the New York Racing, Pari-Mutuel Wagering and
Breeding Law provides that if the New York Racing and Wagering Board, which
licenses Monticello Raceway Management to operate Monticello Raceway, determines
that it is inconsistent with the public interest, convenience or necessity, or
with the best interests of racing generally, that any person continue to be a
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stockholder of record or the beneficial owner of any association or corporation
licensed to conduct pari-mutuel wagering and harness horse racing in New York,
or which owns 25% or more of the stock of such licensee, the board may order or
direct each such stockholder or beneficial owner, irrespective of the time when
such stockholder or beneficial owner acquired his stock or beneficial interest,
to dispose of such stock or interest within a prescribed period of time to be
specified by the board. As Empire Resorts will own 100% of Monticello Raceway
Management following the consolidation, Section 303 of the New York Racing,
Pari-Mutuel Wagering and Breeding Law will continue to be applicable to Empire
Resorts' stockholders upon the consolidation's closing.
Presently, there are 1,730,697 shares of Empire Resorts' Series E
Preferred Stock issued and outstanding, 1,704,030 of which are owned by Stanley
Tollman and The Bryanston Group. As previously discussed, in April 2002, each of
Stanley Tollman, Brett Tollman and Monty Hundley were indicted by a federal
grand jury on 44 counts of tax fraud and bank fraud. In May 2002, Stanley
Tollman was declared a fugitive from justice by United States Attorney for the
Southern District of New York, and on September 5, 2003, Brett Tollman plead
guilty to tax fraud and admitted failing to report $2.7 million in income to the
Internal Revenue Service. Monty Hundley has plead not guilty to these charges
and is scheduled to go on trial in October 2003. Each of Stanley Tollman, Brett
Tollman and Monty Hundley is an affiliate of The Bryanston Group.
These events may have increased the likelihood, however small, that
the New York Racing and Wagering Board may deem both Stanley Tollman and The
Bryanston Group to be unsuitable stockholders of Empire Resorts and demand that
they immediately liquidate their interests in Empire Resorts. Empire Resorts
believes that as the Series E Preferred Stock currently has no voting rights,
liquidation of these equity interests would be difficult. An inability of
Stanley Tollman or The Bryanston Group to liquidate their respective holdings of
Series E Preferred Stock would place Monticello Raceway Management's gaming
license in jeopardy. Empire Resorts believes that attaching voting rights to the
Series E Preferred Stock would allow for a forced liquidation to proceed more
readily.
Empire Resorts decided to provide the holders of its Series E
Preferred Stock with only one vote for every four shares of Series E Preferred
Stock held by them in order to ensure that Stanley Tollman and The Bryanston
Group, either separately or together, do not control more than 5% of Empire
Resorts' voting power should they retain their Series E Preferred Stock. This
restriction on their voting power is important, as all of the gaming compacts
between the State of New York and Native American tribes that allow for Class
III Gaming to be conducted on Native American land (located within the State of
New York) require that each person or entity owning more than 5% of a company
wishing to provide Class III Gaming services on such land first receive a "Class
III Gaming Enterprise License." In order for an applicant to obtain such a
license, the State of New York must conclude that the applicant is suitable
after conducting a mandatory background investigation. As Stanley Tollman is
currently listed by the United States Government as a fugitive from justice and
Brett Tollman, an affiliate of The Bryanston Group, has recently plead guilty to
various counts of tax fraud, Empire Resorts believes that it is highly uncertain
that either Stanley Tollman or The Bryanston Group could ever receive a Class
III Gaming Enterprise License. Therefore, should either Stanley Tollman or The
Bryanston Group, together or separately, control more than 5% of Empire Resorts'
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voting power, it is unlikely that either Monticello Casino Management or
Monticello Raceway Development, both of which will be wholly owned subsidiaries
of Empire Resorts following the consolidation, would be permitted to perform
under the Gaming Facility Management Agreement and Gaming Facility Development
and Construction Agreement, respectively, as each of these agreements
contemplate the provision of Class III Gaming services for the Cayuga Nation of
New York. See "Business - Monticello Casino Management - Gaming Facility
Management Agreement" beginning on page 101 and "Business - Monticello Raceway
Development - Gaming Facility Development and Construction Agreement" beginning
on page 108. By limiting the voting power of the Series E Preferred Stock to one
vote for every four shares, however, Empire Resorts will be able to ensure that
Stanley Tollman and The Bryanston Group control less than 5% of Empire Resorts'
voting power, thus eliminating the requirement that either of them would have to
apply for a Class III Gaming Enterprise License in order for Empire Resorts and
its subsidiaries to effectuate its business plan of developing and managing a
Native American casino in Monticello, New York.
EFFECT OF THE AMENDMENT
Currently the holders of Empire Resorts' Series E Preferred Stock
have no voting rights, except as required by law. Upon the effective date of
this amendment, the holders of Empire Resorts' Series E Preferred Stock will be
entitled to one vote for every four shares of Series E Preferred Stock held by
them on any matter submitted to a vote of stockholders.
This amendment will not have any impact on the holders of Empire
Resorts' common stock or Series B Preferred Stock other than diluting their
voting power. Following the effectiveness of this amendment, the holders of
Empire Resorts' Series E Preferred Stock will have approximately 432,675 votes,
representing about 2% of Empire Resorts' post-consolidation voting power.
DIVIDENDS
The holders of shares of Series E Preferred Stock are entitled to
receive, when and as declared by the board of directors, out of assets legally
available for payment, a cash dividend of $.80 per annum per share of Series E
Preferred Stock. Dividends with respect to a share of Series E Preferred Stock,
shall accrue from the date of initial issuance and be payable (whether or not
declared by the board of directors) upon the earliest of (i) the redemption of
such share of Series E Preferred Stock or (ii) the liquidation, dissolution or
winding up of Empire Resorts. As of the date of this information
statement/prospectus, the board of directors has not declared any dividends with
respect to the Series E Preferred Stock and no dividends have accrued.
EFFECTIVENESS OF AMENDMENT
This amendment to Empire Resorts' certificate of incorporation shall
become effective on or after the 20th day following the date on which this
information statement/prospectus is sent to Empire Resorts' stockholders.
166
EMPIRE RESORTS POST CONSOLIDATION MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
MANAGEMENT AFTER THE CONSOLIDATION
The following table provides information about the intended
directors and executive officer of the combined enterprise. Each person listed
was elected by Empire Resorts' Controlling Stockholders as part of the written
consent in lieu of a meeting of stockholders delivered to Empire Resorts on
November 25, 2003, in which the controlling stockholders also approved the
consolidation, the restated contribution agreement, an amendment to Empire
Resorts' certificate of incorporation providing for a staggered board of
directors and an amendment to Empire Resorts' certificate of incorporation
providing the holders of Series E Preferred Stock with certain voting rights.
Name Age Position
---- --- --------
David Matheson 51 Class III Director and Chairman of the Board of Directors
John Sharpe 61 Class I Director
Ralph J. Bernstein 46 Class I Director
Robert A. Berman 43 Chief Executive Officer and Class III Director
David P. Hanlon 58 Class II Director and Vice Chairman of the Board of Directors
Arthur I. Sonnenblick 71 Class II Director
Paul A. deBary 56 Class I Director
Joseph E. Bernstein 54 Class III Director
Morad Tahbaz 47 President and Class II Director
The principal occupation for the past five years and current public
directorships of each of Empire Resorts' directors and executive officers are as
follows:
DAVID MATHESON. Over the years, David Matheson, who is a member of
the Coeur d'Alene Tribe of Coeur d'Alene, Idaho, has served as Tribal Council
leader, Tribal Chairman, and manager of various tribal operations. Mr. Matheson
is chief executive officer of the Coeur d'Alene Casino & Resort Hotel in Worley,
Idaho, which was voted #1 casino in the Spokesman Reader Review for three
consecutive years. Mr. Matheson was appointed by President George H. W. Bush,
Sr. to serve as Deputy Commissioner for Indian Affairs, U.S. Department of the
Interior, which he did for four years, during the time the Indian Gaming
Regulatory Act of 1988 was being implemented. Mr. Matheson was awarded a
Commendation from the Secretary of the Interior for Outstanding Service. More
recently, he was appointed by President George W. Bush, Jr. as an advisor to the
President's Commission on Reservation Economies. Mr. Matheson previously served
as a delegate to the People's Republic of China's Native American Trade Mission,
and as chief executive officer of Coeur d'Alene Development Enterprises. He
holds an M.A. in business administration from the University of Washington. Over
the past twenty years, he has held many esteemed positions and has received many
honors for his work in preserving cultural traditions, the native language, and
ceremonial practices. He recently published his first novel, Red Thunder, which
depicts the faith, courage and dedication of the Schi'tsu'umsh Indians, now
called the Coeur d'Alene Tribe.
167
ROBERT A. BERMAN. Robert A. Berman is Empire Resorts' chief
executive officer, a member of its board of directors and its former chairman.
As the managing director of Watermark Investments Limited from 1994 to 2000, Mr.
Berman oversaw a number of private partnerships investing in real estate,
technology and basic industries. From 1998 to 1999, Mr. Berman was vice chairman
and a director of Executone Information Systems, a telecommunications company.
From 1995 to 1999, Mr. Berman served as chairman of the board and chief
executive officer of Hospitality Worldwide Services, Inc., a hotel services
company with average annual sales above $150 million.
RALPH J. BERNSTEIN. Ralph J. Bernstein is a co-founder and general
partner of Americas Partners, an investment and venture capital firm, and, since
1981 has been responsible for the acquisition, renovation, development and
financing of several million square feet of commercial space. Mr. Bernstein
started his career in agribusiness with a large European multi-national trading
and real estate development company, where he was later responsible for that
company's U.S. real estate activities. Mr. Bernstein also serves as a director
for Air Methods Corporation, a publicly traded company that provides air medical
emergency transport services and systems throughout the United States of
America. He holds a Bachelor of Arts degree in economics from the University of
California at Davis.
JOHN SHARPE. John Sharpe most recently served as president and chief
operating officer of Four Seasons Hotels & Resorts, from which he retired in
1999, after 23 years of service. During his tenure at Four Seasons, the world's
largest operator of luxury hotels, Mr. Sharpe directed worldwide hotel
operations, marketing and human resources, and took great pride in helping
create Four Seasons' renowned reputation for the highest level of service in the
worldwide hospitality industry. In 1999, Mr. Sharpe was bestowed with the
"Corporate Hotelier of the World" award by Hotels Magazine, Inc. Mr. Sharpe also
received the "Silver Plate" award of the International Food Manufacturers
Association, and the "Gold Award" of the Ontario Hostelry Institute. Mr. Sharpe
graduated with a B.S. in hotel administration from Cornell University and is
currently a trustee of the Culinary Institute of America, and chair of the
Industry Advisory Council at the Cornell Hotel School. He serves on a number of
boards, including Fairmont Hotels & Resorts, Toronto, Canada. Mr. Sharpe
previously served as executive-in-residence, School of Hotel Administration,
Cornell University; chair, board of governors, Ryerson Polytechnic University,
Toronto, Canada; and, co-chair, American Hotel Foundation, Washington, D.C.
DAVID P. HANLON. David P. Hanlon is presently a U.S. gaming industry
consultant, including Native American and international gaming ventures. He most
recently served as president and chief operating officer of Rio Suites Hotel
Casino, from 1996-1999, where he guided the corporation through a major
expansion and successful return to profitability. From 1994-1995, he served as
president and chief executive officer of International Game Technology, the
world's leading manufacturer of microprocessor gaming machines. From 1988-1993,
he served as president and chief executive officer of Merv Griffin's Resorts
International, where he completed two complex billion dollar restructurings,
while successfully selling off international properties in the Bahamas. From
1984-1988, he served as president of Harrah's Atlantic City (Harrah's Marina and
Trump Plaza), where he was responsible for casino and hotel operations and 9,000
employees. During his four-year leadership, Harrah's became the most profitable
operation in Atlantic City. Between 1978-1983, he served as chief financial
168
officer and executive vice president of Caesar's World, Inc., where he was in
charge of all East Coast operations. Prior to starting his career in the gaming
industry, Mr. Hanlon served as director of corporate finance for Fluor
Corporation, from 1975-1978. Mr. Hanlon's education includes a B.S. in hotel
administration from Cornell University, an M.S. in accounting and an M.B.A. in
finance from the Wharton School, University of Pennsylvania, and an [Advanced
Management Program at the Harvard Business School]. Mr. Hanlon is
executive-in-residence, School of Hotel Administration, Cornell University, and
a member of various boards.
ARTHUR I. SONNENBLICK. Arthur I. Sonnenblick is the senior managing
director of Sonnenblick-Goldman Company. Founded in 1893, Sonnenblick-Goldman is
the nation's leading independent real estate investment banking firm. Each year,
the firm handles billions of dollars of private equity, joint venture, mortgage
and sale transactions. Mr. Sonnenblick served as president of
Sonnenblick-Goldman Company from 1978-1987 and chief executive officer from
1978-1995. He is a member of Urban Land Institute and International Council of
Shopping Centers, and has lectured at the Urban Land Institute Practicing Law
Institute, International Council of Shopping Centers, Mortgage Bankers
Association, National Association of Home Builders, New York Chapter American
Institute of Appraisers, Columbia University, Fordham University, and New York
University. From 1979 to 1983, Mr. Sonnenblick was a partner and member of the
board of directors of Lehman Brothers Kuhn Loeb. He is also a past president of
the Mortgage Bankers Association of New York and a past member of the board of
governors of the Real Estate Board of New York. Mr. Sonnenblick is currently a
member of the board of directors of Alexanders, Inc. and is chairman of the
board of trustees of the Educational Alliance. He holds a Bachelor of Science in
economics from the Wharton School of the University of Pennsylvania and served
on active duty in the U. S. Naval Reserve as a Lieutenant Junior Grade from 1953
to 1957.
PAUL A. DEBARY. Paul A. deBary is a managing director at Marquette
deBary Co., Inc., a New York based broker-dealer, where he serves as a financial
advisor for state and local government agencies, public and private corporations
and non-profits. Prior to assuming his current position, he served as managing
director in the Public Finance Department of Prudential Securities from 1994 to
1997. He was a partner in the law firm of Hawkins, Delafield & Wood in New York
from 1975 to 1994. Mr. deBary received an AB in 1968, and M.B.A. and J.D. in
1971 from Columbia University. He is a member of the American Bar Association,
the New York State Bar Association, the Association of the Bar of the City of
New York and the National Association of Bond Lawyers and serves as President
and as a Director of the Society of Columbia graduates. Mr. deBary has served as
a director of Empire Resorts since March 2002.
JOSEPH E. BERNSTEIN. Joseph E. Bernstein started his career as a
corporate tax attorney on Wall Street at Cahill Gordon & Reindel and as an
international tax attorney at Rosenman & Colin. He later started his own
international tax practice. Since the early 1980's, Mr. Bernstein (along with
his brother Ralph, and their partner, Morad Tahbaz, through their jointly-owned
entity, Americas Tower Partners) has been involved in the development of three
million square feet of commercial property in Manhattan, including Americas
Tower, a 50-story office building on Avenue of the Americas and 46th Street,
serving as world headquarters to PriceWaterhouseCoopers and US headquarters to
Israel's largest bank, Bank Hapoalim.
169
MORAD TAHBAZ. Morad Tahbaz is the president of Catskill Development,
a member of Monticello Raceway's Operating Board, the president of Empire
Resorts and a director of Empire Resorts. Mr. Tahbaz also serves on the board of
directors of Air Methods Corporation, a publicly traded company that provides
air medical emergency transport services and systems throughout the United
States of America. In 1983 Mr. Tahbaz joined Americas Partners, at which time he
became primarily responsible for acquisitions. Subsequently, Mr. Tahbaz took on
the added responsibility of the development of Americas Tower, a 1,000,000
square foot office building in New York that is the headquarters for
PriceWaterhouseCoopers. Mr. Tahbaz remains a partner in Americas Partners. Mr.
Tahbaz holds a B.A. in philosophy and fine arts from Colgate University and
attended the Institute for Architecture and Urban Studies in New York. He also
holds an M.B.A. in finance from Columbia University Graduate School of Business,
where throughout his career, he has conducted a series of lectures on real
estate development and finance for graduate students.
TERMS OF OFFICE
As discussed above, Class I directors will hold office for a term
expiring in one year, at the 2004 annual meeting of stockholders; Class II
directors will hold office for a term expiring in two years, at the 2005 annual
meeting of stockholders; and Class III directors will hold office for a term
expiring in three years, at the 2006 annual meeting of stockholders.
PRINCIPAL STOCKHOLDERS AFTER THE CONSOLIDATION
Empire Resorts estimates that following the consolidation, Empire
Resorts will have approximately 22,702,896 shares of common stock, 44,258 shares
of Series B Preferred Stock and 1,730,697 shares of Series E Preferred Stock
issued and outstanding. The following table sets forth certain information
regarding the estimated beneficial ownership of Empire Resorts' voting
securities following the merger, based on data existing as of November 5, 2003,
by all individuals expected to be directors and executive officers following the
consolidation; persons expected to own 5% or more of any class of Empire
Resorts' voting securities following the consolidation; and all of the expected
directors and executive officers as a group. Unless otherwise indicated, the
address of each stockholder, director and executive officer listed below is c/o
Empire Resorts, Inc., Route 17B, P.O. Box 5013, Monticello, New York, 12701.
Common Stock Beneficially Series B Preferred Stock Series E Preferred Stock
Owned(1) Beneficially Owned(1) Beneficially Owned(1)
-------------------------- ------------------------ -----------------------
Shares Percentage Shares Percentage Shares Percentage
------ ---------- ------ ---------- ------ ----------
Robert A. Berman 4,605,334(2) 20.04% -- -- -- --
Scott A. Kaniewski 1,000,610(3) 4.35% -- -- -- --
Watertone Holdings 4,565,010 20.11%
Thomas W. Aro 43,500(4) * -- -- -- --
Paul A. deBary 187,684(5) * -- -- -- --
Morad Tahbaz 1,337,359(6) 5.81% -- -- -- --
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Common Stock Beneficially Series B Preferred Stock Series E Preferred Stock
Owned(1) Beneficially Owned(1) Beneficially Owned(1)
-------------------------- ------------------------ -----------------------
Shares Percentage Shares Percentage Shares Percentage
------ ---------- ------ ---------- ------ ----------
David Matheson 15,000(7) * -- -- -- --
John Sharpe 15,000(8) * -- -- -- --
David Hanlon 15,000(9) * -- -- -- --
Arthur Sonnenblick 15,000(10) * -- -- -- --
Joseph E. Bernstein 2,423,253(11) 10.67% -- -- -- --
JB Trust 2,408,253(12) 10.61% -- -- -- --
Ralph Bernstein 2,324,753(13) 10.23% -- -- -- --
Americas Tower Partners 6,599,294 29.07%
Maurice Dabbah 2,006,291(14) 8.84% -- -- -- --
Monticello Realty 5,732,261 25.25%
Directors and executive officers as
a group (11 persons) (2)-(11),(13) 11,985,227 51.16% -- -- -- --
BP Group, Ltd.
8306 Tibet Butler Drive
Windemere, FL -- -- 44,258 100% -- --
The Bryanston Group, Inc.
2424 Route 52
Hopewell Junction, NY 12533 -- -- -- -- 551,213 89.6%
Stanley Tollman
The Bryanston Group, Inc.
2424 Route 52Hopewell Junction, NY -- -- -- -- 152,817 8.8%
12533
---------
* less than 1%
(1) A person is deemed to be the beneficial owner of voting securities
that can be acquired by such person within 60 days after the record
date upon the exercise of options and warrants and the conversion of
convertible securities. Each beneficial owner's percentage of
ownership is determined by assuming that all options, warrants or
convertible securities held by such person (but not those held by
any other person) that are currently exercisable or convertible
(i.e., that are exercisable or convertible within 60 days after the
record date) have been exercised or converted.
(2) Includes 1,094,004 shares of common stock owned directly by Robert
A. Berman, options that are currently exercisable into 279,189
shares of common stock and 3,232,141 shares of common stock held
directly by Watertone Holdings. Robert A. Berman directly holds a
46.305% limited partnership interest in Watertone Holdings,
representing an indirect beneficial ownership interest in 2,113,828
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shares of such 3,232,141 shares of Empire Resorts' common stock held
directly by Watertone Holdings. Through BKB, LLC, 82% of which is
owned by Robert A. Berman, Robert A. Berman indirectly holds a
general partnership interest of .0082% of Watertone Holdings,
representing an indirect beneficial ownership interest in an
additional 37,433 shares of such 3,232,141 shares of Empire Resorts'
common stock held directly by Watertone Holdings, and through Avon
Road Partners, LP, Robert A Berman indirectly beneficially holds an
addition 23.678% limited partnership interest in Watertone Holdings,
representing an indirect beneficial ownership interest in an
additional 1,080,880 of such 3,232,141 shares of Empire Resorts'
common stock held directly by Watertone Holdings. Avon Road
Partners, LP is 88% owned by Robert A. Berman, 3% by Debbie N.
Berman and 9% by the Berman Family Trust whose beneficiaries are
Robert A. Berman's children. Debbie N. Berman, Robert A. Berman's
wife, and Philip B. Berman, Robert A. Berman's brother, are
co-trustees of the Berman Family Trust and have joint voting and
dispositive power with respect to its holdings. Robert A. Berman
disclaims beneficial ownership of all shares of common stock held by
the Berman Family Trust.
(3) Includes 134,096 shares of common stock owned directly by Scott A.
Kaniewski, options that are currently exercisable into 295,689
shares of common stock, 506,899 shares of common stock held directly
by Watertone Holdings, 28,940 shares of common stock held directly
by The Kaniewski Family Limited Partnership and 34,986 shares of
common stock held directly by The KFP Trust. Through BKB, LLC, 15.3%
of which is owned by Scott A. Kaniewski, Scott A. Kaniewski
indirectly holds a general partnership interest of .00153% of
Watertone Holdings, representing an indirect beneficial ownership
interest in an additional 6,984 shares of such 506,899 shares of
Empire Resorts' common stock held directly by Watertone Holdings.
The Kaniewski Family Limited Partnership, with respect to which Mr.
Kaniewski is a 1% limited partner and the general partner with sole
voting and dispositive power, holds a 4.95% limited partnership
interest in Watertone Holdings, representing an indirect beneficial
ownership interest in 225,968 shares of such 506,899 shares of
Empire Resorts' common stock held directly by Watertone Holdings,
and through BKB, LLC, 0.05% of which is owned by The Kaniewski
Family Limited Partnership, The Kaniewski Family Limited Partnership
indirectly holds a general partnership interest of .000005% of
Watertone Holdings, representing an indirect beneficial ownership
interest in an additional 23 shares of such 506,899 shares of Empire
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Resorts' common stock held directly by Watertone Holdings. Scott A.
Kaniewski disclaims beneficial ownership of all the shares of common
stock owned by the Kaniewski Family Limited Partnership for any
purpose other than voting and dispositive powers. The KFP Trust,
whose sole trustee is Stacey B. Kaniewski, Scott A. Kaniewski's
wife, and whose sole beneficiaries are Scott A. Kaniewski's
children, holds a 6.00% limited partnership interest in Watertone
Holdings, representing an indirect beneficial ownership interest in
273,901 shares of such 506,899 shares of Empire Resorts' common
stock held directly by Watertone Holdings, and through BKB, LLC,
0.05% of which is owned by The KFP Trust, The KFP Trust indirectly
holds a general partnership interest of .000005% of Watertone
Holdings, representing an indirect beneficial ownership interest in
an additional 23 shares of such 506,899 shares of Empire Resorts'
common stock held directly by Watertone Holdings. Scott A. Kaniewski
disclaims beneficial ownership of all shares of common stock held by
The KFP Trust.
(4) Represents options that are currently exercisable into 43,500 shares
of common stock.
(5) Includes 52,103 shares of common stock owned directly by Paul A.
deBary and 135,581 shares of common stock held directly by Watertone
Holdings. Mr. deBary directly holds a 2.97% limited partnership
interest in Watertone Holdings, representing an indirect beneficial
interest in such 135,581 shares of Empire Resorts' common stock held
directly by Watertone Holdings.
(6) Includes options that are currently exercisable into 17,500 shares
of common stock and 1,319,859 shares of common stock of Empire
Resorts held directly by Americas Tower Partners. Morad Tahbaz
beneficially owns a 20% partnership interest of Americas Tower
Partners, representing an indirect beneficial interest in such
1,319,859 shares of Empire Resorts' common stock held directly by
Americas Tower Partners.
(7) Represents options that are currently exercisable into 15,000 shares
of common stock.
(8) Represents options that are currently exercisable into 15,000 shares
of common stock.
(9) Represents options that are currently exercisable into 15,000 shares
of common stock.
(10) Represents options that are currently exercisable into 15,000 shares
of common stock.
(11) Includes options that are currently exercisable into 15,000 shares
of common stock, 2,309,753 shares of common stock of Empire Resorts
held directly by Americas Tower Partners and 144,695 shares held in
the name of Joseph E. Bernstein on behalf of the JB Trust. Joseph E.
Bernstein beneficially owns a 1% economic interest and 50% voting
power in Americas Tower Partners, and the JB Trust, in which Mr.
Bernstein's mother, Helen Bernstein, is sole trustee and Mr.
Bernstein's children are ultimate beneficiaries, beneficially owns a
49% economic interest, with no voting rights. Joseph E. Bernstein
and the JB Trust beneficially own, 2% and 98%, respectively, of 35%
of Americas Tower Partners' interest in the consolidation,
representing an aggregate indirect beneficial ownership interest in
such 2,309,753 shares of Empire Resorts' common stock held directly
by Americas Tower Partners.
(12) Includes 144,695 shares of common stock held in the name of Joseph
E. Bernstein on behalf of the JB Trust and 2,263,558 shares of
common stock of Empire Resorts held directly by Americas Tower
Partners. The JB Trust beneficially owns a 49% economic interest,
with no voting rights, in Americas Tower Partners. The JB Trust
beneficially owns 98% of 35% of Americas Tower Partners' interest in
the consolidation, representing an indirect beneficial ownership
interest in such 2,263,558 shares of Empire Resorts' common stock
held directly by Americas Tower Partners.
(13) Includes options that are currently exercisable into 15,000 shares
of common stock and 2,309,753 shares of common stock of Empire
Resorts held directly by Americas Tower Partners. Ralph Bernstein
beneficially owns a 35% partnership interest of Americas Tower
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Partners, representing an indirect beneficial ownership interest in
such 2,309,753 shares of Empire Resorts' common stock held directly
by Americas Tower Partners.
(14) Represents 2,006,291 shares of common stock of Empire Resorts held
directly by Monticello Realty. Maurice Dabbah beneficially owns 35%
of the membership interests of Monticello Realty, representing an
indirect beneficial ownership interest in such 2,006,291 shares of
Empire Resorts' common stock held directly by Monticello Realty.
DIRECTOR AND EXECUTIVE COMPENSATION
DIRECTORS - CASH COMPENSATION
Following the consolidation, the members of Empire Resorts' board of
directors will each receive $20,000 per year and $1,000 per meeting. Directors
that also serve on committees of the board of directors, other than the audit
committee, will receive an additional $1,000 per committee meeting for
non-employee committee members, with the chairperson to receive $2,500 per
meeting. With respect to the audit committee, its non-employee chairperson will
receive an additional annual payment of $10,000, and each audit committee member
(including the chairperson) will receive $2,500 per audit committee meeting.
DIRECTORS - STOCK COMPENSATION
Following the consolidation, each of the new members of Empire
Resorts' board of directors, upon their election to the board, will receive
options to purchase 15,000 shares of Empire Resorts' common stock at its then
current fair market value. In addition, all members of the board of directors
shall receive an annual grant of 10,000 stock options at the common stock's then
current fair market value. All stock options granted to Empire Resorts'
directors shall vest immediately.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Empire Resorts, Catskill Development, the Cayuga Nation of New York,
the Cayuga Catskill Gaming Authority, Robert A. Berman, Empire Resorts' chief
executive officer, a member of its board of directors and its former chairman,
and Morad Tahbaz, Catskill Development's and Empire Resorts' president and a
member of Catskill Development's and Empire Resorts' boards of directors, are
parties to a letter agreement, dated as of April 3, 2003, as amended, pursuant
to which Empire Resorts has agreed to fund the Cayuga Catskill Gaming
Authority's purchase of those 29 acres of land subject to the Land Purchase
Agreement and the development costs of building a Class III Gaming enterprise on
such land. Empire Resorts is to be reimbursed for up to $10,000,000 of these
advances from any third party construction financing that is received and, to
the extent that such third party financing or $10,000,000 cap is insufficient to
fully reimburse Empire Resorts, from distributions made to Monticello Casino
Management under the Gaming Facility Management Agreement.
Under this letter agreement, Catskill Development, Empire Resorts,
Robert A. Berman and Morad Tahbaz, on the one hand, and the Cayuga Nation of New
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York, on the other hand, have also agreed that for 10 years, each shall have the
right to participate in the development or operation by the other of
o one or more hotels, motels or other similar facilities
providing overnight accommodations including ancillary
beverage, food, entertainment, commercial and or retail
services within a 15 mile radius of the 29 acres to be acquired
by the Cayuga Nation of New York under the Land Purchase
Agreement; and
o any other entertainment, sports and/or retail facility within a
5 mile radius of the property
In each case, the non-developing party will have the right to
purchase up to 33.33% of the equity in the facility being developed, with the
purchase price being a pro rata share of the costs of such facility less any
amount advanced by any lender for any mortgage or other loan secured by the
facility's property or cash flow. The purchase price for this acquired interest
must be paid in cash at the time the interest is actually purchased. However,
with respect to any acquired interest purchased by the Cayuga Nation of New York
prior to the second anniversary of the primary gaming facility's public opening,
the Cayuga Nation of New York may pay for its acquired interest by delivery of a
non-recourse promissory note, payable over five years, with interest accruing on
the unpaid principal amount at the then existing prime rate. These parties have
further agreed that the first hotel facility to be built that is governed by the
letter agreement will be deemed the gaming enterprise's preferred provider, in
that the gaming enterprise shall be obligated to refer its customers to that
hotel.
In consideration of the agreements contained in the letter
agreement, each of the parties has agreed that for a period ending on the
earliest of (i) approval (A) by the Bureau of Indian Affairs of the application
to transfer the 29 acres of land to the United States of America in trust for
the Cayuga Nation of New York and to use such land for Class II and Class III
Gaming and (B) by the National Indian Gaming Commission of the Gaming Facility
Management Agreement, (ii) the termination of the Gaming Facility Management
Agreement because of Monticello Casino Management's material breach of its
obligations, (iii) the termination of the Gaming Facility Development and
Construction Agreement because of Monticello Raceway Development's material
breach of its obligations, and (iv) April 30, 2004, each party, respectively,
will refrain from having discussions regarding the development of another Class
III Gaming facility in Sullivan County, New York.
Finally, under the letter agreement, Empire Resorts made an award to
the Cayuga Nation of New York of 300,000 shares of Empire Resorts restricted
common stock. 100,000 of these shares vested on April 11, 2003. 100,000
additional shares vest on October 11, 2003, and the remaining 100,000 shares
vest on April 11, 2004.
Empire Resorts and Monticello Realty are parties to a letter
agreement, dated July 30, 2003, pursuant to which Empire Resorts granted
Monticello Realty the right to appoint up to two observers for each of Empire
Resorts' board of directors' meetings for the lesser of (i) 36 months or (ii)
the first day on which Monticello Realty and its beneficial owners cease to own,
together, at least 5% of Empire Resorts' outstanding common stock.
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Robert A. Berman has executed a Guarantee Agreement, dated October
29, 2003, in favor of The Berkshire Bank, guarantying the performance, subject
to the terms and conditions provided in the Guarantee Agreement, of Monticello
Raceway Management's performance under the Loan Agreement and Term Note. See
"Recent Developments - Guarantee Agreement" beginning on page 129.
CORPORATE GOVERNANCE
In anticipation of the consolidation, Empire Resorts recently
adopted a new code of ethics for its executive officers and directors and new
charters for each of its audit committee, corporate governance and nominations
committee and compensation committee. As Empire Resorts expects to grow rapidly
in terms of operations, employees and revenue following the consolidation,
Empire Resorts believed that it was important to revise the documents setting
forth its corporate governance standards. Each of these new charters and code of
ethics is summarized below.
SUMMARY OF CODE OF ETHICS
The following principles will apply to all principal executive and
senior financial officers:
o to act with honesty and integrity in fulfilling their duties
and responsibilities;
o to handle in an ethical manner all actual or apparent conflicts
of interest with respect to any personal and professional
relationships;
o to avoid any personal activities, investments, interests or
associations that interfere or appear to interfere with the
officer's good judgment or independent exercise of judgment;
o to avoid the actual or appearance of personal gain due to an
officer's position or relationship with Empire Resorts;
o to comply with any applicable government laws, rules and
regulations;
o to adhere to Empire Resorts' code of ethics; and
o not to engage in any conduct that represents a conflict of
interest.
If a principal executive or senior financial officer has concerns
regarding a real or potential conflict of interest, the officer should consult
with a person designated by the audit committee regarding compliance and ethics.
It is the responsibility of the principal executive and senior
financial officers to assure that:
o all records and reports fairly and accurately reflect Empire
Resorts' financial position and its respective transactions, do
not contain any false or misleading information, are supported
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by accurate documentation and are in accordance with any
applicable law;
o there is full compliance with Empire Resorts' system of
internal accounting controls;
o there are no transactions that are intentionally misclassified
with respect to accounts departments or accounting periods; and
o no information has been concealed from any internal or
independent auditors.
Each principal executive and senior financial officer is responsible
for bringing to the attention of the audit committee:
o any material information or public information affecting Empire
Resorts' disclosures, Securities and Exchange Commission
filings or financial condition;
o any significant deficiencies in the design or operation of
internal controls which adversely affect Empire Resorts'
financial data;
o any fraud by management or other employees significantly
involved with Empire Resorts' financial reporting and
disclosures or internal controls; and
o any information regarding violations of the code of ethics, or
any securities laws or other laws, rules or regulations, by
employees or agents of Empire Resorts.
Any conduct that represents a conflict of interest is strictly
prohibited. In the event of a violation of Empire Resorts' code of ethics,
Empire Resorts will take appropriate action designed to deter further wrongdoing
and promote accountability. The board of directors may waive the code of ethics
provisions only with the specific written advice of counsel and, if appropriate,
outside auditors, and only on the condition that the waiver is appropriately
disclosed and mechanisms are in place to monitor the waiver.
SUMMARY OF CORPORATE GOVERNANCE AND NOMINATIONS COMMITTEE CHARTER
PURPOSE
The purpose of the corporate governance and nominations committee is
to develop and oversee the corporate governance principles of Empire Resorts,
manage committee operations, and report to the board of directors not less than
once a year.
ORGANIZATION
The members of the committee will be composed of independent
directors, unless the Nasdaq rules allow otherwise. The board of directors will
appoint the initial 3 members. Subsequent members will be nominated by the
committee and appointed by the board of directors. The board of directors will
determine the duration of the directors' service on the committee.
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Nasdaq rules allow for a non-independent director who is neither a
current officer or employee, nor a person who has the same residence as a
current officer or employee, nor is related by blood, marriage or adoption to a
current officer or employee, to serve for up to two years, under exceptional and
limited circumstances, so long as the committee already has at least three
members, if the board of directors discloses all relevant information regarding
the nomination in the next annual meeting proxy statement prior to the
appointment, and determines that this appointment is in the best interest of
Empire Resorts.
Nasdaq rules further allow for a non-independent director who is an
officer and owns 20% or more of the company's stock or voting power, so long as
the committee already has at least three members, does not have another
non-independent director, and if the board of directors discloses all relevant
information regarding the nomination in the next annual meeting proxy statement
prior to the appointment, and determines this appointment is in the best
interest of the company.
STRUCTURE AND PROCESS
The committee will meet at least twice a year, in addition to
attending regularly scheduled meetings of the board of directors. The board of
directors will designate one chairperson, who will determine any voting ties.
Further meetings and actions will be taken by unanimous written consent of the
committee, or by the decision of the chairperson or the board of directors.
DUTIES AND RESPONSIBILITIES
The committee's duties and responsibilities are as follows:
o to assist the board of directors with its duties and
responsibilities;
o to make recommendations on the size of the board of directors
or the size of other committees, but not for the corporate
governance and nominations committee;
o to assist in selecting and identifying potential board of
directors or other committee members and recommend qualified
individuals in the case of vacancies, but not for the corporate
governance and nominations committee;
o to develop standards of independence for the board of
directors;
o to monitor compliance with the standards of independence
between directors and Empire Resorts, its subsidiaries and
affiliates;
o to establish procedures to evaluate and oversee the board of
directors and management;
o to receive interested-party communications directed at
non-management directors through the committee chairperson;
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o to develop, recommend and oversee implementation of corporate
governance principles for Empire Resorts, and review these
principles at least once a year;
o to review and report to the board of directors the corporate
governance implications of any changes to the charters of any
board of directors' committees;
o to prepare and issue an annual committee "performance
evaluation" that compares the performance of the corporate
governance and nominations committee with the requirements of
the committee's charter and make recommendations for
improvements of the corporate governance and nominations
committee charter; and
o to perform other express duties relating to corporate
governance or the nomination of the board of directors and
other committee members.
RESOURCES AND AUTHORITY OF THE COMMITTEE
The corporate governance and nominations committee has the authority
to make decisions it deems appropriate without seeking the approval of the board
of directors or management. The authority to identify director candidates is
vested solely with the corporate governance and nominations committee.
AMENDMENTS
The corporate governance and nominations committee charter and its
provisions can be amended or repealed by the board of directors.
SUMMARY OF AUDIT COMMITTEE CHARTER
PURPOSE
The purpose of the audit committee is to oversee the annual
independent audit of Empire Resorts' financial statements, the systems of
internal accounting and financial controls, the qualifications, independence and
performance of the independent auditor, Empire Resorts' compliance with legal
and regulatory requirements, the integrity of the financial statements,
financial reporting process and ethics programs, and to make the board of
directors aware of any significant financial matters. It is not the committee's
duty to plan or conduct audits or to determine the accuracy and compliance of
Empire Resorts' financial statements and disclosures.
COMMITTEE MEMBERSHIP
The committee will be composed of at least three directors appointed
by the board of directors. Subsequent members and vacancies will be nominated by
the corporate governance committee and appointed by the board of directors. The
board of directors will determine the duration of the committee members' service
on the committee. In addition, the board of directors will designate one
chairperson, who will determine any voting ties. Further meetings and actions
will be taken by unanimous written consent of the committee, or by the decision
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of the chairperson or the board of directors. The chairperson will report to the
board of directors no less often than quarterly, but more often if requested by
the board of directors.
All committee members must:
o be independent under the Nasdaq rules, unless otherwise
permitted under Nasdaq rules and the Sarbanes-Oxley Act of
2002;
o be able to understand fundamental financial statements;
o not be an affiliate of Empire Resorts or any subsidiaries, as
defined by Rule 10A-3 of the Securities Exchange Act of 1934,
as amended;
o not accept other compensation from Empire Resorts or its
affiliates for any other services, except for services
performed as a member of Empire Resorts' board of directors;
and
o not own 20% or more of Empire Resorts' voting securities.
Nasdaq rules allow for a non-independent director who is not a
current employee or an immediate family member to serve for up to two years,
under exceptional and limited circumstances, so long as he or she does not chair
the committee, if the board of directors discloses all relevant information
regarding this nomination in the next annual meeting proxy statement prior to
the appointment, and determines that this appointment is in the best interest of
Empire Resorts.
At least one committee member must have a professional certification
in accounting, an accounting or finance background, or other experience
demonstrating the member's financial sophistication to be considered an "audit
committee financial expert."
COMMITTEE AUTHORITY, FUNCTIONS AND RESPONSIBILITIES
The members of the audit committee are not full-time employees and
do not represent themselves to be auditors or accountants. The responsibilities
and functions of the committee are as follows:
o oversight and sole authority over independent auditors, audit
engagements and procedures of independent auditors;
o annual review and evaluation of the audit committee charter and
the current and prospective independent auditors;
o to review with management the timing and process for any active
or potential audit engagement or any significant financial
reporting issues;
o to look into the regular rotation of Empire Resorts' audit
firm;
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o to review and discuss with management, the independent auditors
and the board of directors whether to include the audited
statements in Empire Resorts' Form 10-KSB;
o to obtain confirmation from the independent auditors that the
audit was conducted in accordance with Section 10A of the
Securities Exchange Act of 1934, as amended;
o to review and discuss with management and the independent
auditors the quarterly financial statements prior to the filing
of a Form 10-Q or Form 10-QSB;
o to inquire and discuss the impact of current or proposed
pronouncements by the Financial Accounting Standards Board,
American Institute of Certified Financial Accountants and the
Securities and Exchange Commission;
o to meet separately and discuss any item communicated to the
committee by the independent auditors;
o to review quarterly reports from the independent auditors on
significant written communications between the independent
auditors and management;
o to evaluate the cooperation of the independent auditors and to
insure the independent auditors have full cooperation relating
to the conduct of the audit;
o to review with management Empire Resorts' press releases;
o to obtain and review from management its analysis of Empire
Resorts' major financial risks and exposures and steps taken to
monitor and control such risks;
o to consult with Empire Resorts and the independent auditors
regarding the scope and quality of the accounting and financial
reporting controls;
o to establish procedures for receiving and reviewing complaints
and anonymous submissions regarding accounting or auditing
matters;
o to investigate, review and report to the board of directors any
proprietary and ethical implications of any transactions
reported or disclosed to the committee;
o to meet at least once every fiscal quarter in order to discuss
with management the annual and quarterly audited financial
statements;
o to meet periodically with management, the chief internal
auditor, and the independent auditors in order to discuss any
matter members of the committee believe should be discussed
privately;
o to keep minutes of each meeting to be distributed to members of
the committee, members of the board of directors and the
secretary of Empire Resorts;
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o to produce an annual performance evaluation comparing committee
performance and requirements, and to make recommendations for
improvement to the charter; and
o to perform other functions and have such powers as may be
necessary.
The independent auditor team shall annually submit to the committee
a formal written statement regarding the appropriateness of the fees billed in
the last two fiscal years.
RESOURCES AND AUTHORITY OF THE COMMITTEE
The committee is granted the resources and authority to discharge
its duties and responsibilities without seeking the approval of the board of
directors.
AMENDMENTS
The board of directors may amend or repeal the audit committee
charter.
SUMMARY OF COMPENSATION COMMITTEE CHARTER
PURPOSE
The purpose of the compensation committee charter is to discharge
the responsibilities of the board of directors and to produce an annual report
regarding executive compensation.
ORGANIZATION
The committee will be composed of independent directors, unless the
Nasdaq rules allow otherwise. The board of directors will appoint the initial 3
members. Subsequent members will be nominated by the committee and appointed by
the board of directors. The board of directors will determine the duration of
the members' service on the committee.
Nasdaq rules allow, under exceptional and limited circumstances, for
a non-independent director who is neither a current officer or employee, nor a
person living with a current officer or employee, nor related by blood, marriage
or adoption to a current officer or employee, to serve for up to two years as a
member of the committee, so long as the committee already has at least three
members, and if the board of directors discloses all relevant information
regarding the nomination and determines this appointment is in the best interest
of Empire Resorts.
STRUCTURE AND PROCESS
The committee will meet at least twice a year, in addition to
attending regularly scheduled meetings of the board of directors. The board of
directors will designate one chairperson, who will determine any voting ties.
Further meetings and actions will be taken by unanimous written consent of the
committee, or by the decision of the chairperson or the board of directors. The
committee may invite Empire Resorts' chief executive officer to participate, but
not vote, in the meetings of the committee, except for those meetings regarding
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the chief executive officer and chief executive officer's compensation. The
chief executive officer is barred from any meetings regarding the chief
executive officer's compensation.
DUTIES AND RESPONSIBILITIES OF THE COMMITTEE
The committee's duties and responsibilities are:
o general compensation policies and programs;
o approval and sole determination of the chief executive
officer's compensation, including long term incentive programs,
subject to ratification by the board of directors;
o to evaluate the chief executive officer's performance on an
annual basis;
o to review, approve, recommend and oversee all proposed officer
compensation, severance or termination payments;
o to recommend, approve and oversee incentive compensation and
equity based plans, issuances and amendments of tax qualified
employee benefit or parallel non-qualified stock option plans,
and regulatory compliance regarding compensation matters;
o to produce a report on executive compensation for Empire
Resorts' annual report and proxy statement; and
o to perform other duties or responsibilities expressly assigned
by the board of directors regarding compensation programs.
COMMITTEE REPORTS
The committee will produce the following reports:
o annual report on executive compensation in Empire Resorts'
proxy statement;
o annual performance evaluation of the committee, including
comparison of current performance with the requirements of the
committee charter;
o recommendations for any improvements to the compensation
committee charter; and
o summary of actions taken at any committee meeting.
RESOURCES AND AUTHORITY OF THE COMMITTEE
The committee is granted the resources and authority to discharge
its duties and responsibilities without seeking the approval of the board of
directors.
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AMENDMENTS
The board of directors may amend or repeal the compensation
committee charter.
EXPERTS
The consolidated financial statements of Empire Resorts incorporated
in this information statement/prospectus by reference to the Annual Report on
Form 10-KSB of Empire Resorts for the year ended December 31, 2002, have been so
incorporated in reliance on the report of Friedman Alpren & Green LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The combined financial statements of Catskill Development and its
subsidiaries included in this information statement/prospectus, have been
audited by Bachrach, Waschitz & Waschitz, LLP, independent public accountants,
and are included herein in reliance upon the reports of said firm and upon the
authority of said firm as experts in accounting and auditing.
The financial statements of Monticello Raceway Development included
in this information statement/prospectus, have been audited by Bachrach,
Waschitz & Waschitz, LLP, independent public accountants, and are included
herein in reliance upon the reports of said firm and upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Empire Resorts' common stock to be
issued in the consolidation will be passed upon for Empire Resorts by Olshan
Grundman Frome Rosenzweig & Wolosky LLP, New York, New York, counsel to Empire
Resorts. Certain legal matters with respect to the federal income tax
consequences of the consolidation will also be passed upon by Olshan Grundman
Frome Rosenzweig & Wolosky LLP, New York, New York.
WHERE YOU CAN FIND MORE INFORMATION
Empire Resorts is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. In accordance with the Securities
Exchange Act of 1934, as amended, Empire Resorts files annual, quarterly and
special reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any reports, statements or other
information that Empire Resorts has filed at the Securities and Exchange
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for more information on the public
reference room. Empire Resorts' Securities and Exchange Commission filings are
also available to the public from commercial retrieval services and at the
website maintained by the Securities and Exchange Commission at WWW.SEC.GOV.
Empire Resorts has filed a registration statement on Form S-4 to
register with the Securities and Exchange Commission the shares of Empire
Resorts' common stock to be issued in the consolidation. This prospectus does
not contain all of the information in the registration statement. You will find
additional information about Empire Resorts in the registration statement. Any
statements made in this information statement/prospectus concerning the
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provisions of legal documents are not necessarily complete and you should read
the documents which are filed as exhibits to the registration statement or
otherwise filed with the Securities and Exchange Commission.
This information statement/prospectus is accompanied by a copy of
Empire Resorts' Annual Report on Form 10-KSB for the year ended December 31,
2002, Empire Resorts' Proxy Statement dated February 21, 2003 for its 2003
Annual Meeting of Stockholders on Schedule 14A and Empire Resorts' Quarterly
Report on Form 10-QSB for the nine months ended September 30, 2003.
INCORPORATION OF DOCUMENTS BY REFERENCE
This information statement/prospectus incorporates documents,
including important business and financial information, by reference that are
not part of this information statement/prospectus or delivered with this
information statement/prospectus. This means that Empire Resorts is disclosing
important information to you by referring you to those documents. You should be
aware that information in a document incorporated by reference may have been
modified or superseded by information that is included in other documents that
were filed at a later date and which are also incorporated by reference or
included in this information statement/prospectus.
Empire Resorts has filed the following documents with the Securities
and Exchange Commission and they are incorporated herein by reference:
o Quarterly Report on Form 10-QSB for the fiscal quarter ended
September 30, 2003
o Quarterly Report on Form 10-QSB for the fiscal quarter ended
June 30, 2003;
o Amendment No. 1 to Quarterly Report on Form 10-QSB for the
fiscal quarter ended March 31, 2003;
o Quarterly Report on Form 10-QSB for the fiscal quarter ended
March 31, 2003;
o Annual Report on Form 10-KSB for the fiscal year ended December
31, 2002;
o Current Report of Empire Resorts on Form 8-K/A filed on
November 3, 2003;
o Current Report of Empire Resorts on Form 8-K filed on October
31, 2003;
o Current Report of Empire Resorts on Form 8-K filed on October
8, 2003;
o Current Report of Empire Resorts on Form 8-K filed on July 30,
2003;
o Current Report of Empire Resorts on Form 8-K filed on July 10,
2003;
o Current Report of Empire Resorts on Form 8-K filed on June 24,
2003;
185
o Current Report of Empire Resorts on Form 8-K filed on May 16,
2003;
o Current Report of Empire Resorts on Form 8-K filed on April 21,
2003;
o Current Report of Empire Resorts on Form 8-K filed on April 14,
2003;
o Current Report of Empire Resorts on Form 8-K filed on April 11,
2003;
o Current Report of Empire Resorts on Form 8-K filed on April 7,
2003;
o Current Report of Empire Resorts on Form 8-K filed on March 24,
2003;
o Current Report of Empire Resorts on Form 8-K filed on March 18,
2003;
o Current Report of Empire Resorts on Form 8-K/A filed on
February 21, 2003;
o Current Report of Empire Resorts on Form 8-K filed on February
21, 2003;
o Current Report of Empire Resorts on Form 8-K filed on February
13, 2003;
o Current Report of Empire Resorts on Form 8-K/A filed on
February 10, 2003;
o Current Report of Empire Resorts on Form 8-K filed on February
4, 2003;
o Current Report of Empire Resorts on Form 8-K filed on January
17, 2003;
o Current Report of Empire Resorts on Form 8-K/A filed on January
16, 2003; and
o Description of Empire Resorts' common stock contained in its
Registration Statement on Form 8-A12B, as filed with the
Securities and Exchange Commission on June 20, 2001.
All additional documents that Empire Resorts may file with the
Securities and Exchange Commission pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, between the date of
this information statement/prospectus and the termination of the offering shall
be deemed to be incorporated by reference herein and to be a part of this
prospectus from the date of filing of such documents or reports. Any statement
contained herein or in a document incorporated by reference or deemed to be
incorporated by reference into this information statement/prospectus shall be
deemed to be modified or superseded for purposes of this prospectus to the
extent that a statement contained in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as modified or superseded, to constitute a part of this
prospectus.
Documents incorporated by reference into this information
statement/prospectus are available from Empire Resorts without charge upon
written or oral request at the address or phone number provided below. Exhibits
to documents incorporated by reference into this information
186
statement/prospectus will only be furnished if they are specifically
incorporated by reference into this document. If you request any incorporated
documents from Empire Resorts, they will be mailed to you by first class mail,
or another equally prompt means, within one business day after the date your
request is received.
Empire Resorts, Inc.
c/o Monticello Raceway
Route 17B
P.O. Box 5013
Monticello, New York 12701
(845) 794-4100, ext. 478
Attention: Corporate Secretary
187
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF CATSKILL DEVELOPMENT, LLC
Report of Bachrach, Waschitz & Waschitz, LLP, Independent Auditors...................................................F-3
Consolidated Balance Sheets as of December 31, 2001 and 2002.........................................................F-4
Consolidated Income Statements for the years ended December 31, 2001 and 2002........................................F-5
Consolidated Statements of Changes in Members' Equity for the years ended
December 31, 2001 and 2002...........................................................................................F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2001 and 2002.................................F-7
Notes to Consolidated Financial Statements December 31, 2001 and 2002................................................F-8
Consolidated Balance Sheet as of September 30, 2003.................................................................F-17
Consolidated Income Statement for the nine months ended September 30, 2003..........................................F-18
Consolidated Statement of Changes in Members' Equity for the nine months ended
September 30, 2003..................................................................................................F-19
Consolidated Statement of Cash Flows for the nine months ended September 30, 2003...................................F-20
Notes to Consolidated Financial Statements September 30, 2003.......................................................F-21
Report of Bachrach, Waschitz & Waschitz, LLP, Independent Auditors..................................................F-30
Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001..........................................F-31
Consolidated Income Statements for the nine months ended September 30, 2002
and the year ended December 31, 2001............ .................................................................F-32
Consolidated Statements of Changes in Members' Equity for the nine months ended
September 30, 2002 and the year ended December 31, 2001.............................................................F-33
Consolidated Statements of Cash Flows for the nine months ended September 30, 2002
and the year ended December 31, 2001...............................................................................F-34
Notes to Consolidated Financial Statements September 30, 2002 and December 31, 2001.................................F-35
INDEX TO FINANCIAL STATEMENTS OF MONTICELLO RACEWAY DEVELOPMENT COMPANY, LLC
Report of Bachrach, Waschitz & Waschitz, LLP, Independent Auditors..................................................F-43
Balance Sheets as of December 31, 2001 and 2002.....................................................................F-44
Income Statements for the years ended December 31, 2001 and 2002....................................................F-45
F-1
Statements of Changes in Members' Equity for the years ended
December 31, 2001 and 2002..........................................................................................F-46
Statements of Cash Flows for the years ended December 31, 2001 and 2002.............................................F-47
Notes to Financial Statements December 31, 2001 and 2002............................................................F-48
Balance Sheets as of September 30, 2002 and 2003....................................................................F-49
Income Statements for the nine months ended September 30, 2002 and 2003.............................................F-50
Statements of Changes in Members' Equity for the nine months ended
September 30, 2002 and 2003.........................................................................................F-51
Statements of Cash Flows for the nine months ended September 30, 2002 and 2003......................................F-52
Notes to Financial Statements September 30, 2002 and 2003...........................................................F-53
F-2
REPORT OF INDEPENDENT AUDITORS
To the Members of
Catskill Development, LLC
We have audited the accompanying consolidated balance sheets of Catskill
Development, LLC as of December 31, 2002 and 2001, and the related consolidated
income statements, changes in member's equity and cash flows for the years ended
December 31, 2002 and 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Catskill
Development, LLC at December 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for the years ended December 31, 2002 and
2001, in conformity with United States generally accepted accounting principles.
/s/ Bachrach, Waschitz & Waschitz, LLP
June 25, 2003
Monticello, New York
F-3
Catskill Development, LLC
Consolidated Balance Sheets
December 31, 2002 and 2001
(Audited)
December 31, 2002 December 31, 2001
----------------- -----------------
ASSETS
Current Assets:
Cash & Cash Equivalents $ 643,864 $ 1,358,469
Restricted Cash 42,376 78,070
Other Current Assets 1,368,792 806,306
----------- -----------
Total Current Assets 2,055,032 2,242,845
----------- -----------
Net Property and Equipment 5,856,246 6,443,420
----------- -----------
Real Estate Development 6,068,469 5,740,599
----------- -----------
Total Assets $13,979,747 $14,426,864
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses $ 2,585,909 $ 1,720,227
----------- -----------
Total Current Liabilities 2,585,909 1,720,227
----------- -----------
Long-Term Debt:
Notes Payable 6,821,375 6,201,250
----------- -----------
Total Long-Term Debt 6,821,375 6,201,250
----------- -----------
Members' Equity 4,572,463 6,505,387
----------- -----------
Total Liabilities and Members' Equity $13,979,747 $14,426,864
=========== ===========
See Notes To Consolidated Financial Statements
F-4
Catskill Development, LLC
Consolidated Income Statements
For the Years Ended December 31, 2002 and 2001
(Audited)
December 31, 2002 December 31, 2001
----------------- -----------------
Race Track Revenues:
Gross Wagering and Simulcasting $11,147,184 10,285,654
Non-Wagering 211,975 216,765
----------- -----------
Total Race Track Revenues 11,359,159 10,502,419
Costs and Expenses
Purses, Awards and Other 3,932,168 3,700,717
Operating Costs 2,297,216 2,216,592
General and Administrative 2,974,895 3,038,589
Depreciation 755,601 743,716
----------- -----------
Total Racetrack Costs and Expenses 9,959,880 9,699,614
----------- -----------
Net Profit From Racing Operations 1,399,279 802,805
----------- -----------
Real Estate Development Expenses:
General and Administrative 74,412 113,320
Legal Expenses 2,644,369 2,228,077
Interest Expenses 620,704 564,024
----------- -----------
Total Real Estate Development Expense 3,339,485 2,905,421
Other Income:
Interest Income 7,282 31,384
----------- -----------
----------- -----------
Net (Loss) $(1,932,924) (2,071,232)
----------- -----------
See Notes To Consolidated Financial Statements
F-5
Catskill Development, LLC
Consolidated Statements of Changes in Member's Equity
For the Years Ended December 31, 2002 and 2001
(Audited)
Preferred Other Total
Capital Capital Accumulated Members
Contributions Contributions Deficit Equity
------------ ------------ ------------ ------------
Balance December 31, 2000 $ 15,703,893 $ 400 $ (8,152,474) $ 7,551,819
Capital Contributions 1,024,800 -- -- 1,024,800
Net (Loss) -- -- (2,071,232) (2,071,232)
------------ ------------ ------------ ------------
Balance December 31, 2001 16,728,693 400 (10,223,706) 6,505,387
Capital Adjustment (3,900) -- 3,900 --
Net (Loss) -- -- $ (1,932,924) $ (1,932,924)
------------ ------------ ------------ ------------
Balance December 31, 2002 $ 16,724,793 $ 400 $(12,152,730) $ 4,572,463
============ ============ ============ ============
See Notes To Consolidated Financial Statements
F-6
Catskill Development, LLC
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2002 and 2001
(Audited)
December 31, 2002 December 31, 2001
----------------- ------------------
Operating Activities:
Net Loss $(1,932,924) $(2,071,232)
Adjustments to reconcile net loss to net cash
Provided(Used) by operating activities:
Depreciation 755,601 743,716
Loss on Asset Disposal 2,819 --
Accrued Interest Not Paid 620,125 563,750
(Increase) Decrease in:
Restricted Cash 35,694 213,052
Other Current Assets (562,486) (126,507)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 865,682 144,125
----------- -----------
Net Cash Used by Operating Activities (215,489) (533,096)
----------- -----------
Investing Activities:
Purchase of Property, Plant and Equipment (171,246) (143,521)
Real Estate Development (327,870) (111,465)
----------- -----------
Net Cash Used in Investing Activities (499,116) (254,986)
----------- -----------
Financing Activities:
Member Contributions -- 1,024,800
----------- -----------
Net Cash Provided by Financing Activities -- 1,024,800
----------- -----------
Net Increase (Decrease) in Cash (714,605) 236,718
Cash at Beginning of Year 1,358,469 1,121,751
----------- -----------
Cash at End of Year $ 643,864 $ 1,358,469
=========== ===========
Supplemental Disclosures:
Interest Paid $ 579 $ 274
See Notes To Consolidated Financial Statements
F-7
Catskill Development, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
This summary of significant accounting policies of Catskill Development,
LLC (the Company) is presented to assist in understanding the Company's
financial statements. The financial statements and notes are
representations of the Company's management who is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
A. Organization and Business Activity
----------------------------------
In October 1995, Catskill Development, LLC, a New York limited liability
company, was formed to pursue the development of a proposed Native American
Casino in Monticello, New York (the "Casino Project"). The Company's
business plan envisioned three distinct lines of business: a) casino
activities; b) real estate related activities; and c) the gaming operations
related to Monticello Raceway (the "Raceway") including pari-mutuel and
future Video Lottery Terminal ("VLT") operations. Monticello Raceway
Management. Inc. (MRMI), a New York Corporation, is a wholly owned
subsidiary and was formed to hold the pari-mutuel license. Mohawk
Management, LLC (MM), a New Your Limited Liability Company, is 60% owned by
the Company and was formed to manage the St. Regis Mohawk Casino.
Monticello Casino Management, LLC (MCM), a New York Limited Liability
Company, is 60% owned by the Company and was formed to manage any other
Native American Casino at the Raceway. Both MM and MCM are inactive at this
time.
Currently, the Company conducts pari-mutuel wagering on live race meetings
for Standard bred horses and participates in intrastate and interstate
simulcast wagering at the Raceway in Monticello, New York. The Company's
operations are subject to regulation by the New York State Racing and
Wagering Board.
The Company continues to pursue a Native American Casino Project at the
Raceway. However, to this point it has been unsuccessful (see Note 6).
B. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Monticello Raceway
Managements, Inc, Mohawk Management, LLC and Monticello Casino Management,
LLC. All significant intercompany balances and transactions have been
eliminated in consolidation.
C. Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America required
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported
F-8
Catskill Development, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimated.
D. Concentrations of Credit Risk
-----------------------------
The Company maintains significant cash balances with financial institutions
in excess of the insurance provided by the Federal Deposit Insurance
Corporation (FDIC).
The Company, in the normal course of business, settles wagers for other
racetracks and is thereby exposed to credit risk. However, receivables are
generally not a significant portion of the Company's total assets and are
comprised of a large number of accounts.
E. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash on account, demand deposits and
certificates of deposits with original maturities of less than three months
at acquisition.
F. Restricted Cash
---------------
Under New York States Racing, Pari-Mutuel Wagering and Breeding Law the
track is obliged to withhold a certain percentage of certain types of
wagers towards the establishment of a pool of money the use of which is
restricted to the funding of approved capital improvements, repairs and/or
certain advertising expenses. Periodically during the year the track
petitions the Racing and Wagering Board to certify that the noted
expenditures are eligible for re-imbursement from the capital improvement
fund. The unexpended balance is shown as restricted cash on the balance
sheet.
G. Property and Equipment
----------------------
Plant and equipment are recorded at cost. Depreciation is calculated using
the straight-line basis over the estimated useful lives of the related
assets as follows: 15 years for grandstands and buildings, 5 to 7 years for
equipment and 7 years for furniture and fixtures.
H. Real Estate Development
-----------------------
In connection with its real estate activities, the Company capitalizes
certain legal, architectural, engineering and environmental study fees ---
as well as other costs directly related to the development of its real
estate. (See Note 2)
I. Impairment of Assets
--------------------
In the event that facts and circumstances indicate that the carrying amount
of tangible assets or groups of assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the
estimate future undiscounted cash flows associated with the assets would be
compared to the assets' carrying amount to determine if a write-down to
market value or discounted cash flow value is required. Management has
determined that no impairment of assets has occurred.
F-9
Catskill Development, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
J. Inventory
---------
Inventory is recorded at the lower of cost or market on a first in, first
out basis.
K. Revenue Recognition
-------------------
Wagering revenues are recognized gross of purses, stakes and awards and
pari-mutual wagering taxes. The costs relating to these amounts are shown
as "Purses, Awards and Other" in the accompanying Income Statements.
L. Advertising
-----------
The Company expenses the costs of general advertising, promotion and
marketing programs at the time the costs are incurred.
M. Income Taxes
------------
The Company was formed as a limited liability company and elected to be
treated as a partnership for tax purposes, and thus no income tax expense
is recorded in the statements. Income of the Company is taxed to the
members in their respective returns. All income from the 100% owned
subsidiary is passed to the Company because of a management contract
between the companies. Therefore no tax accrual is needed on the
subsidiary's records.
2. FIXED ASSETS
------------
December 31, 2002 December 31, 2001
----------------- -----------------
Land $ 770,000 $ 770,000
Buildings & Improvements 8,517,724 8,414,664
Furniture, Fixture & Equipment 1,253,302 1,195,613
----------- -----------
Subtotal 10,541,026 10,380,277
----------- -----------
Less: Accumulated Depreciation 4,684,780 3,936,857
----------- -----------
Net Property and Equipment $ 5,856,246 $ 6,443,420
=========== ===========
Depreciation expense was $755,601 for the year ended December 31, 2002 and
$743,716 for the year ended December 31, 2001. The above land and buildings
are security for the mortgage described in Note 3.
The Company is in the business of developing real estate for additional
gaming activities. For the years ended December 31, 2002 and 2001, the
Company had capitalized $327,870 and $111,645, respectively to continue its
efforts.
3. MEMBERS EQUITY AND SENIOR OBLIGATION
------------------------------------
The members of the Company have contributed considerable amounts of money
to the Company to fund the purchasing of the Raceway and pursuing the
approval and development of a Native American Casino on a portion of the
Raceway property. These contributions (and a priority return of 10% per
F-10
Catskill Development, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
annum) and the mortgage described below, (with interest compounded at 10%
per annum) must be repaid before any net earnings from operations would be
available for distribution to the Company's other members. As of December
31, 2002 the aggregate amount needed to satisfy the payment of said
contributions (with priority returns) to certain members of the Company is
$29,991,362.
These preferred capital balances are subordinate to a mortgage, payable to
two members, (the "Senior Obligation"), which at December 31, 2002, and
December 31, 2001 was $6,821,375 and $6,201,250 respectively including
accrued interest at 10% per annum. All payments accrue and the principal
and accrued interest totaling $8,052,550 is due September 15, 2004.
Currently, any cash flow from the operations of the Raceway are being
retained by the Company for working capital purposes and to fund litigation
and development expenses in conjunction with other potential gaming
operations at the track. As a result, the Company is not expected to make
any distributions with respect to certain other members' interests until
the Company has achieved additional net revenues sufficient to discharge
the payment of the Senior Obligation, accrued interest, preferred capital
balance and priority returns.
The Company was formed as a limited liability company, therefore its
members individual liability is limited under the appropriate laws of the
State of New York. The Company will cease to exist July 1, 2025. The
Company's distinct lines of business: (A) casino development; (B) real
estate related activities; and (C) the gaming operations related to
Monticello Raceway including pari-mutuel and future Video Lottery Terminal
operations are owned as follows: (after the transaction of February 12,
2002 noted below and the transaction of December 10, 2002 described in Note
6 - Commitments and Contingencies)
Casino Real Estate Racing
------ ----------- ------
Voting Members:
---------------
Alpha Monticello, Inc. 48.310 25.000 36.870
Americas Tower Partners 20.000 25.000 25.000
Monticello Realty, LLC 20.000 22.500 22.500
Watertone Holdings, LP 9.190 25.000 13.130
Non-Voting Members:
-------------------
Cliff Ehrlich 1.375 1.375 1.375
Fox-Hollow Lane, LLC 1.000 1.000 1.000
Shamrock Strategies, Inc. 0.125 0.125 0.125
On February 12, 2002, Alpha Monticello, Inc. (a wholly owned subsidiary of
Empire Resorts, Inc. ("Empire"), a member of the Company, entered into an
agreement with Watertone Holdings LP ("Watertone"), also a member of the
Company, providing for the acquisition of 47.5% of Watertone's economic
interests in the casino and racetrack business components of the Company.
The transaction contemplated by this agreement closed on March 12, 2002.
F-11
Catskill Development, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
4. RELATED PARTY TRANSACTIONS
--------------------------
As explained in Notes 1G and 2 the Company is in the business of developing
real estate for additional gaming activities. In connection with this
development the Company has paid various consulting fees to related parties
consisting of members or directors of Catskill Development, LLC. From
inception through December 31, 2002 the Company has capitalized as
development costs $868,574 of such related party transactions.
5. OPERATING LEASES
----------------
At December 31, 2002 the Company had commitments under operating leases
which end in 2006 for various pieces of equipment requiring annual lease
payments for the twelve months ending December 31 as follows:
2003 $ 151,321
2004 140,121
2005 18,451
2006 8,808
----------
Total $ 318,701
==========
Lease expense was $165,721 and $153,208 for the years ended December 31,
2002 and 2001 respectively.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Monticello Harness Horsemen's Association, Inc. has brought an action
against Monticello Raceway Management, Inc. and one of the members of the
Company seeking the sum of $1,300,0000 to be credited to the horsemen's
purse account. The suit claims that revenues received by the Raceway from
various simulcasting sources were not properly credited to their horsemen's
purse account. Management has responded vigorously to contest the case
after attempts at out-of-court settlement proved fruitless. On June 19,
2003 the case was dismissed because of lack of subject matter jurisdiction.
The plaintiff is expected to file a complaint in the proper court or to
seek alternative dispute resolution. There are disputed issues of fact
between the parties, which makes an estimate of the outcome or the amount
or range of loss difficult to gauge. In accordance with Statement of
Financial Accounting Standards No. 5, the amount of the loss, if any that
may be ultimately realized has not been reflected in the accompanying
financial statements.
In July 1996, the Company and its members entered into a series of
agreements with the Mohawk Tribe related to the development of a casino on
land adjacent to the Monticello Raceway in Monticello, New York. Pursuant
to such agreements, the Mohawk Tribe was to purchase certain land from the
Company and various affiliates of the Company were to help with the
development of a casino on the land and manage any resulting casino. More
particularly, the Tribe entered into a Gaming Facility Management Agreement
with Mohawk Management LLC ("MM"). Pursuant to such Agreement, MM was to be
provided with the exclusive right to manage the Monticello Casino for seven
(7) years from its opening and to receive certain fees for the provision of
F-12
Catskill Development, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
management and related services.
Completion of the project contemplated by the agreements with the Mohawk
Tribe was subject to certain conditions, including the obtaining of
relevant federal and State governmental approvals. The Company, in
conjunction with its affiliates, assumed responsibility for and undertook,
seeking and obtaining all local, state and federal approvals required or
necessary to construct and operate the Casino Project. By letter dated
April 6, 2000, addressed to Governor George Pataki, Kevin Gover, Assistant
Secretary of the Department of the Interior, advised and notified the
Governor of New York that the Company's proposed casino project with the
Mohawk Tribe had been approved and specifically requested that the Governor
concur. However, on April 22, 2000, the Company became aware of a purported
letter agreement between the Mohawk Tribe and Park Place Entertainment
Corporation ("PPE"), which agreement (with two irrelevant exceptions)
purportedly gave PPE the exclusive rights to develop and manage any casino
development the Mohawk Tribe may have in the State of New York.
Since 2000, the Company has been engaged in litigation with Park Place
Entertainment ("PPE") alleging tortuous interference with contract and
business relationship in regard to the Company's agreements with the St.
Regis Mohawk Tribe. On March 14, 2003, attorneys for the Plaintiffs filed a
motion requesting the District Court to vacate a judgment, which was
adverse to the Company, issued on August 26th, 2002, on the ground that new
evidence has been found that has a material bearing on important issues
affecting the judgment. The motion indicates that audio tapes of certain
conversations concerning the transaction at issue in the case were made
available to the plaintiffs by Presidents, R.C., the plaintiff in another
case against PPE and that the tapes provide evidence which raise material
issues regarding important issues in the case and the positions taken by
the defendant. The motion requests that the judgment be vacated and that
the Plaintiffs be permitted to continue discovery and file amended
pleadings to reflect the evidence contained in the case. Although the
Company has been advised by the attorneys handling the case that the new
evidence relates to substantial important issues, it does not relate to all
of the issues or charges in the Plaintiff's original complaint or all of
the issues covered by the pending appeal in the case by the Plaintiffs.
Accordingly, no assurance can be given that the motion will be granted or
that, if granted, it will provide relief sufficient to permit the
Plaintiffs to proceed with a trial or provide evidence that will be
available for purposes of the record in the appeal.
Legal fees in connection with the aforementioned litigation amounted to
$2,644,389 and $2,228,077 for the years ended December 31, 2002 and 2001
respectively.
The Company is also a party to a various non-environmental legal
proceedings and administrative actions, all arising from the ordinary
course of business. Although it is impossible to predict the outcome of any
legal proceeding, the Company believes any liability that may finally be
determined with respect to such legal proceedings should not have a
material effect on The Company's consolidated financial position, results
of operations or cash flows.
F-13
Catskill Development, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
In October 23, 2002, the Company retained CIBC World Markets Corporation to
help it review its strategic alternatives and assist in maximizing the
value of its assets. The Company is in negotiations with a federally
recognized Native American tribe in New York and various casino management
and development entities with respect to the development of a Native
American Casino. The development of a casino at the Raceway will require
consummation of arrangements with these parties and various reviews and
approvals. No assurances can be given that such arrangements will be
entered into or that any approvals will be obtained.
On December 10, 2002, Empire reached an agreement with Bryanston Group,
Inc. ("Bryanston") (a former member of the Company) and certain other
affiliates regarding certain obligations due from and claims against the
Company. Included in the agreement with Bryanston is the acquisition of
Bryanston's interest in Catskill Development, including its voting
membership interest and preferred capital account in the Company. Bryanston
has agreed to transfer such interests to Empire.
7. VIDEO LOTTERY TERMINALS
-----------------------
In October 2001, the New York State Legislature passed a bill that expanded
the nature and scope of gaming in the state ("VLT Legislation"). The bill
was signed by the Governor on October 31, 2001. The provision of the VLT
Legislation relevant to the Company include: a) authority given to the
Governor to negotiate casino licenses for up to three Native American
casinos in the Catskills; and b) the authority for several of New York's
racetracks, including the Raceway, to operate video lottery terminal
("VLT") in their facilities. The VLT operation will be conducted by the New
York State Lottery (the "Lottery") with the racetracks functioning largely
as agents for the Lottery.
The Company received a letter from the Lottery, dated March 21, 2002,
advising the Raceway that the Lottery has completed its initial review of
the Raceway's business plan for the operation of VLT's at the Raceway
during the initial three year trial period approved by the State
Legislature. Based on such review, the Lottery has made an initial
allocation of 1,800 VLT's to the Raceway and has approved the maximum
permitted rate for compensation of 25% of revenues generated after payout
of prizes for the Raceway. The law currently provides that the Raceway must
apply 35% in the first year, escalating to 45% in years two and three, of
its compensation to enhance purses at the Raceway and each year must
dedicate 5% of its compensation to a State Breeding Development Fund.
The business plan was submitted at the request of the Lottery, and in
accordance with Lottery procedures, does not represent a final decision
with respect to the implementation of VLT's by the Company. The business
plan includes certain assumptions recommended by the Lottery and other
estimates considered preliminary by the Company The Lottery has not yet
established a firm start date or adopted regulations with regard to the
program.
On May 16, 2002, the New York State Legislature passed a bill that further
expanded the October 2001 VLT Legislation. This bill extends the test
period under the current law from three years to a period ending December
31, 2007. Further, the bill authorizes each track to enter into an
F-14
Catskill Development, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
agreement with the organization representing its horsemen to reduce the
percentage of its vendor fees dedicated to enhancing purses at such track
during the initial three years, to an amount not less than 25 percent. That
bill was signed by the Governor on May 29, 2002. In addition, the Company's
ability to proceed with the VLT program may be impacted by its plans with
respect to casino development at the site.
8. SUBSEQUENT EVENTS
-----------------
On February 4, 2003 the Company entered into a Letter of Intent with
Empire, its partner in developing gaming activities at the Monticello
Raceway (the "Raceway") and other related entities. The agreement provides
for Empire to acquire a 48 year ground lease on the Raceway and contiguous
properties, together with all of the Company's development and management
rights with respect to the site and related gaming activities, in exchange
for an 80.25% position in Empire's common stock.
The Letter of Intent provides for the Company to lease its 230-acre Raceway
property to Empire for a period of 48 years for an annual base rent of
$1,800,000. Lease terms are to contain certain options for Empire to
acquire title to portions of the property. Empire will have the right to
purchase a 29-acre parcel for the purpose of placing it in trust for a
Native American Tribe or Nation at the purchase price of $1. The exercise
of such option will require obtaining necessary federal and state
approvals. In addition, the remaining property may be purchased within two
years of the opening of a casino at the present value of the ground lease
at the time of such exercise.
The agreement is subject to the execution of definitive agreements,
approvals by Empire's Board of Directors and an opinion that the
transaction will be tax-free to all parties and other technical
requirements, including a fairness opinion. No assurance can be given that
the transactions provided for in the Letter of Intent will ultimately occur
or will occur at the times and on the terms and conditions contained in the
Letter of Intent.
On April 3, 2003, the Cayuga Nation, a New York State based federally
recognized Indian Nation (the "Cayuga Nation"), the Company and certain of
the Company affiliates, including a subsidiary of the Company entered into
a series of agreements which provide for the development of a trust land
casino adjacent to the Raceway. In furtherance of these transactions, on
April 10, 2003, the Cayuga Nation, Empire and the Company, officially filed
with the Eastern Regional Office of the Bureau of Indian Affairs, an
application requesting that the Secretary of the Interior acquire in trust
on behalf of the Cayuga Nation a 30 acre parcel of land in Monticello, New
York to be used for gaming purposes. This transaction, if completed, gives
Empire control of the Raceway and all development rights for the proposed
Native American casino and any potential future video lottery terminal
operations. The Company believes this will strengthen our ability to obtain
new financing on reasonable terms and our long-term viability and hopes
that this transaction will close sometime in the third quarter of 2003,
although there are a number of approvals that must be obtained and
conditions that must be met.
F-15
Catskill Development, LLC
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
On May 15, 2003, New York State enacted legislation to enhance the
incentives for racetracks in the State to participate in the State's Video
Lottery program. Although legislation had authorized the program earlier,
none of the racetracks authorized to participate in the program had found
the terms sufficiently attractive to justify the investment required to
participate in the program. Under the newly enacted legislative amendments,
the initial term of the program has been extended to 10-years from the date
of inception and permits year round operations with extended hours.
Approximately 29% of total VLT revenue received is to be distributed to the
tracks and their horsemen/ breeders associations. A percentage of VLT
revenues is to be made available to provide gradually increasing purses for
the horsemen and for a breeding fund, thus improving the quality of racing
at the track. During the initial eighteen months of the program, the NY
State Lottery has the ability to approve the opening of temporary VLT
structures -- while more comprehensive construction takes place.
Pursuant to the original legislation, the New York State Lottery made an
allocation of 1,800 VLT's to Monticello Raceway. If market conditions
permit, additional machines may be added without the need for additional
legislation.
F-16
Catskill Development, LLC
Consolidated Balance Sheet
September 30, 2003
(Unaudited)
September 30, 2003
------------------
ASSETS
Current Assets:
Cash & Cash Equivalents $ 809,179
Restricted Cash 137,217
Accounts Receivable 601,403
Inventory 6,183
Prepaid Expenses 297,077
Other Current Assets 3,186
-----------
Total Current Assets 1,854,245
-----------
Property, Plant and Equipment
Land 770,000
Building and Improvements 9,004,824
Furniture, Fixtures and Equipment 1,292,159
-----------
Subtotal 11,066,983
Less: Accumulated Depreciation 5,211,186
-----------
Net Property, Plant and Equipment 5,855,797
-----------
Real Estate Development 7,645,213
-----------
Total Assets $15,355,255
===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts Payable 2,821,736
Notes Payable - Senior Obligation 5,000,000
Accrued Interest Payable 2,320,500
Other Current Liabilities 502,571
Accrued Expenses $ 65,308
-----------
Total Current Liabilities 10,710,155
-----------
Members' Equity 4,645,140
-----------
Total Liabilities and Members' Equity $15,355,255
===========
See Accompanying Notes
F-17
Catskill Development, LLC
Consolidated Income Statement
For the Nine Months Ended September 30, 2003
(Unaudited)
September 30, 2003
------------------
Race Track Revenues:
Gross Wagering and Simulcasting $ 7,337,205
Non-Wagering 135,353
Total Race Track Revenues 7,472,558
Costs and Expenses
Purses, Awards and Other 2,524,030
Operating Costs 1,684,435
General and Administrative 2,484,025
Depreciation 526,408
---------------
Total Costs and Expenses 7,218,898
---------------
Net Profit From Racing Operations $ 253,660
---------------
Real Estate Development Expenses:
General and Administrative 154,048
Legal Expenses 1,125,448
Interest Expenses 499,628
---------------
Total Real Estate Development Expense 1,779,124
---------------
Other Income:
Interest Income 2,847
---------------
Net (Loss) $ (1,522,617)
===============
See Accompanying Notes
F-18
Catskill Development, LLC
Consolidated Statements of Changes in Member's Equity
For the Nine Months Ended September 30, 2003
(Unaudited)
Preferred Other Total
Capital Capital Accumulated Members
Contributions Contributions Deficit Equity
------------ ------------ ------------ ------------
Balance December 31, 2002 $ 16,724,793 $ 400 $(12,152,731) $ 4,572,462
Capital Contributions 1,314,498 -- -- 1,314,498
Other 280,797 280,797
Net (Loss) -- -- (1,522,617) (1,522,617)
------------ ------------ ------------ ------------
Balance September 30, 2003 $ 18,320,088 400 (13,675,348) 4,645,140
============ ============ ============ ============
See Accompanying Notes
F-19
Catskill Development, LLC
Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 2003
(Unaudited)
September 30, 2003
------------------
Operating Activities:
Net Loss $(1,522,617)
Adjustments to reconcile net loss to net cash
Provided(Used) by operating activities:
Depreciation 526,408
Accrued Interest Not Paid 499,125
(Increase) Decrease in:
Restricted Cash (94,841)
Accounts Receivable 426,912
Inventory 830
Prepaid Expenses 16,354
Other Current Assets 16,847
Increase (Decrease) in:
Accounts Payable 632,473
Other Current Liabilities 494,740
Accrued Expenses (42,713)
-----------
Net Cash Provided (Used) by Operating Activities 953,518
-----------
Investing Activities:
Purchase of Property, Plant and Equipment (525,957)
Real Estate Development (1,576,744)
-----------
Net Cash Used in Investing Activities (2,102,701)
-----------
Financing Activities:
Member Contributions 1,314,498
-----------
Net Cash Provided by Financing Activities 1,314,498
-----------
Net Increase (Decrease) in Cash 165,315
Cash at Beginning of Period 643,864
-----------
Cash at End of Period $ 809,179
===========
Supplemental Disclosures:
Interest Paid $ 503
Non-Cash Settlement of Accounts Payable Liability $ 280,797
See Accompanying Notes
F-20
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2003
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
This summary of significant accounting policies of Catskill Development,
LLC (the Company) is presented to assist in understanding the Company's
financial statements. These accounting policies have been consistently
applied in the preparation of the financial statements, and all normal and
recurring adjustments and accruals considered necessary for a fair
presentation have been included. Operating results for the nine month
period ended September 30, 2003 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2003
A. Organization and Business Activity
----------------------------------
In October 1995, Catskill Development, LLC, a New York limited liability
company, was formed to pursue the development of a proposed Native American
Casino in Monticello, New York (the "Casino Project"). The Company's
business plan envisioned three distinct lines of business: a) casino
activities; b) real estate related activities; and c) the gaming operations
related to Monticello Raceway (the "Raceway") including pari-mutuel and
future Video Lottery Terminal ("VLT") operations. Monticello Raceway
Management. Inc. (MRMI), a New York Corporation, is a wholly owned
subsidiary and was formed to hold the pari-mutuel license. . Mohawk
Management, LLC (MM), a New Your Limited Liability Company, is 60% owned by
the Company and was formed to manage the St. Regis Mohawk Casino.
Monticello Casino Management, LLC (MCM), a New York Limited Liability
Company, is 60% owned by the Company and was formed to manage any other
Native American Casino at the Raceway. Both MM and MCM are inactive at this
time.
Currently, the Company conducts pari-mutuel wagering on live race meetings
for Standard bred horses and participates in intrastate and interstate
simulcast wagering at the Raceway in Monticello, New York. The Company's
operations are subject to regulation by the New York State Racing and
Wagering Board.
The Company continues to pursue a Native American Casino Project at the
Raceway. However, to this point it has been unsuccessful (see Note 8).
B. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
the Company's subsidiaries, Monticello Raceway Managements, Inc, Mohawk
Management, LLC and Monticello Casino Management, LLC. All significant
inter-company balances and transactions have been eliminated in
consolidation.
C. Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America required
management to make estimates and assumptions that affect the reported
F-21
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2003
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimated.
D. Concentrations of Credit Risk
-----------------------------
The Company maintains significant cash balances with financial institutions
in excess of the insurance provided by the Federal Deposit Insurance
Corporation (FDIC).
The Company, in the normal course of business, settles wagers for other
racetracks and is thereby exposed to credit risk. However, receivables are
generally not a significant portion of the Company's total assets and are
comprised of a large number of accounts.
E. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash on account, demand deposits and
certificates of deposits with original maturities of less than three months
at acquisition.
F. Restricted Cash
---------------
Under New York States Racing, Pari-Mutuel Wagering and Breeding Law the
track is obliged to withhold a certain percentage of certain types of
wagers towards the establishment of a pool of money the use of which is
restricted to the funding of approved capital improvements, repairs and/or
certain advertising expenses. Periodically during the year the track
petitions the Racing and Wagering Board to certify that the noted
expenditures are eligible for re-imbursement from the capital improvement
fund. The unexpended balance is shown as restricted cash on the balance
sheet.
G. Property, and Equipment
-----------------------
Plant and equipment are recorded at cost. Depreciation is calculated using
the straight-line basis over the estimated useful lives of the related
assets as follows: 15 years for grandstands and buildings, 5 to 7 years for
equipment and 7 years for furniture and fixtures.
H. Real Estate Development
-----------------------
In connection with its real estate activities, the Company capitalizes
certain legal, architectural, engineering and environmental study fees as
well as other costs directly related to the development of its real estate.
(See Note 2)
I. Impairment of Assets
--------------------
In the event that facts and circumstances indicate that the carrying amount
of tangible assets or groups of assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the
estimate future undiscounted cash flows associated with the assets would be
compared to the assets' carrying amount to determine if a write-down to
F-22
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2003
market value or discounted cash flow value is required. Management has
determined that no impairment of assets has occurred.
J. Inventory
---------
Inventory is recorded at the lower of cost or market on a first in, first
out basis.
K. Revenue Recognition
-------------------
Wagering revenues are recognized gross of purses, stakes and awards and
pari-mutual wagering taxes. The costs relating to these amounts are shown
as "Purses, Awards and Other" in the accompanying Income Statements.
L. Advertising
-----------
The Company expenses the costs of general advertising, promotion and
marketing programs at the time the costs are incurred.
M. Income Taxes
------------
The Company was formed as a limited liability company and elected to be
treated as a partnership for tax purposes, and thus no income tax expense
is recorded in the statements. Income of the Company is taxed to the
members in their respective returns. All income from the 100% owned
subsidiary is passed to the Company because of a management contract
between the companies. Therefore no tax accrual is needed on the
subsidiary's records.
2. FIXED ASSETS
------------
September 30, 2003
------------------
Land $ 770,000
Buildings & Improvements 9,004,824
Furniture, Fixtures & Equipment 1,292,159
-----------
Subtotal 11,066,983
Less: Accumulated Depreciation 5,211,186
-----------
Net Property and Equipment $ 5,855,797
===========
Depreciation expense was $526,408 = for the nine months ended September 30,
2003. The above land and buildings are security for the mortgage described
in Note 3.
The Company is in the business of developing real estate for additional
gaming activities. For the nine months ended September 30, 2003, the
Company had capitalized $1,576,744 to continue its efforts.
3. MEMBERS EQUITY AND SENIOR OBLIGATION
------------------------------------
The members of the Company have contributed considerable amounts of money
to the Company to fund the purchasing of the Raceway and pursuing the
approval and development of a Native American Casino on a portion of the
F-23
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2003
Raceway property. These contributions (and a priority return of 10% per
annum) and the mortgage described below, (with interest compounded at 10%
per annum) must be repaid before any net earnings from operations would be
available for distribution to the Company's other members. As of September
30, 2003 the aggregate amount needed to satisfy the payment of said
contributions (with priority returns) to certain members of the Company is
$34,717,799.
These preferred capital balances are subordinate to a mortgage, payable to
two members, (the "Senior Obligation"), which at September 30, 2003 was
$7,320,500 including accrued interest at 10% per annum. The Senior
Obligation matures on September 15, 2004. Currently, any cash flow from the
operations of the Raceway are being retained by the Company for working
capital purposes and to fund litigation and development expenses in
conjunction with other potential gaming operations at the track. As a
result, the Company is not expected to make any distributions with respect
to certain other members' interests until the Company has achieved
additional net revenues sufficient to discharge the payment of the Senior
Obligation, accrued interest, preferred capital balance and priority
returns.
The Company was formed as a limited liability company, therefore its
members individual liability is limited under the appropriate laws of the
State of New York. The Company will cease to exist July 1, 2025. The
Company's distinct lines of business: (A) casino development; (B) real
estate related activities; and (C) the gaming operations related to
Monticello Raceway including pari-mutuel and future Video Lottery Terminal
operations are owned as follows:
Casino Real Estate Racing
------------- -------------- -----------
Voting Members
Alpha Monticello, Inc. 48.310 25.000 36.870
Americas Tower Partners 20.000 25.000 25.000
Monticello Realty, LLC 20.000 22.500 22.500
Watertone Holdings, LP 9.190 25.000 13.130
Non-Voting Members
Cliff Ehrlich 1.375 1.375 1.375
Fox-Hollow Lane, LLC 1.000 1.000 1.000
Shamrock Strategies, Inc. 0.125 0.125 0.125
4. RELATED PARTY TRANSACTIONS
--------------------------
As explained in Notes 1G and 2 the Company is in the business of developing
real estate for additional gaming activities. In connection with this
development the Company has paid various consulting fees to related parties
consisting of members or directors of Catskill Development, LLC. From
inception through September 30, 2003 the Company has capitalized as
development costs $976,858 of such related party transactions.
F-24
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2003
5. OPERATING LEASES
----------------
At September 30, 2003 the Company had commitments under operating leases
which end in 2006 for various pieces of equipment requiring annual lease
payments for the twelve months ending September 30 as follows:
2004 $150,121
2005 43,247
2006 13,209
--------
Total $206,577
========
Lease expense was $118,594 for the nine months ended September 30, 2003.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Monticello Harness Horsemen's Association, Inc. has brought an action
against Monticello Raceway Management, Inc. and one of the members of the
Company seeking the sum of $1,562,776 to be credited to the horsemen's
purse account and an additional $4,000,000 in punitive damages. The suit
claims that revenues received by the Raceway from various simulcasting
sources were not properly credited to their horsemen's purse account. A
separate action seeking $50,000 questions the proper assignment of stalls
to the Horseman. Management has responded vigorously to contest the case
after attempts at out-of-court settlement proved fruitless. There are
disputed issues of fact between the parties, which makes an estimate of the
outcome or the amount or range of loss difficult to gauge. In accordance
with Statement of Financial Accounting Standards No. 5, the amount of the
loss, if any that may be ultimately realized has not been reflected in the
accompanying financial statements.
In July 1996, the Company and its members entered into a series of
agreements with the Mohawk Tribe related to the development of a casino on
land adjacent to the Monticello Raceway in Monticello, New York. Pursuant
to such agreements, the Mohawk Tribe was to purchase certain land from the
Company and various affiliates of the Company were to help with the
development of a casino on the land and manage any resulting casino. More
particularly, the Tribe entered into a Gaming Facility Management Agreement
with Mohawk Management LLC ("MM"). Pursuant to such Agreement, MM was to be
provided with the exclusive right to manage the Monticello Casino for seven
(7) years from its opening and to receive certain fees for the provision of
management and related services.
Completion of the project contemplated by the agreements with the Mohawk
Tribe was subject to certain conditions, including the obtaining of
relevant federal and State governmental approvals. The Company, in
conjunction with its affiliates, assumed responsibility for and undertook,
seeking and obtaining all local, state and federal approvals required or
necessary to construct and operate the Casino Project. By letter dated
April 6, 2000, addressed to Governor George Pataki, Kevin Gover,
F-25
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2003
Assistant Secretary of the Department of the Interior, advised and notified
the Governor of New York that the Company's proposed casino project with
the Mohawk Tribe had been approved and specifically requested that the
Governor concur. However, on April 22, 2000, the Company became aware of a
purported letter agreement between the Mohawk Tribe and Park Place
Entertainment Corporation ("PPE"), which agreement (with two irrelevant
exceptions) purportedly gave PPE the exclusive rights to develop and manage
any casino development the Mohawk Tribe may have in the State of New York.
Since 2000, the Company has been engaged in litigation with Park Place
Entertainment ("PPE") alleging tortuous interference with contract and
business relationship in regard to the Company's agreements with the St.
Regis Mohawk Tribe. On March 14, 2003, attorneys for the Plaintiffs filed a
motion requesting the District Court to vacate a judgment, which was
adverse to the Company, issued on August 26th, 2002, on the ground that new
evidence has been found that has a material bearing on important issues
affecting the judgment. The motion indicates that audio tapes of certain
conversations concerning the transaction at issue in the case were made
available to the plaintiffs by Presidents, R.C., the plaintiff in another
case against PPE and that the tapes provide evidence which raise material
issues regarding important issues in the case and the positions taken by
the defendant. The motion requests that the judgment be vacated and that
the Plaintiffs be permitted to continue discovery and file amended
pleadings to reflect the evidence contained in the case. Although the
Company has been advised by the attorneys handling the case that the new
evidence relates to substantial important issues, it does not relate to all
of the issues or charges in the Plaintiff's original complaint or all of
the issues covered by the pending appeal in the case by the Plaintiffs.
Legal fees in connection with the aforementioned litigation amounted to
$1,125,448 for the nine months ended September 30, 2003.
The Company is also a party to a various non-environmental legal
proceedings and administrative actions, all arising from the ordinary
course of business. Although it is impossible to predict the outcome of any
legal proceeding, the Company believes any liability that may finally be
determined with respect to such legal proceedings should not have a
material effect on The Company's consolidated financial position, results
of operations or cash flows.
In October 23, 2002, the Company retained CIBC World Markets Corporation to
help it review its strategic alternatives and assist in maximizing the
value of its assets. The Company is in negotiations with a federally
recognized Native American tribe in New York and various casino management
and development entities with respect to the development of a Native
American Casino. The development of a casino at the Raceway will require
consummation of arrangements with these parties and various reviews and
approvals. No assurances can be given that such arrangements will be
entered into or that any approvals will be obtained.
On July 3, 2003 the Company entered into a Definitive Agreement with Empire
Resorts, Inc (Empire), its partner in developing gaming activities at the
Raceway and other related entities. The agreement provides for Empire to
acquire a 48 year ground lease on the Raceway and contiguous properties,
F-26
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2003
together with all of the Company's development and management rights with
respect to the site and related gaming activities, in exchange for an
80.25% position in Empire's common stock.
The Definitive Agreement provides for the Company to lease its 230-acre
Raceway property to Empire for a period of 48 years for an annual base rent
of $1,800,000. The Lease terms are to contain certain options for the
Company to acquire title to portions of the property. The exercise of such
option will require obtaining necessary federal and state approvals to
create a Native American gaming facility on the property. If such an
approval is reached, the Company will have the ability to apply any
proceeds that Catskill receives for the Casino project, in relation to the
land placed in trust, and apply those proceeds against the negotiated
purchase price.
7. VIDEO LOTTERY TERMINALS
-----------------------
In October 2001, the New York State Legislature passed a bill that expanded
the nature and scope of gaming in the state ("VLT Legislation"). The bill
was signed by the Governor on October 31, 2001. The provision of the VLT
Legislation relevant to the Company include: a) authority given to the
Governor to negotiate casino licenses for up to three Native American
casinos in the Catskills; and b) the authority for several of New York's
racetracks, including the Raceway, to operate video lottery terminal
("VLT") in their facilities. The VLT operation will be conducted by the New
York State Lottery (the "Lottery") with the racetracks functioning largely
as agents for the Lottery.
The Company received a letter from the Lottery, dated March 21, 2002,
advising the Raceway that the Lottery has completed its initial review of
the Raceway's business plan for the operation of VLT's at the Raceway
during the initial three year trial period approved by the State
Legislature. Based on such review, the Lottery has made an initial
allocation of 1,800 VLT's to the Raceway
The business plan was submitted at the request of the Lottery, and in
accordance with Lottery procedures, does not represent a final decision
with respect to the implementation of VLT's by the Company. The business
plan includes certain assumptions recommended by the Lottery and other
estimates considered preliminary by the Company The Lottery has not yet
established a firm start date or adopted regulations with regard to the
program.
On May 15, 2003, New York State enacted legislation to enhance the
incentives for racetracks in the State to participate in the State's Video
Lottery program. Although legislation had authorized the program earlier,
none of the racetracks authorized to participate in the program had found
the terms sufficiently attractive to justify the investment required to
participate in the program. Under the newly enacted legislative amendments,
the initial term of the program has been extended to 10-years from the date
of inception and permits year round operations with extended hours.
Approximately 29% of total VLT revenue received is to be distributed to the
tracks and their horsemen/ breeders associations. A percentage of VLT
revenues is to be made available to provide gradually increasing purses for
the horsemen and for a breeding fund, thus improving the quality of racing
F-27
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2003
at the track. During the initial eighteen months of the program, the NY
State Lottery has the ability to approve the opening of temporary VLT
structures -- while more comprehensive construction takes place. Pursuant
to the original legislation, the New York State Lottery made an allocation
of 1,800 VLT's to Monticello Raceway. If market conditions permit,
additional machines may be added without the need for additional
legislation.
On July 17, 2003 The New York State Supreme Court decided that the
Legislature did not violate the state constitution when it authorized the
governor to sign accords with Indian tribes allowing them to build six new
casinos. Judge Joseph Teresi, an Albany County judge, also ruled that
racetracks could install video lottery terminals and the state could take
part in interstate lotteries.
8. CASINO DEVELOPMENT
------------------
On April 3, 2003, the Cayuga Nation, a New York State based federally
recognized Indian Nation (the "Cayuga Nation"), the Company and certain of
the Company affiliates, including a subsidiary of the Company entered into
a series of agreements which provide for the development of a trust land
casino adjacent to the Raceway. In furtherance of these transactions, on
April 10, 2003, the Cayuga Nation, Empire and the Company, officially filed
with the Eastern Regional Office of the Bureau of Indian Affairs, an
application requesting that the Secretary of the Interior acquire in trust
on behalf of the Cayuga Nation a 30 acre parcel of land in Monticello, New
York to be used for gaming purposes. This transaction, if completed, gives
Empire control of the Raceway and all development rights for the proposed
Native American casino and any potential future video lottery terminal
operations. The Company believes this will strengthen our ability to obtain
new financing on reasonable terms and our long-term viability and hopes
that this transaction will close sometime in the fourth quarter of 2003,
although there are a number of approvals that must be obtained and
conditions that must be met.
9. SUBSEQUENT EVENTS
-----------------
On October 29, 2003, MRMI consummated a $3,500,000 loan agreement with The
Berkshire Bank. Pursuant to the terms of a planned consolidation with
Empire, MRMI is scheduled to become a wholly owned subsidiary of Empire.
Prior to the consummation of the loan, the Company and MRMI entered into a
48 year lease with regard to the Monticello Raceway property, which
includes an option to purchase the property. The loan is secured by a
leasehold mortgage, a pledge of raceway revenues and security interests in
certain equipment. The leasehold mortgage loan bears interest at 8.75% and
matures in two years, with monthly principal and interest payments based on
a 48 month amortization schedule. Proceeds from the loan are to be used
primarily to pay for design and development costs and site work in
connection with the planned improvements to Monticello Raceway in
preparation for video lottery operations. Total costs of the improvements
are expected to exceed $20,000,000. Empire has entered into a surety
agreement with The Berkshire Bank to guarantee the loan. A portion of the
proceeds from the loan is also expected to pay certain administrative
expenses of Empire.
F-28
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2003
10. GOING CONCERN
-------------
The Company has sustained net losses over the past few years and, at
September 30, 2003, had a net working capital deficit of $8,855,870. The
calculation of the deficit includes the liability of the Senior Obligation
that is secured by a mortgage on the Raceway property, which at September
30, 2003 was $7,320,500. This obligation is due September 15, 2004 with a
maturity liability of $8,052,550. If the proposed consolidation occurs
described in Note 6, the Senior Obligation will be satisfied thru the
consideration included in the transaction and the liability will be removed
from the financial statements. The removal of the Senior Obligation from
the current liabilities would reduce the working capital deficit to
$1,535,370. To meet current and future obligations associated with the
operations of the Company, the Company through a subsidiary and affiliate
has raised additional capital (See Note 9).
As described in Note 6, on July 3, 2003 the Company entered into an
agreement with Empire. The agreement with Empire has been approved by a
special committee of the Company's Board of Directors in September 2003 The
special committee engaged Kane Reece Associates to act as its financial
advisor in connection with the proposed consolidation. In connection with
its engagement, the special committee requested that Kane Reece Associates
evaluate the fairness of the consolidation's terms to Empire and its
stockholders from a financial point of view. On September 8, 2003, Kane
Reece Associates delivered a written opinion to Empire's special committee
stating that, as of that date and based on and subject to the matters
described in its opinion, the consolidation's terms were fair, from a
financial point of view, to the holders of Empire's common stock.
Additional requirements are still outstanding to include an opinion that
the transaction will be tax-free to all parties. No assurance can be given
that such transaction will ultimately occur or will occur at the times or
on the terms and conditions contained in the agreement.
The Company's consolidated financial statements have been presented on the
basis that the Company is a going concern. Accordingly, the consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities or any other adjustments that might
result should the Company be unable to continue as a going concern.
F-29
REPORT OF INDEPENDENT AUDITORS
To the Members of
Catskill Development, LLC
We have audited the accompanying consolidated balance sheets of Catskill
Development, LLC as of September 30, 2002 and December 31, 2001, and the related
consolidated statements of income, changes in members equity and cash flows for
the nine months ended September 30, 2002 and the year ended December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Catskill
Development, LLC at September 30, 2002 and December 31, 2001, and the
consolidated results of its operations and its cash flows for the nine months
ended September 30, 2002 and the year ended December 31, 2001, in conformity
with United States generally accepted accounting principles.
/s/ Bachrach, Waschitz & Waschitz, LLP
February 5, 2003
Monticello, New York
F-30
Catskill Development, LLC
Consolidated Balance Sheets
September 30, 2002 and December 31, 2001
(Audited)
September 30, 2002 December 31, 2001
------------------ -----------------
ASSETS
Current Assets:
Cash & Cash Equivalents $ 955,504 $ 1,358,469
Restricted Cash 114,578 78,070
Accounts Receivable 566,800 645,931
Inventory 7,533 7,428
Prepaid Expenses 272,608 135,774
Other Current Assets 15,746 17,173
----------- -----------
Total Current Assets 1,932,769 2,242,845
----------- -----------
Property, Plant and Equipment
Land 770,000 770,000
Building and Improvements 8,447,824 8,414,664
Furniture, Fixtures and Equipment 1,301,489 1,195,613
-----------
Subtotal 10,519,313 10,380,277
Less: Accumulated Depreciation 4,495,570 3,936,857
----------- -----------
Net Property, Plant and Equipment 6,023,743 6,443,420
----------- -----------
Real Estate Development 5,776,206 5,740,599
----------- -----------
Total Assets $13,732,718 $14,426,864
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts Payable 2,394,691 1,436,971
Other Current Liabilities 701 179,743
Accrued Expenses 90,736 103,513
----------- -----------
Total Current Liabilities $ 2,486,128 $ 1,720,227
----------- -----------
Long-Term Debt:
Notes Payable - Senior Obligation 5,000,000 5,000,000
Accrued Interest Payable 1,655,000 1,201,250
-----------
Total Long-Term Debt 6,655,000 6,201,250
----------- -----------
Members' Equity 4,591,590 6,505,387
----------- -----------
Total Liabilities and Members' Equity $13,732,718 $14,426,864
=========== ===========
See Notes To Consolidated Financial Statements
F-31
Catskill Development, LLC
Consolidated Income Statements
For the Nine Months Ended September 30, 2002 and the Year Ended December 31, 2001
(Audited)
September 30, 2002 December 31, 2001
------------------ -----------------
Race Track Revenues:
Gross Wagering and Simulcasting $ 8,520,953 10,285,654
Non-Wagering 176,925 216,765
----------- -----------
Total Race Track Revenues 8,697,878 10,502,419
----------- -----------
Costs and Expenses
Purses, Awards and Other 3,001,331 3,700,717
Operating Costs 1,736,805 2,216,592
General and Administrative 2,339,930 3,038,589
Depreciation 566,390 743,716
----------- -----------
Total Racetrack Costs and Expenses 7,644,456 9,699,614
----------- -----------
Net Profit From Racing Operations 1,053,422 802,805
Real Estate Development Expenses:
General and Administrative 42,371 113,320
Legal Expenses 2,476,420 2,228,077
Interest Expenses 454,230 564,024
----------- -----------
Total Real Estate Development Expense 2,973,021 2,905,421
Other Income:
Interest Income 5,802 31,384
----------- -----------
Net (Loss) $(1,913,797) (2,071,232)
=========== ===========
See Notes To Consolidated Financial Statements
F-32
Catskill Development, LLC
Consolidated Statements of Changes in Member's Equity
For the Nine Months Ended September 30, 2002 and the Year Ended December 31, 2001
(Audited)
Preferred Other Total
Capital Capital Accumulated Members
Contributions Contributions Deficit Equity
------------- ------------- ----------- ------------
Balance December 31, 2000 $ 15,703,893 $ 400 $ (8,152,474) $ 7,551,819
Capital Contributions 1,024,800 -- -- 1,024,800
Net (Loss) -- -- (2,071,232) (2,071,232)
------------ ------------ ------------ ------------
Balance December 31, 2001 16,728,693 400 (10,223,706) 6,505,387
Net (Loss) -- -- $ (1,913,797) $ (1,913,797)
------------ ------------ ------------ ------------
Balance September 30, 2002 $ 16,728,693 $ 400 $(12,137,503) $ 4,591,590
============ ============ ============ ============
See Notes To Consolidated Financial Statements
F-33
Catskill Development, LLC
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2002 and the Year Ended December 31, 2001
(Audited)
September 30, 2002 December 31, 2001
------------------ -----------------
Operating Activities:
Net Loss $(1,913,797) $(2,071,232)
Adjustments to reconcile net loss to net cash
Provided(Used) by operating activities:
Depreciation 566,390 743,716
Accrued Interest Not Paid 453,750 563,750
Loss on Asset Disposal 2,819 --
(Increase) Decrease in:
Restricted Cash (36,508) 213,052
Accounts Receivable 79,131 (131,449)
Inventory (105) 590
Prepaid Expenses (136,834) (5,568)
Other Current Assets 1,427 9,920
Increase (Decrease) in:
Accounts Payable 957,720 (78,884)
Other Current Liabilities (179,042) 219,934
Accrued Expenses (12,777) 3,075
----------- -----------
Net Cash Used by Operating Activities (217,826) (533,096)
----------- -----------
Investing Activities:
Purchase of Property, Plant and Equipment (149,532) (143,521)
Real Estate Development (35,607) (111,465)
----------- -----------
Net Cash Used in Investing Activities (185,139) (254,986)
----------- -----------
Financing Activities:
Member Contributions -- 1,024,800
----------- -----------
Net Cash Provided by Financing Activities -- 1,024,800
----------- -----------
Net Increase (Decrease) in Cash (402,965) 236,718
Cash at Beginning of Year 1,358,469 1,121,751
----------- -----------
Cash at End of Year $ 955,504 $ 1,358,469
=========== ===========
Supplemental Disclosures:
Interest Paid $ 480 $ 274
See Notes To Consolidated Financial Statements
F-34
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2002 and December 31, 2001
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
This summary of significant accounting policies of Catskill Development,
LLC (the Company) is presented to assist in understanding the Company's
financial statements. The financial statements and notes are
representations of the Company's management who is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
A. Organization and Business Activity
----------------------------------
In October 1995, Catskill Development, LLC, a New York limited liability
company, was formed to pursue the development of a proposed Native American
Casino in Monticello, New York (the "Casino Project"). The Company's
business plan envisioned three distinct lines of business: a) casino
activities; b) real estate related activities; and c) the gaming operations
related to Monticello Raceway (the "Raceway") including pari-mutuel and any
potential future Video Lottery Terminal ("VLT") operations. Monticello
Raceway Management. Inc. (MRMI), a New York Corporation, is a wholly owned
subsidiary and was formed to hold the pari-mutuel license.
Currently, the Company conducts pari-mutuel wagering on live race meetings
for Standardbred horses and participates in intrastate and interstate
simulcast wagering at the Raceway in Monticello, New York. The Company's
operations are subject to regulation by the New York State Racing and
Wagering Board.
The Company continues to pursue a Native American Casino Project at the
Raceway. However, to this point it has been unsuccessful (see Note 6).
B. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Monticello Raceway
Managements, Inc. All significant intercompany balances and transactions
have been eliminated in consolidation.
C. Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America required
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimated.
F-35
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2002 and December 31, 2001
D. Concentrations of Credit Risk
-----------------------------
The Company maintains significant cash balances with financial institutions
in excess of the insurance provided by the Federal Deposit Insurance
Corporation (FDIC).
The Company, in the normal course of business, settles wagers for other
racetracks and is thereby exposed to credit risk. However, receivables are
generally not a significant portion of the Company's total assets and are
comprised of a large number of accounts.
E. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash on account, demand deposits and
certificates of deposits with original maturities of less than three months
at acquisition.
F. Restricted Cash
---------------
Under New York States Racing, Pari-Mutuel Wagering and Breeding Law the
track is obliged to withhold a certain percentage of certain types of
wagers towards the establishment of a pool of money the use of which is
restricted to the funding of approved capital improvements, repairs and/or
certain advertising expenses. Periodically during the year the track
petitions the Racing and Wagering Board to certify that the noted
expenditures are eligible for re-imbursement from the capital improvement
fund. The unexpended balance is shown as restricted cash on the balance
sheet.
G. Property, Plant and Equipment
-----------------------------
Plant and equipment are recorded at cost. Depreciation is calculated using
the straight-line basis over the estimated useful lives of the related
assets as follows: 15 years for grandstands and buildings, 5 to 7 years for
equipment and 7 years for furniture and fixtures.
H. Real Estate Development
-----------------------
In connection with its real estate activities, the Company capitalizes
certain legal, architectural, engineering and environmental study fees as
well as other costs directly related to the development of its real estate.
(See Note 2)
I. Impairment of Assets
--------------------
In the event that facts and circumstances indicate that the carrying amount
of tangible assets or groups of assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the
estimate future undiscounted cash flows associated with the assets would be
compared to the assets' carrying amount to determine if a write-down to
market value or discounted cash flow value is required. Management has
determined that no impairment of assets has occurred.
J. Inventory
---------
Inventory is recorded at the lower of cost or market on a first in, first
out basis.
F-36
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2002 and December 31, 2001
K. Revenue Recognition
-------------------
Wagering revenues are recognized gross of purses, stakes and awards and
pari-mutual wagering taxes. The costs relating to these amounts are shown
as "Purses, Awards and Other" in the accompanying Income Statements.
Revenues from simulcasts are recognized as of the day of the race.
L. Advertising
-----------
The Company expenses the costs of general advertising, promotion and
marketing programs at the time the costs are incurred.
M. Income Taxes
------------
The Company was formed as a limited liability company and elected to be
treated as a partnership for tax purposes, and thus no income tax expense
is recorded in the statements. Income of the Company is taxed to the
members in their respective returns. All income from the 100% owned
subsidiary is passed to the Company because of an agency agreement between
the companies. Therefore no tax accrual is needed on the subsidiary's
records.
2. FIXED ASSETS
------------
Depreciation expense was $566,390 for the nine months ended September 30,
2002 and $743,716 for the year ended December 31, 2001.
The Company is in the business of developing real estate for additional
gaming activities. As of September 30, 2002 and December 31, 2001, the
Company had capitalized $47,515 and $111,645, respectively to continue its
efforts.
3. MEMBERS EQUITY AND SENIOR OBLIGATION
------------------------------------
The members of the Company have contributed considerable amounts of money
to the Company to fund the purchasing of the Raceway and pursuing the
approval and development of a Native American Casino on a portion of the
Raceway property. These contributions (and a priority return of 10% per
anum) and the mortgage described below, (with interest compounded at 10%
per annum) must be repaid before any net earnings from operations would be
available for distribution to the Company's other members. As of September
30, 2002 the aggregate amount needed to satisfy the payment of said
contributions (with priority returns) to certain members of the Company is
$29,304,137.
These preferred capital balances are subordinate to a mortgage, payable to
two members, (the "Senior Obligation"), which at September 30, 2002, and
December 31, 2001 was $6,665,000 and $6,201,250 respectively including
accrued interest at 10% per annum. All payments accrue and the principal
and accrued interest totaling $8,052,550 is due September 15, 2004.
Currently, any cash flow from the operations of the Raceway are being
retained by the Company for working capital purposes and to fund litigation
and development expenses in conjunction with other potential gaming
operations at the track. As a result, the Company is not expected to make
any distributions with respect to certain other members' interests until
F-37
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2002 and December 31, 2001
the Company has achieved additional net revenues sufficient to discharge
the payment of the Senior Obligation, accrued interest, preferred capital
balance and priority returns.
The Company was formed as a limited liability company, therefore its
members individual liability is limited under the appropriate laws of the
State of New York. The Company will cease to exist July 1, 2025. The
Company's distinct lines of business: (A) casino development; (B) real
estate related activities; and (C) the gaming operations related to
Monticello Raceway including pari-mutuel and any potential future Video
Lottery Terminal operations are owned as follows: (after the transaction of
February 12, 2002 noted below and the transaction of December 12, 2002
described in Note 8 - Subsequent Events)
Casino Real Estate Racing
------ ----------- ------
Voting Members:
---------------
Alpha Monticello, Inc. 48.310 25.000 36.870
Americas Tower Partners 20.000 25.000 25.000
Monticello Realty, LLC 20.000 22.500 22.500
Watertone Holdings, LP 9.190 25.000 13.130
Non-Voting Members:
-------------------
Cliff Ehrlich 1.375 1.375 1.375
Fox-Hollow Lane, LLC 1.000 1.000 1.000
Shamrock Strategies, Inc. 0.125 0.125 0.125
On February 12, 2002, Alpha Monticello, Inc. (a wholly owned subsidiary of
Alpha Hospitality Corporation ("Alpha"), a member of the Company, entered
into an agreement with Watertone Holdings LP ("Watertone"), also a member
of the Company, providing for the acquisition of 47.5% of Watertone's
economic interests in the casino and racetrack business components of the
Company. The transaction contemplated by this agreement closed on March 12,
2002.
4. RELATED PARTY TRANSACTIONS
--------------------------
As explained in Notes 1G and 2 the Company is in the business of developing
real estate for additional gaming activities. In connection with this
development the Company has paid various consulting fees to related parties
consisting of members or directors of Catskill Development. LLC. For the
nine months ended September 30, 2002 and the year ended December 31, 2001
the Company expensed in general and administrative expenses $111,000 and
$113,668 respectively of such costs. From inception through September 30,
2002 the Company has capitalized as development costs $600,574 of such
related party consulting fees.
F-38
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2002 and December 31, 2001
5. OPERATING LEASES
----------------
At September 30, 2002 the Company had commitments under operating leases
which end in 2006 for various pieces of equipment requiring annual lease
payments for the twelve months ending September 30th as follows:
2003 $ 155,221
2004 150,121
2005 50,951
2006 13,212
--------------------------
Total $ 369,505
==========================
Lease expense was $148,539 for the nine months ended September 30, 2002 and
$153,208 for the year ended December 31, 2001.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Monticello Harness Horsemen's Association, Inc. has brought an action
against Monticello Raceway Management, Inc. and one of the members of the
Company seeking the sum of $1,300,0000 to be credited to the horsemen's
purse account. The suit claims that revenues received by the Raceway from
various simulcasting sources were not properly credited to their horsemen's
purse account. Management has responded vigorously to contest the case
after attempts at out-of-court settlement proved fruitless. A motion is
pending to dismiss the action for lack of subject matter jurisdiction. Such
dismissal would not prevent the Plaintiff from bringing suit in the proper
court or to seek alternative dispute resolution. There are disputed issues
of fact between the parties, which makes an estimate of the outcome or the
amount or range of loss difficult to gauge. In accordance with Statement of
Financial Accounting Standards No. 5, the amount of the loss, if any that
may be ultimately realized has not been reflected in the accompanying
financial statements.
In July 1996, the Company and its members entered into a series of
agreements with the Mohawk Tribe related to the development of a casino on
land adjacent to the Monticello Raceway in Monticello, New York. Pursuant
to such agreements, the Mohawk Tribe was to purchase certain land from the
Company and various affiliates of the Company were to help with the
development of a casino on the land and manage any resulting casino. More
particularly, the Tribe entered into a Gaming Facility Management Agreement
with Mohawk Management LLC ("MM"). Pursuant to such Agreement, MM was to be
provided with the exclusive right to manage the Monticello Casino for seven
(7) years from its opening and to receive certain fees for the provision of
management and related services.
Completion of the project contemplated by the agreements with the Mohawk
Tribe was subject to certain conditions, including the obtaining of
relevant federal and State governmental approvals. The Company, in
conjunction with its affiliates, assumed responsibility for and undertook,
seeking and obtaining all local, state and federal approvals required or
necessary to construct and operate the Casino Project. By letter dated
F-39
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2002 and December 31, 2001
April 6, 2000, addressed to Governor George Pataki, Kevin Gover, Assistant
Secretary of the Department of the Interior, advised and notified the
Governor of New York that the Company's proposed casino project with the
Mohawk Tribe had been approved and specifically requested that the Governor
concur. However, on April 22, 2000, the Company became aware of a purported
letter agreement between the Mohawk Tribe and Park Place Entertainment
Corporation ("PPE"), which agreement (with two irrelevant exceptions)
purportedly gave PPE the exclusive rights to develop and manage any casino
development the Mohawk Tribe may have in the State of New York.
On November 13, 2000, the Company (also known as the "Plaintiffs") joined
in a suit filed in United States District Court, Southern District of New
York against PPE, alleging entitlement to substantial damages as a
consequence of, among other things, PPE's wrongful interference with
several agreements between Catskill and the Tribe pertaining to the
proposed Casino Project. The Plaintiffs alleged tortuous interference with
contract and prospective business relationships, unfair competition and
state anti-trust violations and sought over $6 billion in damages. On May
11, 2001, the District Court granted PPE's motion to dismiss three of the
four claims made by Plaintiffs. However, on May 30, 2001, the Plaintiffs
moved for reconsideration of that ruling, and, on reconsideration, the
Court reinstated one of the dismissed claims, with Plaintiffs' claims of
tortuous interference with contract and prospective business relationship
remaining after such decision. On August 22, 2002, U.S. District Court
Judge Colleen McMahon granted PPE's motion for summary judgment.
The Company has filed a notice of appeal with respect to the dismissal of
its case against PPE and has retained the firm of Mayer, Brown, Rowe and
Maw to represent it in the appeal. It is expected that briefs in the appeal
will be filed within the next four months and that a decision on the appeal
should be rendered within eighteen months. Although management believes
that the Company and its related parties have meritorious arguments in the
appeal, no assurance can be given that the appeal will be successful or
that, even if the appeal is successful as a whole or in part, the
litigation will ultimately be resolved in a manner advantageous to the
Company.
The Company is also a party to a various non-environmental legal
proceedings and administrative actions, all arising from the ordinary
course of business. Although it is impossible to predict the outcome of any
legal proceeding, the Company believes any liability that may finally be
determined with respect to such legal proceedings should not have a
material effect on The Company's consolidated financial position, results
of operations or cash flows.
7. VIDEO LOTTERY TERMINALS
-----------------------
In October 2001, the New York State Legislature passed a bill that expanded
the nature and scope of gaming in the state ("VLT Legislation"). The bill
was signed by the Governor on October 31, 2001. The provision of the VLT
Legislation relevant to the Company include: a) authority given to the
Governor to negotiate casino licenses for up to three Native American
casinos in the Catskills; and b) the authority for several of New York's
racetracks, including the Raceway, to operate video lottery terminal
("VLT") in their facilities. The VLT operation will be conducted by the New
York State Lottery (the "Lottery") with the racetracks functioning largely
as agents for the Lottery.
F-40
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2002 and December 31, 2001
The Company is currently working with the New York State Lottery to explore
the feasibility of installing VLT's at the Raceway. The Company received a
letter from the Lottery, dated March 21, 2002, advising the Raceway that
the Lottery has completed its initial review of the Raceway's business plan
for the operation of VLT's at the Raceway during the initial three year
trial period approved by the State Legislature. Based on such review, the
Lottery has made an initial allocation of 1,800 VLT's to the Raceway and
has approved the maximum permitted rate for compensation of 25% of revenues
generated after payout of prizes for the Raceway. The law currently
provides that the Raceway must apply 35% in the first year, escalating to
45% in years two and three, of its compensation to enhance purses at the
Raceway and each year must dedicate 5% of its compensation to a State
Breeding Development Fund.
The business plan was submitted at the request of the Lottery, and in
accordance with Lottery procedures, does not represent a final decision
with respect to the implementation of VLT's by the Company. The business
plan includes certain assumptions recommended by the Lottery and other
estimates considered preliminary by the Company. Using these estimates and
assumptions, the plan does not show levels of operating income currently
considered adequate by the Company to go forward with the project. The
Company continues to evaluate the appropriateness of making the required
expenditures necessary for VLT operations relative to the length of the
test period, the ultimate level of return on investment, and the
implementation date for the program. The Lottery has not yet established a
firm start date or adopted regulations with regard to the program. On May
16, 2002, the New York State Legislature passed a bill that further
expanded the October 2001 VLT Legislation. This bill extends the test
period under the current law from three years to a period ending December
31, 2007. Further, the bill authorizes each track to enter into an
agreement with the organization representing its horsemen to reduce the
percentage of its vendor fees dedicated to enhancing purses at such track
during the initial three years, to an amount not less than 25 percent. That
bill was signed by the Governor on May 29, 2002. In addition, the Company's
ability to proceed with the VLT program may be impacted by its plans with
respect to casino development at the site. Currently, the legislature is
considering an additional bill, which if passed, could extend the operating
hours for VLT's and provide a larger percentage of revenues to the
racetracks. Accordingly, no assurance can be given that the Company will
decide to proceed with the operation of VLT's at the Raceway.
8. SUBSEQUENT EVENTS
-----------------
In October 23, 2002, the Company retained CIBC World Markets Corporation to
help it review its strategic alternatives and assist in maximizing the
value of its assets. The Company is in negotiations with a federally
recognized Native American tribe in New York and various casino management
and development entities with respect to the development of a Native
American Casino. The development of a casino at the Raceway will require
consummation of arrangements with these parties and various reviews and
approvals. No assurances can be given that such arrangements will be
entered into or that any approvals will be obtained.
On December 10, 2002, Alpha reached an agreement with Bryanston Group, Inc.
("Bryanston") (a former member of the Company) and certain other affiliates
F-41
Catskill Development, LLC
-------------------------
Notes to Consolidated Financial Statements
September 30, 2002 and December 31, 2001
regarding certain obligations due from and claims against the Company.
Included in the agreement with Bryanston is the acquisition of Bryanston's
interest in Catskill Development, including its voting membership interest
and preferred capital account in the Company. Bryanston has agreed to
transfer such interests to Alpha.
On February 4, 2003 Catskill Development, LLC entered into a Letter of
Intent with Alpha Hospitality Corporation (Alpha), its partner in
developing gaming activities at the Monticello Raceway (the "Raceway") and
other related entities. The agreement provides for Alpha to acquire a 48
year ground lease on the Raceway and contiguous properties, together with
all of Catskill's development and management rights with respect to the
site and related gaming activities, in exchange for an 80.25% position in
Alpha's common stock.
The Letter of Intent provides for Catskill to lease its 230-acre Raceway
property to Alpha for a period of 48 years for an annual base rent of
$1,800,000. Lease terms are to contain certain options for Alpha to acquire
title to portions of the property. Alpha will have the right to purchase a
29-acre parcel for the purpose of placing it in trust for a Native American
Tribe or Nation at the purchase price of $1. The exercise of such option
will require obtaining necessary federal and state approvals. In addition,
the remaining property may be purchased within two years of the opening of
a casino at the present value of the ground lease at the time of such
exercise.
The agreement is subject to the execution of definitive agreements,
approvals by Alpha's Board of Directors and an opinion that the transaction
will be tax-free to all parties and other technical requirements, including
a fairness opinion. No assurance can be given that the transactions
provided for in the Letter of Intent will ultimately occur or will occur at
the times and on the terms and conditions contained in the Letter of
Intent.
F-42
REPORT OF INDEPENDENT AUDITORS
To the Members of
Monticello Raceway Development, LLC
We have audited the accompanying balance sheets of Monticello Raceway
Development Company, LLC as of December 31, 2002 and 2001, and the related
income statements, changes in member's equity and cash flows for the years ended
December 31, 2002 and 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. 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 Monticello Raceway Development
Company, LLC at December 31, 2002 and 2001, and the results of its operations
and its cash flows for the years ended December 31, 2002 and 2001, in conformity
with United States generally accepted accounting principles.
/s/ Bachrach, Waschitz & Waschitz, LLP
July 18, 2003
Monticello, New York
F-43
Monticello Raceway Development Company, LLC
Balance Sheets
December 31, 2002 and December 31, 2001
(Audited)
December 31, 2002 December 31, 2001
----------------- -----------------
ASSETS
Current Assets:
Due From Members $ 200 $ 200
-------------- ----------
Total Assets $ 200 $ 200
============== ==========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses $ - $ -
-------------- ----------
Total Current Liabilities - -
-------------- ----------
Members' Equity 200 200
-------------- ----------
Total Liabilities and Members' Equity $ 200 $ 200
============== ==========
See Notes To Financial Statements
F-44
Monticello Raceway Development Company, LLC
Income Statements
For the Years Ended December 31, 2002 and 2001
(Audited)
December 31, 2002 December 31, 2001
--------------------- ------------------------
Revenues $ - $ -
----------------------- ------------------------
Costs and Expenses - -
----------------------- ------------------------
Net Income $ - $ -
======================= ========================
See Notes To Financial Statements
F-45
Monticello Raceway Management Company, LLC
Statements of Changes in Member's Equity
For the Years Ended December 31, 2002 and 2001
(Audited)
Total
Members
Equity
------------------------
Balance December 31, 2000 $ 200
Net Income -
------------------------
Balance December 31, 2001 200
Net Income -
------------------------
Balance December 31, 2002 $ 200
========================
See Notes To Financial Statements
F-46
Monticello Raceway Development Company, LLC
Statements of Cash Flows
For the Years Ended December 31, 2002 and 2001
(Audited)
December 31, 2002 December 31, 2001
------------------------ ------------------------
Operating Activities:
Net Income $ - $ -
Net Cash (Provided) Used by Operating Activities - -
------------------------ ------------------------
Investing Activities:
Net Cash (Provided) Used in Investing Activities - -
------------------------ ------------------------
Financing Activities:
Net Cash Provided (Used) by Financing Activities - -
------------------------ ------------------------
Net Increase (Decrease) in Cash - -
Cash at Beginning of Year - -
------------------------ ------------------------
Cash at End of Year $ - -
======================== ========================
Supplemental Disclosures:
Interest Paid $ - $ -
See Notes To Financial Statements
F-47
MONTICELLO RACEWAY DEVELOPMENT COMPANY, LLC
-------------------------------------------
Notes to Financial Statements
December 31, 2002 and 2001
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
This summary of significant accounting policies of Monticello Raceway
Development Company, LLC (the Company) is presented to assist in
understanding the Company's financial statements. The financial statements
and notes are representations of the Company's management who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
A. Organization and Business Activity
----------------------------------
In October 1995, Monticello Raceway Development Company, LLC (the
"Company") a New York limited liability company, was formed to provide
exclusive services under a 25-year agreement with Catskill Development, LLC
to develop, manage and lease all projects on the 230 acres owned by
Catskill Development, LLC. in Monticello, New York.
Catskill Development, LLC continues to pursue a Native American Casino
Project at Monticello Raceway. However, to this point it has been
unsuccessful. Therefore the company is inactive.
F-48
Monticello Raceway Development Company, LLC
Balance Sheets
September 30, 2003 and 2002
(Unaudited)
September 30, 2003 September 30, 2002
-------------------- -----------------------
ASSETS
Current Assets:
Due From Members $ 200 $ 200
-------------------- -----------------------
Total Assets $ 200 200
==================== =======================
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses $ - $ -
-------------------- -----------------------
Total Current Liabilities - -
-------------------- -----------------------
Members' Equity 200 200
-------------------- -----------------------
Total Liabilities and Members' Equity $ 200 $ 200
==================== =======================
See Accompanying Notes
F-49
Monticello Raceway Development Company, LLC
Income Statements
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited)
September 30, 2003 September 30, 2002
----------------------- -----------------------
Revenues $ - $ -
----------------------- -----------------------
Costs and Expenses - -
----------------------- -----------------------
Net Income $ - $ -
======================= =======================
See Accompanying Notes
F-50
Monticello Raceway Management Company, LLC
Statements of Changes in Member's Equity
For Nine Months Ended September 30, 2003 and 2002
(Unaudited)
Total
Members
Equity
---------------
Balance December 31, 2001 $ 200
Net Income -
---------------
Balance September 30, 2002 $ 200
===============
Balance December 31, 2002 $ 200
Net Income -
---------------
Balance September 30, 2003 $ 200
===============
See Accompanying Notes
F-51
Monticello Raceway Development Company, LLC
Statements of Cash Flows
For Nine Months Ended September 30, 2003 and 2002
(Unaudited)
September 30, 2003 September 30, 2002
------------------ ------------------
Operating Activities:
Net Income $ - $ -
Net Cash (Provided) Used by Operating Activities - -
-------------- --------------
Investing Activities:
Net Cash (Provided) Used in Investing Activities - -
-------------- --------------
Financing Activities:
Net Cash Provided (Used) by Financing Activities - -
-------------- --------------
Net Increase (Decrease) in Cash - -
Cash at Beginning of Year - -
-------------- --------------
Cash at End of Year $ - $ -
============== ==============
Supplemental Disclosures:
Interest Paid $ - $ -
See Accompanying Notes
F-52
Monticello Raceway Development Company, LLC
Notes to Financial Statements
September 30, 2003 and 2002
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
This summary of significant accounting policies of Monticello Raceway
Development Company, LLC (the Company) is presented to assist in
understanding the Company's financial statements. The financial statements
and notes are representations of the Company's management who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
A. Organization and Business Activity
----------------------------------
In October 1995, Monticello Raceway Development Company, LLC (the
"Company") a New York limited liability company, was formed to provide
exclusive services under a 25-year agreement with Catskill Development, LLC
to develop, manage and lease all projects on the 230 acres owned by
Catskill Development, LLC. in Monticello, New York.
Catskill Development, LLC continues to pursue a Native American Casino
Project at Monticello Raceway. However, to this point it has been
unsuccessful. Therefore the company is inactive.
F-53
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL"), as the
same exists or may hereafter be amended, provides that a Delaware corporation
may indemnify any persons who were, or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his or her conduct was illegal. A Delaware corporation may
indemnify any persons who are, were or are threatened to be made, a party to any
threatened, pending or completed action or suit by or in the right of the
corporation by reason of the fact that such person was a director, officer,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer, director,
employee or agent is adjudged to be liable to the corporation. Where an officer,
director, employee or agent is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him or
her against the expenses which such officer or director has actually and
reasonably incurred.
DGCL Section 145 further authorizes a corporation 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 of another corporation or
enterprise, against any liability asserted against him or her and incurred by
him or her in any such capacity, arising out of his or her status as such,
whether or not the corporation would otherwise have the power to indemnify him
or her under Section 145 of the DGCL.
Empire Resorts' Certificate of Incorporation, as amended, and
Amended and Restated By-laws (the "BY-LAWS") limit, to the maximum extent
permitted by DGCL, the personal liability of directors for monetary damages for
breach of their fiduciary duties as a director, except for (i) liability
resulting from a breach of the director's duty of loyalty to Empire Resorts or
its stockholders, (ii) acts or omissions which are not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) unlawful
payment of dividends or unlawful stock repurchases or redemptions as provided in
Section 174 of the DGCL or (iv) a transaction from which the director derived an
improper personal benefit. Empire Resorts' Certificate of Incorporation also
provides mandatory indemnification for the benefit of Empire's current and
II-1
former directors and officers and for the benefit of Empire Resorts' employees
and agents, in each instance to the fullest extent permitted by Delaware law, as
it may be amended from time to time.
The By-laws also provide that Empire Resorts will indemnify its
directors, officers, employees and agents upon the determination that such
person has met the applicable standard of conduct under Delaware law as restated
in the By-laws. The determination that the applicable standard of conduct has
been met shall be made (1) by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or even if obtainable, by
a quorum of disinterested directors, or (3) by independent legal counsel in a
written opinion, or (4) by the stockholders. To the extent that a director,
officer, employee or agent of Empire Resorts has been successful on the merits
or otherwise in defense of any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), Empire
Resorts will indemnify him against expenses without the necessity of making a
determination of whether or not that person has met the applicable standard of
conduct.
The By-laws allow Empire Resorts to pay in advance all expenses
incurred by a director, officer, employee or agent in defending any proceeding
in which such expenses within the scope of the indemnification provisions are
incurred in advance of final disposition, upon an undertaking by such party to
repay such expenses, if it is ultimately determined that such party was not
entitled to indemnity by Empire Resorts. The By-laws also permit Empire Resorts
to provide any other indemnification and advancement of expenses permitted by
law and permit Empire Resorts to provide any additional rights to which an
indemnified person may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise. Indemnification and
advancement of expenses provided in the By-laws shall, unless otherwise
provided, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of such person's heirs,
executors and administrators.
The By-laws provide, for the purposes of the Indemnity Section, that
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of the Indemnity Section of the By-laws with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
In addition, Empire Resorts has entered into employment agreements
with certain of its officers providing additional indemnification benefits. From
time to time, officers and directors may be provided with indemnification
agreements that are consistent with the foregoing provisions.
II-2
Empire Resorts has policies of directors' and officers' liability
insurance which insure directors and officers against the costs of defense,
settlement and/or payment of judgment under certain circumstances.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following is a list of Exhibits included as part of this
Registration Statement.
Exhibits and Financial Statement Schedules
------------------------------------------
Exhibit
Number Description
------ -----------
2.1* Amended and Restated Securities Contribution Agreement, dated as of
December 12, 2003, between Empire Resorts, Inc., Catskill
Development, L.L.C., Americas Tower Partners, BKB, LLC, the members
of Catskill Development, L.L.C. and the members of Monticello
Raceway Development Company, LLC
4.1 Form of Common Stock Certificate (Incorporated by reference, filed
with Company's Registration Statement filed on Form SB-2 (File No.
33-64236) filed with the Commission on June 10, 1993 and as amended
on September 30, 1993, October 25, 1993, November 2, 1993 and
November 4, 1993, which Registration Statement became effective
November 5, 1993. Such Registration Statement was further amended
by Post Effective Amendment filed on August 20, 1999.)
5.1* Legality Opinion
8.1* Tax Opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP
10.1 1993 Stock Option Plan (Incorporated by reference, filed with
Company's Registration Statement filed on Form SB-2 (File No.
33-64236) filed with the Commission on June 10, 1993 and as amended
on September 30, 1993, October 25, 1993, November 2, 1993 and
November 4, 1993, which Registration Statement became effective
November 5, 1993. Such Registration Statement was further amended
by Post Effective Amendment filed on August 20, 1999.)
10.2 1998 Stock Option Plan (Incorporated by reference, filed with Proxy
Statement pursuant to Section 14(a) of the Securities Exchange Act
of 1934, as amended, filed with the Commission on August 25, 1999.)
10.3 Amended and Restated Contribution Agreement, dated as of February
8, 2002, by and between Alpha Hospitality Corporation and Watertone
Holdings, L.P. (Incorporated by reference, filed as an exhibit to
Form 8-K filed by Alpha Hospitality Corporation on February 26,
2002.)
10.4** Amended and Restated Employment Agreement between Empire Resorts,
Inc. and Robert A. Berman dated ________________, 2003
10.5** Amended and Restated Employment Agreement between Empire Resorts,
Inc. and Scott A. Kaniewski dated ________________, 2003
II-3
Exhibit
Number Description
------ -----------
10.6 Irrevocable Proxy for Meeting of Shareholders of Alpha Hospitality
Corporation, dated April 30, 2002, given by Bryanston to Watertone
Holdings, L.P. (Incorporated by reference, filed as an exhibit to
Form 8-K filed by Alpha Hospitality Corporation on May 1, 2002.)
10.7 Recapitalization Agreement by and between Alpha Hospitality
Corporation, Alpha Monticello, Inc., Bryanston Group, Inc., Stanley
Tollman, Beatrice Tollman and Monty Hundley (Incorporated by
reference, filed as an exhibit to Form 8-K filed by Alpha
Hospitality Corporation on December 10, 2002.)
10.8* Agreement of Lease made as of the 29th day of October, 2003,
between Catskill Development, L.L.C. and Monticello Raceway
Management, Inc.
10.9* Term Note, dated October 29, 2003, issued by Monticello Raceway
Management, Inc. to The Berkshire Bank.
10.10* Leasehold Mortgage, Security Agreement, Assignment of Leases and
Rents and Fixture Filing, dated as of October 29, 2003, by
Monticello Raceway Management, Inc., as mortgagor, to The Berkshire
Bank.
10.11* Loan and Security Agreement, dated October 29, 2003, by and among
Monticello Raceway Management, Inc. and The Berkshire Bank.
10.12* Surety Agreement made and executed October 29, 2003 by Empire
Resorts, Inc. in favor of The Berkshire Bank.
10.13* Security Agreement, dated as of October 29, 2003, by and between
Catskill Development, L.L.C. and The Berkshire Bank.
10.14* Guaranty Agreement made and executed October 29, 2003 by Robert A.
Berman in favor of The Berkshire Bank.
10.15* Nondisturbance and Attornment Agreement, made and entered into as
of October 29, 2003, by and between Americas Tower Partners,
Monticello Realty, L.L.C., Monticello Raceway Management, Inc.,
Catskill Development, L.L.C. and The Berkshire Bank.
13.1** Form 10-KSB for the year ending 12/31/02, as amended to date
13.2** Form 10-QSB for the quarter ending 09/30/2003
13.3** Proxy Statement on Schedule 14A for the 2003 Annual Meeting of
Stockholders
14.1*** Code of Ethics
23.1* Consent of Friedman Alpren and Green LLP
23.2* Consent of Bachrach, Waschitz & Waschitz, LLP
23.3* Consent of Kane Reece Associates, Inc.
23.4* Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP
(contained in Exhibit 5.1)
24.1*** Power of Attorney
--------------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.
II-4