LAUGHLIN RECREATIONAL ENTERPRISES, INC.
2525 West Charleston BoulevardLas Vegas, Nevada89102
THE TRANSACTION DESCRIBED HEREIN HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION
NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PROXY STATEMENT
This statement is furnished to the shareholders of Laughlin Recreational Enterprises, Inc. (the
“Company") in connection with the annual meeting of the Company to be held on July 9, 1990,
and any adjournment thereof for the purposes indicated in the Notice of Annual Meeting.
The accompanying proxy is solicited by the Board of Directors of the Company. This Proxy
Statement and the accompanying form of Proxy are being mailed to shareholders on or about
June 15, 1990. Any shareholder giving a proxy has the power to revoke it prospectively by
giving written notice to the Company, addressed to Donald L. Wood, Secretary, at the
Company's principal address, before the meeting, or by notifying the Company at the Annual
Meeting before any vote is taken. The shares represented by the enclosed proxy will be voted if it
is properly executed and received by the Company prior to the date of the meeting, or any
adjournment thereof.
The expenses of making the solicitation will consist of the costs of preparing, printing, and
mailing the proxies and proxy statements and the charges and expenses of brokerage houses,
custodians, nominees or fiduciaries (if any) for forwarding documents to security owners. These
are the only contemplated expenses of solicitation and such expenses will be paid by the
Company.
VOTING SECURITIES
The close of business on May 15, 1990, has been fixed by the Board of Directors as the record
date for the determination of shareholders entitled to vote at the meeting. The securities entit led
to vote at the meeting consist of shares of common stock of the Company, with each share
entitling its owner to one vote. Common stock is the only class of voting securities authorized by
the Company's Articles of Incorporation. The number of issued and outstanding shares of the
Company's common stock at the close of business on May 15, 1990, was 9,500,000.
The following two tables show: 1) persons who beneficially owned more than 5% of the
outstanding common stock of the Company at the close of business on May 15, 1990; and 2)
members of management who owned common stock of the Company, individually and as a
group, on May 15, 1990, according to record ownership listings as of that date, according to
S.E.C. Forms 3 and 4 and Schedules 13G of which the Company has received copies, and
according to verifications which the Company solicited and received from each executive officer
and director as of no later than March 2, 1990:Security Ownership Of
Certain Beneficial owners
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial ownership of Class
Donald J. Laughlin 9,034,144* 95.1%.
P.O. Box 500
Laughlin, NV 89029____________________
*Mr. Donald J. Laughlin's shareholdings include 9,012,794 shares which are owned by him as
Trustee of the Donald J. Laughlin Family Trusts. As Trustee, he has sole voting power and sole
investment power as to those shares. The remaining 21,350 shares are owned by members of Mr.
Laughlin's family.Security Ownership Of Management
Name and Address Amount and Nature of Percent 5
of Beneficial Owner Beneficial ownership of Class
Donald J. Laughlin 9,034,144 (1,2) 95.1%
P.O. Box 500
Laughlin, NV 89029
Donald L. Wood 8,625 (3) *
2525 W. Charleston Blvd.
Las Vegas, NV 89102
Dan Patrick Laughlin 2,000 (4) *
P. 0. Box 500
Laughlin, NV 89029
All directors and
executive officersas a group (3 persons) 9,042,769 95.2%
__________________
(1) Mr. Donald J. Laughlin's shareholdings include 9,012,794 shares which are beneficially
owned by him as Trustee of the Donald J. Laughlin Family Trusts.
(2) As Trustee, Mr. Donald J. Laughlin has sole power to vote and to invest with respect to
9,012,794 shares. Mr. Donald J. Laughlin is a control person. The remaining 21,350 shares are
owned by members of Mr. Laughlin's family, including 2,000 shares owned by Dan Patrick
Laughlin, over which Mr. Donald J. Laughlin has no voting power or investment power.
(3) Mr. Wood has sole voting power and sole investment power as to his shareholdings.
(4) Mr. Dan Patrick Laughlin has sole voting power and sole investment power as to his
shareholdings.
(5) An asterisk (*) has been used where the percentage of shareholdings of the class is less than 1%.
1. ELECTION OF DIRECTORS
The entire board of three directors is to be elected at the Annual Meeting. All directors are to
serve for a term of one year, or until their successors, if any, are elected and have qualified.
If the enclosed proxy is duly executed and received in time for the meeting and if no contrary
specification is made as provided therein, the proxy will be voted in favor of electing the
nominees listed below. If any such nominee shall decline or be unable to serve, the proxy will be
voted for such person as shall be designated by the Board of Directors to replace any such
nominee. The Board of Directors presently has no knowledge or reason to believe that any of the
nominees will refuse or be unable to serve. There will not be cumulative voting for the election
of directors.
The following information is furnished with respect to each nominee, each of whom, unless
otherwise indicated, has served as a director continuously since the year shown opposite his
name. The statements as to beneficial ownership of common stock of the Company are as to each
such person based upon information furnished by him.
Identification of Directors and Executive Officers(1)
Name and Background Director
Information(2) Age Since
DONALD J. LAUGHLIN 58 1973 President and Director of the Company
since 1973; has operated Riverside
Resort and Casino since July 1966.
DONALD L. WOOD 60 1982 Secretary and Director of the Company;
until April 1987, Treasurer of the Company;
a practicing lawyer in Las Vegas and Laughlin,
Nevada and general counsel to the Company
and to Riverside Resort and Casino.
DAN PATRICK LAUGHLIN 36 1987 Since April 1987, Treasurer of the Company;
since February 1987, a Director of the
Company; since 1985, Assistant Operations
Manager of Riverside Resort and Casino;
until 1985, a Director and Vice President
of the Company; prior thereto, casino
boxman and floorman of the Riverside
Resort and Casino; son of Donald J. Laughlin.
__________________
(1) In the fiscal year ended December 31, 1989, each director attended at least 75% of the five
(5) meetings held. The Board of Directors has not formed any audit, compensation or nominating
committees. The entire Board is elected annually. Executive officers serve at the pleasure of the
Board of Directors.
(2) Positions held with Company, any other business experience since 1984, and other
directorships in companies with a class of securities registered under Section 12 of the Securities
Exchange Act of 1934 or subject to the requirements of Section 15(d) of that Act and companies
registered under the Investment Company Act of 1940. EXECUTIVE COMPENSATION
The following table sets forth cash compensation received by the executive officers of the
Company who received in excess of $60,000, and received by all persons who served as
executive officers of the Company, as a group, for services in all capacities to the Company and
its wholly owned subsidiaries, Riverside Resort and Casino, Inc. and River Queen Corporation,
during the fiscal year ended December 31, 1989:
Cash Compensation Table
Name of
Individual Capacities
or Number in Which
in Group Served Cash Compensation(1)
Donald J. Laughlin President and $300,000.00 (2)Director
All Executive Officers -- $300,000.00
as a Group (1 Person)
___________________
(1) No directors' fees were paid in 1989.
(2) Mr. Donald J. Laughlin obtains substantial benefits through his ownership of Riverside
Resort and Casino, a sole proprietorship, which leases substantially all of the Company's
operating assets except the motel in Bullhead City, Arizona owned and operated by River Queen
Corporation. See "Certain Relationships and Related Transactions."CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lease of Principal Assets to Principal Shareholder
Since 1973, the Company has leased to Donald J. Laughlin, the Company's principal shareholder
and President, the Company's improved property in Laughlin, Nevada on which he operates a
casino, hotel, restaurants and related facilities. After completion of several expansion phases, the
hotel-casino complex contains a fourteen-story high-rise tower with 659 hotel rooms, an
expanded casino, an 850 seat showroom, restaurants, buffet facility, cocktail lounges, meeting
rooms, convention space, and banquet facilities, movie theaters and other attractions, along with
an adjacent 372 space recreational vehicle park. Under the lease the base monthly rent was
$1,037,002 as of October 1, 1989. Previously, the base monthly rent was $868,000. The base
monthly rent is adjusted retroactively to each October 1 and April 1 based upon a cost of living
provision in the lease. As of December 31, 1989, the annual base rent paid by Mr. Laughlin for
the property was $10,788, 000. In addition, the Company receives contingent rentals based upon
increases in the cost-of-living index. In 1989, the contingent rentals aggregated $1,240,000. Mr.
Laughlin's before-tax earnings from operations conducted on the leased premises were
$9,198,000, $7,088,000 and $7,863,000 for the fiscal years ended December 31, 1989, 1988, and
1987 respectively.
Loan Personally Guaranteed By Principal Shareholder
On March 5, 1986, the Company and its wholly-owned subsidiary, Riverside Resort and Casino,
Inc. ("Riverside") entered into a Revolving Credit and Term Loan Agreement with Mellon Bank
(East) National Association ("Mellon") and Midlantic National Bank ("Midlantic") (Mellon and
Midlantic are collectively referred to as "Banks") which was joined in by Donald J. Laughlin as
Guarantor (hereinafter the "Loan Agreement"). Pursuant to the Loan Agreement, the Company
received a revolving line of credit in the amount of $3,000,000 and a ten-year term loan in the
amount of $22,000,000, with payments based upon a 15-year amortization, the proceeds of
which were used to retire a loan and a revolving line of credit from another bank. The Notes
delivered pursuant to the Loan Agreement are secured by a first Deed of Trust and Security
Agreement with Assignment of Rents, an Assignment of Leases (covering the assignment of the
Company's and Mr. Laughlin's interest in the leases for the resort premises and associated
furniture, fixtures and equipment), and an Assignment of Permits, Licenses and Contracts
(covering assignable permits, licenses, and contracts). Donald J. Laughlin personally guaranteed
all obligations of the Company and Riverside under the Notes, up to a maximum principal
amount of $25,000,000. The Company agreed to indemnify Mr. Laughlin against any loss he
may suffer as a result of the enforcement of his Guaranty of the Company's obligation to the
Banks.On January 13, 1987, the Banks loaned the Company and Riverside an additional $15,000,000 to
finance the Company's new tower expansion and retire indebtedness to Mr. Laughlin pursuant to
the terms of a First Amendment to Loan Agreement (hereinafter "First Amended Loan"). The
First Amended Loan is secured by the same security provided under the Loan Agreement.
Donald J. Laughlin personally guaranteed the additional loan amounts under the First Amended
Loan. The Company's Board of Directors voted to indemnify Mr. Laughlin for any losses he
might suffer as a result of the enforcement of his guaranty of the First Amended Loan
indebtedness.
As additional security for the Loans, the Banks acquired $25,000,000 in life insurance policies
on the life of Donald J. Laughlin, payable to the Banks.
Legal Counsel To The Company
Donald L. Wood, Secretary, and a member of the Board of Directors of the Company is the
principal of Donald L. Wood, a Professional Corporation, general counsel to the Company and
its subsidiaries.
2. SPECIAL FACTORS RELATED TO THE PROPOSED AMENDMENT TO
ARTICLES OF INCORPORATION TO EFFECT 1-100,000 REVERSE SPLIT OF
COMPANY'S STOCK
Summary of Proposed Amendment
At the Annual Meeting, the shareholders will consider and take action upon the Company's
proposal to amend the Company's Articles of Incorporation to effect a 1-100,000 reverse stock
split. There are presently 9,500,000 issued and outstanding shares of the Company's common
stock. After the reverse stock split, there will be 90 issued and outstanding shares. The proposed
reverse stock split will be effected by an amendment to the Company's Articles of Incorporation
substantially in the form set forth in Exhibit A to this Proxy Statement, which is attached hereto
and incorporated by reference herewith (hereinafter the "Amendment"). Since Mr. Laughlin,
through the stock ownership of the Laughlin Family Trusts ("Trusts") and through the stock
ownership of his family members, controls 95.1% of the voting stock of the Company, both Mr.
Laughlin and the Trusts have joined with the Company in recommending the approval of the
reverse stock split. Moreover, due to the substantial ownership of the Company by the Trusts and
Mr. Laughlin, references to the Company should be read so as to include the Trusts or Mr.
Laughlin. This reverse split of the Company's common stock will have the following effects,
among others, on the Company and Company's shareholders:
A. Rather than issue fractional shares, the Company will pay to its shareholders who own
fewer than 100,000 shares of the Company's stock an amount equal to $6.00 per (pre-reverse
stock split) share.' The Company shall use its excess unrestricted cash, to the extent available, to
purchase all fractional shares created by the reverse stock split. If excess unrestricted cash is
unavailable, the Company shall borrow the necessary funds from Donald J. Laughlin, the
Company's principal stockholder on a short-term basis (1-3 years) at prevailing market interest
rates.B. Because Donald J. Laughlin, as Trustee for the Donald J. Laughlin Family Trusts, is the
only shareholder who holds in excess of 100,000 shares of the Company's stock, the Company
will become a privately-held corporation, owned solely by the Donald J. Laughlin Family Trusts.
Description Of The Proposed Reverse Stock Split
The 1-100,000 reverse stock split of the Company's common stock will be effected on the date of
filing of the Amendment to the Company's Articles of Incorporation. Without any further action
on the part of the Company's Board of Directors or shareholders, each outstanding share of the
Company's common stock will be converted into one-one hundred thousandth (1/100,000) of a
share. All fractional shares of the Company's stock resulting from the reverse split will be
cancelled concurrently and automatically. It is anticipated that the Amendment to the Com pany's
Articles of Incorporation will be filed on the first business day following the Annual Meeting of
shareholders. As soon as practicable after filing the Amendment, each shareholder of the
Company's stock will be required to surrender his or her stock certificate or certificates to Valley
Bank of Nevada, Transfer Agent for the Company, together with a duly executed letter of
transmittal in the form to be sent to all shareholders, as evidence of the shareholder's right to
receive cash payment. Valley Bank of Nevada will be instructed promptly following the
conclusion of the vote on the proposed Amendment to forward their form of letter of transmittal
to each shareholder of record. Upon receipt of such stock certificate or certificates, together with
the duly executed letter of transmittal, Valley Bank of Nevada will issue a check or draft to the
stockholder(s) of record in an amount equal to $6.00 per (pre-reverse stock split) share. No
interest will be paid or accrued on cash payable upon the surrender of certificates.
Dissenters' rights of appraisal are not available to dissenting stockholders under the laws of New
Mexico, the jurisdiction in which the Company is incorporated.
Persons whose shares are eliminated and whose addresses are unknown to the Company, or who
do not return their stock certificates and request payment therefor, generally will have a period of
years from the- date of the reverse stock split in which to claim the cash payment payable to
them. For example, with respect to shareholders whose last known addresses are in California, as
shown by the records of the Company, the period is seven years. Following the expiration of that
seven-year period, the Unclaimed Property Law of California would likely cause the cash
payments to escheat to the State of California.
For shareholders who reside in other states or whose last known addresses, as shown by the
records of the Company, are in states other than California, such states may have abandoned
property laws which call for such state to obtain either (i) custodial possession of property that
has been unclaimed until the owner reclaims it; or (ii) escheat of such property to the state.
Under the laws of such other jurisdictions, the "holding period" or the time period which must
elapse before the property is deemed to be abandoned may be shorter or longer than 7 years.
The Board of Directors of the Company reserves the right to abandon the proposed reverse stock
split at any time, in its absolute discretion.
Background of the Proposed Reverse Stock Split
History of Company
The Company was incorporated under the laws of the State of New Mexico on January 25, 1955
for a term of fifty years as United Oil & Gas Company, Inc. (No Stockholders' Liability). United
Oil & Gas Company, Inc. (No Stockholders' Liability) merged with Laughlin Enterprises, Inc., a
Nevada corporation, on October 24, 1973. Pursuant to the. Plan of Merger, each shareholder of
Laughlin Enterprises, Inc. was to receive 900 shares of $.05 par value common stock of United
Oil & Gas Co., Inc. (No Stockholders' Liability) for each share of the no par value common
stock of Laughlin Enterprises, Inc. The name of the surviving New Mexico corporation was
changed to Laughlin Recreational Enterprises, Inc. (No Stockholders' Liability) in accordance
with the Plan of Merger.
On or about February 23, 1981, the Company filed a voluntary registration statement on Form 10
with the Securities and Exchange Commission (hereafter "SEC"). At the time of the filing of the
registration statement, the Company was in contravention of Nevada gaming laws which
required the Company either to be registered as a publicly-traded holding company of a gaming
entity or to be licensed together with each of its 336 shareholders. As disclosed in the registration
statement, obtaining gaming licenses for such a large number of shareholders would have been a
costly burden.
Registration of the Company with the Nevada Gaming Commission, as opposed to individual
shareholder licensing, is only available to publicly-traded companies which are registered with
the SEC. Therefore, the Company voluntarily filed a Form 10 registration statement with the
SEC to become a public company so that it might seek registration with the Nevada Gaming
Commission rather than be required to license individually its 336 shareholders. At the time of
filing the Form 10 registration statement, Donald J. Laughlin beneficially owned 8,138,200
shares, or 85.7%, of the Company's stock. William W. Morris, an officer and director of the
Company at that time, owned 889,200 shares, or 9.4% of the Company's stock. In 1982, Donald
J. Laughlin acquired the stock of Mr. Morris, which brought Mr. Laughlin's beneficial ownership
interest in the Company to substantially its present level, 95.1% of all of the Company's issued
and outstanding stock.
History of Company's Consideration of "Going Private" Transaction.
In late September 1988, Donald J. Laughlin, through his representative, contacted the company's
outside corporate securities counsel to inquire about the legal considerations, procedures and
ramifications of the Company becoming privately held. To develop preliminary information on a
confidential basis, Company counsel was requested to explore and investigate on behalf of the
Company the issues relevant to a going private transaction. The need for an independent third
party analysis of whether the transaction would be fair to shareholders as well as what is a fair
price to be paid to shareholders for their stock was discussed amongst many considerations in a
going private transaction. To maintain the confidentiality of the preliminary investigation,
counsel contacted American Appraisal Associates, Inc. (hereinafter "AAA") to arrange a
preliminary meeting between the Company and AAA. Counsel also discussed various issues and
concerns related to the possibility of the Company's going private with Donald L. Wood,
Secretary and Director of the Company.On October 26, 1988, Donald J. Laughlin met with Ron Feuerstein, outside tax counsel, H.
Gregory Nasky, outside corporate securities counsel, and Victor Oxentenko, a business adviser
to Donald J. Laughlin, to discuss the appropriate approach to analyzing reasonably whether it
would be in the Company's best interest to become a privately held corporation. In this regard,
the qualifications and experience of AAA were discussed in connection with the need to have an
outside third party analyze the fair market value of the Company's stock. At this meeting, the
parties also discussed the need to research appropriate procedural mechanisms by which a going
private transaction might be accomplished.
On or about November 9, 1988, a meeting was held at the Riverside Resort and Casino in
Laughlin, Nevada to discuss further the preliminary considerations which may be involved in a
going private transaction. Present at the meeting were Donald J. Laughlin, Victor Oxentenko,
D.E. Cruikshank, a business adviser to Donald J. Laughlin, and Director of Laughlin National
Bank, and James Blaising, District Manager of AAA. At the meeting, those present discussed the
fact that the company was exploring the possibility of a going private transaction. Mr. Blaising
discussed the background and experience of AAA in valuation matters generally and in the
gaming industry in particular, as well as AAA's expertise in rendering opinions concerning the
fair market value of securities. He further discussed the common approaches and methodology
used in valuation matters, as well as the range and type of information AAA could present to the
company for the purpose of analyzing a going private transaction. The parties discussed with Mr.
Blaising the background of the Company, its capital stock structure, its properties, and
operations.
Subsequent to this meeting, on or about December 5, 1988, the Company authorized the
engagement of AAA, and AAA proceeded to examine the advantages and disadvantages of the
Company becoming a private corporation. AAA was engaged to appraise the current fair market
value of the Company's stock for corporate planning purposes. AAA advised the Company that
because there is no active market for the Company's stock and since there had been few, if any,
stock transactions in recent years, AAA would research, analyze and give consideration to a
variety of different factors to determine a reasonable range for the fair market value of the
Company's stock.
On January 10, 1989, Mr. Blaising and William Nickels, both of AAA, met with the Company's
Secretary and Director, Donald L. Wood, to discuss historical events related to the Company.
AAA interviewed key Company management personnel regarding the Company's operations,
visited the Company's facilities and was provided with financial statements and appraisals of the
Company's income producing properties and other similar documentation. Amongst the
documents AAA was provided with appraisals of Laughlin properties prepared by Gary H. Kent,
Inc., MAI, on or about February 24, 1987, which appraisals were made in connection with
financing obtained by the Company in 1987. It was determined that the appraisal for the
Company's primary revenue-producing property, the Riverside Resort and Casino, should be
updated before AAA could fully make its analysis and valuation. As a result, the Company again
contacted Gary H. Kent, Inc., MAI, to appraise the Riverside Resort and Casino. Kent issued an
updated report on this facility as of April 21, 1989.On August 1, 1989, the Company's Board of Directors, together with various invited guests
including a representative of AAA, Laventhol & Horwath, CPAs, the Company's accountants
and auditors; Vargas & Bartlett, the Company's outside corporate securities counsel and Gary H.
Kent, met at the Company's facilities in Laughlin, Nevada to discuss the various considerations
involved in the possibility of the Company becoming privately-held. The Company's Board of
Directors listened to an oral presentation by outside securities counsel concerning procedural and
substantive matters related to going private transactions. Outside counsel briefly summarized the
fiduciary duties of directors involved in considering a going private transaction and discussed the
desirability of retaining counsel in New Mexico to identify the correct corporate procedures to
effect a reverse stock split under New Mexico law. Laventhol & Horwath discussed with the
Board general factors regarding the Laughlin economy. Laventhol & Horwath recommended that
the Board should consider the general Laughlin economy when it determines the value of the
Company's business. Michael S. Megna, Executive Vice President of AAA advised the Board of
its study of the fair market value of the Company's stock. Mr. Megna stated that AAA had not
yet prepared its opinion as to the value of the Company's stock but that in issuing its opinion it
would closely examine the appraisals of the Company's properties determined by Mr. Gary H.
Kent, MAI, as well as the financial statements of the Company prepared by Laventhol &
Horwath. Mr. Megna reminded the Board that AAA would be acting as an independent appraiser
to prepare a report and opinion of the fair market value of the Company. AAA would be acting
as the representative of unaffiliated stockholders of the Company. Mr. Gary H. Kent reported to
the Board of Directors concerning the April 21, 1989 appraisal of the Riverside Resort and
Casino. For a summary of Mr. Kent's appraisal of the Riverside Resort and Casino see "Reports,
Opinions, and Appraisals Obtained by the Company" p.21. The Board considered and discussed
each of the various oral presentations, asked questions of the advisers present, and determined
unanimously to hold another Board of Directors' meeting to consider further whether going
private was in the Company's best interests.
On October 2, 1989, all members of the Company's Board of Directors, together with the
Company's Controller, tax counsel, securities counsel and representatives from Laventhol &
Horwath and AAA, and Gary H. Kent, Inc., MAI, again met to discuss whether going private
was in the Company's best interests and if so, what was a fair price to pay to the unaffiliated
shareholders. The Company's Board of Directors received various oral presentations from its
legal and financial advisers. The Company's legal advisor advised the Board that it had retained
New Mexico counsel. New Mexico counsel had explained that New Mexico corporate law
permitted a corporation to reverse split its shares only by an amendment to the corporation's
articles of incorporation. The Company's legal advisor explained that under New Mexico law the
Company can only amend its articles of incorporation if it obtained the approval of shareholders
at a shareholders meeting. Legal counsel advised further that if the Board proceeded with the
reverse stock split the Board would need to authorize the preparation of proxy materials.
The Board was then presented with AAA's draft fairness opinion. Mr. Megna explained each
evaluation method calculated by AAA and the differing value of the Company's stock. The AAA
analysis and opinion described various financial analysis of the Company. In its analysis AAA
examined or calculated the historical market prices of the Company's stock, the Company's net
book value, the going concern of the Company and the Company's liquidation or net realizable
value. In performing each of these tests AAA determined varying ranges of values of the
Company's stock from a low of $3.56 per share to a high of $9.30 per share. For a more complete
summary of AAA's analysis and opinion see "Analysis of the Fair Market Value of the
Company's Common Stock" p. 25.
The parties present discussed the changing complexion of Laughlin's economy, the many new
facilities planned to be built in Laughlin by other hotel casino operators, the attendant water and
sewer resources issues and various related matters. It was noted that additional hotel casinos
were being constructed in Laughlin Nevada and that other hotel casinos were expanding. In fact,
the number of hotel rooms in Laughlin, Nevada is expected to double in the near future.
Moreover, each of the current operators and future operators of hotel casinos were experiencing
difficulty in obtaining water and sewer permits from the local water district due to its limited
capacity to handle the increased demands by the expanding Laughlin economy. For additional
discussion concerning the risks of doing business in Laughlin Nevada see "Factors Considered
by the Company in Recommending the Reverse Stock Split" p. 18. Based upon the information
presented and considered at the October 1989 meeting, the Company's Board of Directors unan-
imously voted that going private was in the best interests of the Company. No differing purposes
or conclusions were stated by any Board member with regard to the fairness of the proposed
Company going private transaction.
The Board of Directors then addressed at the October 1989 meeting what is a fair price to pay
unaffiliated shareholders for their stock. In this regard, the Board considered various approaches
to valuation,. but relied most heavily upon the valuation analyses of AAA. The Board of
Directors did not assign a numerical weighting or quantitative priority to each valuation analysis
or factor of value considered. Rather, the Board of Directors endeavored to balance the various
valuation conclusions rendered by the different financial analyses performed by AAA, together
with the more subjective risks and benefits of the Laughlin economic climate, to arrive at a price
which reasonably falls within the range of values presented by AAA. See, "Analysis of the Fair
Market Value of the Company's Common Stock" for a lengthier discussion of the Board's
considerations of each of the analyses performed by AAA, p. 25.
The Company has no plans with regard to the possible sale of the Company's assets, or any
material change in its corporate structure or business operations. The Company has not been
approached by any outside third party with regard to the possible sale of the Company's assets or
any material change in its corporate structure or business operations. Mr. Laughlin has no present
intention to sell his stock.
Factors Considered by the Company in Recommending the Reverse Stock Split
The Board of Directors considered means by which the reverse stock split would be both
procedurally and substantively fair to its stockholders. Due to the substantial stock ownership by
the Trusts and due to Mr. Donald J. Laughlin's position with the Company, both the Trusts and
Mr. Laughlin have also evaluated the reverse stock split and both of them believe that the reverse
stock split is procedurally and substantively fair to the Company's stockholders for the reasons
stated below by the Company.To act as a procedural safeguard for the unaffiliated stockholders, the Company determined that
it would retain an independent appraiser to evaluate and appraise its worth. The Company
engaged American Appraisal Associates, Inc. ("AAA") to perform such tests and calculations as
AAA deemed necessary in its discretion to independently determine the Company's value. The
Board of Directors did not retain any other unaffiliated representative to act on behalf of the
Company's stockholders for the purposes of negotiating the terms of the reverse stock split. The
reverse stock split has not been structured so as to require that a majority of unaffiliated
stockholders approve of the transaction. Nor has the reverse stock split been approved by an
independent director. The Company's only non-employee director, Mr. Donald L. Wood, is
outside general counsel and secretary to the Company. Therefore, other than obtaining AAA's
appraisal opinion the Board of Directors has not considered the procedural fairness of the reverse
stock split or structured the reverse stock split with additional procedural safeguards.
Substantively, the Company believes that the reverse stock split is fair to the Company's
unaffiliated shareholders. None of the Company, the Trusts, or Mr. Laughlin assigned a
quantitative weight to the factors discussed below. Instead, in determining the fairness of the
reverse stock split, the Company, the Trusts, and Mr. Laughlin considered independently a wide
range of factors, each of which were calculated or determined by AAA, Laventhol & Horwath,
or Gary H. Kent, MAI (See "Reports, Opinions and Appraisals Obtained by the Company," p.
21, and "Analysis of Fair Market Value of the Company's Common Stock" p. 25, for a lengthier
description of these factors), in evaluating the fairness of the transaction and the cash payment to
be offered to its unaffiliated shareholders including, but not limited to the present fair market
value of the Company's properties; the condition of those properties particularly in light of the
number of new, competing facilities in the Laughlin marketplace; the present fair market value
of future equity cash flows ($51,900,000) the Company would receive from its business
operations (AAA used discount rates of 14-18% in calculating the present fair market value in
cash flows. AAA chose these discount rates based upon the Company's cost of capital and the
risks of doing business in the hotel casino industry); the outlook and economic and industry
trends as to business risks and competitive factors; comparisons with other publicly held
companies in businesses similar to the Company; and book value ($1.73 per share at December
31, 1989) and the net realizable value of the equity ($6.30 per share) of the Company. The Board
noted-that the Company's stock had been traded infrequently, if at all, in the past. In fact, no
quotations for the Company's stock has been available since January 11, 1980 except a bid price
of $-05 on June 26, 1977. AAA discussed with the Board its comparisons of the financial results
of the Company with other publicly held companies. AAA had selected companies in the hotel
and gaming industry with specific reference to Bally Manufacturing, Caesars World, Caesars
New Jersey, Circus Circus and Sands Regent. AAA compared the Company's size, market
multiples, earnings before depreciation and income taxes and revenue margins to the selected
companies to obtain an implied value per share for the Company's stock of $3.61 to $6.27. The
Company also considered the appraisal reports of Gary H. Kent, Inc. on the Company's
properties, the analysis and opinion of AAA and input from the Company's accountants,
Laventhol & Horwath. See, "Reports, Opinions, and Appraisals Obtained by the Company," p. 21.The Company owns real property in the States of Nevada and Arizona near those states' juncture
with the State of California. Through a wholly-owned subsidiary, River Queen Corporation, the
Company operates a motel with 97 rooms in Bullhead City, Arizona along the Colorado River.
The Arizona location covers approximately six acres and is connected by ferry boat service to
the Company's primary income-producing properties one mile up-river in Laughlin, Nevada.
That 91-acre location is leased through another wholly-owned subsidiary, Riverside Resort and
Casino, Inc., to the Company's President and principal shareholder, Donald J. Laughlin. Mr.
Laughlin operates a gambling facility under the name Riverside Resort and Casino.
The majority of the Company's revenues result from the Company leasing property to its
principal shareholder, Donald J. Laughlin. Since 1973, Donald J. Laughlin has leased
approximately 91 acres of land and related facilities from the Company. The present leases
expire on April 1, 1994 and 1995. In addition, furniture, fixtures and equipment at the
Company's property are leased to Donald J. Laughlin for a term expiring on April 1, 1994.
The first structure was built on the Company's property in 1966, and the hotel/casino facilities
have been periodically expanded since that time. In reviewing the value of the Company's
property, the company considered that, because its property is older and its functionality has
been affected by the periodic, piecemeal expansions, there is some degree of functional and
economic obsolescence, as well as competitive disadvantage with the newer, more coherently
planned and constructed facilities in Laughlin.
The Company considered the rapidly changing economic and competitive environment of
Laughlin. Numerous new hotel/casinos have been built, and many are expanding. Major gaming
corporations have entered into and are investing in the Laughlin area. The Company noted that,
although the Laughlin area offers an opportunity, it is questionable whether Laughlin is
becoming overbuilt. At the present time, the existing hotel/casinos located on the Nevada side of
the Colorado River include the Riverside Resort and Casino, the Golden Nugget Laughlin
(Nevada Club), the Edgewater Hotel, the Pioneer Club, the Regency, the Colorado Belle, Sam's
Town Gold River Hotel and Casino, Harrah's Del Rio, and the Ramada Express. The Colorado
Belle, the Ramada Express and Harrah's Del Rio are the newest facilities in the area. The
Edgewater Hotel and the Pioneer Hotel were constructed approximately four to five years ago,
and the Sam's Town Gold . River was completed approximately three years ago. The Edgewater
Hotel and the Colorado Belle are owned by Circus Circus Enterprises, Inc., which also owns
hotel/casinos in the Las Vegas and Reno, Nevada. Circus Circus has announced plans for adding
rooms. Hilton Hotel Corp. has begun construction on a new 2,000-room hotel/casino adjacent to
the Riverside. Promus Corporation, previously the Holiday Inn Corporation, recently opened the
Harrah's Del Rio and is adding a new hotel tower. This major high-rise hotel/casino facility is
located to the south of the existing tourist-oriented developed portions of the Laughlin area. The
Nevada Club was recently purchased by the Golden Nugget Corporation which has announced
plans for a major development on the excess land that is available with this purchase. Further,
there are at least three new hotel/casino facilities planned for the near future, all located south of
the Company's properties. It is not certain whether the increased number of hotel casino.
facilities will increase total tourists to Laughlin, whether the Company will be able to maintain
its market share in the local economy or whether the Company will lose substantial patrons to the
newer more modern neighboring hotel casinos.
In addition to the increased competition for patrons in Laughlin, Nevada, each hotel casino
competes for employees. Approximately 1,900 employees work for the Riverside Resort and
Casino. Employees for each of the operating hotel casinos is primarily obtained from the
Laughlin/Bullhead City area, an area in which the pool of employees is limited. As more and
more hotel casinos are constructed or expanded the competition for employees escalates. As a
result, the Riverside Resort and Casino's ability to compete effectively with other hotel casinos
depends in part in being able to attract and retain qualified employees.
Reports, Opinions, and Appraisals Obtained By The Company
Appraisal Reports of the Company's Property. The Company determined the amount of the cash
payment to be paid to unaffiliated security holders in conjunction with the input and analyses of
AAA, Gary H. Kent, Inc., MAI, its accountants and financial advisers. The Company received an
appraisal of the land, land improvements, buildings and equipment of the Riverside Resort and
Casino as of April 21, 1989 and an appraisal of the River Queen Resort & Motel as of February
24, 1987 both prepared by Gary H. Kent, Inc., MAI ("Kent").The Company did not enter into a contract with Kent nor did it provide any instructions to Kent
concerning the preparation of his report. The Company compensated Kent in accordance with
Kent's hourly rate. Kent received a total of $9, 080 for his services in rendering his 1989
appraisal on the Riverside Resort and Casino.
Gary H. Kent is an appraiser, who received his MAI designation in 1970, and is the principal of
Gary H. Kent, Inc. He has extensive background and experience with hotel/casino properties.
The Company selected Kent based upon his expertise and experience particularly in valuing
gaming properties and his previous work for the Company. In 1987, Kent had provided the
Company with appraisal reports of its properties in connection with the Company obtaining
financing for the construction of a new hotel tower at the Riverside Resort and Casino. Kent has
no financial involvement or business dealings with the Company other than his previous
appraisal work. Kent has no familial relationship with any executive officer, director or affiliate
of the Company.
i) Riverside Resort and Casino Appraisal
Kent used two valuation methods to determine the estimated market value of the Company's
leasehold estate in the Riverside Resort and Casino ("Riverside"). The first method employed by
Kent to appraise the Riverside was the "Cost Approach." The Cost Approach estimates the land
value based upon direct market comparison to recent sales of similar land parcels in the general
area of the Riverside. The second approach, the "Income Capitalization Approach," converts the
net operating income of the Riverside to an indication of value pursuant to a formula based upon
a specified rate of return.
Cost Approach to ValueLand Value. To estimate the land value, Kent compared sales of vacant land parcels in the
general Laughlin area with similar highest and best use potential (hotel/casino) to the Riverside.
As a result of this comparison, Kent estimated the market value of the land to be $51,950,000.
Improvements Value. Kent estimated the value of the improvements based upon the Marshall
Valuation Service. The Marshall Valuation Service is a building cost calculator handbook which,
in Kent's opinion, had proven to be relatively accurate with regard to building costs in the
general Clark County area. The costs contained in the Marshall Valuation service then were
compared to other costs of building improvements which had been constructed or bidded
throughout Clark County, Nevada. Since Laughlin, Nevada is somewhat distant from the
construction trade in Las Vegas, Nevada, costs were adjusted for the additional expenses
necessary to construct in Laughlin. Since a portion of the Riverside is older, Kent estimated an
accrued depreciation at 2% of the total cost.Kent concluded that, using the "Cost Approach," the Riverside's value was approximately
$112,020,000.00.
Income Capitalization Approach to Value
In evaluating the economic income of the Riverside, Kent considered not only the existing leases
on the Riverside, and the historical revenue generated at the Riverside, but also leases on other
tourist-oriented properties in Clark County, Nevada. Only one other leased facility was found
and reviewed in the general Laughlin area. Therefore, primarily, leases for gaming facilities in
Las Vegas, Nevada were used by Kent in his calculations.
An economic rent per square foot per month was allocated separately to the Riverside's public
areas, basement, rooms, second floor areas and recreational vehicle ('IRV") Park. Income
generated by the rooms at the Riverside was calculated by deducting estimated expenses,
including general and administrative expenses, from the room revenue. A similar calculation was
performed for the rented RV spaces at the Riverside.
In order to determine the market value of the leased fee estate of the Riverside, Kent performed
two calculations. The first calculation determined the value of the leased. estate based upon an
estimate of the fee simple economic lease income, capitalized at an appropriate rate and then
deducting therefrom the estimate of the leasehold estate interest. The second approach estimated
the leased fee interest, discounting the expected income stream at an estimated rate, and the
estimated reversion value of the Riverside.
Kent considered the first calculation to be the most reasonable estimate of value because all
factors used in the calculation were known. The second calculation estimates the value of the
Riverside appreciated to the end of the lease term. The appreciation is based only upon consumer
price index increases. Using the two methods, Kent calculated the leased fee value of the
Company's property to be $112,680,000 under the first method and $114,430,000 under the
second method.
Kent's Conclusion of Value of the RiversideBy comparing the results of the calculations using the cost Approach to those using Income
Capitalization Approach, Kent concluded that the Income Capitalization Approach was more
reasonable because most buyers and sellers of income producing properties buy and sell for
income potential with little consideration given to costs. Therefore, Kent's estimate of the
Riverside leased fee estate was $112,680,000.
ii) River Queen Resort Motel
Similar to the manner in which Kent appraised the Riverside, Kent appraised the River Queen
Resort Motel ("Motel") by using the "Cost Approach" and the "Income Capitalization
Approach." The Cost Approach and Income Capitalization Approach are defined on page 21,
above. Also, Kent appraised the Motel in accordance with the Sales Comparison Approach, an
approach which estimates value based upon recent sales of similar properties.
Cost Approach to Value
To estimate the land value of the Motel, Kent compared sales of vacant land parcels in the
general Bullhead City, Arizona area with similar highest and best use potential to the Motel.
Land sales were selected on the basis of physical and economic characteristics similar to the
Motel. Based upon similar sales in Bullhead City, Arizona Kent estimated the land market value
of the Motel to be $1,740,000.
To estimate the cost of the improvements Kent used the Marshall Valuation Service. The
Marshall Valuation Service is a building cost calculator handbook which, in Kent's opinion, had
proven to be relatively accurate with regard to building costs. Kent estimated into the
improvements value a depreciation estimate of 10% which he based upon observed age and
condition of the improvements. Then, after adding to the value of the improvements the
estimated land market value, Kent estimated the Motel's furnishings cost estimate and a
contingency for cost overruns, loan points at 14%, and entrepreneur's profit at 20% to obtain a
total value estimate of the Motel of $4,565,000 in accordance to the Cost Approach.
Income Capitalization Approach to Value
In evaluating the economic income of the Motel, Kent considered not only its past operating
history but the operating history of other motels along the Colorado River. Kent first compared
the occupancy levels and room rates at the Motel in comparison to other properties in Bullhead
City. The Motel had historically experienced occupancy rates of over 80% and it charged
generally room rates between $40 to $60. In comparison other similarly managed properties
experienced occupancy levels of approximately 70% and charged generally room rates between
$34 to $49 per night.
The Motel's restaurant income, bar income, and miscellaneous income was estimated based upon
historical ratios to total gross income of the Motel over the two years preceding 1987.
A capitalization rate was then estimated based upon sales of motel facilities in both Las Vegas
and Bullhead City in order to capitalize net operating income into an indication of value. Various
motels had been sold in these areas at capitalization rates between 12.6% and 14.4%. Based upon
these sales and upon the decline in interest rates, Kent concluded that a 13% overall
capitalization rate was reasonable. Kent then calculated the value of the Motel in accordance
with the income capitalization approach to be $4,645,000.
Sales Comparison Approach to Value
Kent reviewed sales of motels in the Bullhead City area. None of the sales reviewed had
restaurant and bar facilities. Kent noted that historically the restaurant and bar operations
generally, after taking into effect general administrative expenses, did not produce a profit.
Factored into this calculation was a gross income multiplier which was calculated for each motel
sale reviewed based upon room rental income only. Kent concluded that the estimated value of
the Motel was $5,400,000 based upon the Sales Comparison Approach.
Kent's Conclusion as to the Value of the Motel
Kent concluded that the Income Capitalization Approach was the better estimate of the market
value of the Motel as of February 24, 1987 since buyers and sellers of income producing
properties buy and sell for the income -producing potential of the property with little emphasis
placed on the physical cost or features of that property. Although the Sales Comparison
Approach takes into account the income -producing capability of the subject property it fails to
take into consideration the operating expenses associated with achieving an income stream. The
Cost Approach failed to evaluate either the income producing stream or the costs required to
produce the income stream. Therefore, Kent estimated the market value of the Motel as of
February 24, 1987 to be $4,645,000.
Assumptions and Limitations Used in the Appraisals
Kent, in calculating the value of the leased fee estate of the Riverside and the value of the Motel,
assumed the correctness of all legal descriptions; that the Riverside and the Motel were free and
clear of all liens except for normal mortgage financing and existing leases; responsible
ownership and management of the Riverside and the Motel; the correctness of all information
provided to Kent by the Company; that there existed no hidden or unapparent conditions in the
Riverside and the Motel, subsoil or structures, including, but not limited to, hazardous material;
compliance with all applicable federal, state and local environmental regulations; complia nce
with all zoning regulations; and the possession of all required licenses, certificates of occupancy
or other legislation or administrative authority from any local, state or national government; and
no encroachment or trespass by others.
Analysis of the Fair Market Value of the Company's Common Stock. The Company also
received a draft analysis and opinion from American Appraisal Associates, Inc. ("AAA") dated
October 2, 1989 and updated as of March 30, 1990, with respect to the fairness of the
consideration to be offered to the Company's unaffiliated shareholders for their stock, as had
been requested by the Company. AAA is a nationally recognized valuation firm which was
selected for its expertise in the valuation of businesses. AAA was selected based upon its
experience, expertise and recommendations from contacts within the gaming industry. Prior to
this engagement, AAA previously had not performed any work for the Company. The principals
of AAA do not have any familial relationship with any executive officer, director or affiliate of
AAA. AAA does not have and has not had any other business dealings or financial involvement
with the Company. AAA estimated its fees for its analysis of the value of stock held by
nonaffiliates of the Company, including the preparation and finalization of AAA's opinion letter,
to be $60,000 to $65,000 plus costs and expenses. The Company paid AAA $93,925 as of
January 31, 1990.AAA, in conducting its comparable public company analysis, reviewed certain financial results
of selected companies in the hotel and gaming industry. Bally Manufacturing, Caesars World,
Caesars New Jersey, Circus Circus and Sands Regent financial data were all reviewed by Kent.
Based on multiples of the latest year-end results and multiples of the results over the last two
years for these comparable public companies, AAA estimated an implied value per share of the
Company's stock, assuming an acquisition premium of 20%, ranging from $3.56 to $5.59.
AAA also reviewed and presented to the Company recent market multiples based on prices and
earnings in the most recent quarter. Based on the projected earnings for fall 1989 fiscal year,
AAA computed an implied value per share of the Company's stock ranging from $4.29 to $5.24.
AAA calculated the present value of the future cash flow from rents of the Riverside Resort and
Casino ("Riverside"), as well as rents of the River Queen Motel ("Motel"). Riverside rental
revenue and Motel rental revenue estimates were provided by the management of the Company
for the year 1989. The Company estimated Riverside rental revenue would grow at 5% per year
during the years 1990 to 1993. Motel rental revenue was assumed to grow at 1% per year for the
period 1990-1993. Operating expenses for both the casino/hotel and motel operations during the
next five years were assumed to grow at 5% per year.
Using these assumptions, AAA projected the debt-free net cash flow after taxes, depreciation,
capital expenditures and changes in working capital investment that would result from rentals
from 1989 to the year 2000 and discounted those amounts to present values. AAA used discount
rates in its analysis ranging from 14% to 18%. To approximate the residual value of the
Company's business after this five-year period, AAA applied perpetuity growth rates ranging
between 11% to 15%. These residual value estimates then were discounted to present value. The
cash flow and residual values described above were then summed. AAA reported that the
resulting implied value per share of the Company's stock ranged from $4.40 to $7.23.
AAA considered and presented in its analysis and opinion the book value of the Company, with
appropriate adjustments. AAA adjusted the most recent Company balance sheet (June 30, 1989)
to reflect market values for assets and to recognize extraordinary items and deferred liabilities, if
any. The land, land improvements, building and equipment were appraised at fair market value
by Kent as of April 21, 1989 (hotel/casino) and February 24, 1987 (motel). AAA reviewed the
Kent appraisals and concluded the values were appropriate. Under the "Other Assets" category,
an adjustment was made to remove the excess cost paid for the Motel property. "Deferred
Income Taxes" were removed as a long-term liability and a potential Internal Revenue Service
assessment of $500,000 was added. After all adjustments, the value of the stockholders' equity
was calculated. AAA concluded that the implied value of the Company's stock as a result of this
approach was $9.30 per share.Net realizable value was determined in a manner similar to the adjusted book value but
additional adjustments were made to reflect real estate transaction costs. These additional
expenses included transaction costs and taxes on the capital gain. The transaction costs were
estimated to be 3% of the appraised value of Riverside and Motel. Federal taxes were determined
to be 35% of the gain on the transaction, which is the difference between the net sales proceeds
and the real estate tax basis. AAA's calculation of the net realizable value of the stockholders'
equity resulted in an implied value of $6.30 per share of the Company's stock, which was
considered and reviewed by the Company.
AAA updated the foregoing calculation and provided the Company with an updated analysis and
opinion dated June 14, 1990 as to the value of the shares of the Company as of March 30, 1990.
The results of each calculation differed slightly since AAA was able to review the financial
results of the Company for the year ended December 31, 1989 and projected interim results for
the quarter ending March 31, 1990 in lieu of only forecasts of the financial results for the year
ended December 31, 1989.
AAA, in conducting updated comparable company analysis, again reviewed certain financial
results of selected companies in the hotel and gaming industry with specific reference to Bally
Manufacturing, Caesars World, Caesars, New Jersey, Circus Circus and Sands Regents. Based
on multiples of the latest year-end results and multiples of the results of the last three years for
these comparable public companies, AAA estimated implied value per share, assuming an
acquisition premium of 20%, ranging from $4.09 to $6.36. AAA also reviewed recent market
multiples based on prices and earnings in the most recent quarter, and based on the projected
earnings for 1990 computed implied value per share, ranging from $3.61 to $6.27. AAA updated its calculation of the present value of the future cash flow from rental of the
Riverside as well as revenue from the motel. Riverside rental revenue and motel revenue
estimates were provided by the management of Laughlin for the year 1990. Management
estimated Riverside rental would grow at 5% per year during the years 1991 to 1994. Motel
revenue was assumed to grow at 1% per year for the period 1991 through 1994. Operating
expenses during the next five years were assumed to grow at 5% per year for both casino/hotel
and motel operations.
Using these assumptions, AAA projected the debt-free net cash flow after taxes, depreciation,
capital expenditures and changes in working capital investment, that would result from 1990 to
the year 1994 and discounted these cash flows to present values. AAA used discount rates
ranging from, 14% to 18%. To approximate the residual value of the Company's business after
this five-year period, AAA applied capitalization rates ranging between 10% to 14%. These
residual value estimates were then discounted to present value. The cash flow and residual values
described above were then summed. AAA reported that the resulting implied per share values
ranged from $4.19 to $7.25.
AAA updated its calculation of the adjusted book value of the Company, adjusting the latest
Company balance sheet (February 28, 1990) to reflect market values for assets and to recognize
extraordinary items and deferred liabilities, if any exist. The land, land improvement, buildings
and equipment had been appraised at fair market value by an independent appraiser as of April
21, 1989 (hotel and casino) and February 24, 1987 (motel). AAA reviewed those independent
appraisals and concluded that the values were appropriate. An adjustment was made to the
appraisals to remove the excess cost paid for the motel property. Deferred income taxes were
removed as a long-term liability and a potential Internal Revenue Service assessment of
$500,000 was added. After all adjustments, the value of the stockholders equity was calculated,
and the implied value per share was $9.50.
AAA also updated its calculation of the net realizable value in a manner similar to the calcul ation
performed to determine the adjusted book value, but also made additional adjustments to reflect
real estate transaction costs. These additional expenses included transaction costs and taxes on
the capital gain. The transaction costs were estimated to be 3% of the appraised value of the
Riverside and the motel. Federal taxes were determined to be 35% of the gain on the transaction,
which is the difference between the net sale proceeds and the real estate tax basis. The
calculation and the net realizable value of the stockholders equity resulted in an implied value to
$6.30 per share.
The Company's Board of Directors reviewed and considered each of the analyses of AAA. The
Board noted that each analysis resulted in a range of varying prices for the Company's stock and
the Board acknowledged that each analysis, based upon its own assumptions and factors, could
be fair. The Board then reviewed and considered subjective factors such as the uncertainty of the
Laughlin economy due to increased competition by newer or expanded facilities and the relative
obsolescence of its facilities. The Board then endeavored to choose a fair value of its stock which
reflected a value based upon the range of stock prices resulting from the various factor analyses
performed by AAA as well as based upon the economic future of Laughlin, Nevada in general
and for its own properties in particular.
Of the analyses performed by AAA, the Board considered the value of the Company's stock
resulting from net realizable value test to be the most indicative of value of its shares of common
stock since it was based upon the value of the Company's business assuming a ready buyer or
seller. The Board believed that the calculated value, $6.30, did not reflect the fair value of the
shares since AAA's analysis did not include the subjective analysis of the Laughlin economy due
to increased competition and the resulting potential loss of gaming patrons and the increasing
competition for employees to serve its gaming patrons. Moreover, the Board was concerned that
the net realizable value calculation assumed that a sales transaction occurred (which in fact had
not occurred) and, as a result, the Board believed that evaluation of the subjective risks of doing
business in Laughlin, Nevada was important. The Board noted that a value of $6.00 per share fell
within the ranges of fair value under most calculations performed by AAA in its analyses. In
choosing a fair value of $6.00 per share, the Board recognized that a $6.00 share value was
higher than certain ranges calculated by AAA (although, subsequently, upon receipt of the
updated opinion and analysis, the $6.00 value fell within each range calculated by AAA). In
reviewing AAA's analysis, the Company noted that the first analysis performed by AAA
compared the Company to public gaming corporations which competed in different gaming
markets and such corporations conducted substantially larger gaming operations in those markets
than the Company did in its market. The other analysis in which fair value of $6.00 per share
being higher than the range of values calculated by AAA, discounted cash flow plan methods,
calculated the implied net worth of the company based upon forecasted results of operations. In
contrast, the net realizable value analysis calculated the value of the Company based upon a
value the Company would receive if it sold the Company's assets and operations to a ready
buyer. In light of the business risks of increased competition in the Laughlin area, the age and
relative obsolescence of the Company's facilities, and the tax and transactional costs reviewed
above, the Company's Board of Directors determined that $6.00 per share for the Company's
common stock was fair, just and reasonable compensation to the Company's unaffiliated
shareholders.Based upon all of the factors discussed above, the Board unanimously determined that the
reverse stock split transaction and the cash price of $6.00 per (pre-reverse split) share proposed
by the Company to be paid to shareholders is fair. In addition, the Trusts and Mr. Laughlin
determined that the reverse stock split transaction and the cash price of $6.00 per (pre-reversed
split) share to be paid to the shareholders of the Company is fair based upon the factors discussed
above. AAA verified this price as fair to the unaffiliated shareholders in its draft opinion dated
October 2, 1989 and in its updated final opinion dated June 14, 1990.
The opinions and appraisals referred to herein shall be made available for inspection and copying
at the principal executive offices of the Company during its regular business hours by any
interested equity security holder of the Company or his representative who has been so
