Purchase agreement for Four Queens collapses

Tuesday, July 2, 2002 | 11:17 a.m.

An agreement to sell the Four Queens Hotel and Casino in downtown Las Vegas to a local poker bar operator fell through last week due to a potential strike of Culinary Union workers against downtown hotels.

Those fears were allayed Monday as the Four Queens joined ranks with four other downtown casinos to agree to tentative five-year contracts, averting a strike that threatened to grind down business already hurting from the Sept. 11 terrorist attacks.

Four Queens owner Elsinore Corp. said it exercised its right to terminate the purchase agreement June 27 and had sent written notice to potential buyer SummerGate Inc., according to a statement filed Monday with the Securities and Exchange Commission. SummerGate then issued its own termination notice to Elsinore, the filing said.

The president of Las Vegas-based Elsinore, Philip Madow, declined to elaborate on the filing.

SummerGate owner Terry Caudill, founder of the Magoo's restaurant chain in Southern Nevada, could not be reached for comment Monday.

John Wilhelm, president of the Culinary's parent union, said he believes the timing of the proposed transaction resulted in a lack of executive authority to complete a labor agreement. After the transaction terminated last week, removing Caudill from the picture, the hotel moved rapidly to hammer out a union contract before the Monday strike deadline, he said.

Caudill's gaming licensing attorney, Greg Giordano, was less specific. He said the deal was terminated because no union settlement had been reached in the days leading up to the purchase agreement deadline June 30. Both parties are continuing their discussions about a possible sale, which could lead to another purchase agreement, he added. He referred further questions to Caudill.

Nevada regulators in April approved Caudill's license as Four Queens president, secretary, treasurer and director.

Caudill may not need to be relicensed if any new purchase deal is similar to that which was already reviewed by the Nevada Gaming Commission, Giordano said.

Caudill has been awarded licenses for both restricted and unrestricted, or casino-style, gambling operations in Nevada. The Four Queens would have been Caudill's single largest gaming property.

In March Four Queens announced it would sell virtually all of its assets to SummerGate Inc. for $22 million, plus the value of cash on hand and the assumption of certain liabilities. Elsinore aimed to dissolve the company following the sale.

In April Elsinore amended the agreement to extend the termination date to June 30 and reduce the price to about $21.5 million.

Proceeds from the sale would be used solely to pay the debts of the Four Queens and Elsinore as well as paying any accrued and unpaid dividends due to holders of the company's preferred stock.

As of March 31, Elsinore's debts totaled $7.8 million and the Four Queens' debts totaled $8.1 million, of which SummerGate would have assumed $4.1 million, according to a quarterly financial statement filed May 14.

The company then indicated it had sufficient capital to fund operations and make necessary capital expenditures -- including $1.8 million to maintain and upgrade the casino -- over the next 12 months.

Hotel and casino revenues were significantly affected by the terrorist attacks of Sept. 11, the company said.

Earnings before interest, taxes, depreciation and amortization -- a figure typically used to gauge the financial health of highly leveraged, asset-rich casino companies -- declined from $2.3 million in the first quarter of 2001 from $1.1 million the same period a year ago.

The Four Queens, located on about 3.2 acres of prime downtown real estate, features 690 hotel rooms, a 3,200-square-foot casino, about 14,600 square feet of meeting space, five restaurants, three cocktail lounges and a gift shop.