Maxim to be auctioned, re-opening is possible

David Strow

Wednesday, April 5, 2000 | 11:07 a.m.

More than four months after its sudden closure, the fate of the troubled Maxim hotel-casino could be decided in just weeks.

Meralex, the property's mortgage holder, has ordered a foreclosure sale of the Maxim on April 20. The property will be sold at the West Sahara headquarters of Nevada Title Co. at 9 a.m. to the highest bidder.

A minimum bid hasn't been set yet, but it's expected to start at $42 million, the amount Meralex claims it is owed by Maxim owner Premier Interval Resorts of Dallas. It will mark the second time in less than four years that the off-Strip property has been sold in a foreclosure auction.

But in a lawsuit filed last week, three former Premier shareholders charged the pending sale is the final step in a conspiracy between the owners of Meralex and Premier. The goal, they claim, is to wipe out the Maxim's obligations to vendors, unions and shareholders, thus allowing Premier's and Meralex's owners -- Gary Kornman and Howard Jenkins -- to divvy up the profits from the sale.

Meralex foreclosed on the property shortly before gaming executive Ed Nigro, the property's lessor, shut down the hotel Nov. 21. Nigro said he was forced to shut the property down after Premier refused to provide $300,000 in financing to keep the Maxim operating.

Both Premier and Nigro's company, Max Gaming, have since declared bankruptcy. Premier sued Nigro, claiming his failure to pay rent caused its default of the Meralex mortgage. The company said Max Gaming owes it $6.25 million.

But Nigro said rent payments weren't required with the Maxim's low cash flow, and he is attempting to force Premier to honor the property's debts, estimated at $4.7 million.

In December, the Maxim's hotel reopened to the public, as court-appointed receiver Larry Bertsch opened 400 of the hotel's 800 rooms. But the Maxim's casino never reopened, as neither Meralex nor Premier holds a Nevada gaming license.

The upcoming auction could signal the casino's rebirth, though the time table is far from clear. Steve DuCharme, chairman of the Nevada Gaming Control Board, said the licensing application could take anywhere from three months to more than 18 months, depending on if the applicant already holds a license, how complicated the owner's corporate structure is and whether the owners are based in the United States or overseas.

"If Ed Nigro bought it, he could have it up and running in three months," DuCharme said. "If someone from a foreign country bought it, it could take a year, a year and a half. It depends on who the purchaser is and how they structure it."

Meanwhile, the three former Premier shareholders filed suit against both Premier and Meralex last week in state court, claiming Premier's controlling shareholder conspired with Meralex to force them out of the company -- then intentionally engineered the failure of the Maxim and its foreclosure.

The allegations were raised by Florida time-share developer Hillel Meyers, Nevada investor Donald Saunders and former Premier general counsel Thomas Russell. The men are seeking at least $7 million in damages from Premier and Meralex, the profit they say Premier would have made if it accepted one of several previous bids on the Maxim.

In their lawsuit, the men claim $26 million of the $42 million in financing provided by Meralex came directly from the Heritage Organization -- an entity controlled by Premier's controlling shareholder, Gary Kornman. In fact, they claim, Premier sent payments on the mortgage to the Heritage Organization, not Meralex.

Premier and Meralex declined comment on the allegations. DuCharme said the board is currently "tracking" the Maxim situation and the charges raised.

"It's nothing I can comment on at this point," DuCharme said.

Meyers, Saunders and Russell say they formed Premier in March 1998 to "explore time-share opportunities in Nevada." In November of that year, they say they signed an agreement with West Coast Limited Partnership, then the owner of the Maxim, to purchase the hotel-casino for $36.5 million.

To assist the investors in making a $750,000 deposit, Saunders claimed he turned to Kornman, who agreed to provide $375,000. As a result, the lawsuit states, Kornman was granted just under 25 percent ownership in Premier. Over the next six months, the plaintiffs allege, Premier's founders tried to arrange financing for the remaining balance, but found their efforts repeatedly blocked by Kornman.

The most serious deal, the lawsuit said, was a three-way pact between Premier, a time-share operator and MTR Gaming Group Inc. MTR, based in West Virginia, is the owner and operator of the Speedway Casino in North Las Vegas.

The lawsuit claims MTR wanted to enter into a 10-year lease with Premier, and offered to provide $11 million in pre-paid rent funds for the use of 300 of the Maxim's rooms. The remaining 500 rooms, the lawsuit said, would have been converted into time-share units through a joint venture between Premier and a company called Shell Vacations LLC. Just before a final agreement was signed, however, the plaintiffs allege Kornman again intervened, killing the deal.

Despite the failure of earlier talks, Saunders and Russell claimed they were able to reopen negotiations with MTR. During their second effort, the lawsuit claims, MTR again offered to supply $11 million, and Shell again agreed to use rooms for a time-share venture. The men say they secured an additional $18 million in financing from Del Mar Mortgage, with Del Mar officials orally committing to $5 million more in loans. This agreement, the suit said, would have allowed Premier to close on the Maxim acquisition by the deadline of May 17.

But seven days before the deadline, the lawsuit claims, Kornman "unilaterally terminated the deal with MTR," then rejected the Del Mar loan. The investors then say Kornman presented them with a financing package of his own -- a $42 million loan to be provided by an unnamed investor. The lawsuit claims the investor offered to convert $26 million of this loan into equity -- a move that would have enabled the Maxim to raise an additional $100 million in debt financing.

But the loan came with two major catches, the lawsuit claims. Kornman said the lender demanded that Kornman be given controlling interest of Premier -- and that Meyers be forced out of the company.

"Saunders and Russell had no choice but to sign," the lawsuit said. "Otherwise, the plaintiff's investments of time, money and energy would have been lost."

Though the plaintiffs claim Kornman promised to pay Meyers at least $850,000 for his stake in Premier -- which would have doubled his $407,000 investment -- Meyers ultimately received just $75,000 for his shares. Russell claimed he was also squeezed out of the company, and eventually offered just $5,000 for his 1 percent stake in Premier.

Only after the deal closed, Saunders and Russell claimed, did they learn the financing was provided by Jenkins and Meralex. The documents, they said, did not mention the loan from Kornman to Jenkins just before the deal closed.

Following the closure of the deal, $44 million in funds were available for the Maxim. About $2.7 million of these funds were distributed back to Premier -- and the plaintiffs claim that they expected the company would meet the funding needs of Max Gaming with these funds. Instead, the plaintiffs allege Kornman has "pocketed" these funds.

"If so, Kornman has already stolen a profit in excess of $1 million from his investment in Premier," the lawsuit states.

Echoing charges made by Nigro against Premier, the lawsuit said Premier refused to honor commitments to provide up to $2 million in financing to Max Gaming to keep the Maxim operating.

"Premier should have been able easily to meet that demand (for $300,000) from the $2,736,208 of cash that it pocketed after the closing of the acquisition of the Maxim," the lawsuit states. "The Kornmans refused to engage in meaningful dialogue with Ed Nigro ... and refused to make any effort to keep the Maxim open."

Saying he was "disgusted" with Kornman's refusal to honor his commitments, Russell resigned from Premier. Saunders claims he was told by Kornman that his stake in Premier is now less than one-sixth of one percent of the company's stock -- far below the 16.67 percent Saunders claims.

Even following the bankruptcy of Premier, the plaintiffs claim there has been significant interest in the Maxim. At least two "seriously interested purchasers" have approached the men, the lawsuit claims, but Kornman has not pursued either offer.

"The mismanagement has been too blatant to be accidental or the result of mere negligence," the lawsuit concludes. "The destruction of Premier must serve an ulterior motive.

"The evidence of collusion between Kornman and Jenkins dictates ... that Kornman will share in any benefit that Jenkins receives from foreclosing on the Maxim. Though Meralex, Jenkins can gain control of the Maxim without any obligation to the Maxim's vendors, without any obligation to the unions that served the Maxim and without any obligation to Premier's shareholders."