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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO.1-5976
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CAESARS WORLD, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-0773674
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1801 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90067
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 552-2711
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.10 par value New York Stock Exchange
Pacific Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. /X/
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /
The aggregate market value of Common Stock held by non-affiliates of the
registrant on October 4, 1994 was $1,006,732,000.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES / / NO / /
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of October 4, 1994 there were 24,890,596 shares of Caesars World, Inc. Common
Stock, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year
(July 31, 1994) are incorporated by reference in Part III.
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CAESARS WORLD, INC.
PART I
ITEM 1. THE BUSINESS
Caesars World, Inc. and its subsidiaries (CWI together with its subsidiaries,
the Company) provide domestic and international customers with a broad range of
entertainment, gaming and resort experiences. The Company's wholly-owned
subsidiaries operate three renowned destination gaming resorts: Caesars Palace
in Las Vegas, Nevada; Caesars Tahoe in Stateline, Nevada; and Caesars Atlantic
City in Atlantic City, New Jersey. A Company subsidiary carries on operations
of a small casino on a cruise ship in conjunction with the operator of the ship.
The Company also owns one-third of a management company which operates Casino
Windsor, a casino opened on May 17, 1994 in Windsor, Canada which is owned by
the Ontario government. Additionally, subsidiaries of the Company are seeking
gaming management opportunities in emerging gaming markets. The Company's
subsidiaries also own and operate four non-gaming resorts in the Pocono
Mountains of Pennsylvania: Caesars Cove Haven, Caesars Paradise Stream, Caesars
Pocono Palace and Caesars Brookdale (the Pocono Resorts).
Each of the Company's casino/hotels has its own management which is responsible
for day-to-day operating matters. CWI, however, establishes and maintains
overall policies relating to financing, tax and accounting controls, corporate
security, credit practices and other matters which apply to all its
casino/hotels (except to the extent differences are needed to meet regulatory
requirements).
The Company has centralized its international and national marketing activities
which market on behalf of, and coordinate the marketing among, the Company's
three casino/hotels.
The Company has centralized certain entertainment arrangements to maximize its
effectiveness. Headliners George Burns, Johnny Mathis, Wynonna Judd, Tony
Bennett, Julio Iglesias, David Copperfield, Jay Leno, Chicago, The Moody Blues,
Natalie Cole and Reba McEntire are just a few of the Caesars Family of Stars who
will appear in one or more of the showrooms of the Company's three casino/hotels
during fiscal 1995.
Merchandising of Caesars branded products, including fragrance products, is
centralized in a subsidiary of the Company. Clothing, accessories and gift
items with the Company name are sold primarily at retail outlets located at the
Company's properties. The subsidiary manages these outlets as well as a retail
outlet at McCarran International Airport in Las Vegas and retail sites in The
Forum Shops at Caesars. Beginning in July 1994 the operations of the gift and
sundry stores, previously leased to a third party operator, at the Company's
three casino/hotels were assumed by this subsidiary. The Company's fragrance
lines, "Caesars for Women" and "Caesars Man" along with the newly launched
"Ferentina" spa line, are sold in retail outlets located at the Company's
properties, in a limited number of other stores and through other distribution
channels domestically and internationally. The subsidiary also has licensing
agreements for jewelry, games and giftware and has the responsibility for
creating unique merchandise for special entertainment and sporting events held
at the Company's properties.
Through its subsidiaries, the Company is actively exploring gaming opportunities
in the United States and internationally. All of these efforts are uncertain at
this point. In fiscal 1992, the Company entered into an alliance with Hilton
Hotels Corporation and Circus Circus Enterprises, Inc. to build a land-based
international entertainment center, including themed casinos, in Chicago. This
project, however, is currently inactive in view of the failure by the Illinois
legislature to approve gaming for Chicago. In June 1993, the Company formed a
Canadian corporation with these same alliance partners and submitted a proposal
to develop a recreational facility, including a casino, in Windsor, Ontario,
Canada. A gaming license was awarded to the corporation Windsor Casino Limited
(WCL) and an interim casino was opened on May 17, 1994. This interim casino is
expected to be operated by WCL until a permanent
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casino is completed in 1997 which will also be operated by WCL. The interim
agreement calls for WCL to receive 2.75 percent of gross operating revenue and 5
percent of net operating margins. In another joint venture with the same
companies, the Company has submitted a proposal for a riverboat license in
Michigan City, Indiana. In a separate Indiana joint venture with other parties,
the Company is seeking a license for a riverboat in Harrison County, Indiana
near Louisville, Kentucky, in which it anticipates being a 10 percent owner and
the manager if the bid is successful.
In fiscal 1993, a subsidiary of the Company entered into an agreement with the
Agua Caliente Band of Cahuilla Indians (the Tribe) for the development and
management of a limited gaming facility in Palm Springs, California. Under the
agreement, the subsidiary will manage such facility for a percentage of the net
profit for a fixed term. The provisions of the agreement include, among other
things, a commitment, contingent on certain regulatory approvals and acquisition
of land, to loan the Tribe up to $25,000,000 for development of the facility and
to guarantee a minimum distribution of at least $600,000 per year to the Tribe
for the term of the agreement. The agreement requires approval by the National
Indian Gaming Commission. See also the discussion at ITEM 7, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
beginning on page 22 of this Report (incorporated herein by this reference).
The Company's casino/hotels have extended substantial amounts of credit to their
customers. Betting and credit limits of the Company are among the highest in
the industry. The Company maintains substantial reserves against its casino
accounts receivable. In fiscal 1990, the provision for doubtful accounts was
four percent of credit extended and in fiscal 1991 this increased to 5.4 percent
of credit extended. In fiscal 1992, the provision dropped to 4.6 percent of the
credit extended due in part to increased collection of receivables from several
high-wagering players which had been provided for in prior fiscal years. In
fiscal 1993, the provision was 4.8 percent of credit extended and in fiscal 1994
grew to 5.3 percent of credit extended. The provision for doubtful accounts in
recent years includes the use of receivable allowances as a marketing tool to
high-wagering customers. At July 31, 1994, approximately 61% of the Company's
casino receivables were from customers primarily residing outside the United
States, with no concentration of net receivables from customers living in any
one foreign country. The collectability of receivables depends, in part, upon
the future economic stability or significant events in the countries in which
these customers live. At July 31, 1994, the Company had total receivables of
$116,602,000 (of which 92% were casino receivables) and a reserve for doubtful
collections on total receivables of $45,261,000.
The gaming industry in which the Company operates is subject to extensive
regulation and, accordingly, legislative and regulatory changes (including
gaming related taxes) could have a material adverse effect on the Company's
business by increasing competition, increasing costs, or making utilization of
its facilities a relatively less attractive activity for its customers as
compared with other competing activities.
For additional information concerning the Company and its operations, see ITEM
6, "SELECTED FINANCIAL DATA" on pages 20 and 21 and ITEM 7, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" on
pages 22 through 28 of this Report (incorporated herein by this reference).
OPERATING FACILITIES
NEVADA PROPERTIES
Caesars Palace, which opened in 1966 and was purchased by the Company in the
fall of 1969, is an internationally known casino/hotel complex located on
approximately 80 acres on the "Strip" in Las Vegas, Nevada. At July 31, 1994,
Caesars Palace had 1,501 hotel rooms and suites, 10 restaurants, a 1,126 seat
showroom, a convention complex with approximately 100,000 square feet of meeting
and banquet space, numerous bars and lounges, a shopping arcade, two swimming
pools, tennis facilities, a 4,500 seat sports pavilion, a 15,000 seat outdoor
stadium, health spas, and an "Omnimax" theater. Its casino is approximately
118,000 square feet, and it offers wagering limits among the highest in Nevada.
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Casino games include baccarat, blackjack, dice, roulette, slot machines, keno,
pai gow, big six and a Race and Sports Book.
Caesars Palace's Race and Sport Book occupies approximately 16% of the casino
floor space. It features live horse racing telecasts from New York, California
and Illinois, as well as other race tracks in the United States as well as
Australia and Canada. Featuring state-of-the-art computerized systems, this
facility includes giant video screens and electronic boards and provides live
results from major race tracks and other sporting events.
During fiscal 1994, 36% of Caesars Palace's casino revenue was from baccarat,
35% from other table games, 25% from slot machines and the remaining 4 percent
from other games. The percentage of casino revenue derived from baccarat tends
to vary from period to period because of high-limit play of this game and the
fewer number of players compared with other table games.
Caesars Palace operates a small casino on a cruise ship in conjunction with the
operator of the ship, with the launch of a second ship scheduled for the spring
of 1995. These operations are not material to the operating results of the
Nevada properties. The Company may operate additional casinos on new ships
operated by the same cruise line in the future.
In fiscal 1994, the average hotel occupancy rate at Caesars Palace of 90.4%
included occupancy of approximately 35.9% of the available rooms and suites by
guests receiving complimentary rooms. The average hotel occupancy rate at
Caesars Palace was 91.6%; 85.8%; 84.6% and 84.5% in fiscal 1993, 1992, 1991 and
1990, respectively. Its room rates are among the highest in Las Vegas.
Caesars Palace has been the site of a number of highly publicized sporting
events, including world championship and other prize fights. Although the costs
of these events often exceed the directly related revenue from the event, the
Company usually expects to more than offset these costs through additional
casino revenue. The Company also believes these events contribute materially to
the worldwide recognition of the Caesars name. The Company is continuing to
maximize its participation in the ancillary revenue from these events by selling
event merchandise and, on occasion, participating in the profits with the
promoters of these events.
Capital expenditures at Caesars Palace totaled approximately $28,000,000 and
$15,300,000 in fiscal 1994 and 1993, respectively. Major capital expenditures
in fiscal 1994 included guest room and public area refurbishments, replacement
of slot machines, enhancements to security systems in the casino as well as
$11,900,000 for completion of two rooftop luxury suites on one of the hotel
towers. These penthouse luxury suites are used by high-wagering casino
customers. The major capital expenditures in fiscal 1993 were for slot
equipment and enhancements (including currency acceptors), room and public area
refurbishments including guest rooms and initial costs of the two penthouse
luxury suites. The Company estimates that capital expenditures at Caesars
Palace will be approximately $66,000,000 in fiscal 1995. Major capital
expenditures in fiscal 1995 are expected to include Caesars Magical Empire, a
new state-of-the-art magical and dining entertainment facility, which is
estimated to cost $28,000,000 and to be completed in mid-calendar 1995. Other
major projects at Caesars Palace include a second parking garage for
approximately 2,500 cars costing approximately $15,000,000, normal slot machine
replacements and guest room and public area refurbishments. In addition, a
longer-term plan to significantly expand casino and room capacity at Caesars
Palace is in the conceptual planning stage, and implementation may commence in
fiscal 1995. The size and cost of this potential expansion will depend on what
specific elements are approved and their timing.
In May 1992, The Forum Shops at Caesars (The Forum), a 245,000 square foot
shopping complex located on an eight acre site at the north end of Caesars
Palace property opened. The Forum features some 70 exclusive shops and
restaurants in a recreated ancient Roman village setting and includes a sky
feature, water fountains and animatronic statues. The Forum is attached to the
casino and the primary financial contribution to the Company is from increased
visitors to the casino. The Company leases the land to an independent
development company which provided its own financing for the project and which
owns the development and pays rent to the Company. It is anticipated that a
250,000 square
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foot expansion of The Forum Shops at Caesars will be commenced in fiscal 1995 by
an unrelated developer after the ground lease from Caesars Palace is amended to
add approximately 4 acres. The developer will lease the land from Caesars and
provide financing for the project. Opening of this expansion is targeted for
calendar 1996. This expansion of The Forum would approximately double the
retail area and add entertainment features and parking.
Caesars Tahoe casino/hotel opened in fiscal 1980 and is located in Stateline,
Nevada adjacent to Lake Tahoe. In 1979, the Company entered into a long-term
lease of the 24-acre property on which the casino/hotel stands. Caesars Tahoe
has 440 hotel rooms and suites, six restaurants, a 1,550 seat showroom, 25,000
square feet of convention rooms, a Roman-themed nightclub, a 40,000 square foot
casino including a race and sports book, bars, shops, four outdoor tennis courts
and an indoor health spa containing a swimming pool and a racquetball court. In
fiscal 1994 Caesars Tahoe opened a wedding chapel and a restaurant which are
leased to independent operators. During fiscal 1994, 54% of Caesars Tahoe's
casino revenue was from other table games, 38% from slot machines and 8 percent
from other games with less than 1% from baccarat.
During the year ended July 31, 1994, the average occupancy rate at Caesars Tahoe
of 89.5% included occupancy of 32.7% of occupied rooms by guests receiving
complimentary rooms. The average hotel occupancy rate at Caesars Tahoe was
90.1%; 86.3%; 86.1% and 87.7% in 1993, 1992, 1991 and 1990, respectively. The
business of Caesars Tahoe is seasonal in nature with its highest hotel, food and
beverage revenues occurring in the summer months and lower amounts generally in
the fall and spring months.
Capital expenditures at Caesars Tahoe totaled approximately $7,800,000,
$5,500,000 and $5,700,000 in fiscal 1994, 1993, and 1992, respectively. Major
expenditures in fiscal 1994 included costs for a themed restaurant and room
renovations. Expenditures in fiscal 1993 and 1992 were mostly for room
renovations, continuing a four year project to remodel all guest rooms at the
property and for the remodeling/retheming of the casino floor. Capital
expenditures in fiscal 1995 are projected to be approximately $5,000,000,
primarily for remodeling of a portion of the casino and replacement of slot
equipment.
Casino results in the Nevada casinos can be volatile depending upon the table-
game play of a few high-wagering casino customers.
CAESARS ATLANTIC CITY
Caesars Atlantic City is a 641-room casino/hotel on the Boardwalk in Atlantic
City, New Jersey. It contains a 74,000 square foot casino, including table
games, slots, keno, poker and race simulcasting, 12 restaurants and bars, 10,000
square feet of meeting and banquet space, an 1,100 seat showroom, a shopping
arcade, a Roman-themed transportation center which accommodates 2,500 cars and
11 buses, a health club and tennis courts. The property on which Caesars
Atlantic City stands consists of approximately 8.1 acres, including contiguous
parcels totaling approximately 5.4 acres bounded on three sides by Missouri,
Arkansas and Pacific Avenues, with an entire block of Boardwalk frontage.
Of Caesars Atlantic City's casino revenue during the year ended July 31, 1994, 7
percent was from baccarat, 30% from other table games, 61% from slot machines
and 2% from other games.
During fiscal 1994, Caesars Atlantic City's hotel occupancy averaged 91.8%,
including occupancy of 49.1% of the available rooms by guests receiving
complimentary rooms. The average hotel occupancy rate at Caesars Atlantic City
was 89.5%; 86.4%; 87.1% and 88% in fiscal 1993, 1992, 1991 and 1990,
respectively.
Capital expenditures at Caesars Atlantic City were $24,800,000 in fiscal 1994
which included the completion of construction on a $9,900,000 casino expansion
which provided for additional slot machines, table games, poker tables, and a
keno and simulcasting area which seats approximately 100
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people. Additional capital expenditures included remodeling and refurbishing of
approximately 375 guest rooms and the baccarat casino area as well as the first
phase of installing of a new property computer system including software.
Capital expenditures at Caesars Atlantic City in fiscal 1993 were $14,400,000
and major projects included the completion of a casino renovation, purchase of
slot equipment (including currency acceptors), room remodels and the initial
construction of a $9,900,000 casino expansion. Total capital expenditures in
fiscal 1995 are estimated to be $20,000,000 and include replacement of slot
machines, renovation of guest rooms and suites and completion of the new
computer system.
The Atlantic City casino industry in which Caesars Atlantic City competes is
seasonal in nature with its highest revenues occurring during the warmer summer
months and lowest revenues in the winter months. Casino results can be volatile
depending upon the table game play of few high-wagering casino customers.
UNCONSOLIDATED AFFILIATES
In December, 1993 a newly formed corporation, Windsor Casino, Limited (WCL)
owned equally by the Company, Circus Circus Enterprises, Inc. and a subsidiary
of Hilton Hotels Corporation was selected by the government of Ontario, Canada
to develop and operate the province's first casino, in Windsor, Canada. In May
1994, a 50,000 square foot interim casino was opened in Windsor which is owned
by the government of Ontario and operated by WCL. WCL receives 2.75 percent of
gross operating revenue and 5 percent of net operating margins (as defined in
the management agreement) of the interim casino. Cash advances of $14,591,000
were made by each shareholder of WCL, including the Company, prior to June 1994
of which $4,531,000 had been repaid at July 31, 1994. During the second quarter
of fiscal 1995, WCL is expected to borrow from a syndicate of banks, an amount
of which will be used to repay the remaining outstanding cash advances made to
WCL by its three shareholders. Each of the WCL shareholders, including the
Company, is expected to guarantee one-third of these bank borrowings. The WCL
bank loan is expected to be repaid from cash generated from operations. The
proposed permanent casino complex will include meeting facilities and a 300 room
hotel on 13 acres in downtown Windsor with completion anticipated in fiscal
1997. This facility is expected to cost about $300,000,000 and each shareholder
of the corporation, including the Company, is required to provide about
$25,000,000 of such capital. The remaining $225,000,000 is expected to be
financed by debt of the joint venture Canadian corporation.
POCONO MOUNTAIN RESORTS
The Pocono Resorts are resort hotels in Pennsylvania's Pocono Mountains which
cater primarily to honeymoon and other couples. Cove Haven is located on Lake
Wallenpaupack and has 282 hotel rooms, two restaurants, a nightclub, an outdoor
and an indoor swimming pool, an ice skating rink and additional recreational
facilities on a 130 acre site. Paradise Stream has 171 hotel rooms, two
restaurants, a night club, a service station and convenience store, an indoor
swimming pool and sports complex, an outdoor swimming pool and additional
recreational facilities on a 130 acre site. Pocono Palace has 169 hotel rooms,
two restaurants, a nine hole golf course, indoor and outdoor swimming pools, a
25 acre private lake and other facilities on a 330 acre site. Caesars Brookdale
has 127 hotel rooms, a 12 acre lake, two restaurants, a 750 seat nightclub,
indoor and outdoor swimming pools, tennis courts and additional recreational
facilities on a 231 acre site. The Cove Haven and Paradise Stream Resorts are
leased properties. In fiscal 1991, a new subsidiary, Romantic Tours, Inc., was
formed to assist in making travel arrangements for customers to visit the
Company's Pocono Resorts.
Capital expenditures totaled approximately $3,900,000 in fiscal 1994 and
$5,100,000 in fiscal 1993. Major capital expenditures in 1994 included the
construction of 20 Roman Tower suites at Pocono Palace and room renovations at
Brookdale and Pocono Palace. The fiscal 1993 major capital expenditures
included a wastewater hook-up system at Pocono Palace and room refurbishments at
all the locations. Capital expenditures in fiscal 1995 include the exercise of
purchase options for two of the leased Pocono resort properties and the
construction of an indoor Sports Palace at Pocono Palace and some room
refurbishments at all the resorts.
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MARKETING - INTERNATIONAL AND NATIONAL
The Company has centralized its international and national marketing activities
in a subsidiary which markets on behalf of, and coordinates among, the Company's
three casino/hotels. The subsidiary's international division has 86
representatives in 22 countries including branch offices in Bangkok, Hong Kong,
Singapore, Mexico City, two in Taiwan, Vancouver, and Tokyo, as well as several
in the United States which serve national ethnic markets. Through this
subsidiary the Company's international marketing division representatives search
out and attract upper income customers to each of the Company's three
casino/hotels by actively promoting them as world-class destination resorts;
evaluate and, in conjunction with Company executives, oversee credit extension
practices in accordance with and to the extent allowed under gaming regulations;
and coordinate travel and entertainment arrangements. The Company believes that
it has the largest and most comprehensive international marketing organization
of any United States casino/hotel. Although it is difficult to reasonably
estimate the level of casino win from international customers, the Company
estimates that table game (including baccarat) win from international customers
in fiscal 1994 comprised approximately 45% of its total table game win.
The Company's marketing subsidiary also has a national marketing division
similar to the international division whose goal is to centralize and coordinate
the marketing activities of the Company's national branch offices and to attract
national customers to the three casino/hotels. This division has branch offices
in 9 U.S. cities as well as independent agents in various U.S. cities. National
representatives perform functions similar to those of the international division
representatives, but have an additional objective of broadening the Company's
customer base to include additional middle-market customers.
CASINO CREDIT
GENERAL
The collection of casino accounts receivable arising in New Jersey and Nevada
and complying with laws and regulations in such states are enforceable in the
courts of the respective states but not necessarily in all other states or
foreign countries where the Company's customers live.
NEVADA PROPERTIES
During the year ended July 31, 1994, Caesars Palace extended gaming credit of
$906,890,000 which constituted 66.7% of its table game drop. This compared with
total gaming credit extended of $774,659,000, equal to 63.6% of table game drop,
during the prior year. At July 31, 1994, Caesars Palace had collected 91.7% of
the credit extended during the first six months of fiscal 1994 and 93.8% of
credit extended during fiscal 1993. Competitors in Las Vegas, as well as the
Company, use receivable allowances for high-wagering customers as a marketing
tool. It is expected that this practice will continue.
During the year ended July 31, 1994, Caesars Tahoe extended gaming credit of
$121,882,000 equal to 57.6% of its table game drop. During the prior year,
Caesars Tahoe extended $126,513,000 of gaming credit, equal to 56.0% of its
table game drop. At July 31, 1994, 95.9% of the credit extended during the
first six months of fiscal 1994 and 91.5% of credit extended during fiscal 1993
had been collected.
CAESARS ATLANTIC CITY
During the year ended July 31, 1994, Caesars Atlantic City extended gaming
credit of $224,784,000 equal to 29.2% of its table game drop as compared with
credit of $253,515,000 equal to 30.2% of its table game drop in fiscal 1993. At
July 31, 1994, 97.9% of the credit extended during the first six months of
fiscal 1994 and 99.3% of the credit extended during fiscal 1993 had been
collected.
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COMPETITION
The Company believes that all of its operations compete on the basis of the
quality of its facilities and the services and entertainment offered at such
facilities. In addition, the Company believes that its name and reputation are
significant factors in its competitiveness in the marketplace. Accordingly, the
Company and many of its' subsidiaries have registered tradenames and trademarks,
including registered trademarks on the use of "Caesars" and "Caesars Palace."
In addition, the gaming facilities use complimentaries, promotional allowances,
special events, cash incentives and credit and betting limits to attract
customers. See also THE BUSINESS - Marketing - International and National.
NEVADA PROPERTIES
There are many hotels on or near the "Strip" in Las Vegas which offer casino
facilities, some of which are larger than Caesars Palace. "Strip" hotels tend
to compete primarily (but not exclusively) with other "Strip" hotels and with a
few major hotels in the greater Las Vegas area. Caesars Palace's room and food
prices are higher than those charged at most "Strip" hotels. "Strip" hotels
offering similarly priced rooms and food and beverage compete with each other
primarily on the basis of quality of rooms, restaurant and convention
facilities, entertainment offered, complimentaries, promotional allowances,
special events, credit and betting limits and quality of personal attention
offered to guests and casino customers. In addition to the "Strip" and "Strip"
- - -type hotels, there are a large number of hotels and motels in downtown Las
Vegas and elsewhere in and near Las Vegas, many of which offer gaming
facilities, and a large number of casinos in Las Vegas not related to hotels.
Caesars Palace competes with these as well as other casino/hotels throughout
Nevada and the world.
There were approximately 87,000 hotel rooms in Las Vegas at July 31, 1994
including three large casino/hotels which added approximately 10,500 guest rooms
during the past fiscal year. Each of these new resorts has unique entertainment
features and competes with Caesars Palace for casino customers and hotel rooms.
The Las Vegas industry has experienced high hotel occupancy rates and a 12.6
percent increase in gaming revenue between the years ended June 30, 1994 and
1993. Although the market has absorbed this growth so far, this trend of
industry expansion is expected to continue over the next several years.
Construction of approximately 2,500 new hotel rooms by existing casino/hotels in
Las Vegas is expected to be completed during the Company's 1995 fiscal year.
Projects that have been announced but will not be completed until after July
1995 are expected to add another 15,000 guest rooms. It is possible that the
expansion of existing casinos and the opening of additional casino/hotels may
further increase the competition for customers and for trained employees with an
adverse impact on the operating results of Caesars Palace. It is impossible to
presently determine the effects of these changes.
There are four competing casino/hotels in Stateline, Nevada and two casinos
which are not part of a hotel (but one of which is owned and managed by a major
casino/hotel competitor). There are also numerous casino/hotels and casinos
(without hotels) in Carson City and Reno, Nevada and other locations near
Stateline, all within a two hours drive from Stateline, Nevada. The many
restaurants, hotels and motels without casinos in South Lake Tahoe (located in
California adjacent to Stateline, Nevada) compete for food and room sales.
Caesars Tahoe competes with these, as well as with hotels and casinos elsewhere
in Nevada, in other states and in the world.
CAESARS ATLANTIC CITY
The statute legalizing casino gaming in Atlantic City became effective in June
1977. As of July 31, 1994, there were 12 casino/hotels operating in Atlantic
City many which have more guest rooms and casino square footage than Caesars
Atlantic City. Projects and expansions of existing casino/hotels and hotels
without casinos that are planned or proposed may be completed at some time in
the future, and may further increase the competition for customers.
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A large casino/hotel operates on Native American property in Connecticut.
Another Native American tribe recently opened a casino without slot machines in
upper New York state. Numerous gaming establishments have been opened on
riverboats or adjacent to rivers in midwestern states during the past several
years and more are in the process of being built and/or licensed. The Company
believes that some gaming activity that previously has taken place in Atlantic
City, has been diverted to these casinos.
Slot machine revenue is a significant portion of casino revenue in Atlantic City
and has been directly related to the number of customers attracted through bus
programs and garage facilities. Bus, drive-in and other slot marketing programs
utilize cash and other incentives to attract customers and are highly
competitive among the Atlantic City casino/hotels. Additional proliferation of
legalized casino gaming in eastern Canada and northeastern, midatlantic and
midwestern states in the United States could also adversely affect the Atlantic
City market.
UNCONSOLIDATED AFFILIATE
As described in NOTE 4 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS included in
PART IV, ITEM 14 of this Report the Company is a one-third owner of a management
company which is operating a casino owned by the Ontario government in Windsor,
Canada. This interim casino was opened in May 1994 and a new permanent
casino/hotel is expected to be opened in 1997. Directly across the river from
Detroit, Michigan this casino competes with the riverboat casinos in the midwest
states as well as casinos in Montreal, Canada. The Ontario and Quebec
governments have announced plans for additional casinos in these provinces and
when they become operational will compete with the Windsor casino. Voters in
the city of Detroit have approved two non-binding referendums in favor of gaming
which require further state action before they can go forward. State
authorities have formed a commission to study the question of gaming in
Michigan. Other casinos have been proposed for the area around Detroit
including Indian lands.
CAESARS POCONO RESORTS
The Pocono Resorts compete with other honeymoon and couple resorts in the Pocono
Mountains and with other hotels, resorts, cruise ships and recreation areas
(including Atlantic City, which is approximately 200 miles away).
OTHER COMPETITIVE FACTORS
In addition to competing with casino/hotel facilities in Nevada and Atlantic
City, the Company's resort, casino and hotel facilities and one cruise ship
casino operation compete with resort, casino and hotel facilities elsewhere in
the world, including ocean cruises and state lotteries, particularly the New
Jersey, Pennsylvania and California lotteries. There is also some competitive
impact from card rooms in California, particularly in Los Angeles. A number of
states have authorized casino gaming for riverboats or for specific locations
and others have video games and video lotteries. Some of the states limit the
amount of individual bets, restrict the total amount each customer may lose, and
prohibit or limit the issuance of credit, while other locations have no such
limitations. In addition, several other states are considering or are in the
course of developing various forms of approved gaming already offered by the
Company's facilities. An increase in foreign gaming particularly in Asia and
Australia and surrounding areas could also affect the Company's Asian customer
base. Australia is presently in the process of adding four additional casinos.
Another recent development resulting from certain legislation and court
decisions is the legalization of casino type gaming on Native American
reservations including some areas close to major metropolitan areas which are
substantial sources of customers for the Atlantic City, Lake Tahoe and Las Vegas
markets. There is also certain on-going activity directed at determining
whether Native American tribes can acquire land as "trust lands" in order to
establish casinos and offer casino type gaming at such establishments. It has
been indicated that there are approximately 88 compacts with respect to the
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establishment of gaming activity under the Indian Gaming Regulatory Act in 28
states. About 20 tribes are seeking to negotiate a compact with the State of
California that would allow certain electronic machines and card games on tribal
land. State officials recently appealed a Federal judge's ruling that the use
of such electronic machines and card games on tribal land is appropriate subject
matter to be negotiated in a class III compact between the State of California
and Indian tribes. A decision on the appeal is expected imminently.
The spread of such casinos and other forms of gaming to states other than Nevada
and New Jersey could have a negative effect on the Company's activities in
Nevada and New Jersey if such competitive casinos attract or satisfy the gaming
desires of local persons who would otherwise have traveled to Company
facilities. At this time the Company believes it is not possible to quantify
the effect on the Company's operations of the on-going proliferation of gaming
activities in the United States and internationally.
EMPLOYEE RELATIONS
As of July 31, 1994, the Company employed approximately 10,100 people on a full-
time equivalent basis. Of these, approximately 3,800 were employed at Caesars
Palace, 3,400 at Caesars Atlantic City, 1,800 at Caesars Tahoe, 700 at the
Pocono Resorts and 400 in certain merchandising, marketing, general and
administrative and clerical capacities. Management considers its labor
relations to be good.
A Company subsidiary has six collective bargaining contracts with seven unions
which represent approximately 65% of the employees at Caesars Palace. The
Culinary Workers Union and Bartenders Union contracts covering approximately
2,500 employees and another union contract covering approximately 20 theatrical
stage employees expired on June 1, 1994 and work is continuing under a contract
extension cancelable with three days notice. The Company is continuing to
negotiate with these unions and currently does not expect a work slow-down or
stoppage as a result of these expired labor contracts. The Company anticipates
new multi-year contracts will be finalized in the fall of 1994. Contracts
covering four unions and approximately 200 employees expire in 1995.
Caesars Tahoe has a collective bargaining contract with one union representing
23 employees. This contract expires in February 1995.
Caesars Atlantic City has collective bargaining contracts with eight unions
representing approximately 39% of its work force at July 31, 1994. The contract
with the Hotel, Restaurant Workers and Bar-tenders Local 54, which covers
approximately 1,100 employees, expired in September 1994 and a new five year
contract has been approved by union members. One contract covering 109
employees expires in 1998 and the remaining contracts expire in fiscal 1996.
REGULATION
NEVADA
The ownership and operation of casino gaming facilities in Nevada are subject to
extensive state and local regulations. The Company's (herein sometimes "CWI")
gaming operations are subject to the licensing and regulatory control of the
Nevada Gaming Commission (Nevada Commission), the Nevada State Gaming Control
Board (Nevada Board), and various local and county regulatory agencies
(hereinafter collectively referred to as the "Nevada Gaming Authorities").
The gaming laws, regulations and supervisory procedures of Nevada seek to (1)
prevent unsavory or unsuitable persons from having any direct or indirect
involvement with gaming at any time or in any capacity, (2) establish and
maintain responsible accounting practices and procedures, (3) maintain effective
control over the financial practices of licensees, including establishing
minimum procedures for internal fiscal affairs and the safeguarding of assets
and revenues, providing reliable record keeping, and making periodic reports to
the Nevada Gaming Authorities, (4) prevent cheating and fraudulent practices,
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and (5) provide a source of state and local revenues through taxation and
licensing fees. Change in such laws, regulations and procedures could have an
adverse effect on the Company's Nevada gaming operations.
Caesars Palace Corporation (CPC), a wholly owned subsidiary of CWI, is
registered as an intermediary holding company and has been found suitable by the
Nevada Gaming Authorities to own all of the outstanding capital stock of Desert
Palace, Inc. (DPI). DPI holds gaming licenses issued by the Nevada Gaming
Authorities to enable it to operate casinos at Caesars Tahoe in Stateline and
Caesars Palace in Las Vegas. DPI is also registered and has been found suitable
by the Nevada Gaming Authorities as an intermediary holding company owning all
of the outstanding capital stock of Tele/Info, Inc. which is licensed as a
disseminator of horse race simulcasts for the purpose of receiving and
disseminating live telecasts of horse racing information. (DPI and Tele/Info,
Inc. are hereinafter collectively referred to as the "Gaming Subsidiaries").
No person may become a stockholder of, or receive any percentage of profits
from, the Gaming Subsidiaries without first obtaining licenses and approvals
from the Nevada Gaming Authorities. The prior approval of the Nevada Gaming
Authorities is required for the sale, assignment, transfer, pledge or other
disposition of any security issued by CPC or the Gaming Subsidiaries.
The licenses held by the Gaming Subsidiaries are not transferable and must be
renewed periodically and require periodic payment of fees. Each issuing agency
may at any time revoke, suspend, condition, limit or restrict a license or
approval to own stock in the Gaming Subsidiaries for any cause deemed reasonable
by such agency. Substantial fines for each violation of gaming laws or
regulations may be levied against the Gaming Subsidiaries, CWI and CPC and any
persons involved. A violation under any one of the licenses held by the Gaming
Subsidiaries may be deemed a violation under all of the other licenses held by
the Gaming Subsidiaries. If the licenses of the Gaming Subsidiaries were
revoked, suspended or not renewed, the Nevada Commission may petition a Nevada
district court to appoint a supervisor to operate the Nevada casinos and under
certain circumstances, earnings generated during the supervisor's tenure could
be forfeited to the State of Nevada, except for the reasonable rental value of
the casino. Suspension or revocation of any of the foregoing licenses or of the
approval of CWI or CPC would have a materially adverse effect upon the business
of the Company.
Directors, officers and certain key employees of the Gaming Subsidiaries must
file license applications with the Nevada Gaming Authorities. An application
for licensing may be denied for any cause deemed reasonable by the issuing
agency. Changes in corporate management or executive positions must be reported
to the Nevada Gaming Authorities. In addition to its authority to deny an
application for a license, the Nevada Commission has jurisdiction to disapprove
a change in a management or executive position with a regulated corporation. If
the Nevada Gaming Authorities were to find a director, officer or key employee
unsuitable for licensing or unsuitable to continue having a relationship with
the Gaming Subsidiaries, CPC and/or CWI would have to suspend, dismiss and sever
all relationships with such person. CPC and CWI would have similar obligations
with regard to any person who refuses to file appropriate applications. Each
gaming employee must obtain and periodically renew a work permit which may be
revoked upon the occurrence of certain specified events.
The Gaming Subsidiaries must submit detailed financial and operating reports to
the Nevada Commission and Nevada Board. Substantially all loans, leases, sales
of securities and similar financing transactions entered into by the Gaming
Subsidiaries must be reported to the Nevada Board or approved by the Nevada
Commission. The financial stability of the Gaming Subsidiaries must be adequate
to satisfy gaming financial obligations such as state and local government taxes
and fees, and the payment of winning wagers to patrons. Failure to satisfy
these gaming financial obligations may subject the gaming licenses of the Gaming
Subsidiaries and the approvals of CWI and CPC to limitation, condition,
restriction, suspension or revocation, or the imposition of administrative
fines.
The Company is registered with the Nevada Commission as a publicly traded
holding company and has been found suitable as the sole stockholder of CPC. As
such, it is required periodically to submit detailed financial and operating
reports to the Nevada Commission which are subject to periodic audit by the
Nevada Board and furnish any other information which the Nevada Commission may
require. Its
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directors, officers and key employees who are actively and directly engaged in
the administration or supervision of gaming are subject to being required to be
found suitable or licensed by the Nevada Commission. Certain of its officers
and directors have been found suitable by the Nevada Commission. The finding of
suitability is comparable to licensing, and both require submission of detailed
personal background and personal financial information followed by a thorough
investigation and payment by the applicant of all investigative costs and
charges.
Any individual who is found to have a material relationship to, or material
involvement with the Gaming Subsidiaries, CPC or CWI may be required to be
investigated in order to be found suitable or be licensed as a business
associate of the Gaming Subsidiaries. Key employees, controlling persons or
others who exercise significant influence upon the management or affairs of CWI
or CPC may also be deemed to have such a relationship or involvement.
Any person who acquires more than five percent of any class of the voting
securities of CWI must report the acquisition to the Nevada Commission.
Beneficial owners of more than 10% of any class of CWI's voting securities must
be found suitable by the Nevada Commission, and any beneficial owner of CWI's
voting securities (whether or not such person is a controlling stockholder) may
be required to be found suitable if the Nevada Commission has reason to believe
that such ownership would be inconsistent with the declared policy of the State
of Nevada that licensed gaming be conducted honestly and competitively and that
the gaming industry be free from criminal and corruptive elements.
Under certain circumstances, an "institutional investor" (as defined by the
regulations of the Nevada Commission) which holds more than 10 percent, but not
more than 15 percent, of the voting securities of the Company, may apply to the
Nevada Commission for a waiver of the mandatory shareholder suitability
requirement prescribed by the Nevada Gaming Control Act if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter, bylaws, management, policies or operations of the Company or
any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for
investment purposes only. Activities that are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (I) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial
holder of voting securities who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and financial information
including a list of beneficial owners. The applicant is required to pay all
costs of investigation.
If the stockholder who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information including a
list of beneficial owners. In addition, the Clark County Liquor and Gaming
Licensing Board has taken the position that it has the authority to approve all
persons owning or controlling more than two percent of the stock of a gaming
licensee or of any corporation controlling a gaming licensee. The applicant is
required to pay all costs of investigation.
Any stockholder found unsuitable and who holds, directly or indirectly, any
beneficial ownership of CWI's common stock beyond such period of time as may be
prescribed by the Nevada Commission may be guilty of a gross misdemeanor. Any
person who fails or refuses to apply for a finding of suitability or a license
within 30 days after being ordered to do so by the chairman of the Nevada Gaming
Board or the Nevada Commission may be found unsuitable. The same restrictions
apply to a beneficial owner if the record owner, after request, fails to
identify the beneficial owner. CWI is subject to disciplinary action if, after
it receives notice that a person is unsuitable to be a stockholder or to have
any other relationship with it, the Gaming Subsidiaries, CWI or CPC: (a) pays
the unsuitable person any dividends or interest upon any voting securities of
the Gaming Subsidiaries, CPC or CWI, or any payments or distributions of
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any kind whatsoever except as permitted by subparagraph (d) below; (b)
recognizes the exercise, directly or indirectly, of any voting rights in its
securities by the unsuitable person; (c) pays the unsuitable person any
remuneration in any form for services rendered or otherwise, except in certain
limited and specific circumstances; or (d) fails to pursue all lawful efforts to
require the unsuitable person to divest himself or his voting securities,
including, if necessary, the immediate purchase of the voting securities for
cash at fair market value.
It is the position of the Nevada Board that the Nevada Commission may also
require the holder of any debt security of a corporation registered under the
Nevada Gaming Control Act to file applications, be investigated and be found
suitable to own the debt security of a registered corporation. It also is the
position of the Nevada Board that if the Nevada Commission determines that a
person is unsuitable to own such debt security, then pursuant to the regulations
of the Nevada Commission, the registered corporation can be sanctioned,
including the loss of its approvals, if, without the prior approval of the
Nevada Commission, it (i) pays to the unsuitable person any dividend, interest,
or any distribution whatsoever, (ii) recognizes any voting right by such
unsuitable person in connection with such securities, (iii) pays the unsuitable
person remuneration in any form, or (iv) fails to pursue all lawful efforts to
require such unsuitable person to relinquish his securities including, if
necessary, the immediate purchase of such securities for cash at fair market
value.
CWI is required to maintain current stock ledgers in the State of Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record owner unsuitable. CWI and CPC also are required to render maximum
assistance in determining the identity of the beneficial owner.
The Nevada Commission has the power to require that certificates representing
shares of CWI's common stock bear a legend to the general effect that the
Company's securities are subject to the Nevada Gaming Control Act and the
regulations of the Nevada Commission. The Company has obtained from the Nevada
Commission an exemption from the requirement that the shares of CWI's common
stock bear such a legend; however, beginning July 1, 1985, the Company has
affixed a legend on its stock for the protection of the Gaming Subsidiaries.
The Nevada Gaming Authorities, through the power to regulate licensees, have the
power to impose additional restrictions on the holders of CWI's securities at
any time.
The Nevada Legislature has declared that some corporate acquisitions opposed by
management, repurchases of securities and corporate defense tactics affecting
corporate gaming licensees in Nevada and publicly traded corporations affiliated
with those operations, may be injurious to stable and productive corporate
gaming operations. The Nevada Commission has established a regulatory scheme to
ameliorate the potential adverse effects of these business practices upon
Nevada's gaming industry and to advance Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals may be required from the Nevada Commission before the
Company can make exceptional repurchases of securities above the current market
price (commonly referred to as "greenmail"), and prior to a corporate
acquisition opposed by management can be consummated. Nevada's gaming
regulations also require prior approval by the Nevada Commission in the event of
a Company plan of recapitalization proposed by the Board of Directors in
opposition to a tender offer made directly to shareholders for the purpose of
acquiring control of the Company.
The regulations also provide that control of the Company may not change hands
without the prior approval of the Nevada Commission. Nevada law prohibits the
Company from making a public offering of its securities without the prior
approval of the Nevada Commission if any part of the proceeds of the offering is
to be used to finance the construction, acquisition or operation of gaming
facilities in Nevada, or to retire or extend obligations incurred for one or
more such purposes. Currently, CWI has approval from the Nevada Commission to
make public offerings of its securities, subject to certain conditions, for
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a period of one year. Any such approval does not constitute a finding by the
Nevada Commission as to the accuracy, adequacy or investment merit of the
securities offered to the public.
Under the Nevada Gaming Control Act, the Company and its affiliates, including
its subsidiaries, may engage in gaming activities outside the State of Nevada
without seeking the approval of the Nevada Gaming Authorities provided that such
activities are lawful in the jurisdiction where they are to be conducted and
that certain information regarding the foreign operation is provided to the
Nevada Board on a periodic basis. The Company and its Nevada based affiliates
may be disciplined by the Nevada Commission if any of them knowingly violates
any laws pertaining to the foreign gaming operation, fails to conduct the
foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engages in activities that
interfere with the ability of the State of Nevada to collect gaming taxes and
fees, unreasonably threaten Nevada gaming control, reflect discredit or
disrepute on Nevada or its gaming, or are contrary to Nevada gaming public
policy, or employs a person in the foreign operation who has been denied a
license or finding of suitability in Nevada on the ground of unsuitability.
License fees and taxes, computed in various ways depending on the type of gaming
involved, are payable to the State of Nevada and to the counties and cities in
which the Gaming Subsidiaries' respective operations are conducted. Depending
upon the particular fee or tax involved, these fees and taxes are payable
monthly, quarterly or annually and are based upon either (i) a percentage of the
gross gaming revenues received by the casino operations, (ii) the number of slot
machines operated by the casino or (iii) the number of table games operated by
the casino. A casino entertainment tax is also paid by the licensee where
entertainment is furnished in connection with the selling of food, refreshments
or merchandise.
NEW JERSEY
The Company's gaming activities in New Jersey are conducted by Boardwalk Regency
Corporation (BRC), a wholly-owned subsidiary of Caesars New Jersey, Inc. (CNJ),
a wholly-owned subsidiary of the Company.
Gaming activities in New Jersey are subject to the New Jersey Casino Control Act
(New Jersey Act) and regulations of the New Jersey Casino Control Commission
(New Jersey Commission). These laws and regulations primarily concern the
financial stability and character of casino operators, their employees, their
security holders and others financially interested in casino operations, the
nature of hotel and casino facilities, and the operating methods (including
rules of games and credit granting procedures) and financial and accounting
procedures used in connection with the casino operations. These laws and
regulations include detailed provisions concerning, among other things, (i)
equal employment opportunity requirements as to employees of casino operators,
contractors for casino facilities and others, (ii) rules of games, methods of
supervision of games and methods of selling and redeeming chips, (iii) manner of
granting credit, duration of credit, and enforceability of gaming debts, (iv)
manufacture, distribution and sale of gaming equipment, (v) security standards,
management control procedures, accounting and cash control methods and reports
to gaming authorities, and (vi) standards for entertainment and distribution of
alcoholic beverages in casinos. A number of these regulations require practices
which are different from those in many casinos in Nevada and elsewhere, and some
of them result in casino operating costs greater than those in comparable
facilities in Nevada or otherwise disadvantage the New Jersey casinos compared
with casinos elsewhere. As one of the prerequisites for being licensed, a
casino/hotel facility must meet certain requirements concerning, among other
things, the size and number of guest rooms.
In 1991 and 1992, the New Jersey legislature passed certain liberalizing
amendments for the New Jersey Act. It amended the New Jersey Act to authorize
the addition of the new games of Red Dog, Pai Gow, and Sic Bo, and any other
games, to liberalize certain advertising, check cashing, junket licensing and
complimentary provisions and to authorize the increase by the New Jersey
Commission of the amount of space allowable for slot machines. The amendments
also empowered the Commission to authorize 24 hour gaming on a limited basis
which it has done, reduced the hotel facility requirements, and provided
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for waiver of qualification requirements with respect to certain institutional
security holders in the Company. The Company believes that although these
changes have increased revenue, they are not likely to have had a material
effect on net income of the Company as a whole. In 1993, the New Jersey
legislature passed certain liberalizing amendments to the New Jersey Act. It
amended the Act to authorize the establishment and operation of casino
simulcasting, to liberalize the permitted length of experimental procedures and
regulations, to shorten the length of time before a temporary key license may be
issued to an applicant, to permit the Commission to authorize casino patrons to
obtain chips by credit card, and to grant casino licensees additional authority
to exclude or eject undesirable patrons from their premises.
To operate Caesars Atlantic City, BRC must be licensed by the New Jersey
Commission. The New Jersey Commission has broad discretion with regard to the
issuance, renewal and revocation or suspension of licenses. A casino license is
not transferable and must be renewed every other year. Renewal is not automatic
and involves an extensive review by the New Jersey Commission. BRC's license to
operate Caesars Atlantic City was approved for two additional years in October
1994.
Except for certain banking and lending institutions exempted under the New
Jersey Act, all financial backers, investors, mortgagees, debt holders,
landlords under leases to BRC, relating to New Jersey casino/hotel facilities,
all lenders to BRC, all officers and directors of BRC, and all employees who
work at Caesars Atlantic City have to be qualified, licensed or approved by the
New Jersey Commission. In addition, all contracts and leases entered into by
BRC are subject to approval by the New Jersey Commission.
As a prerequisite to BRC's holding a casino license, CNJ and CWI have to be
approved by the New Jersey Commission because of their corporate relationship to
BRC. Thus, any debt or equity security holder of either CWI or CNJ will have to
be found qualified. The qualification requirement of any security holder of CWI
may be waived based upon an express finding by the New Jersey Commission, with
the consent of the Director of the New Jersey Division of Gaming Enforcement,
that the security holder is not significantly involved in the activities of BRC
and does not have the ability to control or to elect a director as to CWI or CNJ
(as the case may be) or unless the security holder is an institutional investor
as defined in the New Jersey Act as to which qualification is waived as set
forth below. Unless rebutted by clear and convincing contrary evidence, a
holder of five percent or more of the equity securities is presumed to have the
ability to elect a director or exercise control. The New Jersey Commission has
stated that it will only be rare that such a five percent or more holder will
not have to be qualified.
A security holder of either CNJ or CWI who is required to be found qualified by
the New Jersey Commission must submit an application for qualification within 30
days after being ordered to do so or divest all security holdings within 120
days after the Commission's determination such qualifications are required. The
application for qualification must include a trust agreement by which the
security holder places such person's interest in CNJ or CWI in trust with a
trustee qualified by the New Jersey Commission. If the security holder is found
qualified, the trust agreement will be terminated. If the security holder is
not found qualified, the trustee will be empowered with all rights of ownership
pertaining to such security holder's CWI or CNJ securities, including all voting
rights, and the power to sell the securities, and the security holder will not
be entitled to receive an amount in excess of (i) the lower of the actual cost
the security holder incurred in acquiring the securities or (ii) the value of
such assets calculated as if the investment had been made on the date the trust
became operative.
An "institutional investor" (as defined in the New Jersey Act) holding less than
10% of the equity securities of CWI or debt securities constituting less than
20% of the outstanding debt of CWI and less than 50% of the issue involved may
be granted a waiver of qualification as to such holdings upon application in the
absence of a prima facie showing that there is any cause to believe that such
institutional investor may be found unqualified, provided, such securities were
purchased for investment purposes and such institutional investor files with the
New Jersey Commission a certified statement to the effect that it has no
intention of influencing or affecting the affairs of CWI.
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If an institutional investor changes its investment intent or the New Jersey
Commission finds reasonable cause to believe that an institutional investor may
be found to be unqualified, such institutional investor shall take no action
other than disposition until it has submitted an application, entered into the
required trust agreement, and complied with other requirements of the New Jersey
Act. If the New Jersey Commission finds that an institutional investor holding
any security of CWI fails to comply with the requirements for waiver of
qualification and certain other reporting requirements or that by reason of the
extent or nature of its holding institutional investor is in a position to
exercise such a substantial impact upon the controlling interests of the Company
that qualification of such institutional investor is necessary to protect the
public interest, the New Jersey Commission may require qualification or take
other action.
In addition, each officer, director, lender and certain other covered persons of
CWI and CNJ must be found qualified unless the New Jersey Commission, as to the
person applying to be an officer of CWI and with the consent of the Director of
the New Jersey Division of Gaming Enforcement, finds that the officer, director,
lender or other covered person is not significantly involved in the activities
of BRC. A New Jersey Commission Regulation requires an officer or director of
CWI or CNJ to apply for qualification at least 30 days before assuming any
duties, and then allows a person applying to be an officer of CWI, with the
permission of the New Jersey Commission, to serve prior to being found qualified
for up to 270 days, or until the next annual BRC license renewal hearing,
whichever is earlier.
CWI and BRC are required to maintain financial stability and capability. The
New Jersey Commission has adopted regulations defining "financial stability" for
purposes of these requirements and has set forth certain standards for
determining compliance with the financial stability requirements. Under the
regulations, financial stability has been defined to include the maintenance of
a minimum casino bankroll adequate to pay obligations to casino patrons when
due, the ability to timely meet ongoing operating expenses, the ability to pay
taxes and a prescribed investment alternative tax, the ability to make necessary
capital and maintenance expenditures in a timely manner to insure maintenance of
a superior first class facility of exceptional quality, and the ability to pay,
exchange, refinance or extend debts or otherwise manage such debts or a default
with respect to such debts. The New Jersey Commission will accept as evidence
of compliance the following: (i) casino bankroll -a casino bankroll in an amount
which is consistent with the amount held for the same month in the previous
year, (ii) operating expenses - positive gross operating profits on an annual
basis, and (iii) capital expenditure and maintenance requirements - a repair and
capital expenditure level of five percent (5%) of net revenue for a five-year
period (which will include any future two-year licensing period). CWI believes
that at present operating levels, BRC will have no difficulty in complying with
these requirements. In the event of a substantial deterioration of operating
performance by BRC from present levels, however, compliance with these standards
could restrict the ability of CWI to utilize cash generated by the operating
subsidiary.
The regulations further provide that the New Jersey Commission may restrict or
prohibit the transfer of cash or the assumption of liabilities by BRC if such
action will adversely impact the financial stability of such licensee. The
regulations also require prior approval as to the incurrence of indebtedness and
guarantees of affiliated indebtedness by the licensed operating subsidiary
involving an amount greater than $25 million. Moreover, under the New Jersey
Act, the Company itself is required to maintain financial stability, the failure
of which could result in it being found not qualified to be a shareholder of the
operating subsidiary.
The New Jersey Commission can find any security holder of CNJ or CWI not
qualified to own securities issued by CNJ or CWI. As required by New Jersey
law, the charter and bylaws of CNJ and CWI each provide that securities of CNJ
or CWI are held subject to the condition that if a holder is found to be
disqualified by the New Jersey Commission, or, also, if such holder is requested
to submit to licensing and fails to do so, the holder must dispose of his
securities of CNJ or CWI. Beginning July 1, 1985, CWI has legended its stock to
reflect this charter/bylaw provision and to give it the power to repurchase such
securities. CWI's outstanding 8 7/8% Senior Subordinated Notes authorize
redemption in such circumstances as well. If a security holder of CNJ or CWI is
found disqualified, it will be unlawful for the security holder to (i) receive
any dividend or interest with regard to the securities, (ii) exercise, directly
or indirectly, any rights conferred by the securities, or (iii) receive any
remuneration from CNJ or CWI for
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services rendered or otherwise. CNJ and CWI are both required to report the
names of all owners of their securities to the New Jersey Commission at least
once each quarter.
If it were determined that BRC had violated the New Jersey Act, or if a security
holder of CNJ or CWI were found disqualified but did not dispose of the
securities, BRC could be subject to fines, or its license could be suspended or
revoked. If BRC's license were revoked, not renewed, or suspended for more than
120 days, the New Jersey Commission could appoint a conservator to operate, and
to dispose of, any casino/hotel facilities of BRC. If a conservator were to
operate the casino/hotel facilities, payments to shareholders would be limited
to a "fair return" on their investment, with any excess going to the State of
New Jersey and the conservators charges and expenses would become a lien against
the property which is paramount to all subsequent and prior liens.
In addition to complying with the New Jersey Act and regulations relating to
gaming, the Caesars Atlantic City casino/hotel must comply with the New Jersey
and Atlantic City laws and regulations relating to, among other things, land
use, construction of buildings, environmental considerations, operation of
hotels and service of alcoholic beverages. It also must pay applicable gaming
and other taxes.
ONTARIO
The Company's unconsolidated one-third owned Canadian Corporation that operates
the casino in Windsor, Ontario is required to comply with licensing requirements
similar to Nevada and New Jersey and is also subject to operational regulation.
PENNSYLVANIA
The Caesars Pocono Resorts must comply with laws and regulations of the
Commonwealth of Pennsylvania relating to the operation of hotels, and the
service of alcoholic beverages and food.
OTHER JURISDICTIONS
As the Company expands into other jurisdictions, it is likely to be subject to
similar governing rules as set forth above for Nevada and New Jersey. In
particular, the Indian Gaming Regulatory Act imposes requirements concerning the
suitability of managers and personnel connected with the management of Indian
gaming enterprises.
COMPANY'S ARTICLES OF INCORPORATION
The Company's Amended and Restated Articles of Incorporation provide that if any
governmental authority, including a Gaming Authority, determines that any
shareholder of the Company (1) must be licensed or found suitable or qualified
and the shareholder does not promptly apply for a license or become qualified or
suitable to the governmental authority or (2) is not licensable, qualified or
suitable to be a shareholder of the Company, the Company will (i) limit certain
rights of the shareholder, (ii) require such shareholder to dispose of all stock
of the Company and (iii) beginning 30 days after notice from the Company, have
the right to redeem the stock at any time until the governmental determination
is revoked or the shareholder becomes licensed or found qualified or suitable at
a price per share which is the lower of (a) the fair market value of the stock
of the class to be redeemed on the day the Company notifies the shareholder of
the determination of the governmental authority or (b) the fair market value of
such stock on the day the Company delivers a redemption notice to the
shareholder.
16
<PAGE>
EXECUTIVE OFFICERS OF REGISTRANT
- Henry Gluck (age 66) has been Chief Executive Officer of the Company since
February 1983 and Chairman of the Board since June 1983 and a director of
the Company since October 1982.
- Terrence Lanni (age 51) has been President and Chief Operating Officer of
the Company since April 1981 and a director of the Company since February
1982.
- Philip L. Ball (age 60) has been Senior Vice President, Secretary, General
Counsel and a director of the Company since July 1983.
- Roger Lee (age 61) has been Senior Vice President - Finance and
Administration and Chief Financial Officer of the Company since April 1985
and a director of the Company since December 1988.
- Edwin L. Getz (age 49) has been Vice President - Taxes of the Company since
August 1981.
- Bruce C. Hinckley (age 47) has been Vice President and Controller of the
Company since November 1985.
- Jack Leone (age 57) has been Vice President - Communications of the Company
since June 1984.
ITEM 2. PROPERTIES
Caesars Palace is located on a 79.9 acre site on the "Strip" in Las Vegas,
Nevada. In June 1990, the Company leased land adjacent to Caesars Palace to a
developer for purposes of developing a shopping complex. The ground lease
expires in 2046 and has a twenty year renewal option and provides for rent of
approximately 15% of the developer's gross revenue with stipulated minimum
rental amounts. As part of the lease, the Company entered into a Parking
Agreement and Grant of Reciprocal Easements and Declaration of Covenants which
in part provides for certain restrictions with respect to the Caesars Palace
Hotel property. This includes the requirement that the Company maintain a
casino on the site for twenty years, mutual easements, provisions concerning
maintenance of common areas and limitations on the amount of retail space at
Caesars Palace Hotel. The Company is currently negotiating to increase the
acreage covered by such lease by approximately four acres.
Caesars Tahoe is operated under a lease which runs until July 2004 and is
renewable for two additional terms of 25 years each. The Caesars Tahoe lease
provides for a minimum rent of $2,606,000 for fiscal 1995, increasing by $75,000
per year in each subsequent year, and for a percentage rent of 20% of the
casino/hotel's annual net profit (as therein defined).
The property on which Caesars Atlantic City stands consists of approximately 8.1
acres, including contiguous parcels of 5.4 acres bounded on three sides by
Missouri, Arkansas and Pacific Avenues, with an entire block of Boardwalk
frontage. The mortgage securing this property at July 31, 1993 totaled
$1,930,000 and was paid in full during fiscal 1994. A remaining portion of this
property was purchased in January 1992 for $6,500,000 pursuant to a lease
option.
All debts due and payable as a result of fees, interest, penalties, or taxes
required to be collected pursuant to the New Jersey Casino Control Act
(including fees of any conservator appointed as discussed above) are a lien on
the real property owned by the Casino licensee owing such debt which is
paramount to all prior or subsequent liens, claims or encumbrances on that
property.
Through a subsidiary, the Company controls property on Indiana Avenue in
Atlantic City that consists of approximately 7.2 acres, including an entire
block of Boardwalk frontage which may be suitable for the
17
<PAGE>
development of a casino/hotel. Approximately 1.2 acres of the Indiana Avenue
property in Atlantic City is owned and the remaining acres are leased. The
lease covers approximately six acres, including all of the Indiana Avenue
property which lies between Indiana Avenue and Illinois Avenue. This lease runs
until August 2076, at a rent of $875,000 per year through July 1997 and
increasing by $50,000 in August 1997 and every 10 years thereafter. BRC is also
required to pay all taxes and other governmental charges relating to the
property covered by the lease. BRC has an option to purchase the property which
is the subject of that lease for $13,000,000, increasing by $500,000 in August
1997 and another $500,000 every 10 years thereafter. BRC can assign the lease
without the landlord's consent, but until a hotel and casino costing $30,000,000
or more is constructed on the property, BRC will be liable for any rent the
assignee does not pay. The lease contains provisions intended to make the
tenant's interest suitable for a leasehold mortgage. The Company currently
leases this property to third parties.
The Company acquired three parcels of land in Atlantic City between fiscal 1987
and fiscal 1989 in order to satisfy the redevelopment tax assessment under the
New Jersey Casino Control Act by investing in qualified eligible direct
investments. Three housing developments, consisting of a high-rise apartment
building and two 15-unit rental town house properties, were completed on these
parcels in fiscal 1990, 1989 and 1988. The cost of these housing developments
was $40,654,000. The high-rise building provides housing for approximately 200
moderate to middle income families. The Company is required to operate the
developments as apartment buildings for a minimum of 15 years until 2004 for the
high-rise apartment building and 20 years until 2009 for the 15-unit townhouses.
The Company, through its subsidiaries, has reservation offices (which are also
used by the various CWI resorts), on leased premises in 18 cities in the United
States and 7 cities outside the United States. CWI purchased a Gulfstream III
jet airplane in fiscal 1987. The Company operates the jet airplane to carry
customers to its properties and to carry employees between facilities of the
Company or on other Company business.
The properties on which the Caesars Pocono Resorts are located are described
under ITEM 1, THE BUSINESS - "POCONO MOUNTAIN RESORTS" on page 5 of this Report.
In February 1975, the Company sold and leased back the properties on which the
Cove Haven and Paradise Stream resorts are located together with the furniture,
furnishings and equipment then existing at those resorts. The sales price was
$15,000,000 and the rental for the two leases totals $2,130,000 per year. The
leases have terms of 20 years, and each has an option to purchase at an
appraised value exclusive of intangibles and personal property. The Company
expects to repurchase these properties by January 31, 1995 for their appraised
real estate values (excluding goodwill and certain other intangibles), at that
time.
ITEM 3. LEGAL PROCEEDINGS
On April 26, 1994, a purported class action lawsuit was filed in the United
States District Court, Middle District of Florida, against 41 manufacturers,
distributors and casino operators of video poker and electronic slot machines,
including the Company. The suit alleges that the defendants have engaged in a
course of fraudulent and misleading conduct intended to induce persons to play
such games by collectively misrepresenting how the gaming machines should
operate, as well as the extent to which there is an opportunity to win. It also
alleges violations of the Racketeer Influenced and Corrupt Organizations Act, as
well as claims of common law fraud, unjust enrichment and negligent
misrepresentation, and seeks damages in excess of $6 billion. Management
believes that the claims are without merit and intends to defend this case
vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1994.
18
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) CWI's Common Stock, $.10 par value, is traded on the New York and Pacific
Stock Exchanges. The ranges of high and low closing sales prices of CWI's
trading reported on the New York Stock Exchange composite tape of each
fiscal quarter since August 1, 1992 have been as follows:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
FISCAL 1993
-----------
<S> <C> <C>
First quarter 37 1/4 29 1/4
Second quarter 46 3/8 35 1/4
Third quarter 48 1/8 37 5/8
Fourth quarter 50 7/8 40 1/4
<CAPTION>
FISCAL 1994
-----------
First quarter 51 1/4 42 1/8
Second quarter 56 1/2 41 1/2
Third quarter 59 42 1/4
Fourth quarter 45 3/4 35 3/4
<FN>
(b) As of October 4, 1994, there were approximately 6,400 shareholders of
record of CWI's Common Stock.
(c) No dividends were paid during fiscal 1994 or 1993 nor during the portion of
fiscal 1995 prior to the filing of this Report. Management has no current
plans for declaring any dividends.
(d) At July 31, 1994, the Company was restricted by loan agreements (See Note 7
of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS included in PART IV, ITEM 14
of this Report which is hereby incorporated herein by this reference) from
paying cash dividends in excess of $196,604,000.
</TABLE>
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA(a)
YEAR ENDED JULY 31
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue
Casino/hotel operations
Nevada $ 596,685 $574,507 $516,941 $531,790 $487,059
Atlantic City 350,527 345,088 355,655 316,640 323,707
Earnings of unconsolidated
affiliate(b) 1,958 -- -- -- --
---------- -------- -------- -------- --------
949,170 919,595 872,596 848,430 810,766
Caesars Pocono Resorts 46,288 44,177 43,300 43,001 44,148
Other(c) 20,308 19,687 17,402 16,986 15,317
---------- -------- -------- -------- --------
Net revenue $1,015,766 $983,459 $933,298 $908,417 $870,231
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Contributions to operating income
Casino/hotel operations
Nevada $ 85,107 $106,489 $ 94,988 $ 88,270 $ 60,114
Atlantic City 63,732 60,681 69,154 50,269 52,098
Earnings of unconsolidated
affiliate(b) 1,958 -- -- -- --
---------- -------- -------- -------- --------
150,797 167,170 164,142 138,539 112,212
Caesars Pocono Resorts 9,539 9,100 9,867 10,569 11,490
Other expenses, net(c) (15,831) (17,159) (14,120) (18,060) (14,035)
---------- -------- -------- -------- --------
Operating income 144,505 159,111 159,889 131,048 109,667
Dividend and interest income 3,345 1,748 989 1,216 5,771
Interest expense, net of amounts
capitalized (19,295) (26,883) (43,518) (50,496) (49,660)
---------- -------- -------- -------- --------
Income before income taxes,
minority interest and
extraordinary loss 128,555 133,976 117,360 81,768 65,778
Income taxes 50,194 50,761 44,652 31,071 24,985
Minority interest(d) -- -- -- 1,087 3,990
---------- -------- -------- -------- --------
Income before extraordinary loss 78,361 83,215 72,708 49,610 36,803
Extraordinary loss, net of income
tax benefit(e) -- -- (6,703) -- --
---------- -------- -------- -------- --------
Net income(f) $ 78,361 $ 83,215 $ 66,005 $ 49,610 $ 36,803
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Net income per common share
Income before extraordinary loss $ 3.19 $ 3.40 $ 3.01 $ 2.09 $ 1.52
Extraordinary loss -- -- (.28) -- --
---------- -------- -------- -------- --------
Net income $ 3.19 $ 3.40 $ 2.73 $ 2.09 $ 1.52
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Average common and equivalent
shares outstanding 24,567 24,475 24,167 23,743 24,245
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
<FN>
(a) Certain reclassifications have been made in the 1993 and prior years' data
in order to conform to the presentation used in 1994. Although information
is given separately for Nevada, Atlantic City and Caesars Pocono Resorts,
the Company does not believe that these represent "segments" for purposes
of required segment reporting.
(b) The "Earnings of Unconsolidated Affiliate" represent the Company's one-
third share of earnings of a company which manages a government-owned
casino in Windsor, Canada, which began operations on May 17, 1994.
(c) Other revenue is primarily from merchandising operations. Other expenses
include the contribution from merchandising operations and corporate
expenses.
(d) The 13.4 percent minority interest in Caesars New Jersey, Inc. not held by
the Company was acquired in December 1990. All consolidated subsidiaries
are now wholly-owned by the Company.
(e) In July 1992 the Company committed to extinguish $268,362,000 of
outstanding debt during fiscal 1993. The resulting extraordinary loss on
early debt extinguishment was $6,703,000, net of applicable income tax
benefit of $3,452,000.
(f) The Company paid no dividends during the five years ended July 31, 1994.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA(a)
AT JULY 31
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalent
investments $ 143,499 $108,616 $ 52,336 $ 40,530 $ 25,378
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Assets
Casino/hotel operations
Nevada $ 464,209 $452,286 $442,298 $434,812 $455,373
Atlantic City 350,238 342,569 340,915 344,838 325,665
Unconsolidated affiliates 12,393 -- -- -- --
---------- -------- -------- -------- --------
826,840 794,855 783,213 779,650 781,038
Caesars Pocono Resorts 58,008 58,058 56,735 55,444 54,570
Other, primarily corporate 133,173 102,806 62,321 52,795 40,914
---------- -------- -------- -------- --------
Total assets $1,018,021 $955,719 $902,269 $887,889 $876,522
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Short-term debt, including
current maturities of long-
term debt $ 27,778 $ 28,344 $ 45,991 $ 50,031 $ 42,386
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Long-term debt, net of current
maturities $ 212,556 $243,024 $258,466 $310,672 $344,503
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Obligations under capital
leases, net of current maturities $ 9,407 $ 10,398 $ 12,240 $ 14,053 $ 20,385
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Shareholders' equity $ 556,867 $472,890 $384,648 $313,180 $258,793
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
<FN>
(a) Certain reclassifications have been made in the 1993 and prior years' data
in order to conform to the presentation used in 1994.
</TABLE>
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company has historically generated significant cash liquidity from
operations. Net cash provided by operating activities was $136,136,000 in
fiscal 1994, compared with $138,676,000 in 1993 and $117,645,000 in 1992. In
addition to cash flow from operations, the Company has significant unused debt
capacity. The Company's percentage of long-term debt to total shareholders'
equity of 38 percent at July 31, 1994, makes it one of the industry's most
conservatively leveraged companies. The cash flow from operations and the
unused debt capacity allows the Company to take advantage of internal and
external expansion opportunities. In addition, the Company constantly explores
available sources of funding in order to capitalize upon financing opportunities
as they arise.
LONG-TERM DEBT AND BORROWING CAPACITY
The Company's long-term debt structure since August 1992 has consisted primarily
of a bank credit facility and senior subordinated notes. The bank facility
consists of a $150,000,000 revolving credit line and a term loan. During fiscal
1994 the Company had no outstanding short-term borrowings and retired its other
long-term debt. At July 31, 1994, the Company had approximately $140,000,000 of
available borrowing capacity from the bank revolving credit facility. This
unused borrowing capacity, combined with existing cash equivalents of
$99,216,000 at July 31, 1994, is available for capital expenditures, the
required payment of $27,778,000 of the current portion of the bank term loan in
fiscal 1995, development of business expansions and any other Company cash
requirements. Additionally, cash generated by operations as well as other
financing options such as capital lease transactions, issuance of public debt or
short-term borrowings are available to meet future obligations or capitalize
upon future opportunities.
CAPITAL EXPENDITURES
Capital expenditures totaled $65,366,000; $40,795,000 and $41,700,000 in fiscal
1994, 1993 and 1992, respectively. Major capital expenditures in fiscal 1994
included guest room renovations and ongoing replacements and additions of slot
machine equipment. In Las Vegas, Caesars Palace completed construction of two
rooftop luxury suites on one of the hotel towers at a cost of $12,800,000. Each
of these suites is approximately 10,000 square feet and includes a pool, spa,
putting green and other amenities. These penthouse suites are utilized by high-
wagering casino customers. At Caesars Atlantic City, construction was completed
on a $9,800,000 casino expansion which included additional slot machines, table
games, poker tables, and a keno and simulcasting area which seats approximately
100 people. Regulatory approval of poker and horse race wagering was given for
Atlantic City casinos in fiscal 1993 and approval of keno was granted in fiscal
1994. Additional capital expenditures at Caesars Atlantic City included
remodeling and refurbishing of approximately 375 guest rooms and the baccarat
casino area as well as the first phase of the installation of a new property
computer system, including software.
Major capital expenditures at the Company's Nevada operations during fiscal 1993
included initial construction of the rooftop luxury suites, slot machine
additions and enhancements and guest room renovations. At Caesars Atlantic
City, the Company's major capital addition projects included initial
construction of the casino expansion, casino renovation, a new outdoor
electronic message board, slot machine additions and hotel room refurbishments.
Capital expenditures during fiscal 1995 are projected to approximate
$120,000,000. Of these expenditures, approximately $66,000,000 will be at
Caesars Palace. The largest dollar expenditure at Caesars Palace will be for
the Caesars Magical Empire which is expected to combine intimate magical
experiences and dining in a new building that will be connected to the casino.
This project is estimated to be opened in calendar 1995 at a cost of
approximately $28,000,000. Other major projects at Caesars Palace include a
second parking garage for approximately 2,500 cars at an estimated cost of
$15,000,000, normal slot machine replacements, and guest room and public area
refurbishments. It is anticipated that construction on a 250,000-square-foot
expansion of The Forum Shops at Caesars will
22
<PAGE>
begin in fiscal 1995 by an unrelated developer after the ground lease from
Caesars Palace is amended to add approximately four acres. The developer will
lease the land from Caesars and provide financing for the project. The opening
of The Forum expansion is scheduled for calendar 1996. In addition to the
projected capital expenditures mentioned above, a longer-term plan to
significantly expand casino and room capacity at Caesars Palace is in the
conceptual planning stage and implementation may commence in fiscal 1995. The
size, cost and timing of these potential expansion projects have not been
finalized. At Caesars Tahoe, in addition to normal replacement of slot
equipment and guest room refurbishments, plans include remodeling a portion of
the casino. Capital expenditures at Caesars Atlantic City in fiscal 1995 are
expected to approximate $20,000,000, which includes replacement of slot
machines, renovation of guest rooms and suites, and completion of the new
computer system. The Company plans to exercise the purchase options in the
leases of two of its Pocono resort properties in fiscal 1995 for an option price
which will be determined under a formalized appraisal (see Note 9 of Notes to
Consolidated Financial Statements).
EXPANSION AND GROWTH OPPORTUNITIES
The Company continues to explore gaming opportunities in the United States and
internationally both as joint ventures and separately. In fiscal 1992 the
Company entered into an alliance with Hilton Hotels Corporation and Circus
Circus Enterprises, Inc. to develop a casino in Chicago, Illinois; however, this
project is currently inactive in view of the failure by the Illinois legislature
to approve gaming for Chicago. In June 1993 the Company formed a Canadian
corporation with these same two companies and submitted a proposal to develop a
recreational facility, including a casino, in Windsor, Ontario, Canada. The
corporation was awarded a gaming license to operate the casino on behalf of an
agency of the Province of Ontario by the Ontario Gaming Commission in December
1993 and opened an interim casino in May 1994. The proposed permanent casino
complex will include meeting facilities and a 300-room hotel on 13 acres in
downtown Windsor with completion anticipated in fiscal 1997. This facility is
expected to cost about $300,000,000 and each shareholder of the corporation,
including the Company, is required to provide about $25,000,000 of such capital.
In another joint venture with the same companies, the Company has submitted a
proposal for a riverboat license in Michigan City, Indiana. In a separate
Indiana joint venture with other parties, the Company is seeking a license for a
riverboat in Harrison County, Indiana, near Louisville, Kentucky, in which it
anticipates being a 10 percent owner and the manager. The Company has also
entered into a joint venture partnership with another limited partnership to
seek and develop gaming opportunities in the Houston, Texas area.
In September 1994, a joint venture was formed between the Company, Casino Magic
Corporation and Bally Entertainment Corporation as equal participants. The
joint venture anticipates that minority and local interests will ultimately hold
a 25 percent interest in this joint venture. In fiscal 1994, Gateway Casino
Company (GCC), a Missouri limited partnership of Caesars World and Casino Magic
subsidiaries, was chosen by the city of St. Louis' ad hoc selection committee as
the preferred developer and operator of the proposed Laclede's Landing project
which would include a replica riverboat casino and downtown hotel. Bally
Entertainment was the first runner-up among five other organizations bidding on
the project. GCC had proposed a $210,000,000 casino and hotel development at
Laclede's Landing. As proposed, the casino would hold 2,658 slot machines and 70
gaming tables on two 2,000 gaming position barges to be built in phases. The
project is planned to be financed by a combination of debt and equity
contributions. The Missouri gaming law was declared unconstitutional and, with
a $500 loss limit on each excursion, currently authorizes only poker, blackjack,
and certain video games which are adaptations of poker and blackjack. A
referendum is on the November 1994 ballot for approval by the voters and, if
approved by a majority of voters, a casino format with slot machines and other
games of chance would be authorized. A similar referendum failed to obtain
voter approval in April 1994. The Company has a one-third interest in a
management agreement pertaining to operation of those facilities. The ultimate
successful negotiation and obtaining of a lease with the city of St. Louis is
subject to various political and regulatory approvals and the approval by the
voters of the referendum, none of which can be assumed to be assured at this
point.
In July 1993 a subsidiary of the Company entered into an agreement with the Agua
Caliente Band of Cahuilla Indians (the Tribe) to construct a limited gaming
facility in Palm Springs, California and to
23
<PAGE>
manage such facility for a percentage of the net profit for a fixed term. The
provisions of this agreement include, among other things, a commitment,
contingent on certain regulatory approvals and acquisition of land, to loan the
Tribe $25,000,000 for development of the gaming facility and to guarantee a
minimum distribution of at least $600,000 per year to the Tribe for the term of
the agreement. The agreement requires approval by the National Indian Gaming
Commission and approval on the basis of the submitted terms is uncertain.
The Company continues to seek other gaming opportunities both domestically and
internationally. It is uncertain as to when any such projects will be
successful for the Company. Previous arrangements pertaining to proposals for
projects in Greece and Uruguay have been terminated or expired.
The costs to pursue these and other projects have been charged to expense as
they have been incurred. The Company continues to evaluate expansion projects
and expects to incur similar costs in fiscal 1995 in order to respond to such
opportunities as they arise. It is possible that pursuit of one or more of
these opportunities could require a substantial capital investment or cause the
Company to seek a loan or alternative methods of financing.
COMPETITION
There has been increasing legalization of casino-style games in new
jurisdictions during the past several years. This includes substantially full-
scale gaming on riverboats, dockside facilities, and on Native American
reservations. This also includes limited gaming in card rooms in which the
casino does not "bank" the games. Gaming is also being legalized in numerous
cities and countries outside the United States and this trend is expected to
continue.
The Company's resorts compete with gaming and resort facilities in their
respective markets as well as gaming and resort facilities elsewhere in the
world, including cruise ships which offer gaming. Although it is difficult to
determine the amount of casino revenue from individual market segments, the
Company estimates that approximately 45 percent of its table game revenue in
fiscal 1994 was from customers whose primary residences were outside of the
United States. This international casino play is principally generated by
relatively few persons who generally bet at higher levels compared with domestic
play. Accordingly, it can be relatively volatile in the short term. Moreover,
this area is subject to increasingly intense competition in the form of issuing
of complimentaries and special allowances. Competition from foreign and
domestic casinos and resorts having services and amenities comparable to Caesars
World resorts, but which are closer to the home residences of foreign customers,
may negatively impact the ability of the Company's existing facilities to
attract these persons.
The Las Vegas gaming industry has exhibited substantial growth in gaming revenue
and number of guest rooms during the past year. At July 31, 1994, Las Vegas had
approximately 87,000 guest rooms, including the opening of three new large
themed casino/hotels during the past year which added approximately 10,500 guest
rooms. Each of these new resorts has unique entertainment features and competes
with Caesars Palace for casino customers and hotel rooms. The city has
experienced higher visitor counts and hotel occupancy levels, as well as
increased gaming revenue, between the years ended June 30, 1993 and 1994.
Although the market has absorbed this growth so far, this trend of industry
expansion is anticipated to continue over the next several years. Construction
of approximately 2,500 new hotel rooms by existing and new casino/hotels in Las
Vegas is expected to be completed during the Company's 1995 fiscal year.
Projects that have been announced but will not be completed until after July
1995 are expected to add another 15,000 guest rooms. In Atlantic City, several
competitors have announced room and casino expansion plans for their existing
casino/hotels; however, no major project is expected to be completed during the
Company's 1995 fiscal year.
The trend of industry growth, increased competition and the spread of legalized
gaming is expected to continue. Although this trend provides opportunities for
the Company to expand its operations, the increased legalization of gaming in
areas close to existing Company operations, such as California, Pennsylvania and
other eastern states, and the addition or expansion of facilities by existing
competitors
24
<PAGE>
in the Company's existing markets, could negatively impact the Company's
operations. A federal judge recently determined that the use of certain
electronic gaming machines and card games may be permissible on tribal lands if
permitted by a compact between California and a tribe. California officials
have appealed the federal judge's ruling and a decision is expected imminently.
The development of such gaming in California could have a negative effect on the
Las Vegas and Lake Tahoe visitor rates. Expansion of casino gaming in Canada
and, in particular, Australia, which is likely to cater to the Far East market,
could increase competition for high-wagering international play. Additionally,
increased demand for experienced employees and intensified marketing to
customers will continue to bring upward pressure on operating costs.
REGULATORY AND TAX ENVIRONMENT
The gaming industry in which the Company operates is subject to extensive
regulations and, accordingly, operating results can be affected by legislative
and regulatory changes. The U.S. Treasury Department has proposed amendments to
existing regulations which could have the effect of reducing below $10,000 the
dollar level of monitoring cash transactions. If enacted, such requirements
could adversely affect future income if high-wagering play is reduced because of
the infringement on customers' privacy. This regulatory change could have a
material adverse effect on the Company's business by increasing competition,
increasing costs, or making utilization of its facilities a relatively less
attractive activity for customers, compared with alternative competitive
activities. Also, the enactment of federal excise taxes on gaming (as was
recently proposed and withdrawn), a change in Internal Revenue Service (IRS)
interpretation as to the application of meals and entertainment expense
deduction limits to certain complimentaries (which interpretation is currently
expected to be internally reviewed by the IRS National Office), or an increase
in state taxes in any jurisdiction in which the Company operates could have a
material adverse effect on net income depending on the applicable facts and
circumstances. The Occupational Safety and Health Administration has proposed
certain air quality rules that would apply to hotels and casinos which could
place significant constraints on smoking in such facilities. If such rules are
adopted, there may be an adverse effect on costs and operations.
The Company's operations in Nevada and Atlantic City depend on the continued
licensability or qualification of the Company and its subsidiaries that hold the
gaming licenses in those jurisdictions. Such licensing and qualifications are
reviewed periodically by the gaming authorities in those states.
IMPACT OF CHANGING PRICES
Future operating results could be unfavorably impacted to the extent that
changing prices result in lower discretionary income for customers and/or
increased transportation costs to the Company's resorts. In addition,
increasing prices affect operations and liquidity by raising the replacement
cost of property and equipment. Payroll costs face inflationary pressure from
scheduled increases in union contracts and competition for qualified personnel
in both Nevada and Atlantic City. In addition, greater competition has
increased the cost of special events, including major boxing matches, and star
entertainment in the Company's showrooms.
RESULTS OF OPERATIONS
FISCAL 1994 COMPARED WITH FISCAL 1993
Net income for the year ended July 31, 1994, was $78,361,000, compared with
$83,215,000 in the previous year, a decrease of 6 percent. Revenue increased 3
percent, to a Company record $1,015,766,000, in fiscal 1994. The lower net
income in a year of revenue growth resulted primarily from higher marketing and
payroll expenses in the Company's Nevada operations.
CAESARS NEVADA OPERATIONS' contribution to operating income was $85,107,000 in
fiscal 1994 and represented a 20 percent decline from fiscal 1993. Casino
activity (the amounts wagered), as well as casino revenue (the amounts won by
the Company), established all-time records for the Company's two
25
<PAGE>
Nevada casinos. The casino revenue improvement occurred in fiscal 1994 despite
the opening of three mega-resorts in Las Vegas midway through the fiscal year
and a lower table game win percentage for the Company. The table game win
percentage was 20.3 percent, compared with a win percentage of 21.2 percent in
fiscal 1993 and the most recent five-year average win percentage of 21.8
percent. The table game win percentage at any of the Company's casinos has been
reasonably predictable over longer time periods but may vary considerably during
shorter periods because of the significant amount of high-wagering play. This
volatility was experienced to an even greater degree in the fourth quarter of
fiscal 1994 when lower table game win percentages occurred at Caesars Palace in
Las Vegas as a result of unusually large losses by the casino to a small number
of long-term, table game customers. Casino revenue attributable to slot
machines also grew to record levels in fiscal 1994. The improved slot machine
results occurred at both of the Company's Nevada casinos where increased
activity, exceeding 10 percent at each location, was partially offset by a
reduction in the slot machine win percentage. The higher casino activity
resulted in an increase in marketing and operating costs. Promotional
allowances extended to customers, including rooms, food and beverages, showroom
tickets and transportation, increased by approximately 14 percent. Special
table game marketing allowances to high-wagering customers and "cash back"
incentives to slot machine customers also increased compared with the prior
fiscal year. Expenses of the marketing branches and operating expenses of the
casino, primarily reflecting the cost of higher staffing levels to meet the
increased activity, rose during the 1994 fiscal year. The provision for
doubtful accounts receivable increased by $9,707,000, or 18 percent, due to
increased marketing incentives to high-wagering customers including special
allowances and increased credit issued to casino customers. This practice of
providing special allowances and marketing incentives to high-wagering customers
is becoming more extensive in the industry as competitive pressures increase,
particularly in Las Vegas. The provision for doubtful accounts may fluctuate
significantly year-to-year due to competitive pressures and collection
experience relating to high-wagering players.
CAESARS ATLANTIC CITY'S contribution to operating income for fiscal 1994
increased 5 percent to $63,732,000, compared with $60,681,000 in fiscal 1993.
Casino revenue increased 1 percent, despite a reduction of 8 percent in table
game activity and a 5 percent decline in table game win. The decline in table
game activity was greater than the 2 percent decline experienced by the Atlantic
City industry, which was impacted by an unusually harsh winter making it
difficult to travel to Atlantic City and a continuation of the decreasing table
game play trend in recent years. More than offsetting the decline in table game
activity was the introduction of new casino games, which received approval by
the New Jersey casino regulators in 1993, and record slot machine results. In
October 1993 a 14,000-square-foot addition to the casino was opened which
featured high-tech horse race betting and poker. In June 1994 keno was approved
as a casino game and the Company introduced this game in the expanded casino
area. The additional revenue resulting from the introduction of horse race
betting, poker and keno in fiscal 1994 was $5,545,000. Slot machine revenue
improved $5,540,000 as a result of record slot activity due to new and expanded
slot marketing programs as well as the addition of approximately 200 slot
machines on the casino floor. Higher casino expenses attributable primarily to
the expanded casino and marketing programs, as well as a higher provision for
doubtful accounts receivable, were partially offset by a decrease in selling,
general and administrative expenses primarily due to lower insurance and legal
expenses.
EARNINGS OF UNCONSOLIDATED AFFILIATE were generated as a result of the Company's
one-third ownership of the management company operating Casino Windsor located
across the river from Detroit, Michigan, which opened in May 1994. This interim
casino is expected to operate until the permanent casino opens in fiscal 1997.
CAESARS POCONO RESORTS' operating income increased 5 percent, rising $439,000
from the fiscal 1993 level. Record revenue resulted from a 1 percentage point
increase in occupancy and a slightly higher package rate. New marketing
programs, room and guest service enhancements and a slightly improved economy
all contributed to the improved results.
OTHER REVENUE AND EXPENSES consist of merchandising operations and corporate
expenses. Merchandising operations include the Company retail outlets at the
Company's casino/hotels, the
26
<PAGE>
manufacture and sale of Caesars fragrance products and the licensing of products
that use the Caesars tradename or logos. Merchandising revenue of $20,274,000 in
fiscal 1994 represents a 3 percent increase over the 1993 level. The corporate
net expenses of $21,540,000 in fiscal 1994 were $1,261,000 below the fiscal 1993
level due to a reduction of legal expenses and lower costs associated with stock
appreciation rights partially offset by an increase in expenses related to the
pursuit of expansion opportunities in new venues.
INTEREST EXPENSE decreased 28 percent to $19,295,000 due primarily to lower
outstanding debt and a debt refinancing at lower rates which was substantially
completed during the fiscal 1993 first quarter.
FISCAL 1993 COMPARED WITH FISCAL 1992
Net income per share for the year ended July 31, 1993, was $3.40, compared with
$2.73 for the previous year. The 1992 fiscal year included an extraordinary
loss of $6,703,000, or 28 cents per share, related to the early retirement of
debt. The increase in fiscal 1993 earnings, compared with fiscal 1992, was
primarily from lower interest expense due to a reduction in average debt
outstanding and lower interest rates due to the debt refinancing.
CAESARS NEVADA OPERATIONS' contribution to operating income was $106,489,000 in
fiscal 1993 and represented a 12 percent increase over fiscal 1992. A
$57,566,000 increase in revenue to $574,507,000 was primarily attributable to
increased casino activity in both table games and slot machines. Table game
activity increased approximately 14 percent but the casino win percentage for
table games was lower than the prior year resulting in a table game revenue
increase of approximately 5 percent. The fiscal 1993 table game win percentage
was 21.2 percent and the five-year-average table game win percentage was 22.2
percent. As a result of increased activity in the casinos, slot machine revenue
grew approximately 35 percent over fiscal 1992.
These improvements in fiscal 1993 casino activity were primarily at Caesars
Palace where business has grown dramatically since the May 1992 opening of The
Forum Shops at Caesars and the simultaneous introduction of new marketing
programs. Higher room, food and beverage revenue also reflects the higher
activity at Caesars Palace.
The higher casino operating and marketing expenses were the result of new slot
marketing programs, increased complimentary expenses for high-wagering players
and added payroll costs to meet the increased casino activity. The provision
for doubtful accounts increased 24 percent due to an increase in the credit
granted to casino customers and additional allowances needed for several large
casino receivables. The provision for doubtful accounts includes certain
marketing discounts required to attract specific customers and additional
allowances needed for certain large receivables from international customers.
CAESARS ATLANTIC CITY'S contribution to operating income in fiscal 1993
decreased by $8,473,000 to $60,681,000 and revenue decreased by $10,567,000 to
$345,088,000 because of lower table game activity and win percentages. The
Atlantic City market experienced a 2.5 percent average annual decline in table
game drop during the four years ended July 31, 1993, with blackjack and dice
games having the largest declines. Caesars Atlantic City experienced the same
trend and, combined with a decline in the table game win percentage from 16.7
percent in fiscal 1992 to 15.3 percent in fiscal 1993, table game revenue was
$16,784,000 lower in fiscal 1993. This was partially offset by a $6,365,000
growth in slot revenue due to a 10 percent increase in activity despite a 26
percent reduction in the number of customers bused and a reduction in slot win
percentage from 10.1 to 9.5. Lower casino marketing expenses, a reduced
provision for doubtful accounts and lower depreciation during fiscal 1993 were
partially offset by higher general and administrative expenses.
CAESARS POCONO RESORTS' contribution to operating income was $9,100,000 in
fiscal 1993, a decrease of $767,000, or 8 percent, compared with the prior year.
Although revenue increased slightly, higher operating expenses more than offset
the revenue increase.
27
<PAGE>
OTHER REVENUE AND EXPENSES consist of merchandising operations and corporate
expenses. Merchandising revenue increased 14 percent to $19,645,000 in fiscal
1993, compared with fiscal 1992, due primarily to the opening of retail outlets
in The Forum Shops at Caesars in Las Vegas. Increased expenses to explore
expansion opportunities, corporate marketing costs and a higher provision for
stock appreciation rights were the primary reasons for the increased "other
expenses" in fiscal 1993.
INTEREST EXPENSE decreased 38 percent from the fiscal 1992 level to $26,883,000
due to ongoing debt repayments and lower overall interest rates resulting
principally from the Company's debt refinancing which was substantially
completed on October 1, 1992.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Public Accountants, Consolidated Financial Statements,
Selected Quarterly Financial Information are set forth on pages 33 to 51 of this
Report and are incorporated herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements with the Company's
accountants on accounting and financial disclosure matters in fiscal 1994.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See section entitled PROPOSAL 1 - ELECTION OF DIRECTORS and INFORMATION
CONCERNING NOMINEES AND MEMBERS OF THE BOARD OF DIRECTORS in the definitive
Proxy Statement for the Company's 1994 Annual Meeting of Shareholders,
incorporated herein by this reference. See also PART I, ITEM 1, THE BUSINESS-
EXECUTIVE OFFICERS OF REGISTRANT of this Report incorporated herein by this
reference.
ITEM 11. EXECUTIVE COMPENSATION
See section entitled EXECUTIVE COMPENSATION in the definitive Proxy Statement
for the Company's 1994 Annual Meeting of Shareholders, incorporated herein by
this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See section entitled SECURITY HOLDINGS OF CERTAIN BENEFICIAL HOLDERS AND
MANAGEMENT in the definitive Proxy Statement for the Company's 1994 Annual
Meeting of Shareholders, incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See section entitled EXECUTIVE COMPENSATION AND SECURITY HOLDINGS OF CERTAIN
BENEFICIAL HOLDERS AND MANAGEMENT in the definitive Proxy Statement for the
Company's 1994 Annual Meeting of Shareholders, incorporated herein by this
reference.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. ALL FINANCIAL STATEMENTS.
Consolidated Statements of Operations for the year ended
July 31, 1994, 1993 and 1992.
Consolidated Balance Sheets at July 31, 1994 and 1993.
Consolidated Statements of Shareholders' Equity for the year
ended July 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows for the year ended
July 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
Selected Quarterly Financial Information (Unaudited).
Report of Independent Public Accountants.
2. FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED BY ITEM 8
AND PARAGRAPH (D) OF THIS ITEM 14.
Schedule V - Property and Equipment.
Schedule VI - Accumulated Depreciation and Amortization of
Property and Equipment.
Schedule VIII - Valuation and Qualifying Accounts.
Schedule X - Supplementary Income Statement Information.
Schedules I, II, III, IV, VII, IX, XI, XII, XIII and XIV are
omitted as not applicable or not required under the rules of
Regulation S-X or because the required disclosure is
included in the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Separate parent company financial statements have not been
presented since they are not required according to the
instructions.
3. THE EXHIBITS ARE LISTED IN THE INDEX OF EXHIBITS REQUIRED BY
ITEM 601 OF REGULATION S-X AT ITEM (C) BELOW AND INCLUDED AT
PAGES 57 THROUGH 62, WHICH IS INCORPORATED HEREIN BY
REFERENCE.
(b) The following reports on Form 8-K were filed during the last quarter
of the period covered by this Report:
1. On May 3, 1994, a Form 8-K was filed which included the
press release dated May 2, 1994 announcing the third quarter
earnings estimate.
29
<PAGE>
2. On May 17, 1994, a Form 8-K was filed which included the
press release of the same date announcing the Company's
third quarter earnings.
(c) The Index of Exhibits and required Exhibits are included following the
Financial Statement Schedules beginning at page 57 of this Report.
(d) The Index to Consolidated Financial Statements and Related Information
are included at page 32 of this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAESARS WORLD, INC.
(Registrant)
Dated: October 18, 1994
By ROGER LEE
------------------------------
Roger Lee
Senior Vice President,
Finance and Administration
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following on behalf of the Registrant and in
the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
PRINCIPAL EXECUTIVE OFFICERS:
Chairman of the Board,
Chief Executive Officer,
HENRY GLUCK Director October 18, 1994
- - -------------------------
Henry Gluck
J. TERRENCE LANNI President, Chief Operating October 18, 1994
- - ------------------------- Officer, Director
J. Terrence Lanni
PRINCIPAL FINANCIAL OFFICER:
Senior Vice President,
Finance and Administration,
ROGER LEE Chief Financial Officer,
- - ------------------------- Director October 18, 1994
Roger Lee
30
<PAGE>
PRINCIPAL ACCOUNTING OFFICER:
BRUCE C. HINCKLEY Vice President, Controller October 18, 1994
- - -------------------------
Bruce C. Hinckley
SIGNATURE CAPACITY DATE
--------- -------- ----
ADDITIONAL DIRECTORS:
PHILIP L. BALL Director October 18, 1994
- - -------------------------
Philip L. Ball
IRVING BUCHALTER Director October 18, 1994
- - -------------------------
Irving Buchalter
TERRY BURMAN Director October 18, 1994
- - -------------------------
Terry Burman
WILLIAM E. CHAIKIN Director October 18, 1994
- - -------------------------
William E. Chaikin
PETER ECHEVERRIA Director October 18, 1994
- - -------------------------
Peter Echeverria
STANLEY SEVILLA Director October 18, 1994
- - -------------------------
Stanley Sevilla
31
<PAGE>
CAESARS WORLD, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND RELATED INFORMATION
PAGE REFERENCE
IN REPORT ON
FORM 10-K
--------------
Consolidated Statements of Operations for the year ended
July 31, 1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . 33
Consolidated Balance Sheets at July 31, 1994 and 1993. . . . . . . . . 34
Consolidated Statements of Shareholders' Equity for the
year ended July 31, 1994, 1993 and 1992 . . . . . . . . . . . . . 35
Consolidated Statements of Cash Flows for the year
ended July 31, 1994, 1993 and 1992. . . . . . . . . . . . . . . . 36
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 37
Selected Quarterly Financial Information (unaudited) . . . . . . . . . 50
Report of Independent Public Accountants . . . . . . . . . . . . . . . 51
Supplemental Schedules:
Schedule V -Property and Equipment . . . . . . . . . . . . . . 52
Schedule VI -Accumulated Depreciation and Amortization of
Property and Equipment . . . . . . . . . . . . . 53
Schedule VIII -Valuation and Qualifying Accounts. . . . . . . . . 54
Schedule X -Supplementary Income Statement Information . . . . 55
Consent of Independent Public Accountants. . . . . . . . . . . . . . . 56
32
<PAGE>
CAESARS WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JULY 31, 1994, 1993 AND 1992
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenue
Casino $ 792,584 $772,061 $734,766
Rooms 69,766 70,035 67,768
Food and beverage 81,856 77,563 73,989
Earnings of unconsolidated affiliate 1,958 -- --
Other income 69,602 63,800 56,775
---------- -------- --------
1,015,766 983,459 933,298
---------- -------- --------
---------- -------- --------
Costs and expenses
Casino 437,645 410,805 381,869
Rooms 20,377 20,413 19,932
Food and beverage 61,438 58,043 54,697
Other operating expenses 41,182 39,373 38,051
Selling, general and administrative 187,597 185,096 173,131
Depreciation and amortization 55,857 54,574 57,681
Provision for doubtful accounts 67,165 56,044 48,048
---------- -------- --------
871,261 824,348 773,409
---------- -------- --------
Operating income 144,505 159,111 159,889
Dividend and interest income 3,345 1,748 989
Interest expense, net of amounts capitalized (19,295) (26,883) (43,518)
---------- -------- --------
Income before income taxes
and extraordinary loss 128,555 133,976 117,360
Income taxes 50,194 50,761 44,652
Extraordinary loss, net of income tax benefit -- -- (6,703)
---------- -------- --------
Net income $ 78,361 $ 83,215 $ 66,005
---------- -------- --------
---------- -------- --------
Net income per common share
Income before extraordinary loss $ 3.19 $ 3.40 $ 3.01
Extraordinary loss -- -- (.28)
---------- -------- --------
Net income $ 3.19 $ 3.40 $ 2.73
---------- -------- --------
---------- -------- --------
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
CAESARS WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT JULY 31, 1994 AND 1993
(IN THOUSANDS EXCEPT SHARES AUTHORIZED AND OUTSTANDING)
<TABLE>
<CAPTION>
ASSETS
1994 1993
-------- --------
<S> <C> <C>
Current assets
Cash $ 44,283 $ 41,116
Cash equivalent investments 99,216 67,500
Receivables, net 71,341 66,041
Inventories 12,986 11,364
Deferred income taxes 37,120 42,748
Prepaid expenses and other 11,895 12,366
---------- --------
Total current assets 276,841 241,135
Property and equipment, net 626,740 616,393
Excess cost of investments over net assets acquired 52,671 52,916
Investments in and advances to unconsolidated affiliates 12,393 --
Other assets 49,376 45,275
---------- --------
$1,018,021 $955,719
---------- --------
---------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 27,778 $ 28,344
Accounts payable and accrued expenses 132,337 127,754
Income taxes 19,186 9,361
---------- --------
Total current liabilities 179,301 165,459
Long-term debt, net of current maturities 212,556 243,024
Other liabilities, including deferred income taxes of $20,015
and $29,282 69,297 74,346
Commitments and contingencies
Shareholders' equity
Common stock, $.10 par value; 50,000,000 shares authorized;
24,872,862 and 24,619,631 shares outstanding 2,620 2,590
Additional paid-in capital 128,028 117,399
Common stock in treasury (32,695) (30,358)
Deferred compensation (18,852) (16,146)
Retained earnings 477,766 399,405
---------- --------
Total shareholders' equity 556,867 472,890
---------- --------
$1,018,021 $955,719
---------- --------
---------- --------
</TABLE>
See notes to consolidated financial statements.
34
<PAGE>
CAESARS WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED JULY 31, 1994, 1993 AND 1992
(IN THOUSANDS EXCEPT SHARES OUTSTANDING)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL COMMON DEFERRED
SHARES PAID-IN STOCK IN COMP- RETAINED
OUTSTANDING AMOUNT CAPITAL TREASURY ENSATION EARNINGS TOTAL
----------- ------- ---------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JULY 31, 1991 23,966,295 $2,516 $ 99,703 $(27,034) $(12,190) $250,185 $313,180
Stock options exercised 189,547 20 2,474 -- -- -- 2,494
Issuance of restricted
stock grants 206,900 21 6,122 -- (6,143) -- --
Amortization of
deferred compensation -- -- -- -- 5,120 -- 5,120
Common stock
purchased and held
in treasury (54,718) -- -- (1,986) -- -- (1,986)
Other (13,084) (2) (507) -- 344 -- (165)
Net income -- -- -- -- -- 66,005 66,005
---------- ------ -------- -------- -------- -------- --------
BALANCE JULY 31, 1992 24,294,940 2,555 107,792 (29,020) (12,869) 316,190 384,648
Stock options exercised 71,378 7 1,139 -- -- -- 1,146
Issuance of restricted
stock grants 197,700 20 8,444 -- (8,464) -- --
Amortization of
deferred compensation -- -- -- -- 5,081 -- 5,081
Common stock
purchased and held
in treasury (34,243) -- -- (1,338) -- -- (1,338)
Other 89,856 8 24 -- 106 -- 138
Net income -- -- -- -- -- 83,215 83,215
---------- ------ -------- -------- -------- -------- --------
BALANCE JULY 31, 1993 24,619,631 2,590 117,399 (30,358) (16,146) 399,405 472,890
Stock options exercised 51,267 5 854 -- -- -- 859
Issuance of restricted
stock grants 199,781 20 10,195 -- (10,215) -- --
Amortization of
deferred compensation -- -- -- -- 6,522 -- 6,522
Common stock
purchased and held
in treasury (44,048) -- -- (2,337) -- -- (2,337)
Other 46,231 5 (420) -- 987 -- 572
Net income -- -- -- -- -- 78,361 78,361
---------- ------ -------- -------- -------- -------- --------
BALANCE JULY 31, 1994 24,872,862 $2,620 $128,028 $(32,695) $(18,852) $477,766 $556,867
---------- ------ -------- -------- -------- -------- --------
---------- ------ -------- -------- -------- -------- --------
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
CAESARS WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JULY 31, 1994, 1993 AND 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 78,361 $ 83,215 $ 66,005
Reconciliation of net income to net cash provided
by operating activities:
Depreciation and amortization 55,857 54,574 57,681
Deferred income taxes (3,578) 3,062 (9,183)
Extraordinary loss -- -- 6,703
Amortization of deferred compensation and other, net 7,791 6,538 5,337
Changes in assets and liabilities due to operating activities:
Receivables, net (5,300) (3,047) (10,147)
Other, net 3,005 (5,666) 1,249
-------- -------- --------
Net cash provided by operating activities 136,136 138,676 117,645
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (65,366) (40,795) (41,700)
Other, net (2,763) (3,425) (1,992)
-------- -------- --------
Net cash used for investing activities (68,129) (44,220) (43,692)
-------- -------- --------
Cash flows from financing activities:
Reductions in debt and obligations under capital leases (32,898) (309,906) (62,615)
Issuance of 8 7/8% Senior Subordinated Notes -- 150,000 --
Increase in long-term bank borrowings -- 125,000 --
Purchase and retirement of common stock (2,337) (1,338) (1,986)
Debt issuance costs -- (3,301) --
Issuance of common stock and other, net 2,111 1,369 2,454
-------- -------- --------
Net cash used for financing activities (33,124) (38,176) (62,147)
-------- -------- --------
Increase in cash and cash equivalent investments 34,883 56,280 11,806
Cash and cash equivalent investments at the beginning
of the period 108,616 52,336 40,530
-------- -------- --------
Cash and cash equivalent investments at the end of
the period $143,499 $108,616 $ 52,336
-------- -------- --------
-------- -------- --------
Supplemental cash flow disclosures
Interest paid, net of amount capitalized $ 19,209 $ 30,268 $ 42,919
-------- -------- --------
-------- -------- --------
Federal and state income taxes paid, net of refunds $ 43,444 $ 53,435 $ 48,292
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
36
<PAGE>
CAESARS WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Caesars World,
Inc. (the Company) and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. Investments in
unconsolidated affiliates are stated at cost adjusted by equity in undistributed
earnings. Certain reclassifications have been made to prior years' amounts to
conform with the 1994 presentation.
The excess cost of investments over net assets acquired subsequent to 1969 is
being amortized over 40 years. The excess cost over net assets acquired
includes $43,971,000 relating to the purchase of Caesars Palace in 1969 which is
believed to have continuing value and, accordingly, is not being amortized.
CASINO REVENUE AND PROMOTIONAL ALLOWANCES
Casino revenue represents the net win from gaming wins and losses. Revenue
excludes the retail value of rooms, food, beverage, entertainment and other
promotional allowances provided on a complimentary basis to customers. The
estimated retail value of these promotional allowances was $117,760,000;
$106,613,000 and $103,727,000 for the years ended July 31, 1994, 1993 and 1992,
respectively. The estimated costs of such promotional allowances have been
classified primarily as casino costs and expenses as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
--------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Rooms $16,857 $14,502 $13,298
Food and beverage 58,661 54,520 53,374
Other operating expenses 11,446 10,105 9,036
------- ------- -------
$86,964 $79,127 $75,708
------- ------- -------
------- ------- -------
</TABLE>
CASH EQUIVALENT INVESTMENTS
There were no significant realized or unrealized gains or losses from cash
equivalent investments during the years ended July 31, 1994, 1993 and 1992.
Cash equivalent investments were stated at cost and consisted of commercial
paper and other short-term instruments with maturities of less than three months
at the date of purchase. The cost of these investments approximates market
value. It is the Company's policy to limit the amount of its credit exposure
with any one company and investments are made only in investment instruments of
companies having high credit ratings.
INVENTORIES
Inventories are stated at the lower of cost or market, determined principally on
the first-in, first-out basis.
37
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and include interest on funds
borrowed to finance construction. Capitalized interest was $105,000; $37,000
and $32,000 in fiscal 1994, 1993 and 1992, respectively. Depreciation and
amortization are provided for on the straight-line method over the following
estimated useful lives:
Buildings and improvements 5 to 40 years
Leasehold improvements 3 to 40 years
Furniture, fixtures and equipment 2 to 10 years
Property under capital leases 5 to 20 years
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance charges are expensed as
incurred. The cost and related accumulated depreciation applicable to assets
retired are removed from the accounts and the gain or loss on disposition is
recognized in income.
AMORTIZATION OF LOAN COSTS
Debt discount and loan issuance costs in connection with long-term debt are
capitalized and amortized to expense during the period the debt is outstanding.
INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax return.
Deferred income taxes are provided for timing differences between book and tax
recognition of revenues and expenses. The income tax benefit realized upon
exercise of non-qualified stock options and early disposition of incentive stock
options is credited to additional paid-in capital.
The Omnibus Budget Reconciliation Act of 1993, enacted in August 1993, contained
a corporate tax rate increase from 34 to 35 percent retroactive to January 1,
1993. In accordance with generally accepted accounting principles, the
retroactive effect of this change was recognized in the first quarter of fiscal
1994 and approximated $700,000.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109 (SFAS 109) on accounting for income taxes. The
Company adopted the accounting and disclosure rules prescribed by SFAS 109 in
the first quarter of fiscal 1994. The Company elected to adopt SFAS 109 by
recognizing a cumulative adjustment which did not have a material effect on the
Company's financial position or results of operations.
POSTEMPLOYMENT BENEFITS
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112 (SFAS 112), "Employers' Accounting for
Postemployment Benefits," which requires accrual accounting for benefits offered
to employees after employment, but before retirement. The adoption of SFAS 112
did not have significant impact on the Company's financial position or results
of operations.
NET INCOME PER COMMON SHARE
Net income per common share is based upon the weighted average number of common
stock and common stock equivalents outstanding which were 24,567,000; 24,475,000
and 24,167,000 for the years ended July 31, 1994, 1993 and 1992, respectively.
38
<PAGE>
NOTE 2. RECEIVABLES
ACCOUNTS RECEIVABLE
Components of receivables were as follows:
<TABLE>
<CAPTION>
AT JULY 31
------------------
1994 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accounts and notes receivable
Casino $107,061 $ 94,890
Hotel 4,283 4,401
Other 5,258 3,521
-------- --------
116,602 102,812
Less allowance for doubtful accounts 45,261 36,771
-------- --------
$ 71,341 $ 66,041
-------- --------
-------- --------
</TABLE>
At July 31, 1994, approximately 61 percent of the Company's casino receivables
were from customers whose primary residence is outside the United States with no
significant concentration in any one foreign country.
CONTINGENT RECEIVABLE
In 1993, the Company announced it had entered into a management operating
agreement with one of the bidders for a casino development in New Orleans. In
August 1993, the bid was awarded to another operator and the Company's
participation in the project ended. Pursuant to a settlement agreement with the
Company's former co-venturer in the New Orleans project, the Company is to
receive $5,000,000 for the Company's expenses and pre-development services
contingent upon the co-venturer obtaining financing to construct a casino
development in New Orleans in association with the successful bidder for the
project. The Company is unable to predict the timing or probability of
collecting this settlement.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
AT JULY 31
------------------
1994 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
Land $ 76,582 $ 76,470
Buildings and improvements 584,064 562,815
Leasehold improvements 86,138 80,550
Furniture, fixtures and equipment 258,807 284,574
Construction in progress 22,369 5,933
Property under capital leases 22,267 22,699
---------- ----------
1,050,227 1,033,041
Less accumulated depreciation and amortization 423,487 416,648
---------- ----------
$ 626,740 $ 616,393
---------- ----------
---------- ----------
</TABLE>
39
<PAGE>
NOTE 4. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
In December 1993 a newly-formed corporation, Windsor Casino, Limited (WCL),
owned equally by the Company, Circus Circus Enterprises, Inc. and a subsidiary
of Hilton Hotels Corporation, was selected by the government of Ontario, Canada,
to develop and operate the province's first casino, in the city of Windsor. In
May 1994, a 50,000-square-foot interim casino was opened in Windsor. The
interim casino is owned by the government of Ontario and operated by WCL. WCL
receives 2.75 percent of gross operating revenue and 5 percent of net operating
margins (as defined in the management agreement) of the interim casino. Cash
advances of $14,591,000 were made by each shareholder of WCL, including the
Company, prior to June 1994 of which $4,531,000 had been repaid to each
shareholder at July 31, 1994. During the second quarter of fiscal 1995, WCL is
expected to borrow from a syndicate of banks, using a portion of the funds to
repay the remaining outstanding cash advances made to WCL by its three
shareholders. Each of the WCL shareholders, including the Company, is expected
to guarantee one-third of these bank borrowings. The WCL bank loan is expected
to be repaid from cash generated from operations.
The permanent facility to be built in Windsor is in the planning stage and is
expected to include a 75,000-square-foot casino, a 300-room hotel, food and
beverage outlets and other amenities. This complex is expected to be open in
fiscal 1997 and will be built on a 13-acre site in downtown Windsor in view of
the Detroit, Michigan skyline. The estimated cost of this complex is
$300,000,000 of which a portion will be advanced by each of the shareholders of
WCL, including the Company.
The Company continues to explore gaming and expansion opportunities in the
United States and internationally. At July 31, 1994, two other refundable
advances had been made for expansion projects which are in preliminary
development stages. All costs and expenses incurred to explore expansion
opportunities for the Company are charged to general and administrative expenses
until it is determined the project will be developed.
NOTE 5. SHORT-TERM BANK BORROWINGS
Since August 1992, the Company has had no outstanding short-term bank borrowings
(see Note 7). During fiscal 1992 the Company's short-term borrowings under a
$10,000,000 unsecured bank revolving credit facility totaled $7,200,000 and the
interest rate was 3 7/8 percent at July 31, 1992. The average outstanding
borrowings during fiscal 1992 were $7,200,000, computed by using the daily
balances, and the weighted average interest rate was 5.4 percent, computed by
dividing short-term interest expense by the average short-term debt outstanding.
The maximum borrowings outstanding at any month-end during fiscal 1992 totaled
$7,200,000.
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
<TABLE>
<CAPTION>
AT JULY 31
---------------------
1994 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable $ 47,052 $ 46,804
Accrued interest 6,327 6,540
Accrued progressive slot machine jackpots 6,359 5,458
Accrued salaries, wages and employee benefits 24,171 24,199
Short-term portion of capital lease obligations payable 1,046 1,919
Other accrued expenses 47,382 42,834
-------- --------
$132,337 $127,754
-------- --------
-------- --------
</TABLE>
40
<PAGE>
NOTE 7. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
AT JULY 31
---------------------
1994 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
Amounts due under Bank Loan agreement,
at floating rates approximating prime
or an alternative negotiated rate which at
July 31, 1994, was approximately 5.48 percent $ 90,334 $118,111
Senior subordinated notes, due August 15, 2002,
at 8 7/8 percent payable semi-annually
in February and August 150,000 150,000
Mortgages payable bearing interest at rates between
8 and 9 3/4 percent, secured by property,
retired in 1994 -- 3,257
-------- --------
240,334 271,368
Less current maturities 27,778 28,344
-------- --------
$212,556 $243,024
-------- --------
-------- --------
</TABLE>
In August 1992 the Company entered into a $275,000,000 unsecured credit facility
(Bank Loan) with a syndicate of banks. This facility consists of a $125,000,000
Term Loan which had an outstanding balance of $83,334,000 and $111,111,000, at
July 31, 1994 and 1993, respectively. The facility also includes a $150,000,000
Revolver which had a $7,000,000 outstanding balance at July 31, 1994 and 1993.
The Term Loan is payable in equal installments of $13,889,000 on September 30
and March 31 each year until final payment is made on March 31, 1997, and
interest is payable quarterly or earlier.
The proceeds from the Term Loan were used for the retirement of certain debt
that was outstanding at July 31, 1992. In August 1992, $7,000,000 of the
revolving portion of the facility was utilized to replace the outstanding
portion of a short-term bank credit line of a subsidiary. Although the
revolving credit facility is utilized for working capital and general corporate
purposes, it is classified as long-term due to its maturity on October 31, 1997.
At July 31, 1994, a provision of the Bank Loan agreement restricted the Company
from making cash dividends in excess of $196,604,000. The Company incurs
commitment fees of 5/16 to 1/2 percent on the unused portion of the credit
facilities and the interest rate fluctuates depending upon the Company's
financial leverage and the selection of one of the borrowing rate alternatives
available at the option of the Company, one of which approximates the bank's
prime rate. The fair value of the borrowings under the Bank Loan approximates
the carrying amount of the debt.
On August 15, 1992, the Company issued $150,000,000 of 8 7/8 percent Senior
Subordinated Notes (the Notes) that mature in 2002. The Notes are subordinated
to all senior indebtedness (as defined in the Indenture), which includes the
indebtedness under the Bank Loan agreement, are effectively subordinated to
liabilities of the Company's subsidiaries and are senior in the right of payment
to other subordinated indebtedness. The Notes are redeemable at the Company's
option, in whole or in part, beginning August 15, 1997, at a premium price of
103.27 percent, declining annually to par at August 15, 2000, and thereafter.
The original issue discount and costs are being amortized over the term of the
Notes. At July 31, 1994, the estimated fair value of the Notes was
approximately $147,750,000, based on the quoted market trading price.
The proceeds from the Notes and cash available from operations together with
$115,000,000 of the Term Loan were used on October 1, 1992, to retire the
$241,200,000 of principal outstanding plus the accrued interest thereon and a
redemption premium of 2.25 percent of the principal amount. In December 1992
the outstanding principal on one of the mortgages payable which was secured by
41
<PAGE>
property in Las Vegas was retired. The retirement of the above described debt
prior to its maturity resulted in an extraordinary charge, net of income tax
benefit, in July 1992 of $6,703,000.
Prior to August 1992 the Company had a $250,000,000 unsecured credit facility
with a syndicate of banks. The facility consisted of a $100,000,000 term loan
with an outstanding balance at July 31, 1992, of $25,000,000 and a $150,000,000
revolving credit facility with no outstanding amount.
The Bank Loan agreement and the Notes, as well as the previous loan agreements
covering 1992, contain covenants, among others, that require the maintenance of
certain financial ratios and include restrictions on the Company and its
subsidiaries with respect to additional debt, dividends, stock repurchases,
sales of certain assets, investments and capital expenditures, mergers,
consolidations and similar transactions, liens, acquisitions, disposition of
property, and prepayment of other debt. Cross default clauses provide that the
default under either the Notes or the Bank Loan agreement may result in the
acceleration of the other. The loss or suspension of a gaming license which has
a potential $15,000,000 charge to operations of the Company and is determined by
the banks to be materially adverse to the bank's investment would constitute a
default under the Bank Loan agreement. Also, the bank agreement requires
guarantees by specified subsidiaries of the Company.
The annual maturities of long-term debt as of July 31, 1994, follow:
<TABLE>
<CAPTION>
YEAR ENDING JULY 31 (IN THOUSANDS)
------------------- -------------
<S> <C>
1995 $ 27,778
1996 27,778
1997 27,778
1998 7,000
1999 --
Thereafter 150,000
--------
$240,334
--------
--------
</TABLE>
NOTE 8. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
----------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal $ 47,604 $ 40,217 $ 43,727
State 6,168 7,482 6,656
Deferred (3,578) 3,062 (9,183)
-------- -------- --------
$ 50,194 $ 50,761 $ 41,200
-------- -------- --------
-------- -------- --------
</TABLE>
42
<PAGE>
The provision (benefit) for income taxes is included in the financial statements
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
----------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income before extraordinary loss $50,194 $50,761 $44,652
Extraordinary loss -- -- (3,452)
------- ------- -------
$50,194 $50,761 $41,200
------- ------- -------
------- ------- -------
</TABLE>
The provision (benefit) for deferred income taxes represents temporary
differences in the recognition of revenue and expenses for tax and financial
statement purposes. The tax effects of these differences were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
------------------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation $(1,127) $ 418 $ (592)
Provision for doubtful accounts (2,809) 3,023 268
Accrued liabilities 461 (2,992) (4,636)
Extraordinary loss on early extinguishment of debt -- 3,452 (3,452)
Other, net (103) (839) (771)
------- ------ ------
$(3,578) $3,062 $(9,183)
------- ------ -------
------- ------ -------
</TABLE>
The income tax effects of temporary differences between financial and income tax
reporting that gave rise to deferred income tax assets and liabilities at July
31, 1994, under the provisions of SFAS No. 109, were as follows:
<TABLE>
<CAPTION>
ASSETS LIABILITIES TOTAL
--------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current deferred income taxes
Bad debt reserves $17,601 $ -- $ 17,601
Accrued expenses 13,619 -- 13,619
Other 5,900 -- 5,900
------- -------- --------
$37,120 $ -- $ 37,120
------- -------- --------
------- -------- --------
Non-current deferred income taxes
Depreciation $ -- $(38,137) $(38,137)
Deferred compensation 3,943 -- 3,943
Accrued expenses 11,291 -- 11,291
Other 5,223 (2,335) 2,888
------- -------- --------
$20,457 $(40,472) $(20,015)
------- -------- --------
------- -------- --------
</TABLE>
43
<PAGE>
The provision for income taxes differed from the amount computed at the
statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
------------------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at statutory rate $44,995 $45,552 $36,450
State income taxes, net of federal benefit 4,078 4,972 4,060
Other, net 1,121 237 690
------- ------- -------
$50,194 $50,761 $41,200
------- ------- -------
------- ------- -------
</TABLE>
The Internal Revenue Service has examined the Company's federal consolidated
income tax returns through fiscal 1988 and is currently examining the returns
for fiscal 1989 through 1992.
NOTE 9. LEASES
The Company and its subsidiaries lease land, buildings and equipment under
noncancelable lease agreements with primary terms which expire at various dates
through 2076. The leases generally provide that the Company pay the taxes,
insurance and maintenance expenses related to the leased assets. Major leased
assets, which have been capitalized, include land in Atlantic City unrelated to
current operations, and the land and buildings of two of the Company's Pocono
resorts.
In January 1992 the Company exercised a $6,500,000 purchase option for a land
lease upon which a portion of the Caesars Atlantic City hotel is located. The
lease required payments of $247,000 in fiscal 1992, prior to the exercise of the
option.
Caesars Atlantic City also owns approximately 1.2 acres and leases approximately
six acres of property in Atlantic City, including an entire block of Boardwalk
frontage which may be suitable for development of a casino/hotel. The
capitalized lease expires in 2076 and requires annual payments of $875,000; the
property may be purchased for $13,000,000. The purchase option price will
increase by $500,000 in August 1997 and another $500,000 every 10 years
thereafter.
Two of the Company's resorts in the Pocono mountains of Pennsylvania are
operated under leases whose initial 20-year-lease terms expire on January 31,
1995. The leases include purchase options at the fair market value of the lease
properties excluding personal property, goodwill and other intangibles. The
Company currently anticipates exercising the purchase options to acquire the
properties in fiscal 1995. The fair market value purchase price will be
determined by an independent appraisal. The Company also maintains a letter of
credit ($2,865,000 at July 31, 1994) under an agreement with the New Jersey
Casino Control Commission for the payment of the remaining future lease rentals
on the two leases.
The Caesars Tahoe land and building are leased pursuant to an operating lease
which expires in 2004 and is renewable for two additional 25-year periods. The
lease provides for a minimum rent of $2,606,000 for fiscal 1995, increasing by
$75,000 per year in each subsequent year, and for percentage rent of 20 percent
of the casino/hotel's net profit (as therein defined). Additionally, the lease
required payments to discharge the lessor's obligations of a mortgage loan and
the final payment was made by the Company in fiscal 1994. The aggregate fixed
lease payments, including amounts paid on the mortgage note, are amortized on a
straight-line basis over the remaining initial lease term. At July 31, 1994,
there was $11,165,000 of prepaid rent included in "Other Assets" related to this
lease accounting.
44
<PAGE>
Future minimum lease payments for all leases at July 31, 1994, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JULY 31 OPERATING CAPITAL
------------------- --------- -------
(IN THOUSANDS)
<S> <C> <C>
1995 $ 5,264 $ 1,963
1996 4,172 898
1997 3,692 898
1998 3,662 948
1999 3,694 948
Thereafter 18,584 84,385
------- ------
Total minimum lease payments $39,068 90,040
------- ------
-------
Less amount representing interest 79,587
-------
Present value of minimum lease payments 10,453
Less current maturities of obligations under capital leases 1,046
-------
Long-term obligations under capital leases $ 9,407
-------
-------
</TABLE>
Rental expense was comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
------------------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals under lease obligations $10,084 $10,688 $10,177
Contingent rentals under operating and capital leases 566 562 76
------- ------- -------
$10,650 $11,250 $10,253
------- ------- -------
------- ------- -------
</TABLE>
NOTE 10. CAPITAL STOCK, STOCK OPTIONS AND INCENTIVES
The authorized capital stock of the Company consists of 1,000,000 shares of $1
par value preferred stock and 50,000,000 shares of 10 cents par value common
stock. No preferred stock has been issued. Common stock outstanding was net of
1,343,951; 1,299,903 and 1,265,660 treasury shares at July 31, 1994, 1993 and
1992, respectively. The Company has designated 250,000 shares of the authorized
preferred stock as constituting Series A Junior Participating Preferred Stock
for purposes of the Shareholders' Rights Plan described below. Upon issuance,
each share of such preferred stock will have a $2 dividend (subject to
adjustment in certain cases) which will be payable prior to any dividends on
common stock. Each share will have 200 votes and shall vote as a class with
common stock (with special voting provisions to apply in the event of a dividend
default).
In January 1989 the Board of Directors of the Company authorized a Shareholders'
Rights Plan and declared a dividend of one right for each share of common stock.
The rights may only become exercisable under certain circumstances involving
actual or potential acquisitions of the Company's common stock by a specified
person or affiliated group. If the rights become exercisable and are not
redeemed by the Company, the holder may be entitled to purchase or receive upon
exercise, depending on the circumstances, units consisting of one two-hundredth
of a share of the Company's $1 par value Series A Junior Participating Preferred
Stock at a price of $125 per share (subject to adjustment), shares of the
Company's common stock or other assets with a value equal to twice the exercise
price, or shares of the common stock of the acquirer at one-half the then market
price. The rights expire in January 1999
45
<PAGE>
unless they are exercised or redeemed. Until certain specified dates, the
Company may redeem the rights at one cent per share. Rights owned by certain
specified shareholders may be void. The provisions concerning the rights are
set forth in a Rights Agreement between the Company and the Rights Agent.
The Company has a long-term stock incentive program (the Program) which
authorizes the issuance of various stock incentives to officers and key
employees, including options, stock appreciation rights, and stock bonuses in
the form of restricted stock grants or contingent shares. At July 31, 1994, 123
employees were participating in the Program. Under the terms of the Program, as
amended by the shareholders in December 1988 and November 1990, 2,655,126 shares
of common stock may be used for awards, of which 391,088 were unissued at July
31, 1994. Employee stock options under the Program expire after 10 years and
usually become exercisable either in four or five equal annual installments
commencing one year after the date of grant or in one installment one year after
the date of grant. Under the terms of such options, adjustments will be made
for changes resulting from stock dividends, stock splits and similar changes.
Exercisability of such options is on a cumulative basis. Employee stock options
for 244,953 shares were exercisable as of July 31, 1994. The Audit and
Compensation Committee of the Board of Directors may accelerate exercisability
of stock options at its discretion including, without limitation, acceleration
due to the occurrence of certain specified contingencies.
As of July 31, 1994, there were outstanding unvested grants of restricted stock
in the amount of 751,429 shares held among 72 employees (including 13 officers)
which will vest in fiscal years as follows: 152,115 in 1995; 214,871 in 1996;
192,166 in 1997; 127,507 in 1998 and 64,770 in 1999. Contingent incentive shares
totaling 90,174 shares (net of forfeitures) granted to 41 employees (including
nine officers) principally in December 1989 were outstanding at July 31, 1994.
These shares vest in fiscal years as follows: 89,340 in 1995 and 834 in 1996.
The restricted stock grants and contingent incentive share grants become fully
vested in the event of a change in control (as defined). As to officers, sale
of the contingent incentive shares is restricted for two years following vesting
subject to certain contingencies. Deferred compensation equivalent to the
market value on the date of grant was charged to shareholders' equity and is
being amortized over the respective vesting periods. The amount amortized was
$5,840,000; $4,997,000 and $4,956,000 in fiscal 1994, 1993 and 1992,
respectively. During fiscal 1994, 180,183 shares of such awards vested.
A non-employee directors' plan (the Plan) authorizes the issuance of options on
100,000 shares of common stock to non-employee directors, of which options
covering 40,000 shares were unissued at July 31, 1994. Options for 4,000;
11,000 and 22,000 shares were exercised in fiscal 1994, 1993 and 1992,
respectively. The 23,000 options outstanding at July 31, 1994, were all
exercisable and include 3,000 granted at a price of $32.13; 5,000 granted at a
price of $15.19; 5,000 granted at a price of $28.19; 5,000 granted at a price of
$39.38; and 5,000 granted at a price of $51.13. All stock options granted under
the Plan become exercisable six months after grant and expire five years from
the date of grant. Persons eligible under the Plan are not eligible for awards
under the Program. Option prices under the Plan equal the fair market value of
the stock on the date of grant. Grant or exercise of stock options under the
Plan or the Program does not result in a charge to earnings.
Prior to 1990, unlimited stock appreciation rights were granted to certain
officers of the Company. As a result of changes in the market price of the
common stock subsequent to the date of grant, the Company recorded a credit of
$265,000 in fiscal 1994 and incurred charges of $1,838,000 and $429,000 in 1993
and 1992, respectively. During fiscal 1994, an officer exercised a tandem
unlimited stock appreciation right with respect to a stock option for 30,000
shares, realizing $427,000 of taxable income, and the related stock option was
terminated. At July 31, 1994, there were 145,000 unlimited stock appreciation
rights outstanding to three officers. As of July 31, 1994, three officers and
five non-employee directors had been granted 46,125 limited stock appreciation
rights. These limited stock appreciation rights were issued in tandem with stock
options and are only exercisable in the event of certain specified changes in
the ownership of the Company. Surrender of the related option (or portion
thereof) on exercise of the right, generally entitles the optionee or holder to
receive in cash the difference between the exercise price of the outstanding
option and the higher of the stock market price for the 60 days prior to
exercise
46
<PAGE>
or the tender or exchange offer price with respect to the Company's common
shares. Future exercisability of the limited stock appreciation rights will
result in a charge to earnings based upon the value of such rights when they
become exercisable.
Employee and director stock option activity during the three-year period ended
July 31, 1994, was as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE RANGE
--------------------
SHARES FROM TO
-----------------------------
<S> <C> <C> <C>
Outstanding at July 31, 1991 705,276 $10.69 $32.13
Granted 23,800 28.19 29.69
Exercised (189,547) 10.69 24.44
Expired or cancelled (11,840) 13.25 32.13
-------
Outstanding at July 31, 1992 527,689 11.63 32.13
Granted 88,500 29.63 42.81
Exercised (71,378) 11.63 32.13
Expired or cancelled (6,220) 13.25 29.69
-------
Outstanding at July 31, 1993 538,591 13.25 42.81
Granted 157,300 39.06 51.13
Exercised (51,267) 13.25 42.81
Expired or cancelled (67,460) 13.25 51.13
-------
Outstanding at July 31, 1994 577,164 13.25 51.13
-------
-------
</TABLE>
The above chart does not include a non-qualified option, with a ten-year vesting
period, granted on January 19, 1994, to a third party at a price of $55.50 in
return for services to be rendered. This option vests in three equal annual
installments beginning January 19, 1995.
The number of shares covered by options which are scheduled to become
exercisable during the next five fiscal years are as follows: 127,854 in both
1995 and 1996; 81,023 in 1997; 43,250 in 1998; and 29,230 in 1999.
NOTE 11. PENSION PLANS
The Company has defined benefit pension plans covering any officer or other
employee designated as a key executive of the Company and its subsidiaries. The
benefits are based on years of service (not to exceed 30) and the employee's
highest five years of compensation during the last 10 years of employment. The
Company has funded the vested benefits of certain current employees by making
contributions to revocable trusts. Income earned by the trusts accrues to the
benefit of the Company. At July 31, 1994, the amount in these revocable trusts
was $12,756,000 and is recorded in "Other Assets." Such trusts shall become
irrevocable in the event of a change of control (as defined).
47
<PAGE>
The following table sets forth the plans' status and amounts recognized in the
Company's financial statements:
<TABLE>
<CAPTION>
AT JULY 31
---------------------
1994 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefit obligation of $16,180,000 and $14,628,000,
respectively $16,794 $15,382
------- -------
------- -------
Accrued pension liability consists of the following:
Projected benefit obligation for service rendered to
date in excess of plan assets $21,982 $20,161
Unrecognized net loss from past experience and
effects of changes in assumptions (2,090) (2,904)
Unrecognized net obligation to be recognized over
15 years (963) (1,082)
------- -------
$18,929 $16,175
------- -------
------- -------
</TABLE>
The net pension expense included the following components:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
------------------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during the period $1,612 $1,702 $1,403
Interest cost on projected benefit obligation 1,590 1,319 1,117
Net amortization 180 143 119
------ ------ ------
$3,382 $3,164 $2,639
------ ------ ------
------ ------ -------
</TABLE>
At July 31, 1994 and 1993, the weighted average discount rate used in
determining the actuarial present value of the projected benefit obligation and
the rate of increase in future compensation levels used in such calculations
were 8 and 6 percent, respectively.
The Company's Individual Retirement Account Plan which was generally available
to all full-time employees who had at least one year of service and were not
covered under any qualified retirement plan terminated as of December 31, 1993.
The expense of this plan was $828,000; $2,148,000 and $2,014,000 in fiscal 1994,
1993 and 1992, respectively.
Effective January 1, 1994, the Company adopted a 401(k) retirement plan covering
substantially all of its non-union employees. The plan provides for the Company
to contribute 1 percent of certain compensation for eligible employees who may
also contribute up to 4 percent of their base compensation to this plan and
their contributions are matched by the Company in an amount equal to 50 percent
of each employee's contribution. Employees may also contribute an additional 8
percent of base compensation to the plan, with certain limitations, which is not
matched by the Company. The Company's matching contributions for fiscal 1994
were $3,121,000.
In addition to the Company's plans described above, union employees are covered
by various multi-employer pension plans. The Company charged to expense
approximately $3,534,000; $3,402,000 and
48
<PAGE>
$3,005,000 in fiscal 1994, 1993 and 1992, respectively, for such plans. For the
union sponsored plans, information is not available from the plans' sponsors to
permit the Company to determine its share of unfunded vested benefits, if any.
NOTE 12. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has severance agreements with 19 employees (including 11 officers)
which grant these employees the right to receive up to two times their annual
salary and bonus, plus continuation of certain benefits, and acceleration of
certain stock options and restricted grants subject to certain maximums under
tax law, if there is a change in control of the Company (as defined) and a
termination (as defined) of such employees within three years thereafter. The
maximum contingent liability for salary and incentive compensation under these
agreements is approximately $10,520,000. In addition, insurance benefits, car
allowances and nonqualified pension plan accrue for up to two years. The
Company also has entered into employment agreements with eight employees which
expire at various dates through July 31, 1997. The aggregate commitment for
future salaries, excluding bonuses, under these employment agreements is
approximately $3,428,000. The Company also has entered into severance and
employment agreements with two officers which contain continual self-renewing
terms of five years and three years, respectively, subject to the option of the
Company to terminate this self-renewing provision. In addition, these
agreements provide these officers the option to terminate their contractual
obligations in the event of a change in control or a material breach by the
Company. If such change of control had occurred on July 31, 1994, the aggregate
maximum contingent liability under these agreements would have been
approximately $24,314,000. See Note 10 as to acceleration of contingent and
restricted stock grants in the event of a change in control.
49
<PAGE>
CAESARS WORLD, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
-----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Fiscal 1994(a)
Revenue $269,083 $257,981 $237,244 $251,458 $1,015,766
Operating income 50,602 39,656 22,876 31,371 144,505
Income before income taxes 46,420 35,707 18,939 27,489 128,555
Income taxes 18,572 13,747 7,291 10,584 50,194
Net income 27,848 21,960 11,648 16,905 78,361
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
Net income per common share (b) $ 1.14 $ .90 $ .47 $ .69 $ 3.19
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
Fiscal 1993(a)
Revenue $232,562 $264,473 $224,409 $262,015 $ 983,459
Operating income 33,708 46,844 32,574 45,985 159,111
Income before income taxes 24,140 41,173 27,475 41,188 133,976
Income taxes 9,173 15,646 10,440 15,502 50,761
Net income 14,967 25,527 17,035 25,686 83,215
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
Net income per common share $ .62 $ 1.05 $ .69 $ 1.04 $ 3.40
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
<FN>
(a) There were no dividends paid in fiscal 1994 or 1993.
(b) Net income per share calculations for each quarter are based on the
weighted average number of common stock and common stock equivalents
outstanding during the respective quarters; accordingly, the sum of the
quarters does not equal the full-year income per share for 1994.
</TABLE>
50
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Directors of Caesars World, Inc.:
We have audited the accompanying consolidated balance sheets of Caesars World,
Inc. (a Florida corporation) and subsidiaries as of July 31, 1994 and 1993, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended July 31, 1994. These
financial statements and the schedules referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with 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 Caesars World, Inc. and
subsidiaries as of July 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1994, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedules listed in the
accompanying Index to Consolidated Financial Statements and Related Information
on page 32 of this Form 10-K are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Los Angeles, California
August 23, 1994
51
<PAGE>
SCHEDULE V
CAESARS WORLD, INC. AND SUBSIDIARIES
PROPERTY AND EQUIPMENT
YEAR ENDED JULY 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING ADDITIONS OTHER AT END OF
DESCRIPTION OF PERIOD AT COST RETIREMENTS CHANGES PERIOD
- - ----------- --------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
1994
Land $ 76,470 $ 112 $ -- $ -- $ 76,582
Buildings and improvements 562,815 10,427 -- 10,822 (a) 584,064
Leasehold improvements 80,550 6,436 1,033 185 (a) 86,138
Furniture, fixtures and equipment 284,574 16,500 47,147 4,880 (a) 258,807
Construction in progress 5,933 31,891 -- (15,455) (a) 22,369
Property under capital leases 22,699 -- -- (432) (a) 22,267
---------- ------- ------- -------- ----------
$1,033,041 $65,366 $48,180 $ -- $1,050,227
---------- ------- ------- -------- ----------
---------- ------- ------- -------- ----------
1993
Land $ 76,174 $ 322 $ 26 $ -- $ 76,470
Buildings and improvements 550,866 6,847 18 5,120 (a) 562,815
Leasehold improvements 75,303 5,369 15 (107) (a) 80,550
Furniture, fixtures and equipment 262,898 21,412 3,672 3,936 (a) 284,574
Construction in progress 8,037 6,845 -- (8,949) (a) 5,933
Property under capital leases 22,980 -- 281 -- 22,699
---------- ------- ------- -------- ----------
$ 996,258 $40,795 $ 4,012 $ -- $1,033,041
---------- ------- ------- -------- ----------
---------- ------- ------- -------- ----------
1992
Land $ 71,514 $ 161 $ 109 $ 4,608 (b) $ 76,174
Buildings and improvements 541,151 5,784 26 3,957 (a) 550,866
Leasehold improvements 70,140 5,401 238 -- 75,303
Furniture, fixtures and equipment 244,878 14,587 2,584 6,017 (a) 262,898
Construction in progress 3,706 13,995 -- (9,664) (a) 8,037
Property under capital leases 26,171 -- 44 (310) (a) 22,980
(2,837) (b)
---------- ------- ------- -------- ----------
$ 957,560 $39,928 $ 3,001 $ 1,771 (b) $ 996,258
---------- ------- ------- -------- ----------
---------- ------- ------- -------- ----------
<FN>
(a) Reclassifications of fixed assets within property and equipment.
(b) The net book value of leased property under capital leases was transferred
to land upon consummation of purchase of Atlantic City property held under
a capital lease. See NOTE 9 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
52
<PAGE>
SCHEDULE VI
CAESARS WORLD, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
YEAR ENDED JULY 31, 1994 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TO OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSE RETIREMENTS CHANGES PERIOD
- - ----------- --------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
1994
Buildings and improvements $186,266 $ 22,661 $ --- $ -- $208,927
Leasehold improvements 27,228 3,849 437 -- 30,640
Furniture, fixtures and equipment 193,513 27,378 47,010 432 (a) 174,313
Property under capital leases 9,641 398 -- (432) (a) 9,607
-------- --------- --------- -------- --------
$416,648 $ 54,286 $ 47,447 $ -- $423,487
-------- --------- --------- -------- --------
-------- --------- --------- -------- --------
1993
Buildings and improvements $164,291 $ 22,026 $ 51 $ -- $186,266
Leasehold improvements 23,775 3,481 28 -- 27,228
Furniture, fixtures and equipment 170,095 26,859 3,441 -- 193,513
Property under capital leases 9,363 547 269 -- 9,641
-------- --------- --------- -------- --------
$367,524 $ 52,913 $ 3,789 $ -- $416,648
-------- --------- --------- -------- --------
-------- --------- --------- -------- --------
1992
Buildings and improvements $142,785 $ 21,615 $ 109 $ -- $164,291
Leasehold improvements 21,089 2,896 210 -- 23,775
Furniture, fixtures and equipment 142,412 30,012 2,503 174 (a) 170,095
Property under capital leases 8,874 696 33 (174) (a) 9,363
-------- --------- --------- -------- --------
$315,160 $ 55,219 $ 2,855 $ -- $367,524
-------- --------- --------- -------- --------
-------- --------- --------- -------- --------
<FN>
(a) Reclassifications within accumulated depreciation accounts.
</TABLE>
53
<PAGE>
SCHEDULE VIII
CAESARS WORLD, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED JULY 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TO AT END OF
DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS PERIOD
- - ----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1994
Allowance for doubtful accounts
Casino and hotel receivables $ 35,944 $ 66,976 $ 58,675 $ 44,245
Other 827 189 -- 1,016
--------- -------- -------- --------
$ 36,771 $ 67,165 $ 58,675 (a) $ 45,261
--------- -------- -------- --------
--------- -------- -------- --------
Valuation allowance for CRDA investments $ 6,640 $ 1,167 (b) $ 265 (c) $ 7,542
--------- -------- -------- --------
--------- -------- -------- --------
1993
Allowance for doubtful accounts
Casino and hotel receivables $ 44,607 $ 55,501 $ 64,164 $ 35,944
Other 531 543 247 827
--------- -------- -------- --------
$ 45,138 $ 56,044 $ 64,411 (a) $ 36,771
--------- -------- -------- --------
--------- -------- -------- --------
Valuation allowance for CRDA investments $ 5,821 $ 1,084 (b) $ 265 (c) $ 6,640
--------- -------- -------- --------
--------- -------- -------- --------
1992
Allowance for doubtful accounts
Casino and hotel receivables $ 44,679 $ 47,865 $ 47,937 $ 44,607
Other 432 183 84 531
--------- -------- -------- --------
$ 45,111 $ 48,048 $ 48,021 (a) $ 45,138
--------- -------- -------- --------
--------- -------- -------- --------
Valuation allowance for CRDA investments $ 5,397 $ 949 (b) $ 525 (c) $ 5,821
--------- -------- -------- --------
--------- -------- -------- --------
<FN>
(a) Write-off of uncollectible accounts.
(b) To establish an allowance on certain investments required by the New Jersey
Casino Reinvestment Development Agency (CRDA).
(c) Credited to income.
</TABLE>
54
<PAGE>
SCHEDULE X
CAESARS WORLD, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEAR ENDED JULY 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Charged to costs and expenses:
Maintenance and repairs $ 9,705 $ 9,306 $ 9,196
-------- ------- -------
-------- ------- -------
Amortization of intangible assets, deferred financing
costs and similar deferrals $ 904 $ 1,004 $ 1,940
-------- ------- -------
-------- ------- -------
Taxes, other than payroll and income taxes:
Gaming $55,590 $54,639 $51,846
Other 15,976 16,621 14,568
-------- ------- -------
$71,566 $71,260 $66,414
-------- ------- -------
-------- ------- -------
Advertising $12,841 $12,705 $11,686
-------- ------- -------
-------- ------- -------
</TABLE>
55
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 2-90464, No. 33-20378, No. 33-26027, No.
33-38731 and No. 33-52363.
Arthur Andersen LLP
Los Angeles, California
October 18, 1994
56
<PAGE>
EXHIBIT INDEX
Exhibits marked with an asterisk are filed herewith. The remainder of the
exhibits have heretofore been filed with the Commission and are incorporated
herein by reference. References to CWI are to Caesars World, Inc.
EXHIBIT
NUMBER EXHIBITS
- - ------- --------
3(a) Restated Articles of Incorporation of CWI amended and restated as of
December 29, 1988. Incorporated by reference to CWI's report on Form
10-Q for the quarter ended January 31, 1990.
3(b) Bylaws of CWI as amended through August 3, 1992. Incorporated by
reference to CWI's Report on Form 10-K for the year ended July 31,
1992.
3(c) Charter of the Audit and Compensation Committee of CWI. Incorporated
by reference to CWI's Report on Form 10-Q for the quarter ended
January 31, 1991.
4(a) Indenture dated as of October 1, 1987 with respect to CWI 13 1/2%
Subordinated Notes due 1997. Incorporated by reference to Amendment
No. 4 to CWI Registration Statement 33-14056 filed September 29, 1987.
4(b) Indenture dated as of August 15, 1992 with respect to the registration
of certain senior debt securities of CWI. Incorporated by reference
to Exhibit 5 to CWI's Form 8-K dated August 5, 1992.
4(c) Indenture dated as of August 15, 1992 with respect to the registration
of certain senior subordinated debt securities of CWI. Incorporated
by reference to Exhibit 2 to CWI's Form 8-K dated August 5, 1992.
4(d) Officers' Certificate dated as of August 17, 1992 with respect to the
establishment of the CWI 8-7/8% Senior Subordinated Notes due August
15, 2002. Incorporated by reference to Exhibit 3 to CWI's Form 8-K
dated August 5, 1992.
4(e) Indenture dated as of August 15, 1992 with respect to the registration
of certain subordinated debt securities of CWI. Incorporated by
reference to Exhibit 4 to CWI's Form 8-K dated August 5, 1992.
4(f) First Supplemental Indenture dated December 4, 1992 to the Indenture
dated as of August 15, 1992 for certain subordinated debt securities
of CWI. Incorporated by reference to CWI's Form 10-Q for the quarter
ended January 31, 1993.
4(g) Loan Agreement dated as of August 21, 1992 among CWI and the named
banks and Bank of America National Trust and Savings Association, as
Agent, with related exhibits, i.e., forms for the following:
Commitment Assignment and Acceptance, Competitive Bid, Competitive Bid
Request, Compliance Certificate, Instrument of Joinder, Line A
Committed Advance Note, Line A Competitive Advance Note, Line B Note,
Opinion of Counsel, Parent Guaranty, Request for Letter of Credit,
Request for Loan and Subsidiary Guaranty. Incorporated by reference
to CWI's Form 10-K for the year ended July 31, 1992.
4(h)* First Amendment to Loan Agreement dated August 31, 1994 among CWI and
the named banks and Bank of America National Trust and Savings
Association as Agent.
57
<PAGE>
4(i) See Note 9 of the Notes to Consolidated Financial Statements of the
1991 Annual Report in this Form 10-K for a summary of the long-term
debt of CWI and its subsidiaries. Except for the instruments
described in 4(a) through 4(o) above, the instruments defining the
rights of the holders of such long-term debt as described in said Note
9 are not being filed since the amount of securities currently
authorized under each of such instruments does not exceed 10% of the
assets of CWI and its subsidiaries on a consolidated basis. CWI
agrees to furnish copies of such instruments to the Commission upon
request.
4(j) Certificate of Designations, Preferences and Rights of Series A Junior
Participating Preferred Stock dated January 10, 1989. Incorporated by
reference to CWI's Report on Form 10-K for the year ended July 31,
1989, File No. 001-05976.
4(k) Rights Agreement dated January 10, 1988 between CWI and Morgan
Shareholder Services Trust Company. Incorporated by reference to
Exhibit 4 to CWI's Form 8-K dated January 10, 1989, File No. 001-
05976.
10(a) Lease Agreement dated June 2, 1977 between Desert Palace of New
Jersey, Inc. (now known as Boardwalk Regency Corporation) and Cynwyd
Investments relating to the Indiana Avenue property in Atlantic City.
Incorporated by reference to CWI's Report on Form 10-K for the year
ended July 31, 1992.
10(b) Ground Lease between Caesars Palace Realty Corporation and Forum
Developers Limited dated June 1, 1990. Incorporated by reference to
CWI's Report on Form 10-K for the year ended July 31, 1990.
10(c) Parking Agreement and Grant of Reciprocal Easements and Declaration of
Covenants between Caesars Palace Realty Corporation, Desert Palace,
Inc. and Forum Developers Limited dated June 1, 1990. Incorporated by
reference to CWI's Report on Form 10-K for the year ended July 31,
1990.
10(d) Lease Agreement dated February 20, 1975 between Cove Haven, Inc. and
Cove Associates relating to the Cove Haven property. Incorporated by
reference to CWI's Form 10-K for the year ended July 31, 1989, File
No. 001-05976.
10(e) Lease Agreement dated February 20, 1975 between Cove Haven, Inc. and
Cove Associates relating to the Paradise Stream property.
Incorporated by reference to CWI's Form 10-K for the year ended July
31, 1989, File No. 001-05976.
10(f) Amended Trust Agreement dated February 11, 1981 between Cove Haven,
Inc. and Northeastern Bank of Pennsylvania regarding the Cove Haven
and Paradise Stream properties. Incorporated by reference to CWI's
Form 10-K for the year ended July 31, 1983, File No. 132-3.
10(g) Amended Sublease Agreement dated February 11, 1981 between Cove Haven,
Inc. and Northeastern Bank of Pennsylvania regarding the Cove Haven
property. Incorporated by reference to CWI's Form 10-K for the year
ended July 31, 1983, File No. 132-3.
10(h) Amended Sublease Agreement dated February 11, 1981 between Cove Haven,
Inc. and Northeastern Bank of Pennsylvania regarding the Paradise
Stream property. Incorporated by reference to CWI's Form 10-K for the
year ended July 31, 1983, File No. 132-3.
10(i) Lease dated October 5, 1979 between Desert Palace, Inc. and Park
Cattle Company and the First Amendment thereto dated July 31, 1980.
Incorporated by reference to CWI's Form 10-K for the year ended July
31, 1981, File No. 132-3.
58
<PAGE>
10(j) Second Amendment dated January 1, 1981, and Third Amendment dated
December 1, 1982 to Lease between Desert Palace, Inc. and Park Cattle
Company. Incorporated by reference to CWI's Form 10-K for the year
ended July 31, 1983, File No. 132-3.
10(k) Fourth Amendment dated March 1, 1986 to Lease between Desert Palace,
Inc. and Park Cattle Company. Incorporated by reference to CWI's Form
10-K for the year ended July 31, 1988, File No. 001-05976.
10(l) Fifth Amendment dated October 1, 1986 to Lease between Desert Palace,
Inc. and Park Cattle Company. Incorporated by reference to CWI's Form
10-K for the year ended July 31, 1988, File No. 001-05976.
10(m) Sixth Amendment to Net Lease Agreement dated as of December 31, 1992
between Park Cattle Co., Landlord and Desert Palace, Inc., Tenant.
Incorporated by reference to CWI's Form 10-Q for the quarter ended
January 1, 1993.
10(n) Seventh Amendment to Net Lease Agreement dated as of September 3, 1993
between Park Cattle Co., Landlord and Desert Palace, Inc., Tenant.
Incorporated by reference to Exhibit 10(n) to CWI's Form 10-K for the
year ended July 31, 1993.
10(o) Construction and Development Agreement by and between the Agua
Caliente Band of the Cahuilla Indians and CWI dated July 21, 1993.
Incorporated by reference to Exhibit 10(o) to CWI's Form 10-K for the
year ended July 31, 1993.
10(p)* Interim Casino Operating Agreement dated May 14, 1994 between Ontario
Casino Corporation, Windsor Casino Limited, Caesars World, Inc.,
Circus Circus Enterprises, Inc. and Hilton Hotels Corporation.
10(q)* Heads of Agreement dated May 14, 1994 between Ontario Casino
Corporation, Windsor Casino Limited, Caesars World, Inc., Circus
Circus Enterprises, Inc. and Hilton Hotels Corporation.
EXECUTIVE COMPENSATION PLANS & ARRANGEMENTS
10(r) CWI and Subsidiaries Benefit Trust Agreement form dated June 1, 1989.
Incorporated by reference to Exhibit 10(o) to CWI's Form 10-K for the
year ended July 31, 1989, File No. 001-05976.
10(s) Form of Contingent Severance Agreement dated July 27, 1989.
Incorporated by reference to Exhibit 10(p) to CWI's Form 10-K for the
year ended July 31, 1989, File No. 001-05976.
10(t) First Amendment to Contingent Severance Agreement dated May 7, 1990.
Incorporated by reference to Exhibit 10(r) to CWI's Form 10-K for the
year ended July 31, 1990.
10(u) Form of Contingent Severance Agreement dated July 25, 1991.
Incorporated by reference to Exhibit 10(q) to CWI's Form 10-K for the
year ended July 31, 1991.
10(v) Form of Contingent Severance Agreement as revised November 25, 1991.
Incorporated by reference to Exhibit 10(r) to CWI's Form 10-K for the
year ended July 31, 1992.
10(w) Form of Contingent Severance Agreement as revised December 7, 1993.
Incorporated by reference to Exhibit 10(c) to CWI's Form 10-Q for the
quarter ended January 31, 1994.
59
<PAGE>
10(x) CWI's Executive Security Plan as amended and restated as of January
24, 1989. Incorporated by reference to Exhibit 19(f) to CWI's Form
10-Q for the quarter ended January 31, 1989, File No. 001-05976.
10(y) First Amendment dated as of May 24, 1994 to CWI's Executive Security
Plan. Incorporated by reference to Exhibit 10(a) to CWI's Form 10-Q
for the quarter ended April 30, 1994.
10(z) CWI's 1985 Executive Security Plan as amended and restated as of
February 21, 1991. Incorporated by reference to Exhibit 19(b)(2) to
CWI's Form 10-Q for the quarter ended January 31, 1991.
10(aa) First Amendment dated as of May 24, 1994 to CWI's 1985 Executive
Security Plan. Incorporated by reference to Exhibit 10(b) to CWI's
Form 10-Q for the quarter ended April 30, 1994.
10(bb) CWI Non-Employee Directors' Stock Option Plan. Incorporated by
reference to Exhibit B to the CWI Proxy Statement dated October 23,
1987, File No. 001-05976.
10(cc) CWI Non-Employee Directors' Stock Option Plan Agreement form.
Incorporated by reference to Exhibit 10(t) to CWI's Form 10-K for the
year ended July 31, 1989, File No. 001-05976.
10(dd) Employment Contract dated as of August 1, 1991 between CWI and Henry
Gluck. Incorporated by reference to Exhibit 10(v) to CWI's Form 10-K
for the year ended July 31, 1991.
10(ee) Employment Contract dated as of August 1, 1991 between CWI and J.
Terrence Lanni. Incorporated by reference to Exhibit 10(w) to CWI's
Form 10-K for the year ended July 31, 1991.
10(ff) First Amendment to Contingent Severance Agreement between CWI and
Henry Gluck dated August 1, 1991. Incorporated by reference to
Exhibit 10(x) to CWI's Form 10-K for the year ended July 31, 1991.
10(gg) First Amendment to Contingent Severance Agreement between CWI and J.
Terrence Lanni dated August 1, 1991. Incorporated by reference to
Exhibit 10(y) to CWI's Form 10-K for the year ended July 31, 1991.
10(hh) 1983 Long-Term Stock Incentive Program. Incorporated by reference to
Exhibit A to the Notice of Annual Meeting of Shareholders and Proxy
Statement dated October 19, 1990 for the Annual Meeting of
Shareholders of CWI on November 29, 1990.
10(ii) Form of Incentive Stock Option Agreement under the 1983 Long-Term
Stock Incentive Program as revised April 19, 1985. Incorporated by
reference to Exhibit 19(d) to CWI's Form 10-Q for the quarter ended
April 30, 1985, File No. 001-05976.
10(jj) Form of Non-Qualified Stock Option Agreement under the 1983 Long-Term
Stock Incentive Program as revised April 19, 1985. Incorporated by
reference to Exhibit 19(c) to CWI's Form 10-Q for the quarter ended
April 30, 1985, File No. 001-05976.
10(kk) Form of Non-Qualified Stock Option Agreement under the 1983 Long-Term
Stock Incentive Program as revised December 8, 1986. Incorporated by
reference to Exhibit 10(z) to CWI's Form 10-K for the year ended July
31, 1988, File No. 001-05976.
60
<PAGE>
10(ll) Form of Non-Qualified Stock Option Agreement under the 1983 Long-Term
Stock Incentive Program as revised December 20, 1988. Incorporated by
reference to Exhibit 19(e) to CWI's Form 10-Q for the quarter ended
January 31, 1989, File No. 001-05976.
10(mm) Form of Non-Qualified Stock Option Agreement under the 1983 Long-Term
Stock Incentive Program as revised in 1990. Incorporated by reference
to Exhibit 19(b)(3) to CWI's Form 10-Q for the quarter ended October
31, 1990.
10(nn) Stock Option Agreement for 100,000 shares with a consultant dated
February 22, 1994. Incorporated by reference to Exhibit 28(ii) to
CWI's Registration Statement on Form S-8, Registration No. 33-52363.
10(oo) Deferred Compensation Plan of CWI. Incorporated by reference to
Exhibit 10 (kk) to CWI's Report on Form 10-K for the year ended July
31, 1985, File No. 001-05976.
10(pp) Deferred Compensation Agreement form. Incorporated by reference to
Exhibit 10(aa) to CWI's Form 10-K for the year ended July 31, 1986,
File No. 001-05976.
10(qq) Form of Limited Rights Agreement under the 1983 Long-Term Stock
Incentive Program as revised December 14, 1987. Incorporated by
reference to Exhibit 19(h) to CWI's Form 10-Q for the quarter ended
January 31, 1988, File No. 001-05976.
10(rr) CWI Severance Pay Plan for Corporate Officers and Staff as amended and
restated effective May 30, 1990. Incorporated by reference to Exhibit
19(b) to CWI's Form 10-Q for the quarter ended April 30, 1990.
10(ss) CWI Senior Corporate Officers Incentive Plan. Incorporated by
reference to Exhibit 10(kk) to CWI's Form 10-K for the year ended July
31, 1988, File No. 001-05976.
10(tt) CWI Corporate Officers and Key Corporate Personnel Incentive Plan.
Incorporated by reference to Exhibit 10(nn) to CWI's Form 10-K for the
year ended July 31, 1992.
10(uu) Form of Unlimited Stock Appreciation Rights Agreement. Incorporated
by reference to Exhibit 19(g) to CWI's Form 10-Q for the quarter ended
January 31, 1988, File No. 001-05976.
10(vv) Key Employees Stock Grant Plan - 1992 revision. Incorporated by
reference to Exhibit 10(tt) to CWI's Form 10-K for the year ended July
31, 1992.
10(ww) Key Employees Stock Grant Plan Addendum. Incorporated by reference to
Exhibit 10(a) to CWI's Form 10-Q for the quarter ended April 30, 1993.
10(xx) Key Employee Grant Plan Agreement form - 1991 revision. Incorporated
by reference to Exhibit 19(b)(4) to CWI's Form 10-Q for the quarter
ended January 31, 1991.
10(yy) Key Employees Stock Grant Plan Escrow Agreement - 1988 revision.
Incorporated by reference to Exhibit 19(c) to CWI's Form 10-Q for the
quarter ended January 31, 1989, File No. 001-0596.
10(zz) Key Employees Stock Grant Plan Escrow Agreement - 1989 revision.
Incorporated by reference to Exhibit 19(c) to CWI's Form 10-Q for the
quarter ended January 31, 1990.
10(aaa) Key Employee Stock Grant Plan Escrow Agreement - 1991 revision.
Incorporated by reference to Exhibit 19(b)(3) to CWI's Form 10-Q for
the quarter ended January 31, 1991.
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10(bbb) CWI 1983 Long-Term Stock Incentive Program Withholding Tax Election
form as revised June 26, 1992. Incorporated by reference to Exhibit
10(hhh) to CWI's Form 10-K for the year ended July 31, 1992.
10(ccc) Key Employees Incentive Share Grant Agreement. Incorporated by
reference to Exhibit 19(h) to CWI's Form 10-Q for the quarter ended
January 31, 1990.
10(ddd) Key Employees Incentive Share Grant Agreement Amendment. Incorporated
by reference to Exhibit 10(jjj) to CWI's Form 10-K for the year ended
July 31, 1992.
10(eee) Tax Fee Reimbursement Plan Resolutions. Incorporated by reference to
Exhibit 10(zz) to CWI's Form 10-K for the year ended July 31, 1994.
10(fff) Automobile Allowance Policy and Automobile Allowance - Taxes
Resolutions. Incorporated by reference to Exhibit 10(aaa) to CWI's
Form 10-K for the year ended July 31, 1994.
10(ggg) Individual Retirement Plan. Incorporated by reference to Exhibit
10(bbb) to CWI's Form 10-K for the year ended July 31, 1994.
10(hhh) CWI's 401(k) Retirement Savings Plan dated January 1, 1994.
Incorporated by reference to Exhibit 10(a) to CWI's Form 10-Q for the
quarter ended January 31, 1994.
10(iii) Master Trust Agreement between CWI and State Street Bank and Trust
Company dated January 1, 1994 for CWI's 401(k) Retirement Savings
Plan. Incorporated by reference to Exhibit 10(b) to CWI's Form 10-Q
for the quarter ended January 31, 1994.
10(jjj) First Amendment to CWI's 401(k) Retirement Savings Plan dated May 24,
1994. Incorporated by reference to Exhibit 10(c) to CWI's Form 10-Q
for the quarter ended April 30, 1994.
------------------------------
11* Computation of Net Income Per Share.
21* CWI list of subsidiaries.
27* Financial Data Schedule.
28* Undertakings required by Item 512 of Regulation S-K.
As to any securityholder requesting a copy of this Form 10-K the Company will
furnish any exhibit indicated in the above list, as filed with this Form 10-K,
upon payment to it of its expenses in furnishing such exhibits.
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Exhibit 4(h)
EXECUTION DRAFT
FIRST AMENDMENT TO LOAN AGREEMENT
This FIRST AMENDMENT TO LOAN AGREEMENT (this "First Amendment") is
entered into as of August 31, 1994 by and among Caesars World, Inc., a Florida
corporation (the "Borrower"), the several financial institutions party to this
First Amendment (the "Banks") and Bank of America National Trust and Savings
Association, as agent for the Banks (the "Agent") and amends that Loan Agreement
dated as of August 21, 1992 among the Borrower, the Banks and the Agent (the
"Agreement").
RECITAL
The Borrower has requested the Banks and the Agent to amend certain
provisions of the Agreement, and the Banks and the Agent are willing to do so on
the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. TERMS. All terms used herein shall have the same meanings as in
the Agreement unless otherwise defined herein. All references to the Agreement
herein shall mean the Agreement as hereby amended.
2. AMENDMENTS TO AGREEMENT. The Banks and the Agent hereby agree
that the Agreement is amended as follows:
2.1 The definition of "Loan Documents" in Section 1.1 of the
Agreement is amended by inserting "the Swing Line Documents" immediately after
the "the Subsidiary Guaranty."
2.2 The definitions of "Disposition," "Significant Subsidiary" and
"Unused Availability" in Section 1.1 of the Agreement are amended and restated
in their entirety as follows:
"'DISPOSITION' means the sale, transfer or other disposition
in any single transaction or series of related transactions of any asset,
or group of related assets, of Borrower or of any Subsidiary of Borrower
that has at the date of the Disposition a book value or fair market value
(which shall be deemed to be equal to the sales price for
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such asset or assets upon a sale to a Person that is not an Affiliate of
Borrower) of $2,500,000 or more, OTHER THAN (i) inventory or other
assets sold or otherwise disposed of in the ordinary course of business of
Borrower or a Subsidiary of Borrower, (ii) equipment sold or otherwise
disposed of where substantially similar equipment in replacement thereof
has theretofore been acquired, or thereafter within 90 days is acquired,
by Borrower or a Subsidiary of Borrower, and (iii) a disposition to
Borrower or a Wholly-Owned Subsidiary; PROVIDED, that a Disposition
shall not be construed to include the creation of a Lien or Right of
Others, or the making of a Distribution, permitted hereunder."
"'SIGNIFICANT SUBSIDIARY' means, as of any date of
determination, (a) any Subsidiary of Borrower that has previously executed
and delivered the Subsidiary Guaranty, (b) any Restricted Subsidiary of
Borrower that had on the last day of the Fiscal Quarter then most recently
ended assets constituting 5% or more of the total assets of Borrower and
its Subsidiaries on a consolidated basis determined in accordance with
Generally Accepted Accounting Principles."
"'UNUSED AVAILABILITY' means, as of any date of
determination, the SUM of (a) the amount, if any, by which the Line A
Commitment exceeds the SUM of (i) the principal Indebtedness then
evidenced by the Line A Notes, PLUS (ii) the Aggregate Effective Amount
of all Letters of Credit then outstanding PLUS the amount of the Swing
Line Outstandings, and (b) if such date is on or before the Line B
Conversion Date, the amount, if any, by which the Line B Commitment
exceeds the principal Indebtedness then evidenced by the Line B Notes."
2.3 Section 1.1 of the Agreement is amended by inserting the
following new definitions in proper alphabetical order:
"'DESIGNATED UNRESTRICTED SUBSIDIARIES' means any one or
more Subsidiaries of Borrower which are not Restricted Subsidiaries and
which are designated by Borrower as such from time to time in writing by
notice to the Agent."
"'RESTRICTED SUBSIDIARY' means, as of any date of
determination any Subsidiary of Borrower (a) at least 80% of the capital
stock or other ownership interests of which are owned on such date,
directly or indirectly, by Borrower, and (b) with respect to which neither
Borrower nor any of its Restricted Subsidiaries has entered into any
shareholders' agreement, management agreement or other
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agreement which has the effect of delegating management control over such
Subsidiary to a Person OTHER THAN Borrower or a Restricted Subsidiary."
"'SWING LINE' means the revolving line of credit established
by the Swing Line Bank in favor of Borrower pursuant to Section 2.16."
"'SWING LINE BANK' means Bank of America National Trust and
Savings Association."
"'SWING LINE DOCUMENTS' means any promissory note and any
other documents executed by Borrower as requested by the Swing Line Bank
from time to time in favor of the Swing Line Bank in connection with the
Swing Line."
"'SWING LINE LOANS' means loans made by the Swing Line Bank
to Borrower pursuant to Section 2.16."
"'SWING LINE OUTSTANDINGS' means, as of any date of
determination, the aggregate principal Indebtedness of Borrower on all
Swing Loans then outstanding."
"'WINDSOR' means Windsor Casino Limited, an Ontario
corporation, its successors and permitted assigns."
"'WINDSOR PROJECT' means the temporary and permanent casinos
operated by Windsor located in Windsor, Ontario, Canada."
"'WINDSOR SHAREHOLDERS' AGREEMENT' means the Shareholders
Agreement pertaining to Windsor to be entered into pursuant to the
agreement with the Ontario Casino Corporation, substantially in the form
previously delivered to the Banks, and with such material changes thereto
which are reasonably acceptable to the Agent and its counsel."
2.4 Section 2.1(a) of the Agreement is amended by inserting "PLUS
(D) the Swing Line Outstandings" immediately following "Carve Out Indebtedness."
2.5 Section 2.5(a) of the Agreement is amended by inserting "PLUS
(C) the Swing Line Outstandings" immediately following "Carve Out Indebtedness."
2.6 Section 2.12(a) of the Agreement is amended by inserting "PLUS
(D) the Swing Line Outstandings" immediately following "Carve Out Indebtedness."
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2.7 A new Section 2.16 is inserted immediately following Section
2.15 of the Agreement as follows:
"2.16 SWING LINE. The Swing Line Bank shall from time to
time through the day prior to the Line A Maturity Date make Swing Line
Loans to Borrower in such amounts as Borrower may request, PROVIDED that
(i) giving effect to each such Swing Line Loan, the Swing Line
Outstandings do not exceed $10,000,000, (ii) without the consent of all of
the Banks, no Swing Line Loan may be made during the continuation of any
Default or Event of Default and (iii) the Swing Line Bank has not given at
least twenty-four (24) hours prior notice to Borrower that availability
under the Swing Line is suspended or terminated. Borrower may borrow,
repay and reborrow under this Section. Unless notified to the contrary by
the Swing Line Bank, borrowings under the Swing Line shall be made in a
minimum amount of $1,000,000 upon telephonic request by a Responsible
Official of Borrower made to the Swing Line Bank by means of a request
submitted through the Agent not later than Noon, San Francisco time, on
the Banking Day of the requested borrowing (which telephonic request shall
be promptly confirmed to the Agent in writing by telecopier). Promptly
after receipt of such a request for borrowing, the Agent shall inform the
Swing Line Bank thereof and the Swing Line Bank shall obtain telephonic
verification from the Agent that, giving effect to such request,
availability for Loans will exist under Section 2.1(A) (and such
verification shall be promptly confirmed in writing by telecopier). If
Borrower instructs the Swing Line Bank to debit its demand deposit account
at the Swing Line Bank in the amount of any payment with respect to a
Swing Line Loan, or the Swing Line Bank otherwise receives repayment,
after Noon, San Francisco time, on a Banking Day, such payment shall be
deemed received on the next Banking Day. The Swing Line Bank shall
promptly notify the Agent of the Swing Line Outstandings each time there
is a change therein.
"Swing Line Loans shall bear interest at a fluctuating rate
per annum equal to the Alternate Base Rate PLUS the Applicable Alternate
Base Rate Margin, payable on such dates as may be specified by the Swing
Line Bank, not more frequently than monthly, and in any event on the Line
A Maturity Date. The Swing Line Bank shall be responsible for invoicing
Borrower for such interest. The interest payable on Swing Line Loans is
solely for the account of the Swing Line Bank.
"The Swing Line Loans shall be payable on demand made by the
Swing Line Bank and in any event on the Line A Maturity Date.
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"Upon the making of a Swing Line Loan, each Bank shall be
deemed to have purchased from the Swing Line Bank a participation therein
in an amount equal to that Bank's Pro Rata Share of the Line A Commitment
TIMES the amount of the Swing Line Loan. Upon demand made by the Swing
Line Bank, each Bank shall, according to its Pro Rata Share of the
Commitment, promptly provide to the Swing Line Bank its purchase price
therefor in an amount equal to its participation therein. The obligation
of each Bank to so provide its purchase price to the Swing Line Bank shall
be absolute and unconditional and shall not be affected by the occurrence
of an Event of Default or any other occurrence or event.
"In the event that there are any Swing Line Outstandings for
three (3) consecutive Banking Days, then on the next Banking Day (unless
Borrower has made other arrangements acceptable to the Swing Line Bank to
repay all Swing Line Outstandings), Borrower shall request a Committed
Loan pursuant to Section 2.1(A) in an amount complying with Section
2.1(E) and sufficient to repay all Swing Line Outstandings. The Agent
shall automatically provide such amount to the Swing Line Bank (which the
Swing Line Bank shall then apply to the Swing Line Outstandings) and
credit any balance of the Line A Loan in immediately available funds to
the Designated Deposit Account. In the event that Borrower fails to
request a Line A Loan within the time specified by Section 2.2 on any
such date, the Agent may, but is not required to, without notice to or the
consent of Borrower, cause Line A Advances to be made by the Banks under
the Line A Commitment in the amount necessary to comply with Section
2.1(E) and sufficient to repay all Swing Line Outstandings and, for this
purpose, the conditions precedent set forth in Sections 8.1, 8.2 and
8.3 shall not apply. The proceeds of such Line A Advances shall be paid
to the Swing Line Bank for application to the Swing Line Outstandings.
"Swing Line Loans shall be evidenced by one or more loan
accounts maintained by the Swing Line Bank in the ordinary course of
business, and such accounts shall be presumptive evidence of the principal
amount owing under the Swing Line. Any failure to so record or any error
in doing so shall not, however, limit or otherwise affect the obligation
of Borrower to pay any amount owing with respect to Swing Line Loans;
PROVIDED, HOWEVER, that the Swing Line Bank may request the Borrower
to execute and deliver a promissory note to evidence the Swing Loans, and
Borrower agrees to execute and deliver such a promissory note, and such
other Swing Line Documents as
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the Swing Line Bank may from time to time reasonably request."
2.8 The last sentence of Section 2.12(a) is amended and restated
in its entirety as follows:
"No Letter of Credit shall be issued in any event for the
purpose of supporting any payment obligation on or with respect to
interest-bearing Indebtedness (INCLUDING commercial paper) EXCEPT only
payment obligations with respect to the Capital Lease Obligations of Cove
Haven, Inc. and Paradise Stream, Inc. in favor of Northeastern Bank of
Pennsylvania, as trustee, as such Capital Lease Obligations now or
hereafter may exist."
2.9 Section 3.1(f)(iii) of the Agreement is amended by inserting
"PLUS (D) the Swing Line Outstandings" immediately following "Carve Out
Indebtedness."
2.10 The provisions of ARTICLES 5 and 6 of the Agreement are
amended so that they are restrictive of, and relate to, Borrower and its
Restricted Subsidiaries rather than Borrower and all of its Subsidiaries,
PROVIDED that (a) the provisions of Sections 5.10 and 6.5 of the Agreement
shall continue to be restrictive upon, and relate to, Borrower and all of the
Subsidiaries of Borrower, and (b) the provisions of Sections 6.9, 6.15,
and 6.16(K) shall continue to be restrictive upon, and relate to, Borrower and
all of its Subsidiaries OTHER than the Designated Unrestricted Subsidiaries.
In furtherance thereof:
(y) each Section of ARTICLES 5 and 6 of the Agreement (OTHER
THAN Sections 5.10, 6.5, 6.9, 6.15, and 6.16(K) shall
be deemed amended to insert the phrase "Restricted Subsidiary" (or its
correlatives) wherever the term "Subsidiary" (or its correlatives) appears
in such Sections; and
(z) Sections 6.9, 6.15, and 6.16(K) shall be deemed amended
to insert the phrase "Subsidiary other than the Designated Unrestricted
Subsidiaries" (or its correlatives) wherever the term "Subsidiary" (or its
correlatives) appears in such Sections;
in each case, except where the word "Subsidiary" is used as part of the term
"Subsidiary Guaranty."
2.11 Section 6.1(a) of the Agreement is amended by inserting "and
the Swing Line Bank" immediately following "to the Banks."
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2.12 Section 6.6(d) of the Agreement is amended by deleting
"$2,000,000" and inserting "$15,000,000" in lieu thereof.
2.13 Section 6.9(h) of the Agreement is amended by deleting
"$40,000,000" and inserting "$75,000,000" in lieu thereof.
2.14 Section 6.9(i) of the Agreement is amended by deleting
"$40,000,000" and inserting "$75,000,000" in lieu thereof.
2.15 Section 6.9(1) of the Agreement is amended by deleting
"$3,000,000" and inserting "$10,000,000" in lieu thereof.
2.16 Section 6.9 of the Agreement is further amended by deleting
"and" at the end of subsection (k); deleting the semicolon at the end of
subsection (1) and inserting "; and" in lieu thereof; and inserting a new
subsection (m) as follows:
"(m) Negative Pledges, Rights of Others and Liens on or with
respect to Investments in Windsor (and in instruments evidencing such
Investments) by Borrower entered into in connection with obtaining
financing for the Windsor Project or contemplated by the Windsor
Shareholders' Agreement."
2.17 Section 6.10(f) of the Agreement is amended and restated in
its entirety as follows:
"(f) guarantees of the obligations of vendors to Borrower or
any of its Subsidiaries which are not Designated Unrestricted Subsidiaries
in the ordinary course of business, not in excess of $25,000,000
outstanding at any time;"
2.18 Section 6.10(g) of the Agreement is amended by deleting
"$2,000,000" and inserting "$5,000,000" in lieu thereof.
2.19 Section 6.10(i) of the Agreement is amended and restated in
its entirety as follows:
"(i) Contingent Obligations to provide creditor or other
obligee assurance for obligations of Subsidiaries that are not
Wholly-Owned Subsidiaries; PROVIDED that (y) the aggregate monetary
amount of such obligations outstanding at any time does not exceed
$200,000,000 and (z) the aggregate monetary amount of such obligations
outstanding at any time with respect to obligations or
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Indebtedness of Designated Unrestricted Subsidiaries does not exceed
$100,000,000;"
2.20 Section 6.10(l) of the Agreement is amended and restated in
its entirety as follows:
"(l) Indebtedness of Borrower or any of its Subsidiaries to
Borrower or any of its Wholly-Owned Subsidiaries, PROVIDED that this
clause (l) shall not be construed to permit any Investment in any
Designated Unrestricted Subsidiary not permitted by Section 6.16(M);"
2.21 Section 6.10(n) of the Agreement is amended by deleting
"$40,000,000" and inserting "$75,000,000" in lieu thereof.
2.22 Section 6.10 of the Agreement is further amended by (i)
relettering subsection (r) as subsection (t) and amending and restating such
subsection in its entirety as set forth below, and (ii) inserting new
subsections (r) and (s) as follows:
"(r) Indebtedness of Borrower for borrowed money that (i) is
not secured by any Lien or have the benefit of any Negative Pledge on any
Property of Borrower or any of its Restricted Subsidiaries, (ii) is not
subject to financial covenants, restrictive covenants and events of
default which are more onerous (taken in the aggregate) to Borrower than
those contained in this Agreement and (iii) does not exceed $40,000,000
outstanding at any time;
"(s) Contingent Obligations in an aggregate amount not
exceeding $100,000,000 to provide creditors or other obligee assurance for
obligations of Windsor in connection with the Windsor Project; PROVIDED,
(i) the other investors in Windsor are providing substantially similar
assurances with respect to such obligations in an amount proportionate to
their respective direct or indirect investments in Windsor, and (ii) such
other investors are either the same Persons who were investors therein as
of June 30, 1994 or Persons which are permitted to be investors in Windsor
by the Windsor Shareholders' Agreement; and
"(t) Indebtedness of any of the types described above (OTHER
THAN that described in clauses (c), (g), (i) (to the extent of
Indebtedness contemplated by part (z) thereof), (n) and (r) above),
that does not exceed, in addition to any dollar limitations set forth
above, $30,000,000 in the aggregate for all such types of Indebtedness
outstanding at any time."
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2.23 Section 6.11 of the Agreement is amended and by adding the
following sentence at the end of such Section:
"Without limiting the generality of clause (b), transactions
with any Person in whom an Investment permitted by Section 6.16(K) is
made shall be considered in the context of all transactions existing
between such Person and Borrower and its Subsidiaries so that, any such
transaction which would not be considered an arm's-length transaction
(when viewed as an independent transaction) shall not be prohibited by
this Section so long as all such transactions, on an overall basis and
taken as a whole, are at arm's length."
2.24 Section 6.15 of the Agreement is amended and restated in its
entirety as follows:
"6.15 CAPITAL EXPENDITURES. Make any Capital Expenditure
(a) with respect to any Existing Facility (EXCEPT in satisfaction of
the alternative investment tax obligations of Borrower and its
Subsidiaries under the New Jersey Casino Control Act) if to do so would
result in such Capital Expenditures being more than $250,000,000 in any
Fiscal Year PLUS any excess up to $125,000,000 over such Capital
Expenditures in the immediately preceding Fiscal Year; PROVIDED, Capital
Expenditures shall not exceed $375,000,000 in any event in any Fiscal
Year; or (b) with respect to any New Project (other than in connection
with the Windsor Project) if to do so would result, when added to the
aggregate amount of Investments and Acquisitions described in Section
6.16(K) made in that Fiscal Year, in more than $200,000,000 of such
Capital Expenditures, Investments and Acquisitions in any Fiscal Year."
2.25 Section 6.16(d) of the Agreement is amended and restated in
its entirety as follows:
"(d) Investments (y) of Borrower or any of its Subsidiaries
in any of the Wholly-owned Subsidiaries of Borrower or (z) of any
Subsidiary of Borrower in Borrower or any Wholly-owned Subsidiary of
Borrower;"
2.26 Section 6.16(k) of the Agreement is amended and restated in
its entirety as follows:
"(k) Investments and Acquisitions made in any Fiscal Year in
or of a Person owning or operating a New Project for an aggregate amount
or purchase price that, when added to Capital Expenditures made in that
Fiscal Year and described in Section 6.15(B), do not exceed, in any
Fiscal Year, $200,000,000 MINUS the amount of any
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Investments in Designated Unrestricted Subsidiaries made during that
Fiscal Year pursuant to Section 6.16(M);"
2.27 Section 6.16 of the Agreement is further amended by
relettering subsection (l) as subsection (o) and by inserting new subsections
(l), (m) and (n) as follows:
"(l) Investments by Borrower in Windsor contemplated by the
Windsor Shareholders' Agreement not to exceed $100,000,000 in the
aggregate at any time;
"(m) Investments in Designated Unrestricted Subsidiaries which
do not, when aggregated with the amount of any Contingent Obligations
incurred pursuant to Section 6.10(I) with respect to the obligations or
Indebtedness of Designated Unrestricted Subsidiaries, exceed $100,000,000
in the aggregate, at any time;
"(n) other Investments in an amount which do not exceed
$1,000,000 in the aggregate at any one time outstanding, and"
3. EXTENSION OF LINE A MATURITY DATE. The Banks and the Agent agree
to extend, solely in this instance notwithstanding the requirements of Section
2.14 of the agreement that the Borrower cannot request an extension of the
Line A Maturity Date prior to delivering its audited financial statements for
the prior Fiscal Year and without in any way being deemed to have waived such
requirement as to any similar request in the future, the Line A Maturity Date to
October 31, 1997.
4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Banks and Agent:
4.1 AUTHORITY. The Borrower has all necessary power and has
taken all corporate action necessary to make this First Amendment, the
Agreement, and all other agreements and instruments executed in connection
herewith and therewith, the valid and enforceable obligations they purport to
be.
4.2 NO LEGAL OBSTACLE TO AGREEMENT. Neither the execution of
this First Amendment, the making by the Borrower of any borrowings under the
Agreement, nor the performance of the Agreement has constituted or resulted in
or will constitute or result in a breach of the provisions of any contract to
which the Borrower is a party, or the violation of any law, judgment, decree or
governmental order, rule or regulation applicable to the Borrower, or result in
the creation under any agreement or instrument of any security interest, lien,
charge, or encumbrance upon any of the assets of the Borrower (except for
security interests, liens, charges and encumbrances created by this First
Amendment or the other Loan Documents). No
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approval or authorization of any governmental authority is required to permit
the execution, delivery or performance by the Borrower of this First Amendment,
the Agreement, or the transactions contemplated hereby or thereby, or the making
of any borrowing by the Borrower under the Agreement.
4.3 INCORPORATION OF CERTAIN REPRESENTATIONS. The
representations and warranties set forth in ARTICLE 4 of the Agreement
(OTHER THAN Sections 4.4(A) (second sentence), 4.6 (first sentence),
4.10, and 4.17) are true and correct in all respects on and as of the date
hereof as though made on and as of the date hereof.
4.4 DEFAULT. No Event of Default under the Agreement has
occurred and is continuing.
4.5 LITIGATION. Other than matters described in SCHEDULE 4.10
to the Agreement or not required as of the Closing Date to be therein described,
there is no pending or threatened action, suit, proceeding or investigation
against or affecting Borrower or any of its Subsidiaries or any Property of any
of them before any Governmental Agency that constitutes a Material Adverse
Effect.
5. CONDITIONS, EFFECTIVENESS. The effectiveness of this First
Amendment shall be subject to the compliance by the Borrower with its agreements
herein contained, and to the delivery of the following to the Agent in form and
substance satisfactory to the Agent and the Majority Banks:
5.1 CORPORATE RESOLUTIONS. A copy of a resolution or resolutions
passed by the Board of Directors of the Borrower, certified by the Secretary or
an Assistant Secretary of the Borrower as being in full force and effect on the
effective date of this First Amendment, authorizing the amendments to the
Agreement herein provided for and the execution, delivery and performance of
this First Amendment and any note or other instrument or agreement required
hereunder.
5.2 AUTHORIZED SIGNATORIES. A certificate, signed by the
Secretary or an Assistant Secretary of the Borrower dated the date of this First
Amendment, as to the incumbency of the person or persons authorized to execute
and deliver this First Amendment and any instrument or agreement required
hereunder on behalf of the Borrower.
5.3 OPINION OF COUNSEL. The written opinion of counsel to the
Borrower, dated as of the date of this First Amendment with respect to such
legal matters as the Majority Banks may request, which opinion may be qualified
only in such manner as shall be acceptable to the Majority Banks. Borrower
-11-
<PAGE>
hereby instructs its internal legal counsel to deliver such an opinion to the
Agent.
5.4 OTHER EVIDENCE. Such other evidence with respect to the
Borrower or any other person as the Agent or any Bank may reasonably request to
establish the consummation of the transactions contemplated hereby, the taking
of all corporate action in connection with this First Amendment and the
Agreement and the compliance with the conditions set forth herein.
6. MISCELLANEOUS.
6.1 EFFECTIVENESS OF THE AGREEMENT. Except as hereby expressly
amended, the Agreement and the Loan Documents shall remain in full force and
effect, and are hereby ratified and confirmed in all respects.
6.2 WAIVERS. This First Amendment is specific in time and in
intent and does not constitute, nor should it be construed as, a waiver of any
other right, power or privilege under the Loan Documents, or under any
agreement, contract, indenture, document or instrument mentioned in the Loan
Documents; nor does it preclude any exercise thereof or the exercise of any
other right, power or privilege, nor shall any future waiver of any right,
power, privilege or default hereunder, or under any agreement, contract,
indenture, document or instrument mentioned in the Loan Documents, constitute a
waiver of any other default of the same or of any other term or provision.
6.3 COUNTERPARTS. This First Amendment may be executed in any
number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument. This First Amendment shall
not become effective until the Borrower, each Guarantor, the Banks and the Agent
shall have signed a copy hereof, whether the same or counterparts, and the same
shall have been delivered to the Agent.
6.4 JURISDICTION. This First Amendment, and any instrument or
agreement required hereunder, shall be governed
-12-
<PAGE>
by and construed under the local laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered as of the date first written above.
BORROWER:
CAESARS WORLD, INC.
By: Roger Lee, Senior Vice President
By: Richard M. Kelley, Treasurer
THE AGENT:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: Peggy Fujimoto, Vice President
THE BANKS:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By: Scott L. Faber, Vice President
SOCIETE GENERALE
By J. Spaley Stewart, Vice President
UNITED STATES NATIONAL BANK OF OREGON
By: Scott J. Bell, Vice President
-13-
<PAGE>
NIPPON CREDIT BANK, LTD.
LOS ANGELES AGENCY
By: Bernardo E. Correo-Henschke,
Vice President and Manager
THE YASUDA TRUST AND BANKING COMPANY,
LTD. LOS ANGELES AGENCY
By: Kiyoshi Terao, Joint General
Manager
FIRST INTERSTATE BANK OF NEVADA, N.A.
By: John Bydalek, Assistant Vice
President
CONTINENTAL BANK N.A.
By: Wyatt R. Ritchie, Vice President
THE LONG TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By: Genichi Imai, Joint General Manager
WESTDEUTSCHE LANDESBANK GIROZENTRALE
NEW YORK AND CAYMAN ISLANDS BRANCHES
By: J.G. Hilsgen, Vice President and
James Tally, Associate
MIDLANTIC BANK, N.A. (formerly,
Midlantic National Bank)
By: Denise Killen, Vice President
-14-
<PAGE>
CREDIT LYONNAIS LOS ANGELES BRANCH
By: Thierry F. Vincent, Vice President
CREDIT LYONNAIS CAYMAN ISLANDS BRANCH
By: Thierry F. Vincent, Vice President
BANK OF AMERICA NEVADA
By: Israel Carmeli, Vice President
-15-
<PAGE>
CONSENT OF GUARANTORS
The undersigned hereby consent to the foregoing First Amendment to
Loan Agreement dated as of August 31, 1994 and confirms that the Parent Guaranty
and the Subsidiary Guaranty remain in full force and effect before and after
giving effect to this First Amendment.
CAESARS WORLD, INC.
By /s/ Roger Lee
------------------------------------
Title Senior Vice President
---------------------------------
By /s/ Richard M. Kelley
------------------------------------
Title Treasurer
---------------------------------
DESERT PALACE, INC.
By /s/ W. Dan Reichartz
------------------------------------
Title President
---------------------------------
By /s/ Marc Rubinstein
------------------------------------
Title Vice President - General
Counsel & Secretary
---------------------------------
BOARDWALK REGENCY CORPORATION
By /s/ Robert E. Reilert
------------------------------------
Title Senior Vice President/General
Counsel/Secretary
---------------------------------
By /s/ Michael Walsh
------------------------------------
Title Vice President - Finance &
Corporate Controller
---------------------------------
-1-
<PAGE>
Exhibit 10(p)
ONTARIO CASINO CORPORATION
AS AGENT OF HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO
- AND -
WINDSOR CASINO LIMITED
- AND -
CAESARS WORLD, INC.,
CIRCUS CIRCUS ENTERPRISES, INC. AND
HILTON HOTELS CORPORATION
-----------------------------------------------------
INTERIM CASINO OPERATING AGREEMENT
-----------------------------------------------------
MAY 14, 1994
<PAGE>
INTERIM CASINO OPERATING AGREEMENT
TABLE OF CONTENTS
ARTICLE ONE
DEFINITIONS
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.3 Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE TWO
APPOINTMENT OF OPERATOR
2.1 Appointment of Operator as Independent Contractor. . . . . . . . . 15
2.2 Appointment of Operator as Agent . . . . . . . . . . . . . . . . . 15
2.3 Limitation on Authority of Operator. . . . . . . . . . . . . . . . 15
2.4 Access to Building . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE THREE
PRE-OPENING PERIOD
3.1 Pre-Opening Services . . . . . . . . . . . . . . . . . . . . . . . 16
3.2 Renovations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.3 Parking Facility Arrangements. . . . . . . . . . . . . . . . . . . 16
3.4 Interim Casino Equipment . . . . . . . . . . . . . . . . . . . . . 17
3.5 Other Services . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE FOUR
OPERATING PERIOD
4.1 Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.2 Annual Operating Budget. . . . . . . . . . . . . . . . . . . . . . 19
4.3 Accounting and Distribution of Funds . . . . . . . . . . . . . . . 20
4.4 No Duplication . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.5 Repayment of Deficiency Amounts. . . . . . . . . . . . . . . . . . 24
4.6 OCC Review of Financial Statements . . . . . . . . . . . . . . . . 24
4.7 Major Capital Improvements . . . . . . . . . . . . . . . . . . . . 25
4.8 Extended Deferrals . . . . . . . . . . . . . . . . . . . . . . . . 25
<PAGE>
ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Operator . . . . . . . . . . 26
5.2 Representations and Warranties of the Participants . . . . . . . . 27
5.3 Representations and Warranties of OCC. . . . . . . . . . . . . . . 28
5.4 Survival of Representations and Warranties . . . . . . . . . . . . 29
ARTICLE SIX
COVENANTS
6.1 Affirmative Covenants of the Operator. . . . . . . . . . . . . . . 29
6.2 Negative Covenants of the Operator . . . . . . . . . . . . . . . . 31
6.3 Affirmative Covenants of the Participants. . . . . . . . . . . . . 33
6.4 Negative Covenants of Participants . . . . . . . . . . . . . . . . 33
6.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE SEVEN
INTELLECTUAL PROPERTY
7.1 Intellectual Property of OCC and the Operator. . . . . . . . . . . 35
7.2 Participants' Individual Intellectual Property . . . . . . . . . . 35
7.3 Collective Intellectual Property of Participants . . . . . . . . . 36
ARTICLE EIGHT
OPERATOR'S FEE AND EXPENSES
8.1 Operator's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.2 Salaries and Expenses. . . . . . . . . . . . . . . . . . . . . . . 37
8.3 Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . 38
8.4 Concessions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.5 Business Loss Insurance. . . . . . . . . . . . . . . . . . . . . . 39
- ii -
<PAGE>
ARTICLE NINE
NON-COMPETITION
9.1 Non-Competition/Right of First Offer . . . . . . . . . . . . . . . 40
ARTICLE TEN
EVENTS OF DEFAULT
10.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . 41
10.2 Commencement of Grace Period . . . . . . . . . . . . . . . . . . . 42
ARTICLE ELEVEN
TERMINATION
11.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.2 Pre-Opening Expenses . . . . . . . . . . . . . . . . . . . . . . . 44
11.3 Remedies Preserved . . . . . . . . . . . . . . . . . . . . . . . . 45
11.4 Establishment of Severance Reserve . . . . . . . . . . . . . . . . 45
11.5 Withdrawals from Severance Reserve . . . . . . . . . . . . . . . . 45
ARTICLE TWELVE
INDEMNITIES
12.1 Indemnification by Operator. . . . . . . . . . . . . . . . . . . . 45
12.2 Indemnification by OCC . . . . . . . . . . . . . . . . . . . . . . 46
12.3 Indemnification by Participants. . . . . . . . . . . . . . . . . . 46
12.4 United States Taxes. . . . . . . . . . . . . . . . . . . . . . . . 46
12.5 Timely Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.6 Limitation on Claims for Damages . . . . . . . . . . . . . . . . . 47
12.7 No Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . 47
- iii -
<PAGE>
ARTICLE THIRTEEN
DISPUTE RESOLUTION
13.1 Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE FOURTEEN
GENERAL
14.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
14.2 Table of Contents and Headings. . . . . . . . . . . . . . . . . . 50
14.3 Enforceability. . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.4 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . 50
14.5 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.6 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.7 Cooperation of Parties. . . . . . . . . . . . . . . . . . . . . . 51
14.8 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.10 Relationship of the Parties . . . . . . . . . . . . . . . . . . . 52
14.11 Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.12 Employment Solicitation . . . . . . . . . . . . . . . . . . . . . 52
14.13 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.14 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
- iv -
<PAGE>
INTERIM CASINO OPERATING AGREEMENT
THIS AGREEMENT made the 14th day of May, 1994.
B E T W E E N:
ONTARIO CASINO CORPORATION,
a corporation established
pursuant to the Enabling
Legislation and which is for
all its purposes an agent of
Her Majesty,
(hereinafter referred to as "OCC"),
OF THE FIRST PART,
- and -
WINDSOR CASINO LIMITED,
a corporation incorporated
pursuant to the laws of the
Province of Ontario,
(hereinafter referred to as the "Operator"),
OF THE SECOND PART,
- and -
CAESARS WORLD, INC.,
a corporation incorporated
pursuant to the laws of the
State of Florida, CIRCUS
CIRCUS ENTERPRISES, INC., a
corporation incorporated
pursuant to the laws of the
State of Nevada and HILTON
HOTELS CORPORATION, a
corporation incorporated
pursuant to the laws of the
State of Delaware,
(hereinafter individually referred to as a
"Participant" and, collectively, the "Participants"),
OF THE THIRD PART.
WHEREAS, in response to a request for proposals dated April 19,
1993, the Operator submitted a proposal for the development, financing and
operation of the Permanent Casino Complex and indicated its willingness to
negotiate and finalize an agreement in respect of the Interim Casino Complex;
<PAGE>
- 2 -
AND WHEREAS the Operator has been designated as the sole and
exclusive party with whom OCC will undertake further negotiations with respect
to the Permanent Casino Complex;
AND WHEREAS the parties have agreed to enter into this Agreement
to provide for the development and operation of the Interim Casino Complex;
THIS AGREEMENT WITNESSES THAT in consideration of the respective
covenants, agreements, representations, warranties and indemnities of the
parties herein contained and for other good and valuable consideration (the
receipt and sufficiency of which are acknowledged by each party hereto), the
parties hereby agree as follows:
ARTICLE ONE
DEFINITIONS
1.1 DEFINITIONS: The following definitions shall apply in the
interpretation of this Agreement and the recitals and Schedules hereto:
(a) "ADJACENT LANDS" means the lands in the City of Windsor legally
described in Part 2 of Schedule A hereto and outlined in blue on
Schedule B hereto and all appurtenances thereto;
(b) "AFFILIATE" means with respect to any Person, any legal entity
which directly or indirectly Controls or is Controlled by such
Person or any legal entity which is directly or indirectly
Controlled by a Person which directly or indirectly Controls
such Person;
(c) "APPLICABLE LAW" means all public laws, statutes, codes, acts,
ordinances, orders, rules, regulations, Governmental Consents
and Governmental Requirements, which now or at any time
hereafter may be applicable to and enforceable against the
relevant work or activity in question or any part thereof,
including without limitation, those relating to employment,
zoning, building, life safety, environment and health;
(d) "APPROVED OPERATING BUDGET" means, with respect to an Operating
Year, the Operating Budget for such Operating Year as approved
by OCC;
(e) "APPROVED OPERATING PLAN" means, collectively, the Approved
Operating Policies and the then current Approved Operating
Budget;
(f) "APPROVED OPERATING POLICIES" means the Operating Policies for
the Interim Casino Complex as approved by OCC pursuant to
Subsection 3.5(d), as
<PAGE>
- 3 -
amended or supplemented from time to time in accordance with the
terms hereof;
(g) "ART GALLERY LAND" means the lands in the City of Windsor
legally described in Part 1 of Schedule A hereto and outlined in
red on Schedule B hereto and all appurtenances thereto;
(h) "AUDITORS" means such firm of independent nationally recognized
chartered accountants appointed by the Operator with the
approval of OCC, as the auditors for the Interim Casino Complex;
(i) "BASE FEE" has the meaning ascribed thereto in Subsection
8.1(a)(i);
(j) "BUILDING" means the premises comprising the entire building
having the municipal address of 445 Riverside Drive, Windsor,
Ontario situate on the Art Gallery Land containing a rentable
area of approximately 90,063 square feet, leased to OCC pursuant
to the Interim Casino Lease together with any premises situate
on the Adjacent Lands;
(k) "BUSINESS DAY" means any day which is not a Saturday, Sunday or
a day observed as a holiday under the laws of the Province of
Ontario or the federal laws of Canada applicable therein;
(l) "CAPITAL RENEWAL RESERVE" means, for any period, the reserve
established in the Approved Operating Budget for Capital
Renewals;
(m) "CAPITAL RENEWALS" means additions or improvements to the
Interim Casino Complex, including the purchase or lease on
behalf of OCC of FF&E by way of replacement, addition,
construction or repair of property with a useful life of one
year or more or which under generally accepted accounting
principles would be classified as a capital expenditure
(excluding items with a cost of $200 or less and, for greater
certainty, excluding FF&E Repairs and Major Capital
Improvements);
(n) "CASINO" means those areas located in the Building which are
used for the purpose of playing or operating a Game of Chance;
(o) "CASINO ACCOUNTS" means, collectively, the Operating Account and
such other account or accounts with a financial institution or
institutions designated by OCC in consultation with the Operator
from time to time;
(p) "CITY" means The Corporation of the City of Windsor;
<PAGE>
- 4 -
(q) "CITY MORTGAGE" means the Charge/Mortgage of Land in the
principal amount of $5,000,000 dated September 30, 1993 made by
the Landlord in favour of the City and registered on title to
part of the Art Gallery Land and the Adjacent Lands on October
1, 1993 as Instrument Nos. 1250623 and 1250625;
(r) "COMMENCEMENT DATE" has the meaning ascribed thereto in the
Interim Casino Lease;
(s) "COMPLEX LANDS" means, collectively, the Art Gallery Land, those
Parking Lot Lands upon which the Parking Facilities are located
and, if applicable, the Adjacent Lands;
(t) "CONTINGENCY RESERVE" has the meaning ascribed thereto in
Section 8.3;
(u) "CONTROL" or "CONTROLLED" means the right to direct the
management and policies of a Person, whether directly or
indirectly, or to elect a majority of the board of directors or
the trustees of a Person, whether through the ownership of
voting securities or by contract or otherwise;
(v) "DEFICIENCY AMOUNTS" means, collectively, Mandatory Deferrals
and Discretionary Deficiency Contributions, outstanding Pre-
Opening Expenses not included in Mandatory Deferrals and accrued
but unpaid Operator's Fees;
(w) "DISCRETIONARY DEFICIENCY CONTRIBUTIONS" has the meaning
ascribed thereto in Subsection 4.3(g);
(x) "ENABLING LEGISLATION" means the ONTARIO CASINO CORPORATION ACT,
1993 (Ontario), as amended or re-enacted from time to time;
(y) "ETA" means the EXCISE TAX ACT (Canada) as amended or re-enacted
from time to time;
(z) "EVENT OF DEFAULT" has the meaning ascribed thereto in Section
10.1;
(aa) "EXECUTIVE STAFF" means the President and Managing Director, the
General Manager, the Chief Financial Officer, the Financial
Controller, the Vice-President, Casino Operations, the Casino
Manager, the Director of Surveillance, the Director of Non-
Gaming Operations, the Casino Controller, the Director of Sales
and Marketing, all department heads and designated assistant
department heads, and such other employees as may be designated
as such by the Operator and agreed to by OCC;
(ab) "EXPERT" has the meaning ascribed thereto in Section 13.1;
<PAGE>
- 5 -
(ac) "FF&E" means all furniture, furnishings, equipment (including
all gaming equipment), fixtures, apparatus and other personal
property used in, held in storage for use in, or required in
connection with the operation of the Interim Casino Complex,
other than Operating Equipment and Operating Supplies;
(ad) "FF&E REPAIRS" means, for any period, normal maintenance and
repair of FF&E as contemplated in the Approved Operating Budget,
expenditures in respect of which during an Operating Year will
not exceed 2% of Gross Revenues for such year except where
otherwise agreed by OCC and the Operator, which agreement can be
reflected in the Approved Operating Budget;
(ae) "FORCE MAJEURE" means any BONA FIDE delay or state of affairs
beyond the control of a party (other than as a result of
financial incapacity and other than a delay or state of affairs
caused by the party relying upon such Force Majeure) which shall
cause or contribute towards any party being unable to fulfill or
being delayed or restricted in the fulfillment of such party's
obligation, including any such delay or state of affairs by
reason of:
(i) the non-delivery or non-availability of the supply or
provision of any service or the doing of any work or the
making of any repairs;
(ii) inability to obtain any required material, goods,
equipment, service or labour;
(iii) Applicable Law or inability to procure any required
Governmental Consent;
(iv) any strikes, lockouts, slow-downs or other combined
action of workers or labour disputes;
(v) litigation or threatened litigation, insurrection, acts
of God, war, riots or civil commotions; or
(vi) any breach of this Agreement by another party hereto or a
delay or failure by another party hereto in providing a
consent or approval (it being understood that the
Participants and the Operator shall, for the purposes of
this Subsection 1.1(ae), collectively constitute one
party and that a consent or approval given or withheld
within the time period envisaged by Subsection 14.6(d)
shall not constitute a delay or failure by such party for
the purposes of this Subsection 1.1(ae)(vi)),
<PAGE>
- 6 -
in each case which results notwithstanding the reasonable
efforts of the party relying upon such Force Majeure to prevent
the same where the Force Majeure was reasonably foreseeable;
(af) "GAME OF CHANCE" means a lottery scheme that may be conducted
and managed by a government of a province under the authority of
paragraph 207(1)(a) of the CRIMINAL CODE (Canada) but does not
include a lottery scheme conducted by the Ontario Lottery
Corporation under the ONTARIO LOTTERY CORPORATION ACT;
(ag) "GAMING CONTROL ACT" means the GAMING CONTROL ACT, 1992 as
amended or re-enacted from time to time;
(ah) "GAMING CONTROL COMMISSION" means the Gaming Control Commission
established under the Regulatory Legislation and any successor
or replacement thereto;
(ai) "G.C.C. LEVY" means the payments to be made under Subsection
15(1)4 of the Enabling Legislation to the general fund of the
Gaming Control Commission;
(aj) "GOVERNMENTAL AUTHORITY" means Canada, the Province of Ontario,
the City, any other political subdivision in which the Interim
Casino Complex is located, and any court or political
subdivision, agency, commission, board or instrumentality or
officer thereof, whether federal, provincial, state or local,
including the Gaming Control Commission, having or exercising a
jurisdiction over OCC, the Operator, a Participant, an Affiliate
of a Participant or the Interim Casino Complex, but excluding
OCC;
(ak) "GOVERNMENTAL CONSENT" means any licence, right, permit,
franchise, privilege, direction, decree, consent, order,
permission, approval or authority to be issued or provided by a
Governmental Authority;
(al) "GOVERNMENTAL REQUIREMENTS" means all laws and agreements with
any Governmental Authority that are applicable to the
development or operation of the Interim Casino Complex,
including without limitation, any rules, guidelines or
restrictions created by or imposed by Governmental Authorities;
(am) "GROSS OPERATING RECEIPTS" means, for any period, the aggregate
of all revenues received without duplication by or on behalf of
the Operator or OCC from the operation and use of the Interim
Casino Complex and any investment or interest income arising out
of cash management of such revenues, all as determined in
accordance with generally accepted accounting principles
consistently applied, without deduction on account of the Win
Tax or amounts representing GST on goods or services provided
<PAGE>
- 7 -
that are directly related to the conduct of Games of Chance, but
excluding any amounts representing GST on goods or services
provided other than those directly related to the conduct of
Games of Chance;
(an) "GROSS REVENUES" means, for any period, the aggregate of all
sums received without duplication by or on behalf of the
Operator or OCC from or in respect of the Interim Casino Complex
or any part thereof;
(ao) "GST" means the tax imposed under Part IX of the ETA or any tax
replacing such tax, including any interest and penalties
thereon, provided that in the event that any similar tax is
introduced by the Province of Ontario, all references to "GST",
"ETA" and "Receiver General for Canada", shall apply, MUTATIS
MUTANDIS, with respect to such tax and its payment;
(ap) "HER MAJESTY" means Her Majesty the Queen in Right of Ontario;
(aq) "IMPOSITIONS" means all taxes, assessments, imposts, water,
sewer or other similar rents, rates and charges, levies, licence
fees, permit fees, inspection fees and other authorization fees
and charges, which at any time may be assessed, levied,
confirmed or imposed on the Interim Casino Complex (or in each
case, amounts paid in lieu thereof) or the operation thereof,
including the Win Tax and the GST payable by the Operator or OCC
to the Receiver General for Canada or other GST authority in
respect of the operation and use of the Interim Casino Complex
but excluding, for greater certainty, capital or income taxes of
the Operator and the G.C.C. Levy and GST paid by the Operator or
OCC for which it is entitled to an input tax credit;
(ar) "IMPROVEMENTS" means, collectively, the Building and the Parking
Facilities;
(as) "INCENTIVE FEE" has the meaning ascribed thereto in Subsection
8.1(a)(ii);
(at) "INCLUDING" means including without limitation;
(au) "INTELLECTUAL PROPERTY" means all trade or brand names, trade
marks, trade mark registrations and applications, service marks,
service mark registrations and applications, copyrights,
copyright registrations and applications, patents, patent
registrations and applications, trade secrets, know-how,
equipment and parts lists and descriptions, instruction manuals,
inventions, inventors' notes, research data, unpatented blue
prints, drawings and designs, formulae, processes, technology,
software and all source and object code versions thereof and all
related documentation, flow charts, service/operator manuals and
any enhancements, modifications or substitutions thereof and
other intellectual property, together with all rights under
licences, registered user agreements, technology transfer
agreements
<PAGE>
- 8 -
and other agreements or instruments relating to any of the
foregoing, but for greater certainty does not include customer
lists;
(av) "INTERIM CASINO AGREEMENT TO LEASE" means the agreement to lease
the Art Gallery Land and the Building dated October 1, 1993 and
accepted October 12, 1993 between the Landlord and Her Majesty,
including the Schedules thereto, as assigned by Her Majesty to
OCC by agreement dated May 1, 1994;
(aw) "INTERIM CASINO COMPLEX" means, collectively, the Complex Lands
and the Improvements;
(ax) "INTERIM CASINO EQUIPMENT" means the FF&E, the Operating
Equipment and the Operating Supplies collectively;
(ay) "INTERIM CASINO LEASE" means, collectively, the Interim Casino
Agreement to Lease and the Lease to be entered into pursuant to
the Interim Casino Agreement to Lease substantially in the form
of Schedule "D" thereto, as the same may be amended from time to
time;
(az) "INTERIM CASINO OPENING DATE" means the date on which the Casino
is opened to the public;
(ba) "LANDLORD" means The Art Gallery of Windsor and its successors
and assigns as landlord under the Interim Casino Lease;
(bb) "LOSSES" in respect of any matter, means all claims, actions,
demands, proceedings, suits, losses, obligations, damages,
penalties, liabilities, deficiencies, costs and expenses
(including, without limitation, all legal and other professional
and consultant fees and disbursements, interest, penalties and
amounts paid in settlement) arising directly or indirectly as a
consequence of such matter;
(bc) "MAJOR CAPITAL IMPROVEMENTS" means capital improvements,
renovation or refurbishing involving an addition to the Interim
Casino Complex or any renovation or refurbishing designed to
materially upgrade, or change the nature or image of, the
Interim Casino Complex (as opposed to FF&E Repairs or items
contained in that portion of the Approved Operating Budget
relating to Capital Renewals);
(bd) "MANDATORY DEFERRALS" has the meaning ascribed thereto in
Subsection 4.3(f);
(be) "MASTER AGREEMENT" has the meaning ascribed thereto in the
Permanent Casino Heads of Agreement;
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(bf) "MATERIAL AGREEMENTS" means this Agreement, the Interim Casino
Lease, the Parking Lot Leases and any other agreements which the
parties hereto have identified and agreed in writing as being
material to the development or the operation of the Interim
Casino Complex;
(bg) "MAXIMUM MANDATORY DEFERRAL" has the meaning ascribed thereto in
Subsection 4.3(f);
(bh) "MEDIATION PERIOD" has the meaning ascribed thereto in Section
13.1;
(bi) "NET OPERATING MARGIN" means, for any period, the Gross
Operating Receipts for such period less:
(i) the Win Tax, up to a maximum of 20% of that portion of
Gross Operating Receipts received from the conduct of
Games of Chance, and other Impositions (other than GST)
for such period;
(ii) the Operating Expenses for such period;
(iii) FF&E Repairs for such period; and
(iv) the Severance Reserve and any Contingency Reserve for
such period;
but without deduction on account of interest expense, Capital
Renewals, other capital expenditures, the Operator's Fee, the
G.C.C. Levy, GST, depreciation and amortization, rent paid and
other payments made (except for Impositions, other than GST, and
Operating Expenses) under the Interim Casino Lease and the
Parking Lot Leases or payments made representing repayment of
Pre-Opening Expenses and interest thereon;
(bj) "OCC" means the Ontario Casino Corporation, the Crown
corporation established pursuant to the Enabling Legislation,
and its successors and permitted assigns;
(bk) "OPERATING ACCOUNT" means an account to be opened and maintained
in the name of OCC with a financial institution designated by
OCC in consultation with the Operator from time to time and on
which designated representatives of the Executive Staff of the
Operator approved by OCC shall have signing authority;
(bl) "OPERATING BUDGET" means, for any period, a budget or budgets
setting forth, on an annual and on a monthly basis, anticipated
Gross Revenues, Gross Operating Receipts, Win Tax, Operating
Expenses (and which may contain a provision for contingencies
not in excess of 15% in respect of
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any line item therein, subject to overall contingencies not
exceeding 5% of Operating Expenses), Net Operating Margin,
Operator's Fee and recommended Capital Renewals, FF&E Repairs,
Capital Renewal Reserves, Operating Reserves, Contingency
Reserves and Severance Reserves on an accrual basis and which
will state the assumptions used in its or their preparation;
(bm) "OPERATING EQUIPMENT" means all china, glassware, silverware and
linens used in, or held in storage for use in, the operation of
the Interim Casino Complex;
(bn) "OPERATING EXPENSES" means, for any period, the aggregate,
without duplication, of all expenses incurred in respect of the
operation and maintenance of the Interim Casino Complex in the
ordinary course during such period, including without
limitation, wages, salaries, security and surveillance, energy
costs, insurance premiums, property and business taxes (or
amounts paid in lieu thereof) and regulatory costs and expenses
(other than the G.C.C. Levy);
(bo) "OPERATING PERIOD" means the period beginning with the Interim
Casino Opening Date and ending upon the expiration or sooner
termination of this Agreement;
(bp) "OPERATING POLICIES" means a collective term for the standards,
policies and procedures to be adopted in connection with the
operation of the Interim Casino Complex including hiring and
training policies and procedures, human resource programs,
marketing programs, insurance and bonding, credit and
collection, security (both physical and gaming), cash management
and investment policies and purchasing and inventory policies
and procedures;
(bq) "OPERATING RESERVE" means, for any Operating Year, the reserve
which the parties have agreed shall be established in the
Approved Operating Budget to satisfy those amounts identified in
Subsections 4.3(d)(i), (ii), (iii), (iv), (vi) and (vii) for a
period of at least three months during such Operating Year
(assuming a 12 month Operating Year) in the event that Gross
Revenues received will be insufficient to pay such amounts
together with any additional reserve as may be agreed to by the
Operator and OCC to ensure the continuous and orderly operation
of the Interim Casino Complex;
(br) "OPERATING SUPPLIES" means consumable items used in, or held in
storage for use in, the operation of the Interim Casino Complex,
including food and beverages, fuel, soap, cleaning material,
matches, stationery and other similar items and with respect to
the gaming operation, chips, tokens, markers, cards and other
similar items needed for such operation;
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(bs) "OPERATING YEAR" means the calendar year, provided that the
first Operating Year shall commence on the Interim Casino
Opening Date and shall end on December 31, 1994 and the last
Operating Year shall end on the last day of the Term;
(bt) "OPERATOR" means Windsor Casino Limited, its successors and
permitted assigns;
(bu) "OPERATOR'S FEE" has the meaning ascribed thereto in Section
8.1;
(bv) "OUTSTANDING PRE-OPENING EXPENSES" has the meaning ascribed
thereto in Section 11.2;
(bw) "PARKING FACILITIES" means the surface parking facilities in
respect of which Parking Lot Leases have been entered into by
the Operator in and upon one or more of the sites comprising the
Parking Lot Lands;
(bx) "PARKING LOT LANDS" means the lands in or near the City of
Windsor identified by OCC and the Operator as being possible
locations for the Parking Facilities;
(by) "PARKING LOT LEASES" means, collectively, the agreements to
lease the Parking Lot Lands entered into by the Operator, as
tenant, and the respective owners of the Parking Lot Lands, as
landlord, and the formal leases entered into pursuant thereto;
(bz) "PARTICIPANT DATA BASES" means, collectively, the data bases and
related software developed by each of the Participants
containing the list of, and other information relating to, those
existing customers of each of the Participants resident within a
250 mile radius of the City of Windsor, as such list and
information is up-dated by the Participants from time to time;
(ca) "PARTICIPANT PROPERTIES" means, collectively, all hotels and/or
casinos other than the Interim Casino Complex managed or
operated by a Participant or a combination of Participants or
any Affiliate of a Participant or a combination of Participants
or the Operator;
(cb) "PARTICIPANT SERVICES" means a collective term for:
(i) the worldwide network of branch offices, sales offices,
reservation offices and casino offices operated by the
Participants, including
(A) the Hilton Reservation Service, and
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(B) sales offices and affiliate locations, including
Caesars Worlds Marketing, and
(ii) programs of advertising and business promotion for
Participant Properties which are conducted by any of the
Participants,
and which are available to the Participant Properties;
(cc) "PARTICIPANTS" means the parties of the third part hereto and
their respective successors and permitted assigns;
(cd) "PERMANENT CASINO COMPLEX" has the meaning ascribed to the term
"Project" in the Permanent Casino Heads of Agreement;
(ce) "PERMANENT CASINO HEADS OF AGREEMENT" means the agreement
entitled "Heads of Agreement" made as of even date herewith
between the parties hereto, as such agreement is amended and/or
supplemented from time to time;
(cf) "PERMITTED DEBT" means:
(i) any indebtedness for trade payables, accounts payable and
accruals incurred or arising out of the ordinary course
of business; and
(ii) any indebtedness under any contract authorized or
contemplated under this Agreement, the Permanent Casino
Heads of Agreement or the Master Agreement;
but shall not include any indebtedness for borrowed money unless
agreed to by OCC or such borrowing has been incurred to fund
Pre-Opening Expenses or is necessary for funding any
Discretionary Deficiency Contributions;
(cg) "PERMITTED ENCUMBRANCES" means:
(i) liens for taxes, assessments and governmental charges due
and being contested in good faith and diligently by
appropriate proceedings (and for the payment of which
adequate provision has been made);
(ii) servitudes, easements, restrictions, rights-of-way and
other similar rights in real property or any interest
therein;
(iii) undetermined or inchoate liens, charges and privileges
incidental to current construction or current operations
and statutory liens, charges, adverse claims, security
interests or encumbrances of any nature whatsoever
claimed or held by any Governmental Authority
<PAGE>
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that have not at the time been filed or registered
against the title to the asset or served upon the
Operator pursuant to law or that relate to obligations
not due or delinquent;
(iv) assignments of insurance provided to landlords pursuant
to the terms of any lease, and liens or rights reserved
in any lease for rent or for compliance with the terms of
such lease;
(v) security given in the ordinary course of the Operator's
business to any public utility, municipality or
government or to any statutory or public authority in
connection with the operations of the Operator's
business, other than security for borrowed money;
(vi) the reservations in any original grants from the Crown of
any real property or interest therein and statutory
exceptions to title;
(vii) encumbrances affecting the title to the Complex Lands as
of the date hereof (including the City Mortgage); and
(viii) any purchase money mortgage, charge, pledge, lien or
security interest affecting any particular asset (and
only such asset) and created to secure payment of all of
the purchase price of such asset;
(ch) "PERSON" or "PERSON" means any individual, partnership,
corporation, joint venture, association, joint stock company,
trust, unincorporated organization or a Governmental Authority,
and "corporation" shall include "company" and VICE VERSA;
(ci) "PRE-OPENING EXPENSES" means amounts incurred and paid by the
Operator in connection with the provision by it of the
Pre-Opening Services and approved by OCC from time to time
through a budget or otherwise;
(cj) "PRE-OPENING PERIOD" means the period from December 6, 1993 to
the Interim Casino Opening Date;
(ck) "PRE-OPENING SERVICES" means, collectively, the services to be
provided by the Operator in connection with:
(i) the Renovations as detailed in Section 3.2;
(ii) the Parking Facilities as detailed in Section 3.3;
(iii) the acquisition and installation or storage of the
Interim Casino Equipment as detailed in Section 3.4; and
(iv) the other matters set forth in Section 3.5;
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(cl) "PRIME RATE" means the rate of interest per annum established
and reported by Canadian Imperial Bank of Commerce to the Bank
of Canada from time to time as a reference rate of interest in
order to determine the interest rate it will charge for demand
loans in Canadian funds to its Canadian customers and which it
refers to as its "prime lending rate" or "prime rate";
(cm) "REGULATORY LEGISLATION" means the Gaming Control Act and all
regulations made thereunder and all mandatory directives and
orders issued thereunder or pursuant thereto;
(cn) "REIMBURSEMENT RATE OF INTEREST" means 10% per annum calculated
and compounded monthly;
(co) "RENOVATION PLANS" means the construction plans and
specifications relating to the construction and development of
the Renovations developed or adopted by the Operator and
approved by OCC from time to time;
(cp) "RENOVATIONS" means the renovations to the Building contemplated
by the Renovation Plans and includes all related fixtures,
equipment and attachments;
(cq) "SEVERANCE RESERVE" has the meaning ascribed thereto in Section
11.4;
(cr) "SHAREHOLDERS' AGREEMENT" means the shareholders' agreement for
the Operator to be entered into between the Participants and/or
Affiliates of the Participants and the Operator;
(cs) "TERM" means the period from and including the date hereof to
and including the last day of the stated term of the Interim
Casino Lease, being April 30, 1997; and
(ct) "WILFUL" means a voluntary, purposeful and intentional act
intended to do something forbidden by this Agreement or
Applicable Law, to breach this Agreement or violate Applicable
Law, or to fail to do something required by this Agreement or
Applicable Law. Furthermore, the "wilful breach", "wilful non-
performance", "wilful misconduct" and "wilful act" shall be
limited in the case of (i) any Participant, to a wilful breach,
wilful non-performance, wilful misconduct or wilful act
authorized by the shareholders or Board of Directors of such
Participant; and (ii) the Operator and OCC, to a wilful breach,
wilful non-performance, wilful misconduct or wilful act
authorized by the shareholders, Board of Directors or the
following key officers, President and Managing Director, General
Manager or Chief Financial Officer of their respective
corporations. The parties agree that, except for the employees
specifically referred to above, the wilful breach,
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wilful non-performance, wilful misconduct or wilful act of a
party's employee(s) shall not be deemed a wilful breach, wilful
non-performance, wilful misconduct or wilful act of a party.
The wilful breach, wilful non-performance, wilful misconduct or
wilful act of any employee(s) other than the officers named
above (as to the Operator and OCC, as the case may be) will not
be imputed or attributed to the employer for this purpose; and
(cu) "WIN TAX" means payments to be made under Subsection 15(1)2 of
the Enabling Legislation to the Consolidated Revenue Fund of the
Province of Ontario.
1.2 SCHEDULES: The Schedules attached to this Agreement and listed below shall
have the same force and effect as if the information contained therein were
contained in the body of this Agreement:
Schedule A - Legal Descriptions of Art Gallery Land and Adjacent Lands
Schedule B - Interim Casino Site
1.3 CURRENCY: References to money herein are references to lawful money in
Canada.
ARTICLE TWO
APPOINTMENT OF OPERATOR
2.1 APPOINTMENT OF OPERATOR AS INDEPENDENT CONTRACTOR: Subject to Section 2.2,
OCC hereby retains, on a sole and exclusive basis, the Operator as an
independent contractor to improve, develop, operate and maintain the Interim
Casino Complex in accordance with this Agreement, the Approved Operating
Policies and the then current Approved Operating Budget for the Term. The
Operator hereby accepts such appointment as independent contractor upon and
subject to the terms, conditions, covenants and provisions set forth herein. In
connection with this appointment, the Operator shall not enter into any
agreements with third parties as agent of OCC or otherwise hold itself out as a
disclosed agent acting on behalf of OCC as principal.
2.2 APPOINTMENT OF OPERATOR AS AGENT: Notwithstanding Section 2.1, OCC hereby
appoints the Operator as OCC's sole and exclusive agent to operate on its behalf
the Games of Chance to be carried on in the Casino in accordance with this
Agreement, the Approved Operating Policies and the then current Approved
Operating Budget for the Term. The Operator hereby accepts such appointment as
agent upon and subject to the terms, conditions, covenants and provisions set
forth herein.
2.3 LIMITATION ON AUTHORITY OF OPERATOR: The Operator hereby acknowledges and
agrees that the Province of Ontario must conduct and manage all Games of Chance
to be carried on in the Interim Casino Complex as required under paragraph
207(1)(a) of
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the CRIMINAL CODE (Canada). In order to ensure compliance with such provision,
in addition to any other limitations on the powers and authority of the Operator
as set forth herein, the Operator shall not take any action which the Operator
believes would have a material effect or could reasonably be expected to have a
material effect on the operations, affairs, condition or prospects of the Casino
without obtaining the approval of OCC. Without limiting the foregoing:
(a) the Operator shall not take any action in connection with the
operation of the Interim Casino Complex that is inconsistent in
any material respect with the Approved Operating Policies
without the approval of OCC; and
(b) OCC and its authorized representatives shall, in accordance with
the Approved Operating Plan, be provided with working space and
office support in or near the Casino and shall be entitled to
access to all areas of the Casino.
In acting hereunder in all matters relative to this Agreement
and in approving or consenting to any matter hereunder not otherwise
specifically provided for, OCC and the Operator shall act in a reasonable manner
taking into account the requirements of paragraph 207(1)(a) of the CRIMINAL CODE
(Canada) and the Operator's and Participants' advice stemming from their
knowledge and experience as owners and operators of casino properties and the
gaming industry generally.
2.4 ACCESS TO BUILDING: In order for the Operator to perform its services
hereunder, subject to Applicable Law, OCC agrees to provide the Operator with
full access to the Building.
ARTICLE THREE
PRE-OPENING PERIOD
3.1 PRE-OPENING SERVICES: During the Pre-Opening Period, and subject to OCC's
approval where required hereunder, the Operator shall provide the Pre-Opening
Services. The Pre-Opening Expenses, together with GST, shall, during the term
of this Agreement, be recoverable from Gross Revenues in accordance with,
subject to and to the extent provided in Subsection 4.3(d) hereof, and upon
termination of this Agreement, shall be repaid in accordance with and to the
extent set forth in this Agreement.
3.2 RENOVATIONS: The Operator shall, as independent contractor, use its
reasonable efforts to complete the Renovations in accordance with Applicable Law
and in all material respects in accordance with the Renovation Plans.
3.3 PARKING FACILITY ARRANGEMENTS: OCC and the Operator have identified
certain locations comprising the Parking Lot Lands as being suitable sites for
the Parking Facilities. OCC and the Operator shall:
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(a) proceed diligently and in good faith to determine which one or
more of such locations will be required to adequately service
the parking requirements of the Casino; and
(b) thereafter diligently commence and pursue negotiations with the
owners of such locations for the lease of such lands to the
Operator and the development and operation of the Parking
Facilities thereon by the Operator on terms acceptable to OCC
and the Operator,
all with the objective that the completed Parking Facilities will be available
on or before, or as soon as reasonably practicable after, the Interim Casino
Opening Date. The Operator shall develop plans, policies and procedures with
the objective that the Parking Facilities shall effectively and efficiently
service the parking requirements of the Casino (including the establishment and
operation of valet and shuttle services).
3.4 INTERIM CASINO EQUIPMENT: The Operator shall consult with and make
recommendations to OCC with respect to the Interim Casino Equipment to be
acquired for the Interim Casino Complex and thereafter, as agent for OCC,
purchase or lease the Interim Casino Equipment to be used in the Casino and as
independent contractor purchase or lease the Interim Casino Equipment to be used
in those parts of the Interim Casino Complex other than the Casino, and install
the same in the Interim Casino Complex or, as appropriate, place the same in
storage pending the need for use of the same in the Interim Casino Complex.
3.5 OTHER SERVICES: The Operator shall, as independent contractor:
(a) use its reasonable efforts to ensure that it and all Persons
retained by it or on its behalf for the provision of goods or
services for or to the Interim Casino Complex are registered as
suppliers as required under the Regulatory Legislation;
(b) use its reasonable efforts to obtain all necessary Governmental
Consents required for the operation of the Interim Casino
Complex in accordance with Applicable Law;
(c) identify, select, interview, hire and train personnel to be
employed in the operation, renovation and development of the
Interim Casino Complex, all such personnel to be employees of
the Operator and not OCC;
(d) in consultation with OCC, prepare and obtain OCC's approval to
the Operating Policies for the Interim Casino Complex;
(e) from and after the Commencement Date and only during the Pre-
Opening Period, remit directly to the Landlord as and when due
all rent and other monies payable by the tenant under the
Interim Casino Lease, unless the
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payment of such rent or other monies is being contested in good
faith and diligently by appropriate proceedings (and for the
payment of which adequate provision has been made);
(f) at the request of OCC, deliver within 30 days a certified cheque
in the amount of $5,000,000 payable to the City, such that OCC
may deliver the same to the City in consideration for an
assignment of the City Mortgage in registerable form; and
(g) perform such other services and employ such personnel and
consultants and professional advisers and do such other things
as it may deem necessary or advisable, acting reasonably, in
preparation of the Interim Casino Complex for operations.
ARTICLE FOUR
OPERATING PERIOD
4.1 SERVICES: During the Operating Period, the Operator shall, in compliance
with this Agreement and the then current Approved Operating Budget and in all
material respects in accordance with the Approved Operating Policies, perform,
or cause to be performed for the account and expense of the Interim Casino
Complex, the following services:
(a) use its reasonable efforts to obtain and maintain all
Governmental Consents required in connection with the proper,
efficient and legal operation of the Interim Casino Complex;
(b) use its reasonable efforts to do or cause to be done all such
things relating to the operation of the Interim Casino Complex
which are necessary to ensure compliance with Applicable Law;
(c) perform and, where desirable, contract for all things necessary
for the proper, efficient and secure operation of, and the
repair, redecoration and maintenance in good working order and
appearance of, the Interim Casino Complex and perform such other
actions in or about the Interim Casino Complex as it may, acting
reasonably, consider necessary or advisable to carry out the
intent of this Agreement;
(d) use its reasonable efforts to negotiate and finalize
concessions, licences or other arrangements with respect to
other space and facilities in the Interim Casino Complex;
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(e) purchase or lease such Operating Equipment and Operating
Supplies as it may, acting reasonably, consider necessary or
advisable for the proper operation of the Interim Casino
Complex; and
(f) to the extent not completed by the Interim Casino Opening Date,
diligently pursue the completion of the Pre-Opening Services.
Notwithstanding anything contained in this Agreement, the parties acknowledge
and agree that neither the Operator nor any of the Participants, as the case may
be, shall be required to perform any obligation under this Agreement which
requires it to expend its own funds except:
(i) to satisfy claims against the Operator (as to the
Operator) or any Participant (as to such Participant)
arising out of Sections 12.1 and 12.3, respectively;
(ii) to satisfy the deferral obligations of the Operator under
Subsections 4.3(f)(iii) and 4.3(f)(iv); and
(iii) to satisfy the Operator's obligations to make a repayment
of Operator's Fees pursuant to Subsection 8.1(c);
provided, however, this is not intended to release the Operator in its capacity
as a separate corporation to expend its own funds to effect actions consistent
with its existence as a separate entity including maintenance of its existence
and maintenance of its registration.
4.2 ANNUAL OPERATING BUDGET: In furtherance of its obligation to operate all
aspects of the Interim Casino Complex, the Operator shall, not less than 45 days
and not more than 60 days prior to the start of an Operating Year, submit to OCC
for its approval the proposed Operating Budget for the Interim Casino Complex
for the ensuing Operating Year and thereafter submit to OCC for its approval
orderly revisions of such Approved Operating Budget from time to time. In its
preparation of such Operating Budget, the Operator shall base its estimates upon
the most recent and reliable information then available, taking into account the
location of the Interim Casino Complex and its experience and knowledge. The
parties acknowledge that the Operating Budget consists of projections that may
not necessarily be achieved. If OCC shall fail to approve any proposed
Operating Budget within 30 days of its submission by the Operator, or to submit
its objections to the Operator within such period, then OCC shall be deemed to
have approved such proposed Operating Budget. If OCC objects to certain
portions of the proposed Operating Budget, the undisputed portions of the
proposed Operating Budget shall be deemed to be approved and, until the disputed
portions are approved, the corresponding items in the Approved Operating Budget
for the immediately preceding Operating Year (as adjusted by the percentage
increase in the Consumer Price Index last published immediately before the time
the Operating Budget was submitted to OCC for its approval over the Consumer
Price Index last published
<PAGE>
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before the Operating Budget for the previous operating year was submitted to OCC
for its approval) shall be substituted in the proposed Operating Budget in
respect of such disputed portions. The mere fact that an amount or expense is
contemplated by the Approved Operating Budget shall not in and of itself require
the Operator to expend such amount or incur such expense.
4.3 ACCOUNTING AND DISTRIBUTION OF FUNDS: In furtherance of its obligation to
operate all aspects of the Interim Casino Complex, the Operator shall perform
the following accounting and financial services:
(a) MONTHLY REPORTS: The Operator shall, within 20 days after the
end of each month, prepare and submit to OCC written reports, in
a format approved by OCC, for the Interim Casino Complex setting
out:
(i) income and expense statements for the Interim Casino
Complex on a departmental basis for the preceding month
and the year to date on an accrual basis with comparisons
to the Approved Operating Budget and showing separately
for the preceding month, the computation of the
Operator's Fee proposed to be paid for such preceding
month, and a balance sheet;
(ii) an operating statement reconciling Capital Renewal
Reserves and Operating Reserves taken in previous months
to Capital Renewals and Operating Expenses incurred and
paid; and
(iii) bank reconciliations of the Casino Accounts as at the end
of the previous month.
(b) BANKING: The Operator shall handle all banking necessary for
the due performance of the Operator's accounting and
administrative functions under the provisions of this Agreement
and for the receipt and disbursements of all monies pertaining
to the Interim Casino Complex required to be attended to by the
Operator under the provisions of this Agreement.
(c) OPERATING ACCOUNT: The Operator shall, subject to the
establishment and maintenance of appropriate petty cash funds
and gaming bankroll (including but not limited to money in
machines, at tables, cashier's desk and the house vaults as
required for operators), deposit in the appropriate Casino
Accounts in the normal course and without delay all Gross
Revenues and all other cash, cheques and other negotiable
instruments which come into the Operator's hands pursuant to the
provisions of this Agreement. No funds shall be disbursed from
the Casino Accounts except in accordance with Subsections 4.3(d)
and (e).
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(d) CASINO ACCOUNT DISTRIBUTIONS AND RESERVES: The Operator shall,
in accordance with the Approved Operating Plan, withdraw from,
or reserve in the Casino Accounts, the following amounts:
(i) winnings to players of Games of Chance;
(ii) payments for Win Tax, as and when due;
(iii) payments of Impositions, as and when due, and any GST
payable by OCC or the Operator (without duplication of
any recovery hereunder by the Operator for Impositions)
on amounts described in Subsections 4.3(d)(ii), (iv),
(v), (vi), (vii) and (xi) hereof;
(iv) payments of rent and other amounts as required under the
Interim Casino Lease and the Parking Lot Leases, as and
when due;
(v) payments representing repayment of Pre-Opening Expenses
on a straight-line amortization basis over the unexpired
term of this Agreement or such shorter period of time as
may be agreed to by the Operator and OCC, including
interest on such amounts at the Reimbursement Rate of
Interest until paid;
(vi) payments for Operating Expenses as set forth in the
Approved Operating Budget;
(vii) payments for (A) FF&E Repairs in accordance with the
Approved Operating Budget and (B) Capital Renewals in
accordance with the Approved Operating Budget;
(viii) Capital Renewal Reserves, Operating Reserves, Contingency
Reserves and Severance Reserves as established in the
Approved Operating Budget;
(ix) payments representing repayment of Mandatory Deferrals
made by the Operator pursuant to Subsection 4.3(f) during
prior periods, together with accrued and unpaid interest
thereon;
(x) payments representing repayment of Discretionary
Deficiency Contributions made by the Operator pursuant to
Subsection 4.3(g) during prior periods, together with
accrued and unpaid interest thereon;
(xi) payment of the Operator's Fee including deferrals
pursuant to Subsection 4.3(f)(iii); and
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(xii) the balance existing at the end of each calendar month
shall be wired to an account designated by OCC within 20
days of the end of each such month.
The Operator shall not overdraw the Casino Accounts. For
greater certainty, the Operator shall only be required to pay or
reserve for the amounts referred to in this Subsection 4.3(d) to
the extent there are monies in the Casino Accounts to make such
payment or to maintain such reserve.
(e) CASH MANAGEMENT: The Operator shall adhere in all material
respects to cash management policies and procedures approved by
OCC in consultation with the Operator, including the
establishment of and transfers to Casino Accounts in addition to
the Operating Account.
(f) MANDATORY DEFERRALS: The parties agree to establish the
Operating Reserve. In the event monies in the Casino Accounts
are at any time insufficient to pay any amounts set out in
Subsection 4.3(d)(i), (ii), (iii), (iv), (vi) or (vii), the
Operator shall:
(i) defer reserves or payments in respect of the amounts set
out in Subsection 4.3(d)(viii) budgeted for such period
and defer any Capital Renewals to the extent reasonable
under the circumstances;
(ii) be entitled to pay any such amounts as set out in
Subsection 4.3(d)(i), (ii), (iii), (iv), (vi) or (vii)
out of the Operating Reserve and then out of the Capital
Renewals Reserve established pursuant to this Agreement;
(iii) defer the payment of the Operator's Fee for a period of
up to three months; and
(iv) defer the repayment of Pre-Opening Expenses ("Mandatory
Deferrals") in an amount no greater than an amount equal
to three months of the principal payments which the
Operator is entitled to receive in respect of the
repayment of Pre-Opening Expenses (the "Maximum Mandatory
Deferral"), provided that the Operator shall have no
obligation to continue to defer repayment of Pre-Opening
Expenses in excess of the Maximum Mandatory Deferral.
Pre-Opening Expenses which are the subject of Mandatory
Deferrals shall bear interest, commencing on the 90th day that
the Pre-Opening Expenses have been so deferred, at a rate per
annum equal to the greater of (i) the Reimbursement Rate of
Interest and (ii) the Prime Rate in effect on the last day of
the deferral period, plus 1%, calculated and compounded monthly.
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(g) DISCRETIONARY DEFICIENCY CONTRIBUTIONS: In the event the monies
in the Casino Accounts are at any time insufficient to pay or
reserve for the amounts set out in Subsections 4.3(d)(i) to
(vii)(A) both inclusive, the Operator may elect to deposit funds
("Discretionary Deficiency Contributions") into the appropriate
Casino Accounts to cover such deficiency. Any such
Discretionary Deficiency Contributions (other than advances in
respect of the amounts set out in Subsection 4.3(d)(v)) shall
bear interest at a rate of interest to be agreed upon between
OCC and the Operator prior to the making of such Discretionary
Deficiency Contributions.
(h) ACCOUNTING/NO COMMINGLING: The Operator acknowledges that all
monies received by the Operator pursuant to any of the
obligations provided for in this Agreement shall be accounted
for and in the manner provided for in Subsections 4.3(c) and
(d). The Operator shall not commingle in the Casino Accounts
funds pertaining to the Interim Casino Complex with funds which
are unrelated to the Interim Casino Complex.
(i) BOOKS OF ACCOUNT; INFORMATION: The Operator at all times shall
maintain at or near the Casino appropriate books of account and
records with respect to all transactions entered into in
performance of this Agreement. OCC and its authorized
representatives shall have the right contemplated by the
Enabling Legislation to obtain information with respect to the
Interim Casino Complex and the Operator and to cause such
inspections of the reports, accounts, records and other
documents maintained by the Operator pursuant to this Agreement
relating to the Interim Casino Complex to be made as may be
reasonable in the circumstances.
(j) METHOD OF KEEPING ACCOUNTS: The Operator shall maintain the
Operator's accounts with respect to matters arising under this
Agreement in such a manner as to enable OCC to readily extract
financial statements pertaining to the Interim Casino Complex.
(k) FURNISH INFORMATION TO AUDITORS: The Operator shall, after
reasonable notice from OCC or the Auditors, make available to
the Auditors such information and material as may be reasonably
required by such Auditors for the purpose of their audit and
otherwise give such cooperation as may be necessary for such
Auditors to carry out their duties in respect of the Interim
Casino Complex, as the case may be.
(l) FINANCIAL STATEMENTS: The Operator shall deliver to OCC as soon
as practicable and, in any event, within 90 days after the end
of each Operating Year, the annual audited financial statements
of the Interim Casino Complex as at the end of each such
Operating Year, such financial statements to consist of at least
a balance sheet as at the end of the
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Operating Year and statements of earnings, retained earnings and
changes in financial position for the Operating Year then ended.
4.4 NO DUPLICATION: The interpretation of this Agreement shall not permit a
receipt, payment, reserve or reimbursement to be duplicated.
4.5 REPAYMENT OF DEFICIENCY AMOUNTS: Deficiency Amounts and accrued and unpaid
interest thereon shall, during the term of this Agreement, be repaid to the
Operator from future Gross Revenues received to the extent Gross Revenues are
available for such purpose after payment of the amounts set out in Subsections
4.3(d)(i) to (vii)(A) both inclusive. Upon termination of this Agreement (by
effluxion of time or otherwise), outstanding Deficiency Amounts (to the extent
not recovered or recoverable pursuant to Section 11.2) and any accrued and
unpaid interest thereon shall be repaid:
(a) from any of the Capital Renewal Reserve, the Operating Reserve,
the Severance Reserve and the Contingency Reserve to the extent
there is any amounts remaining in such Reserve after satisfying
in full all liabilities for which such Reserve was established;
(b) from time to time from future Gross Revenues received to the
extent Gross Revenues (and for the purposes of this Subsection
4.5(b), "Gross Revenues" includes revenues received from or in
respect of the Permanent Casino Complex) are available for such
purpose after payment of amounts set out in Subsections
4.3(d)(i) to (iv), both inclusive (or in the case of the
Permanent Casino Complex, after payment of like amounts); and
(c) forthwith upon the appointment by OCC of a replacement third
party operator for the Interim Casino Complex or the Permanent
Casino Complex, if such appointment is made within two years of
the termination of this Agreement.
The Operator and the Participants shall have no recourse against Her Majesty or
OCC or their respective assets for the repayment of any Deficiency Amounts or
interest thereon except as set out in this Section 4.5 and Sections 8.1 and
11.2.
4.6 OCC REVIEW OF FINANCIAL STATEMENTS: OCC shall be entitled to submit any
objection it may have with respect to the financial statements contemplated by
Subsection 4.3(l), including without limitation the computation of Gross
Operating Receipts, Net Operating Margin and Operator's Fee, within 540 days
after submission of the same by the Operator. If OCC does not submit any
objections in respect of such financial statements within such 540 day period,
then OCC shall not be entitled to object to or take issue with such financial
statements or the computation of Gross Operating Receipts, Net Operating Margin
or Operator's Fee with respect to the Operating Year addressed by such financial
statements; provided that it is expressly understood and agreed that the failure
of OCC to object to or take issue with such financial statements within such 540
day period shall not:
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(a) preclude OCC from subsequently taking any action or exercising
any remedies available at law by reason of any fraudulent
misrepresentation contained in such financial statements or the
audit thereof; or
(b) preclude Her Majesty or other Governmental Authority from
objecting to or taking issue with such financial statements or
the computation of any item therein under any Applicable Law.
4.7 MAJOR CAPITAL IMPROVEMENTS: Any Major Capital Improvements in addition to
those to be undertaken as part of the Pre-Opening Services shall only be
undertaken to the extent and on terms mutually agreed upon by the Operator and
OCC.
4.8 EXTENDED DEFERRALS: In the event that, in the reasonable anticipation of
the Operator, monies in the Casino Accounts are or will be at any time
insufficient to pay the amounts set out in Subsections 4.3(d)(i) through (xi)
(taking into account the reserves available or that will be available as
contemplated by Subsection 4.3(d)(viii) and after taking into account the
deferrals contemplated by Subsection 4.3(f)), the parties agree as follows:
(a) the Operator shall thereafter operate the Interim Casino Complex
with a view to minimizing Operating Expenses provided, however,
the Operator shall not be required to provide any funds to
continue the operation of the Interim Casino Complex;
(b) the parties will discuss in good faith for a period of at least
30 days appropriate remedial action to prevent the depletion of
the Operating Reserve; and
(c) if after exhaustion of the Operating Reserve and the Capital
Renewal Reserve and the deferrals contemplated by Subsection
4.3(f) there are insufficient funds in the Casino Accounts to
pay the amounts set out in Subsections 4.3(d)(i) to (xi) and the
parties have been unable to agree upon appropriate remedial
action, then:
(i) the Operator shall be entitled to cease to operate the
Interim Casino Complex;
(ii) the Operator shall be entitled to terminate this
Agreement on 15 days' notice to OCC; and
(iii) the Operator shall be entitled to be repaid outstanding
Deficiency Amounts in accordance with, and subject to,
Section 4.5.
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ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATOR: The Operator represents
and warrants as of the date hereof as follows and acknowledges that OCC is
relying on such representations and warranties in connection with the
transactions contemplated by this Agreement:
(a) Organization: The Operator is a corporation duly incorporated
and organized under the laws of the Province of Ontario.
(b) OWNERSHIP OF OPERATOR: Each of the Participants Controls 1/3 of
all of the issued and outstanding shares of the Operator.
(c) OPTIONS: No Person, other than a Participant or an Affiliate of
a Participant, has any right or option, contingent or otherwise,
to acquire any of its capital stock.
(d) CAPACITY AND AUTHORIZATION: The Operator has all necessary
capacity, power and authority to enter into and to carry out the
provisions of this Agreement and all other documents which may
be necessary to give effect to the transactions contemplated by
this Agreement. This Agreement has been duly authorized by the
Operator and constitutes a valid and binding obligation of the
Operator, enforceable against the Operator in accordance with
its terms. All other agreements referred to in this Agreement
which have been entered into in accordance with this Agreement
and to which the Operator is a party, have been duly authorized
by the Operator and constitute valid and binding obligations of
the Operator, enforceable against the Operator in accordance
with their terms.
(e) NO VIOLATION: Neither the execution and delivery of this
Agreement or any other agreement expressly contemplated by this
Agreement nor the fulfilment of or compliance with the terms and
conditions hereof or thereof:
(i) conflicts with or will conflict with or result in a
breach of any of the terms, conditions or provisions of
or constitute a default under the constating
documentation of the Operator; or
(ii) conflicts in a material respect with or will conflict in
a material respect with or result in a material breach of
any of the terms, conditions or provisions of or
constitute a material default under any agreement,
licence or other instrument to which the Operator is a
party or by which it is bound.
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(f) LITIGATION: To its knowledge after due inquiry, except as has
been disclosed by the Operator to OCC in writing, there are no
actions, suits or proceedings pending or threatened against the
Operator which could reasonably be expected to materially
adversely affect its ability to perform its obligations under
this Agreement or which could reasonably be expected to
materially adversely affect the development, financing or
operation of the Interim Casino Complex.
(g) REGISTRATION: The Operator is registered as a supplier under
the Regulatory Legislation.
5.2 REPRESENTATIONS AND WARRANTIES OF THE PARTICIPANTS: Each Participant
represents and warrants as to itself as of the date hereof as follows and
acknowledges that OCC is relying on such representations and warranties in
connection with the transactions contemplated by this Agreement:
(a) ORGANIZATION: The Participant is a corporation duly
incorporated and organized under the laws of its governing
jurisdiction.
(b) CONTROL: The Participant Controls 1/3 of all of the issued and
outstanding shares of the Operator.
(c) OPTIONS: No Person, other than a Participant or an Affiliate of
a Participant, has any right or option, contingent or otherwise,
to acquire any of the capital stock of the Operator owned by the
Participant.
(d) CAPACITY AND AUTHORIZATION: The Participant has all necessary
capacity, power and authority to enter into and to carry out the
provisions of this Agreement and all other documents which may
be necessary to give effect to the transactions contemplated by
this Agreement. This Agreement has been duly authorized by the
Participant and constitutes a valid and binding obligation of
the Participant, enforceable against the Participant in
accordance with its terms. All other agreements referred to in
this Agreement which have been entered into in accordance with
this Agreement and to which the Participant is a party, have
been duly authorized by the Participant and constitute valid and
binding obligations of the Participant, enforceable against the
Participant in accordance with their terms.
(e) NO VIOLATION: Neither the execution and delivery of this
Agreement or any other agreement expressly contemplated by this
Agreement nor the fulfilment of or compliance with the terms and
conditions hereof or thereof:
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(i) conflicts with or will conflict with any of the terms,
conditions or provisions of or constitute a default under
the constating documentation of the Participant; or
(ii) conflicts in a material respect with or will conflict in
a material respect with or result in a material breach of
any of the terms, conditions or provisions of or
constitute a material default under any material
agreement, licence or other instrument to which the
Participant is a party or by which it is bound; provided,
however, to the extent that a consent or an approval of a
third party is required in accordance with the terms,
conditions or provisions of any material agreement,
licence or other instrument to which the Participant is a
party or by which it is bound, it will obtain any
required consent or approval.
(f) LITIGATION: To its knowledge after due inquiry, except as has
been disclosed by the Participant to OCC in writing, there are
no actions, suits or proceedings pending or threatened against
the Participant which could reasonably be expected to materially
adversely affect its ability to perform its obligations under
this Agreement or which could reasonably be expected to
materially adversely affect the development, financing or
operation of the Interim Casino Complex.
5.3 REPRESENTATIONS AND WARRANTIES OF OCC: OCC represents and warrants as of
the date hereof as follows and acknowledges that the Operator and the
Participants are relying on such representations and warranties in connection
with the transactions contemplated by this Agreement:
(a) ORGANIZATION: OCC is a corporation duly established and
organized under the laws of the Province of Ontario.
(b) CAPACITY AND AUTHORITY: OCC has all necessary capacity, power
and authority to enter into this Agreement as agent of Her
Majesty and to carry out the provisions of this Agreement and
all other documents which may be necessary to give effect to the
transactions contemplated by this Agreement. This Agreement has
been duly authorized by OCC. All other agreements referred to
in this Agreement which have been entered into in accordance
with this Agreement and to which OCC is a party have been duly
authorized by OCC.
(c) NO VIOLATION: Neither the execution and delivery of this
Agreement or any other agreement expressly contemplated by this
Agreement nor the fulfilment of or compliance with the terms and
conditions hereof or thereof:
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(i) conflicts with or will conflict with or result in a
breach of any of the terms, conditions or provisions of
or constitute a default under the constating
documentation of OCC; or
(ii) conflicts in a material respect with or will conflict in
a material respect with or result in a material breach of
any of the terms, conditions or provisions of or
constitute a material default under any material
agreement, licence or other instrument to which OCC is a
party or by which it is bound.
(d) LITIGATION: To its knowledge after due inquiry, except as has
been disclosed by OCC to the Operator in writing, there are no
actions, suits or proceedings pending against OCC which could
reasonably be anticipated to materially adversely affect its
ability to perform its obligations under this Agreement or the
agreements contemplated herein.
5.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES: The representations and
warranties of the parties contained herein shall survive the execution and
delivery of this Agreement and shall remain in full force and effect during the
Term.
ARTICLE SIX
COVENANTS
6.1 AFFIRMATIVE COVENANTS OF THE OPERATOR: In addition to the other covenants
and obligations to be performed by the Operator hereunder, the Operator agrees,
subject to the final paragraph of Section 4.1, to do the following during the
term of this Agreement:
(a) MAINTAIN CORPORATE EXISTENCE, ETC.: Maintain its corporate
existence, rights and power under the laws of the Province of
Ontario and qualify and remain duly qualified to do business and
to own property in the Province of Ontario.
(b) COMPLIANCE WITH LAWS, ETC.: Except to the extent contested in
good faith, comply in all material respects with all Applicable
Law.
(c) MAINTAIN REGISTRATION UNDER THE REGULATORY LEGISLATION:
Maintain its registration under the Regulatory Legislation.
(d) COMPLIANCE WITH ALL MATERIAL AGREEMENTS: Perform promptly and
faithfully all of its obligations under this Agreement and in
all material respects with each of the other Material Agreements
to which it is a party.
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(e) REPORTING REQUIREMENTS: Furnish or cause to be furnished to
OCC:
(i) as soon as available and in any event within 90 days
after the end of each fiscal year of the Operator,
audited balance sheets of the Operator as of the end of
such year and statements of income, surplus and changes
in financial condition of the Operator for such year,
setting forth in each case in comparative form the
figures for the corresponding periods of the previous
fiscal year, if such figures were prepared for the
previous fiscal year, all in reasonable detail and
accompanied by (x) a report upon each thereof, of
independent public accountants of recognized national
standing acceptable to OCC, which report would state that
such financial statements present fairly the financial
position of the Operator as at the dates indicated and
the results of its operations and changes in its
financial position for the periods indicated in
conformity with generally accepted accounting principles
applied on a basis consistent with prior years and that
the audit by such accountants in connection with such
financial statements has been made in accordance with
generally accepted auditing standards, and (y) a
certificate of the Chief Financial Officer of the
Operator, certifying that such financial statements
present fairly, in accordance with generally accepted
accounting principles on a basis consistent with such
prior fiscal periods, the information contained therein;
(ii) promptly after the filing or receiving thereof, copies of
all reports and notices which the Operator files with or
receives from the Gaming Control Commission relating to
non-compliance with the Regulatory Legislation; and
(iii) such other information respecting the condition or
operations, financial or otherwise, of the Operator or
the Interim Casino Complex as OCC may from time to time
reasonably request.
(f) KEEPING OF RECORDS AND BOOKS OF ACCOUNT, ETC.: Keep adequate
records and books of account, in which complete entries will be
made in accordance with generally accepted accounting principles
consistently applied, reflecting in all material respects all
financial transactions of the Operator.
(g) INSPECTION: Permit in accordance with and subject to Applicable
Law any authorized representatives designated by OCC to visit
and, upon notice, inspect any of the properties of the Operator,
including its books of account and all other property, books and
records relating to the Interim Casino Complex, and to make
copies and take extracts therefrom, and to discuss its affairs,
finances and accounts with, and to be advised as to the same by,
its officers and (upon reasonable notice to the Operator setting
<PAGE>
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forth the purpose of such discussion) its independent public
accountants (and by this provision the Operator authorizes such
accountants to discuss with such representatives the affairs,
finances and accounts of the Operator, provided that a
representative of the Operator shall be entitled to be present
during such discussions), all at such times and as often as may
be requested, provided that (i) OCC would not have any duty to
make or cause to be made any such inspection and shall not incur
any liability or obligation for not making any such inspection,
for not making the same carefully or properly, or for not
completing the same, and (ii) the fact that such inspection may
not have been made by OCC or any representative thereof would
not relieve the Operator of any obligations it might otherwise
have under any of the Material Agreements. OCC acknowledges and
agrees that in exercising its rights under this
Subsection 6.1(g), it shall use its reasonable efforts to cause
the minimum disruption to the Operator's performance of its
obligations hereunder.
(h) WORKING CAPITAL: Maintain at all relevant times such working
capital of the Operator as may be required by the Gaming Control
Commission but only by limiting distributions to the
shareholders of the Operator of the Operator's net income but
not limiting distributions for the reimbursement of Pre-Opening
Expenses.
(i) CANADIAN PROCUREMENT: To the extent permitted by Applicable
Law, whenever reasonably practicable in the performance of its
duties hereunder and on the basis of comparable quality and
price, purchase materials from, and retain the services of,
Canadian manufacturers and suppliers.
(j) CHANGE OF OFFICERS: Obtain OCC's approval to the identity of
any new President or Chief Financial Officer of the Operator.
(k) WINDSOR RACEWAY: Participate with OCC in discussions and
initiatives instituted with representatives of Windsor Raceway.
(l) CUSTOMER DATA BASE: Develop and maintain a customer data base
for the Interim Casino Complex, which will be the property of
OCC, and which will not be made available to any of the
Participants or their Affiliates without the consent of OCC and
the other Participants.
(m) OPERATING POLICIES: Obtain OCC's prior approval to any
significant changes to the standards, policies and procedures
set forth in the Approved Operating Policies.
6.2 NEGATIVE COVENANTS OF THE OPERATOR: During the term of this Agreement, the
Operator agrees that it will not without the written consent of OCC:
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(a) BUSINESS: Engage in any business other than the operation of
the Interim Casino Complex and the development and financing of
the Permanent Casino Complex and other activities incidental or
related thereto.
(b) LIENS, ETC.: Directly or indirectly create or incur any lien on
or with respect to the Interim Casino Complex or any other
property or asset (including any document or instrument in
respect of goods or accounts receivable) of the Operator,
whether now owned or held or hereafter acquired, or assign or
otherwise convey any right to receive the proceeds or income
therefrom, except for Permitted Encumbrances.
(c) DEBT: Directly or indirectly create, incur, assume, guarantee
or otherwise become or remain directly or indirectly liable with
respect to, any debt except Permitted Debt.
(d) EASEMENTS, IMPROVEMENTS: Forfeit, surrender, diminish or
terminate any claim, lease, easement, privilege, use,
right-of-way, authorization or consent (existing on the date
hereof or hereafter acquired) necessary to the operation of the
Interim Casino Complex or, other than in connection with the
Renovations, alter, remove or demolish any improvement in any
manner or respect which would or might have a material adverse
effect on the value of the Interim Casino Complex taken as a
whole.
(e) TRANSFER OF SHARES: Permit the transfer of any shares of the
Operator by any shareholder of the Operator other than as
permitted by Subsection 6.4(a).
(f) PARTICIPANT TRANSACTIONS: Apprise OCC prior to entering into
any material transaction with any of the Participants or with
any Affiliates of a Participant including any guarantee by the
Operator of any obligations of any such Person, other than as
may be expressly permitted by this Agreement or the then current
Approved Operating Budget.
(g) CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.:
(i) Consolidate with, amalgamate or merge into any other
Person or permit any other Person to consolidate with,
amalgamate or merge into it;
(ii) sell, lease, abandon or otherwise dispose of all or
substantially all of its assets; or
(iii) liquidate, dissolve, wind-up, continue under another
jurisdiction or reorganize.
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6.3 AFFIRMATIVE COVENANTS OF THE PARTICIPANTS: In addition to the other
covenants and obligations to be performed by the Participants hereunder, each
Participant severally agrees with respect to itself to do the following during
the term of this Agreement:
(a) MAINTAIN CORPORATE EXISTENCE: Maintain and keep in full force
and effect its corporate existence and power except as to a
transaction permitted by Subsection 6.4(c).
(b) REPORTING REQUIREMENTS: In order that OCC shall continue to be
apprised of its financial condition, promptly furnish or cause
to be furnished to OCC copies of any reports or documents that
the Participant and any of its Affiliates files as a matter of
public record with the Securities and Exchange Commission or any
national securities exchange.
(c) SEEK TO CAUSE OPERATOR TO COMPLY WITH CERTAIN OBLIGATIONS UNDER
THE MATERIAL AGREEMENTS: Subject to the Shareholders'
Agreement, take reasonable steps consistent with its powers as a
shareholder to cause the Operator to comply with this Agreement,
except for the Operator's obligations under Subsections 6.1(b),
(c), (d) and (h) and Section 6.2.
(d) PARTICIPANT SERVICES: During the term of this Agreement make
available to the Operator the Participant Services on such terms
as may be agreed, failing which such services must be provided
at cost (exclusive of any overhead, administration or other
charge having a profit component), such services to be provided
by the Operator at cost (as defined above) for the use of the
Interim Casino Complex and, if requested by the Operator,
distribute to those persons listed in the Participant Data Bases
mailings, solicitations and other promotional material in
respect of the Interim Casino Complex at cost (exclusive of any
overhead, administration or other charge having a profit
component).
(e) SHAREHOLDERS' AGREEMENT: Ensure that the Shareholders'
Agreement will at all times contain a resolution dispute
mechanism to make certain that no deadlock situation will exist
between the Participants with respect to the business, operation
and affairs of the Operator. The Participant agrees to provide
OCC with a true copy of the Shareholders' Agreement and any
amendments made thereto from time to time promptly following the
execution of the same by the Participant.
6.4 NEGATIVE COVENANTS OF PARTICIPANTS: During the term of this Agreement,
each Participant severally agrees with respect to itself that it will not
without the written consent of OCC:
(a) NO TRANSFER OF SECURITIES OF OPERATOR DURING TERM OF OPERATING
AGREEMENT: Transfer directly or indirectly any shares of the
Operator beneficially owned directly or indirectly by the
Participant except for (a) in
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connection with a transaction permitted by Subsection 6.4(c);
(b) a transfer to a Person Controlled by or under common Control
with a Participant; (c) a transfer to another Participant; (d) a
transfer as may be required under Applicable Law or by any
Governmental Authority; and (e) a transaction permitted by the
Master Agreement.
(b) NO TRANSACTIONS WITH THE OPERATOR: Enter into any material
transaction with the Operator other than as expressly permitted
under this Agreement or the then current Approved Operating
Budget without OCC first being apprised.
(c) LIMITATIONS ON CORPORATE TRANSACTIONS: (i) Consolidate with,
amalgamate or merge into any other Person or permit any other
Person to consolidate with, amalgamate or merge into it unless
the Participant or any surviving entity continues to be bound by
the obligations of the Participant under this Agreement and the
Shareholders' Agreement and any other Material Agreements to
which the Participant is a party, or (ii) enter into any other
form of transaction whereby the Participant's corporate
existence terminates unless a Person acquiring a substantial
part of the gaming business of the Participant assumes the
Participant's liabilities and obligations under this Agreement,
the Shareholders' Agreement and any other Material Agreements to
which the Participant is a party.
6.5 INSURANCE: OCC and the Operator agree that insurance will be acquired and
maintained with mutually acceptable insurers with respect to the maintenance and
operation of the Interim Casino Complex, including its properties, employees
and business, against loss or damage of the kinds customarily insured against by
prudent persons of established reputation engaged in the same or similar
businesses and of similar situations and size, of such types and in such amounts
as are customarily carried under similar circumstances by such persons, which
insurance will include property insurance at a minimum as required by the
Interim Casino Lease, for the types of claims contemplated by Section 8.3 and in
respect of the matters contemplated by Section 8.5. Proceeds of property
insurance shall be used to fulfill the obligations of OCC under the Interim
Casino Lease and, where it is commercially reasonable to do so, shall be applied
to rebuild the Interim Casino Complex. OCC, the Operator and the Participants
will be named insureds or additional insureds, as the case may be, under such
insurance and there shall be a waiver of subrogation. All liability insurance
shall be primary and non-contributing as to the Operator and the Participants
and include such other provisions which are customary in this type of
arrangement.
<PAGE>
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ARTICLE SEVEN
INTELLECTUAL PROPERTY
7.1 INTELLECTUAL PROPERTY OF OCC AND THE OPERATOR: The Operator and the
Participants acknowledge and agree that the trade mark and trade name "CASINO
WINDSOR" and any design relating thereto are the sole property of OCC which
shall include any trade mark, trade name or design developed specifically for
use in conjunction with or to identify Casino Windsor. OCC agrees to grant to
the Operator a royalty-free, non-transferable right to use the trade mark and
trade name "CASINO WINDSOR" and any design relating thereto in connection with
the operation, advertising and promotion of the Interim Casino Complex during
the term of this Agreement, and OCC and the Operator shall enter into a licence
agreement governing the use of such property on terms satisfactory to OCC acting
reasonably. The parties acknowledge and agree that all software or know-how
acquired or developed by the Operator from time to time for use in connection
with the Interim Casino Complex shall be, as between OCC and the Operator, the
sole property of the Operator. The Operator agrees to grant to OCC a perpetual
(notwithstanding the termination of this Agreement), royalty-free right to use
upon the termination of this Agreement such know-how and software including
source code and documentation in connection with the operation, advertising and
promotion of casinos conducted and managed by OCC and the Operator and OCC shall
enter into a licence agreement during the term of this Agreement governing the
use of such know-how and software on terms satisfactory to OCC acting
reasonably. No such use or anything contained in this Agreement shall confer
any proprietary or other rights in such Intellectual Property upon any third
parties.
7.2 PARTICIPANTS' INDIVIDUAL INTELLECTUAL PROPERTY: OCC acknowledges that each
of the Participants and their Affiliates are and may become from time to time,
owners or licensees, of trademarks, trademark applications, service marks,
service marks applications, copyrights, copyright applications, and similar
logos and designs. The Operator may, to the extent that it deems appropriate
for the purposes of carrying out its agreements and obligations hereunder, but
is not required to, utilize, and the Participants may, but are not required to,
provide such Intellectual Property in connection with the operation of the
Interim Casino Complex but neither such use nor anything contained in this
Agreement shall confer any proprietary or other rights in such Intellectual
Property upon OCC or any third parties. To the extent such Intellectual
Property is provided, the Operator may enter into licence agreement(s) so that
such Intellectual Property may be utilized by the Operator during the term of
this Agreement. Such licence agreements, if any, shall provide such
Intellectual Property on such terms and conditions, including royalties, as such
Participant (or Affiliate) and the Operator may agree and contain provisions for
the protection of the rights of the Participant, as appropriate, in such
Intellectual Property. The Operator, to the extent that it deems appropriate
for the purposes of carrying out its agreements and obligations hereunder, may
utilize such Intellectual Property in connection with the operation, advertising
and promotion of the Interim Casino Complex on the basis of such terms and
conditions, including royalties, as reflect the terms and conditions on which
such Intellectual
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Property was provided to the Operator by such Participant for such use. Nothing
herein shall oblige the Participant to provide such Intellectual Property for
such use.
7.3 COLLECTIVE INTELLECTUAL PROPERTY OF PARTICIPANTS: OCC acknowledges that
the Participants are, and may become from time to time collectively the owners
or licensees of certain Intellectual Property developed solely for use in
connection with the operation, advertising or promotion of the Interim Casino
Complex or other Participant Properties collectively operated or managed by the
Participants or their Affiliates and which such Participants make generally
available to such collectively managed Participant Properties. The Operator
may, to the extent that it deems appropriate for the purposes of carrying out
its agreements and obligations hereunder, utilize such Intellectual Property in
connection with the operation, advertising or promotion of the Interim Casino
Complex. The Participants agree to grant to the Operator a non-transferable
right to use such Intellectual Property in connection with the operation,
advertising and promotion of the Interim Casino Complex during the term of this
Agreement, and the Operator and the Participants shall enter into a licence
agreement governing the use of such Intellectual Property on terms satisfactory
to the Participants acting reasonably. The Operator, to the extent it deems
appropriate for the purposes of carrying out its agreements and obligations
hereunder, may utilize such Intellectual Property in connection with the
operation, advertising and promotion of the Interim Casino Complex on a royalty-
free basis (or for a royalty chargeable as an Operating Expense not in excess of
and credited against the Operator's Fee).
ARTICLE EIGHT
OPERATOR'S FEE AND EXPENSES
8.1 OPERATOR'S FEE:
(a) In consideration of the Operator's performance of services under
this Agreement, the Operator shall pay itself from the Casino
Accounts a fee equal to the aggregate of the following
(collectively the "Operator's Fee"):
(i) 2.75% of the Gross Operating Receipts in each Operating
Year (the "Base Fee"); and
(ii) 5% of the Net Operating Margin in each Operating Year (the
"Incentive Fee").
(b) The Operator's Fee and GST thereon shall be payable in monthly
instalments concurrently with the delivery to OCC of the monthly
reports described in Subsection 4.3(a) and the payment to OCC
pursuant to Subsection 4.3(d)(xii), if any. The monthly
instalments of the Base Fee shall be an amount equal to 2.75% of
Gross Operating Receipts for the preceding month. The monthly
instalments of the Incentive Fee shall be
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an amount equal to the difference determined by subtracting (i)
the aggregate of the monthly instalments of the Incentive Fee
theretofore paid with respect to the preceding months in the
then current Operating Year, from (ii) 5% of the Net Operating
Margin for the then current Operating Year through the end of
the preceding month.
(c) If the annual statement to be delivered by the Operator to OCC
under Subsection 4.3(1) shall show that the aggregate of the
monthly instalments of the Operator's Fee paid with respect to
the preceding Operating Year shall exceed or be less than the
Operator's Fee as shown in such annual statement for such
Operating Year, then the Operator shall forthwith deposit into,
or withdraw from the Casino Accounts, the amount of such
overpayment or underpayment, as the case may be.
(d) The Operator agrees to defer payment of the Operator's Fee for a
period not exceeding three months in the event there are
insufficient funds in the Casino Accounts to pay or reserve for
the items set forth in Subsections 4.3(d)(i) to (x).
(e) The Operator shall have no recourse against Her Majesty or OCC
or their respective assets for the payment of the Operator's Fee
except as set out in this Section 8.1 and Sections 4.5, 4.8 and
11.2.
8.2 SALARIES AND EXPENSES: The following salaries and expenses shall
constitute expenses properly chargeable and payable as an Operating Expense to
the extent incurred in accordance with the then current Approved Operating
Budget:
(a) salaries and expenses of any employees of the Operator or a
Participant employed exclusively with respect to the Interim
Casino Complex (including the costs of "fringe benefits" and the
costs of all statutory benefit programs payable with respect to
such employees, including without limitation, unemployment
insurance, worker's compensation, employees health tax and
pensions) and all GST payable thereon in accordance with
Subsection 4.3(d)(iii); and
(b) out-of-pocket expenses paid by the Operator to third parties in
accordance with this Agreement and associated with the operation
of the Interim Casino Complex, including without limitation,
legal fees, costs of brochures, surveys, advertising and other
promotion, and all GST payable thereon in accordance with
Subsection 4.3(d)(iii), but EXCLUDING travel and entertainment
expenses incurred by the employees of the Operator not
reasonably allocated to the operation of the Interim Casino
Complex (unless incurred relating to work pertaining directly
and solely to the Interim Casino Complex).
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Except for the salaries and expenses of the Operator referred to in (a) and (b),
no charge other than the Operator's Fee or agreed to specifically with OCC shall
be made by the Operator nor shall the Operator be entitled to recover any
off-site administrative, overhead and indirect costs of the Operator or the
salaries or "fringe benefit" costs, travelling, education, training,
entertainment or overhead expenses with respect to the provision of supervision,
control and accounting personnel of the Operator engaged on a part-time basis in
work pertaining to the Interim Casino Complex, unless such personnel are
specifically allocated to the Interim Casino Complex. The salaries and expenses
of employees of any Participant shall not constitute expenses properly
chargeable and payable as an Operating Expense unless (a) they are incurred in
accordance with the then current Approved Operating Budget, and (b) to the
extent such salaries and expenses are not specifically allocated to the Interim
Casino Complex, they are allocated on a reasonable basis in relation to the time
and expenses incurred in connection with the operation of the Interim Casino
Complex. All expenses incurred by the Operator in performing its duties under
this Agreement shall be charged by the Operator at net cost as reduced by all
available input tax credits and OCC shall receive credit for all available
rebates, commissions, discounts and allowances. OCC acknowledges that the GCC
Levy shall be paid by OCC and such amount shall not be an expense or liability
of the Operator. OCC agrees to notify the Operator in writing if it becomes a
prescribed registrant pursuant to subsection 188(5) of the ETA within two days
of such event.
8.3 THIRD PARTY CLAIMS:
(a) If any third party claim, action or proceeding ("claim") is
commenced by any Person against the Operator, any of the
Participants or OCC arising out of its performance or non-
performance of this Agreement or arises out of any event
happening in or about the Interim Casino Complex or occurring in
connection with the operation or development thereof, regardless
of whether any such claim is caused or contributed to by or
results from the negligence of the Operator, OCC, the
Participants, Affiliates, employees, directors, members,
officers, agents or independent contractors, the Operator, the
Participant or OCC shall first have recourse to the benefit of
the insurance coverage maintained in respect of the Interim
Casino Complex then in effect. In the event the insurance
proceeds are insufficient or there is no insurance coverage to
satisfy a claim, the parties agree to establish an appropriate
reserve funded out of Gross Revenues (a "Contingency Reserve")
in respect of such claim. A party subject to a claim shall be
entitled to withdraw from the Contingency Reserve the amount of
the Losses suffered or incurred by it in connection with the
claim provided the claim did not arise out of the wilful
misconduct of such party. If for any reason no Contingency
Reserve is established or the monies in the Contingency Reserve
are insufficient to pay such Losses, such Losses or any part
thereof not paid from the Contingency Reserve shall be paid from
future Gross Revenues as an Operating Expense provided the claim
did not arise out of the wilful
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misconduct of the party whether the loss resulted from the
active or passive negligence of such person. In the event
that there is a balance remaining in the Contingency Reserve
and there are no outstanding claims, OCC shall be entitled
to 95% of the balance and the Operator shall be entitled
to 5% of the balance.
(b) From and after the termination of this Agreement, OCC agrees
that any Losses suffered or sustained by the Operator or any
Participant as a result of any claim shall, whether the result
of active or passive negligence of the Operator and any of the
Participants, as the case may be, to the extent such Losses did
not arise out of the wilful misconduct of the Operator or such
Participant, and were not recovered by the Operator or such
Participant during the term of this Agreement, and are not
otherwise recoverable under any policies of insurance then in
effect, shall be recoverable from:
(i) the interest of OCC in the Interim Casino Complex and any
assets relating directly thereto;
(ii) the interest of OCC in the Permanent Casino Complex and
any assets relating directly thereto; and
(iii) the Gross Revenues (and for the purposes of this
Subsection 8.3(b), "Gross Revenues" includes revenues
received from or in respect of the Permanent Casino
Complex).
No recourse pursuant to this Subsection 8.3(b) shall be had by
the Operator or the Participants against OCC or Her Majesty or
their respective undertaking, property and assets other than
with respect to the assets referred to in items (i), (ii) and
(iii) above.
8.4 CONCESSIONS: The Operator shall not accept for its own account in the
execution of its duties under this Agreement any commissions, reductions,
finder's fees or other concessions from tradesmen, suppliers, contractors,
insurers or other third parties. If such concessions are received by the
Operator, they shall be remitted to or credited to OCC and deposited to the
Operating Account forthwith after receipt.
8.5 BUSINESS LOSS INSURANCE: In the event that the operation of the Interim
Casino Complex or a portion thereof is suspended or terminated by reason of an
event in respect of which business loss insurance is payable, the Operator and
OCC shall receive such amounts in respect of the loss of the Operator's Fee and
the amount referred to in Subsection 4.3(d)(xii) to which they may be entitled
under such policies.
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ARTICLE NINE
NON-COMPETITION
9.1 NON-COMPETITION/RIGHT OF FIRST OFFER:
(a) Each of the Operator and the Participants agrees that it will
not (without the prior written consent of OCC) at any time
during the term of this Agreement directly or indirectly, either
individually or in partnership or jointly or in conjunction with
any person as principal, agent, shareholder or in any other
manner whatsoever, carry on or be engaged in or be concerned
with or interested in or advise, lend money to, guarantee the
debts or obligations of or permit either of their names or any
part thereof to be used or employed by any person engaged in or
concerned with or interested in any business involving the
conduct, management or operation of Games of Chance similar to
or competitive with the businesses being carried on in and at
the Interim Casino Complex within 125 kilometres of the Interim
Casino Complex. For greater certainty, the parties acknowledge
and agree that (i) the solicitation by any of the Participants
of actual or potential customers of the Interim Casino Complex
within such area, unless such solicitation occurs in connection
with a breach of the Operator's obligation in Subsection 6.1(l)
to not make available to any of the Participants or their
Affiliates the customer data base for the Interim Casino
Complex, shall not constitute a breach of this covenant and (ii)
the City of Cleveland and its suburbs are outside the 125
kilometre radius.
(b) OCC agrees that it will not (without the prior written consent
of the Operator) at any time during the term of this Agreement,
conduct or manage another casino within 125 kilometres of the
Interim Casino Complex (other than any casinos operated on lands
reserved for Indians) unless OCC provides the Operator with a
first opportunity to negotiate, on an exclusive basis, for a
period not exceeding 60 days, terms upon which the Operator (or
an Affiliate of the Operator) would establish and operate such a
casino for and on behalf of, and under the supervision and
direction of, OCC. If OCC and the Operator are not able to
agree upon such terms within such period, OCC shall then be
entitled to conclude third party arrangements for the
establishment and operation of such casino on terms less
favourable to a third party operator than those that had been
the subject of unsuccessful negotiations with the Operator (as
evidenced by the terms and conditions on which OCC had last
indicated to the Operator it would be prepared to engage the
Operator (or its Affiliate)).
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ARTICLE TEN
EVENTS OF DEFAULT
10.1 EVENTS OF DEFAULT: The following events if not cured or remedied within
the applicable period stated below shall constitute an event of default (each,
an "Event of Default") under this Agreement:
(a) the Operator fails to make any payment when due to OCC under
this Agreement and any such failure remains unremedied for five
days after notice thereof by OCC to the Operator;
(b) any representation or warranty made by the Operator or any of
the Participants under this Agreement proves to have been
incorrect in any material respect when made;
(c) the Operator fails to perform or observe any other term,
covenant or agreement contained in this Agreement in any
material respect (other than the covenant under Subsection
6.1(c) the event of default in respect of which is set forth in
paragraph (h) below) and any such failure remains unremedied for
30 days after the date on which the Operator receives notice of
such failure from OCC or such longer period as may be reasonably
regarded as necessary to remedy such failure, provided that the
Operator has commenced within a reasonable time and in good
faith the remedying of such failure within such 30 day period
and thereafter prosecutes to completion with diligence and
continuity the remedying thereof;
(d) any Participant fails to perform or observe any term, covenant
or agreement contained in this Agreement in any material respect
and any such failure remains unremedied for 30 days after the
date on which the Participant receives notice of such failure
from OCC, or such longer period as may be reasonably regarded as
necessary to remedy such failure, provided that such Participant
has commenced within a reasonable time and in good faith the
remedying of such failure within such 30 day period and
thereafter prosecutes to completion with diligence and
continuity the remedying thereof or one or more of the remaining
Participants not in default promptly and unconditionally
assume(s) the obligation of such Participant hereunder and, to
the extent permitted by Applicable Law, use its reasonable
efforts in a commercially reasonable manner to acquire such
Participant's interest in the Operator;
(e) the Operator or any of the Participants admits its insolvency or
makes a general assignment for the benefit of creditors or any
proceeding is instituted by the Operator or any of the
Participants seeking relief or giving notice of its intention to
seek relief on its behalf as debtor, or to
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adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding-up, reorganization, arrangement, adjustment or
composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors,
or seeking appointment of a receiver, receiver and manager,
trustee, custodian or other similar official for it or any
substantial part of its property and assets or the Operator or
any of the Participants takes any corporate action to authorize
any of the foregoing, unless in the case of a Participant one or
more of the remaining Participants promptly and unconditionally
assume(s) the obligations of such Participant hereunder and, to
the extent permitted by Applicable Law, use its reasonable
efforts in a commercially reasonable manner to acquire such
Participant's interest in the Operator;
(f) any proceeding is instituted against the Operator or any of the
Participants seeking to have an order for relief entered against
it as a debtor or to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding-up, reorganization, arrangement,
adjustment or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief
of debtors, or seeking appointment of a receiver, receiver and
manager, trustee, custodian or similar official for it or for
any substantial part of its property and assets and such
proceedings are not or are no longer being contested in good
faith by appropriate proceedings but in no event longer than 45
days from the institution of such first-mentioned proceedings,
unless in the case of a Participant one or more of the remaining
Participants promptly and unconditionally assume(s) the
obligations of such Participant hereunder and, to the extent
permitted by Applicable Law, use its reasonable efforts in a
commercially reasonable manner to acquire such Participant's
interest in the Operator;
(g) the Operator is in default in the performance of any of the
terms, covenants and agreements contained in any agreement
(beyond any period of time provided in such agreement to cure
such default) to which it is a party which materially impairs
the ability to carry on its business and such material
impairment continues for a period of 15 days; and
(h) the registration of the Operator under the Regulatory
Legislation is suspended or revoked for a period of 14 or more
days during any 12 month period.
10.2 COMMENCEMENT OF GRACE PERIOD: In the event there is a dispute as to
whether an event giving rise to an Event of Default has occurred any applicable
grace or cure period shall commence on the date of the determination of such
dispute.
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ARTICLE ELEVEN
TERMINATION
11.1 TERMINATION: This Agreement will terminate (except to the extent
necessary to give effect to the provisions of this Article Eleven, including
Sections 11.3 and 11.4) in any of the following cases:
(a) upon the expiry of 60 days after notice given by OCC to the
Operator if an Event of Default shall have occurred;
(b) upon the expiry of 180 days after notice given by OCC to the
Operator in the event of a termination (other than by effluxion
of time) of the Permanent Casino Heads of Agreement or the
Master Agreement by reason of the decision of OCC not to extend
the Master Agreement Deadline or the Final Closing Deadline (as
such terms are defined in the Permanent Casino Heads of
Agreement);
(c) upon the expiry of 60 days after notice given by OCC to the
Operator in the event of a termination (other than by effluxion
of time) of the Permanent Casino Heads of Agreement or the
Master Agreement other than for the reason set out in (b) above;
and
(d) upon the expiry of 60 days after notice given by the Operator to
OCC of an Operator Termination Event (as hereinafter defined).
For the purposes of this Article Eleven, "Operator Termination Event" means if
any of the following events shall occur:
(i) OCC shall fail in a material respect to keep, observe or
perform any covenant, agreement or term or provision of
this Agreement to be kept, observed or performed by OCC,
or shall be in breach of any representation or warranty
and such default shall continue for a period of 30 days
after notice thereof by the Operator to OCC; or
(ii) by reason of Force Majeure or a change in Applicable Law
or the application thereof to the operation of the
Casino, the operation of the Casino shall, in a material
respect, be suspended, or the ability of the Operator to
operate the Casino shall be materially impaired, and any
such suspension or impairment shall continue for a period
of six months or more (in the case of Force Majeure) or a
period of three months or more (in the case of Applicable
Law) and provided that the Operator shall have notified
OCC within 10 Business Days of the date which the
Operator alleges to be the commencement of such six-month
or three-month period; or
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(iii) an event shall occur or state of facts be found to exist
with respect to the Casino, including its continued
operation, which has resulted in written notification to
a Participant or an Affiliate of a Participant from a
regulatory agency threatening, and which such Participant
exercising its best judgment in good faith determines
will likely lead to, a revocation of a material gaming
licence or application for renewal of an existing
material gaming licence of such Participant or any of its
Affiliates in the States of New Jersey or Nevada in the
United States of America; or
(iv) any increase(s) in the Win Tax or the levying of or any
increase(s) in any Impositions affecting the Casino
which, individually or in the aggregate, materially
adversely affects the operating profit of the Casino.
11.2 PRE-OPENING EXPENSES: In the event of termination of this Agreement
pursuant to Section 11.1, OCC shall, on the Reimbursement Date, pay to the
Operator the then outstanding Pre-Opening Expenses together with any GST payable
by OCC thereon, plus all accrued and unpaid interest thereon at the
Reimbursement Rate of Interest (the "Outstanding Pre-Opening Expenses") and all
outstanding and unpaid Operator's Fee, provided that the obligation of OCC to
reimburse the Operator in respect of any Outstanding Pre-Opening Expenses or
outstanding and unpaid Operator's Fee as aforesaid shall be subject to the
following conditions:
(a) in the case of any Outstanding Pre-Opening Expense incurred for
the supply of materials, OCC or its nominee shall be entitled to
obtain the Operator's interest in and obligations with respect
to such materials and the benefits and obligations of the
Operator in any warranties and guarantees issued by the supplier
of such materials;
(b) in the case of any Outstanding Pre-Opening Expense incurred for
the supply of services, OCC or its nominee shall be entitled to
assume the benefits and obligations of the Operator under such
contract for services without the payment of any penalty or
other amount by OCC or its nominee or further consent (or if
further consent shall be required such consent shall be obtained
by the Operator) and where OCC elects to assume a contract for
services, OCC shall indemnify the Operator with respect thereto;
and
(c) the amount of the Operator's Fee asserted by the Operator to be
outstanding and unpaid is accurate, and for this purpose the
Operator agrees to provide OCC with audited financial statements
as required by Subsection 4.3(l) for the period in question.
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For the purposes of this Section 11.2, "Reimbursement Date" means a date which
is no later than 180 days after this Agreement is terminated.
11.3 REMEDIES PRESERVED: Any termination of this Agreement pursuant to
Section 11.1 shall be without prejudice to any rights or remedies available to
the parties hereto under this Agreement in the event of the occurrence of any of
the events set forth in Section 11.1 and the resultant termination pursuant
thereto.
11.4 ESTABLISHMENT OF SEVERANCE RESERVE: The Operator and OCC agree that for
each Operating Year they will establish in the Approved Operating Budget a
reserve out of Gross Revenues (the "Severance Reserve") to satisfy all
obligations and liabilities arising out of the termination or lay-off of
employees of the Operator employed at the Interim Casino Complex (other than the
Executive Staff in respect of whom the Operator has not waived its rights under
Section 14.12) in connection with the termination of this Agreement.
11.5 WITHDRAWALS FROM SEVERANCE RESERVE: Upon the termination of this Agreement
the Operator shall be entitled to withdraw from the Severance Reserve maintained
in the Casino Accounts amounts required by the Operator to satisfy all
obligations and liabilities arising out of the termination or lay-off of
employees of the Operator employed at the Interim Casino Complex (other than the
Executive Staff in respect of whom the Operator has waived its rights under
Section 14.12) in connection with the termination of this Agreement. If the
monies in the Severance Reserve are insufficient to pay all such severance
liabilities, OCC shall be responsible for 95% of the deficiency and the Operator
shall be responsible for 5% of the deficiency. In the event there is a balance
remaining in the Severance Reserve after paying all such severance liabilities,
OCC shall be entitled to 95% of the balance and the Operator shall be entitled
to 5% of the balance.
ARTICLE TWELVE
INDEMNITIES
12.1 INDEMNIFICATION BY OPERATOR: The Operator agrees to indemnify and save
harmless OCC from all Losses suffered or incurred by OCC as a result of:
(a) any breach by the Operator of, or any inaccuracy of any
representation or warranty of the Operator contained in this
Agreement; and
(b) any wilful breach or wilful non-performance by the Operator of
any covenant to be performed by it which is contained in this
Agreement;
provided that the Operator shall not be required to indemnify or save harmless
OCC for any Losses attributable to the wilful misconduct of OCC.
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12.2 INDEMNIFICATION BY OCC: OCC agrees to indemnify and save harmless the
Operator and the Participants from all Losses suffered or incurred by the
Operator or any of the Participants as a result of:
(a) any breach by OCC of or any inaccuracy of any representation or
warranty contained in this Agreement; and
(b) any wilful breach or wilful non-performance by OCC of any
covenant to be performed by it which is contained in this
Agreement;
provided that OCC shall not be required to indemnify or save harmless the
Operator or any of the Participants for any Losses occasioned by the wilful
misconduct of the Operator or any of the Participants.
12.3 INDEMNIFICATION BY PARTICIPANTS:
(a) Each of the Participants severally agrees to indemnify and save
harmless OCC from all Losses suffered or incurred by OCC as a
result of:
(i) any breach by such Participant of, or any inaccuracy of any
representation or warranty of the Operator or such
Participant contained in this Agreement; and
(ii) any wilful breach or wilful non-performance by such
Participant of any covenant to be performed by the Operator
or such Participant which is contained in this Agreement;
provided that a Participant shall not be required to indemnify
or save harmless OCC for any Losses attributable to the wilful
misconduct of OCC.
(b) The obligations of the Participants under this Agreement,
including in particular this Article Twelve, are and shall be
several (each as to an undivided one-third) and shall not be
joint nor joint and several.
12.4 UNITED STATES TAXES: All amounts payable by any Participant shall be paid
free and clear and without deduction for any present or future taxes of any
federal, state or local government or governmental subdivision or taxing
authority in the United States, and the Participant shall pay and discharge and
indemnify and hold harmless OCC from, all such taxes with respect to or measured
by any payment made by the Participant pursuant to this Agreement or the
performance of any obligations on, under or pursuant to this Agreement. If at
any time the Participant is required by Applicable Law to make any deduction
or withholding from any amount due under this Agreement, or any such amount in
respect of such taxes, the Participant shall pay such amount that after payment
of any such taxes to the appropriate taxing authority there shall be paid to OCC
the amount otherwise payable in the absence of such taxes.
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12.5 TIMELY NOTICE: Whenever a party shall become aware of any claim which
would subject another party to the indemnity provisions of this Article Twelve,
the party shall provide timely notice thereof to the other party.
12.6 LIMITATION ON CLAIMS FOR DAMAGES:
(a) Notwithstanding the other provisions of this Article Twelve, the
provisions in this Article Twelve shall apply only in respect of
Losses suffered or incurred by the parties hereto other than
Losses arising out of third party claims as contemplated by
Section 8.3 and only to the extent such Losses are not otherwise
recoverable from policies of insurance.
(b) Except as expressly set forth in this Article Twelve, OCC shall
not have the right to make a claim for or recover damages, at
law or in equity, against the Operator or any of the
Participants for a breach of this Agreement.
12.7 NO SUBROGATION: Nothing in this Agreement shall be deemed to create any
right of recovery whether by way of subrogation or otherwise on the part of
any insurance or surety company.
ARTICLE THIRTEEN
DISPUTE RESOLUTION
13.1 MEDIATION: Where any dispute arises between the Operator and OCC hereto
as to any matter contemplated by or arising from the terms of this Agreement,
the dispute shall be the subject of non-binding and without prejudice mediation
by recourse to a Person or Persons generally recognized as having familiarity
with and expertise in the matter which is the subject of the dispute (an
"Expert"). Either party may initiate such mediation by giving notice to the
other party to that effect. Within 10 Business Days after the delivery of such
notice, each of OCC and the Operator shall meet and attempt to appoint a single
Expert for non-binding and without prejudice mediation of such dispute. If OCC
and the Operator are unable to agree on a single Expert then, upon notice given
by either of them and within five Business Days of such notice, each of OCC and
the Operator shall name a Person and the two Persons so named shall promptly
thereafter choose the Expert. The Expert selected shall then promptly mediate
the dispute between the parties and shall render its recommendation within 30
days of its appointment (the "Mediation Period"). The costs related to such
mediation shall, in the absence of agreement between the parties to the
contrary, be borne equally between the parties. Each of the parties agrees that
it will give substantial weight and due regard for the recommendation of the
Expert. Notwithstanding the foregoing, following the Mediation Period, each of
the parties shall be entitled to seek resolution of such dispute in accordance
with its normal remedies and recourses available at law.
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ARTICLE FOURTEEN
GENERAL
14.1 NOTICES: Any notice, demand, request, consent, agreement or approval
which may or is required to be given pursuant to this Agreement shall be in
writing and shall be sufficiently given or made if served personally upon the
party for whom it is intended, or mailed by registered mail, return receipt
requested or sent by telex, telecopy or telegram and in the case of:
(a) OCC, addressed to it at:
1075 Bay Street
6th Floor
Toronto, Ontario
M5S 2B1
Telecopier: (416) 325-0416
Attention: President
(b) the Operator, addressed to it at:
108 City Centre
333 Riverside Drive
Windsor, Ontario
N9A 7C5
Telecopier: (519) 258-2720
Attention: Michael D. Rumbolz, President
- and to -
Blake, Cassels & Graydon
199 Bay Street
Suite 2800, Commerce Court West
P.O. Box 25
Toronto, Ontario
M5L 1A9
Telecopier: (416) 863-3033
Attention: John M. Tuzyk
<PAGE>
- 49 -
with a copy to each of the Participants
(c) the Participants, addressed to them at:
Caesars World, Inc.
1801 Century Park East
Los Angeles, California
90067
Telecopier: (310) 552-9446
Attention: Philip L. Ball, Senior
Vice-President, Secretary
and Legal Counsel
with a copy to the other Participants
Circus Circus Enterprises, Inc.
2880 Las Vegas Boulevard
P.O. Box 14967
Las Vegas, Nevada
89114-4967
Telecopier: (702) 731-6262
Attention: Clyde T. Turner, President
with a copy to the other Participants
Hilton Hotels Corporation
c/o Hilton Gaming Corporation
2001 E. Flamingo Road
Suite 114
Las Vegas, Nevada
89119
Telecopier: (702) 732-0027
Attention: Mark E. Thomas, Senior Vice President
and General Counsel
with a copy to the other Participants
- and in each case to -
<PAGE>
- 50 -
Blake, Cassels & Graydon
199 Bay Street
Suite 2800, Commerce Court West
P.O. Box 25
Toronto, Ontario
M5L 1A9
Telecopier: (416) 863-3033
Attention: John M. Tuzyk
or to such other address or in care of such other officers as a party may from
time to time advise to the other parties by notice in writing. The date of
receipt of any such notice, demand, request, consent, agreement or approval if
served personally or by telex, telecopy or telegram shall be deemed to be the
date of delivery thereof (if such day is a Business Day and if not, the next
following Business Day), or if mailed as aforesaid, the date of delivery by a
postal authority.
14.2 TABLE OF CONTENTS AND HEADINGS: The table of contents hereto and the
headings of any Articles, Section or part thereof are inserted for purposes of
convenience only and do not form part hereof.
14.3 ENFORCEABILITY: If any provision of this Agreement is determined to be
invalid, illegal or unenforceable as written, such provision shall be enforced
to the maximum extent permitted by Applicable Law.
14.4 SUCCESSORS AND ASSIGNS: This Agreement shall enure to the benefit of and
be binding upon the successors and permitted assigns of each party hereto. This
Agreement shall not be assigned by the Operator or the Participants without the
prior written consent of OCC, which consent may be arbitrarily withheld.
14.5 TIME OF ESSENCE: Time shall in all respects be of the essence hereof;
provided, however, that the time for doing or completing any matter provided for
herein may be extended or abridged by an agreement in writing signed by OCC and
the Operator, or by their respective counsel who are hereby expressly appointed
in that regard.
14.6 APPROVALS: Wherever the provisions of this Agreement contemplate an
approval of, consent to, or a decision with respect to, any action, Person,
document or plan by either party, this Agreement (unless the text hereof
expressly states that such approval or consent may be arbitrarily or
unreasonably withheld, or unless the text hereof expressly states that the time
periods are to be otherwise, in which latter case this Section shall apply but
the time periods shall be adjusted accordingly) shall be deemed to provide that:
(a) such request for approval, consent or decision shall:
<PAGE>
- 51 -
(i) clearly set forth the matter in respect of which such
approval, consent or decision is being sought;
(ii) form the sole subject matter of the correspondence
containing such request for approval, consent or
decision; and
(iii) clearly state that such approval, consent or decision is
being sought;
otherwise such request shall be deemed never to have been made;
(b) such approval, consent or decision shall be in writing;
(c) such approval, consent or decision shall not be unreasonably
withheld or delayed;
(d) the party whose approval or consent is requested shall, within
15 Business Days after receipt of such request, advise the other
party by notice in writing either that it consents or approves,
or that it withholds its consent or approval and in the latter
case it shall set forth, in reasonable detail, its reasons for
withholding its consent or approval; and
(e) in the case of OCC, an approval, consent or decision hereunder
shall not have been effectively given unless given by an officer
or director of OCC, a member of the "Casino Project Team"
established by Her Majesty and, in the case of an approval
pursuant to Section 14.12, evidenced by a resolution of the
board of directors of OCC.
14.7 COOPERATION OF PARTIES: The parties agree to use their reasonable
efforts to cooperate with each other in the performance of their respective
obligations under this Agreement provided that the failure of any party to
provide such cooperation shall in no event relieve any other party hereto from
the performance or observance of its obligations hereunder.
14.8 FORCE MAJEURE: Notwithstanding any other provision of this Agreement,
if, by reason of Force Majeure, a party is unable to perform in whole or in part
its obligations under this Agreement, then in such event and only during such
period of inability to perform, such party shall be relieved of those
obligations to the extent it is so unable to perform and such inability to
perform, so caused, shall not make such party liable to the other, and any time
period in which such obligation is to be performed shall be extended for such
period of inability to perform. Every obligation in this Agreement shall be
deemed to be subject to Force Majeure.
14.9 GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and each party irrevocably
and
<PAGE>
- 52 -
unconditionally submits to the non-exclusive jurisdiction of the courts of
such province and all courts competent to hear appeals therefrom.
14.10 RELATIONSHIP OF THE PARTIES: Nothing herein shall be construed so as
to make OCC a partner of the Operator or the Participants or, except as
expressly provided herein, to render the Operator or the Participants the agent
or other authorized representative of OCC for any purpose.
14.11 THIRD PARTIES: None of the rights or obligations hereunder of any
party shall enure to the benefit of or be enforceable by any party other than
the parties to this Agreement and their respective successors and permitted
assigns.
14.12 EMPLOYMENT SOLICITATION: OCC agrees not to solicit the employment of
the Executive Staff during the term of this Agreement and not to employ any of
the Executive Staff for a period of 12 months after the termination (by
effluxion of time or otherwise) of this Agreement, in each case without the
Operator's prior written consent. The Operator and each of the Participants
agrees not to solicit the employment of any officer, director or employee of OCC
during the term of this Agreement and not to employ any officer, director or
employee of OCC for a period of 12 months after the termination (by effluxion of
time or otherwise) of this Agreement, in each case without OCC's prior written
consent.
14.13 DISCLOSURE: Each of the parties hereto acknowledges, agrees and
consents to the disclosure of this Agreement as a matter of public record and
further acknowledges and agrees that Applicable Law may require disclosure of
information provided by any party hereto to any other party or parties hereto
pursuant to or in connection with this Agreement. However, the parties
acknowledge and agree that information provided by any party hereto to any other
party or parties hereto pursuant to or in connection with this Agreement may
comprise trade secrets or scientific, technical, commercial, financial or labour
relations information, supplied in confidence, disclosure of which could
reasonably be expected to prejudice significantly the competitive position or
interfere significantly with the contractual or other negotiations of one or all
of the parties or result in undue loss to one or all of the parties or undue
gain to others. Further, such information may include information the
disclosure of which could reasonably be expected to prejudice the economic
interests of OCC or other provincial government institutions or its or their
competitive position and the proposed plans, policies or projects of OCC or
other provincial government institutions or the disclosure of which could
reasonably be expected to result in premature disclosure of a pending policy
decision or undue financial benefit or loss to a person. Accordingly, except as
may be required by Applicable Law, all such information shall be kept
confidential by the parties and shall only be made available to such of a
party's employees and consultants as are required to have access to the same in
order for the recipient party to adequately use such information for the
purposes for which it was furnished.
<PAGE>
- 53 -
14.14 COUNTERPARTS: This Agreement may be executed in counterparts, each of
which shall constitute an original and all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the
parties.
ONTARIO CASINO CORPORATION
by /s/ Elaine Todres
---------------------------
/s/ Jay Kaufman
---------------------------
WINDSOR CASINO LIMITED
by /s/ Michael Rumbolz
---------------------------
---------------------------
CAESARS WORLD, INC.
by /s/ Philip L. Ball
---------------------------
---------------------------
CIRCUS CIRCUS ENTERPRISES, INC.
by /s/ Clyde Turner
---------------------------
---------------------------
<PAGE>
- 54 -
HILTON HOTELS CORPORATION
by /s/ Raymond Avansino Jr.
---------------------------
---------------------------
<PAGE>
SCHEDULE A
LEGAL DESCRIPTION OF
THE ART GALLERY LAND AND THE ADJACENT LANDS
PART 1 - ART GALLERY LAND
Part of Lot 9, all of Lots 10, 11, 12, 13, 14 and 15 on the south side of
Riverside Drive West (formerly Sandwich Street); Part of Lot 20 and all of Lots
21, 22, 23, 24, 25 and 26 on the north side of Pitt Street West; Part of River
Street as closed and part of the 30 foot alley (formerly Assumption Street) as
closed, all according to Registered Plan 120 and part of Lots 4 and 5 according
to Registered Plan 224 designated as Parts 1, 2, 3, 4, 5, 7 and 8 on Reference
Plan 12R-2300, save and except part of Lot 9 on the south side of Riverside
Drive West (formerly Sandwich Street), part of Lot 20 on the north side of Pitt
Street West and part of the 30 foot alley (formerly Assumption Street as closed,
Registered Plan 120 designated as Part 1 on Reference Plan 12R-7613.
PART 2 - ADJACENT LANDS
Part of Lots 1, 4 and 5, all of Lots 2, 3 and 6 and the closed alley, Registered
Plan 224, and part of River Street as closed, Registered Plan 120 designated as
Part 6, Reference Plan 12R-2300, save and except that part of Lot 1 on
Registered Plan 224 designated as Part 1 on Reference Plan 12R-9314.
All of the City of Windsor, County of Essex, Province of Ontario.
<PAGE>
Exhibit 10(q)
ONTARIO CASINO CORPORATION
as agent of HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO
- and -
WINDSOR CASINO LIMITED
- and -
CAESARS WORLD, INC.,
CIRCUS CIRCUS ENTERPRISES, INC. and
HILTON HOTELS CORPORATION
____________________________________________________________
HEADS OF AGREEMENT
_______________________________________________________________
May 14, 1994
<PAGE>
HEADS OF AGREEMENT
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.3 Currency. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 2
INTERIM PHASE
2.1 Good Faith Obligations. . . . . . . . . . . . . . . . . . . . 11
2.2 Operator's Pre-Closing Obligations. . . . . . . . . . . . . . 11
2.3 OCC's Pre-Closing Obligations . . . . . . . . . . . . . . . . 12
2.4 Pre-Construction Phase Expenses . . . . . . . . . . . . . . . 13
2.5 OCC's Approval Rights . . . . . . . . . . . . . . . . . . . . 13
2.6 Working Committee . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Operator. . . . . . . . 15
3.2 Representations and Warranties of the Participants. . . . . . 16
3.3 Representations and Warranties of OCC . . . . . . . . . . . . 17
3.4 Survival of Representations and Warranties. . . . . . . . . . 18
<PAGE>
ii
ARTICLE 4
INTERIM CLOSING
4.1 Interim Closing Deliveries. . . . . . . . . . . . . . . . . . 19
4.2 Conditions Benefitting OCC. . . . . . . . . . . . . . . . . . 19
4.3 Conditions Benefitting the Operator . . . . . . . . . . . . . 20
4.4 Conditions Benefitting the Operator and OCC . . . . . . . . . 20
4.5 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . 21
4.6 Other Closing Matters . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 5
TERMINATION PRIOR TO THE MASTER AGREEMENT CLOSING DATE
5.1 Rights of Termination . . . . . . . . . . . . . . . . . . . . 22
5.2 Reimbursement on Termination. . . . . . . . . . . . . . . . . 23
5.3 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.4 Commencement of Grace Period. . . . . . . . . . . . . . . . . 23
ARTICLE 6
GENERAL
6.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.2 Table of Contents and Headings. . . . . . . . . . . . . . . . 27
6.3 Enforceability. . . . . . . . . . . . . . . . . . . . . . . . 27
6.4 Successors and Assigns. . . . . . . . . . . . . . . . . . . . 28
6.5 Time of Essence and Force Majeure . . . . . . . . . . . . . . 28
6.6 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 29
6.8 Relationship of the Parties . . . . . . . . . . . . . . . . . 29
6.9 Third Parties . . . . . . . . . . . . . . . . . . . . . . . . 29
6.10 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.11 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.12 Counterparts and Delivery by Facsimile. . . . . . . . . . . . 30
<PAGE>
iii
SCHEDULES
Schedule A - Material Terms of Principal Agreements
Part 1 - Master Agreement
Part 2 - City Master Agreement
Part 3 - Land Lease
Part 4 - Land Sublease
Part 5 - City Option Agreement
Part 6 - Project Lease
Part 7 - Operating Agreement
Schedule B - Project Site
<PAGE>
HEADS OF AGREEMENT
THIS AGREEMENT made as of the 14th day of May, 1994.
A M O N G:
ONTARIO CASINO CORPORATION,
a corporation established pursuant to the Enabling
Legislation
and which is for all its purposes an agent of HER MAJESTY
THE QUEEN IN RIGHT OF ONTARIO,
(hereinafter referred to as "OCC"),
OF THE FIRST PART,
- and -
WINDSOR CASINO LIMITED,
a corporation incorporated pursuant to the laws of the
Province of Ontario,
(hereinafter referred to as the "Operator"),
OF THE SECOND PART,
- and -
CAESARS WORLD, INC., a corporation incorporated pursuant to
the laws of the State of Florida, CIRCUS CIRCUS ENTERPRISES,
INC., a corporation incorporated pursuant to the laws of the
State of Nevada and HILTON HOTELS CORPORATION, a corporation
incorporated pursuant to the laws of the State of Delaware,
(hereinafter individually referred to as a "Participant"
and, collectively, the "Participants"),
OF THE THIRD PART.
<PAGE>
- 2 -
WHEREAS in response to a request for proposals dated April 19, 1993,
the Operator submitted the Operator's Proposal for the development, financing
and operation of the Project;
AND WHEREAS the Operator has been designated as the party with whom
OCC will undertake sole and exclusive negotiations with respect to the Project;
THIS AGREEMENT WITNESSES THAT in consideration of the respective
covenants, agreements, representations, warranties and indemnities of the
parties herein contained and for other good and valuable consideration (the
receipt and sufficiency of which are acknowledged by each party hereto), the
parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS: The following definitions shall apply in the
interpretation of this Agreement and in the Recitals and the Schedules hereto
(provided that where a word or term is defined in a Schedule hereto, the word or
term as defined in such Schedule shall apply in the interpretation of the
Schedule):
(a) "AFFILIATE" means with respect to any Person, any legal entity which
directly or indirectly Controls or is Controlled by such Person or
any legal entity which is directly or indirectly Controlled by a
Person which directly or indirectly Controls such Person;
(b) "APPLICABLE LAW" means all public laws, statutes, codes, acts,
ordinances, orders, rules, regulations, Governmental Consents and
Governmental Requirements, which now or at any time hereafter may be
applicable to and enforceable against the relevant work or activity
in question or any part thereof, including without limitation, those
relating to employment, zoning, building, life safety, environment
and health;
(c) "BUSINESS DAY" means any day which is not a Saturday, Sunday or a
day observed as a holiday under the laws of the Province of Ontario
or the federal laws of Canada applicable therein;
(d) "CITY" means The Corporation of the City of Windsor;
<PAGE>
- 3 -
(e) "CITY DEVELOPMENT AGREEMENTS" means any and all development, site
plan, landscaping, tunnel, pedestrian bridge, sidewalk improvement
or other agreements with the City or with the City and others
relating to the development or operation of the Project;
(f) "CITY MASTER AGREEMENT" means the agreement pursuant to which the
City agrees to complete the assembly of the Land and lease the Land
to OCC, the material terms of which are summarized in Part 2 of
Schedule A hereto;
(g) "CITY OPTION AGREEMENT" means the agreement pursuant to which OCC is
granted the option to acquire all of the right, title and interest
of the City in the Project, the material terms of which are set out
in Part 5 of Schedule A hereto;
(h) "CONCEPT DESIGN" means the preliminary concept design for the
Project to be prepared by the Operator and approved by OCC;
(i) "CONSTRUCTION LIEN ACT" means the CONSTRUCTION LIEN ACT (Ontario) as
amended or re-enacted from time to time;
(j) "CONTROL" or "CONTROLLED" means the right to direct the management
and policies of a Person, whether directly or indirectly, or to
elect a majority of the board of directors or the trustees of a
Person, whether through the ownership of voting securities or by
contract or otherwise;
(k) "DEVELOPMENT SCHEDULE" means a schedule setting forth the dates of
commencement and duration of the various development functions
necessary to achieve Substantial Completion of the various
components of the Project by the respective dates scheduled therefor
therein, to be prepared by the Operator and approved by OCC;
(l) "ENABLING LEGISLATION" means the ONTARIO CASINO CORPORATION ACT,
1993 (Ontario) as amended or re-enacted from time to time;
(m) "EVENT OF DEFAULT" means:
(i) a monetary default which is not remedied within 5 Business
Days after (A) notice from OCC to the Operator, or (B) notice
from the Operator to OCC, as the case may be; and
(ii) any other default under this Agreement which is not remedied
within 30 days after (A) notice from OCC to the Operator, or
(B) notice to OCC from the Operator, as the case may be, or
in either case such longer period as may be reasonably
regarded as necessary to remedy such default
<PAGE>
- 4 -
provided that the recipient of the notice has commenced
within a reasonable time and with good faith the remedying of
such default within such 30 day period and thereafter
prosecutes to completion with diligence and continuity the
remedying thereof;
(n) "EVENT OF INSOLVENCY" means if:
(i) the Operator or any Participant shall admit its insolvency or
make a general assignment for the benefit of creditors or any
proceeding shall be instituted by the Operator or any of the
Participants seeking relief or giving notice of its intention
to seek relief on its behalf as debtor, or to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding-up,
reorganization, arrangement, adjustment or composition of it
or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking
appointment of a receiver, receiver and manager, trustee,
custodian or other similar official for it or any substantial
part of its property and assets or the Operator or any of the
Participants takes any corporate action to authorize any of
the foregoing, unless in the case of a Participant one or
more of the remaining Participants promptly and
unconditionally assume(s) the obligations of such Participant
hereunder and, to the extent permitted by Applicable Law, use
its reasonable efforts in a commercially reasonable manner to
acquire such Participant's interest in the Operator; or
(ii) any proceeding shall be instituted against the Operator or
any of the Participants seeking to have an order for relief
entered against it as a debtor or to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding-up,
reorganization, arrangement, adjustment or composition of it
or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking
appointment of a receiver, receiver and manager, trustee,
custodian or similar official for it or for any substantial
part of its property and assets and such proceedings are not
or are no longer being contested in good faith by appropriate
proceedings but in no event longer than 45 days from the
institution of such first mentioned proceedings, unless in
the case of a Participant one or more of the remaining
Participants promptly and unconditionally assume(s) the
obligations of such Participant hereunder and, to the extent
permitted by Applicable Law, use its reasonable efforts in a
commercially reasonable manner to acquire such Participant's
interest in the Operator;
(o) "FINAL CLOSING DATE" means the date on which the Final Closing
Documents are executed and delivered;
<PAGE>
- 5 -
(p) "FINAL CLOSING DEADLINE" means November 1, 1994 as such date may be
extended by the parties hereto from time to time;
(q) "FINAL CLOSING DOCUMENTS" means, collectively:
(i) the Land Lease,
(ii) the Land Sublease,
(iii) the City Option Agreement,
(iv) the City Development Agreements,
(v) the Insurance Trust Agreement,
(vi) the Project Lease,
(vii) the Operating Agreement,
and such other agreements, documents and/or instruments to be
executed and/or delivered pursuant to the Master Agreement or the
City Master Agreement on the Final Closing Date;
(r) "FORCE MAJEURE" means any BONA FIDE delay or state of affairs beyond
the control of a party (other than as a result of financial
incapacity and other than a delay or state or affairs caused by the
party relying upon such Force Majeure) which shall cause or
contribute towards any party being unable to fulfil or being delayed
or restricted in the fulfilment of such party's obligation,
including any such delay or state of affairs by reason of:
(i) the non-delivery or non-availability of the supply or
provision of any service or the doing of any work or the
making of any repairs;
(ii) inability to obtain any required material, goods, equipment,
service or labour;
(iii) Applicable Law or inability to procure any required
Governmental Consent;
(iv) any strikes, lock-outs, slow-downs or other combined action
of workers or labour disputes;
<PAGE>
- 6 -
(v) litigation or threatened litigation, insurrection, acts of
God, war, riots or civil commotions; or
(vi) any breach of this Agreement by another party hereto or the
delay or failure by another party hereto in providing a
consent or approval (it being understood that the
Participants and the Operator shall, for the purposes of this
paragraph 1.1(r), collectively constitute one party, and that
a consent or approval given or withheld within the time
period envisioned by this Agreement shall not constitute a
delay or failure by such party for the purposes of this
subparagraph 1.1(r)(vi)),
in each case which results notwithstanding the reasonable efforts of
the party relying upon such Force Majeure to prevent the same where
the Force Majeure was reasonably foreseeable;
(s) "GENERAL CONTRACTOR" means such Person designated by the Operator
and approved by OCC;
(t) "GOVERNMENTAL AUTHORITY" means Canada, the Province of Ontario, the
City of Windsor, any other political subdivision in which the
Project is located, and any court or political subdivision, agency,
commission, board or instrumentality or officer thereof, whether
federal, provincial, state or local, including the Gaming Control
Commission, having or exercising a jurisdiction over OCC, the
Operator, a Participant or an Affiliate of a Participant or the
Project, but excluding OCC;
(u) "GOVERNMENTAL CONSENT" means any licence, right, permit, franchise,
privilege, direction, decree, consent, order, permission, approval
or authority to be issued or provided by a Governmental Authority;
(v) "GOVERNMENTAL REQUIREMENTS" means all laws and agreements with any
Governmental Authority that are applicable to the development or
operation of the Project, including without limitation, any rules,
guidelines or restrictions created by or imposed by Governmental
Authorities;
(w) "HER MAJESTY" means Her Majesty the Queen in Right of Ontario;
(x) "IMPROVEMENTS" means the mixed-use integrated complex, including:
(i) a casino;
(ii) three restaurants;
(iii) a hotel;
<PAGE>
- 7 -
(iv) an entertainment theatre;
(v) a sports pavilion and ancillary facilities;
(vi) a parking facility;
(vii) a child daycare facility;
(viii) a water fountain, amphitheatre, pedestrian walks and bridges
and landscaping accessory to and integrated with the
foregoing,
all as generally shown in the Concept Design and as the same may be
altered, modified or revised in accordance with the terms hereof,
and all related structures, erections, fixtures, equipment and
attachments;
(y) "INCLUDING" means including without limitation;
(z) "INTERIM CASINO OPERATING AGREEMENT" means the agreement so entitled
of even date herewith between the parties hereto;
(aa) "LAND" means the lands in the City of Windsor outlined and shown as
Blocks 1 and 2 on Schedule B hereto and all appurtenances thereto;
(ab) "LAND LEASE" means the lease pursuant to which OCC is to lease the
Land from the City, the material terms of which are summarized in
Part 3 of Schedule A hereto;
(ac) "LAND SUBLEASE" means the sublease pursuant to which the Operator is
to sublease the Land from OCC, the material terms of which are
summarized in Part 4 of Schedule A hereto;
(ad) "MASTER AGREEMENT" means the agreement pursuant to which the
Operator is to construct and develop the Improvements, the material
terms of which are summarized in Part 1 of Schedule A hereto;
(ae) "MASTER AGREEMENT CLOSING DATE" means the date on which all of the
formal documentation referenced in Schedule A is finalized;
(af) "MASTER AGREEMENT DEADLINE" means September 1, 1994 as such date may
be extended by the parties hereto from time to time;
(ag) "OCC" means the Ontario Casino Corporation, the Crown corporation
established pursuant to the Enabling Legislation, and its successors
and permitted assigns;
<PAGE>
- 8 -
(ah) "OPERATING AGREEMENT" means the agreement pursuant to which the
Operator shall operate the Project, the material terms of which are
summarized in Part 7 of Schedule A hereto;
(ai) "OPERATOR" means Windsor Casino Limited, its successors and
permitted assigns;
(aj) "OPERATOR'S PROPOSAL" means the proposal for the development,
financing and operation of the Project submitted by the Operator in
response to a request for proposals dated April 19, 1993;
(ak) "PARTICIPANTS" means the parties of the third part hereto and their
respective successors and permitted assigns;
(al) "PERMITTED ENCUMBRANCES" means this Agreement, the Master Agreement,
the Land Lease, the Land Sublease, the Project Lease, leases of
space in the Project made by the Operator and approved by OCC and
such other encumbrances as the parties may approve in writing from
time to time;
(am) "PERSON" or "PERSON" means any individual, partnership, corporation,
joint venture, association, joint stock company, trust,
unincorporated organization or a Governmental Authority, and
"corporation" shall include "company" and VICE VERSA;
(an) "PRE-CONSTRUCTION PHASE EXPENSES" means amounts incurred and paid by
the Operator in connection with the preconstruction activities and
services pertaining to the Project carried out by it or on its
behalf hereunder and approved by OCC, from time to time, through
approval of a budget or otherwise;
(ao) "PROJECT" means collectively the Land and the Improvements;
(ap) "PROJECT ARCHITECT" means such Person designated by the Operator and
approved by OCC;
(aq) "PROJECT BUDGET" means a comprehensive budget (including all
relevant assumptions) in respect of the design, construction,
development, financing, furnishing and equipping of the Project to
be prepared by the Operator and approved by OCC from time to time;
(ar) "PROJECT LEASE" means the lease pursuant to which OCC is to lease
the Project from the Operator, the material terms of which are
summarized in Part 6 of Schedule A hereto;
<PAGE>
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(as) "PROJECT MANAGER" means such Person, if any, designated by the
Operator and approved by OCC to perform the function of a manager
for the development and construction of the Project;
(at) "PROJECT PLANS" means the construction plans and specifications
relating to the construction and development of the Project evolving
from the Concept Design and the Site Plan to be prepared by the
Operator and approved by OCC from time to time;
(au) "REGULATORY LEGISLATION" means the GAMING CONTROL ACT, 1992, as
amended or re-enacted from time to time and all regulations made
thereunder and all mandatory directives and orders issued thereunder
or pursuant thereto;
(av) "SITE PLAN" means the preliminary site plan for the Project to be
prepared by the Operator and approved by OCC, as the same may be
altered from time to time, identifying in a general fashion:
(i) the physical improvements and landscaping for the Project;
(ii) the footprint for all buildings and other principal
structures;
(iii) the balance of the Land outside the structural walls of all
buildings and principal structures; and
(iv) access and other easement areas;
(aw) "SUBSTANTIAL COMPLETION" means that all work required to achieve
"substantial performance" of the Project has been completed, giving
to the term "substantial performance" the meaning substantial
performance of a contract in the Construction Lien Act; and
(ax) "SUBSTANTIAL COMPLETION DATE" means the date upon which Substantial
Completion has occurred, as evidenced by a certificate issued by the
Project Architect pursuant to the Construction Lien Act.
1.2 SCHEDULES: The Schedules attached to this Agreement and listed
below shall have the same force and effect as if the information contained
therein were contained in the body of this Agreement:
<PAGE>
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Schedule A - Material Terms of Principal Agreements
Part 1 - Master Agreement
Part 2 - City Master Agreement
Part 3 - Land Lease
Part 4 - Land Sublease
Part 5 - City Option Agreement
Part 6 - Project Lease
Part 7 - Operating Agreement
Schedule B - Project Site
1.3 CURRENCY: All references to money herein are references to lawful
money of Canada.
______________________________
<PAGE>
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ARTICLE 2
INTERIM PHASE
2.1 GOOD FAITH OBLIGATIONS: Subject to the terms hereof, each party
shall proceed in good faith as expeditiously as possible to use its reasonable
efforts to perform and to satisfy its respective obligations in respect of the
Project as set out in this Article 2 and to satisfy those pre-conditions as are
set out in Article 4 to be satisfied by it, in each case, by no later than the
Master Agreement Closing Date. In that regard the parties shall each co-operate
with one another and, subject to their rights hereunder, shall each provide such
co-operation as is reasonably required to enable such obligations to be
performed and such pre-conditions to be met.
2.2 OPERATOR'S PRE-CLOSING OBLIGATIONS: Prior to the Master Agreement
Closing Date the Operator shall:
(a) meet and consult with OCC and its consultants on an ongoing basis
through finalization of the Master Agreement;
(b) use its reasonable efforts to ensure that all Persons retained by it
or on its behalf for the provision of goods or services for or to
the Project are registered as suppliers as required under the
Regulatory Legislation;
and to the extent reasonable under the circumstances:
(c) retain and oversee the performance of the Project Architect, the
Project Manager, if any, the General Contractor and other
consultants;
(d) enter into agreements with the Project Architect, the Project
Manager, if any, and the other consultants which shall be on terms
that:
(i) provide for a release of any copyright in plans, designs and
other similar property (to the extent that such plans,
designs and other similar property may be used in the
Project), it being understood that the foregoing shall, as
between the Operator and OCC, be the property of the Operator
until termination of this Agreement; and
(ii) permit OCC or its nominee the right to assume the Operator's
rights and obligations under such agreements without payment
of any penalty by OCC or its nominee or further consent (or
if such further consent shall be required such consent shall
be obtained by the Operator);
<PAGE>
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(e) commence the development of the Project Plans based upon and subject
to the financial parameters prepared by the Operator in the
Operator's Proposal;
(f) commence the development of the Development Schedule;
(g) commence the development of the Project Budget based upon and
subject to the financial parameters prepared by the Operator in the
Operator's Proposal;
(h) use its reasonable efforts to obtain all necessary Governmental
Consents as and when required for the construction of the Project in
accordance with the Project Plans, the Enabling Legislation and
Applicable Law;
(i) use its reasonable efforts to finalize all governmental and other
agreements, approvals, consents, permits, licences and other
documentation necessary or desirable with respect to the development
of the Project;
(j) use its reasonable efforts to obtain any licences, permits or other
permissions required in respect of the development or operation of
any infrastructure made necessary by reason of the development
and/or operation of the Project; and
(k) co-operate with OCC in obtaining any rezoning or legislative
amendment necessary to permit the uses of the various components of
the Project for their intended use.
2.3 OCC's PRE-CLOSING OBLIGATIONS: Prior to the Master Agreement
Closing Date, OCC shall:
(a) meet and consult with the Operator and the Participants and their
respective consultants on an ongoing basis, through finalization of
the Master Agreement;
(b) subject to Applicable Law and any conditions as to confidentiality
as may have been imposed or agreed upon in connection with the
delivery of such information, make available for inspection and
review by the Operator and its authorized representatives all
documentation and agreements pertaining to the Land in OCC's
possession or control, including any surveys, plans, "as-built"
drawings of existing improvements located on the Land, all existing
agreements affecting the Land and other related documentation,
reports, studies and information in OCC's possession or control from
time to time with respect to the Land and, at the Operator's
expense, permit the Operator to make copies of the same;
<PAGE>
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(c) co-operate with the Operator in obtaining any rezoning or
legislative amendment necessary to permit the uses of the various
components of the Project for their intended use;
(d) undertake sole and exclusive negotiations with respect to the
Project with the Operator and no other Person with respect to the
performance of the obligations contemplated to be performed by the
Operator pursuant to this Agreement;
(e) act diligently in granting all approvals required by this Agreement.
2.4 PRE-CONSTRUCTION PHASE EXPENSES: The Operator shall be responsible
for all Pre-Construction Phase Expenses, provided that:
(a) if this Agreement is terminated pursuant to Section 5.1, the
Operator shall be paid by way of reimbursement its Pre-Construction
Phase Expenses in accordance with the provisions of Section 5.2,
together with interest thereon from the date of termination of the
Agreement to the date of payment at the rate of 10% per annum
calculated and compounded monthly; and
(b) if this Agreement is not terminated, the Pre-Construction Phase
Expenses and all other expenses incurred and paid by the Operator
with respect to the Project may be included in the Project Budget
and shall be recovered by the Operator in the manner and to the
extent described in Section 9(d) of Part 7 to Schedule A.
2.5 OCC'S APPROVAL RIGHTS: OCC shall have approval rights with respect
to the preconstruction process including as to:
(a) the Concept Design, the Site Plan and the Project Plans;
(b) the Development Schedule;
(c) the Project Budget;
(d) the identity of the General Contractor, the Project Architect and
the Project Manager, if any; and
(e) all material agreements, contracts, permits, licences, consents,
bonds, guarantees and warranties pertaining to any material aspect
of the construction, financing, management or operation of the
Project and any material amendments or modifications thereto or
terminations thereof.
<PAGE>
- 14 -
2.6 WORKING COMMITTEE: Each of the Operator and OCC shall appoint at
all times and from time to time one or more representatives (herein individually
called a "Working Committee Representative"). The parties shall agree upon the
authorities of the Working Committee Representatives, rules governing meetings
of the Working Committee and other matters relating to the Working Committee.
____________________________________
<PAGE>
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATOR: The Operator
represents and warrants as of the date hereof as follows and acknowledges that
OCC is relying on such representations and warranties in connection with the
transactions contemplated by this Agreement:
(a) ORGANIZATION: The Operator is a corporation duly incorporated and
organized under the laws of the Province of Ontario.
(b) OWNERSHIP OF OPERATOR: Each of the Participants Controls 1/3 of all
the issued and outstanding shares of the Operator.
(c) OPTIONS: No Person, other than a Participant or an Affiliate of a
Participant, has any right or option, contingent or otherwise, to
acquire any of its capital stock.
(d) CAPACITY AND AUTHORIZATION: The Operator has all necessary
capacity, power and authority to enter into and to carry out the
provisions of this Agreement and all other documents which may be
necessary to give effect to the transactions contemplated by this
Agreement. This Agreement has been duly authorized by the Operator
and constitutes a valid and binding obligation of the Operator,
enforceable against the Operator in accordance with its terms. All
other agreements referred to in this Agreement which have been or
will be entered into in accordance with this Agreement and to which
the Operator is or will be a party, have been or will be duly
authorized by the Operator and constitute or will constitute valid
and binding obligations of the Operator, enforceable against the
Operator in accordance with their terms.
(e) NO VIOLATION: Neither the execution and delivery of this Agreement
nor the fulfilment of or compliance with the terms and conditions
hereof:
(i) conflicts with or will conflict with or result in a
breach of any of the terms, conditions or provisions
of or constitute a default under the constating
documentation of the Operator; or
(ii) conflicts in a material respect with or will conflict
in a material respect with or result in a material
breach of any of the terms, conditions or provisions
of or constitute a material default under any
agreement, licence
<PAGE>
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or other instrument to which the Operator is a party
or by which it is bound.
(f) LITIGATION: To its knowledge after due inquiry, except as has been
disclosed by the Operator to OCC in writing, there are no actions,
suits or proceedings pending or threatened against the Operator
which could reasonably be expected to materially adversely affect
its ability to perform its obligations under this Agreement or which
could reasonably be expected to materially adversely affect the
development, financing or operation of the Project.
(g) REGISTRATION: The Operator is registered as a supplier under the
Regulatory Legislation.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PARTICIPANTS: Each
Participant represents and warrants as to itself as of the date hereof as
follows and acknowledges that OCC is relying on such representations and
warranties in connection with the transactions contemplated by this Agreement:
(a) ORGANIZATION: The Participant is a corporation duly incorporated
and organized under the laws of its governing jurisdiction.
(b) CONTROL: The Participant Controls 1/3 of all of the issued and
outstanding shares of the Operator.
(c) OPTIONS: No Person, other than a Participant or an Affiliate of a
Participant, has any right or option, contingent or otherwise, to
acquire any of the capital stock of the Operator owned by the
Participant.
(d) CAPACITY AND AUTHORIZATION: The Participant has all necessary
capacity, power and authority to enter into and to carry out the
provisions of this Agreement and all other documents which may be
necessary to give effect to the transactions contemplated by this
Agreement. This Agreement has been duly authorized by the
Participant and constitutes a valid and binding obligation of it,
enforceable against it in accordance with its terms. All other
agreements referred to in this Agreement which have been or will be
entered into in accordance with this Agreement and to which the
Participant is or will be a party have been or will be duly
authorized by the Participant and constitute or will constitute
valid and binding obligations of the Participant, enforceable
against the Participant in accordance with their terms.
(e) NO VIOLATION: Neither the execution and delivery of this Agreement
nor the fulfilment of or compliance with the terms and conditions
hereof:
<PAGE>
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(i) conflicts with or will conflict with or result in a
breach of any of the terms, conditions or provisions
of or constitute a default under the constating
documentation of the Participant; or
(ii) conflicts in a material respect with or will conflict
in a material respect with or result in a material
breach of any of the terms, conditions or provisions
of or constitute a material default under any material
agreement, licence or other instrument to which the
Participant is a party or by which it is bound,
provided, however, to the extent that a consent or an
approval of a third party is required in accordance
with the terms, conditions or provisions of any
material agreement, licence or other instrument to
which the Participant is a party or by which it is
bound, it will obtain any required consent or
approval.
(f) LITIGATION: To its knowledge after due inquiry, except as has been
disclosed by the Participants to OCC in writing, there are no
actions, suits or proceedings pending or threatened against the
Participant which could reasonably be expected to materially
adversely affect its ability to perform its obligations under this
Agreement or which could reasonably be expected to materially
adversely affect the development, financing or operation of the
Project.
3.3 REPRESENTATIONS AND WARRANTIES OF OCC: OCC represents and warrants
as of the date hereof as follows and acknowledges that the Operator and the
Participants are relying on such representations and warranties in connection
with the transactions contemplated by this Agreement:
(a) ORGANIZATION: OCC is a corporation duly established and organized
under the laws of the Province of Ontario.
(b) CAPACITY AND AUTHORITY: OCC has all necessary capacity, power and
authority to enter into this Agreement as agent of Her Majesty and
to carry out the provisions of this Agreement and all other
documents which may be necessary to give effect to the transactions
contemplated by this Agreement. This Agreement has been duly
authorized by OCC. All other agreements referred to in this
Agreement which have been or will be entered into in accordance with
this Agreement and to which it is or will be a party have been or
will be duly authorized by OCC.
(c) NO VIOLATION: Neither the execution and delivery of this Agreement
nor the fulfilment of or compliance with the terms and conditions
hereof:
<PAGE>
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(i) conflicts with or will conflict with or result in a
breach of any of the terms, conditions or provisions
of or constitute a default under the constating
documentation of OCC; or
(ii) conflicts in a material respect with or will conflict
in a material respect with result in a material breach
of any of the terms, conditions or provisions of or
constitute a material default under any material
agreement, licence or other instrument to which OCC is
a party or by which it is bound.
(d) LITIGATION: To its knowledge after due inquiry, except as has been
disclosed by OCC to the Operator and the Participants in writing,
there are no actions, suits or proceedings pending against OCC which
could reasonably be anticipated to materially adversely affect its
ability to perform its obligations under this Agreement or the
agreements contemplated herein.
3.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES: The representations and
warranties set forth in Sections 3.1, 3.2 and 3.3 and in the certificates to be
provided pursuant to Subsections 4.2(d) and 4.3(d) shall survive the Master
Agreement Closing Date and shall not merge in any transaction completed on the
Master Agreement Closing Date.
___________________________________
<PAGE>
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ARTICLE 4
INTERIM CLOSING
4.1 INTERIM CLOSING DELIVERIES: Subject to and in accordance with the
terms and conditions hereof the parties hereto each agree that, on the Master
Agreement Closing Date:
(a) the Operator, the Participants and OCC shall each execute and
deliver the Master Agreement;
(b) the Operator, OCC and the City shall each execute and deliver the
City Master Agreement; and
(c) the Operator, OCC and the Participants shall each execute and
deliver the Operating Agreement.
4.2 CONDITIONS BENEFITTING OCC: OCC's obligation to carry out the
transactions contemplated herein is subject to the fulfilment of each of the
following conditions on or before the Master Agreement Closing Date, unless
waived in writing by OCC on or prior to the Master Agreement Closing Date:
(a) all of the documents to be finalized by the Master Agreement
Deadline, including all of those documents outlined in Schedule A
shall have been finalized;
(b) all documents or copies of documents required to be executed and/or
delivered to OCC by the Operator and the Participants hereunder
shall have been so executed and delivered;
(c) all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Operator and the Participants on
or prior to the Master Agreement Closing Date shall have been
complied with or performed in all material respects; and
(d) the representations and warranties set forth in Sections 3.1 and 3.2
shall be true and correct when made and shall continue to be true
and correct in all material respects as if made as of the Master
Agreement Closing Date and the Operator and the Participants shall
have delivered to OCC a certificate signed by an officer of the
Operator and an officer of each of the Participants setting forth
such statements as representations and warranties of the Operator
and the Participants effective as of the Master Agreement Closing
Date.
<PAGE>
- 20 -
In the event that any one or more of the above-noted conditions has not been
fulfilled on or prior to the Master Agreement Deadline and has not been waived
by OCC as aforesaid, OCC may, by notice in writing to the Operator and the
Participants terminate this Agreement without prejudice however to any rights it
may have as a result of any breach by the Operator or the Participants of any of
their obligations hereunder.
4.3 CONDITIONS BENEFITTING THE OPERATOR: The obligation of the Operator
and the Participants to carry out the transactions contemplated herein is
subject to the fulfilment of each of the following conditions on or before the
Master Agreement Closing Date, unless waived in writing by the Operator on or
before the Master Agreement Closing Date:
(a) all of the documents to be finalized by the Master Agreement
Deadline, including all of those documents outlined in Schedule A
shall have been finalized;
(b) all documents or copies of documents required to be executed and
delivered to the Operator and the Participants by either or both of
the City and OCC hereunder shall have been so executed and
delivered;
(c) all of the terms, covenants and conditions of this Agreement to be
complied with or performed by OCC on or prior to the Master
Agreement Closing Date shall have been complied with or performed in
all material respects; and
(d) the representations and warranties set forth in Section 3.3 shall be
true and correct when made and shall continue to be true and correct
in all material respects as if made as of the Master Agreement
Closing Date and OCC shall have delivered to the Operator and the
Participants a certificate signed by an officer of OCC setting forth
such statements as representations and warranties effective as of
the Master Agreement Closing Date.
In the event that any one or more of the above-noted conditions has not been
fulfilled on or prior to the Master Agreement Deadline and has not been waived
by the Operator as aforesaid, the Operator may, by notice in writing to OCC
terminate this Agreement without prejudice however to any rights it may have as
a result of any breach by OCC of its obligations hereunder.
4.4 CONDITION BENEFITTING THE OPERATOR AND OCC: The obligation of OCC,
the Operator and the Participants to carry out the transactions contemplated
herein is subject to the City Master Agreement being executed and delivered by
the City on or before the Master Agreement Closing Date, unless waived in
writing by each of OCC and the Operator on or before the Master Agreement
Closing Date. In the event that the foregoing condition has not been fulfilled
on or prior to the Master Agreement Deadline and has not been waived by OCC and
the Operator, as aforesaid, either OCC or the Operator may, by notice in writing
to the other,
<PAGE>
- 21 -
terminate this Agreement without prejudice however to any rights it may have as
a result of any breach by the other parties hereto of any of their obligations
hereunder.
4.5 SATISFACTION: If a notice is not given pursuant to Section 4.2,
Section 4.3 or Section 4.4 by the party entitled to deliver such notice,
indicating that a condition has been fulfilled or waived, by no later than the
date for satisfaction of such condition, such party shall, unless the date set
for the satisfaction of such condition has been extended by mutual consent in
writing, be deemed not to have been satisfied with respect to and not to have
waived that particular condition and shall be deemed not to have given notice of
satisfaction or waiver thereof.
4.6 OTHER CLOSING MATTERS: In connection with the completion of the
closing herein:
(a) the closing shall commence at 10:00 a.m. in the offices of Davies,
Ward & Beck or at such other time or place within the Municipality
of Metropolitan Toronto as such offices may be located from time to
time;
(b) each party shall pay its own legal fees with respect to the
transactions herein contemplated; and
(c) the obligation of any party to convey any interest pursuant hereto
is expressly subject to compliance with the provisions of Section 50
of the PLANNING ACT (Ontario) and amendments thereto.
_____________________________________
<PAGE>
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ARTICLE 5
TERMINATION PRIOR TO THE MASTER AGREEMENT CLOSING DATE
5.1 RIGHTS OF TERMINATION: This Agreement will terminate (except to the
extent necessary to give effect to the provisions of this Article 5, including
Section 5.2) in any of the following cases:
(a) upon the Master Agreement Deadline if the Master Agreement Closing
Date has not occurred;
(b) upon a notice given by OCC to the Operator prior to the Master
Agreement Closing Date if an Event of Insolvency shall have occurred
in respect of the Operator or any Participant;
(c) upon a notice given by OCC to the Operator prior to the Master
Agreement Closing Date if an Event of Default shall have occurred in
respect of the Operator;
(d) upon a notice given by the Operator to OCC prior to the Master
Agreement Closing Date if an Event of Default shall have occurred in
respect of OCC;
(e) upon a termination of the Interim Casino Operating Agreement
pursuant to Section 11.1(a) or Section 11.1(i) thereof;
(f) upon termination of this Agreement in accordance with the provisions
of Section 4.2, Section 4.3 or Section 4.4 hereof; and
(g) upon a notice given by the Operator:
(i) if an event shall occur or state of facts be found to exist
with respect to the Project which has resulted in written
notification to a Participant or an Affiliate of a
Participant from a regulatory agency threatening, and which
such Participant exercising its best judgment in good faith
determines will likely lead to, a revocation of a material
gaming licence or denial of an application for renewal of an
existing material gaming licence of such Participant or any
of its Affiliates in the States of New Jersey or Nevada in
the United States of America; or
(ii) any increase(s) in the payments to be made under subsection
15(1)2 of the Enabling Legislation to the Consolidated
Revenue Fund of the Province of Ontario or the levying of or
any increase(s) in any taxes, assessments,
<PAGE>
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imposts, water, sewer, or other similar rents, rates, and
charges, levies, licence fees, permit fees, inspection fees
and other authorization fees and charges, which at any time
may be assessed, levied, confirmed or imposed on the Project
(or in each case, amounts paid in lieu thereof) (excluding,
for greater certainty, capital or income taxes of the
Operator) which, individually, or in the aggregate, will
materially adversely affect the operating profit of the
Project.
5.2 REIMBURSEMENT ON TERMINATION: In the event of termination of this
Agreement pursuant to Section 5.1, OCC shall, on the Reimbursement Date, pay to
the Operator by way of reimbursement its Pre-Construction Phase Expenses
together with interest as provided herein provided that the obligation of OCC to
reimburse the Operator in respect of any Pre-Construction Phase Expenses
together with interest as provided herein shall be subject to the following
conditions:
(a) in the case of any Pre-Construction Phase Expense incurred for the
supply of materials, OCC or its nominee shall be entitled to obtain
the Operator's interest in and obligations with respect to such
materials and the benefits and obligations of the Operator in any
warranties and guarantees issued by the supplier of such materials;
and
(b) in the case of any Pre-Construction Phase Expense incurred for the
supply of services, OCC or its nominee shall be entitled to assume
the benefits and obligations of the Operator under such contract for
services without the payment of any penalty or other amount by OCC
or its nominee or further consent (or if further consent shall be
required such consent shall be obtained by the Operator) and where
OCC elects to assume a contract for services, OCC shall indemnify
the Operator with respect to such contract.
For the purposes of this Section 5.2, "Reimbursement Date" means 180 days after
this Agreement is terminated.
5.3 REMEDIES: Any termination of this Agreement pursuant to Section 5.1
shall be without prejudice to any rights or remedies available to the parties
hereto in the event the other party willfully fails to use its reasonable
efforts to negotiate the provisions of the Master Agreement in good faith in
accordance with the applicable provisions of this Agreement but in all other
cases, a termination of this Agreement pursuant to Section 5.1 shall be deemed
to be a choice of remedy by the parties hereto and save and except for the
provisions of Sections 2.4 and 5.2 hereof, shall be the sole obligation of the
parties hereto following termination of this Agreement.
<PAGE>
- 24 -
5.4 COMMENCEMENT OF GRACE PERIOD: In the event there is a dispute as to
whether an event giving rise to an Event of Default or an Event of Insolvency
has occurred, any applicable grace or cure period shall commence on the date of
the determination of such dispute.
____________________________________
<PAGE>
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ARTICLE 6
GENERAL
6.1 NOTICES: Any notice, demand, request, consent, agreement or
approval which may or is required to be given pursuant to this Agreement shall
be in writing and shall be sufficiently given or made if served personally upon
the party for whom it is intended, or mailed by registered mail, return receipt
requested or sent by telex, telecopy or telegram and in the case of:
(a) OCC, addressed to it, at:
1075 Bay Street
6th Floor
Toronto, Ontario
M5S 2B1
Telecopier: (416) 325-0416
Attention: President
(b) Operator, addressed to it, at:
108 City Centre
333 Riverside Drive West
Windsor, Ontario
N9A 7C5
Telecopier: (519) 258-2720
Attention: Michael D. Rumbolz, President
- and to -
<PAGE>
- 26 -
Blake, Cassels & Graydon
199 Bay Street
Suite 2800, Commerce Court West
P. O. Box 25
Toronto, Ontario
Canada, M5L 1A9
Telecopier: (416) 863-3033
Attention: John M. Tuzyk
with a copy to each of the Participants
(c) Participants, addressed to them, at:
Caesars World, Inc.
1801 Century Park East
Los Angeles, California
90067
Telecopier: (310) 552-9446
Attention: Philip L. Ball, Senior Vice President,
Secretary and Legal Counsel
with a copy to the other Participants
Circus Circus Enterprises, Inc.
2880 Las Vegas Blvd., P. O. Box 14967
Las Vegas, Nevada
89114-4967
Telecopier: (702) 731-6262
Attention: Clyde T. Turner, President
with a copy to the other Participants
- and -
<PAGE>
- 27 -
Hilton Hotels Corporation
c/o Hilton Gaming Corporation
2001 E. Flamingo Road
Suite 114
Las Vegas, Nevada
89119
Telecopier: (702) 732-0027
Attention: Mark E. Thomas, Senior Vice President and General
Counsel
with a copy to the other Participants
and, in each case, to:
Blake, Cassels & Graydon
199 Bay Street
Suite 2800, Commerce Court West
P. O. Box 25
Toronto, Ontario
Canada, M5L 1A9
Telecopier: (416) 863-3033
Attention: John M. Tuzyk
or to such other address or in care of such other officers as a party may from
time to time advise to the other parties by notice in writing. The date of
receipt of any such notice, demand, request, consent, agreement or approval if
served personally or by telex, telecopy or telegram shall be deemed to be the
date of delivery thereof (if such day is a Business Day and if not, the next
following Business Day), or if mailed as aforesaid, the date of delivery by
postal authority.
6.2 TABLE OF CONTENTS AND HEADINGS: The table of contents hereto and
the headings of any Articles, Section or part thereof are inserted for purposes
of convenience only and do not form part hereof.
6.3 ENFORCEABILITY: If any provision of this Agreement is determined by
a court of competent jurisdiction to be invalid, illegal or unenforceable as
written, such provision shall be enforced to the maximum extent permitted by
Applicable Law.
<PAGE>
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6.4 SUCCESSORS AND ASSIGNS: This Agreement shall enure to the benefit
of and be binding upon the successors and permitted assigns of each party
hereto. This Agreement shall not be assigned by the Operator or the
Participants without the prior written consent of OCC, which consent shall not
be unreasonably withheld or delayed.
6.5 TIME OF ESSENCE AND FORCE MAJEURE: Time shall in all respects be of
the essence hereof, provided, however that the time for doing or completing any
matter provided for herein may be extended or abridged by an agreement in
writing signed by OCC and the Operator, or by their respective counsel who are
hereby expressly appointed in that regard. Notwithstanding any other provision
in this Agreement, if by reason of Force Majeure, a party is unable to perform
in whole or in part its obligations under this Agreement, then in such event and
only during such period of inability to perform, such party shall be relieved of
those obligations to the extent it is so unable to perform and such inability to
perform, so caused, shall not make such party liable to the other, and any time
periods in which such obligation is to be performed shall be extended for such
period of inability to perform; every obligation contained in this Agreement
shall be deemed to be subject to Force Majeure provided, however, that the
Master Agreement Deadline and the Final Closing Deadline may not be extended by
reason of Force Majeure but only by agreement between the parties hereto as
herein provided.
6.6 APPROVALS: Wherever the provisions of this Agreement contemplate an
approval or consent of or to or a decision with respect to any action, Person,
document or plan by either party, this Agreement (unless the text hereof
expressly states that such approval or consent may be arbitrarily or
unreasonably withheld, or unless the text hereof expressly states that the time
periods are to be otherwise, in which latter case this Section shall apply but
the time periods shall be adjusted accordingly) shall be deemed to provide that:
(a) such request for approval, consent or decision shall:
(i) clearly set forth the matter in respect of which such
approval, consent or decision is being sought;
(ii) form the sole subject matter of the correspondence containing
such request for approval, consent or decision; and
(iii) clearly state that such approval, consent or decision is
being sought;
otherwise such request shall be deemed never to have been made;
(b) such approval, consent or decision shall be in writing;
(c) such approval, consent or decision shall not be unreasonably
withheld or delayed;
<PAGE>
- 29 -
(d) the party whose approval or consent is requested shall, within 15
Business Days after receipt of such request, advise the other party
by notice in writing either that it consents or approves, or that it
withholds its consent or approval and in the latter case it shall
set forth, in reasonable detail, its reasons for withholding its
consent or approval;
(e) in the case of OCC, an approval, consent or decision hereunder shall
not have been effectively given unless given by an officer or
director of OCC, one of OCC's Working Committee Representatives, or
a member of the "Casino Project Team" established by Her Majesty.
6.7 GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and each party irrevocably
and unconditionally submits to the non-exclusive jurisdiction of the courts of
such province and all courts competent to hear appeals therefrom.
6.8 RELATIONSHIP OF THE PARTIES: Nothing herein shall be construed so
as to make OCC a partner or joint venturer of the Operator or the Participants
or, except as expressly provided herein, to render the Operator or the
Participants the agent or other authorized representative of OCC for any
purpose.
6.9 THIRD PARTIES: None of the rights or obligations hereunder of any
party shall enure to the benefit of or be enforceable by any party other than
the parties to this Agreement and their respective successors and permitted
assigns.
6.10 DISCLOSURE: Each of the parties hereto acknowledges, agrees and
consents to the disclosure of this Agreement as a matter of public record and
further acknowledges and agrees that Applicable Law may require disclosure of
information provided by any party hereto to any other party or parties hereto
pursuant to or in connection with this Agreement. However, the parties
acknowledge and agree that information provided by any party hereto to any other
party or parties hereto pursuant to or in connection with this Agreement may
comprise trade secrets or scientific, technical, commercial, financial or labour
relations information, supplied in confidence, disclosure of which could
reasonably be expected to prejudice significantly the competitive position or
interfere significantly with the contractual or other negotiations of one or all
of the parties or result in undue loss to one or all of the parties or undue
gain to others. Further, such information may include information the
disclosure of which could reasonably be expected to prejudice the economic
interests of OCC or other provincial government institutions or its or their
competitive position and the proposed plans, policies or projects of OCC or
other provincial government institutions or the disclosure of which could
reasonably be expected to result in
<PAGE>
- 30 -
premature disclosure of a pending policy decision or undue financial benefit or
loss to a person. Accordingly, except as may be required by Applicable Law, all
such information shall be kept confidential by the parties and shall only be
made available to such of a party's employees and consultants as are required to
have access to the same in order for the recipient party to adequately use such
information for the purposes for which it was furnished.
6.11 PUBLICITY: Except where disclosure is required by a Participant or
the Operator under Applicable Law, the parties agree that they shall mutually
agree on all press releases and other public disclosures concerning the Project
prior to any party making any such press releases or public disclosures.
6.12 COUNTERPARTS AND DELIVERY BY FACSIMILE: This Agreement may be
executed in several counterparts each of which so executed shall be deemed to be
an original, and such counterparts together shall constitute one and the same
instrument and notwithstanding their date of execution shall be deemed to bear
date as of the date first above written. An executed copy of this Agreement may
be delivered by any party hereto by facsimile. In such event, such party shall
forthwith deliver to the other parties hereto, a copy of this Agreement executed
by such party.
IN WITNESS WHEREOF this Agreement has been executed by the parties.
ONTARIO CASINO CORPORATION
By: /s/ Elaine Todres
------------------------------------------
By: /s/ Jay Kaufman
------------------------------------------
<PAGE>
- 31 -
WINDSOR CASINO LIMITED
By: /s/ Michael Rumbolz
------------------------------------------
By:
------------------------------------------
CAESARS WORLD, INC.
By: /s/ Philip L. Ball
------------------------------------------
By:
------------------------------------------
CIRCUS CIRCUS ENTERPRISES, INC.
By: /s/ Clyde Turner
------------------------------------------
By:
------------------------------------------
HILTON HOTELS CORPORATION
By: /s/ Raymond Avansino Jr.
------------------------------------------
By:
------------------------------------------
<PAGE>
-32-
SCHEDULES
Schedule A - Material Terms of Principal Agreements
Part 1 - Master Agreement
Part 2 - City Master Agreement
Part 3 - Land Lease
Part 4 - Land Sublease
Part 5 - City Option Agreement
Part 6 - Project Lease
Part 7 - Operating Agreement
Schedule B - Project Site
<PAGE>
SCHEDULE A
MATERIAL TERMS OF PRINCIPAL AGREEMENTS
PART 1 - MASTER AGREEMENT
1. PURPOSE: The Master Agreement will supersede the Heads of Agreement as an
executory contract, will contain the other formal documents as schedules and
will govern the relationship and duties of the parties with respect to
preconstruction and construction.
2. THE PARTIES: OCC, the Operator and the Participants.
3. IDENTIFICATION OF SITE:
(i) legal description to be attached; and
(ii) acreage, reference to bordering streets, streets to
be closed or widened, etc.
4. DESCRIPTION OF PROJECT:
(i) identify basic features;
(ii) Concept Design to be attached; and
(iii) Site Plan to be attached.
5. REPRESENTATIONS AND WARRANTIES: As in Heads of Agreement.
6. PRECONSTRUCTION PHASE:
(a) GOOD FAITH: Each party would be obligated to act diligently and in
good faith to carry out its preconstruction obligations.
(b) OCC'S PRECONSTRUCTION OBLIGATIONS: OCC would be responsible for
the following preconstruction activities pertaining to the Project:
(i) assist in the process of obtaining all provincial
government controlled permits, licenses, etc.;
(ii) act diligently in granting all approvals required by the
Agreement;
<PAGE>
A-2
(iii) meet and consult with the Operator, the Participants and
their respective consultants on an ongoing basis;
(iv) to use its reasonable efforts to assist the Operator in
obtaining all necessary Governmental Consents as and when
required for the construction of the Project in accordance
with the Project Plans, the Enabling Legislation and
Applicable Law;
(v) to use its reasonable efforts to assist the Operator in
finalizing all governmental and other agreements,
approvals, consents, permits, licenses and other
documentation necessary or desirable with respect to the
development of the Project;
(vi) to use its reasonable efforts to assist the Operator in
obtaining any licenses, permits or other permissions
required in respect of the development or operation of any
infrastructure made necessary by reason of the development
and/or operation of the Project; and
(vii) to co-operate with the Operator in obtaining any rezoning
or legislative amendment necessary to permit the uses of
the various components of the Project for their intended
use.
(c) OPERATOR'S PRECONSTRUCTION OBLIGATIONS: The Operator would be
generally responsible for all other preconstruction activities
pertaining to the Project, including:
(i) to retain and oversee the Project Manager, if any and to
retain and oversee the Project Architect, the General
Contractor and other consultants;
(ii) enter into agreements with the Project Architect, the
Project Manager if any, and other consultants which shall
be on terms that:
(A) provide for a release of any copyright in plans,
designs, and other similar property (to the extent
that such plans, designs and other similar property
may be used in the Project), it being understood
that the foregoing shall, as between the Operator
and OCC, be the property of the Operator until
termination of the Master Agreement; and
(B) permit OCC or its nominee the right to assume the
Operator's rights and obligations under such
agreements without payment of any penalty by OCC or
its nominee or further consent (or if further
consent shall be required such consent shall be
obtained by the Operator);
<PAGE>
A-3
(iii) to develop and finalize the Project Plans based upon the
Concept Design, the Site Plan and based upon and subject to
the financial parameters prepared by the Operator in the
Operator's Proposal;
(iv) to supervise and direct the design development process;
(v) to supervise and direct the preparation of all working
drawings and specifications;
(vi) to develop and finalize the Development Schedule;
(vii) to develop and finalize the Project Budget based upon and
subject to the financial parameters prepared by the
Operator in the Operator's Proposal;
(viii) to prepare, undertake, review and award competitive bid
packages as appropriate and to finalize and enter into the
general construction contract;
(ix) to use its reasonable efforts to retain sufficient work
forces, subcontractors, consultants, etc.;
(x) to use its reasonable efforts to obtain appropriate
bonding;
(xi) to use its reasonable efforts to obtain all necessary
Governmental Consents as and when required for the
appropriate stage of construction of the Project;
(xii) to use its reasonable efforts to have all necessary testing
undertaken;
(xiii) to enter into all required development, site plan and other
municipal type agreements;
(xiv) to obtain a site location survey;
(xv) to use its reasonable efforts to obtain all permissions
respecting infrastructure;
(xvi) to use its reasonable efforts to arrange for the supply of
all necessary infrastructure;
(xvii) to use its reasonable efforts to obtain all licences
necessary to operation of the casino and other uses
identified in the Project Plans;
(xviii) to use its reasonable efforts to obtain excavation and
other building permits;
<PAGE>
A-4
(xix) to consult with OCC's designated representatives through
the Project development to the finalization of Project
Plans, working drawings, Project Budget, Development
Schedule, etc.;
(xx) to identify requirements pertaining to furniture,
furnishings, equipment (including all gaming equipment),
fixtures, apparatus and other personal property to be used
in, held in storage for use in, or required in connection
with the operation of the casino in the Project;
(xxi) to establish and maintain cost accounting records in
accordance with normal business practice appropriate for
the development of the Project;
(xxii) to use its reasonable efforts to cause regular progress
meetings to be held to be attended by OCC representatives;
(xxiii) to establish one or more segregated bank accounts for the
Project;
(xxiv) to participate with OCC in discussions with representatives
of Windsor Raceway with respect to teletheatre and any
other initiatives that have been identified and approved by
OCC and the Operator; and
(xxv) apprise OCC prior to entering into any material transaction
with any of the Participants or with any Affiliates of the
Participants, including any guarantee by the Operator of
any obligations of any such Person, other than as may be
expressly permitted by this Agreement or the Project
Budget.
(d) OCC'S APPROVAL RIGHTS: OCC would have approval rights with respect
to the form of and material amendments to all material agreements
with the City and others relating to any material aspect of the
construction, development, financing or operation of the Project
(the "Project Agreements").
7. CLOSING:
(a) DELIVERY OF DOCUMENTS: The following would be executed and
delivered on the Final Closing Date:
(i) the Land Lease;
(ii) the Land Sublease;
(iii) the City Option Agreement;
(iv) the City Development Agreements;
<PAGE>
A-5
(v) the Insurance Trust Agreement;
(vi) the Leasehold Mortgagee Acknowledgement Agreements;
(vii) the Project Lease; and
(viii) the Operating Agreement.
(b) PRE-CONDITIONS BENEFITTING OCC: OCC's obligation to carry out the
transactions contemplated in the Agreement will be subject to
fulfilment of conditions similar to those set forth in Section 4.2
of the Heads of Agreement but making reference to the Final Closing
Date and the Final Closing Deadline.
(c) PRE-CONDITIONS BENEFITTING THE OPERATOR: The Operator's obligation
to carry out the transactions contemplated in the Agreement will be
subject to fulfilment of conditions similar to those set forth in
Section 4.3 of the Heads of Agreement but making reference to the
Final Closing Date and the Final Closing Deadline.
(d) PRE-CONDITIONS BENEFITTING OCC AND THE OPERATOR: OCC's and the
Operator's obligations to carry out the transactions contemplated
in the Agreement will be subject to fulfilment of each of the
following conditions on or before the Final Closing Deadline:
(i) that the site for the Project has been duly
assembled by the City;
(ii) that the City has good and marketable fee simple
title to the Land;
(iii) that the site is properly zoned for the intended
uses for the Project;
(iv) compliance with the provisions of Section 50 of the
PLANNING ACT (Ontario) and amendments thereto;
(v) all documents to be finalized by the Final Closing
Deadline shall have been finalized;
(vi) all documents or copies or documents required to be
executed and delivered by the Operator, the City or
OCC shall have been so executed and delivered;
(vii) there being no litigation which, if successful,
would prevent or have a material adverse effect on
the completion or economic viability of the
Project;
<PAGE>
A-6
(viii) there being no material adverse change in the legal
or economic circumstances relating to the Project
or which would have a material adverse effect on
the completion or economic viability of the
Project;
(ix) the Project Plans having been approved by OCC;
(x) the Project Budget having been approved by OCC;
(xi) the Development Schedule having been approved by
OCC;
(xii) the Project Manager and the General Contractor
having been approved by OCC;
(xiii) all Project Agreements in existence as of such date
having been approved by OCC;
(xiv) all necessary permits, licences and other approvals
from governmental bodies, utilities and other third
parties necessary to permit commencement of
construction being in hand;
(xv) that the Operator has bonding approved by OCC in
place with OCC as a co-obligee;
(xvi) that the Operator has in place third party
financing or other loan arrangements approved by
OCC for no more than 75% of budgeted development
costs and monies for at least 25% of the budgeted
development costs shall be provided by the
Participants or their Affiliates or Persons under
the Control of the Participants.
(e) SATISFACTION: As in Heads of Agreement.
8. OTHER CLOSING MATTERS:
(a) closing date identified (to be no later than Final Closing
Deadline); and
(b) responsibility for costs, expenses, including registration and
legal fees.
9. CONSTRUCTION PHASE:
(a) PRECONDITIONS TO OPERATOR'S CONSTRUCTION OBLIGATIONS: As in
Section 7(d) above.
<PAGE>
A-7
(b) OPERATOR'S CONSTRUCTION OBLIGATIONS: The Operator would be
responsible to construct the Project in accordance with the Project
Plans, within the Project Budget and in compliance with the
Development Schedule, including:
(i) to cause site preparation, demolition, if any, and
excavation to be commenced as permitted by Applicable Law;
(ii) to direct and oversee all construction activities;
(iii) to use its reasonable efforts to ensure that all necessary
construction supplies are ordered;
(iv) to use its reasonable efforts to ensure that sufficient
work forces are retained; and
(v) to consult with the Project Architect and other principal
consultants re compliance with Project Plans, Project
Budget and Development Schedule.
(c) OCC'S CONSTRUCTION OBLIGATIONS: OCC would be responsible for the
following:
(i) assist in the process of obtaining all provincial
government control permits, licenses, etc.;
(ii) act diligently in granting all approvals required by the
Agreement;
(iii) meet and consult with the Operator, the Participants and
their respective consultants on an ongoing basis;
(iv) have available on site during normal business hours a
Working Committee Representative having the authority to
grant approvals for any site changes to the Project Plans
and the Development Schedule; and
(v) apprise OCC prior to entering into any material transaction
with any of the Participants or with any Affiliate of the
Participants, including any guarantee by the Operator of
any obligations of any such Person, other than as may be
expressly permitted by the Project Budget.
(d) OCC'S APPROVAL RIGHTS: OCC would have a prior right to approve the
creation of any new Project Agreement and any termination of an
existing Project Agreement.
<PAGE>
A-8
(e) PROJECT AGREEMENTS: The Operator would enter into all Project
Agreements (i.e., with consultants, contractors, other third
parties) on terms that:
(i) provide for a release of copyright and other rights in
plans, designs, etc. (it being understood that the
foregoing shall, as between the Operator and OCC, be the
property of the Operator until the termination of the
Master Agreement); and
(ii) permit OCC or its nominee to assume the Operator's rights
and obligations under such contracts without payment of
penalty by OCC or its nominee or further consent (or if
further consents shall be required such consents shall be
obtained by the Operator).
(f) INSURANCE RE CONSTRUCTION PHASE: The Operator will arrange for all
appropriate property damage, liability and other required insurance
to be in place, naming OCC (and the City with respect to liability)
as a named insured, with the Operator and the Participants as named
insureds or additional named insureds. The policies shall provide
for the waiver or release of all rights of subrogation against the
Operator, OCC and the City, such coverage to be primary and non-
contributory as to other insurance of the Operator, with loss
payable under the property damage insurance to an Insurance
Trustee.
(g) INFORMATION AND ACCESS:
(i) OCC shall be kept fully informed of all material events and
developments pertaining to construction of the Project;
(ii) an OCC liaison team shall be established and shall be
briefed at regular meetings for Project updates;
(iii) subject to compliance with applicable insurance
requirements, OCC's representatives designated in writing
in advance (in accordance with procedures to be established
by the parties) would be entitled to the same degree of
access to the work site and to fabrication sites as are the
Operator's representatives; and
(iv) OCC's representatives would have the right to attend on
regular site inspections with the Operator, the Project
Architect, etc.
(h) ACCOUNTS AND RECORDS:
(i) the Operator would maintain an office at or near the
Project site where it would keep comprehensive, true,
complete and accurate books, records, accounts and
documents, reports, studies, tests, plans, drawing permits,
models,
<PAGE>
A-9
studies, and other construction-related material with
respect to the entire construction process and the
transactions pertaining thereto;
(ii) OCC's authorized representatives would, upon reasonable
prior notice to the Operator, have full access during
normal business hours to inspect such books, records,
accounts, documents, etc., and to make extracts or copies
and perform audits; and
(iii) the Operator would provide such evidence as to the payment
of development costs as OCC shall reasonably require.
(i) REPORTS: The Operator would provide a monthly report to OCC as to
construction progress, costs incurred, compliance with or variance
from Project Budget and Development Schedule, estimated cost to
complete, etc., in such form and detail as provided by the Project
Architect or the General Contractor.
(j) CHANGES TO PROJECT PLANS: A procedure would be established for
notice to OCC as to proposed material changes to the Project Plans,
a review period, an approval deadline, etc.
10. SUBSTANTIAL COMPLETION: The Operator would covenant to cause the various
components of the Project to be Substantially Completed by the respective dates
scheduled therefor in the approved Development Schedule. The Participants would
covenant to achieve Substantial Completion of the various components of the
Project by no later than the respective dates scheduled therefor in the approved
Development Schedule, and in any event to provide such monies as may be
necessary to fund any overruns in the cost of the Project beyond the budgeted
cost in the approved Project Budget. The obligations of the Participants under
this Agreement are and shall be several and proportional to the equity interest
of the Participants in the Operator and shall not be joint or joint and several.
11. CHANGE OF CONTROL/OWNERSHIP: The Operator and Participants would agree
that, until a date to be determined and unless OCC otherwise consents, such
consent not to be unreasonably withheld, the only shareholders of the Operator
would be one or more of the Participants or their Affiliates, except for:
(a) a transaction which is not prohibited by Section 6.4(c) of the
Interim Casino Operating Agreement;
(b) a transfer to a Person (other than a joint venture or partnership)
Controlled by or under common Control with a Participant;
(c) transfers or issuances of securities after the Master Agreement
Closing Date provided that all times the Participants or their
Affiliates continue to Control the Operator and on such other terms
as may be agreed; and
<PAGE>
A-10
(d) any transfer as may be required under Applicable Law or by any
other Governmental Authority.
12. ASSIGNMENT: The Operator would be permitted to assign/mortgage its
interest in the Agreement to an assignee/mortgagee permitted by the Land
Sublease.
13. TERMINATION: The Agreement would terminate upon:
(a) the Final Closing Deadline if the Final Closing Date has not
occurred;
(b) a notice given by OCC to the Operator if an Event of Insolvency
shall have occurred prior to the Final Closing Date in respect of
the Operator or any Participant;
(c) a notice given by OCC to the Operator prior to the Final Closing
Date if an Event of Default shall have occurred in respect of the
Operator;
(d) a notice given by the Operator to OCC prior to the Final Closing
Date if an Event of Default shall have occurred in respect of OCC;
(e) upon termination of the Interim Casino Operating Agreement pursuant
to Section 11.1(a) or Section 11.1(i) thereof;
(f) upon termination of the Agreement as a result of the failure to
fulfil (in absence of waiver with respect to) any of the
preconditions to Closing referred to in Sections 7(b), (c) or (d)
of Part 1 of this Schedule A; and
(g) upon a notice given by the Operator:
(i) if an event shall occur or state of facts be found to exist
with respect to the Project which has resulted in written
notification to a Participant or an Affiliate of a
Participant from a regulatory agency threatening, and which
such Participant exercising its best judgment in good faith
determines will likely lead to, a revocation of a material
gaming licence or denial of an application for renewal of
an existing material gaming licence of such Participant or
any of its Affiliates in the States of New Jersey or Nevada
in the United States of America; or
(ii) any increase(s) in the payments to be made under subsection
15(1)2 of the Enabling Legislation to the Consolidated
Revenue Fund of the Province of Ontario or the levying of
or any increase(s) in any taxes, assessments, imposts,
water, sewer, or other similar rents, rates, and charges,
levies, licence fees, permit fees, inspection fees and
other authorization fees and charges, which at any time may
be assessed, levied, confirmed or imposed on the Project
(or in each case, amounts paid in lieu thereof) (excluding,
for greater certainty, capital
<PAGE>
A-11
or income taxes of the Operator) which, individually, or in
the aggregate, will materially adversely affect the
operating profit of the Project.
14. REIMBURSEMENT FOR COSTS AND OCC ASSUMPTION: As per Sections 2.4 and 5.2 of
the Heads of Agreement.
15. APPROVALS: To be discussed.
16. TIME OF ESSENCE AND FORCE MAJEURE: As in Heads of Agreement.
17. ENTIRE AGREEMENT CLAUSE: .
18. STATUS CERTIFICATES: .
19. DISPUTE RESOLUTION: To be discussed.
______________________________________
<PAGE>
A-12
PART 2 - CITY MASTER AGREEMENT
20. PURPOSE: The City Master Agreement will:
(a) obligate the City to complete the site assembly;
(b) obligate the City to sell or ground lease the site to OCC;
(c) obligate the City to provide the City Option to OCC;
(d) obtain the City's representations as to title, zoning, etc.;
(e) obligate the City to co-operate in the preconstruction and
construction process; and
(f) seek to limit the municipal fees and charges with respect to the
Project.
21. THE PARTIES: The City, the Operator and OCC.
22. REPRESENTATIONS AND WARRANTIES:
(a) From the City as to:
(i) status of site assembly;
(ii) its good and marketable fee simple title to the site;
(iii) extent of services to the site;
(iv) proper zoning for the site for the intended uses for the
Project;
(v) no outstanding or threatened litigation re the site
assembly;
(vi) no contaminants or environmental infractions;
(vii) proper authority, due qualification, etc.; and
(viii) such other representations consistent with general practice
in transactions of a similar nature.
(b) From the Operator as to:
proper authority, due qualification, etc. (as in Heads of
Agreement).
<PAGE>
A-13
(c) From OCC as to:
proper authority, due qualification, etc. (as in Heads of
Agreement).
23. THE CITY'S PRECONSTRUCTION OBLIGATIONS:
(a) to complete the site assembly;
(b) as to any re-zoning for the intended uses for the Project;
(c) as to any title issues;
(d) as to any contaminants and environmental matters;
(e) as to any site related litigation;
(f) as to any required site preparation;
(g) as to demolition and removal of structures and foundations;
(h) to acknowledge that the Operator and/or OCC may act as the City's
authorized representative vis-a-vis the site through the
preconstruction process (i.e., the City owns the site);
(i) to permit full access to the site for inspection, testing, etc.
(j) to provide general co-operation and assurances;
(k) to proceed expeditiously with development review, processing of
plans, municipal agreements, etc.;
(l) to deliver vacant possession of the Land on the Final Closing Date;
(m) to co-operate and consent to any application(s) to have the Land
registered under the LAND TITLES ACT (Ontario); and
(n) such additional obligations as are consistent with general practice
in transactions of a similar nature.
24. OCC'S AND OPERATOR'S APPROVAL/CONSULTATION RIGHTS:
(a) as to any settlements with existing landowners;
<PAGE>
A-14
(b) as to any exceptions to good and marketable title;
(c) as to any re-zoning required for the intended uses for the Project;
and
(d) as to such other additional matters as are consistent with general
practice in transactions of a similar nature.
25. CLOSING:
(a) DELIVERY OF DOCUMENTS: The following documents would be executed
and delivered:
(i) the Land Lease;
(ii) the City Option Agreement;
(iii) the City Development Agreements;
(iv) recognition and non-disturbance agreements; and
(v) such additional agreements as are consistent with general
practice in transactions of a similar nature.
(b) PRECONDITIONS TO CLOSING: The Operator's and OCC's obligation to
close would be conditional upon:
(i) the site being fully assembled;
(ii) the City having good and marketable fee simple title to the
site;
(iii) the site being properly zoned for the intended uses for the
Project;
(iv) the site being free from contaminants or environmental
infractions;
(v) all superstructures and other improvements have been
reduced to grade level and all foundations removed;
(vi) the City's acquisition costs for the Land and the interest
factor to be utilized for the Land Lease Rent shall have
received the prior approval of the Operator and OCC;
(vii) delivery of vacant possession to the Land; and
<PAGE>
A-15
(viii) such additional preconditions as are consistent with
general practice in transactions of a similar nature.
(c) OTHER CLOSING MATTERS:
(i) adjustment provisions;
(ii) parties each responsible for their own costs and expenses,
including registration and legal fees; and
(iii) such additional provisions as are consistent with general
practice in transactions of a similar nature.
______________________________________
<PAGE>
A-16
PART 3 - LAND LEASE
26. THE PARTIES: The City, as landlord and OCC, as tenant.
27. TERM: The initial term (the "Initial Term") would be the aggregate of
20 years and the period that is the shorter of:
(a) 3 years; and
(b) the period from the commencement date to the date on which the
casino portion of the Project is open to the public for gaming
operations.
28. RENEWAL RIGHTS: OCC (or its assignee) would have ongoing rights to renew
the term for two successive periods of 10 years and one further period that
results in the Initial Term plus renewals aggregating 50 years less one day.
29. LAND LEASE RENT: The rent (the "Land Lease Rent") during the Initial Term
shall be per annum amount payable in equal consecutive monthly instalments
calculated with reference to the City's acquisition costs of the Land (as
approved by OCC and by the Operator pursuant to the City Master Agreement)
amortized on a straight line basis with an appropriate interest factor over the
Initial Term. The rent for any renewal term would be $1 a year.
30. NET LEASE: The rent would be absolutely net to the landlord, with no set-
off of costs and expenses of any nature or kind except for any costs and
expenses pertaining to any matter represented and warranted by the landlord in
the documentation which was inaccurate, incomplete or untrue.
31. USE: The tenant would be entitled to use the site for any lawful purpose
including for the construction and operation of the Project for the intended
uses (i.e., casino, hotel, entertainment, restaurants, theatres, parking, etc.).
32. IMPOSITIONS: The tenant would be responsible to pay, or cause to be paid,
all taxes, levies, rates, charges, fees of every nature and kind assessed by any
taxing authority in respect of the Project including the construction or
operation of the Project or part thereof or the businesses thereon.
33. INSURANCE: The tenant would be obliged to obtain and maintain, or cause to
be obtained and maintained, comprehensive liability coverage and rental
insurance (re: Land Lease Rent) with the landlord as a named insured, with loss
payable under the rental insurance payable to an Insurance Trustee as per Land
Sublease.
34. REPAIRS AND MAINTENANCE: The tenant would be obliged to maintain the
Project, once constructed, in accordance with all applicable municipal laws, and
on termination, to turn the Project over in the same condition as it was
required to maintain the Project, reasonable wear and tear and other matters to
be excepted.
<PAGE>
A-17
35. INDEMNITY: The tenant would agree to indemnify and hold the landlord
harmless from all losses, costs, damages, etc. which arise from the construction
or operation of the Project except losses, costs, damages, etc., resulting from
the negligence or wilful misconduct of the landlord.
36. ASSIGNING AND SUBLETTING AND SALES: There would be no restrictions on
assignments or subletting by the tenant during the Term and any sale by the
landlord will be subject to the terms of the City Option Agreement.
37. RIGHT OF FIRST REFUSAL: The tenant would be entitled to a right of first
refusal upon any proposed sale by the landlord of its interest in the Land.
38. NON DISTURBANCE: Non-disturbance and recognition agreements to OCC and the
Operator and its or their successors, tenants and lenders, so as to facilitate
financing of the Operator's interest in the Project. The landlord's rights
would not be subordinated to or rank equally with the rights of a leasehold
mortgagee. The Operator would only be entitled to mortgage its interest in the
Land Sublease if the mortgage included a charge of the Operator's interest under
the Operating Agreement. Any lenders would be entitled to certain rights vis-a-
vis the landlord, such as:
(i) the right to cure the tenant's Land Lease defaults to
prevent lease termination; and
(ii) such other rights as are reasonable under the
circumstances, taking into consideration trade practices
and market conditions.
The landlord shall agree to act reasonably in making such modifications to the
Land Lease as are reasonably necessary to facilitate financing of Project Costs,
as aforesaid.
39. EVENTS OF DEFAULT: Breaches or defaults under the Land Lease which:
(a) in the case of substantial monetary defaults, were not cured within
30 days after written notice of default from the non-breaching
party; and
(b) in the case of substantial non-monetary defaults, were not cured
within 60 days after written notice of default from the non-
breaching party or such longer period as is reasonably regarded as
necessary to remedy such default provided that the tenant has
commenced with good faith the remedying of such default within such
60 day period and thereafter prosecutes to completion with
diligence and continuity the remedying thereof.
In the event there is a dispute as to whether an event giving rise to a right of
termination has occurred, any applicable grace or cure period shall commence on
the date of the determination of such dispute.
<PAGE>
A-18
40. STATUS CERTIFICATES:
41. QUIET ENJOYMENT: The landlord will provide a covenant for quiet enjoyment.
42. NON RECOURSE TO OCC: The landlord would not have any recourse against OCC
or Her Majesty for non-performance of any of the tenant's covenants or
obligations, the landlord's sole remedy (as against OCC and Her Majesty) being
limited to termination of the Land Lease.
43. OPERATOR COVENANT: Until Substantial Completion of the Project, the
Operator will covenant directly with the landlord to make all payments of Land
Lease Rent to the landlord.
44. TIME OF THE ESSENCE AND FORCE MAJEURE: As in Heads of Agreement.
______________________________________
<PAGE>
A-19
PART 4 - LAND SUBLEASE
45. THE PARTIES: OCC, as lessor, Operator, as lessee.
46. TERM: The initial term would be the Initial Term of the Land Lease less
the last day.
47. RENEWAL RIGHTS: OCC shall renew the term for a term co-terminous with the
term of the Land Lease (in each case, less one day), provided that the Operating
Agreement had been renewed or replaced for a like period of time.
48. THE LAND LEASE COVENANTS: The Operator would agree to remit to the City
all rent and other monies payable by OCC under the Land Lease, unless the
payment of such rent or other monies is being contested in good faith and
diligently by appropriate proceedings (and for the payment of which adequate
provision has been made) and would agree to indemnify and hold OCC harmless from
liabilities which arise from the construction or operation of the Project or
which arise under the Land Lease, other than losses, costs, damages resulting
from the negligence or wilful misconduct of OCC.
49. NET LEASE: The rent would be absolutely net to the lessor (i.e. all
amounts payable by the tenant under the Land Lease would be payable by the
Operator as rent under the Land Sublease).
50. USE: The tenant would only be entitled to use the Project for the intended
purpose of the Improvements (and uses reasonably ancillary thereto and other
uses approved by OCC).
51. IMPOSITIONS: As per Land Lease.
52. INSURANCE: The tenant would be obliged to obtain and maintain satisfactory
comprehensive insurance protection, including construction, full replacement
cost, comprehensive liability coverage, business interruption, etc. with OCC
(and the City with respect to comprehensive liability and rental) as named
insureds and with the Insurance Trustee as loss payee on the property insurance
and business interruption insurance.
53. REPAIRS AND MAINTENANCE: The tenant would be obliged to maintain the
Project, once constructed, in good condition and repair (at minimum, to the
standards of maintenance and repair established from time to time pursuant to
the Operating Agreement), and on termination to turn the Project over in the
same condition as it was required to maintain it, reasonable wear and tear and
other matters to be excepted.
54. MAJOR CAPITAL IMPROVEMENTS AND REDEVELOPMENT: Only as may be approved by
OCC and the Operator.
55. DAMAGE AND DESTRUCTION: To be discussed.
<PAGE>
A-20
56. ASSIGNMENT AND SUBLETTING: Other than to permit financing or refinancing
of Project Costs as referred to in Section 13 below, there would be no permitted
assignments or subletting during the Term without the consent of the lessor,
such consent not to be unreasonably withheld, other than the Project Lease and
space leases and in other circumstances to be negotiated.
57. LEASEHOLD MORTGAGING:
(a) the lessor's rights would not be subordinated to or rank equally
with the rights of a leasehold mortgagee;
(b) permitted leasehold mortgagees would be those that were approved by
OCC for funding, limited to a maximum of 75% of "Project Costs"
not in excess of the amounts budgeted therefor in the approved
Project Budget;
(c) the Operator would only be entitled to mortgage its interest in the
Land Sublease if the mortgage included a charge of the Operator's
interest under the Operating Agreement;
(d) permitted leasehold mortgagee would be entitled to certain rights
vis-a-vis the landlord, such as:
(i) the right to cure the tenant's Land Sublease defaults to
prevent lease termination;
(ii) the right to a replacement Land Sublease on the same terms
and for the remaining term in the case of an incurable
default; and
(iii) such other rights as are reasonable under the
circumstances, taking into consideration trade practices
and market conditions.
(e) OCC agrees to act reasonably in making such modifications to the
Land Sublease and the Operating Agreement as are reasonably
necessary to facilitate financing of Project Costs, as aforesaid.
58. EVENTS OF DEFAULT:
(a) an Event of Default under the Master Agreement or the Operating
Agreement;
(b) breaches or defaults which would, with the giving of notice or
lapse of time, or both, constitute an Event of Default under the
Land Lease and which,
(i) in the case of monetary defaults, were not cured within 20
days after prior written notice of such default from the
non-breaching party;
<PAGE>
A-21
(ii) in the case of non-monetary defaults, were not cured within
30 days after written notice of default or one-half of such
longer period in excess of 60 days as the City has agreed
is reasonably required given the nature of the default
provided that the breaching party has commenced with good
faith the remedying of such default within such 60 day
period and thereafter prosecutes to completion with
diligence and continuity the remedying thereof.
(c) abandonment of the Project by the Operator;
(d) discontinuation of the operation of the "casino use"; and
(e) failure to pay any amount to an extent that the Project is under
imminent sale and/or seizure.
In the event there is a dispute as to whether an event giving rise to a right of
termination has occurred, any applicable grace or cure period shall commence on
the date of the determination of such dispute.
59. DISPUTE RESOLUTION: To be negotiated.
60. QUIET ENJOYMENT: The lessor will provide a covenant for quiet enjoyment.
61. TERMINATION: In addition to any other remedies available to OCC, OCC may
terminate the Land Sublease upon the occurrence of an Event of Default. The
Land Sublease shall terminate upon:
(a) a termination of the Operating Agreement by affluxion of time; or
(b) the termination of the Master Agreement by the Operator or OCC.
All right, title and interest of the Operator in and to the Project shall
automatically revert to OCC upon a termination of the Land Sublease.
62. CITY OPTION AGREEMENT: Nature and extent of Operator rights, if any, to be
negotiated.
63. NON DISTURBANCE: Non-disturbance and recognition agreements to the
Operator and its successors, tenants and lenders, so as to facilitate financing
of the Operator's interest in the Project.
64. TIME OF THE ESSENCE AND FORCE MAJEURE: As in Heads of Agreement.
65. STATUS CERTIFICATES:
______________________________________
<PAGE>
A-22
PART 5 - CITY OPTION AGREEMENT
66. THE PARTIES: The City and OCC.
67. GRANT OF OPTION: The City would grant OCC an option to acquire the site
together with any improvements thereon, which may be exercised at any time up to
the date which is 180 days after the date on which the Land Lease terminates
(whether through affluxion of time or due to the tenant's default).
68. PAYMENT TERMS: If OCC exercises its option at any time on or after the
expiry date of the Initial Term of the Land Lease, the purchase price would be
$1.00. If OCC exercises its option at any time prior to the expiry date of the
Initial Term of the Land Lease, the purchase price would be the then present
value of all remaining payments of basic rent under the Land Lease, discounted
at the same discount rate as the rate of return used in determining such rent.
69. CLOSING TERMS: The exercise of the option would effectively create an
agreement of purchase and sale with all the usual terms, including:
(a) closing date to be 10 Business Days following the date of the
exercise of the Option;
(b) the usual closing adjustments;
(c) the obligation of the City to provide originals or true copies of
all relevant documentation;
(d) the usual transfer documentation;
(e) the right to prior access to the Project and all information; and
(f) the right to clear title.
______________________________________
<PAGE>
A-23
PART 6 - PROJECT LEASE
70. THE PARTIES: The Operator, as sublandlord and OCC, as subtenant.
71. PREMISES: The premises would be the entire Project.
72. TERM: Commencing on the earlier of (i) Substantial Completion of the
Project; and (ii) the date of opening of the casino portion of the Project for
casino operations (the "Casino Opening Date"), and ending on the day before the
last day of the initial term of the Land Sublease; provided that OCC would have
the same rights to renew the term of the Project Lease as its rights to renew
the Land Sublease.
73. RENT: The rent would be a limited recourse "pass-through" of (i) rent and
other amounts as required under the Land Sublease and (ii) a formula based upon
Project Costs.
74. USE: The use provision would be the same as in the Land Sublease.
75. ASSIGNMENTS: It is contemplated that any assignments or other transfers by
OCC of its sublease interest would only be with the consent of the Operator.
76. SUBLETTING: Subletting in accordance with the Operating Agreement.
77. QUIET ENJOYMENT: The sublandlord will provide a covenant for quiet
enjoyment.
78. AMENDMENTS: Parties to act reasonably in making such modifications to the
Project Lease as are reasonably necessary to facilitate financing the
Project Costs.
79. TIME OF THE ESSENCE AND FORCE MAJEURE: As in Heads of Agreement.
80. DISPUTE RESOLUTION: To be negotiated.
81. TERMINATION: Upon termination of the Land Sublease.
82. OTHER PROVISIONS: To be negotiated.
______________________________________
<PAGE>
A-24
PART 7 - OPERATING AGREEMENT
83. THE PARTIES: OCC, the Operator and the Participants.
84. APPOINTMENT OF OPERATOR:
(a) Subject to paragraph (b) below, OCC would retain, on a sole and
exclusive basis, the Operator as independent contractor to operate
and maintain the Project; and
(b) OCC would appoint the Operator as OCC's sole and exclusive agent to
operate on its behalf the Games of Chance (as such term is defined
in the CRIMINAL CODE (Canada)) to be carried on in the Project.
85. INITIAL TERM: The length of the Initial Term would be 10 years commencing
at the same time as the Project Lease, notwithstanding the Operating Agreement
shall be executed and delivered on the Master Agreement Closing Date.
86. RENEWAL RIGHTS:
(a) The Operating Agreement would be automatically renewed for a
further term of 10 years at the expiration of the Initial Term
unless, by notice (a "Non-Renewal Notice") given at least 12 months
prior to the expiry of the Initial Term, OCC or the Operator
elected to terminate the Operating Agreement at the expiry of the
Initial Term.
(b) If a Non-Renewal Notice is given by the Operator, it would not be
entitled to payment or recovery on account of the Operator's Fee
(as defined in paragraph 13 below) subsequent to the expiry of the
Initial Term and the Operator would be solely responsible to retire
and discharge all amounts owing under the third party credit
arrangements established by the Operator for the development of the
Project (the "Third Party Credit Arrangements"). The Operator
would be required to cause the third party lenders to release and
discharge any and all security held by them against the Project.
(c) If a Non-Renewal Notice is given by OCC, the Operator would not be
entitled to payment or recovery on account of the Operator's Fee
subsequent to the expiry of the Initial Term. However, OCC would
be obliged to pay to the Operator:
<PAGE>
A-25
(i) if OCC elects and is able to conclude satisfactory
arrangements with the third party lenders for the repayment
of the Third Party Credit Arrangements on terms
satisfactory to OCC an amount equal to 50% of the total
budgeted development costs approved by OCC and as set out
in the Project Budget (exclusive of Land Costs, working
capital and any cost overruns) or a fixed amount in lieu
thereof as agreed to by the parties and, in such
circumstances, OCC and not the Operator shall be
responsible to retire and discharge all amounts owing under
the Third Party Credit Arrangements; or
(ii) if OCC does not so elect or is not able to conclude such
arrangements, an amount equal to the aggregate of (A) 50%
of the total budgeted development costs approved by OCC and
as set out in the Project Budget (exclusive of Land Costs,
working capital and any cost overruns) or a fixed amount in
lieu thereof as agreed to by the parties and (B) an amount
equal to the debt outstanding as at the end of the Initial
Term under the Third Party Credit Arrangements and, in such
circumstances, the Operator and not OCC would be
responsible to retire and discharge all amounts owing under
the Third Party Credit Arrangements and to cause the third
party lenders to release and discharge any and all security
held by them against the Project.
87. OPERATING POLICIES: All operating policies for the Casino would be
prepared by the Operator and approved by OCC prior to the commencement of the
Initial Term.
88. ANNUAL OPERATING BUDGET:
(a) The Operator would, not less than 45 days and not more than 60 days
prior to start of each operating year for the Project, submit to
OCC for its approval the proposed operating budget for the Project
for the following operating year.
(b) If OCC failed to approve any proposed operating budget within 30
days of its submission, or to submit its objection within such
period, then OCC would be deemed to have approved such proposed
operating budget.
(c) If OCC objected to certain portions of the proposed operating
budget, the undisputed portions of the proposed operating budget
would be deemed to be approved and, until the disputed portions
were approved, the corresponding items in the previous year's
operating budget (as adjusted by a percentage increase in the
Consumer Price Index last published immediately before the time the
Operating Budget was submitted to OCC for its approval over the
Consumer Price Index last published before the operating budget for
the previous operating year was submitted to OCC for its approval)
would be substituted in the proposed operating budget in respect of
the disputed portions.
<PAGE>
A-26
89. SERVICES OF OPERATOR: The Operator would, in compliance with all material
agreements relating to the Project and the approved operating budget and in all
material respects in compliance with the approved operating policies perform, or
cause to be performed, the following services:
(a) use its reasonable efforts to obtain and maintain all Governmental
Consents required for the Project;
(b) use its reasonable efforts to do or cause to be done all such
things relating to the operation of the Project which are necessary
to ensure compliance with Applicable Law;
(c) identify, select, interview, hire and train personnel to be
employed in the operation of the Project, all such personnel to be
employees of the Operator and not OCC;
(d) perform and, where desirable, contract for all things necessary for
the proper, efficient and secure operation of, and the repair,
redecoration and maintenance in good working order and appearance
of, the Project and perform such other actions in or about the
Project as it may, acting reasonably, consider necessary or
advisable to carry out the intent of the Agreement;
(e) use its reasonable efforts to ensure that it and the Persons
retained by it or on its behalf for the provision of goods or
services for or to the Project are registered as suppliers as
required under the Regulatory Legislation;
(f) prepare and obtain OCC's approval any significant changes to the
operating policies for the Casino;
(g) remit directly to the City as and when due all rent and other
monies payable by the tenant under the Land Lease, unless the
payment of such rent or other monies is being contested in good
faith and diligently by appropriate proceedings (and for the
payment of which adequate provision has been made);
(h) use its reasonable efforts to negotiate and finalize concessions,
licences or other arrangements with respect to other space and
facilities in the Project;
(i) make available such operating equipment and operating supplies as
it may, acting reasonably, consider necessary or advisable for the
proper operation of the Project; and
(j) to the extent not completed by the Casino Opening Date, diligently
pursue the completion of the pre-opening services.
<PAGE>
A-27
90. LIMITATION ON AUTHORITY OF OPERATOR: Appropriate provisions to ensure
compliance with the CRIMINAL CODE (Canada).
91. ACCOUNTING AND DISTRIBUTION OF FUNDS: The Operator would perform the
following accounting and financial services:
(a) MONTHLY REPORTS: The Operator would, within 20 days after the end
of each month, prepare and submit to OCC written reports, in a
format approved by OCC, for the Project setting out:
(i) income and expense statements for the Project on a
departmental basis for the preceding month and the year to
date on an accrual basis with comparisons to the approved
operating budget and showing separately for the preceding
month, the computation of the Operator's Fee proposed to be
paid for such preceding month, and a balance sheet; and
(ii) an operating statement reconciling capital renewal reserves
and operating reserves taken in previous months to capital
renewals and operating expenses incurred and paid,
together with a bank reconciliation of the Project bank accounts
(the "Project Accounts") as at the end of the previous month to be
delivered at the later of the same time as the foregoing reports or
within 10 days after receipt of the same from the bank.
(b) BANKING: The Operator would handle all banking necessary for the
due performance of the Operator's accounting and administrative
functions under the provisions of the Agreement and for the receipt
and disbursements of all monies pertaining to the Project required
to be attended to by the Operator under the provisions of the
Agreement. The Operator assumes no responsibility for the
financial viability or strength of the financial institution.
(c) PROJECT ACCOUNTS: These provisions will be substantially the same
as those contained in the Interim Casino Operating Agreement.
(d) PROJECT ACCOUNT DISTRIBUTIONS AND RESERVES: The Operator would, in
accordance with the approved operating policies and approved
operating budget, withdraw from, or reserve in the Project
Accounts, the following amounts:
(i) winnings to players of Games of Chance;
(ii) payments for Win Tax, as and when due;
(iii) payments of Impositions, as and when due;
<PAGE>
A-28
(iv) payments of rent and other amounts as required
under the Land Lease, as and when due;
(v) payments of rent and other amounts as required
under the Project Lease, as and when due;
(vi) payments for Operating Expenses provided such costs
are set forth in the approved operating budget;
(vii) payments for FF&E Repairs and Capital Renewals in
accordance with the approved operating budget;
(viii) Capital Renewal Reserves and Operating Reserves as
established in the approved operating budget;
(ix) payments representing repayment of Mandatory
Deficiency Contributions, if any, made by the Operator
pursuant to paragraph (f) below during prior periods,
together with accrued and unpaid interest thereon;
(X) payments representing repayment of Discretionary
Deficiency Contributions made by the Operator pursuant to
paragraph (g) below during prior periods, together with
accrued and unpaid interest thereon;
(xi) payment of the Operator's Fee;
(xii) the balance existing at the end of each calendar
month would be wired to an account designated by OCC
concurrently with the payment of the Operator Fee.
The Operator would not overdraw the Project Accounts.
(e) CASH MANAGEMENT: The Operator would adhere in all material
respects to cash management policies and procedures approved by OCC
in consultation with the Operator, including the establishment of
and transfers to Project Accounts in addition to the operating
account.
(f) OPERATING RESERVES AND MANDATORY DEFICIENCY
DEFERRALS/CONTRIBUTIONS (IF ANY): These provisions will be
negotiated by the parties.
(g) DISCRETIONARY DEFICIENCY CONTRIBUTIONS: These provisions will be
substantially the same as those contained in the Interim Casino
Operating Agreement.
<PAGE>
A-29
(h) ACCOUNTING/NO COMMINGLING: The Operator would acknowledge
that all monies received by the Operator pursuant to any of the
obligations provided for in the Agreement shall be accounted for
and in the manner provided for in (c) and (d). The Operator would
not commingle in the Project Accounts funds pertaining to the
Project with funds which are unrelated to the Project.
(i) BOOKS OF ACCOUNT; INFORMATION: The Operator at all times
would maintain at or near the Casino appropriate books of account
and records with respect to all transactions entered into in
performance of the Agreement. OCC and its authorized
representatives would have the right upon reasonable notice and at
reasonable times and intervals to obtain information with respect
to the Project and the Operator and to cause such inspections of
the books and records maintained by the Operator pursuant to the
Agreement relating to the Project to be made as may be reasonable
in the circumstances.
(j) METHOD OF KEEPING ACCOUNTS: The Operator would maintain
the Operator's accounts with respect to matters arising under the
Agreement in such a manner as to enable OCC to readily extract
financial statements pertaining to the Project.
(k) FURNISH INFORMATION TO AUDITORS: The Operator would, after
reasonable notice from OCC or the auditors for the Project, make
available to such auditors such information and material as may be
reasonably required by such auditors for the purpose of their audit
and otherwise give such cooperation as may be necessary for such
auditors to carry out their duties in respect of the Project, as
the case may be.
(l) FINANCIAL STATEMENTS: The Operator would deliver to OCC as
soon as practicable and, in any event, within 90 days after the end
of each operating year, the annual audited financial statements of
the Project as at the end of each such operating year, such
financial statements to consist of at least a balance sheet as at
the end of the operating year and statements of earnings, retained
earnings and changes in financial position for the operating year
then ended.
(m) REPAYMENT OF DEFICIENCY DEFERRAL/CONTRIBUTIONS (IF ANY):
These provisions will be substantially similar to those contained
in the Interim Casino Operating Agreement.
(n) OCC REVIEW OF FINANCIAL STATEMENTS: These provisions would
be substantially similar to those contained in the Interim Casino
Operating Agreement.
(o) DEFINITIONS: The definitions of "Gross Revenues", "Gross
Operating Receipts", "Net Operating Profit", "Operating Expenses",
"FF&E Repairs", "Impositions", "Capital Renewals", and "Operating
Reserves" would be the same as those contained in the Interim
Casino Operating Agreement with the exception that such definitions
would refer to the Project in lieu of the Interim Casino Complex.
"Capital Renewal Reserves" would be defined as a percent of Gross
Revenues per operating year of 1% in year one,
<PAGE>
A-30
2% in year two, 3% in year three, 4% in year four and 5%
(or such greater percentage approved by OCC) thereafter.
92. REPRESENTATIONS AND WARRANTIES OF THE OPERATOR, THE PARTICIPANTS AND OCC:
The representations and warranties would be substantially similar to those
contained in the Interim Casino Operating Agreement.
93. COVENANTS OF OCC, THE OPERATOR AND THE PARTICIPANTS: To be negotiated,
based upon those contained in the Interim Casino Operating Agreement.
94. INDEMNITIES AND THIRD PARTY CLAIMS: These provisions will be negotiated.
95. OPERATOR'S FEE: Base amount plus 2% of gross operating receipts and 5% of
net operating revenue.
96. NON-COMPETITION/RIGHT OF FIRST OFFER: These provisions would be similar to
those contained in the Interim Casino Operating Agreement.
97. INTELLECTUAL PROPERTY: These provisions would be similar to those
contained in the Interim Casino Operating Agreement.
98. TERMINATION EVENTS: These events would be similar to those contained in
the Interim Casino Operating Agreement, including provisions with respect to
cure periods.
99. DISPUTE RESOLUTION/ARBITRATION: To be negotiated.
100. ARRANGEMENTS RE WINDSOR RACEWAY: To be negotiated.
101. TERMINATION OPTION: These provisions will be substantially similar to
those contained in the Interim Casino Operating Agreement with the following to
be included as an additional default of the Operator:
The Project failing to achieve 85% of the forecasted Gross Revenues set
forth in the annual operating budget for three operating years in any five
year operating period.
102. TURNOVER OF OPERATIONS: On termination.
103. GENERAL AND OTHER: To be discussed.
104. DISCLOSURE: As per Heads of Agreement.
105. AMENDMENTS: OCC agrees to act reasonably in making such modifications to
the Operating Agreement as is necessary to facilitate financing of project
costs.
<PAGE>
A-31
106. EMPLOYEE SEVERANCE ARRANGEMENTS: As per the Interim Casino Operating
Agreement.
107. TIME OF THE ESSENCE AND FORCE MAJEURE: As per the Interim Casino Operating
Agreement.
108. INSURANCE PROVISIONS: Similar to the Interim Casino Operating Agreement.
------------------------
<PAGE>
CAESARS WORLD, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Fiscal year ended July 31,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net income used in calculation of
earnings per share $78,361,000 $83,215,000 $66,005,000
----------- ----------- -----------
----------- ----------- -----------
Shares used in calculation of earnings
per share
Weighted average shares outstanding
during the period, before common stock
equivalents 24,047,000 23,853,000 23,619,000
Common stock equivalents
Stock options and restricted
common stock (a) 520,000 622,000 548,000
----------- ----------- -----------
Shares used in calculation of primary
earnings per share (b) 24,567,000 24,475,000 24,167,000
----------- ----------- -----------
----------- ----------- -----------
Net income per common share $3.19 $3.40 $2.73
----------- ----------- -----------
----------- ----------- -----------
<FN>
(a) Only common stock equivalents which are dilutive are included in the
calculation.
(b) "Additional common equivalents" used in the computation of fully diluted
earnings per share are less than 3 percent of shares used for calculation
of primary earnings per share. Therefore a computation of fully diluted
earnings per share is not required.
</TABLE>
EXHIBIT 11
<PAGE>
CAESARS WORLD, INC. SUBSIDIARY LIST
October 19, 1994
PLACE OF BUSINESS
NAME INCORPORATION NAME
- - ---- ------------- ----
Caesars Palace Corporation Delaware -
Desert Palace, Inc. Nevada Caesars Palace
Caesars Tahoe
Caesars Palace Realty Corp. Nevada -
Caesars New Jersey, Inc. New Jersey -
Boardwalk Regency Corporation New Jersey Caesars Atlantic City
EXHIBIT 21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<CASH> 44283
<SECURITIES> 99216
<RECEIVABLES> 116602
<ALLOWANCES> 45261
<INVENTORY> 12986
<CURRENT-ASSETS> 276841
<PP&E> 1050227
<DEPRECIATION> 423487
<TOTAL-ASSETS> 1018021
<CURRENT-LIABILITIES> 179301
<BONDS> 221963
<COMMON> 2620
0
0
<OTHER-SE> 554247
<TOTAL-LIABILITY-AND-EQUITY> 1018021
<SALES> 102130
<TOTAL-REVENUES> 1015766
<CGS> 69167
<TOTAL-COSTS> 519460
<OTHER-EXPENSES> 41182
<LOSS-PROVISION> 67165
<INTEREST-EXPENSE> 19295
<INCOME-PRETAX> 128555
<INCOME-TAX> 50194
<INCOME-CONTINUING> 78361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78361
<EPS-PRIMARY> 3.19
<EPS-DILUTED> 3.19
</TABLE>
<PAGE>
TO BE INCORPORATED BY REFERENCE INTO FORM S-8 REGISTRATION STATEMENT NOS.
2-90464 AND 33-38731 AND S-3 REGISTRATION NOS. 33-26027, AND 33-20378
UNDERTAKINGS
(a) Caesars World, Inc. "the registrant" hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling periods in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
EXHIBIT 28
