<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1996
REGISTRATION NO. 33-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HOLLYWOOD PARK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7948 95-3667491
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1050 SOUTH PRAIRIE AVENUE
INGLEWOOD, CALIFORNIA 90301
(310) 419-1500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
G. MICHAEL FINNIGAN
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
HOLLYWOOD PARK, INC.
1050 SOUTH PRAIRIE AVENUE
INGLEWOOD, CALIFORNIA 90301
(310) 419-1500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
ALVIN G. SEGEL, ESQ. JOHN V. ROOS, ESQ.
ASHOK W. MUKHEY, ESQ. PAGE MAILLIARD, ESQ.
IRELL & MANELLA LLP WILSON, SONSINI, GOODRICH & ROSATI, PC
1800 AVENUE OF THE STARS, SUITE 900 650 PAGE MILL ROAD
LOS ANGELES, CALIFORNIA 90067 PALO ALTO, CALIFORNIA 94304
TEL: (310) 277-1010 TEL: (415) 493-9300
FAX: (310) 203-7199 FAX: (415) 496-4006
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: The proposed sale will take place at the effective time of the merger
of a wholly-owned subsidiary of Registrant with and into Boomtown, Inc.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
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Common Stock, $.10 par
value................ 6,652,581 shares N/A $46,167,392 $17,434
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(1) Represents the maximum number of shares of Hollywood Park Common Stock
issuable upon consummation of the Merger described herein.
(2) Pursuant to Rule 457(f)(1) of the Securities Act of 1933, the proposed
maximum offering price is based on the aggregate market value of the
Boomtown Common Stock subject to the Merger, which was $4.75 per share,
the average of the high and low prices of Boomtown Common Stock as
reported by the National Association of Securities Dealers Automated
Quotation System on September 13, 1996.
(3) $12,897 of this amount was previously paid pursuant to Rule 0-11 of the
Securities Exchange Act of 1934 in connection with the filing of
Preliminary Proxy Materials.
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HOLLYWOOD PARK, INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
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ITEM OF FORM S-4 LOCATION IN THE PROSPECTUS
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A Information About the Transaction
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus........ Cover of Registration Statement;
Outside Front Cover Page of
Prospectus; Cross Reference Sheet
2. Inside Front and Outside Back
Cover Pages of Prospectus....... Available Information; Incorporation
of Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information..................... Summary; Risk Factors; The Hollywood
Park Meeting; The Boomtown Meeting;
The Merger; The Merger Agreement and
Related Agreements; Selected
Historical and Pro Forma Financial
Data; Comparative Per Share Data
4. Terms of the Transaction......... Summary; Risk Factors; The Merger; The
Merger Agreement and Related
Agreements; Comparative Rights of
Stockholders of Hollywood Park and
Boomtown
5. Pro Forma Financial Information.. Summary; Selected Historical and Pro
Forma Financial Information;
Unaudited Pro Forma Combined
Consolidated Condensed Financial
Statements
6. Material Contacts with the
Company Being Acquired.......... Summary; The Merger; The Merger
Agreement and Related Agreements
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to Be
Underwriters.................... Not Applicable
8. Interests of Named Experts and
Counsel......................... Not Applicable
9. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities...... Not Applicable
B. Information About the Registrant
10. Information with Respect to S-3
Registrants..................... Available Information; Incorporation
of Certain Documents by Reference;
Summary; Business of Hollywood Park;
Government Regulation; Selected
Historical and Pro Forma Financial
Data; Comparative Per Share Data;
Hollywood Park Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Unaudited Pro Forma Combined
Consolidated Condensed Financial
Statements; Hollywood Park
Consolidated Financial Statements
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ITEM OF FORM S-4 LOCATION IN THE PROSPECTUS
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11. Incorporation of Certain
Information by Reference.......... Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or
S-3 Registrants................... Not Applicable
13. Incorporation of Certain
Information by Reference.......... Not Applicable
14. Information with Respect to
Registrants Other Than S-3 or S-2
Registrants....................... Not Applicable
C. Information About the Company Being
Acquired
15. Information with Respect to S-3
Companies......................... Not Applicable
16. Information with Respect to S-2 or
S-3 Companies..................... Not Applicable
17. Information with Respect to
Companies Other Than S-3 or S-2
Companies......................... Available Information; Incorporation
of Certain Documents by Reference;
Summary; Business of Boomtown;
Government Regulation; Selected
Historical and Pro Forma Financial
Data; Comparative Per Share Data;
Boomtown Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Unaudited Pro
Forma Combined Consolidated Condensed
Financial Statements; Boomtown
Consolidated Financial Statements
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be
Solicited......................... Front Cover Page of Prospectus;
Summary; The Hollywood Park Meeting;
The Boomtown Meeting; The Merger;
Additional Information Provided in
Connection with Hollywood Park's
Annual Meeting; Stockholders'
Proposals
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange
Offer............................. Not Applicable
</TABLE>
<PAGE>
HOLLYWOOD PARK, INC.
1050 SOUTH PRAIRIE AVENUE
INGLEWOOD, CALIFORNIA 90301
September 20, 1996
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Hollywood Park, Inc. ("Hollywood Park"), to be held on
Wednesday, October 30, 1996, at 9:00 a.m., local time, at The Four Seasons
Hotel, 57 East 57th Street, New York, New York, 10022.
At the Annual Meeting, you will be asked to vote upon three matters: First,
the issuance of shares of Hollywood Park Common Stock pursuant to the
Agreement and Plan of Merger dated as of April 23, 1996 (the "Merger
Agreement"), among Hollywood Park, HP Acquisition, Inc., a wholly-owned
subsidiary of Hollywood Park ("Sub"), and Boomtown, Inc. ("Boomtown"),
pursuant to which Boomtown will merge with Sub and become a wholly-owned
subsidiary of Hollywood Park and each share of Boomtown common stock will be
converted into the right to receive 0.625 of a share of Hollywood Park common
stock (the "Merger"); Second, the election of seven directors to serve for the
coming year on the Hollywood Park Board of Directors (following consummation
of the Merger described above, the size of the Board will be increased to
eleven members with the four vacancies filled by current members of Boomtown's
Board of Directors); and Third, the adoption of the Hollywood Park 1996 Stock
Option Plan.
THE HOLLYWOOD PARK BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE ISSUANCE OF THE SHARES OF
HOLLYWOOD PARK COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AS DESCRIBED
ABOVE. IN ADDITION, THE HOLLYWOOD PARK BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE FOR ELECTION OF THE DIRECTOR NOMINEES LISTED HEREIN, AND FOR ADOPTION OF
THE 1996 STOCK OPTION PLAN.
Accompanying this letter, you will find a Notice of Annual Meeting of
Stockholders, a Joint Proxy Statement/Prospectus relating to the actions to be
taken by Hollywood Park stockholders at the Annual Meeting (as well as the
actions to be taken by the Boomtown stockholders at their special meeting), a
Proxy Card, and Hollywood Park's 1996 Annual Report to Stockholders. The Joint
Proxy Statement/Prospectus more fully describes the proposed Merger, and
includes information about Hollywood Park and Boomtown.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you plan to attend the Annual Meeting, please
complete, sign, date and return your proxy in the enclosed envelope. If you
attend the Annual Meeting, you may vote in person if you wish, even though you
have previously returned your proxy. It is important that your shares be
represented and voted at the Annual Meeting.
Sincerely,
R. D. Hubbard
Chairman of the Board of Directors
and Chief Executive Officer
<PAGE>
HOLLYWOOD PARK, INC.
1050 SOUTH PRAIRIE AVENUE
INGLEWOOD, CALIFORNIA 90301
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 30, 1996
TO THE STOCKHOLDERS OF HOLLYWOOD PARK, INC.:
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of Hollywood
Park, Inc., a Delaware corporation ("Hollywood Park"), will be held on
Wednesday, October 30, 1996, at 9:00 a.m., local time, at The Four Seasons
Hotel, 57 East 57th Street, New York, New York, 10022 (the "Annual Meeting"),
to consider and vote upon:
1. A proposal to approve the issuance of shares of Hollywood Park Common
Stock pursuant to the terms of the Agreement and Plan of Merger dated as of
April 23, 1996 (the "Merger Agreement"), among Hollywood Park, HP Acquisition,
Inc., a wholly-owned subsidiary of Hollywood Park, and Boomtown, Inc.
("Boomtown"), pursuant to which Boomtown will merge with Sub and become a
wholly-owned subsidiary of Hollywood Park (the "Merger") and each outstanding
share of Boomtown Common Stock will be converted into the right to receive
0.625 of a share of Hollywood Park Common Stock.
2. The election of seven directors to serve for the coming year.
3. A proposal to approve the adoption of the Hollywood Park 1996 Stock
Option Plan (the "Plan").
4. Such other business as may properly come before the Annual Meeting
(including any motion to adjourn to a later date to permit further
solicitation of proxies if necessary) or before any adjournments thereof.
The Merger, the director nominees and the proposed Plan amendment are all
more fully described in the Joint Proxy Statement/Prospectus and the
appendices thereto, including the Merger Agreement, accompanying this Notice.
Only stockholders of record of Hollywood Park Common Stock at the close of
business on September 10, 1996 are entitled to notice of and to vote at the
Annual Meeting or any adjournments thereof. A list of such stockholders
entitled to vote will be available for inspection at the Annual Meeting by any
stockholder and, for 10 days prior to the Annual Meeting, at ChaseMellon
Shareholder Services, LLC, 450 West 33rd Street, 15th Floor, N.Y., N.Y.,
10001. Approval of the issuance of shares of Hollywood Park Common Stock
pursuant to the Merger Agreement and approval of the Plan each requires the
affirmative vote of the holders of a majority of the votes cast at the Annual
Meeting.
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN
THE POSTAGE PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME
BEFORE IT IS VOTED.
BY ORDER OF THE BOARD OF DIRECTORS
Donald M. Robbins
Assistant Secretary
Los Angeles, California
September 20, 1996
<PAGE>
BOOMTOWN, INC.
P.O. BOX 399
VERDI, NEVADA 89439-0399
September 20, 1996
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Boomtown, Inc., a Delaware corporation ("Boomtown"),
which will be held on Wednesday, November 13, 1996, at 10:00 a.m., local time,
at Boomtown's principal executive offices located at the intersection of
Interstate 80 and Boomtown Road, Verdi, Nevada 89439-0399.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger dated as of
April 23, 1996 (the "Merger Agreement"), among Boomtown, Hollywood Park, Inc.,
a Delaware corporation ("Hollywood Park"), and HP Acquisition, Inc., a wholly-
owned subsidiary of Hollywood Park ("Sub"), pursuant to which Boomtown will
merge with Sub and become a wholly-owned subsidiary of Hollywood Park (the
"Merger"). On the effective date of the Merger, each outstanding share of
Boomtown Common Stock will be converted into the right to receive 0.625 (the
"Exchange Ratio") of a share of Hollywood Park Common Stock. If the Merger is
completed, Boomtown stockholders will no longer hold any interest in Boomtown
following the Merger other than through their interest in shares of Hollywood
Park Common Stock.
If the Merger is completed, four of the present members of the Board of
Directors of Boomtown, including Timothy J. Parrott and Richard Goeglein, will
serve on the Hollywood Park Board of Directors, which will be expanded to
eleven members, as described further in the material accompanying this letter.
BOOMTOWN'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AND THE MERGER
AGREEMENT AND RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AND THE MERGER AGREEMENT.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by Boomtown stockholders at the Special Meeting (as well
as the actions to be taken by the Hollywood Park stockholders at their annual
meeting), and a Proxy Card. The Joint Proxy Statement/Prospectus more fully
describes the proposed Merger and includes information about Boomtown and
Hollywood Park.
All stockholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign, date and return your proxy in the enclosed envelope. If you
attend the Special Meeting, you may vote in person if you wish, even though
you have previously returned your proxy. It is important that your shares be
represented and voted at the Special Meeting.
Sincerely,
Timothy J. Parrott
Chairman of the Board of Directors
and Chief Executive Officer
<PAGE>
BOOMTOWN, INC.
P.O. BOX 399
VERDI, NEVADA 89439-0399
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 13, 1996
TO THE STOCKHOLDERS OF BOOMTOWN, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Boomtown,
Inc., a Delaware corporation ("Boomtown"), will be held on Wednesday, November
13, 1996, at 10:00 a.m., local time, at Boomtown's principal executive offices
located at the intersection of Interstate 80 and Boomtown Road, Verdi, Nevada
89439-0399 (the "Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger dated as of April 23, 1996 (the "Merger Agreement"), among
Boomtown, Hollywood Park, Inc., a Delaware corporation ("Hollywood Park"), and
HP Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of
Hollywood Park ("Sub"), pursuant to which Boomtown will merge with Sub and
become a wholly-owned subsidiary of Hollywood Park (the "Merger") and each
outstanding share of Boomtown Common Stock will be converted into the right to
receive 0.625 of a share of Hollywood Park Common Stock.
2. To transact such other business as may properly come before the Special
Meeting, including any motion to adjourn to a later date to permit further
solicitation of proxies if necessary, or before any adjournments thereof.
The Merger is more fully described in the Joint Proxy Statement/Prospectus
and the appendices thereto, including the Merger Agreement, accompanying this
Notice. Only stockholders of record of Boomtown Common Stock at the close of
business on September 20, 1996 are entitled to notice of and to vote at the
Special Meeting or any adjournment thereof. Approval and adoption of the
Merger Agreement and the Merger requires the affirmative vote of the holders
of a majority of the outstanding shares of Boomtown Common Stock.
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN
THE POSTAGE PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME
BEFORE IT IS VOTED.
BY ORDER OF THE BOARD OF DIRECTORS
Robert F. List
Senior Vice President, Corporate
Counsel and Secretary
Verdi, Nevada
September 20, 1996
<PAGE>
HOLLYWOOD PARK, INC.
AND
BOOMTOWN, INC.
JOINT PROXY STATEMENT
------------
PROSPECTUS OF HOLLYWOOD PARK, INC.
------------
This Joint Proxy Statement/Prospectus is being furnished to the stockholders
of Hollywood Park, Inc., a Delaware corporation ("Hollywood Park"), in
connection with the solicitation of proxies by the Hollywood Park Board of
Directors for use at the Annual Meeting of Hollywood Park stockholders (the
"Hollywood Park Meeting") to be held at 9:00 a.m., local time, on Wednesday,
October 30, 1996, at The Four Seasons Hotel, 57 East 57th Street, New York,
New York, 10022, and at any adjournments or postponements thereof. At the
Hollywood Park Meeting, holders of Hollywood Park Common Stock (as defined
below) will be asked to consider and vote upon a proposal to approve the
issuance of shares of Hollywood Park Common Stock pursuant to the terms of the
Agreement and Plan of Merger dated as of April 23, 1996 (the "Merger
Agreement"), among Hollywood Park, HP Acquisition, Inc., a wholly-owned
subsidiary of Hollywood Park ("Sub"), and Boomtown, Inc., a Delaware
corporation ("Boomtown"), which provides for Sub to be merged into Boomtown,
with Boomtown being the surviving corporation and becoming a wholly-owned
subsidiary of Hollywood Park (the "Merger"). At the Hollywood Park Meeting,
holders of Hollywood Park Common Stock will also be asked to consider and vote
upon the election of directors to serve for the coming year and to approve the
adoption of the Hollywood Park 1996 Stock Option Plan.
(continued on next page)
SEE "RISK FACTORS" ON PAGE 19 FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD
BE CONSIDERED BY BOTH HOLLYWOOD PARK AND BOOMTOWN STOCKHOLDERS IN CONNECTION
WITH THEIR CONSIDERATION OF THE MERGER.
THE SHARES OF HOLLYWOOD PARK COMMON STOCK TO BE ISSUED IN THE MERGER HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NEITHER THE CALIFORNIA ATTORNEY GENERAL'S OFFICE, THE NEVADA GAMING
COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD, THE MISSISSIPPI GAMING
COMMISSION, THE LOUISIANA GAMING CONTROL BOARD NOR ANY OTHER REGULATORY
AGENCY OF ANY OTHER STATE HAS PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS JOINT PROXY STATEMENT/PROSPECTUS OR THE INVESTMENT MERITS
OF THE SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
The date of this Joint Proxy Statement/Prospectus is September 20, 1996.
<PAGE>
(continued from previous page)
This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of Boomtown in connection with the solicitation of proxies by the
Boomtown Board of Directors for use at the Special Meeting of Boomtown
stockholders (the "Boomtown Meeting") to be held at 10:00 a.m., local time, on
Wednesday, November 13, 1996 at Boomtown's executive corporate offices located
at the intersection of Interstate 80 and Boomtown Road, Verdi, Nevada 89439-
0399, and at any adjournments or postponements of the Boomtown Meeting. At the
Boomtown Meeting, holders of shares of Common Stock of Boomtown, par value
$.01 per share ("Boomtown Common Stock"), will be asked to consider and vote
upon a proposal to approve and adopt the Merger and the Merger Agreement.
This Joint Proxy Statement/Prospectus constitutes the prospectus of
Hollywood Park for use in connection with the offer and issuance of shares of
Common Stock of Hollywood Park, $.10 par value per share ("Hollywood Park
Common Stock"), pursuant to the Merger. Upon the effectiveness of the Merger,
each outstanding share of Boomtown Common Stock will be converted into the
right to receive 0.625 (the "Exchange Ratio") of a share of Hollywood Park
Common Stock. Based upon the number of shares of Hollywood Park Common Stock
and Boomtown Common Stock outstanding at September 10, 1996, an aggregate of
approximately 5,790,180 shares of Hollywood Park Common Stock would be issued
in connection with the Merger (of which 446,491 shares are expected to be
immediately purchased from Edward P. Roski, Jr., in connection with the Blue
Diamond Swap described in "Business of Boomtown--Boomtown Las Vegas"),
representing approximately 24.0% of the total number of shares of Hollywood
Park Common Stock outstanding, after giving effect to such issuance. In
addition, Hollywood Park will be assuming certain outstanding options,
warrants and other rights to acquire Boomtown Common Stock.
This Joint Proxy Statement/Prospectus and the accompanying Proxy Cards are
first being mailed to stockholders of Hollywood Park and Boomtown on or about
September 24, 1996.
2
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TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................... 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 7
SUMMARY.................................................................... 8
The Companies............................................................ 8
Reasons for the Strategic Combination.................................... 9
Meetings of Stockholders................................................. 10
Recommendations of the Boards of Directors............................... 11
Opinions of Financial Advisors........................................... 11
The Proposed Merger and Related Matters.................................. 12
Comparison of Stockholders' Rights....................................... 14
Markets and Price Data................................................... 14
Hollywood Park, Inc., Summary Financial Data............................. 16
Boomtown, Inc., Summary Financial Data................................... 18
RISK FACTORS............................................................... 19
Dependence on Expansion.................................................. 19
Need for Additional Financing; Possible Redemption of Boomtown Debt...... 19
Governmental Regulation.................................................. 20
Competition.............................................................. 20
Challenge of Integrating Operations and Managing Growth.................. 21
Quarterly and Annual Fluctuations in Operating Results................... 22
Loss of Boomtown New Orleans Riverboat................................... 22
Consummation of Blue Diamond Swap........................................ 22
Loss of Boomtown's Riverboat or Dockside Facility from Service........... 23
Trading Markets and Volatility of Stock Price............................ 23
Fixed Exchange Ratio..................................................... 23
Environmental Regulation; Potential Environment Issues................... 23
Shares Eligible for Future Sale.......................................... 24
THE HOLLYWOOD PARK MEETING................................................. 25
General.................................................................. 25
Record Date and Outstanding Shares....................................... 25
Voting of Proxies; Votes Required........................................ 25
Abstentions; Broker Non-Votes............................................ 26
Solicitation of Proxies and Expenses..................................... 26
THE BOOMTOWN MEETING....................................................... 27
General.................................................................. 27
Record Date and Outstanding Shares....................................... 27
Voting of Proxies; Vote Required......................................... 27
Abstentions; Broker Non-Votes............................................ 28
Solicitation of Proxies and Expenses..................................... 28
THE MERGER................................................................. 29
General.................................................................. 29
Background of the Merger................................................. 29
Reasons for the Merger................................................... 32
Board Recommendations.................................................... 36
Opinions of Financial Advisors........................................... 37
Valuation of Boomtown.................................................... 38
Valuation of Hollywood Park.............................................. 39
Valuation of Combined Hollywood Park/Boomtown............................ 41
Interests of Certain Persons in the Merger............................... 48
Accounting Treatment..................................................... 49
Certain Federal Income Tax Matters....................................... 50
Restrictions on Resale of Hollywood Park Common Stock by Affiliates...... 51
No Dissenters' Rights.................................................... 51
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3
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NASDAQ Designation of Hollywood Park Common Stock...................... 51
Surrender of Boomtown Common Stock Certificates........................ 52
THE MERGER AGREEMENT AND RELATED AGREEMENTS.............................. 53
Conversion of Shares................................................... 53
Options................................................................ 53
Issuance of Shares Under Certain Additional Boomtown Equity Rights..... 54
Composition of the Hollywood Park Board of Directors and Executive
Committee............................................................. 54
Composition of the Boomtown Board of Directors......................... 55
Effective Date of the Merger........................................... 55
Representations and Covenants.......................................... 55
Conditions to Consummation of the Merger............................... 56
Regulatory Approvals Required.......................................... 57
Limitation on Solicitation and Negotiations............................ 58
Waiver and Amendment................................................... 59
Termination; Breakup Fees.............................................. 59
Confidentiality Agreement; Standstill Obligations...................... 61
Affiliate Agreements................................................... 62
Stockholder Voting Agreements.......................................... 62
BUSINESS OF HOLLYWOOD PARK............................................... 64
Casino Operations...................................................... 64
Racing Operations...................................................... 65
Expansion Plans........................................................ 66
Competition............................................................ 67
Employees.............................................................. 67
BUSINESS OF BOOMTOWN..................................................... 68
Background............................................................. 68
The Boomtown Concept and Marketing Strategy............................ 69
Boomtown Reno.......................................................... 70
Boomtown Biloxi........................................................ 71
Boomtown New Orleans................................................... 73
Boomtown Las Vegas..................................................... 75
Additional Expansion Opportunities; Potential Indiana Project.......... 76
Employees.............................................................. 77
Properties............................................................. 77
Legal Matters.......................................................... 78
GOVERNMENT REGULATION AND LICENSING...................................... 79
California............................................................. 79
Nevada................................................................. 80
Mississippi............................................................ 84
Louisiana.............................................................. 88
Arizona................................................................ 90
Kansas................................................................. 90
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT OF
BOOMTOWN................................................................ 91
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA......................... 93
COMPARATIVE PER SHARE DATA............................................... 97
COMBINED COMPANY LIQUIDITY AND CAPITAL RESOURCES......................... 99
HOLLYWOOD PARK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................... 100
Results of Operations.................................................. 100
Liquidity and Capital Resources........................................ 104
</TABLE>
4
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BOOMTOWN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 108
General................................................................. 108
Results of Operations................................................... 109
Liquidity and Capital Resources......................................... 114
UNAUDITED PRO FORMA COMBINED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.. 116
COMPARISON OF RIGHTS OF STOCKHOLDERS OF HOLLYWOOD PARK AND BOOMTOWN....... 126
Stockholder Meetings.................................................... 126
Stockholder Action by Written Consent................................... 126
Director Elections and Nominations...................................... 126
Required Quorum for Stockholder Meetings................................ 127
Stockholder Proposals................................................... 127
Indemnification; Liability for Breach of Fiduciary Duty................. 127
Preferred Stock......................................................... 127
Gaming Approval; Redemption of Shares................................... 128
ELECTION OF HOLLYWOOD PARK DIRECTORS...................................... 129
General................................................................. 129
Information Regarding the Directors and Nominees for the Board of
Directors of Hollywood Park............................................ 129
Information Regarding Anticipated Boomtown Designees to the Hollywood
Park Board of Directors................................................ 130
ADOPTION OF HOLLYWOOD PARK 1996 STOCK OPTION PLAN......................... 132
Background.............................................................. 132
Proposal................................................................ 132
Required Vote; Recommendation of the Board of Directors................. 132
Summary of the 1996 Plan................................................ 132
Federal Income Tax Considerations....................................... 134
ADDITIONAL INFORMATION PROVIDED IN CONNECTION WITH HOLLYWOOD PARK'S ANNUAL
MEETING.................................................................. 136
Board Committees........................................................ 136
Compensation Committee Interlocks and Insider Participation............. 137
Executive Officers...................................................... 137
Executive Compensation.................................................. 138
Compensation Committee Report on Executive Compensation................. 140
Performance Graph....................................................... 142
Certain Relationships and Related Transactions.......................... 142
Security Ownership of Certain Hollywood Park Beneficial Owners and
Management............................................................. 143
STOCKHOLDER PROPOSALS..................................................... 145
ADJOURNMENT OF MEETINGS................................................... 145
Adjournment of Hollywood Park Meeting................................... 145
Adjournment of Boomtown Meeting......................................... 145
EXPERTS................................................................... 146
LEGAL MATTERS............................................................. 146
INDEX TO FINANCIAL STATEMENTS............................................. F-1
HOLLYWOOD PARK CONSOLIDATED FINANCIAL STATEMENTS.......................... F-2
BOOMTOWN CONSOLIDATED FINANCIAL STATEMENTS................................ F-35
APPENDIX A--AGREEMENT AND PLAN OF MERGER.................................. A-1
APPENDIX B--OPINION OF OPPENHEIMER & CO., INC............................. B-1
APPENDIX C--OPINION OF SUTRO & CO. INCORPORATED........................... C-1
APPENDIX D--HOLLYWOOD PARK 1996 STOCK OPTION PLAN......................... D-1
</TABLE>
5
<PAGE>
NO PERSON HAS BEEN AUTHORIZED BY HOLLYWOOD PARK OR BOOMTOWN TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HOLLYWOOD
PARK OR BOOMTOWN. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED
BY THIS JOINT PROXY STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Hollywood Park and Boomtown are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
These materials can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, 13th Floor, New York, New York 10048. The Commission
maintains a Web site that contains reports, proxy statements, information
statements and other information regarding registrants that file
electronically with the Commission. Such reports, proxy statements,
information statements and other information may be found on the Commission's
site address, http://www.sec.gov. Copies of these materials can also be
obtained from the Commission at prescribed rates by writing to the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. Such reports, proxy or information statements and other information
concerning Hollywood Park and Boomtown can also be inspected at the offices of
the National Association of Securities Dealers, Inc., Reports Section, 1935 K
Street, N.W., Washington, D.C. 20006.
Under the rules and regulations of the Commission, the solicitation of
proxies from stockholders of Boomtown to approve and adopt the Merger
Agreement constitutes an offering of the Hollywood Park Common Stock to be
issued in connection with the Merger. Accordingly, Hollywood Park has filed
with the Commission a Registration Statement on Form S-4 under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to such offering
(the "Registration Statement"). This Joint Proxy Statement/Prospectus
constitutes the prospectus of Hollywood Park that is filed as part of the
Registration Statement. Other parts of the Registration Statement are omitted
from this Joint Proxy Statement/Prospectus in accordance with the rules and
regulations of the Commission. Copies of the Registration Statement, including
the exhibits to the Registration Statement and other material that is not
included herein, may be inspected, without charge, at the offices of the
Commission referred to above, or obtained at prescribed rates from the Public
Reference Section of the Commission at the address set forth above.
Statements made in this Joint Proxy Statement/Prospectus concerning the
contents of any contract or other documents are not necessarily complete. With
respect to each contract or other document filed as an exhibit to the
Registration Statement, reference is hereby made to that exhibit for a more
complete description of the matter involved, and each such statement is hereby
qualified in its entirety by such reference.
ALL INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS RELATING
TO HOLLYWOOD PARK AND ITS AFFILIATES HAS BEEN SUPPLIED BY HOLLYWOOD PARK, AND
ALL INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS RELATING TO
BOOMTOWN AND ITS AFFILIATES HAS BEEN SUPPLIED BY BOOMTOWN.
6
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THERE WILL BE PROVIDED
WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A JOINT
PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON ORAL OR WRITTEN REQUEST OF ANY
SUCH PERSON, A COPY OF ALL DOCUMENTS INCORPORATED BY REFERENCE HEREIN
(EXCLUDING EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN). REQUESTS FOR HOLLYWOOD PARK DOCUMENTS SHOULD BE DIRECTED TO
HOLLYWOOD PARK, INC., INVESTOR RELATIONS, 1050 SOUTH PRAIRIE AVENUE,
INGLEWOOD, CALIFORNIA 90301 (TELEPHONE (310) 419-1610). REQUESTS FOR BOOMTOWN
DOCUMENTS SHOULD BE DIRECTED TO BOOMTOWN, INC., INVESTOR RELATIONS, P.O. BOX
399, VERDI, NEVADA 89439-0399 (TELEPHONE (702) 345-8680). IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE STOCKHOLDERS' MEETINGS TO
WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS RELATES, ANY SUCH REQUEST SHOULD
BE MADE BY OCTOBER 9, 1996.
Hollywood Park incorporates herein by reference its Annual Report on Form
10-K for the fiscal year ended December 31, 1995, its Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996, its Current
Report on Form 8-K filed November 30, 1995, as amended by the Amendment to
Current Report on Form 8-K/A filed January 25, 1996, (each of which was dated
November 17, 1995), and the description of the Hollywood Park Common Stock set
forth in Hollywood Park's Registration Statement on Form 8-A filed with the
Commission on June 29, 1994.
Boomtown incorporates herein by reference Boomtown's Annual Report on Form
10-K for the fiscal year ended September 30, 1995, Boomtown's Quarterly
Reports on Form 10-Q for the fiscal quarters ended December 31, 1995, March
31, 1996 and June 30, 1996, and the description of the Boomtown Common Stock
set forth in Boomtown's Registration Statement on Form 8-A filed with the
Commission on September 17, 1992, as amended by the Registration Statement on
Form 8A/A filed with the Commission on October 9, 1992.
All reports and definitive proxy or information statements filed by
Hollywood Park and Boomtown pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the date of their respective meetings of
stockholders shall be deemed to be incorporated by reference into this Joint
Proxy Statement/Prospectus from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated
herein shall be deemed to be modified or superseded for purposes of this Joint
Proxy Statement/Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
7
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus. The summary does not contain a
complete description of the Merger Agreement, a copy of which is attached
hereto as Appendix A, or the Merger. The summary is qualified in its entirety
by reference to the full text of this Joint Proxy Statement/Prospectus, the
attached Appendices (which are hereby incorporated herein by reference) and the
other documents incorporated by reference herein. The Hollywood Park
stockholders and the Boomtown stockholders are urged to read carefully this
Joint Proxy Statement/Prospectus and the attached Appendices in their entirety.
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN STATEMENTS WITH RESPECT
TO, AMONG OTHER THINGS, THE FINANCIAL CONDITION, RESULTS OF OPERATIONS,
BUSINESS AND PROSPECTS OF HOLLYWOOD PARK AND BOOMTOWN FOLLOWING CONSUMMATION OF
THE MERGER THAT ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, INCLUDING
STATEMENTS RELATING TO EXPANSION OPPORTUNITIES, STRATEGIC SYNERGIES, COST
SAVINGS RELATING TO THE MERGER AND CAPITAL REQUIREMENTS, AND SUCH STATEMENTS
ARE INTENDED TO BE COVERED BY THE SAFE HARBOR CREATED THEREBY (SEE "--THE
COMPANIES," "--REASONS FOR THE STRATEGIC COMBINATION," "--RECOMMENDATIONS OF
THE BOARDS OF DIRECTORS," "--OPINIONS OF FINANCIAL ADVISORS," "--HOLLYWOOD
PARK, INC. SUMMARY FINANCIAL DATA," "THE MERGER--REASONS FOR THE MERGER," "THE
MERGER--BOARD RECOMMENDATIONS," "THE MERGER--OPINIONS OF THE FINANCIAL
ADVISORS," "BUSINESS OF HOLLYWOOD PARK," "BUSINESS OF BOOMTOWN," "SELECTED
HISTORICAL AND PRO FORMA FINANCIAL DATA," "COMPARATIVE PER SHARE DATA,"
"COMBINED COMPANY LIQUIDITY AND CAPITAL RESOURCES," "HOLLYWOOD PARK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," "BOOMTOWN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," AND "UNAUDITED PRO FORMA COMBINED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS"). THESE FORWARD-LOOKING STATEMENTS
INVOLVE CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL
PERFORMANCE OF THE COMBINED COMPANY TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE
FAILURE TO COMPLETE THE EXPANSION PROJECTS ANTICIPATED OR, IF COMPLETED, THEIR
FAILURE TO BE SUCCESSFUL, THE FAILURE TO OBTAIN ADEQUATE FINANCING TO MEET THE
COMBINED COMPANY'S STRATEGIC GOALS, DIFFICULTIES IN INTEGRATING THE TWO
COMPANIES AND THE OTHER FACTORS SET FORTH UNDER "RISK FACTORS."
THE COMPANIES
Hollywood Park. Hollywood Park is a gaming, sports and entertainment company
engaged in the ownership and operation of card club casinos and thoroughbred
and greyhound racing facilities, and the development of other gaming, sports
and entertainment opportunities. Hollywood Park owns and operates the Hollywood
Park-Casino card club (the "Hollywood Park-Casino"), a California card club
which offers a variety of card games, including Poker, Pai Gow, and California
Blackjack. Hollywood Park, along with other investors, is constructing a second
California card club, the Crystal Park Hotel & Casino ("Crystal Park"), located
near Los Angeles in Compton, California, which is anticipated to open in late
1996 and will be operated under a lease arrangement by an unaffiliated
operator. Hollywood Park also owns and operates the Hollywood Park Race Track,
a premier thoroughbred racing facility located on the same premises as the
Hollywood Park-Casino in the Los Angeles, California metropolitan area, and the
Turf Paradise Race Track ("Turf Paradise"), a thoroughbred racing facility
located in Phoenix, Arizona, and operates the Woodlands Race Track (the
"Woodlands"), a greyhound and thoroughbred racing facility located in Kansas
City, Kansas.
Hollywood Park's strategic plan is to diversify its gaming, sports and
entertainment businesses through the development, acquisition, ownership and/or
operation of casinos, race tracks and other gaming, sports and entertainment
attractions. Hollywood Park intends to identify and pursue opportunities in the
gaming business by taking advantage of its financial resources, experience and
contacts in the gaming and horse racing businesses, and by building a strong
gaming oriented management team. Hollywood Park is evaluating potential
acquisitions of additional card club properties in California, and of gaming
properties in other jurisdictions that Hollywood Park believes have a favorable
gaming environment. Hollywood Park is exploring ways in which it can more fully
utilize its 378-acre Hollywood Park Race Track property and its 275-acre Turf
Paradise Race Track property. See "Business of Hollywood Park."
8
<PAGE>
Boomtown. Boomtown owns and operates land based, dockside and riverboat
gaming operations in Verdi, Nevada ("Boomtown Reno"), Biloxi, Mississippi
("Boomtown Biloxi"), Harvey, Louisiana ("Boomtown New Orleans" or "Boomtown
Belle") and Las Vegas, Nevada ("Boomtown Las Vegas" or "Blue Diamond").
Boomtown's properties offer gaming and other entertainment amenities to
primarily middle income, value oriented customers. Boomtown believes it
distinguishes itself from other casinos by its emphasis on the "old west" theme
and its casual, friendly atmosphere. At all of the Boomtown properties,
Boomtown reinforces this theme throughout the customers' visit with the use of
western memorabilia in its interior decor, country/western music and the
western dress of its employees. Boomtown believes its western theme and relaxed
environment provide for customer loyalty and a high rate of repeat business.
Boomtown's strategic plan is to continue to expand its existing projects at
Boomtown Reno, Boomtown Biloxi and Boomtown New Orleans and to enter into
additional markets by replicating its "old west" theme. At its current sites,
Boomtown's goal is to expand its operations by adding more hotel rooms,
restaurants, meeting and retail space and other amenities. Boomtown seeks
generally at its locations to expand the non-gaming entertainment and amenities
offered at the casino site in order to attract entire families to the Boomtown
casinos while also providing incentive for gaming customers to increase the
frequency and duration of their visits.
Boomtown believes that the Boomtown concept provides a strong basis for
expanding into other gaming jurisdictions. Boomtown actively seeks to expand
into jurisdictions that have legalized gambling or are anticipated to legalize
casino gaming. In this regard, Boomtown is currently seeking a riverboat gaming
license for a gaming operation on the Ohio River in Indiana as part of a joint
venture with Hilton Gaming (Switzerland County) Corporation. See "Business of
Boomtown."
The following table provides certain information relating to the gaming and
hotel room data at Boomtown's existing properties as of August 31, 1996:
<TABLE>
<CAPTION>
BOOMTOWN BOOMTOWN BOOMTOWN BOOMTOWN
RENO NEW ORLEANS BILOXI LAS VEGAS(1) TOTAL(1)(2)
-------- ----------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Casino Square Footage.... 40,000 30,000 33,000 30,000 133,000
Slot Machines............ 1,433 865 985 1,100 4,383
Table Games.............. 43 51 47 28 169
Hotel Rooms.............. 122 0 0 300 422
</TABLE>
- --------
(1) On August 12, 1996, Boomtown entered into an agreement with the lessor of
the Blue Diamond resort and certain other parties pursuant to which, upon
consummation of the Merger, Boomtown will terminate its ongoing interest in
the Blue Diamond resort. See "--The Proposed Merger and Related Matters--
Blue Diamond Swap and Purchase of Roski Stock" and "Business of Boomtown--
Boomtown Las Vegas."
(2) Includes data for Boomtown Las Vegas.
REASONS FOR THE STRATEGIC COMBINATION
Hollywood Park and Boomtown believe that the strategic combination of the two
companies will result in significant benefits to the combined company.
Hollywood Park has substantially greater access to capital at relatively lower
cost than does Boomtown due to the substantial fair market value of Hollywood
Park's unencumbered real estate, its cash on hand and short term investments of
approximately $34.9 million at June 30, 1996 and its strong cash flow. The
strategic combination with Boomtown will be a major step in Hollywood Park's
efforts to diversify its business by adding other gaming, sports and
entertainment businesses to its existing card club and racing businesses. By
contrast, Boomtown has significant expansion opportunities at its existing
Boomtown Reno, Boomtown Biloxi and Boomtown New Orleans properties and believes
that it has a theme and franchise that will be successful in other gaming
jurisdictions. However, Boomtown has been limited in implementing its strategic
plan due to the lack of available capital. The companies believe that the
strategic combination will match Hollywood Park's access to capital with
Boomtown's expansion opportunities and create a diversified, multi-
jurisdictional gaming, sports and entertainment company. The combined company
will have
9
<PAGE>
casinos and card clubs in California, Nevada, Louisiana, and Mississippi, and
race tracks in California, Arizona and Kansas. In addition, Hollywood Park and
Boomtown believe that the combined company will have substantially greater
financial resources and a stronger balance sheet than Boomtown on a stand-alone
basis and greater opportunities for diversification and expansion than
Hollywood Park on a stand-alone basis. See "The Merger--Reasons for the
Merger."
After the Merger is consummated, the combined company intends to explore the
following expansion opportunities, among others: the addition of at least 200
hotel rooms to Boomtown's Reno facility; the addition of on-shore dining
facilities at the Boomtown New Orleans facility; subject to the acquisition of
additional land and the completion of construction plans, the addition of hotel
rooms and/or the expansion of the undeveloped portion of the barge at Boomtown
Biloxi; and construction of other card club properties. Other possible
expansion opportunities include: the construction of a second casino on the
Boomtown Reno property and the exploitation of new markets, such as the
development of a riverboat gaming operation in Switzerland County, Indiana, if
Boomtown's proposed joint venture project with Hilton Gaming Corporation
receives gaming approval. The Merger Agreement requires that Hollywood Park
have financing of at least $60 million to finance gaming expansion
opportunities such as those described above. For a discussion of certain risks
associated with such expansion opportunities, see "Risk Factors."
MEETINGS OF STOCKHOLDERS
Date, Time and Place
Hollywood Park. The Annual Meeting of Hollywood Park's stockholders (the
"Hollywood Park Meeting") will be held on Wednesday, October 30, 1996 at 9:00
a.m., local time, at The Four Seasons Hotel, 57 East 57th Street, New York, New
York, 10022.
Boomtown. The Special Meeting of Boomtown's stockholders (the "Boomtown
Meeting") will be held on Wednesday, November 13, 1996 at 10:00 a.m., local
time, at Boomtown's principal executive offices located at the intersection of
Interstate 80 and Boomtown Road, Verdi, Nevada 89439-0399.
Purposes of the Meetings
Hollywood Park Meeting. At the Hollywood Park Meeting, stockholders of record
of Hollywood Park as of the close of business on the Hollywood Park Record Date
(as defined below) will be asked to consider and vote upon a proposal (the
"Hollywood Park Share Issuance Proposal") to approve the issuance of shares of
Hollywood Park Common Stock pursuant to and as contemplated by the Merger
Agreement; the election of seven directors to serve for the coming year; and a
proposal to approve the adoption of the Hollywood Park 1996 Stock Option Plan.
Boomtown Meeting. At the Boomtown Meeting, stockholders of record of Boomtown
as of the close of business on the Boomtown Record Date (as defined below) will
be asked to consider and vote upon a proposal to approve and adopt the Merger
and the Merger Agreement.
Record Dates, Outstanding Shares, Quorum and Votes Required
Hollywood Park. Holders of record of Hollywood Park Common Stock at the close
of business on September 10, 1996 (the "Hollywood Park Record Date") are
entitled to notice of and to vote at the Hollywood Park Meeting. At the close
of business on the Hollywood Park Record Date, there were 18,299,142 shares of
Hollywood Park Common Stock outstanding, each of which will be entitled to one
vote on each matter to be acted upon. The required quorum for the transaction
of business at the Hollywood Park Meeting is one-third of the shares of
Hollywood Park Common Stock issued and outstanding on the Hollywood Park Record
Date. The proposal to issue the shares of Hollywood Park Common Stock in
connection with the Merger and the proposal to approve the adoption of
Hollywood Park's 1996 Stock Option Plan must each be approved by a majority of
the votes cast at the Hollywood Park Meeting. As of the Hollywood Park Record
Date, the directors, executive officers and other affiliates of Hollywood Park
owned an aggregate of 4,629,523 shares of Hollywood Park
10
<PAGE>
Common Stock (approximately 25.3% of the shares entitled to vote at the
Hollywood Park Meeting). For purposes of determining whether the Hollywood Park
Share Issuance Proposal and the proposal to approve the adoption of the
Hollywood Park 1996 Stock Option Plan have been approved, abstentions will be
treated as votes against the proposal, and broker non-votes will not be
counted. R.D. Hubbard, Hollywood Park's Chairman of the Board and Chief
Executive Officer, has agreed to vote all of his shares of Hollywood Park
Common Stock in favor of the Hollywood Park Share Issuance Proposal. See "The
Merger Agreement and Related Agreements--Stockholder Voting Agreements."
Boomtown. Holders of record of Boomtown Common Stock at the close of business
on September 20, 1996 (the "Boomtown Record Date") are entitled to notice of
and to vote at the Boomtown Meeting. At the close of business on the Boomtown
Record Date, there were 9,264,291 shares of Boomtown Common Stock outstanding,
each of which will be entitled to one vote on each matter to be acted upon. The
required quorum for the transaction of business at the Boomtown Meeting is a
majority of the shares of Boomtown Common Stock issued and outstanding on the
Boomtown Record Date. The Merger and the Merger Agreement must be approved by
the affirmative vote of a majority of the outstanding shares of Boomtown Common
Stock entitled to vote at the Boomtown Meeting. As of the Boomtown Record Date,
the directors, executive officers and other Boomtown affiliates held an
aggregate of 1,065,488 shares of Boomtown Common Stock (approximately 11.5% of
the shares entitled to vote at the Boomtown Meeting). Abstentions and broker
non-votes will have the same effect as votes against the Merger Agreement and
Merger. Timothy J. Parrott, Boomtown's Chairman of the Board and Chief
Executive Officer, has agreed to vote all of his shares of Boomtown Common
Stock in favor of the Merger. See "The Merger Agreement and Related
Agreements--Stockholder Voting Agreements."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Hollywood Park. The Board of Directors of Hollywood Park (the "Hollywood Park
Board") has unanimously approved the Merger Agreement and the Merger and has
determined that the terms of the Merger Agreement are fair to, and that the
Merger is in the best interests of, Hollywood Park and its stockholders and
therefore unanimously recommends approval of the Hollywood Park Share Issuance
Proposal. In conjunction with its annual meeting, the Hollywood Park Board also
recommends a vote in favor of election of each of the Director nominees set
forth herein and for approval of the adoption of the Hollywood Park 1996 Stock
Option Plan. See "The Merger--Reasons for the Merger" and "--Board
Recommendations."
Boomtown. The Board of Directors of Boomtown (the "Boomtown Board"), with one
director (Edward P. Roski, Jr.) dissenting, has approved the Merger Agreement
and the Merger and has determined that the terms of the Merger Agreement are
fair to, and that the Merger is in the best interests of, Boomtown and its
stockholders and therefore recommends approval and adoption of the Merger and
the Merger Agreement. See "The Merger--Reasons for the Merger" and "--Board
Recommendations."
OPINIONS OF FINANCIAL ADVISORS
Hollywood Park. Oppenheimer & Co., Inc. ("Oppenheimer") has delivered its
opinion to the Hollywood Park Board stating that the consideration to be
received in the Merger by the Boomtown stockholders is fair to Hollywood Park's
stockholders from a financial point of view. The full text of the opinion of
Oppenheimer, which sets forth the assumptions made, matters considered and
limitations on the review undertaken by Oppenheimer, is attached as Appendix B
to this Joint Proxy Statement/Prospectus. Hollywood Park stockholders are urged
to read the opinion in its entirety. See "The Merger--Opinions of Financial
Advisors--Opinion of Oppenheimer."
Boomtown. Sutro & Co. Incorporated ("Sutro") has delivered its opinion to the
Boomtown Board stating that the Exchange Ratio is fair to the Boomtown
stockholders from a financial point of view. The full text of the opinion of
Sutro, which sets forth the assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion, is
attached as Appendix C to this Joint Proxy Statement/Prospectus. Boomtown
stockholders are urged to read the opinion in its entirety. See "The Merger--
Opinions of Financial Advisors--Opinion of Sutro."
11
<PAGE>
THE PROPOSED MERGER AND RELATED MATTERS
General
Pursuant to the Merger Agreement, Sub will be merged into Boomtown, with
Boomtown being the surviving corporation and becoming a wholly-owned subsidiary
of Hollywood Park. Upon consummation of the Merger, each then outstanding share
of Boomtown Common Stock will be converted into the right to receive 0.625 of a
share of Hollywood Park Common Stock, each outstanding option to purchase
Boomtown Common Stock (a "Boomtown Option") will be assumed by Hollywood Park
and become exercisable for shares of Hollywood Park Common Stock, and
outstanding warrants and certain other rights to acquire Boomtown Common Stock
would become exercisable for shares of Hollywood Park Common Stock. The
Boomtown Common Stock will no longer be listed for trading on NASDAQ (as
defined below) following consummation of the Merger. See "The Merger Agreement
and Related Agreements--Conversion of Shares," "--Options" and "--Issuance of
Shares Under Certain Additional Boomtown Equity Rights."
Each outstanding share of Hollywood Park Common Stock will remain outstanding
and unchanged following the Merger. Based upon the number of shares of
Hollywood Park Common Stock and Boomtown Common Stock outstanding at September
10, 1996, an aggregate of approximately 5,790,180 shares of Hollywood Park
Common Stock would be issued to Boomtown stockholders in connection with the
Merger (without giving effect to the purchase of stock from Edward P. Roski,
Jr., described below), representing approximately 24.0% of the post-Merger
shares of Hollywood Park Common Stock outstanding.
Blue Diamond Swap and Purchase of Roski Stock
On August 12, 1996, Boomtown, Hollywood Park and Mr. Roski and certain of
their respective affiliates entered into the Blue Diamond Swap Agreement (the
"Swap Agreement") pursuant to which, immediately following consummation of the
Merger, Boomtown and its subsidiaries will exchange their entire interest in
the Boomtown Las Vegas resort (including loans of approximately $27.3 million
to the landowner/lessor, IVAC, a California general partnership of which Mr.
Roski is a general partner ("IVAC")) for two promissory notes aggregating
approximately $8.5 million in principal amount and the assumption by IVAC of
certain liabilities (the "Blue Diamond Swap"). As a result of the Blue Diamond
Swap, Boomtown will recognize an after-tax loss of $35.7 million and IVAC will
be relieved of its obligation to repay Boomtown the aforementioned loans of
$27.3 million. The consummation of the Blue Diamond Swap is subject to numerous
conditions, including receipt of necessary gaming approvals. In addition,
Boomtown intends to seek the consent of the holders of a majority of the
outstanding principal amount of the First Mortgage Notes (as defined below). On
the same date, Hollywood Park and Mr. Roski agreed that, concurrently with the
consummation of the Blue Diamond Swap, Hollywood Park will purchase 714,386
shares of Boomtown Common Stock held by Roski (subsequent to its conversion
into Hollywood Park Common Stock) for a purchase price of approximately $3.5
million paid in the form of a Hollywood Park promissory note. See "Risk
Factors--Consummation of Blue Diamond Swap" and "Business of Boomtown--Boomtown
Las Vegas." The opinions of Oppenheimer and Sutro described under "The Merger--
Opinions of Financial Advisors" did not include opinions relating to the Blue
Diamond Swap.
Composition of the Hollywood Park Board and Executive Committee
After the Merger, Hollywood Park's Board of Directors will consist of eleven
directors, four of whom will initially be selected by Boomtown from the
Boomtown Board of Directors and seven of whom will initially be selected by
Hollywood Park from the Hollywood Park Board of Directors. The Executive
Committee of Hollywood Park's Board of Directors will consist of five or six
members, two of whom will be selected by the Boomtown designees on the
Hollywood Park Board. See "The Merger Agreement and Related Agreements--
Composition of the Hollywood Park Board of Directors and Executive Committee."
12
<PAGE>
Conditions to the Merger
Consummation of the Merger is subject to a number of conditions which, if not
satisfied or waived could cause the Merger not to be consummated and the Merger
Agreement to be terminated. Each party's obligation to consummate the Merger is
conditioned upon, among other things, the receipt of all necessary stockholder,
third-party and governmental approvals or consents to the consummation of the
Merger (including all necessary approvals of gaming authorities and the consent
of the holders of a majority in principal amount of Boomtown's outstanding
11.5% First Mortgage Notes due 2003 (the "First Mortgage Notes")). See "The
Merger Agreement and Related Agreements--Conditions to Consummation of the
Merger" and "--Regulatory Approvals Required."
Regulatory Matters
Consummation of the Merger is subject to the expiration or termination of any
applicable waiting period (and any extension thereof) under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and to
the consent or approval of a number of governmental authorities which
administer gaming laws applicable to the parties' respective operations in
California, Nevada, Mississippi and Louisiana.
Limitation on Negotiations; Breakup Fees and Expenses
The Merger Agreement provides that, subject to certain exceptions, neither
Boomtown nor Hollywood Park, nor their respective officers, directors or
representatives, will solicit, encourage or engage in negotiations regarding
any "Acquisition Proposal" as such term is defined in the Merger Agreement.
Each party has agreed to pay the other a breakup fee of $3.5 million, plus up
to $1.5 million in costs and expenses, if the Merger Agreement is terminated
under certain circumstances. See "The Merger Agreement and Related Agreements--
Limitation on Solicitation and Negotiations" and "--Termination; Breakup Fees--
Expenses and Breakup Fees."
Termination
The Merger Agreement may be terminated at any time prior to the effective
date of the Merger (the "Effective Date") in certain circumstances including,
but not limited to, failure to receive necessary stockholder approvals and
gaming and other regulatory approvals, mutual consent of both parties, failure
to consummate the Merger on or before December 31, 1996 (provided that if the
Merger is not consummated by such date due to failure to receive all required
regulatory approvals by such date, then such date shall be extended to June 30,
1997), breach of the Merger Agreement or acceptance by either party of a
"Superior Proposal" as defined in the Merger Agreement. See "The Merger
Agreement and Related Agreements--Termination; Breakup Fees--Termination."
Certain Federal Income Tax Consequences
The Merger is intended to qualify as a tax-free reorganization for federal
income tax purposes, so that no gain or loss would generally be recognized by
the stockholders of Boomtown on the exchange of their shares of Boomtown Common
Stock for shares of Hollywood Park Common Stock, except to the extent of cash
received in lieu of a fractional share of Hollywood Park Common Stock. Boomtown
stockholders are urged to consult their own tax advisors as to the specific tax
consequences of the Merger. Neither Boomtown, Hollywood Park, Sub, nor the
stockholders of Hollywood Park would recognize gain or loss solely as a result
of the Merger. See "The Merger--Certain Federal Income Tax Matters."
Accounting Treatment
The Merger will be accounted for under the purchase method of accounting for
a business combination, for financial accounting purposes. See "The Merger--
Accounting Treatment."
13
<PAGE>
Resales of Hollywood Park Common Stock
The shares of Hollywood Park Common Stock issuable to stockholders of
Boomtown upon consummation of the Merger have been registered under the
Securities Act and may be traded freely without restriction by those
stockholders who are not deemed to be "affiliates" of Boomtown or Hollywood
Park, as that term is defined in the rules under the Securities Act. This Joint
Proxy Statement/Prospectus does not cover any resales of Hollywood Park Common
Stock received in the Merger by persons who are deemed to be "affiliates" of
Boomtown or Hollywood Park. See "The Merger--Restrictions on Resale of
Hollywood Park Common Stock by Affiliates" and "The Merger Agreement and
Related Agreements--Affiliate Agreements."
No Dissenters' Rights
Under the Delaware General Corporation Law ("DGCL"), neither the Boomtown
stockholders nor the Hollywood Park stockholders are entitled to appraisal
rights in connection with the Merger. See "The Merger--No Dissenters' Rights."
Risk Factors
Hollywood Park and Boomtown stockholders are urged to read the section of
this Joint Proxy Statement/Prospectus relating to the various risk factors
associated with Hollywood Park's and Boomtown's respective businesses. See
"Risk Factors."
COMPARISON OF STOCKHOLDERS' RIGHTS
Under the Hollywood Park charter documents, the rights and restrictions
related to the Hollywood Park Common Stock to be received in the Merger will
have certain differences from those of the Boomtown Common Stock, including a
requirement to give advance notice of any stockholder proposals or director
nominations and a right of Hollywood Park to redeem shares of any stockholder
who fails to obtain a required qualification from gaming authorities. See
"Comparison of Rights of Stockholders of Hollywood Park and Boomtown."
MARKETS AND PRICE DATA
Hollywood Park. Hollywood Park Common Stock is traded on the Nasdaq National
Market ("NASDAQ") under the symbol "HPRK." The following table sets forth the
range of high and low closing sale prices reported on NASDAQ for the Hollywood
Park Common Stock for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1994
First Quarter................................................. $30 3/4 $18 1/2
Second Quarter................................................ 26 1/2 15 5/8
Third Quarter................................................. 24 1/4 13 3/4
Fourth Quarter................................................ 14 3/4 9 1/4
FISCAL YEAR ENDED DECEMBER 31, 1995
First Quarter................................................. $13 1/4 $10 3/8
Second Quarter................................................ 14 1/4 11 1/2
Third Quarter................................................. 14 3/4 11 1/2
Fourth Quarter................................................ 11 3/4 9 1/4
FISCAL YEAR ENDING DECEMBER 31, 1996
First Quarter................................................. $10 3/4 $ 8 3/4
Second Quarter................................................ 11 9 1/4
Third Quarter (through September 17, 1996).................... 9 1/2 8
</TABLE>
14
<PAGE>
Boomtown. Boomtown Common Stock is traded on NASDAQ under the symbol "BMTN."
The following table sets forth the range of high and low closing sale prices
reported on NASDAQ for the Boomtown Common Stock for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1994
First Quarter................................................. $23 3/4 $14 1/2
Second Quarter................................................ 21 1/4 14 1/4
Third Quarter................................................. 19 1/2 13
Fourth Quarter................................................ 20 1/4 12 1/2
FISCAL YEAR ENDED SEPTEMBER 30, 1995
First Quarter................................................. $16 3/4 $12 1/4
Second Quarter................................................ 16 1/2 10 5/8
Third Quarter................................................. 13 3/4 10 1/2
Fourth Quarter................................................ 12 3/8 9
FISCAL YEAR ENDING SEPTEMBER 30, 1996
First Quarter................................................. $ 9 5/8 $ 5 1/4
Second Quarter................................................ 7 1/8 4 7/8
Third Quarter ................................................ 6 5/16 4 5/8
Fourth Quarter (through September 17, 1996)................... 5 1/4 4 1/4
</TABLE>
The following table sets forth the average closing sale prices per share of
Hollywood Park Common Stock and Boomtown Common Stock on NASDAQ over the sixty
and ninety trading day periods ending on March 19, 1996, the last trading day
before the announcement of the proposed Merger, and the average equivalent per
share price of Boomtown Common Stock over each such period. The table also sets
forth the closing sale prices per share of Hollywood Park Common Stock and
Boomtown Common Stock on NASDAQ on March 19, 1996, and on September 17, 1996,
the latest practicable trading day before the printing of this Joint Proxy
Statement/Prospectus for which information was obtainable, and the equivalent
per share price for Boomtown Common Stock on such dates. The "equivalent per
share price" for Boomtown Common Stock as of any date equals the closing sale
price per share of Hollywood Park Common Stock on such date multiplied by the
Exchange Ratio of 0.625. See "The Merger--General."
<TABLE>
<CAPTION>
HOLLYWOOD PARK BOOMTOWN EQUIVALENT
COMMON STOCK COMMON STOCK PER SHARE PRICE
-------------- ------------ ---------------
<S> <C> <C> <C>
60 Trading Day Average Through
March 19, 1996................... $9.95 $6.13 $6.22
90 Trading Day Average Through
March 19, 1996................... $9.89 $6.17 $6.18
March 19, 1996.................... $9.75 $6.75 $6.09
September 17, 1996................ $8.50 $4.75 $5.31
</TABLE>
Boomtown stockholders are advised to obtain current market quotations for
Hollywood Park Common Stock and Boomtown Common Stock. No assurance can be
given as to the market prices of Hollywood Park Common Stock or Boomtown Common
Stock at any time before (or, as to Hollywood Park, after) the Effective Date.
The Exchange Ratio is fixed and therefore will not increase or decrease to
compensate or penalize Boomtown's or Hollywood Park's stockholders for
fluctuations in the market price of Hollywood Park Common Stock or Boomtown
Common Stock before the Merger becomes effective.
Hollywood Park did not pay any cash dividends on its common stock in 1994 or
1995, and Boomtown has never paid cash dividends on the Boomtown Common Stock.
The Hollywood Park Board currently intends to retain all earnings for use in
the expansion of the business of the combined companies and has no present
intention to pay cash dividends on the Hollywood Park Common Stock. Hollywood
Park may not pay dividends on the Hollywood Park Common Stock unless full
cumulative dividends have been paid on Hollywood Park's $70.00 Convertible
Preferred Stock. Boomtown is prohibited from paying dividends on the Boomtown
Common Stock under the Indenture (the "Indenture") relating to the First
Mortgage Notes.
15
<PAGE>
HOLLYWOOD PARK, INC.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1995 1995
-------- ------- -------- -------- -------- ----------- -----------
PRO FORMA PRO FORMA
EXCLUDING INCLUDING
BOOMTOWN BOOMTOWN
LAS LAS
HISTORICAL VEGAS(A)(B) VEGAS(A)(C)
-------------------------------------------------------- ----------- -----------
(UNAUDITED)
-----------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Revenues................. $ 74,057 $80,944 $ 78,985 $117,324 $130,572 $318,738 $365,420
Expenses................. 67,023 69,398 70,050 (d) 108,923 (d)(e) 127,119 (f) 297,676 (f)(g) 350,321 (f)(g)
Operating income......... 7,034 11,546 8,935 8,401 3,453 21,062 15,099
Interest expense......... 4,973 4,883 1,517 3,061 3,922 19,284 17,168
Extraordinary item--
Utilization of tax
benefit from net
operating loss
carryforwards........... 73 1,894 0 0 0 0 0
Net income (loss)........ $ 1,879 $ 5,422 $ 6,393 $ 3,772 $ (1,162) $ (456) $ (3,135)
Per common share:
Income (loss) before
extraordinary item:
Primary................. $ 0.14 $ 0.27 $ 0.30 $ 0.10 $ (0.17) $ (0.10) $ (0.21)
Fully diluted........... $ 0.14 $ 0.27 $ 0.30 $ 0.10 $ (0.17) $ (0.10) $ (0.21)
Net income (loss):
Primary................. $ 0.14 $ 0.41 $ 0.30 $ 0.10 $ (0.17) $ (0.10) $ (0.21)
Fully diluted........... $ 0.14 $ 0.41 $ 0.30 $ 0.10 $ (0.17) $ (0.10) $ (0.21)
Dividends................ $ 0.15 $ 0.04 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
OTHER DATA:
EBITDA................... $ 12,924 $17,445 $ 15,337 $ 17,964 $ 14,837 $ -- $ --
Cash flows provided by
(used in):
Operating activities..... $ 2,916 $11,262 $ 13,280 $ (7,287) $ 20,291 $ -- $ --
Investing activities..... (21,906) (5,250) (32,677) (7,331) (31,332) -- --
Financing activities..... 16,646 (4,416) 74,391 (8,877) (3,685) -- --
Capital expenditures..... 21,868 5,319 12,902 27,584 25,150 -- --
BALANCE SHEET DATA:
Total assets............. $ 89,777 $90,219 $176,424 $246,573 $286,706 $473,350 $480,045
Long term obligations.... 68,400 45,538 348 42,800 15,629 126,421 124,851
Stockholders' equity..... 5,330 10,187 154,200 167,255 165,746 224,888 230,129
</TABLE>
- --------
(a) Excludes the Pacific Casino Management, Inc. ("PCM") pro forma financial
results prior to Hollywood Park's November 17, 1995, acquisition of PCM.
(b) Assumes the Blue Diamond Swap is consummated in connection with the Merger
as of January 1, 1995, and, as a result, excludes the results of operations
of Boomtown Las Vegas. See "--The Proposed Merger and Related Matters--Blue
Diamond Swap and Purchase of Roski Stock" and "Business of Boomtown--
Boomtown Las Vegas."
(c) Assumes the Blue Diamond Swap is not consummated in connection with the
Merger, and, as a result, includes the results of operations of Boomtown
Las Vegas. See "--The Proposed Merger and Related Matters--Blue Diamond
Swap and Purchase of Roski Stock" and "Business of Boomtown--Boomtown Las
Vegas."
(d) Includes casino pre-opening and training costs of $850,000 in 1993 and
$2,337,000 in 1994.
(e) Includes Turf Paradise acquisition costs of $627,000.
(f) Includes lawsuit settlement expense of $6,088,000.
(g) Includes discontinued projects costs of $6,054,000.
16
<PAGE>
HOLLYWOOD PARK, INC.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------
1995 1996 1996 1996
-------- -------- ------------ ------------
PRO FORMA PRO FORMA
EXCLUDING INCLUDING
BOOMTOWN BOOMTOWN
HISTORICAL LAS VEGAS(b) LAS VEGAS(c)
------------------ ------------ ------------
(UNAUDITED)
-----------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OPERATIONS DATA:
Revenues............... $ 67,284 $ 74,280 $171,577 $194,558
Expenses............... 58,979 79,067 (a) 201,049 (a)(d) 226,791 (a)(d)
Operating income
(loss)................ 8,305 (4,787) (29,472) (32,233)
Interest expense....... 1,928 898 8,776 7,817
Net income (loss)...... $ 4,263 $ (8,129)(a) $(40,384)(a)(d) $(42,599)(a)(d)
Per common share:
Net income (loss):
Primary............... $ 0.18 $ (0.49) $ (1.73) $ (1.79)
Fully diluted......... $ 0.18 $ (0.49) $ (1.73) $ (1.79)
Dividends.............. $ 0.00 $ 0.00 $ 0.00 $ 0.00
OTHER DATA:
EBITDA................. $ 13,959 $ 613 (a) $ -- $ --
Cash flows provided by
(used in):
Operating activities... $ 10,772 $ 15,504 $ -- $ --
Investing activities... (7,813) (6,118) -- --
Financing activities... (4,358) (962) -- --
Capital expenditures... 4,233 9,132 -- --
BALANCE SHEET DATA:
Total assets........... $263,575 $223,801 $416,743 $419,661
Long term obligations.. 15,726 256 110,424 108,578
Stockholders' equity... 170,556 156,648 214,669 217,441
</TABLE>
- -------
(a) Includes write off of investment in a subsidiary (the Woodlands) of
$11,412,000.
(b) Assumes the Blue Diamond Swap is consummated in connection with the Merger
as of January 1, 1995, and, as a result, excludes the results of operations
of Boomtown Las Vegas. See "--The Proposed Merger and Related Matters--Blue
Diamond Swap and Purchase of Roski Stock" and "Business of Boomtown--
Boomtown Las Vegas."
(c) Assumes the Blue Diamond Swap is not consummated in connection with the
Merger, and, as a result, includes the results of operations of Boomtown
Las Vegas. See "--The Proposed Merger and Related Matters--Blue Diamond
Swap and Purchase of Roski Stock" and "Business of Boomtown--Boomtown Las
Vegas."
(d) Includes loss on termination of Blue Diamond interest of $36,562,000.
17
<PAGE>
BOOMTOWN, INC.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
----------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- --------- -------- -------- --------
UNAUDITED
------------------
HISTORICAL
-------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Total revenues......... $52,829 $55,723 $ 58,647 $ 103,375 $231,767 $169,701 $173,356
Total expenses......... $43,682 $48,355 $ 50,052 $ 109,630 $224,520 $164,524 $202,613 (a)
Operating income
(loss)................ $ 9,147 $ 7,368 $ 8,595 $ (6,255) $ 7,247 $ 5,177 $(29,257)(a)
Interest income
(expense) and other
net................... $(4,214) $(3,238) $ (607) $ (4,698) $(10,353) $ (7,361) $ (6,953)
Extraordinary item..... $ 0 $ 0 $ (370) $ (229) $ 0 $ 0 $ 0
Loss on termination of
Blue Diamond
interest.............. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 36,562 (b)
Net income (loss)...... $ 2,839 $ 2,461 $ 4,582 $ (8,052) $ (2,877) $ (1,212) $(35,283)
Net income (loss)
applicable to common
stock................. $ 2,639 $ 2,261 $ 4,582 $ (8,052) $ (2,877) $ (1,212) $(35,283)
Per common share data:
Income (loss) before
extraordinary item:
Primary.............. $ 0.71 $ 0.61 $ 0.65 $ (0.90) $ (0.31) $ (0.13) $ (3.82)
Fully diluted........ $ 0.71 $ 0.61 $ 0.65 $ (0.90) $ (0.31) $ (0.13) $ (3.82)
Net income (loss):
Primary.............. $ 0.71 $ 0.61 $ 0.60 $ (0.93) $ (0.31) $ (0.13) $ (3.82)
Fully diluted........ $ 0.71 $ 0.61 $ 0.60 $ (0.93) $ (0.31) $ (0.13) $ (3.82)
Dividends............. $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Other Data:
EBITDA................. $12,687 $10,896 $ 12,064 $ (1,933) $ 18,774 $ 13,097 $(19,177)
Cash flows provided by
(used in):
Operating activities.. $ 7,263 $ 6,850 $ 6,565 $ (182) $ 9,940 $ 4,375 $ 10,195
Investing activities.. $(1,884) $(6,279) $(42,505) $(106,154) $ (6,794) $ (5,159) $ (6,779)
Financing activities.. $(4,180) $(1,216) $ 48,508 $ 100,133 $ 6,238 $ 7,108 $ (2,604)
Capital expenditures
for property and
equipment............. $ 1,917 $ 6,322 $ 23,849 $ 114,729 $ 15,146 $ 13,363 $ 7,168
Balance Sheet Data:
Total assets........... $52,643 $55,916 $108,616 $ 238,467 $239,198 $237,377 $204,186
Other liabilities...... $15,573 $10,632 $ 7,581 $ 25,309 $ 27,406 $ 23,322 $ 29,351
Long term debt
excluding current
portion............... $29,142 $31,973 $ 0 $ 105,140 $106,547 $107,185 $104,732
Total stockholders'
equity................ $ 7,928 $13,311 $101,035 $ 108,018 $105,245 $106,870 $ 70,103
</TABLE>
- --------
(a)Includes $36,562,000 loss on the termination of the Blue Diamond interest.
(b)See "Business of Boomtown--Boomtown Las Vegas."
18
<PAGE>
RISK FACTORS
The following factors should be considered carefully by holders of Boomtown
Common Stock in evaluating whether to approve and adopt the Merger and the
Merger Agreement, and by holders of Hollywood Park Common Stock in evaluating
whether to approve the Hollywood Park Share Issuance Proposal. These factors
should be considered in conjunction with the other information included or
incorporated by reference in this Joint Proxy Statement/Prospectus.
DEPENDENCE ON EXPANSION
Hollywood Park and Boomtown believe that the success of the combined company
will depend in large part on future expansion, including the successful
expansion of Boomtown Reno, Boomtown New Orleans and Boomtown Biloxi and other
gaming projects as well as the continuing diversification of its gaming,
sports and entertainment businesses and the development of the Hollywood Park
Race Track property. There can be no assurance, however, that any currently
contemplated or future expansion projects of the combined company will ever be
completed or, if completed, will be successful. Moreover, numerous factors,
including regulatory or financial constraints, could intervene and lead to a
decision not to proceed with all or a portion of the combined company's
expansion projects or to otherwise alter or delay its current expansion plans.
In the event any proposed expansion project proceeds, such project will be
subject to numerous risks any of which could require substantial changes to
proposed plans or otherwise alter the time frames or budgets currently
contemplated. Such risks include the ability to secure all required permits,
resolution of potential land use issues, as well as risks typically associated
with any construction project, including possible shortages of materials or
skilled labor, engineering or environmental problems, work stoppages, weather
interference and unanticipated cost increases. Boomtown has experienced
disruptions of its operations, cost overruns and delays during its past
construction projects, and there can be no assurance that the combined company
will not experience such disruptions in the future.
The ability to expand to additional locations will depend upon a number of
factors, including but not limited to: (i) securing required state and local
licenses, permits and approvals, which in some jurisdictions may be limited in
number (see "--Competition"), and in certain cases may require legislative
relief from existing laws; (ii) identification and availability of suitable
locations, negotiation of an acceptable purchase, lease, joint venture or
other terms; (iii) political factors, such as the SB-100 moratorium on new
card club ordinances (see "Government Regulation--California--California Card
Club Operations"); and (iv) the risks typically associated with any new
construction project described above. In addition, while the gaming industry
has recently experienced rapid growth, there can be no assurance that gaming
will continue to be a growth industry resulting in opportunities for
expansion. The combined company expects to continue to incur significant costs
in connection with the pursuit of expansion opportunities, and may, in certain
circumstances, be required to write off substantial expenditures made in
connection with proposed ventures that do not materialize.
NEED FOR ADDITIONAL FINANCING; POSSIBLE REDEMPTION OF BOOMTOWN DEBT
The ability of the combined company to realize its objectives will depend on
Hollywood Park's ability to commit or raise capital to fund the expansion
projects of the combined entity. Under the Merger Agreement, it is a condition
to the consummation of the Merger that there will be available sufficient
financing to fund the redemption of Boomtown's $103.5 million of First
Mortgage Notes (at 101% of principal amount) and up to $60 million in future
gaming projects. Hollywood Park believes that it will be able to secure the
financing or capital necessary to fund the expansion projects the combined
company intends to undertake immediately following the Merger. See "Combined
Company Liquidity and Capital Resources." However, there can be no assurance
that any such capital will be available or, if available, that it will be
available on acceptable terms. Moreover, even if Hollywood Park secures the
financing contemplated by the Merger Agreement, there can be no assurance that
such funds will be sufficient to fund the currently contemplated projects of
the combined
19
<PAGE>
company in light of potential cost overruns (see "--Dependence on Expansion").
Further, if holders of the First Mortgage Notes accept the redemption offer,
the redemption of a significant portion of the First Mortgage Notes from
Hollywood Park's currently available cash or the incurrence of additional debt
to finance this redemption could materially limit the capital available to the
combined company for other purposes.
GOVERNMENTAL REGULATION
Gaming and racing operations are subject to extensive federal, state and
local regulations. The states and localities in which Hollywood Park and
Boomtown have gaming and racing operations or proposed gaming projects
typically require various licenses, permits and approvals to be held by the
parent entity and the operating entity, as well as by certain officers,
directors, key employees and stockholders. The licensing process is time
consuming, costly and has no assurance of success. Persons who acquire
beneficial ownership of more than certain designated percentages of the
combined company's debt or equity may also be subject to certain reporting and
qualification procedures established by gaming authorities. Under its
Certificate of Incorporation, Hollywood Park may redeem all shares of any
stockholder if such stockholder fails to obtain any required qualification.
To date, Hollywood Park and Boomtown have each obtained all governmental
licenses, permits and approvals necessary for the operation of their
respective gaming and racing facilities. However, there can be no assurance
that any new licenses, permits or approvals that will be required for any new
facility or for any expansion of an existing facility will be given or that
existing licenses, permits or approvals will not be revoked. Presently,
Hollywood Park and the proposed operator of Crystal Park have received only
provisional licenses to operate the Hollywood Park-Casino and the Crystal Park
facility, respectively. In each case, permanent registrations will not be
granted until the California Department of Justice completes its review of the
applications of the corporate applicants and their respective officers and
directors. No assurance can be given that permanent licenses will be obtained.
In addition, state gaming authorities often also require state approval of
future gaming operations outside the applicable state, and there can be no
assurance that future approvals will be obtained.
The regulatory environment in any particular jurisdiction may change in the
future and any such change may have a material adverse effect on the combined
company's results of operations. For example, the State of Louisiana adopted a
statute pursuant to which voter referendums on the continuation of gaming will
be held locally where gaming operations are conducted and which, if the
continuation of gaming were voted down, would result in the termination of
Boomtown New Orleans operations at the end of the current lease term in 1999.
See "--Loss of Boomtown New Orleans Riverboat." In addition, the California
law which permits a public company such as Hollywood Park to operate a card
club if it owns a race track located on the same premises expires in January
1999 unless, prior to that time, the California legislature enacts
comprehensive gaming regulations. There can be no assurance that such
legislation will be adopted by such date or that the legislature will extend
the deadline. If there is no legislative relief prior to January 1, 1999, it
is expected that Hollywood Park would again lease the Hollywood Park-Casino to
a third party operator, which could substantially reduce Hollywood Park's
return from the Hollywood Park-Casino. In addition, unless and until
California enacts legislation permitting the operation generally of card clubs
by public companies, Hollywood Park's involvement in other card club projects
(such as Crystal Park) will be similarly limited to a landlord relationship,
the returns from which could be substantially less than if Hollywood Park
operates such facilities directly.
In connection with being licensed to conduct their respective card club,
racing and casino operations, Hollywood Park and Boomtown are subject to
significant taxes and fees in addition to normal federal and state corporate
income taxes and such taxes and fees are subject to increase at any time. It
is expected that the combined company will continue to incur similar burdens
in connection with other future expansion projects.
COMPETITION
Both Hollywood Park and Boomtown face intense competition in their
respective markets and there is no assurance that the combined company will be
able to effectively compete in the future.
20
<PAGE>
Hollywood Park. The Hollywood Park-Casino faces competition from card clubs
in neighboring cities, including two card clubs of similar size to the
Hollywood Park-Casino located within 12 miles of Hollywood Park, from card
clubs and other forms of gaming located on Indian reservations, and from full-
fledged casinos operating in Nevada. Many card clubs in the Los Angeles area
have a significant geographical advantage over the Hollywood Park-Casino, due
in large part to their closer proximity to large Asian-American populations
who comprise a large percentage of card club patrons. Hollywood Park's racing
operations have been adversely impacted by the proliferation of additional
thoroughbred racing opportunities (including simulcasting and off-track
wagering) and the proliferation of other gaming establishments. Hollywood Park
believes that such establishments have had a material impact on the operating
results and growth prospects of its racing operations. See "Business of
Hollywood Park--Competition."
Boomtown. Boomtown faces significant competition in each of the
jurisdictions in which it has established operations, and such competition is
expected to intensify as new gaming operations enter its markets and existing
competitors expand their operations. Boomtown competes directly with other
casinos in Nevada, Mississippi and Louisiana. To a lesser extent, Boomtown
also competes for customers with other casino operators in North American
markets as well as other forms of gaming such as lotteries. Several of
Boomtown's competitors have substantially greater name recognition and
marketing resources. In Mississippi, casino operations expanded rapidly and
additional casinos are being planned. As a result, the Gulf Coast market is
experiencing significant dilution with gaming win per position in the Gulf
Coast and in the past a number of casinos in the Gulf Coast market have
failed. While Boomtown believes it has been able to effectively compete in
this market to date, there is no assurance that competitive factors will not
adversely affect Boomtown's operations in the future. In addition, recent
expansion of competitive casino operations, including large, themed,
destination resorts in the Las Vegas market, has had a material adverse effect
on Boomtown Las Vegas. Boomtown believes that increased legalized gaming in
other states particularly in areas close to Nevada, such as California, and in
areas close to its facilities in Mississippi and Louisiana could adversely
affect Boomtown's operations.
Potential New Projects. There is intense competition for gaming development
opportunities in jurisdictions that have recently legalized gaming, as the
number of gaming licenses granted in any particular jurisdiction is generally
strictly limited, and therefore only a small number of gaming facilities can
be developed in any such jurisdiction. Hollywood Park and Boomtown believe
that the Merger will permit the combined company to compete more effectively
in the acquisition of new gaming licenses and the development of new gaming
properties; however, there can be no assurance that the combined company will
be able to compete effectively in the acquisition of new gaming licenses in
the future. Failure to do so could negatively affect the growth potential of
the combined company.
CHALLENGE OF INTEGRATING OPERATIONS AND MANAGING GROWTH
The integration of Hollywood Park's and Boomtown's operations following the
Merger will require the dedication of management resources which will
temporarily detract from attention to the day-to-day business of the combined
company. Also, the process of combining the two organizations may cause an
interruption of, or a loss of momentum in, the activities of either or both of
the companies' businesses, which could have a material adverse effect on the
revenues and operating results of the combined company. Thus, there can be no
assurance that the combined company will be able to manage the combined
operations effectively or realize any of the anticipated benefits of the
Merger, including synergies of operations or efficiencies from the elimination
of duplicative functions.
In addition, because it plans to pursue expansion opportunities
aggressively, the combined company will face significant challenges not only
in managing and integrating the combined operations but also in managing its
expansion projects and any other gaming operations that it might acquire in
the future. Management of such new projects will require increased managerial
resources, and the combined company intends to continue its efforts to
strengthen its gaming-oriented management team to complement the companies'
present executive staffs. However, there can be no assurance that it will be
successful in doing so. Failure to manage its growth effectively would
materially adversely affect the combined company's operating results.
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QUARTERLY AND ANNUAL FLUCTUATIONS IN OPERATING RESULTS
Both Hollywood Park and Boomtown experience significant fluctuations in
their quarterly and annual operating results, and the combined company will
likely continue to experience similar fluctuations due to seasonality and
other factors. Historically, at least 70% of Boomtown's income from operations
before non-recurring items has been generated in the third and fourth quarters
(the quarters ending June 30 and September 30) with the summer months being
the strongest period. Hollywood Park historically generates approximately 50%
of its revenues but over 70% of its income from operations before non-
recurring items (but including depreciation and amortization) during these
same months. Conversely, the winter months, which primarily cover Boomtown's
second quarter (which ends March 31), are Boomtown Reno's and Boomtown
Biloxi's slowest periods and have historically resulted, and may in the future
result, in a loss for such quarter. Similarly, because the Hollywood Park Race
Track conducts no live meets during its first quarter, Hollywood Park's
operating results have historically suffered during that same period.
Future quarterly or annual operating results may also be adversely impacted
by traffic flow on major thoroughfares next to Boomtown's operations. For
example, Boomtown Reno is highly dependent on the traffic flow on Interstate
80, as customers stopping at Boomtown Reno from Interstate 80 represent a
substantial majority of its customer base. If traffic on Interstate 80 is
significantly reduced for an extended period or the off-ramps providing access
to Boomtown Reno are impaired for an extended period due to poor weather
conditions, road modifications and repairs or other factors, Boomtown's
results of operations will be adversely affected. In the Winter of 1994/1995,
severe storms, together with road repairs to Interstate 80 on the corridor
between California and Reno, resulted in road closures or substantially
reduced traffic flow on Interstate 80. Such road closures and repairs had an
adverse effect on the related quarters' and years' revenues.
Future operating results may also be affected by a number of other factors,
including the general level of demand for casino gaming and entertainment
facilities and uncertainties in general economic, regulatory and political
conditions affecting the gaming industry.
LOSS OF BOOMTOWN NEW ORLEANS RIVERBOAT
The State of Louisiana recently adopted a statute pursuant to which voter
referendums on the continuation of gaming will be held locally where gaming
operations are conducted. The vote will take place on November 5, 1996. While
Boomtown has no reason at this time to believe that the voters of the parish
where Boomtown's Louisiana riverboat operations are located will vote against
riverboat gaming, in the event they were to do so, Boomtown would have to
discontinue its riverboat gaming operation in that parish upon the expiration
of its license in 1999, which would have a material adverse effect on Boomtown
and the combined company.
CONSUMMATION OF BLUE DIAMOND SWAP
On August 12, 1996, Boomtown, Hollywood Park, Mr. Roski, Blue Diamond Hotel
& Casino, Inc., a Nevada corporation and a wholly-owned subsidiary of
Boomtown, IVAC, a California general partnership of which Mr. Roski as trustee
for the Roski Community Property Trust dated 11/1/87 is a 75% general partner
and Edward P. Roski, Sr. as trustee for the Edward P. Roski, Sr. Revocable
Trust dated 4/2/91 is a 25% general partner, and Majestic Realty Co., a
California corporation, entered into a Swap Agreement pursuant to which it is
agreed that, immediately following consummation of the Merger, Boomtown and
its subsidiaries will exchange their entire interest in the Boomtown Las Vegas
resort (including loans of approximately $27.3 million to the
landowner/lessor, IVAC) for two promissory notes aggregating approximately
$8.5 million in principal amount, an estimated cash payment of $2.1 million,
release from liabilities and note obligations totaling approximately $3.8
million and the ongoing expenses of the resort. Additionally, Mr. Roski will
assume all operating leases including any residual balances due under such
leases. The consummation of the Blue Diamond Swap is subject to numerous
conditions, including receipt of regulatory approval. In addition, Boomtown
intends to seek the consent of the holders of a majority of the outstanding
principal amount of the First Mortgage Notes. While Boomtown currently
believes that the Blue Diamond Swap will be consummated immediately following
the
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Merger, there can be no assurance in this regard. Boomtown will incur an
after-tax loss of $35.7 million as a result of the Blue Diamond Swap. In the
event the Blue Diamond Swap is not consummated, the combined company would
continue to operate the Blue Diamond resort through the termination of its
lease in July 1999. See "Unaudited Pro Forma Combined Consolidated Condensed
Financial Statements" and "Boomtown Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."
LOSS OF BOOMTOWN'S RIVERBOAT OR DOCKSIDE FACILITY FROM SERVICE
Boomtown's dockside casino in Biloxi, Mississippi and its riverboat casino
in Harvey, Louisiana, as well as any additional riverboats that might be
developed in the future, are subject to risks in addition to those associated
with land-based casinos, including loss of service due to casualty, mechanical
failure, extended or extraordinary maintenance, flood, hurricane or other
severe weather conditions. In addition, U.S. Coast Guard regulations require a
hull inspection at a U.S. Coast Guard-approved dry docking facility for all
cruising riverboats at five year intervals. The development of riverboat
casinos may also require approval from the Army Corps of Engineers. The loss
of a dockside casino or riverboat casino from service for any period of time
would adversely affect the combined company's results of operations.
TRADING MARKETS AND VOLATILITY OF STOCK PRICE
The market price of Hollywood Park's securities has been and could continue
to be subject to significant fluctuations in response to events and factors
that could affect future operating results, such as passage or defeat of
relevant legislation and other governmental actions. In addition, publicly-
traded companies engaged in the gaming industry have experienced extreme price
and volume fluctuations that are often unrelated to the operating results of
such companies. The price at which the Hollywood Park Common Stock will trade
in the future will depend upon a number of factors, including, without
limitation, the combined company's historical and anticipated operating
results (including the timing of the openings related to possible expansion
projects), overall gaming results and general market and economic conditions,
several of which factors will be beyond the control of the combined company.
In addition, factors such as quarterly fluctuations in the combined company's
financial and operating results, announcements by the combined company or
others, and developments affecting the combined company, its customers, its
markets or the gaming industry generally could cause the market price of the
Hollywood Park Common Stock to fluctuate significantly. See "Summary--Markets
and Price Data."
FIXED EXCHANGE RATIO
Under the Merger Agreement, each share of Boomtown Common Stock will be
converted into the right to receive 0.625 of a share of Hollywood Park Common
Stock. The Exchange Ratio is fixed and therefore will not increase or decrease
to compensate or penalize Boomtown's or Hollywood Park's stockholders for
fluctuations in the market price of the Hollywood Park Common Stock or
Boomtown Common Stock before the Effective Date. See "Summary--Markets and
Price Data."
ENVIRONMENTAL REGULATION; POTENTIAL ENVIRONMENT ISSUES
The combined company is subject to a variety of federal, state and local
governmental regulations relating to the use, storage, discharge, emission and
disposal of hazardous materials. Hollywood Park and Boomtown believe that they
are presently in material compliance with applicable environmental laws.
However, failure to comply with such laws could result in the imposition of
severe penalties or restrictions on the combined company's operations by
government agencies or courts of law. The combined company currently does not
have environmental impairment liability insurance, and a material fine or
penalty or a severe restriction would adversely affect the combined company's
results of operations.
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SHARES ELIGIBLE FOR FUTURE SALE
If the Merger is consummated, Hollywood Park will issue to stockholders of
Boomtown an aggregate of approximately 5,790,180 shares of Hollywood Park
Common Stock based on the number of shares of Boomtown Common Stock
outstanding as of September 20, 1996. Immediately upon consummation of the
Merger, up to approximately 4,724,700 of such shares will be freely tradeable
and an approximately 722,000 additional shares will be immediately eligible
for resale by Boomtown affiliates under Rule 145 subject to the volume and
other limitations thereof. As a result, substantial sales of Hollywood Park
Common Stock could occur after the Merger. In addition, based on the number of
Boomtown Options outstanding on September 20, 1996, an additional 1,098,995
shares of Hollywood Park Common Stock will be reserved for issuance to holders
of Boomtown Options to be assumed by Hollywood Park in the Merger. Future
sales of a substantial number of such shares of Hollywood Park Common Stock
could adversely affect or cause substantial fluctuations in the market price
of Hollywood Park Common Stock.
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THE HOLLYWOOD PARK MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
Hollywood Park Common Stock as part of the solicitation of proxies by the
Hollywood Park Board for use at the Hollywood Park Meeting to be held on
Wednesday, October 30, 1996 at 9:00 a.m., local time, at The Four Seasons
Hotel, 57 East 57th Street, New York, New York, 10022, and at any adjournments
or postponements thereof. This Joint Proxy Statement/Prospectus, and the
accompanying Proxy Card, are first being mailed to holders of Hollywood Park
Common Stock on or about September 24, 1996.
The purpose of the Hollywood Park Meeting is to consider and vote upon three
matters:
(i) a proposal (the "Hollywood Park Share Issuance Proposal") to approve
the issuance of shares of Hollywood Park Common Stock pursuant to the terms
of the Merger Agreement (See "The Merger Agreement and Related Agreements--
Conversion of Shares," "--Options" and "--Issuance of Shares Under Certain
Additional Boomtown Equity Rights");
(ii) the election of seven directors to serve for the coming year (once
the Merger has been consummated, the number of directors would be expanded
to eleven and four Boomtown representatives would fill the new positions);
and
(iii) a proposal to approve the adoption of the Hollywood Park 1996 Stock
Option Plan.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Hollywood Park Common Stock at the close of
business on September 10, 1996 (the "Hollywood Park Record Date") are entitled
to notice of and to vote at the Hollywood Park Meeting. As of the close of
business on the Hollywood Park Record Date, there were 18,299,142 shares of
Hollywood Park Common Stock outstanding and entitled to vote, held of record
by 3,690 stockholders. One third, or 6,099,714 of these shares, present in
person or represented by proxy, will constitute a quorum for the transaction
of business. Each Hollywood Park stockholder is entitled to one vote for each
share of Hollywood Park Common Stock held as of the Hollywood Park Record
Date.
VOTING OF PROXIES; VOTES REQUIRED
The accompanying Hollywood Park Proxy Card is solicited on behalf of the
Hollywood Park Board. Stockholders are requested to complete, date, sign and
return the proxy in the accompanying envelope. All properly executed,
returned, and unrevoked proxies will be voted in accordance with the
instructions indicated thereon. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED
FOR THE APPROVAL OF THE HOLLYWOOD PARK SHARE ISSUANCE PROPOSAL, FOR THE
ELECTION OF EACH DIRECTOR NOMINEE LISTED HEREIN, AND FOR THE APPROVAL OF THE
1996 STOCK OPTION PLAN DESCRIBED HEREIN. The Hollywood Park Board does not
presently intend to bring any business before the Hollywood Park Meeting other
than the specific proposals referred to in this Joint Proxy
Statement/Prospectus and specified in the notice of the Hollywood Park
Meeting. As to any business that may properly come before the Hollywood Park
Meeting, including any motion made for adjournment of the Hollywood Park
Meeting (including for purposes of soliciting additional votes for approval of
the Hollywood Park Share Issuance Proposal, the election of directors and
approval of the 1996 Stock Option Plan), the proxies will vote in their
discretion. A Hollywood Park stockholder who has given a proxy may revoke it
at any time before it is exercised at the Hollywood Park Meeting, by (i)
filing a written notice of revocation with, or delivering a duly executed
proxy bearing a later date to, Assistant Secretary, Hollywood Park, Inc., 1050
South Prairie Avenue, Inglewood, California 90301, or (ii) attending the
Hollywood Park Meeting and voting in person (although attendance at the
Hollywood Park Meeting will not, by itself, revoke a proxy).
Both the Hollywood Park Share Issuance Proposal and the proposal to approve
the adoption of the Hollywood Park 1996 Stock Option Plan require approval by
a majority of the total votes represented at the
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Hollywood Park Meeting, in person or by proxy. R.D. Hubbard, Hollywood Park's
Chairman of the Board and Chief Executive Officer, has agreed to vote his
2,119,840 shares of Hollywood Park Common Stock (representing approximately
11.58% of the outstanding shares of Hollywood Park Common Stock) in favor of
the Hollywood Park Share Issuance Proposal. See "The Merger Agreement and
Related Agreements--Stockholder Voting Agreements."
ABSTENTIONS; BROKER NON-VOTES
If an executed Hollywood Park proxy is returned and the stockholder has
specifically abstained from voting on any matter, the shares represented by
such proxy will be considered present at the Hollywood Park Meeting for
purposes of determining a quorum and for purposes of calculating the vote, but
will not be considered to have been voted in favor of such matter. If an
executed proxy is returned by a broker holding shares in street name which
indicates that the broker does not have discretionary authority as to certain
shares to vote on one or more matters, such shares will be considered present
at the meeting for purposes of determining a quorum, but will not be
considered to be represented at the meeting for purposes of calculating the
votes cast with respect to such matter. Thus, for purposes of determining
whether the Hollywood Park Share Issuance Proposal and the proposal to adopt
the 1996 Stock Option Plan have been approved, abstentions will be treated as
votes against the proposal, and broker non-votes will not be counted.
SOLICITATION OF PROXIES AND EXPENSES
Hollywood Park will bear the cost of the solicitation of proxies in the
enclosed form from its stockholders. In addition to solicitation by mail, the
directors, officers and employees of Hollywood Park may solicit proxies from
stockholders by telephone, telegram, letter, facsimile or in person. Following
the original mailing of the proxies and other soliciting materials, Hollywood
Park will request that brokers, custodians, nominees and other record holders
forward copies of the proxy and other soliciting materials to persons for whom
they hold shares of Hollywood Park Common Stock and request authority for the
exercise of proxies. In such cases, Hollywood Park will reimburse such record
holders for their reasonable expenses. Hollywood Park has retained D.F. King &
Co., Inc. to assist in the solicitation of proxies at a cost (including
brokers' expenses) of approximately $22,000 plus certain out-of-pocket
expenses.
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THE BOOMTOWN MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the holders of
Boomtown Common Stock as part of the solicitation of proxies by the Boomtown
Board for use at the Boomtown Meeting to be held on Wednesday, November 13,
1996 at 10:00 a.m., local time at Boomtown's principal executive offices
located at the intersection of Interstate 80 and Boomtown Road, Verdi, Nevada
89439-0399, and at any adjournments or postponements thereof. This Joint Proxy
Statement/Prospectus, and the accompanying Proxy Card, are first being mailed
to holders of Boomtown Common Stock on or about September 24, 1996.
The purpose of the Boomtown Meeting is to consider and vote upon a proposal
to approve and adopt the Merger and the Merger Agreement, which set forth the
terms and conditions of the Merger and the transactions contemplated thereby.
Upon consummation of the Merger, each then outstanding share of Boomtown
Common Stock will be converted into the right to receive 0.625 of a share of
Hollywood Park Common Stock. See "The Merger" and "The Merger Agreement and
Related Agreements."
Based on the last reported sale price of Hollywood Park Common Stock on
NASDAQ on September 17, 1996, the Exchange Ratio would result in a per share
purchase price for Boomtown Common Stock of $5.31. If the Merger is completed,
Boomtown stockholders will no longer hold any interest in Boomtown other than
through their interest in shares of Hollywood Park Common Stock. Consummation
of the Merger is subject to a number of conditions. See "The Merger Agreement
and Related Agreements."
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Boomtown Common Stock at the close of business on
September 20, 1996 (the "Boomtown Record Date") are entitled to notice of and
to vote at the Boomtown Meeting. As of the close of business on the Boomtown
Record Date, there were 9,264,291 shares of Boomtown Common Stock outstanding
and entitled to vote, held of record by 539 stockholders. A majority, or
4,632,146 of these shares, present in person or represented by proxy, will
constitute a quorum for the transaction of business. Each Boomtown stockholder
is entitled to one vote for each share of Boomtown Common Stock held as of the
Boomtown Record Date.
VOTING OF PROXIES; VOTE REQUIRED
The accompanying Boomtown Proxy Card is solicited on behalf of the Boomtown
Board. Stockholders are requested to complete, date, sign and return the proxy
in the accompanying envelope. All properly executed, returned and unrevoked
proxies will be voted at the Boomtown Meeting in accordance with the
instructions indicated thereon. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED
FOR APPROVAL AND ADOPTION OF THE MERGER AND THE MERGER AGREEMENT. The Boomtown
Board does not presently intend to bring any other business before the
Boomtown Meeting other than the specific proposals referred to in this Joint
Proxy Statement/Prospectus and specified in the notice of the Boomtown
Meeting. As to any business that may properly come before the Boomtown
Meeting, including any motion made for adjournment of the Boomtown Meeting
(including for purposes of soliciting additional votes for approval and
adoption of the Merger and the Merger Agreement), the proxies will vote in
their discretion. A Boomtown stockholder who has given a proxy may revoke it
at any time before it is exercised at the Boomtown Meeting, by (i) filing a
written notice of revocation with, or delivering a duly executed proxy bearing
a later date to Robert F. List, Senior Vice President, General Counsel and
Secretary, Boomtown, Inc., P.O. Box 399, Verdi, Nevada 89439-0399, or (ii)
attending the Boomtown Meeting and voting in person (although attendance at
the Boomtown Meeting will not, by itself, revoke a proxy).
Pursuant to the DGCL, the Boomtown Certificate of Incorporation and the
Boomtown Bylaws, approval and adoption of the Merger and the Merger Agreement
requires the affirmative vote of at least a majority of the outstanding shares
of Boomtown Common Stock entitled to vote at the Boomtown Meeting. SINCE THE
REQUIRED VOTE OF THE BOOMTOWN STOCKHOLDERS IS BASED UPON THE NUMBER OF
OUTSTANDING SHARES OF BOOMTOWN COMMON STOCK, RATHER THAN UPON THE SHARES
ACTUALLY VOTED, THE FAILURE BY THE HOLDER OF ANY SUCH SHARES
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TO SUBMIT A PROXY OR TO VOTE IN PERSON AT THE BOOMTOWN MEETING (INCLUDING
ABSTENTIONS AND "BROKER NON-VOTES") WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Timothy J. Parrott, Boomtown's Chairman of the Board and Chief Executive
Officer, has agreed to vote his 343,001 shares of Boomtown Common Stock
(representing approximately 3.7% of the outstanding shares of Boomtown Common
Stock) in favor of approval and adoption of the Merger and the Merger
Agreement. See "The Merger Agreement and Related Agreements--Stockholder
Voting Agreements."
ABSTENTIONS; BROKER NON-VOTES
If an executed Boomtown proxy is returned and the stockholder has
specifically abstained from voting on any matter, the shares represented by
such proxy will be considered present at the Boomtown Meeting for purposes of
determining a quorum. If an executed proxy is returned by a broker holding
shares in street name which indicates that the broker does not have
discretionary authority as to certain shares to vote on one or more matters,
such shares will be considered present at the meeting for purposes of
determining a quorum. Since the required vote of the Boomtown stockholders is
based upon the number of outstanding shares of Boomtown Common Stock,
abstentions and broker non-votes will have the same effect as a vote against
approval and adoption of the Merger Agreement.
SOLICITATION OF PROXIES AND EXPENSES
Boomtown will bear the cost of the solicitation of proxies in the enclosed
form from its stockholders. In addition to solicitation by mail, the
directors, officers and employees of Boomtown may solicit proxies from
stockholders by telephone, telegram, letter, facsimile or in person. Following
the original mailing of the proxies and other soliciting materials, Boomtown
will request that brokers, custodians, nominees and other record holders
forward copies of the proxy and other soliciting materials to persons for whom
they hold shares of Boomtown Common Stock and request authority for the
exercise of proxies. In such cases, Boomtown will reimburse such record
holders for their reasonable expenses. Boomtown has retained Skinner & Co.,
Inc. to assist in solicitation of proxies at a cost of approximately $5,000,
plus customary expenses.
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THE MERGER
(ITEM NO. 1 ON BOOMTOWN PROXY CARD)
(ITEM NO. 1 ON HOLLYWOOD PARK PROXY CARD)
The following description of certain aspects of the proposed Merger does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached to this Joint
Proxy Statement/Prospectus as Appendix A, and the other appendices hereto. All
holders of Hollywood Park Common Stock and Boomtown Common Stock are urged to
read the Merger Agreement and the other appendices in their entirety for a
more complete description of the Merger.
GENERAL
The Merger Agreement provides for the merger of Sub with and into Boomtown,
with Boomtown surviving the Merger and becoming a wholly-owned subsidiary of
Hollywood Park. Upon the consummation of the Merger, each then outstanding
share of Boomtown Common Stock will be converted into the right to receive
0.625 of a share of Hollywood Park Common Stock. Cash will be paid in lieu of
fractional shares. As promptly as practicable after the satisfaction or waiver
of the conditions set forth in the Merger Agreement, the parties thereto will
file a Certificate of Merger with the Secretary of State of the State of
Delaware. The Merger will become effective on the date of such filing. See
"The Merger Agreement and Related Agreements--Conversion of Shares" and "--
Effective Date of the Merger."
BACKGROUND OF THE MERGER
Hollywood Park's strategic plan is to diversify its gaming, sports and
entertainment businesses through the development, acquisition, ownership
and/or operation of casinos, race tracks and other gaming, sports and
entertainment attractions. Hollywood Park has been actively seeking expansion
opportunities, particularly with respect to Nevada-style gaming companies, and
regularly evaluates acquisition candidates.
Boomtown's strategic plan is to expand its operations by adding more hotel
rooms, restaurants, meeting and retail space, and other amenities at its
existing sites, which Boomtown believes will further enhance its current
gaming operations, as well as by pursuing gaming opportunities in new
jurisdictions, such as the proposed Indiana project. During the eighteen
months prior to the execution of the Merger Agreement, Boomtown considered
several financing alternatives to fund its proposed gaming projects including
debt and equity offerings, strategic alliances with corporate partners and
business combinations (such as the proposed merger with National Gaming Corp.
(recently renamed National Lodging Corporation)) ("NGC") announced in January
1995, which was subsequently abandoned).
During late January and early February 1996, Mr. Hubbard and Mr. Finnigan
had discussions with representatives of Oppenheimer regarding ways for
Hollywood Park to expand its gaming operations. Mr. Hubbard and Mr. Finnigan
concluded that the most effective way for Hollywood Park to expand its gaming
business was through a merger with or acquisition of a gaming company.
Oppenheimer identified several potential acquisition or merger candidates in
the gaming industry, one of which was Boomtown.
In early February 1996, representatives of Oppenheimer met with Timothy J.
Parrott, Chairman and Chief Executive Officer of Boomtown, and G. Thomas
Baker, the then Chief Financial Officer of Boomtown, to discuss Boomtown's
interest in a possible business combination with Hollywood Park. They
discussed the possible synergistic benefits of a business combination of the
companies, with Hollywood Park's strong financial condition and access to
capital complementing Boomtown's existing gaming operations and opportunities
for expansion. Mr. Parrott indicated that he was interested in exploring the
possibility of such a transaction.
On February 19, 1996, Mr. Hubbard, Mr. Finnigan and representatives of
Oppenheimer met with Mr. Parrott at Hollywood Park's executive offices. They
discussed the possible strategic benefits of a stock-for-stock business
combination of the two companies, and the matching of Hollywood Park's
financial strength with
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Boomtown's gaming operations and opportunities for expansion in its various
markets. The participants in the meeting expressed the view that both
companies had significant potential, but that the market had not yet
recognized that potential. These discussions were preliminary in nature and no
decisions or commitments were made, but it was agreed that discussions would
continue.
During the course of the next week, there were further telephone
conversations between Messrs. Hubbard, Finnigan and Parrott regarding a
possible transaction involving the companies. During the course of these
discussions, Hollywood Park proposed an exchange ratio of 0.60. In addition, a
number of discussions were held between counsel for Hollywood Park and counsel
for Boomtown and between the principals concerning a proposed confidentiality
and standstill agreement.
On February 27, 1996, Messrs. Hubbard and Finnigan met in Verdi, Nevada with
Mr. Parrott and other senior officers of Boomtown to continue discussions on
the proposed transaction and to discuss each company's long-term strategic and
expansion plans, and the possible synergies of a strategic combination. On
that same day, the parties executed a mutual confidentiality agreement
permitting the exchange of non-public information and providing for a
standstill. See "The Merger Agreement and Related Agreements--Confidentiality
Agreement; Standstill Obligations."
On March 1, 1996 at a regularly scheduled meeting of the Boomtown Board, Mr.
Parrott reviewed with the Boomtown Board the status of discussions with
Hollywood Park. The Boomtown Board discussed the strategic value of a
transaction with Hollywood Park, particularly in light of Boomtown's need for
significant infusion of capital in order for Boomtown to advance its strategic
goals, and the fact that Boomtown had been unsuccessful to date in obtaining
financing despite extensive exploration of various alternatives, including
debt or equity offerings, possible corporate partnering transactions and
business combinations. The Boomtown Board discussed Hollywood Park's current
projects and outlook, its cash and credit position. Representatives of Sutro
also presented Sutro's preliminary financial analysis regarding a possible
transaction with Hollywood Park. The Boomtown Board requested that management
together with Boomtown's legal and financial advisors conduct extensive due
diligence of Hollywood Park. In addition, the Board approved Director Richard
Goeglein assuming a significant role in analyzing a possible transaction with
Hollywood Park, for which he would receive a fee of $25,000. The Boomtown
Board also authorized the retention of Sutro as Boomtown's financial advisor
for a possible transaction with Hollywood Park.
On March 7, 1996, Mr. Parrott, Mr. Goeglein and Robert List, Senior Vice
President and General Counsel of Boomtown, met in Los Angeles with Mr. Hubbard
and Mr. Finnigan of Hollywood Park and representatives of Sutro and
Oppenheimer to continue discussions regarding the proposed transaction and to
exchange information about Boomtown and Hollywood Park.
During the week of March 11, 1996, the parties continued to exchange
information about their respective companies and to discuss the proposed terms
of the transaction, including the exchange ratio (which, through negotiation,
had been increased to 0.625), the composition of the Hollywood Park Board and
executive committee and other provisions.
On March 15, 1996, the Hollywood Park Board met with certain members of its
senior management and its financial and legal advisors to discuss a possible
strategic combination with Boomtown. The Board, with presentations by
management and Oppenheimer, reviewed in depth Boomtown's business history, its
various gaming facilities (including the potential options with respect to the
Blue Diamond facility), operating structure, capital structure, financial
condition, operating results and prospects for expansion, as well as the
potential strategic benefits of the combination. The Board also discussed the
structure of the potential merger, its expected tax-free nature, the
accounting treatment (including the fact that if purchase accounting were used
there would be negative goodwill) and the need to obtain the requisite gaming
approvals and the consent of the holders of the First Mortgage Notes to the
transaction. The Hollywood Park Board authorized management to continue its
discussions and negotiations with Boomtown.
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On March 18, 1996, the Boomtown Board held a meeting in San Francisco,
California and discussed the proposed transaction with Hollywood Park. The
Boomtown Board, with presentations by management and Boomtown's legal and
financial advisors, reviewed in depth Hollywood Park's capital structure,
financial condition, operating results and prospects for expansion, as well as
the strategic benefits of the potential combination. The Boomtown Board
discussed the proposed structure of the transaction including a fixed exchange
ratio of 0.625 shares of Hollywood Park Common Stock for each share of
Boomtown Stock, the expected tax-free nature of the transaction, the
accounting treatment and the proposed structure of the Hollywood Park Board
and Executive Committee. After substantial discussion, the Boomtown Board
(with the exception of Mr. Roski) authorized the officers of Boomtown to enter
into a nonbinding letter of intent with Hollywood Park setting forth the
principal terms of the transaction, including the fixed exchange ratio.
On March 19, 1996, the Hollywood Park Board met again with certain members
of its senior management and its financial and legal advisors and after
further deliberation approved the letter of intent, which the parties executed
later that day. The letter of intent provided for a fixed exchange ratio of
0.625 shares of Hollywood Park common stock for each share of Boomtown common
stock and provided for the composition of the Hollywood Park Board and
Executive Committee following the Merger.
Following the execution of the letter of intent, the parties commenced
negotiation of the terms of a definitive merger agreement and continued their
extensive due diligence efforts of one another, including legal, operational,
administrative and financial due diligence.
On April 23, 1996, the Hollywood Park Board met with certain members of its
senior management and its financial and legal advisors to discuss and vote
upon the Merger and the proposed Merger Agreement. At such meeting,
Oppenheimer rendered to the Hollywood Park Board its oral opinion (confirmed
in writing on the next day) that the consideration to be received by the
Boomtown stockholders in the proposed Merger was fair, from a financial point
of view, to the stockholders of Hollywood Park. See "--Opinions of Financial
Advisors--Opinion of Oppenheimer." Hollywood Park's counsel reviewed the
principal aspects of the Merger Agreement. Following an extensive discussion
as to the potential benefits which Hollywood Park's stockholders could derive
from the Merger as well as the risks inherent in Boomtown's business, the
Hollywood Park Board unanimously approved the Merger Agreement and authorized
the officers of Hollywood Park to execute the Merger Agreement on behalf of
Hollywood Park and recommended the approval of the Hollywood Park Share
Issuance Proposal by the stockholders of Hollywood Park.
On April 23, 1996, the Boomtown Board met to consider the proposed Merger
Agreement and the transactions contemplated thereby. At such meeting, members
of Boomtown's management, together with Boomtown's legal and financial
advisors, reviewed with the board, among other things the background of the
proposed transaction, the potential benefits and risks of the transaction,
including the strategic and financial rationale, the structure of the
transaction and the terms of the Merger Agreement. At the conclusion of the
presentation, Sutro delivered its oral opinion (confirmed in writing as of the
same day) that as of April 23, 1996 the Exchange Ratio was fair, from a
financial point of view, to the stockholders of Boomtown. See "--Opinions of
Financial Advisors--Opinion of Sutro." The Boomtown Board approved (with Mr.
Roski dissenting) the Merger Agreement and the transactions contemplated
thereby following the close of the market on such date.
The companies executed the Merger Agreement late on April 23, 1996 and the
agreement to merge was announced on April 24, 1996 by the issuance of a joint
press release.
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REASONS FOR THE MERGER
Reasons of Hollywood Park for the Merger
The Hollywood Park Board has unanimously approved the Merger Agreement and
the Merger, has determined that the terms of the Merger Agreement are fair to,
and that the Merger is in the best interests of, Hollywood Park and its
stockholders and therefore unanimously recommends that the holders of
Hollywood Park Common Stock vote FOR approval of the Hollywood Park Share
Issuance Proposal.
In reaching its determination to approve the Merger Agreement and the
transactions contemplated thereby, the Hollywood Park Board has identified the
following potential benefits of the Merger that it believes will contribute to
the success of the combined company:
(i) The Merger would create a diversified, multi-jurisdictional
gaming/entertainment company with casinos and card clubs in California,
Nevada, Louisiana and Mississippi and race tracks in California, Arizona
and Kansas. The Merger would create cross-marketing opportunities between
its California card clubs and Nevada casinos.
(ii) As a result of the Merger, Hollywood Park would be the only public
company that owns and operates a California card club along with full-
fledged casinos in other jurisdictions.
(iii) The combined companies would have significant expansion potential
without having to rely on third parties or legislative action for such
expansion. Hollywood Park's access to capital would permit the expansion of
Boomtown Reno, Boomtown New Orleans and, subject to the acquisition of
additional land and the completion of construction plans, Boomtown Biloxi.
Further, if Boomtown and Hilton are successful in obtaining an Indiana
gaming license, sufficient capital would be available to fund Boomtown's
commitment under the Indiana project. The addition of Boomtown management
would provide Hollywood Park with greater management expertise to expand
casino operations into Phoenix and/or Kansas City, assuming expanded gaming
is legalized in those jurisdictions. Boomtown's joint venture with Hilton
Gaming in Switzerland County, Indiana would give Hollywood Park an
important relationship with a major hotel operator and will provide
additional gaming revenue if approved in that county by the Indiana Gaming
Commission.
(iv) The equity of the consolidated combined companies would be in excess
of $200 million and Hollywood Park's access to capital could be matched
with the expanded opportunities Boomtown's business would present.
(v) The prospects for future financing by the combined company would be
enhanced due to the write-down of unproductive assets in connection with
the Merger so that future results of operations would not be adversely
affected by these assets. In addition, Hollywood Park wrote off its
investment in its Sunflower Racing subsidiary (the Woodlands) in the first
quarter of 1996.
(vi) The Merger would result in significant financial and administrative
synergies, including a reduced cost of capital for Boomtown and cost
efficiencies in restructuring Boomtown's operating leases and overhead
reductions.
(vii) The management of the combined companies would give Hollywood Park
increased personnel depth in gaming and marketing.
(viii) The combined companies would have a significantly larger market
capitalization which Hollywood Park believes could result in a more
favorable view of Hollywood Park in the capital markets.
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In the course of its deliberations, the Hollywood Park Board reviewed and
considered a number of other factors relevant to the Merger. In particular,
the Hollywood Park Board considered, among other things, the following
factors:
(a) The Hollywood Park Board considered information concerning Hollywood
Park's and Boomtown's respective businesses, financial position, results of
operations and properties;
(b) The Hollywood Park Board considered the reports and views of
Hollywood Park's management and Oppenheimer's representatives, including
reports relating to the extensive due diligence review which had been
conducted regarding Boomtown's business, operations, properties and
competitive position, and possible synergistic and expansion opportunities
for the two companies;
(c) The Hollywood Park Board, with the assistance of Hollywood Park's
financial advisor, considered the comparative stock prices of Hollywood
Park and Boomtown Common Stock, the consideration paid in other comparable
merger and acquisition transactions in the gaming industry and other
industries (and the fact that the Merger is a market-for-market strategic
combination), and an analysis of the respective contributions to revenues,
operating profits and net profits of the combined companies based on
industry analysts' estimates;
(d) The Hollywood Park Board considered the opinion of Oppenheimer that,
as of the date of the Merger Agreement, the consideration to be received by
the Boomtown stockholders of 0.625 of a share of Hollywood Park Common
Stock for each outstanding share of Boomtown Common Stock is fair to
Hollywood Park's stockholders from a financial point of view (see "--
Opinions of Financial Advisors-- Opinion of Oppenheimer");
(e) The Hollywood Park Board considered, with the assistance of Hollywood
Park's legal counsel, the terms of the Merger Agreement, including the
obligations of Hollywood Park and Boomtown not to solicit or encourage
other acquisition proposals, the breakup fee provisions, the circumstances
under which either Hollywood Park or Boomtown can terminate the Merger
Agreement and the closing conditions to the Merger;
(f) The Hollywood Park Board considered, with the assistance of Hollywood
Park's legal counsel, the application process for gaming licenses which
must be obtained by Hollywood Park and certain of its officers and
directors as a result of the Merger; and
(g) The Hollywood Park Board considered that the Hollywood Park Share
Issuance Proposal requires approval by a majority of the votes cast at the
Hollywood Park Meeting, and that the Merger is conditioned upon approval
and adoption of the Merger Agreement and the Merger by the holders of a
majority of the outstanding voting power of the Boomtown Common Stock.
The Hollywood Park Board also considered a variety of potentially negative
factors in its deliberations concerning the Merger, including the following
factors: (1) the potential dilutive effect of the issuance of Hollywood Park
Common Stock in the Merger and pursuant to the assumed Boomtown Options and
other assumed rights; (2) the substantial charges expected to be incurred in
connection with the Merger, including the transaction expenses arising from
the Merger and costs associated with combining the operations of the two
companies; (3) the fact that the Merger is expected to be accounted for as a
purchase; (4) the risk that, despite the intentions and the efforts of the
parties, the benefits sought to be achieved in the Merger will not be
achieved; (5) the risk that the market price of Hollywood Park Common Stock
might be adversely affected by the consummation of the Merger; (6) the risk
that despite the intentions and efforts of the parties the key management
personnel of Boomtown might not remain with the combined company; and (7) the
other risks described above under "Risk Factors."
The foregoing discussion of the information and factors considered by the
Hollywood Park Board is not intended to be exhaustive but is believed to
include all material factors considered by the Hollywood Park Board. In view
of the variety of factors considered in connection with its evaluation of the
Merger, the Hollywood Park
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Board did not find it practicable to and did not quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Hollywood Park Board may
have given different weights to different factors.
Reasons of Boomtown for the Merger
The Boomtown Board has approved the Merger Agreement and the Merger, has
determined that the Merger is advisable and fair and in the best interests of
Boomtown and its stockholders and recommends that holders of shares of
Boomtown Common Stock vote FOR approval and adoption of the Merger Agreement
and the Merger.
In the course of its deliberations regarding the approval of the Merger
Agreement and the transactions contemplated thereby, the Boomtown Board
considered the following potential benefits of the proposed Merger:
Expansion; Increased Financial Resources of the Combined
Enterprise. Boomtown believes that its future success is highly dependent
upon continued growth of its properties, and believes that it has
significant gaming opportunities at its existing sites. Based upon its own
financial analysis and advice of its financial advisor, Boomtown believes
that the combined company will have substantially greater financial
resources and a stronger balance sheet than Boomtown on a stand-alone
basis. Boomtown believes that such improved financial strength as a result
of the Merger will enhance its flexibility in developing and expanding its
existing properties consistent with its current expansion plans, as well as
in exploring and capitalizing on new gaming opportunities. Boomtown
believes that such expansion will enhance the operating performance of the
combined company, by enabling it to exploit more fully its existing markets
and potentially to expand into new markets (such as Indiana, in the event
that Boomtown's proposed joint venture project with Hilton Gaming
Corporation receives gaming approval).
Move to Mid-Cap Range. The stock of both Boomtown and Hollywood Park
currently trades in the "small cap" range, i.e. in the range of other
companies of similar size (less than a $250 million capitalization). A
significant number of institutional investors are restricted from
purchasing, or choose not to purchase, the common stock of "small cap"
companies (due in part to lack of liquidity as well as risks associated
with insufficient financial wherewithal to withstand earnings volatility or
to take advantage of strategic business opportunities for growth as they
may occur). Boomtown believes that the increased size of the combined
company, by comparison with Boomtown and Hollywood Park as stand alone
companies, may enhance its position and enable it to trade at a higher
multiple commensurate with other gaming companies of similar sizes to the
combined company.
Possible Synergies. Boomtown believes that the combined company will be
able to achieve synergistic benefits through the complement of existing
projects of Hollywood Park and Boomtown, including the diversity of gaming
and other attractions (such as card clubs, horse racing and Hollywood
Park's proposed sports attractions) and through the cross-marketing
opportunities presented by the geographic spread of the combined company's
operations.
The Boomtown Board also reviewed and considered a number of other factors
relevant to the Merger, including, among other things, the following:
(a) information concerning Boomtown and Hollywood Park's business,
financial performance and financial condition, existing operations and
future gaming and other prospects, and the belief that the book value of
Hollywood Park's assets is substantially understated;
(b) the comparative market prices of the stock prices of Boomtown and
Hollywood Park Common Stock, prices paid in other comparable merger and
acquisition transactions, and an analysis of the respective future
contributions to revenues, cash flow, EBITDA and net income of the combined
companies based on industry analysts' estimates;
(c) an evaluation of the prospects of Boomtown on a stand-alone basis,
including possible financing alternatives for Boomtown taking into
consideration Boomtown's efforts in this regard during the eighteen months
prior to the execution of the Merger Agreement, including exploring
possible equity or debt offerings, corporate partnering arrangements and
the proposed merger with NGC (subsequently abandoned), among others;
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(d) the changing nature of the gaming industry and the need for
substantial capital to compete effectively;
(e) the reports of Boomtown's management, its financial advisors and
legal counsel regarding the extensive due diligence review which had been
conducted regarding Hollywood Park's business, operations, financial
condition and expansion opportunities;
(f) the composition and structure of the combined company's Board of
Directors and management, including the expansion of the Board of Directors
of Hollywood Park to an eleven person board with four Boomtown
representatives and the expansion of the Hollywood Park Executive Committee
to a five or six person Committee with two Boomtown representatives
(initially Mr. Parrott and Mr. Goeglein), each for a period of three years;
(g) the continuing incentives of the Boomtown employees as part of the
combined enterprise, including the repricing of Boomtown employee stock
options with an exercise price equal to the equivalent trading price of
Common Stock immediately prior to execution of the Merger Agreement and the
acceleration of vesting of certain of the Boomtown officers' stock options
consistent with the terms of their employment agreements (see "--Interests
of Certain Persons in the Merger");
(h) the gaming and other regulatory approval processes, the likelihood of
receipt of required gaming approvals for Hollywood Park's existing officers
and directors, and the anticipated lengthy period of time prior to
consummation of the Merger;
(i) the tax-free treatment of the Merger for federal income purposes, and
the expected purchase accounting treatment of the Merger for financial
reporting purposes;
(j) a financial presentation by Sutro, Boomtown's financial advisor,
including Sutro's opinion that as of the date of the opinion, the Exchange
Ratio was fair from a financial point of view to the stockholders of
Boomtown (see "--Opinions of Financial Advisors--Opinion of Sutro");
(k) the terms and conditions of the Merger Agreement, including the
Exchange Ratio determining the number of shares to be issued to Boomtown
stockholders, the closing conditions to the Merger (including the condition
that Boomtown receive written assurances reasonable to it of the
availability of sufficient funds to Hollywood Park to redeem the First
Mortgage Notes and $60 million to fund future gaming projects of the
combined company), the obligations of both companies not to solicit or
encourage other acquisition proposals, the standstill provisions set forth
in the confidentiality agreement between the companies and the exceptions
thereto in the Merger Agreement, the restrictions on the conduct of
business of each party, the breakup fee provisions and the circumstances
under which either company can terminate the Merger Agreement (including
the Boomtown Board's right to terminate the Merger Agreement in order to
accept a financially superior proposal); and
(l) the requirement that consummation of the Merger is conditioned upon
approval of the Merger and the Merger Agreement by the holders of a
majority of the outstanding Boomtown Common Stock entitled to vote.
The Boomtown Board also considered a variety of potentially negative factors
in its deliberations concerning the Merger, including the following: (1) the
risks associated with Hollywood Park's business and expansion plans, including
the risk of the passage of anti-gaming legislation in California, the lack of
availability of a nationally recognized football or other sports team to serve
as a major attraction for Hollywood Park's planned entertainment complexes and
the continued deleterious effect of gaming competition on the results of
operations for Hollywood Park's horse and dog racing operations, particularly
in Kansas; (2) the fact that the Exchange Ratio does not include a premium
over the trading price of Boomtown's Common Stock; (3) the risk of stock price
fluctuations prior to and following the completion of the Merger, particularly
given the fact that the Exchange Ratio is fixed (and hence the number of
shares to be received by stockholders of Boomtown upon
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consummation of the Merger remains the same, regardless of fluctuations in the
stock price of Boomtown or Hollywood Park prior to the Merger); (4) the
potential dilutive effect of the issuance of Hollywood Park Common Stock to
the Boomtown stockholders in the Merger during the development stage of the
combined company's proposed expansion plans; (5) the risk of Hollywood Park
and its management not obtaining necessary gaming approvals and the lengthy
time period anticipated prior to consummation of the Merger (due to required
regulatory approvals and other necessary consents); (6) the risk that
financing will not be available to fund Boomtown's current expansion projects
and proposed new projects, either because Hollywood Park is unable to obtain
such financing or because it chooses to invest available funds in nongaming
projects; (7) the Boomtown management's ability to influence the future
direction of the combined company, including the fact that Boomtown
representatives will represent neither a majority of the Board of Directors of
the combined company nor a majority of the Executive Committee of the combined
company; (8) the risk that despite the intentions and efforts of the parties,
the benefits sought to be achieved in the Merger will not be achieved; (9) the
risk that the operations of the two companies would not be successfully
integrated and (10) the other risks described above under "Risk Factors."
The foregoing discussion of the information and factors considered by the
Boomtown Board is not intended to be exhaustive but is believed to include all
material factors considered by the Boomtown Board. In view of the variety of
factors considered in connection with its evaluation of the Merger, the
Boomtown Board did not find it practicable to and did not quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the Boomtown
Board may have given different weights to different factors. The directors
voting on the Merger, with the exception of Mr. Roski who dissented, voted to
recommend to the holders of Boomtown Common Stock that the Merger Agreement
and the Merger be approved. Mr. Roski has indicated that he voted against the
proposed Merger primarily because he believes it will create only incremental
value for the stockholders of Boomtown, and because the proposed transaction,
in his opinion, will leave Boomtown's stockholders largely dependent upon the
prospective economic performance of Hollywood Park. Mr. Roski indicated that
he analyzed Hollywood Park's recent operating results, the status of gaming in
California and the prospects of certain of Hollywood Park's other businesses,
and concluded that the anticipated synergies between Hollywood Park and
Boomtown were unlikely to materialize. In addition, Mr. Roski also dissented
because of his objections to certain provisions of the Merger Agreement. He
believed that the absence of any adjustment mechanism to address declines in
the value of Hollywood Park Common Stock constituted, in his view, an
unacceptable risk to Boomtown's stockholders. He also objected to the
provisions of the Merger Agreement that allowed for the repricing of
Boomtown's management options. For a discussion of the interests of certain
members of Boomtown's management and the Boomtown Board in the Merger, see "--
Interests of Certain Persons in the Merger."
BOARD RECOMMENDATIONS
THE HOLLYWOOD PARK BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE MERGER AND BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO,
AND THAT THE MERGER IS IN THE BEST INTERESTS OF, HOLLYWOOD PARK AND ITS
STOCKHOLDERS AND THEREFORE UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
HOLLYWOOD PARK COMMON STOCK VOTE FOR APPROVAL OF THE HOLLYWOOD PARK SHARE
ISSUANCE PROPOSAL.
THE BOOMTOWN BOARD HAS APPROVED THE MERGER AGREEMENT AND THE MERGER AND
BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT THE
MERGER IS IN THE BEST INTERESTS OF, BOOMTOWN AND ITS STOCKHOLDERS AND
THEREFORE RECOMMENDS THAT THE HOLDERS OF BOOMTOWN COMMON STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
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OPINIONS OF FINANCIAL ADVISORS
Opinion of Oppenheimer
As part of its role as financial advisor to Hollywood Park, Oppenheimer
rendered an oral opinion to the Board of Directors of Hollywood Park on April
23, 1996 (confirmed in a written opinion dated April 24, 1996) (the
"Oppenheimer Opinion") to the effect that, subject to, the assumptions,
factors, limitations and other matters set forth therein, the consideration to
be received by the holders of Common Stock of Boomtown in the Merger was fair,
from a financial point of view, to the stockholders of Hollywood Park.
Oppenheimer is not aware of any significant events or changes to the
information provided for analysis after the rendering of the Oppenheimer
Opinion which would alter Oppenheimer's fairness determination.
THE FULL TEXT OF THE OPPENHEIMER OPINION IS ATTACHED HERETO AS APPENDIX B.
HOLDERS OF HOLLYWOOD PARK COMMON STOCK ARE URGED TO READ THE OPPENHEIMER
OPINION IN ITS ENTIRETY FOR THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED AND
THE LIMITS OF THE REVIEW MADE BY OPPENHEIMER. THE FOLLOWING DISCUSSION OF THE
OPPENHEIMER OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF APPENDIX B. THE OPPENHEIMER OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY HOLDER AS TO HOW TO VOTE ON THE MERGER.
The specific exchange ratio was determined by arm's-length negotiations
between Hollywood Park and Boomtown during which negotiations representatives
of Oppenheimer advised Hollywood Park. However, Oppenheimer did not make any
recommendation as to any specific exchange ratio constituting the only
appropriate exchange ratio for the Merger. Oppenheimer's opinion does not
constitute an opinion as to the value of the Hollywood Park Common Stock when
issued to holders of Boomtown Common Stock pursuant to the Merger or the price
at which the Hollywood Park Common Stock will trade subsequent to the Merger.
In arriving at its opinion, Oppenheimer (i) reviewed the draft Merger
Agreement dated April 17, 1996; (ii) reviewed Hollywood Park's annual reports
to stockholders and annual reports on Form 10-K for the five fiscal years
ended December 31, 1995 and Hollywood Park's quarterly reports on Form 10-Q
for the fiscal years 1994 and 1995; (iii) reviewed Boomtown's annual reports
to stockholders and annual reports on Form 10-K for the three fiscal years
ended September 30, 1995, Boomtown's audited financials for the two fiscal
years ended September 30, 1992 and Boomtown's quarterly reports on Form 10-Q
for the fiscal years 1994, 1995 and the first two quarters of fiscal 1996;
(iv) held discussions with the senior managements of Hollywood Park and
Boomtown and visited certain major properties of Hollywood Park and Boomtown;
(v) reviewed financial projections for Hollywood Park prepared by Hollywood
Park's management; (vi) reviewed financial projections for Boomtown prepared
by Boomtown's management; (vii) held discussions with Hollywood Park regarding
the plans for Boomtown after consummation of the Merger; (viii) reviewed
current and historical market prices and trading data of Hollywood Park Common
Stock and Boomtown Common Stock; (ix) reviewed financial and market data for
certain public companies Oppenheimer deemed comparable to Hollywood Park and
Boomtown, respectively; (x) reviewed and analyzed recent mergers and
acquisitions of companies Oppenheimer deemed comparable to Boomtown; and (xi)
performed such other analyses and reviewed such other information as
Oppenheimer deemed appropriate. Oppenheimer did not review either Hollywood
Park's or Boomtown's quarterly reports on Form 10-Q for the quarters ended
March 31, 1996, and June 30, 1996, respectively, since such reports were not
yet available.
In rendering its opinion, Oppenheimer relied upon and assumed, without
independent verification or investigation, the accuracy and completeness of
all of the financial and other information available to it from public sources
or provided to it by Hollywood Park and Boomtown and their respective
representatives. With respect to the forecasts regarding Hollywood Park's and
Boomtown's future financial conditions and operating results provided to it as
described in clauses (v) and (vi) above, Oppenheimer assumed, without
independent verification or investigation, that such forecasts were reasonably
prepared based on the best available information, estimates and judgments of
Hollywood Park's and Boomtown's respective managements. In addition,
Oppenheimer has neither made nor obtained any independent evaluation or
appraisal of the assets or
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liabilities of Hollywood Park or Boomtown. Oppenheimer's opinion is
necessarily based on economic, market, financial and other conditions as they
existed on, and on the information made available to it as of, the date of its
opinion. In engaging Oppenheimer to render the Oppenheimer Opinion, neither
Hollywood Park nor any affiliate thereof provided any instructions or imposed
any limitations as to the scope and breadth of Oppenheimer's due diligence
investigations and financial analysis which would have inhibited Oppenheimer's
ability to render a fairness determination.
The following is a summary of certain factors considered and principal
financial analyses performed by Oppenheimer to arrive at its April 24, 1996
opinion and does not purport to be a complete description of the analyses
performed by Oppenheimer. Oppenheimer performed certain procedures, including
each of the financial analyses described below, and reviewed with the
managements of Hollywood Park and Boomtown the assumptions on which such
analyses were based and other factors, including the current and projected
financial results of such companies. Oppenheimer does not believe that any of
such factors considered did not support its fairness determination.
VALUATION OF BOOMTOWN
Common Stock Analysis. Oppenheimer reviewed current and historical market
prices and trading data of the Boomtown Common Stock since Boomtown's initial
public offering in October 1992. Oppenheimer noted that since Boomtown's
initial public offering, Boomtown's Common Stock traded between a high of
$32.50 and a low of $5.00 per share; during the 12 months ended March 12,
1996, Boomtown's Common Stock traded between a high of $13.00 and a low of
$5.00 per share; and during the six months ended March 12, 1996, Boomtown's
Common Stock traded between a high of $7.625 and a low of $5.00 per share.
Oppenheimer drew no specific conclusion from this analysis but subjectively
factored its observations from this analysis into its qualitative assessment
of the relevant facts and circumstances.
Comparable Company Analysis. To obtain comparative market information and
other data, Oppenheimer compared selected historical and estimated earnings,
operating and financial data and ratios for Boomtown to corresponding data and
ratios of certain gaming companies whose securities are publicly traded. In
conducting its analysis, Oppenheimer considered the ratios implied from the
market valuations of the following publicly traded companies selected by
Oppenheimer (the "Boomtown Comparable Companies") based upon qualitative
factors which Oppenheimer deemed relevant based upon its experience in the
gaming industry: Argosy Gaming Company; Casino America, Incorporated; Casino
Magic Corporation; Hollywood Casino Corporation; and President Casinos,
Incorporated. Although Oppenheimer used these companies for comparison
purposes, none of such companies is directly comparable to Boomtown. Data and
ratios considered included, among other things: revenues, EBITDA, EBIT, net
income, earnings per share, the ratio of aggregate value to TTM EBITDA, 1996
and 1997 projected EBITDA and the ratio of market price to TTM earnings per
share and 1996 and 1997 projected earnings per share. All projected
information for the Boomtown Comparable Companies was obtained from a third
party service which summarizes the estimates made by analysts employed by
several investment banking firms and from the published reports of research
analysts employed by investment banking firms, including analysts employed by
Oppenheimer. TTM is defined as the most recent 12 month period for which
financial data was available. Aggregate value is defined as the sum of the
face value of a company's indebtedness plus the market value of its equity
securities less cash and cash equivalents. EBITDA is earnings before interest,
taxes, depreciation and amortization and was selected for analysis by
Oppenheimer because it is a widely used estimate of cash flows generated by
operations. EBIT is earnings before interest and taxes and was selected by
Oppenheimer because it is a measure of operating performance. Oppenheimer
noted the following ranges and averages of aggregate value/EBITDA multiples
for the Boomtown Comparable Companies: a range of 5.0x to 9.5x and an average
of 6.9x for the most recent 12 month period for which data was available; a
range of 4.3x to 5.1x and an average of 4.9x for projected 1996 EBITDA; and a
range of 3.8x to 4.6x and an average of 4.3x for projected 1997 EBITDA. In
addition, Oppenheimer noted the following ranges and averages of
price/earnings per share multiples for the Boomtown Comparable Companies: a
range of 6.7x to 19.5x and an average of 14.2x for the most recent 12 month
period for which data was available; a range of 5.7x to 15.6x and an average
of 10.3x for projected 1996 earnings; and a range of 4.9x to 10.4x and an
average of 7.4x for projected 1997
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earnings. Based on historical and projected financials, this analysis implied
an equity value range of $7.65 to $11.80 per share of Boomtown Common Stock.
Oppenheimer drew no specific conclusion from this analysis but subjectively
factored its observations from this analysis into its qualitative assessment
of the relevant facts and circumstances.
Mergers & Acquisitions Transaction Analysis. Oppenheimer reviewed the
consideration paid in certain mergers and acquisitions transactions involving
gaming companies with characteristics it determined to be similar to
Boomtown's. Oppenheimer considered 26 transactions which were consummated
during the past 10 years; particularly, Circus Circus' acquisition of Gold
Strike and ITT Corporation's acquisition of Caesars World. However, these
transactions were viewed not to be directly comparable to the Merger, given
among other factors the size differentials between Caesars World, Gold Strike
and Boomtown. The acquisitions of Gold Strike and Caesars World transactions
were done at a range of 7.5x to 7.7x multiple of projected 1995 EBITDA.
Caesars' and Gold Strike's premium valuations were primarily driven by each
company's size, diversification of cash flows, expected earnings growth, brand
name and the excellent reputation of each company's senior management.
Oppenheimer regarded Boomtown as a much smaller company not deserving of a
similar premium valuation, given its more limited growth prospects and the
significant leverage on its balance sheet. Applying a 20% to 25% discount to
the Caesars and Gold Strike valuations implied an EBITDA multiple range of
5.7x to 6.1x. This analysis implied an equity value range of $10.57 to $12.16
per share of Boomtown Common Stock. Oppenheimer drew no specific conclusion
from this analysis but subjectively factored its observations from this
analysis into its qualitative assessment of the relevant facts and
circumstances.
Discounted Cash Flow Analysis. In conducting its analysis, Oppenheimer
relied on certain assumptions, financial projections and other information
provided by the management of Boomtown. Oppenheimer performed its analysis
using Boomtown's management's estimates of future performance of its
properties and the future results of operations of Boomtown. Oppenheimer
selected a range of terminal exit multiples of 6.0 to 8.0 times EBITDA and a
range of discount rates of 10% to 20% based upon its subjective judgments
about, among other things, the capital markets, Boomtown's prospects and the
gaming industry. The terminal exit multiple represents an estimate of the
value of Boomtown's earnings at the end of the five year period covered by
Boomtown's management's projections. This analysis implied an equity value
range of $5.63 to $9.69 per share of Boomtown Common Stock. Oppenheimer drew
no specific conclusion from this analysis but subjectively factored its
observations from this analysis into its qualitative assessment of the
relevant facts and circumstances.
VALUATION OF HOLLYWOOD PARK
Since the Merger requires the issuance of Hollywood Park Common Stock,
Oppenheimer performed a valuation of Hollywood Park in a similar manner to the
valuation it performed of Boomtown.
Common Stock Analysis. Oppenheimer reviewed current and historical market
prices and trading data of the Hollywood Park Common Stock during the past
three years. Oppenheimer noted that during the three year period ended March
12, 1996, Hollywood Park's Common Stock traded between a high of $34.875 and a
low of $9.00 per share; during the 12 months ended March 12, 1996, Hollywood
Park's Common Stock traded between a high of $14.75 and a low of $9.00 per
share; and during the six months ended March 12, 1996, Hollywood Park's Common
Stock traded between a high of $10.75 and a low of $9.00 per share.
Oppenheimer drew no specific conclusion from this analysis but subjectively
factored its observations from this analysis into its qualitative assessment
of the relevant facts and circumstances.
Comparable Company Analysis. To obtain comparative market information and
other data, Oppenheimer compared selected historical and estimated earnings
and operating and financial data and ratios for Hollywood Park to
corresponding data and ratios of certain companies that have operations
similar to both of Hollywood Park's main business lines, pari-mutuel and
gaming, whose securities are publicly traded. In conducting its analysis,
Oppenheimer considered the ratios implied from the market valuations of the
following publicly traded companies selected by Oppenheimer based upon
qualitative factors which Oppenheimer deemed relevant based upon its
experience in the gaming industry: California Jockey Club; Churchill Downs
Incorporated; Equus
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Gaming Group; Penn National Gaming, Incorporated; and Santa Anita Operating
Company (the "Hollywood Park Comparable Pari-Mutuel Companies"); and Alpha
Hospitality, Ameristar Casinos, Argosy Gaming Company, Ballys Grand, Boardwalk
Casino, Inc., Casino America, Inc., Casino Magic Corporation, Casino Resource
Corporation, Crown Casino Corporation, Griffin Gaming and Entertainment,
Harveys Casino Resorts, Hollywood Casino Corporation, Lady Luck Gaming
Corporation, Monarch Casino & Resort, Inc., Pratt Hotel Corporation, President
Casinos, Inc., Rio Hotel & Casino, Riviera Holdings Corporation, Sahara
Resorts and Sands Regent (the "Hollywood Park Comparable Gaming Companies").
Although Oppenheimer used these companies for comparison purposes, none of
such companies is directly comparable to Hollywood Park. Data and ratios
considered included, among other things: revenues, EBITDA, EBIT, net income,
earnings per share, the ratio of aggregate value to 1994 and TTM EBITDA, 1996
and 1997 projected EBITDA and the ratio of market price to TTM earnings per
share and 1996 and 1997 projected earnings per share. All projected
information for the Hollywood Park Comparable Pari-Mutuel Companies and
Hollywood Park Comparable Gaming Companies was obtained from a third party
service which summarizes the estimates made by analysts employed by several
investment banking firms and from the published reports of research analysts
employed by investment banking firms, including analysts employed by
Oppenheimer. Oppenheimer noted the following ranges and averages of aggregate
value/EBITDA multiples for the Hollywood Park Pari-Mutuel Companies: a range
of 7.4x to 23.3x and an adjusted average, excluding the highest and lowest
data points, of 13.9x for the most recent 12 month period for which data was
available; a range of 8.2x to 38.0x and an adjusted average, excluding the
highest and lowest data points, of 23.4x for 1994 EBITDA. Oppenheimer also
noted the following ranges and averages of price/earnings per share multiples
for the Hollywood Park Comparable Pari-Mutuel Companies: a range of 8.7x to
38.8x and an adjusted average, excluding the highest and lowest data points,
of 15.5x for the most recent 12 month period for which data was available; a
range of 8.2x to 19.7x and an adjusted average, excluding the highest and
lowest data points, of 9.8x for projected 1996 earnings; and 7.9x for
projected 1997 earnings.
In addition, Oppenheimer noted the following ranges and averages of
aggregate value/EBITDA multiples for the Hollywood Park Comparable Gaming
Companies: a range of 1.4x to 39.7x and an adjusted average, excluding the
highest and lowest data points, of 7.1x for the most recent 12 month period
for which data was available; a range of 2.2x to 8.0x and an adjusted average,
excluding the highest and lowest data points, of 5.9x for projected 1996
EBITDA; and a range of 2.7x to 7.2x and an adjusted average, excluding the
highest and lowest data points, of 5.1x for projected 1997 EBITDA. Oppenheimer
also noted the following ranges and averages of price/earnings per share
multiples for the Hollywood Park Comparable Gaming Companies: a range of 2.0x
to 92.9x and an adjusted average, excluding the highest and lowest data
points, of 13.0x for the most recent 12 month period for which data was
available; a range of 5.7x to 18.1x and an adjusted average, excluding the
highest and lowest data points, of 10.1x for projected 1996 earnings; and a
range of 4.2x to 13.6x and an adjusted average, excluding the highest and
lowest data points, of 7.8x for projected 1997 earnings.
Since Hollywood Park currently operates in two business segments, pari-
mutuel and casino-style card clubs, Oppenheimer valued Hollywood Park on a
segment basis, comparing the pari-mutuel operations to the Hollywood Park
Comparable Pari-Mutuel Companies and comparing the card club segment to the
Hollywood Park Comparable Gaming Companies. Oppenheimer then combined the
segment valuations to derive an implicit valuation for the entire company.
This analysis implied an equity value range of $11.27 to $16.16 per share of
Hollywood Park Common Stock. Oppenheimer drew no specific conclusion from this
analysis but subjectively factored its observations from this analysis into
its qualitative assessment of the relevant facts and circumstances.
Discounted Cash Flow Analysis. In conducting its analysis, Oppenheimer
relied on certain assumptions, financial projections and other information
provided by the management of Hollywood Park. Oppenheimer performed its
analysis using Hollywood Park's management's estimates of future performance
of its properties and the future results of operations of Hollywood Park.
Oppenheimer selected a range of terminal exit multiples of 8.0 to 10.0 times
EBITDA and a range of discount rates of 10% to 15% based upon its subjective
judgments about, among other things, the capital markets, Hollywood Park's
prospects and the gaming and pari-mutuel industries. The terminal exit
multiple represents an estimate of the value of Hollywood Park's earnings at
the end of the five year period covered by Hollywood Park's management's
projections. This analysis implied an
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equity value range of $11.16 to $13.32 per share of Hollywood Park Common
Stock. Oppenheimer drew no specific conclusion from this analysis but
subjectively factored its observations from this analysis into its qualitative
assessment of the relevant facts and circumstances.
VALUATION OF COMBINED HOLLYWOOD PARK/BOOMTOWN
Oppenheimer undertook an analysis of the effect of combining the two
companies. For this purpose, it considered the following approaches: (i)
Comparable Company Analysis; (ii) Discounted Cash Flow Analysis; (iii)
Contribution Analysis; and (iv) Pro Forma Merger Analysis.
Comparable Company Analysis. To obtain comparative market information and
other data, Oppenheimer compared selected historical and estimated earnings
and operating and financial data and ratios for the combined company to
corresponding data and ratios of certain gaming companies whose securities are
publicly traded. In conducting its analysis Oppenheimer considered the ratios
implied from the market valuations of the following publicly traded companies
selected by Oppenheimer (the "Combined Company Comparable Companies") based
upon qualitative factors which Oppenheimer deemed relevant based upon its
experience in the gaming industry: Aztar Corporation; Bally Entertainment
Corporation; Boyd Group; Grand Casinos, Incorporated; Players International,
Incorporated; Primadonna Resorts, Incorporated; Showboat Incorporated; Station
Casinos, Incorporated; Stratosphere Corporation; and Sun International Hotels
Limited. Although Oppenheimer used these companies for comparison purposes,
none of such companies is directly comparable to the combined company. Data
and ratios considered included, among other things: revenues, EBITDA, EBIT,
net income, earnings per share, the ratio of aggregate value to TTM EBITDA,
1996 and 1997 projected EBITDA, the ratio of market price to TTM earnings per
share and 1996 and 1997 projected earnings per share. All projected
information for the Combined Company Comparable Companies was obtained from
Institutional Broker's Estimate Service, a third party service which
summarizes the estimates made by analysts employed by several investment
banking firms and from the published reports of research analysts employed by
investment banking firms, including analysts employed by Oppenheimer.
Oppenheimer noted the following ranges and averages of aggregate value/EBITDA
multiples for the Combined Company Comparable Companies: a range of 6.7x to
312.5x and an adjusted average, excluding the highest and lowest data points,
of 13.3x for the most recent 12 month period for which data was available; a
range of 3.8x to 16.9x and an adjusted average, excluding the highest and
lowest data points, of 8.1x for projected 1996 EBITDA; and a range of 2.9x to
11.6x and an adjusted average, excluding the highest and lowest data points,
of 5.9x for projected 1997 EBITDA. In addition, Oppenheimer noted the
following ranges and averages of price/earnings per share multiples for the
Combined Company Gaming Companies: a range of 10.8x to 36.4x and an adjusted
average, excluding the highest and lowest data points, of 22.2x for the most
recent 12 month period for which data was available; a range of 7.9x to 22.1x
and an adjusted average, excluding the highest and lowest data points, of
15.1x for projected 1996 earnings; and a range of 6.3x to 14.5x and an
adjusted average, excluding the highest and lowest data points, of 11.6x for
projected 1997 earnings. This analysis implied an equity value range of $13.02
to $14.83 per share of the combined company's Common Stock. Oppenheimer drew
no specific conclusion from this analysis but subjectively factored its
observations from this analysis into its qualitative assessment of the
relevant facts and circumstances.
Discounted Cash Flow Analysis. Oppenheimer prepared a discounted cash flow
valuation of Hollywood Park and Boomtown as a combined entity to determine if
the proposed merger enhances stockholder value from a Hollywood Park
perspective. In conducting its analysis, Oppenheimer relied on certain
assumptions, financial projections and other information provided by the
managements of Hollywood Park and Boomtown. Oppenheimer performed its analysis
using Hollywood Park's and Boomtown's management's estimates of the future
performances of its properties and the future results of operations of
Hollywood Park and Boomtown. Oppenheimer selected a range of terminal exit
multiples of 8.0 to 10.0 times EBITDA and a range of discount rates of 10% to
15% based upon its subjective judgments about, among other things, the capital
markets, combined company prospects and the gaming and pari-mutuel industries.
The terminal exit multiple represents an estimate of the value of combined
company earnings at the end of the five year period covered by Hollywood
Park's and Boomtown's management's projections. This analysis implied an
equity value range of $14.33 to $18.70 per share of the combined company's
Common Stock. Oppenheimer drew no specific conclusion from
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this analysis but subjectively factored its observations from this analysis
into its qualitative assessment of the relevant facts and circumstances.
Contribution Analysis. Oppenheimer reviewed the relative contribution to the
combined company after the Merger of Hollywood Park, as a stand alone
enterprise, and Boomtown, as a stand alone enterprise. Oppenheimer relied upon
estimates of 1996 financial information provided by Hollywood Park's and
Boomtown's respective managements. These estimates implied that Hollywood Park
and Boomtown would provide 40.7% and 59.3% of the combined revenues, 39.6% and
60.4% of the combined EBITDA, 48.3% and 51.7% of the combined EBIT and 76.5%
and 23.5% of the combined net income before extraordinary items, respectively.
Hollywood Park's shareholders would represent 78.3% of the combined company's
outstanding common stock, while Boomtown's outstanding indebtedness would make
up 99.7% of the combined company's total indebtedness (excluding the non-
recourse indebtedness associated with the Woodlands). Oppenheimer drew no
specific conclusion from this analysis but subjectively factored its
observations from this analysis into its qualitative assessment of the
relevant facts and circumstances.
Proforma Merger Analysis. Oppenheimer analyzed certain pro forma effects
resulting from the Merger. In conducting its analysis, Oppenheimer relied upon
certain assumptions described above and the financial projections provided by
the managements of Hollywood Park and Boomtown. Oppenheimer also reviewed,
without independent verification, the estimates prepared by the respective
managements of Hollywood Park and Boomtown of cost reductions and synergies
achievable as a result of the Merger. These cost reductions and synergies
primarily consist of savings based on the combined companies' financial
strength as well as certain assumed general and administrative savings. The
financial savings are expected to result from actions such as: (i) refinancing
existing Boomtown indebtedness at a lower cost of capital; (ii) restructuring
the Boomtown Las Vegas arrangement with the landlord; and (iii) restructuring
or buying out high cost operating leases associated with certain Boomtown
properties. Other synergistic savings include cost reductions associated with
operating, overhead and reporting expenses for the combined company.
Additionally, using the financial information and projections provided to
Oppenheimer by Hollywood Park's and Boomtown's respective managements,
Oppenheimer reviewed Hollywood Park's 1996 and 1997 pro forma projected
earnings per share resulting from the Merger. This analysis revealed that the
Merger would be accretive with regard to Hollywood Park's stockholders to pro
forma earnings per share (i.e., the pro forma earnings per share of the
combined company would exceed the earnings per share of Hollywood Park on a
stand-alone basis) on the basis described for the period from the closing of
the Merger through 2000. Oppenheimer drew no specific conclusion from this
analysis but subjectively factored its observations from this analysis into
its qualitative assessment of the relevant facts and circumstances.
The summary set forth above does not purport to be a complete description of
the analyses performed and factors considered by Oppenheimer. The preparation
of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to summary description. Accordingly,
notwithstanding the separate factors summarized above, Oppenheimer believes
that its analysis must be considered as a whole and that selecting portions of
its analysis and the factors considered by it, without considering all
analyses and factors, could create an incomplete view of the evaluation
process underlying its opinion. Furthermore, in arriving at its fairness
opinion, Oppenheimer did not attribute any particular weight to any analysis,
or factor considered by it, but rather made subjective and qualitative
judgments as to the significance and relevance of each analysis and factor. In
performing its analyses, Oppenheimer made numerous assumptions with respect to
industry performance, business and economic conditions and other matters. The
analyses performed by Oppenheimer are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable
than suggested by such analyses.
Hollywood Park selected Oppenheimer as its financial advisor because
Oppenheimer is an internationally recognized investment banking firm and the
principals of Oppenheimer have substantial experience in transactions similar
to the Merger, are familiar with Hollywood Park, Boomtown and their respective
businesses and are familiar with the gaming industry. As part of its
investment banking business, Oppenheimer is
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continually engaged in the valuation of businesses and their securities in
connection with mergers, acquisitions, underwritings, sales and distributions
of listed and unlisted securities and private placements. In the ordinary
course of business, Oppenheimer may actively trade the debt and equity
securities of Hollywood Park and Boomtown for its own account or for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
Oppenheimer has performed investment banking and financial advisory services
for both Hollywood Park and Boomtown in the past and has been compensated for
such services. In the past, Oppenheimer has performed the following investment
banking and financial advisory services for Boomtown: (i) lead manager of its
October 1992 initial public offering; (ii) lead manager of its May 1993
follow-on common stock offering; (iii) lead manager of its November 1993 units
offering consisting of $103,500,000 of First Mortgage Notes and 472,500
warrants to purchase common stock; and (iv) financial advisor to Boomtown in
1993 in connection with the development of Boomtown's New Orleans and Biloxi
properties. In connection with the October 1992 initial public offering of
Boomtown, Oppenheimer and certain of its affiliates and employees received
106,641 warrants exercisable for Boomtown Common Stock at a price of $12.00
per share. With regard to Hollywood Park, Oppenheimer has performed the
following investment banking and financial advisory services: (i) lead manager
of its June 1993 follow-on common stock offering and (ii) rendered a fairness
opinion with regard to Hollywood Park's purchase of the Woodlands Race Track
and related facilities in Kansas.
Pursuant to the terms of an engagement letter, dated as of March 14, 1996,
Hollywood Park paid Oppenheimer a fee of $150,000 for rendering its fairness
opinion dated April 24, 1996. In addition, Hollywood Park has agreed to pay
Oppenheimer fees of $250,000 in the aggregate for "bring down" fairness
opinions to be delivered on the date that the Proxy Statement is mailed and
the date immediately prior to the Effective Date of the Merger. In addition,
if the Merger is consummated and only if the Merger is consummated, Hollywood
Park has agreed to pay Oppenheimer $1,100,000 upon such consummation, $100,000
of which was paid as a creditable retainer upon the execution of the
engagement letter. Hollywood Park has also agreed to reimburse Oppenheimer for
its out-of-pocket expenses (including reasonable fees and expenses) incurred
in connection with its engagement and to indemnify Oppenheimer, its employees,
directors, officers, agents, affiliates, and each person, if any, controlling
Oppenheimer or any of its affiliates against certain liabilities and expenses,
including certain liabilities under the federal securities laws, related to
Oppenheimer's engagement.
Opinion of Sutro
Boomtown has engaged Sutro to act as its financial advisor in connection
with the transaction contemplated by the Merger Agreement and to render its
opinion to the Board of Directors of Boomtown as to the fairness, from a
financial point of view, of the consideration to be provided by Hollywood Park
pursuant to the Merger Agreement. Sutro was retained based on its experience,
expertise in the industry, reputation and prior relationship with Boomtown.
Sutro was instructed by the Boomtown Board to perform any analysis and due
diligence it felt was necessary to render its opinion to the Boomtown Board.
Neither Boomtown nor any affiliate thereof provided any instructions or
imposed any limitations as to the scope and breadth of Sutro's due diligence
investigations and financial analysis which would have inhibited Sutro's
ability to render a fairness determination.
On April 23, 1996, Sutro rendered an oral opinion, concurrently confirmed in
writing that, as of such date and subject to the assumptions described in such
opinion, the Exchange Ratio for the holders of Common Stock of Boomtown is,
from a financial point of view, fair (the "Sutro Opinion"). Sutro is not aware
of any significant events or changes to the information provided for analysis
after the rendering of the Sutro Opinion which would alter Sutro's fairness
determination. A copy of the written opinion of Sutro is attached hereto as
Appendix B. Stockholders of Boomtown are urged to read such opinion in its
entirety for a discussion of the assumptions made, the matters considered and
the scope of the review undertaken in rendering such opinion. Sutro did not
recommend to Boomtown that any specific exchange ratio constituted the only
appropriate exchange ratio of the Merger. Sutro's opinion addresses only the
fairness of the Exchange Ratio from a financial point of view to Boomtown as
of the date of the opinion and does not constitute a recommendation to any
stockholder of Boomtown as to how such stockholder should vote at the Boomtown
Meeting. The summary of the opinion of
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Sutro set forth in this Joint Proxy/Statement Prospectus is qualified in its
entirety by reference to the full text of such opinion.
In arriving at its opinion, Sutro, among other things, (i) reviewed the
Merger Agreement; (ii) reviewed Boomtown's Annual Report to Stockholders and
Annual Report on Form 10-K for the three fiscal years ended September 30, 1995
and Quarterly Report on Form 10-Q for the period ended December 31, 1995;
(iii) reviewed Hollywood Park's Annual Report to Stockholders and Annual
Reports on Form 10-K for the three fiscal years ended December 31, 1995; (iv)
reviewed certain operating and financial information, including financial
projections provided to Sutro by the managements of Boomtown and Hollywood
Park; (v) held discussions with senior management of Boomtown and Hollywood
Park and visited certain major properties of Hollywood Park; (vi) reviewed the
historical prices and trading volumes of the Common Stock of both Boomtown and
Hollywood Park; (vii) reviewed publicly available financial data, stock market
performance and credit data of companies which Sutro deemed comparable to
Boomtown and Hollywood Park; and (viii) conducted other studies and analyses
as Sutro deemed appropriate. In addition, Sutro discussed with Boomtown's
management the historical financial statements and financial projections for
Boomtown. Sutro did not review either Hollywood Park's or Boomtown's quarterly
reports on Form 10-Q for the quarters ended March 31, 1996, and June 30, 1996,
respectively, since such reports were not yet available.
In connection with its review, Sutro did not independently verify any of the
foregoing information and relied on such information being complete and
accurate in all material aspects. With respect to the financial projections,
Sutro assumed that they had been reasonably prepared on bases reflecting the
best currently available estimates and judgment of the managements of Boomtown
and Hollywood Park as to the future financial performance of each company
independently and as a merged entity pursuant to the Merger Agreement. Sutro
did not and does not assume any responsibility for the information or
projections provided to it, and Sutro has further relied upon the assurances
of the management of both Boomtown and Hollywood Park that they are unaware of
any facts that would make the information or projections provided to Sutro
incomplete or misleading. Sutro did not make an independent evaluation and
appraisal of the assets of Boomtown or Hollywood Park. Sutro was not requested
to, and did not, solicit third party indications of interest in acquiring
Boomtown. The specific Exchange Ratio was determined by arms' length
negotiations between Boomtown and Hollywood Park. Sutro's opinion does not
constitute an opinion as to the value of the Hollywood Park Common Stock when
issued to holders of Boomtown Common Stock pursuant to the Merger or the price
at which the Hollywood Park Common Stock will trade subsequent to the Merger.
Sutro's opinion was necessarily based on economic, market and other
conditions, and the information made available to it, as of the date of the
opinion.
Based on its analyses and assessment of the facts and circumstances
surrounding Boomtown's financial and operational conditions, Sutro did not
find any significant factors which did not support its determination of the
fairness, from a financial point of view, of the proposed Exchange Ratio to
Boomtown stockholders.
In connection with rendering its opinion, Sutro performed a variety of
financial analyses which are summarized below:
PRO FORMA ANALYSIS The pro forma analysis examined the financial results of
Boomtown and Hollywood Park assuming the consummation (for analytical
purposes) on September 30, 1996 of the Merger (the "New Company"). This
analysis was based upon various estimates and assumptions regarding
operations, the possible refinancing of Boomtown debt by the New Company and
capital expenditure programs for both Boomtown and Hollywood Park that, while
based on both companies current plans, are inherently subject to significant
business, economic and competitive uncertainty and contingencies, many of
which are beyond the control of the companies and are subject to change. The
pro forma analysis compared Boomtown's earnings per share on a stand-alone
basis to Boomtown's relative portion of Hollywood Park's earnings per share
after the application of the Exchange Ratio, otherwise known as "Equivalent
EPS."
Sutro analyzed the earnings per share impact on Boomtown for fiscal years
1997-2000 of the Merger. The analysis assumed the Merger would be consummated
on September 30, 1996 and that the New Company, post-
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merger, (i) refinances its existing long-term debt; (ii) utilizes additional
capital expenditures for the expansion of certain Boomtown properties; (iii)
buys out certain Boomtown operating leases; (iv) buys out the operating lease
relating to the Biloxi property; and (v) is able to terminate the Las Vegas
joint venture as a result of the Merger. The analysis of Boomtown earnings per
share, based on the assumptions described above, was compared to Boomtown's
projected stand-alone earnings per share, including the Las Vegas joint
venture through the expiration of Blue Diamond lease in 1999, as if the Merger
does not occur ("Alternative Case").
The analysis indicated that with the significant capital expenditures
projected through the year 2000 as part of the New Company's capital programs,
Equivalent EPS for the New Company would be initially accretive to the
Boomtown stockholders and thereafter dilutive to the Boomtown stockholders
through the three-year development and implementation phases of the proposed
expansion projects not otherwise possible without the Merger, compared to
earnings per share in the Alternative Case. The initial accretion would be
approximately 5.1% in 1997, and the dilution would be 24.3%, 17.7% and 4.0% in
the years 1998, 1999 and 2000, respectively. Thereafter, the Merger should be
accretive to the Boomtown stockholders. In addition, the New Company has
greater prospects for higher long-term earnings growth potential than does
Boomtown on a stand-alone basis, due to the New Company's ability to finance
current expansion projects and new gaming and other entertainment
opportunities.
SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS Sutro reviewed certain publicly
available historical financial information, projected 1996 and projected 1997
financial results (reflecting a composite of Wall Street research analyst
estimates as reported by a third party service), stock market performance,
debt coverage ratios and credit ratings of selected publicly traded gaming and
entertainment related companies. The comparable company universes were, in
Sutro's judgment, reasonably comparable to Boomtown and Hollywood Park on an
operational, financial and credit basis.
The comparable public companies for Boomtown included: Ameristar Casinos,
Inc., Argosy Gaming Corp., Casino America, Inc., Casino Magic Corp., Hollywood
Casino, Inc., Jackpot Enterprises, Inc., and Players International, Inc.
The comparable public companies for Hollywood Park included: Bay Meadows
Operating Corp., Churchill Downs, Inc., International Thoroughbred Breeders,
Penn National Gaming, Inc. and Santa Anita Realty Enterprises.
The comparable companies used for the purposes of credit evaluation ("Credit
Comparables") included: Argosy Gaming Corp., Aztar Corp., Bally Entertainment
Corp., Boyd Gaming Corp., Empress River Casino, Grand Casinos Inc., Players
International Inc., Showboat, Inc. and Station Casinos Inc.
Financial and market information for the comparable companies included,
among other things, market capitalization, earnings per share, price to
earnings ratio and aggregate enterprise value (defined as equity value plus
long-term debt less cash and cash equivalents) as a multiple of revenue,
operating income and EBITDA (earnings before interest, tax, depreciation and
amortization expenses). The analysis indicated that, based on the closing
stock prices on April 19, 1996, the Boomtown comparables, at the median,
traded at 16.9x earnings per per share for the calendar year 1995, 12.4x
projected earnings per share for the calendar year 1996 and 10.5x projected
earnings per share for the calendar year 1997. Based on the closing stock
prices on April 19, 1996, the Hollywood Park comparables, at the median,
traded at 23.2x earnings per share for the calendar year 1995, 17.7x projected
earnings per share for calendar year 1996 and 14.2x projected earnings per
share for calendar year 1997. Such multiples were based on the median trading
multiples of the comparable companies and a composite of research analyst
estimates of projected 1996 and projected 1997 (if available) earnings per
share as reported by such third party service.
The analysis also indicated that, based on the closing stock prices on April
19, 1996, Boomtown traded at 24.2x projected earnings per share for calendar
year 1996. Based on the closing stock prices on April 19, 1996, Hollywood Park
traded at 51.3x projected earnings per share for calendar year 1996. The
multiples were based
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on projected earnings per share of $0.24 for Boomtown and $0.19 for Hollywood
Park for calendar year 1996, which represents the average of Wall Street
research analysts as reported by a third party service. Such third party
service's estimates for 1997 for Boomtown were not available at the time of
analysis.
In addition to the financial and market information for Boomtown and
Hollywood Park comparables, coverage ratios including EBITDA to Interest
Expense as well as EBITDA to Debt Service (includes current portion of long-
term debt and interest expense) were also examined to evaluate the financing
assumptions made in the New Company projections. The results indicated that
for the Boomtown, Hollywood Park and Credit Comparables, the median EBITDA to
Interest Expense was 4.0x, 25.9x and 3.3x for the period ending December 31,
1995, respectively. The median EBITDA to Debt Service for the Boomtown,
Hollywood Park and Credit Comparables was 3.9x, 25.8x and 2.6x for the period
ended December 31, 1995, respectively. EBITDA to Interest Expense for
Boomtown, Hollywood Park and pro forma for the New Company was 1.6x, 5.3x and
3.7x for the period ending December 31, 1995 (Boomtown and Hollywood Park) and
projected pro forma fiscal year 1996 (New Company). EBITDA to Debt Service for
Boomtown, Hollywood Park and pro forma for the New Company was 1.4x, 2.7x and
3.1x for the period ended December 31, 1995 (Boomtown and Hollywood) and pro
forma projected fiscal year 1996 (New Company). Both interest expense and debt
ratios examined for the New Company, assuming the projected capital
assumptions, were higher than the Boomtown ratios in the Alternative Case,
indicating the New Company's ability to support its debt, to support projected
capital expenditures as well as to improve the possibility of obtaining
favorable financing terms based on the projected financial and operating
characteristics of the New Company.
HISTORICAL MARKET PRICE ANALYSIS For Boomtown and Hollywood Park, Sutro
examined the closing market prices of each company's common stock over the 90-
day trading period prior to the announcement of the Merger. Such analyses
supported the conclusions discussed therein.
CREDIT RATING OUTLOOK The determination of credit ratings by major agencies
is both a subjective as well as objective process based on individual rating
agency criteria. Therefore, there can be no assurance of a particular rating
for the New Company or of its ultimate ability to obtain financing at a
desired rate as a result of a particular crediting rating. However, there are
several factors which the credit agencies will examine in arriving at a rating
which Sutro has also examined in analyzing the New Company's ability to obtain
favorable financing for its projected capital expenditures. In analyzing the
fairness of the Exchange Ratio and the New Company's ability to finance its
projected capital projects and debt refinancing, Sutro considered: industry
outlook, regulatory trends, management quality, operation and financial
position, potential issue structures and alternative liquidity sources, if
applicable. Such analysis indicated that the New Company would be better
positioned to receive a more favorable credit rating than would be achieved by
Boomtown on a stand-alone basis.
DISCOUNTED CASH FLOW VALUATION ANALYSIS The discounted cash flow valuation
analysis (the "DCF") derives equity values based on the present value of
future net cash flows, less current debt. Sutro analyzed the financial
projections provided by the management of Boomtown and Hollywood Park. The
projected cash flows through 2000 were discounted to present value using a
range of discount rates based on the weighted average cost of capital as
derived by the capital asset pricing model for the each entity evaluated based
on the respective comparable public company universes. For the purposes of
this analysis, annual free cash flow equaled de-levered net income, plus
depreciation, less capital expenditures, less the change in working capital
and other cash charges. The terminal value was determined by applying an exit
multiple based on the median EBITDA multiple of comparable public companies.
The median implied valuation per Boomtown share based on the DCF utilizing an
EBITDA exit multiple of 6.7x and a discount rate of 11.0% indicated a value of
approximately $12.30. The median implied valuation per Hollywood share based
on the DCF utilizing an EBITDA exit multiple of 14.5x and a discount rate of
12.0% indicated a value of approximately $18.67. The implied exchange ratio
based on median results would be 0.66x.
ACQUISITION PREMIUM ANALYSIS Sutro reviewed the purchase premiums on certain
publicly disclosed merger transactions involving exchanges of stock with total
consideration between $100 million and $200 million which occurred between
January 1993 and March 1996. Premiums are defined as the excess, in percentage
terms, of
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the per share purchase price relative to the target's stock price prior to
announcement of the transaction. Sutro calculated the premiums paid to the
public stock price one day, and one month prior to the announcements of such
transactions. This analysis indicated median premiums of 27.7%, and 39.9% to
the public stock price one week and one month, respectively, prior to the
announcement date of the transaction. Such premiums were then compared to the
premiums implied by using the per share value of Boomtown with Hollywood Park.
Such analysis was conducted assuming the terms of the Merger and both (i)
Boomtown's closing stock price on March 19, 1996 of $5.75 per share and (ii)
Hollywood's March 19, 1996 stock price of $9.75 per share. The median implied
per share valuation of Boomtown based on the analysis of premiums paid to
market stock price based on one day and one month prior to the announcement
was $8.62 and $9.44, respectively. Using these prices, the exchange ratio
would be 0.88x and 0.97x, respectively.
Sutro drew no specific conclusion from any of the above analyses but
subjectively factored its observations from the analyses into its qualitative
assessment of the relevant facts and circumstances. Such qualitative
assessment include an evaluation of (i) Boomtown's substantial expansion
opportunities with its existing properties and other gaming projects,
including the Indiana Project, and brand-name identity; (ii) Boomtown's lack
of sufficient capital to finance its expansion projects despite its active
exploration during the preceding eighteen months of financing alternatives;
(iii) the uncertainties regarding Boomtown's exit strategy regarding
Boomtown's Las Vegas operation as of the date of the Sutro Opinion and the
regulatory environment, including the potential voter referendum regarding
gaming operations in Jefferson Parish (where Boomtown's Louisiana riverboat
operations are located), which Boomtown indicated had adversely affected its
capital raising efforts. Sutro's qualitative assessment also included the
belief that as a result of the above factors, substantial value in Boomtown
could be realized with the infusion of capital resulting from the Merger that
would inure to the substantial benefit of the Boomtown stockholders.
The above summary of the analyses prepared by Sutro does not purport to be a
complete description of Sutro's analyses. Sutro has indicated to Boomtown that
its analyses must be considered as a whole and selecting portions of the
factors considered and analyses performed by it, without considering all
factors and analyses, could create an incomplete view of the processes
underlying Sutro's analyses and fairness opinion. The preparation of a
fairness opinion is a complex process which is not necessarily susceptible to
partial analyses or summary description. In its analyses, Sutro made numerous
assumptions which Sutro considered reasonable with respect to the gaming
industry, general business and economic conditions and other matters, many of
which are beyond the control of Boomtown. Any estimates contained therein are
not necessarily indicative of actual value, which may be significantly more or
less favorable than as set forth herein. Estimates of value of companies do
not purport to be appraisals and do not necessarily reflect the prices at
which companies may actually be sold. The analyses performed were prepared
solely as part of Sutro's analysis of the fairness of the Exchange Ratio from
a financial point of view, to Boomtown stockholders and was provided to
Boomtown in connection with the delivery of Sutro's opinion.
Sutro, as part of its investment banking business, is regularly engaged in
the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and valuations. Sutro had acted as financial
advisors to the Board of Directors of Boomtown in connection with the Merger
described above and Sutro will receive a fee for rendering an opinion. In the
ordinary course of our business, Sutro may actively trade the securities of
Boomtown and Hollywood Park for its own account or the account of Sutro's
customers and, accordingly, may at any time hold a long or short position in
such securities. Sutro has previously provided investment banking services for
Boomtown. Sutro acted as a managing underwriter for Boomtown's initial public
offering in October 1992 of 3,737,500 shares at a price of $10.00, the follow-
on common stock offering of 3,910,000 shares at a price of $27.50 and the
units offering in November 1993 consisting of $103,500,000 of First Mortgage
Notes and Warrants to purchase 472,500 shares of common stock. In addition,
Sutro acted as financial advisor to Boomtown in June 1993 in connection with
the Blue Diamond Hotel & Casino, Inc. joint venture and has performed certain
valuation analyses in connection with the Blue Diamond Swap.
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For its services, Sutro has received a $50,000 retainer fee and fee of
$300,000 for rendering its opinion in connection with the Merger. In addition,
if the Merger is consummated and only if the Merger is consummated, Sutro will
receive a fee of $350,000 upon such consummation. Boomtown has also agreed to
indemnify Sutro and certain related parties against certain liabilities in
connection with its engagement, including certain liabilities under the
federal securities law.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Indemnification and Insurance. The Merger Agreement provides that Hollywood
Park will assume all of the obligations of Boomtown under Boomtown's existing
indemnification agreements with each of the directors and officers of
Boomtown, as such agreements relate to the indemnification of such persons for
expenses and liabilities arising from facts or events that occurred on or
prior to the Effective Date or relating to the transactions contemplated by
the Merger Agreement. The Merger Agreement also provides that all rights to
indemnification existing in favor of the directors, officers or employees of
Boomtown under its Certificate of Incorporation or Bylaws, as in effect on the
date of the execution of the Merger Agreement, shall, with respect to matters
occurring through the Effective Date, survive the consummation of the Merger
and continue in full force and effect for at least six years thereafter. In
addition, the Merger Agreement provides that the Bylaws and Certificate of
Incorporation of the surviving corporation in the Merger shall contain
provisions regarding indemnification identical to those in the Boomtown
Certificate of Incorporation and the Boomtown Bylaws, as in effect on the date
of the execution of the Merger Agreement, and that such provisions shall not
be amended, repealed or otherwise modified for a period of six years from the
Effective Date in any manner that would adversely affect the rights thereunder
of the directors or officers of Boomtown.
The Merger Agreement also requires Hollywood Park to cause the surviving
corporation in the Merger to maintain in effect for six years after the
Effective Date, for the benefit of the directors and officers of Boomtown, the
policies of directors' and officers' liability insurance currently maintained
by Boomtown (or substitute policies containing terms and conditions no less
advantageous to the directors and officers of Boomtown), covering matters
occurring before the Effective Date, but only to the extent such insurance is
available upon commercially reasonable terms (which shall include insurance
available at premiums not in excess of 200% of the annual premium currently
being paid by Boomtown for such insurance).
Interests in Boomtown Common Stock. As of the Boomtown Record Date, the
directors and executive officers of Boomtown owned an aggregate of 1,065,488
shares of Boomtown Common Stock. Based upon the closing sale price of the
Hollywood Park Common Stock on September 17, 1996, of $5.31, the aggregate
dollar value of Hollywood Park Common Stock to be received in the Merger by
these directors and executive officers is approximately $5,657,741. See "The
Merger Agreement and Related Agreements--Options."
Interests in Options. As of the Boomtown Record Date, the directors and
executive officers of Boomtown held options aggregating 1,109,662 shares of
Boomtown Common Stock, of which 344,968 shares were vested and 602,125 shares
will be accelerated and become fully-vested and exercisable upon consummation
of the Merger under the terms of their employment agreements (with the
exception of Mr. Bryan). In addition, in connection with the execution of the
Merger Agreement, Boomtown and Hollywood Park reduced to $6.25 and $10.00,
respectively (the fair market value of the applicable underlying stock on the
date of repricing), the exercise price of each outstanding option to acquire
Boomtown Common Stock and Hollywood Park Common Stock which prior to such
reduction had an exercise price greater than those respective amounts. The
aggregate price reduction of Hollywood Park options (i.e. the sum over all
shares covered (vested and unvested) of the actual price reduction for each
such share) was $680,750, and the aggregate price reduction for Boomtown
options was approximately $6.82 million. The companies repriced these options
solely to provide additional incentives to their officers and employees, and
neither Hollywood Park nor Boomtown received any additional consideration for
such repricing. See "The Merger Agreement and Related Agreements--Options."
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Interests of Edward P. Roski, Jr. Edward P. Roski, Jr., a director of
Boomtown, is the principal owner of the Blue Diamond Resort assets. As
described elsewhere in this Joint Proxy Statement/Prospectus, Boomtown,
Hollywood Park, Mr. Roski and certain of their respective affiliates have
entered into the Swap Agreement relating to the Blue Diamond Swap. In
addition, Hollywood Park has agreed to purchase 714,386 shares of Boomtown
Common Stock held by Mr. Roski for approximately $3.5 million upon the
consummation of the Blue Diamond Swap. See "Business of Boomtown--Boomtown Las
Vegas."
In addition, Mr. Roski and Philip Anschutz are the owners of the Los Angeles
Kings hockey team, which currently plays its games at the Great Western Forum
across the street from Hollywood Park's Inglewood property. For the past
several months, Hollywood Park and Messrs. Roski and Anschutz have been in
active discussions regarding the proposed Hollywood Park Arena, in which
Hollywood Park would provide the land for a new arena in which the Kings and
the Los Angeles Lakers basketball team would play. The facility would be built
and financed by Messrs. Roski and Anschutz on land leased to them by Hollywood
Park. Hollywood Park has been told by Messrs. Roski and Anschutz that the
Hollywood Park site is one of two leading sites, along with the Convention
Center in downtown Los Angeles, for the proposed new arena.
The foregoing interests of the directors and certain members of management
of Boomtown in the Merger may mean that such persons have personal interests
in the Merger which may not be identical to the interests of other
stockholders.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting for
a business combination, and accordingly, the assets and liabilities of
Boomtown will be recorded at their estimated fair values. The unaudited pro
forma financial information presented in this Joint Proxy Statement/Prospectus
has been prepared using purchase accounting to account for the Merger. Based
on recent historical trading prices for Hollywood Park Common Stock, it is
expected that the aggregate purchase price paid by Hollywood Park for
Boomtown's assets will be less than their current book value. Consequently,
under the purchase accounting method, Hollywood Park will be required
following the Merger to reduce certain non-current assets and write up notes
payable on the Boomtown balance sheet of approximately $5.7 million, before
tax effects, with a corresponding reduction in Boomtown's stockholders'
equity. This amount is estimated based on a value of $10 per share of
Hollywood Park Common Stock. The actual amount of the write down will be
determined based upon the actual price of Hollywood Park Common Stock on the
Effective Date. See "Unaudited Pro Forma Combined Consolidated Condensed
Financial Statements."
Representatives of Arthur Andersen LLP are expected to be present at the
Hollywood Park Meeting, and representatives of Ernst & Young LLP are expected
to be present at the Boomtown Meeting. In each case, such representatives will
have the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
CERTAIN FEDERAL INCOME TAX MATTERS
The following discussion summarizes certain federal income tax consequences
to Boomtown stockholders of the exchange of shares of Boomtown Common Stock
for Hollywood Park Common Stock pursuant to the Merger. This summary is based
upon opinions of counsel (the "Tax Opinions") delivered by Irell & Manella LLP
and Wilson, Sonsini, Goodrich & Rosati, Professional Corporation (collectively
"Counsel"). The Tax Opinions are included as Exhibits to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part. The Tax
Opinions and this summary are based upon (i) the truth and accuracy of the
representations made by Hollywood Park and Boomtown; (ii) certain assumptions,
including the assumption that representations made by Hollywood Park and
Boomtown that are in any manner qualified based on the knowledge of the
respective managements of Hollywood Park and Boomtown would be accurate if
made without such qualification, and the assumption that the Merger will be
consummated as described herein and that the Blue
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Diamond Swap will be consummated through a direct exchange of assets between
Boomtown (or its subsidiaries) and IVAC (or a designated affiliate); and (iii)
current law as reflected in the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, administrative rulings of the Internal Revenue
Service (the "IRS"), and the decisions of the courts. If those assumptions and
representations are not accurate, or if changes are made to current law, the
federal income tax consequences of the Merger may vary from those described in
this summary.
This discussion does not deal with all federal income tax considerations that
may be relevant to particular stockholders of Boomtown in light of their
particular circumstances, such as Mr. Edward P. Roski, Jr. (whose stock is
being purchased by Hollywood Park--See "Business of Boomtown--Boomtown Las
Vegas"), stockholders who are banks, insurance companies, tax-exempt
organizations, dealers in securities, or foreign persons, stockholders who do
not hold their Boomtown Common Stock as a capital asset, or stockholders who
acquired their shares in connection with stock option plans, stock purchase
plans, or other compensation transactions. In addition, the following
discussion does not address the tax consequences of the Merger under foreign,
state or local tax laws or the tax consequences of transactions effected prior
to or subsequent to the Merger (whether or not such transactions are in
connection with the Merger). ACCORDINGLY, EACH BOOMTOWN STOCKHOLDER IS URGED TO
CONSULT HIS, HER, OR ITS OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES
OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE MERGER IN HIS, HER, OR ITS PARTICULAR CIRCUMSTANCES.
Subject to the limitations and qualifications referred to herein, Counsel is
of the opinion that the Merger will constitute a "reorganization" within the
meaning of Section 368 of the Code (a "Reorganization") and that qualification
of the Merger as a Reorganization will result in the following federal income
tax consequences:
(a) No gain or loss will be recognized by holders of Boomtown Common
Stock upon their receipt of Hollywood Park Common Stock in exchange for
Boomtown Common Stock in the Merger (except to the extent of cash received
in lieu of fractional shares of Hollywood Park Common Stock).
(b) The aggregate tax basis of the Hollywood Park Common Stock received
by Boomtown stockholders in the Merger (including any fractional shares)
will be the same as the aggregate tax basis of Boomtown Common Stock
surrendered in exchange therefor.
(c) The holding period of the Hollywood Park Common Stock received in the
Merger will include the period for which the Boomtown Common Stock
surrendered in exchange therefor was held, provided that the Boomtown
Common Stock is held as a capital asset at the time of the Merger.
(d) Cash payments received by holders of Boomtown Common Stock in lieu of
fractional shares will be treated as if fractional shares of Hollywood Park
Common Stock had been issued in the Merger and then redeemed by Hollywood
Park. A stockholder of Boomtown receiving such cash will generally
recognize gain or loss upon such payment, equal to the difference (if any)
between such stockholder's basis in the fractional share and the amount of
cash received.
(e) Neither Boomtown, Hollywood Park, Sub nor the stockholders of
Hollywood Park will recognize gain or loss solely as a result of the
Merger. (Boomtown expects to recognize a net loss for federal income tax
purposes as a result of the Blue Diamond Swap. However, the utilization of
such net tax loss by Boomtown and/or Hollywood Park may be subject to
certain limitations under the Code and Treasury Regulations, which
limitations could defer or reduce the tax benefit to be derived from such
loss.)
No ruling will be obtained from the IRS in connection with the Merger.
Boomtown stockholders should be aware that the Tax Opinions do not bind the
IRS, and that the IRS is not precluded from taking a position contrary to that
described in this summary and the Tax Opinions, which if successfully asserted,
would cause the Hollywood Park Common Stock to be received in the Merger to be
taxable to Boomtown stockholders.
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RESTRICTIONS ON RESALE OF HOLLYWOOD PARK COMMON STOCK BY AFFILIATES
The shares of Hollywood Park Common Stock issuable to stockholders of
Boomtown upon consummation of the Merger have been registered under the
Securities Act. Such shares may be traded freely without restriction by those
stockholders who are not deemed to be "affiliates" of Boomtown or Hollywood
Park, as that term is defined in the rules under the Securities Act. Shares of
Hollywood Park Common Stock received by those stockholders of Boomtown who are
deemed to be "affiliates" of Boomtown may be resold without registration under
the Securities Act only as permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. Boomtown has agreed to use its
reasonable best efforts to cause each director, executive officer and other
person who is an "affiliate" (for purposes of Rule 145 under the Securities
Act) of Boomtown to deliver to Hollywood Park, a written agreement to the
effect that such person will not sell, transfer, exchange, pledge or otherwise
dispose of, or make any offer or agreement relating to any of the foregoing
with respect to, any shares of Hollywood Park Common Stock such person acquires
in connection with the Merger except as permitted under Rule 145, or under
certain other limited exceptions. This Joint Proxy Statement/Prospectus does
not cover any resales of Hollywood Park Common Stock received by persons who
are deemed to be "affiliates" of Boomtown. See "The Merger Agreement and
Related Agreements--Affiliate Agreements."
NO DISSENTERS' RIGHTS
Both Hollywood Park and Boomtown are incorporated in the State of Delaware,
and, accordingly, are governed by the provisions of the DGCL. Pursuant to
Section 262(b) of the DGCL, the stockholders of Boomtown are not entitled to
appraisal rights in connection with the Merger because Boomtown Common Stock is
quoted on NASDAQ and such stockholders will receive as consideration in the
Merger only shares of Hollywood Park Common Stock, which shares will be listed
on NASDAQ upon the closing of the Merger, and cash in lieu of fractional
shares. In addition, the stockholders of Hollywood Park are not entitled to
appraisal rights under Section 262 of the DGCL because even though approval of
such stockholders is required for the issuance of Hollywood Park Common Stock
in the Merger, the approval of the stockholders of Hollywood Park is not
required for the Merger itself.
NASDAQ DESIGNATION OF HOLLYWOOD PARK COMMON STOCK
NASDAQ has approved for designation the shares of Hollywood Park Common Stock
to be issued in the Merger, subject to notice of issuance.
SURRENDER OF BOOMTOWN COMMON STOCK CERTIFICATES
As soon as practicable after the Effective Date, Hollywood Park will cause
Chemical Mellon Shareholder Services (the "Exchange Agent") to mail to each
Boomtown stockholder of record a letter of transmittal with instructions to be
used by such stockholder in surrendering certificates which, prior to the
Merger, represented shares of Boomtown Common Stock in exchange for
certificates representing shares of Hollywood Park Common Stock and cash in
lieu of any fractional Hollywood Park shares. Letters of transmittal will also
be available as soon as practicable after the Effective Date at the offices of
the Exchange Agent. After the Effective Date, there will be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of shares of Boomtown Common Stock which were outstanding
immediately prior to the Effective Date. SHARE CERTIFICATES SHOULD NOT BE
SURRENDERED FOR EXCHANGE PRIOR TO APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
BY THE BOOMTOWN STOCKHOLDERS AND APPROVAL OF THE HOLLYWOOD PARK SHARE ISSUANCE
PROPOSAL BY THE HOLLYWOOD PARK STOCKHOLDERS.
Upon the surrender of a Boomtown Common Stock certificate to the Exchange
Agent or to such other agent as may be appointed by Hollywood Park together
with a duly executed letter of transmittal and such other documents as may be
reasonably required by the Exchange Agent, the holder of such certificate will
be entitled to receive in exchange therefor a certificate representing the
number of shares of Hollywood Park Common Stock
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to which the holder of Boomtown Common Stock is entitled pursuant to the
provisions of the Merger Agreement plus cash in lieu of fractional shares. In
the event of a transfer of ownership of Boomtown Common Stock which is not
registered in the transfer records of Boomtown, a certificate representing the
appropriate number of shares of Hollywood Park Common Stock may be issued to a
transferee if the certificate representing such Boomtown Common Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid, along with a duly executed letter of
transmittal.
Until a certificate representing Boomtown Common Stock has been surrendered
to the Exchange Agent, each such certificate will be deemed at any time after
the Effective Date to represent only the right to receive upon such surrender
the certificate representing the number of shares of Hollywood Park Common
Stock to which the Boomtown stockholder is entitled under the Merger Agreement
plus cash in lieu of fractional shares. Upon consummation of the Merger, shares
of Boomtown Common Stock will cease to be traded on NASDAQ, and there will be
no further market for Boomtown Common Stock.
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THE MERGER AGREEMENT AND RELATED AGREEMENTS
The following paragraphs summarize, among other things, the material terms
of the Merger Agreement. The following description does not purport to be a
complete description of the Merger Agreement and is qualified in its entirety
by reference to the Merger Agreement, a copy of which is attached to this
Joint Proxy Statement/Prospectus as Appendix A and incorporated by reference
herein. Stockholders of Hollywood Park and Boomtown are urged to read the
Merger Agreement in its entirety.
CONVERSION OF SHARES
As of the Effective Date, each then outstanding share of Boomtown Common
Stock (other than shares, if any, held by Boomtown or any subsidiary of
Boomtown, Sub or any other subsidiary of Hollywood Park) will be converted
into the right to receive 0.625 of a share of Hollywood Park Common Stock. No
fractional shares of Hollywood Park Common Stock will be issued in the Merger.
The Merger Agreement provides that, in lieu of any fractional share, each
Boomtown stockholder who would otherwise be entitled to receive a fraction of
a share of Hollywood Park Common Stock will receive from Hollywood Park an
amount of cash (without interest) equal to the per share market value of
Hollywood Park Common Stock (based on the average of the closing prices of a
share of Hollywood Park Common Stock as quoted on NASDAQ for the last five
full trading days prior to the Effective Date) multiplied by the fraction of a
share of Hollywood Park Common Stock to which the stockholder would otherwise
be entitled. Based upon the number of shares of Hollywood Park Common Stock
and Boomtown Common Stock outstanding at September 10, 1996 (excluding any
shares owned by Boomtown and Hollywood Park and their respective subsidiaries
and the exercise of Boomtown Options and warrants discussed below), an
aggregate of approximately 5,790,180 shares of Hollywood Park Common Stock
would be issued to holders of Boomtown Common Stock in connection with the
Merger (of which 446,491 shares are expected to be immediately purchased from
Edward P. Roski, Jr., in connection with the Blue Diamond Swap described in
"Business of Boomtown--Boomtown Las Vegas"), representing approximately 24.0%
of the total number of shares of Hollywood Park Common Stock outstanding after
giving effect to such issuance.
OPTIONS
At the Effective Date, Hollywood Park will assume Boomtown's obligation
under each outstanding Boomtown Option and each Boomtown Option shall
thereafter be exercisable for such number of shares of Hollywood Park Common
Stock as equals the number of shares of Boomtown Common Stock subject to such
Boomtown Option immediately prior to the Effective Date multiplied by the
Exchange Ratio, at a per share exercise price equal to the per share exercise
price under each such Boomtown Option divided by the Exchange Ratio. To avoid
fractional shares, the number of shares of Hollywood Park Common Stock subject
to an assumed Boomtown Option will be rounded up or down, as the case may be,
to the nearest whole integer. In addition, the per share exercise price under
each such option will be rounded up or down, as the case may be, to the
nearest whole cent. The vesting, duration and other terms of the new option
will otherwise be the same as the Boomtown Option, except to the extent that
such vesting, duration or other terms are modified pursuant to the terms of
the Boomtown Employment Agreements. In connection with the execution of the
Merger Agreement, the exercise price of each outstanding Boomtown Option and
each option to purchase Hollywood Park Common Stock were reduced to $6.25
(which upon consummation of the Merger will be adjusted to $10.00 in
accordance with the Exchange Ratio) and $10.00, respectively, if the exercise
price was previously greater than such amounts. As soon as reasonably
practicable after the Effective Date, but not later than 10 days following the
Effective Date, Hollywood Park will file a registration statement on Form S-8
with the Commission with respect to the shares of Hollywood Park Common Stock
subject to the assumed Boomtown Options. Based upon the number of Boomtown
Options outstanding at September 20, 1996, an additional 1,098,995 shares of
Hollywood Park Common Stock would be reserved for issuance to holders of
Boomtown Options in connection with Hollywood Park's assumption of such
Boomtown Options. See "The Merger--Interests of Certain Persons in the
Merger--Interests in Boomtown Common Stock" and "--Interests in Boomtown
Options."
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No benefit plan of Boomtown may be modified or terminated for a year after
the Effective Date without the consent of a majority of Boomtown directors
then on the Hollywood Park Board, unless a comparable benefit is substituted.
ISSUANCE OF SHARES UNDER CERTAIN ADDITIONAL BOOMTOWN EQUITY RIGHTS
Hollywood Park has agreed that, from and after the Effective Date, upon any
exercise by Eric Skrmetta of either of the conversion options described under
"Business of Boomtown--Boomtown Biloxi" and""--Boomtown New Orleans," upon the
exercise of certain warrants to purchase an aggregate of 162,500 shares of
Boomtown Common Stock at a price of $12.00 per share (which expire in October
1997) or upon the exercise of certain other warrants to purchase an aggregate
of 472,500 shares of Boomtown Common Stock at a price of $21.19 per share
(which expire in November 1998), Hollywood Park will issue shares of Hollywood
Park Common Stock in lieu of shares of Boomtown Common Stock, with adjustments
as to the number of shares and exercise price as provided therein to reflect
the Exchange Ratio. See "Business of Boomtown."
COMPOSITION OF THE HOLLYWOOD PARK BOARD OF DIRECTORS AND EXECUTIVE COMMITTEE
At the Effective Date, the Hollywood Park Board of Directors will be
expanded to consist of eleven directors (unless otherwise modified as
described below). Seven of these directors are expected to be the members of
the Hollywood Park Board of Directors being elected at the Hollywood Park
Meeting (the "Hollywood Park Directors"). The remaining four of these
directors shall be selected at the discretion of the Board of Directors of
Boomtown prior to the Effective Date from among persons who are members of the
Board of Directors of Boomtown prior to the Effective Date (the "Boomtown
Directors").
During a three-year period after the Effective Date, any increase in the
number of directors to serve on the Hollywood Park Board of Directors (other
than an increase to include up to two representatives of the holders of
Hollywood Park's $70 Convertible Preferred Stock to the extent they exercise
their right to elect additional directors) must be approved by a majority of
the Boomtown Directors then on the Hollywood Park Board, except that the
number of persons serving on the Hollywood Park Board of Directors may be
increased without such consent if the increase is divisible by three and one
Boomtown Director (to be selected by a majority of the Boomtown Directors then
on the Hollywood Park Board of Directors) is added for every two Hollywood
Park Directors added.
Hollywood Park has agreed to cause its Board of Directors and any nominating
committee thereof to take the necessary steps to nominate the initial Boomtown
Directors or their replacements (selected by a majority of the Boomtown
Directors) for re-election at the first three annual stockholders meetings
following the Effective Date.
Hollywood Park and Boomtown have agreed, if necessary to obtain any
regulatory approval under any applicable gaming laws in order to consummate
the Merger, to replace any persons selected by such party to be a Hollywood
Park Director or a Boomtown Director or a director of any subsidiary of
Hollywood Park with a substitute nominee who is licensable under all
applicable gaming laws.
At the Effective Date and for a three year period thereafter, except as
described below, the Executive Committee of Hollywood Park's Board of
Directors (the "Executive Committee") will consist of six members. Four of
such members shall be Hollywood Park representatives (the "Hollywood Park
Members") and two shall be Boomtown representatives (the "Boomtown Members").
However, if one of the initial Hollywood Park Members ceases to be a member of
the Executive Committee for any reason, the Executive Committee will consist
of five members, comprised of three Hollywood Park Members and two Boomtown
Members. The Executive Committee will have the full powers provided by the
DGCL. The number of members of the Executive Committee may not be increased
beyond six members (or five members as described above) at any time during
such three year period without the consent of the majority of the Boomtown
Members.
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The initial Boomtown Members on the Hollywood Park Executive Committee will
be Timothy J. Parrott and Richard J. Goeglein or, if either of them is
unavailable to serve, any replacement members to be selected by a majority of
the Boomtown Directors then on the Hollywood Park Board. The initial Hollywood
Park Members will be R.D. Hubbard and three other Hollywood Park Directors
selected by a majority of the Hollywood Park Directors then on the Hollywood
Park Board, unless one of them is unable to serve in which case his or
replacement will be selected by a majority of the Hollywood Park Directors
then on the Hollywood Park Board.
As of the Effective Date, Hollywood Park will establish an Office of the
Chairman comprised of Hollywood Park's Chief Executive Officer, Hollywood
Park's President of Sports and Entertainment and the Chief Executive Officer
of Boomtown. The Office of the Chairman will provide advice to the Chief
Executive Officer of Hollywood Park on such matters as he may request and
undertake such other responsibilities as he may delegate to the Office of the
Chairman from time to time.
COMPOSITION OF THE BOOMTOWN BOARD OF DIRECTORS
At and after the Effective Date, Boomtown (as the surviving corporation of
the Merger) shall have no more than three directors. Such directors will
initially be selected by Boomtown from among persons who are members of the
Board of Directors of Boomtown prior to the Effective Date, but at least two
of such directors must be Timothy J. Parrott and Robert F. List. Such
directors will serve until their respective successors are duly elected and
qualified.
The officers of Boomtown immediately prior to the Effective Date will remain
the officers of Boomtown (as the surviving corporation of the Merger) at and
after the Effective Date until their respective successors are duly elected
and qualified.
EFFECTIVE DATE OF THE MERGER
The Merger will become effective on the date of the filing by Hollywood Park
of a properly executed Certificate of Merger with the Secretary of State of
Delaware (the "Effective Date"). The Merger Agreement provides that the
parties thereto will cause the Certificate of Merger to be duly filed as soon
as practicable after all conditions to the consummation of the Merger have
been satisfied or waived and after the closing of the transactions
contemplated by the Merger Agreement. See "--Regulatory Approvals Required"
and "--Conditions to Consummation of the Merger." There can be no assurance
that the conditions precedent to the Merger will be satisfied. Moreover, the
Merger Agreement may be terminated by either Hollywood Park or Boomtown under
various conditions as specified in the Merger Agreement. See "--Termination;
Breakup Fees." Therefore, there can be no assurance as to whether or when the
Merger will become effective.
REPRESENTATIONS AND COVENANTS
Under the Merger Agreement, Hollywood Park and Boomtown made a number of
customary representations and warranties relating to their respective capital
structures, operations, financial conditions, properties and other matters
including their respective authority to enter into the Merger Agreement and to
consummate the Merger. Each party has agreed promptly to notify the other of
the occurrence of any event, or the threatening of any event, likely to result
in the failure of a representation or warranty to be true in any material
respect, or the material breach of a covenant under the Merger Agreement.
Each party covenanted as to itself and its subsidiaries that, subject to
certain exceptions, until the consummation of the Merger or the termination of
the Merger Agreement, it will, unless otherwise consented to by the other
party, conduct its operations in the ordinary course of business and use all
reasonable efforts to preserve intact its present business organization, keep
available the services of its present officers and employees and preserve its
business relationships, and that it will not, among other things, unless
otherwise consented to by the other party (a) sell or pledge any capital stock
owned by it in any of its subsidiaries, amend its Certificate of Incorporation
or Bylaws; split, combine or reclassify any of its outstanding capital stock
or authorize or issue
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any securities in lieu of or in substitution for shares of its capital stock,
declare or pay any dividends or make other distributions (other than any
subsidiary paying dividends to its parent or pursuant to certain existing
agreements and in the case of Hollywood Park, with respect to its $70
Convertible Preferred Stock); or directly or indirectly redeem, purchase or
otherwise acquire any of its capital stock; (b) issue, deliver or sell any
additional shares of its capital stock of any class, any indebtedness or any
option, rights or warrant to acquire, or securities convertible into, shares
of its capital stock other than the issuance pursuant to certain warrants of
Boomtown and employee stock options and other outstanding rights to acquire
stock or issue stock pursuant to agreements existing at the time of the
execution of the Merger Agreement; acquire, lease or dispose assets, or make
any capital expenditure aggregating over $5 million, other than in the
ordinary course of business, or pursuant to agreements existing or plans
disclosed at the time of the execution of the Agreement; incur indebtedness or
encumber assets or enter into any other material transaction, other than in
the ordinary course of business; acquire, by merger or consolidation or by any
manner, any entity or other business organization, other than the creation of
a wholly owned subsidiary in the ordinary course of business; enter into or
terminate any contract or agreement or modify, in a material manner, any such
agreement, other than in the ordinary course of business; (c) adopt, terminate
or amend in any material respect any agreement with directors, officers or
other employee or any benefit plan, other than in the ordinary course of
business; increase the compensation or fringe benefits of any director of
officer, other than in the ordinary course of business; pay any benefit not
provided under any plan or arrangement existing at the time of the execution
of the Merger; grant any awards under any bonus or other compensation plan,
other than in the ordinary course of business; take any action to fund the
payment or compensation under any employee plan, agreement or arrangement,
other than in the ordinary course of business; adopt or amend any collective
bargaining agreement, other than in the ordinary course of business; (d) make
any investments in non-investment grade securities exceeding $10 million,
other than creations of wholly owned subsidiaries or the acquisition by
Hollywood Park of the First Mortgage Notes; (e) settle any material suit or
claim involving money damages not covered by applicable insurance, other than
in the ordinary course of business, certain pending class and derivative
actions relating Hollywood Park or suits or claims disclosed in Commission
reports or otherwise prior to the execution of the Merger Agreement; (f)
change any accounting principles other than as required by GAAP; (g) make any
tax election or settle or compromise any tax liability in a material amount;
or (h) knowingly take or cause any action which would disqualify the Merger as
a "reorganization" within the meaning of Section 368(a) of the Code. However,
these covenants do not apply to the Blue Diamond Swap. Nor will they prohibit
either party from engaging in acquisitions or new projects seeking to expand
their respective businesses which were either disclosed to the other party at
the execution of the Merger Agreement (which disclosure includes all current
proposed or contemplated projects of each of the parties) or do not involve an
investment or other consideration including the amount of borrowings
aggregating ten percent (10%) of such party's total consolidated assets
immediately prior to such acquisition or new project.
Hollywood Park has agreed to honor, in accordance with their terms, all
employment, severance and similar agreements to which Boomtown is a party and
to pay or deliver all vested benefits or amounts earned or accrued under any
benefit plan or agreement prior to the consummation of the Merger. Hollywood
Park has further agreed that Boomtown employees who continue to be employed by
Boomtown after the consummation of the Merger may continue to participate in
their current Boomtown benefit programs (or equal or better programs) for one
year after the consummation of the Merger.
CONDITIONS TO CONSUMMATION OF THE MERGER
In addition to the approvals of the stockholders of Hollywood Park and
Boomtown sought hereby, the obligations of Hollywood Park and Boomtown to
consummate the Merger are subject to the satisfaction of a number of other
conditions, including among others, (a) the expiration of the waiting period
under the HSR Act, (b) the obtaining of all material registrations, findings
of suitability, licenses, declarations or filing with or the receipt of all
material consents, orders and approvals from, and the expiration of any
waiting periods imposed by, any gaming authority necessary for the
consummation of the Merger; (c) the effectiveness of, and the absence of any
stop orders or proceedings seeking a stop order with respect to, the
Registration Statement; (d) the receipt
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of Hollywood Park of all state securities or "blue sky" permits and other
authorizations necessary to issue shares of Hollywood Park Common Stock; (e)
the absence of any temporary restraining order, preliminary or permanent
injunction, or other order issued and in effect by any federal or state court,
or any action taken or any statute or regulation enacted, that would prohibit
or render illegal the consummation of the Merger; (f) the absence of any
legislation adopted or proposed (with reasonable likelihood of adoption) in
California that would prohibit the ownership of the combined companies; and
(g) the authorization for listing on NASDAQ, upon official notice of issuance,
of the shares of Hollywood Park Common Stock to be issued in the Merger. See
"--Regulatory Approvals Required."
Each party's obligations under the Merger Agreement are also conditioned
upon (a) the accuracy of the representations and warranties made by the other
party (without regard to materiality qualifiers) as of the date of the
execution of the Merger Agreement and as of the date of the closing of the
Merger, except such inaccuracies as would not have a material adverse effect
individually or in the aggregate; (b) the performance in all material respects
by the other party of its covenants; (c) the absence of a material adverse
change (excluding, in the case of Hollywood Park, any petition for bankruptcy
or reorganization filed by Sunflower or its subsidiaries and in the case of
Boomtown, the disposition of Blue Diamond or the failure to exercise the
Resort Purchase Option) after April 23, 1996 in the business, properties,
assets, condition (financial or otherwise), liabilities, or operations of the
other party and its subsidiaries taken as whole; (d) the receipt by Boomtown
and Hollywood Park of all material third-party consents required to be
obtained in connection with the Merger (including approval of the holders of a
majority in principal amount of the First Mortgage Notes as described below);
and (e) the receipt by both Hollywood Park and Boomtown of written opinions
from their respective legal counsel to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
Pursuant to the Indenture relating to the First Mortgage Notes, the consent
of at least a majority in principal amount of the outstanding First Mortgage
Notes is required to enable Boomtown to merge or consolidate with any other
person, unless, immediately after giving effect to the transaction, Boomtown
would have the ability to meet certain consolidated EBITDA to debt service
ratio tests. Boomtown does not anticipate meeting the required ratio, and
therefore intends to solicit the consent of the holders of the First Mortgage
Notes to the Merger. At the same time, the consent of the holders of a
majority in principal amount of the First Mortgage Notes will be sought in
connection with the Blue Diamond Swap. Boomtown anticipates commencing such
consent solicitation in November, 1996 and completing such solicitation prior
to the Effective Date.
In addition, Boomtown's obligations under the Merger Agreement are also
conditioned upon the Hollywood Park Board of Directors consisting of eleven
members, four of whom are designated by Boomtown and seven of whom are
designated by Hollywood Park; the Hollywood Park Executive Committee
consisting of five or six members, two of whom are designated by Boomtown; and
receipt of satisfactory written assurances from Hollywood Park that there will
be available up to $164.5 million to fund (i) the repurchase of the First
Mortgage Notes, if put to Boomtown (including a premium of 1% of principal
amount, or an aggregate premium of $1.035 million if all outstanding First
Mortgage Notes are put) by the holders thereof due to the change of control in
connection with the Merger, and (ii) up to $60 million for future gaming
projects. Hollywood Park is currently in negotiations regarding a new credit
facility. See "Combined Company Liquidity and Capital Resources."
REGULATORY APPROVALS REQUIRED
Under the Merger Agreement, the obligations of both Hollywood Park and
Boomtown to consummate the Merger are subject to, among others, the following
conditions: (i) the expiration or termination of any waiting period (and any
extension thereof) applicable to the consummation of the Merger under the HSR
Act and no action having been instituted by the Department of Justice or the
Federal Trade Commission ("FTC") challenging or seeking to enjoin the
consummation of the Merger, which action shall not have been withdrawn or
terminated and (ii) all consents, approvals, orders, authorizations of, or
registrations, findings of suitability, licenses, declarations or filings
with, any governmental entity in respect of gaming laws applicable to
Hollywood Park's or Boomtown's respective businesses required to consummate
the Merger shall have been obtained and shall remain in full force and effect,
and all statutory waiting periods in respect thereof shall have expired. There
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can be no assurance that any applicable regulatory authority will approve or
take other required action with respect to the Merger, or as to the timing of
such regulatory approval or other action. Hollywood Park and Boomtown are not
aware of any governmental approvals or actions that are required in order to
consummate the Merger except in connection with the Securities Act, the filing
of merger-related documents under the DGCL or as described below. Should such
other approval or action be required, it is contemplated that Hollywood Park
and Boomtown would seek such approval or action. There can be no assurance as
to whether or when any such approval or action, if required, could be
obtained.
Hart-Scott-Rodino Compliance. Transactions such as the Merger are reviewed
by the Department of Justice and the FTC to determine whether they comply with
applicable antitrust laws. Under the provisions of the HSR Act, the Merger may
not be consummated until such time as certain information has been furnished
to the Department of Justice and the FTC and the specified waiting period
requirements of the HSR Act have been satisfied. The parties received early
termination of the waiting period under the HSR Act on June 18, 1996.
At any time before or after the Effective Date, the Department of Justice,
the FTC, state attorneys general, or any private person or entity could
challenge the Merger under antitrust laws and seek, among other things, to
enjoin the Merger. Based on information available to them, Hollywood Park and
Boomtown believe that the Merger will not violate federal, state or foreign
antitrust laws. There can be no assurance, however, that a challenge to the
Merger on antitrust grounds will not be made or that, if such a challenge is
made, Hollywood Park and Boomtown would prevail or would not be required to
accept certain conditions, possibly including certain divestitures or hold-
separate agreements in order to consummate the Merger.
Approval of Gaming and Horse Racing Authorities. To consummate the Merger,
the parties and certain of their directors and executive officers will need to
obtain the consent or approval of a number of governmental authorities which
administer gaming laws applicable to the parties' respective operations. In
particular, since the Merger will result in a change in control of Boomtown
(as defined under applicable gaming laws), it may not occur without the prior
approval of the Nevada Gaming Commission, the Mississippi Gaming Commission
and the Louisiana Gaming Control Board. These authorities may also require
stockholders owning certain percentages of stock of Hollywood Park, officers,
directors and other persons having a material relationship or involvement with
Hollywood Park be investigated and licensed or found suitable as part of the
approval process relating to Merger. In addition, if Boomtown is successful in
obtaining necessary licenses for its proposed riverboat casino operations in
Switzerland County, Indiana, approval of the Merger and licensing of Hollywood
Park and its affiliates by the Indiana Gaming Commission will also be
necessary.
In addition, parties who will become affiliated with Hollywood Park as a
result of the Merger (including any non-institutional investor who will become
an officer or director of Hollywood Park) may be required to submit to
background investigations and suitability findings by one or more of the
following authorities: the California Horse Racing Board, the Kansas Racing
Commission, the Arizona Racing Commission, the California State Attorney
General and the City of Inglewood, California. Consequently, the four members
of the Boomtown Board of Directors who will become Hollywood Park directors on
the Effective Date may be subject to such procedures. See "--Composition of
the Hollywood Park Board of Directors and Executive Committee."
Hollywood Park, Boomtown and the required officers and directors of both
companies are in the process of filing initial applications for these
approvals. It is currently anticipated that approval from all required
authorities will take from six to nine months from the dates of the initial
filings.
LIMITATION ON SOLICITATION AND NEGOTIATIONS
Upon execution of the Merger Agreement, both Hollywood Park and Boomtown
were required to immediately cease any discussions or negotiations with third
parties regarding any tender or exchange offer, written or oral proposal for a
merger, consolidation or other business combination involving Boomtown or
Hollywood Park or any of their respective subsidiaries or any written or oral
proposal or offer to acquire a substantial equity interest in or, a
substantial portion of the assets of, Boomtown or Hollywood Park or any of
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their respective subsidiaries (any of the foregoing, an "Acquisition
Proposal"), other than the Merger or a disposition of Blue Diamond by
Boomtown. The Merger Agreement also provides that both Boomtown and Hollywood
Park may not, directly or indirectly, enter into an agreement relating to an
Acquisition Proposal, take any action to encourage, solicit or initiate the
submission of any Acquisition Proposal or participate in any discussions or
negotiations with, or furnish any information to, any person in connection
with, or take any other action to facilitate any inquiries or the making of,
any Acquisition Proposal.
Notwithstanding the foregoing, Boomtown or Hollywood Park may participate in
discussions or negotiations with or furnish information to a third party who
has made an unsolicited bona fide Acquisition Proposal, if (1) such written
Acquisition Proposal identifies a price or range of values to be paid for the
outstanding securities or substantially all of the assets of Boomtown or
Hollywood Park, as the case may be, and after consultation with its investment
bankers the Board of Directors of the receiving party has determined that the
Acquisition Proposal, if consummated, is reasonably likely to be financially
more favorable to the stockholders of the receiving party than the terms of
the Merger (a "Superior Proposal"); (2) the receiving party's Board of
Directors determines, after consultation with its investment bankers, that
such third party making the Superior Proposal is financially capable of
consummating the Superior Proposal; (3) the Board of Directors of the
receiving party determines, after consultation with its outside legal counsel,
that the failure to participate in such discussions or negotiations or furnish
information to such third party would result in a substantial risk of
liability for a breach of the fiduciary duties of the members of such Board of
Directors under applicable law; and (4) the receiving party notifies the other
party to the Merger Agreement in writing of such Acquisition Proposal,
including the principal financial and other material terms and conditions
thereof, including the identity of the person and its affiliates (if relevant)
making such Acquisition Proposal. The party receiving the Acquisition Proposal
may not provide non-public information to such third party unless prior to the
date thereof such information was provided to Hollywood Park or Boomtown, as
the case may be, and the party receiving the Acquisition Proposal had entered
into a non-disclosure agreement.
The party receiving the Superior Proposal may not accept it for at least 36
hours after the other party's receipt of the notification described above.
Thereafter, the party receiving the Superior Proposal may change its
recommendation concerning the Merger and accept the Superior Proposal,
provided that the required breakup fee and expenses described herein are paid
immediately thereafter. See "--Termination; Breakup Fees."
WAIVER AND AMENDMENT
At any time before the Effective Date, Hollywood Park or Boomtown may (i)
extend the time for the performance of any of the obligations or other acts of
the parties under the Merger Agreement; (ii) waive any inaccuracies in the
representations and warranties of the other contained in the Merger Agreement
or in any documents delivered pursuant thereto; or (iii) waive compliance by
the other with any of the agreements or conditions contained in the Merger
Agreement.
The Merger Agreement may be amended by Hollywood Park and Boomtown at any
time before or after the approval of the Merger by the stockholders of
Boomtown or the approval of the Hollywood Park Share Issuance Proposal by the
stockholders of Hollywood Park. However, after any such stockholder approval,
no amendment may be made which by law requires the further approval of such
stockholders without obtaining such further approval.
TERMINATION; BREAKUP FEES
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Date, whether before or after the approval of the stockholders of
Boomtown or Hollywood Park, (a) by mutual consent of Hollywood Park and
Boomtown; (b) by either Hollywood Park or Boomtown if (i) any governmental
entity which must grant a necessary regulatory approval has denied approval of
the Merger (other than the denial of a license under certain gaming laws to
one or more directors, officers of either party or its subsidiaries, which
directors or officers shall be replaced) and such denial has become final and
nonappealable or (ii) any
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governmental entity of competent jurisdiction has issued a final nonappealable
order enjoining or otherwise prohibiting the Merger; (c) by either Hollywood
Park or Boomtown if the Merger is not consummated on or before December 31,
1996, provided that if the Merger is not consummated by such date due to
failure to receive all required regulatory approvals by such date, then such
date shall be extended to June 30, 1997, and provided further that a party may
not terminate the Merger Agreement on such grounds if such party's action or
failure to act has been the cause of or result in the failure of the Merger to
occur on or before such date and such action or failure to act constituted a
breach of the Merger Agreement; (d) by either Hollywood Park or Boomtown if
the other party has breached any of the covenants, agreements, representations
or warranties made by such other party in the Merger Agreement, and such
breach either is not cured within thirty (30) days following written notice to
the party committing such breach or by its nature cannot be cured prior to the
closing of the Merger, but only if such breach would entitle the non-breaching
party not to consummate the Merger; (e) by either Hollywood Park or Boomtown
if the stockholders of Boomtown fail to approve and adopt the Merger Agreement
or the stockholders of Hollywood Park fail to approve the Hollywood Park Share
Issuance Proposal by failure to obtain the required vote at a duly held
meeting of the stockholders; (f) by either Hollywood Park or Boomtown if,
without the written consent of such party, the Board of Directors of the other
party (x) shall have failed to recommend, or shall have withdrawn or modified
in a manner adverse to the terminating party, its approval or recommendation
of the Merger Agreement and the Merger or the Hollywood Park Share Issuance
Proposal (y) shall have submitted or recommended to the stockholders of such
other party, or shall have approved, an Alternative Transaction, or (z) shall
have publicly announced its intention to do any of the foregoing; (g) by
either Hollywood Park or Boomtown, if either party's Board of Directors shall
have accepted or recommended to its stockholders a Superior Proposal (provided
that if it is the terminating party that has taken such action, it has paid
the breakup fees described herein); or (h) by either Hollywood Park or
Boomtown if a condition to such party's obligation to consummate of the Merger
is not satisfied at any time prior to the closing of the Merger and such
condition shall be impossible to satisfy.
The Merger Agreement defines the term "Alternative Transaction" to mean,
with respect to either party, either (1) a transaction pursuant to which any
person (or group of persons) other than Hollywood Park or Boomtown or their
current affiliates (a "Third Party") acquires securities representing more
than twenty percent (20%) of the outstanding voting power of such party,
whether from such party or pursuant to a tender offer or exchange offer or
otherwise, (2) a merger or other business combination involving such party
pursuant to which any Third Party or Third Parties acquire(s) securities
representing more than twenty percent (20%) of the outstanding voting power of
such party or the entity surviving such merger or business combination, (3)
any other transaction (with certain exceptions for previously contemplated
transactions) pursuant to which a Third Party acquires control of assets
(including equity securities of subsidiaries) of such party or any of its
subsidiaries having a fair market value equal to or greater than twenty
percent (20%) of the total consolidated assets of such party and its
respective subsidiaries, taken as a whole, calculated immediately prior to
such transaction or (4) in the case of Hollywood Park, the acquisition by
Hollywood Park (with certain exceptions for previously contemplated
transactions) of the assets or stock of any other business with a fair market
value equal to or greater than twenty percent (20%) of the total consolidated
assets of Hollywood Park and its subsidiaries, taken as a whole, calculated
immediately prior to such acquisition. The disposition by Boomtown of
Boomtown's interest in Blue Diamond shall not be deemed an Alternative
Transaction.
In the event the Merger Agreement is terminated pursuant to any of the
foregoing provisions, the Merger will become void and such termination will be
without liability of Boomtown, Hollywood Park or Sub or their respective
officers and directors, except for liability for willful breach of the Merger
Agreement and except as set forth below under the caption "--Breakup Fees." In
the event of such termination, the provisions of the Merger Agreement
regarding fees and expenses and termination shall survive.
Expenses and Breakup Fees. Except as described below, whether or not the
Merger is consummated, all costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby will be paid by the
party incurring such costs and expenses, other than (i) expenses incurred in
connection with printing and mailing the Registration Statement and this Joint
Proxy Statement/Prospectus, and the filing and
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other fees with the Commission in connection with the Merger, which will be
shared equally by Boomtown and Hollywood Park and (ii) filing and other fees
payable to any governmental entity in connection with compliance with the HSR
Act, which shall be borne by Hollywood Park. Upon termination of the Merger
Agreement by Boomtown or Hollywood Park as a result of a material breach by
the other party, the breaching party shall pay Boomtown or Hollywood Park, as
the case may be, all actual documented and reasonable out of pocket expenses
of the other party relating to the transactions contemplated by the Merger
Agreement.
Boomtown has agreed to pay Hollywood Park a cash fee of $3,500,000 plus up
to an aggregate of $1,500,000 of actual documented out-of-pocket expenses of
Hollywood Park relating to the transactions contemplated by the Merger
Agreement if (i) the Merger Agreement is terminated because Boomtown accepts
or recommends a Superior Proposal; (ii) the Merger is not approved by
Boomtown's stockholders at the Boomtown Meeting or such meeting is not held or
is cancelled, if (x) prior thereto it shall have been publicly announced that
any person (other than Hollywood Park) shall have proposed or disclosed an
intention to propose or that it is considering an Alternative Transaction
(other than an Alternative Transaction previously approved by Hollywood Park
in writing) involving Boomtown or certain of its subsidiaries and (y) within
nine months following such disapproval or cancellation, Boomtown enters into a
written agreement regarding an Alternative Transaction with such person; or
(iii) the termination of the Merger Agreement by Hollywood Park due to the
failure of Boomtown's Board of Directors to recommend the Merger to its
stockholders (or any modification of such recommendation adverse to Hollywood
Park) or the submission or recommendation of an Alternative Transaction for
the vote of Boomtown's stockholders, or its approval of an Alternative
Transaction (or its public announcement of an intention to do any of the
foregoing), unless such action is due to a material adverse change respecting
Hollywood Park which would entitle Boomtown not to consummate the Merger.
Hollywood Park has agreed to pay Boomtown a similar fee under reciprocal
circumstances.
CONFIDENTIALITY AGREEMENT; STANDSTILL OBLIGATIONS
On February 27, 1996, in connection with the mutual evaluation of what was
then a possibility of a merger between the two companies, Hollywood Park and
Boomtown entered into a letter agreement (the "Confidentiality Agreement"),
pursuant to which each agreed, among other things, to keep confidential all
financial and other information provided to the other party (other than
certain information which became generally available to the public, was
already available or became available to the receiving party).
In addition, the Confidentiality Agreement provides that until June 30, 1997
neither party nor any of its controlled affiliates will, other than in
connection with the Merger, directly or indirectly unless specifically
requested to do so in writing in advance by the other party's Board of
Directors (a) acquire or agree, offer or propose to acquire or cause to be
acquired ownership (including beneficial ownership) of any of the other
party's assets or businesses or any voting securities issued by the other
party, or any rights or options to acquire such ownership; (b) make or
participate in any solicitation of proxies or consents with respect to any
securities of the other party entitled to vote in the election of the other
party's directors, become a "participant" in any "election contest" (as such
terms are defined in the Exchange Act), seek to influence the voting of any
stockholder of the other party, demand a copy of the other party's stock
ledger list or its stockholders or other books and records or call or attempt
to call any meeting of the stockholders of the other party; (c) seek or
propose to influence or control the other party's management or policies; or
(d) enter into any discussions, negotiations, arrangements or understandings
with any third party with respect to any of the foregoing matters with respect
to the other party.
The Confidentiality Agreement also prevents each party, without written
consent, from soliciting any of the corporate officers or management of the
other party until June 30, 1997, so long as they continue to be employed by
the other party.
However, notwithstanding the terms of the Confidentiality Agreement either
Boomtown or Hollywood Park will be free to take any of the prohibited actions
described above (but shall to the extent practicable seek to cooperate with
the other party with respect to a new Acquisition Proposal) if (i) the party
taking such action has terminated the Merger Agreement due to the failure of
the other party to recommend the Merger to its
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stockholders (or any adverse modification to such recommendation) or the
submission of an Alternative Transaction for the vote of the other party's
stockholders or the approval of an Alternative Transaction; (ii) the Merger
Agreement is terminated by either party due to the recommendation or
acceptance of a Superior Proposal by the party against whom such action is
taken; (iii) the party taking such action has terminated the Merger Agreement
due to a material breach thereof by the other party and, within six months
thereafter, the other party accepts (or recommends to its stockholders) an
Alternative Transaction or a third party proposes or commences an Alternative
Transaction with respect to the other party or engages in a proxy solicitation
relating to voting securities of the other party.
AFFILIATE AGREEMENTS
The shares of Hollywood Park Common Stock to be issued in the Merger will
have been registered under the Securities Act by a Registration Statement on
Form S-4, thereby allowing those shares to be traded without restriction by
all former holders of Boomtown Common Stock who neither (i) are deemed to be
affiliates of Boomtown at the time of the Boomtown Meeting nor (ii) become
affiliates of Hollywood Park after the Merger. Boomtown has agreed to use its
reasonable best efforts to cause each director, executive officer and other
person who is an "affiliate" (as such term is defined in Rule 145) of Boomtown
to deliver to Hollywood Park, as soon as practicable after the date of the
Merger Agreement, and in any event prior to the date of the Hollywood Park
Meeting and the Boomtown Meeting, a written agreement to the effect that such
person will not sell, transfer, exchange, pledge or otherwise dispose of, or
make any offer or agreement relating to any of the foregoing with respect to,
any shares of Hollywood Park Common Stock such person acquires in connection
with the Merger except (i) as permitted under and in compliance with Rule 145;
(ii) after delivery from counsel reasonably satisfactory to Hollywood Park of
a written opinion in a form reasonably satisfactory to Hollywood Park and its
counsel, and upon which Hollywood Park and its counsel may rely, that no
registration under the Securities Act would be required in connection with the
proposed transaction; (iii) pursuant to an effective registration statement
under the Securities Act covering such shares of Hollywood Park Common Stock
proposed to be sold, transferred or otherwise disposed of; or (iv) upon
receipt of written advice from the Commission to the effect that the
Commission would take no action, or that the staff of the Commission would not
recommend that the Commission take any action, with respect to the proposed
disposition if consummated. This Joint Proxy Statement/Prospectus does not
cover any resales of Hollywood Park Common Stock received by persons who are
deemed to be "affiliates" of Boomtown.
STOCKHOLDER VOTING AGREEMENTS
On April 23, 1996, in connection with the execution and delivery of the
Merger Agreement, Messrs. Timothy J. Parrott and R.D. Hubbard entered into
Voting Agreements (the "Voting Agreements") with Hollywood Park and Boomtown,
respectively. Pursuant to the Voting Agreements, Messrs. Parrott and Hubbard
have agreed to vote, and have granted to Hollywood Park or Boomtown (as the
case may be) an irrevocable proxy to vote, all of their respective shares of
Boomtown Common Stock and Hollywood Park Common Stock as of that date and any
shares beneficially acquired after that date (the "Proxy Shares") (i) in favor
of approval of the Merger Agreement and the Merger (or the Hollywood Park
Share Issuance Proposal, as the case may be) and any matter that could
reasonably be expected to facilitate the Merger and (ii) against any proposal
made in opposition to or which would prevent the consummation of the Merger
(each of the foregoing being an "Opposing Proposal"). As of April 23, 1996,
Mr. Parrott beneficially owned 343,001 shares of Boomtown Common Stock and Mr.
Hubbard beneficially owned 2,119,840 shares of Hollywood Park Common Stock.
The Voting Agreements also prohibit Messrs. Parrott and Hubbard from (i)
directly or indirectly, soliciting or encouraging any Acquisition Proposal,
(ii) soliciting proxies, initiating a vote or stockholders written consent or
becoming a member of a "group" (as such term is used in Section 13(d) of the
Exchange Act) with respect to an Opposing Proposal or otherwise encouraging or
assisting any party in any action that would interfere with the timely
consummation of Merger or (iii) disposing of or encumbering any Proxy Shares
unless the proposed transferee has executed and delivered a substantially
identical voting agreement and irrevocable proxy.
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Each Voting Agreement terminates (i) upon written notice of termination of
the Voting Agreement by Hollywood Park or Boomtown, as the case may be, (ii)
at the Effective Date, (iii) upon the withdrawal (or adverse modification) of
the approval or recommendation of the Merger by the other party's Board of
Directors in the exercise of its fiduciary duties in accordance with Section
3.6(a) or (b), as the case may be, or Section 8.10 of the Merger Agreement, or
(iv) upon the termination of the Merger Agreement.
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BUSINESS OF HOLLYWOOD PARK
Hollywood Park is a gaming, sports and entertainment company engaged in the
ownership and operation of card club casinos and thoroughbred and greyhound
racing facilities, and the development of other gaming, sports and
entertainment opportunities. Hollywood Park owns and operates the Hollywood
Park-Casino card club (the "Hollywood Park-Casino"), a California card club
which offers a variety of card games, including Poker, Pai Gow, and California
Blackjack. Hollywood Park, along with other investors, is constructing a
second California card club, the Crystal Park Hotel and Casino ("Crystal
Park"), located near Los Angeles in Compton, California, which is anticipated
to open in late 1996 and will be operated under a lease arrangement by an
unaffiliated operator. Hollywood Park also owns and operates the Hollywood
Park Race Track, a premier thoroughbred racing facility located on the same
premises as the Hollywood Park-Casino in the Los Angeles, California
metropolitan area, and the Turf Paradise Race Track ("Turf Paradise"), a
thoroughbred racing facility located in Phoenix, Arizona, and operates the
Woodlands Race Track (the "Woodlands"), a greyhound and thoroughbred racing
facility located in Kansas City, Kansas.
Hollywood Park's strategic plan is to become a diversified gaming, sports
and entertainment company through the continued development, acquisition,
ownership and/or operation of casinos, race tracks and other gaming, sports
and entertainment attractions. Hollywood Park intends to identify and pursue
opportunities in the gaming business by taking advantage of its financial
resources, experience and contacts in the gaming and horse racing businesses,
and by building a strong gaming oriented management team. The proposed Merger
with Boomtown is an important element in realizing this strategic plan since
Hollywood Park believes that the strategic combination will match Hollywood
Park's access to capital with Boomtown's expansion opportunities. Hollywood
Park is evaluating potential acquisitions of additional card clubs in
California and of gaming properties in other jurisdictions that Hollywood Park
believes have a favorable gaming environment. Hollywood Park is exploring ways
in which it can more fully utilize its 378-acre Hollywood Park Race Track
property and its 275-acre Turf Paradise Race Track property.
Hollywood Park was incorporated in Delaware in 1981 and is the successor to
the Hollywood Park Turf Club, which was organized in 1938. The mailing address
of Hollywood Park's principal executive offices is 1050 South Prairie Avenue,
Inglewood, California 90301, and its telephone number is (310) 419-1500.
CASINO OPERATIONS
The Hollywood Park-Casino. In July 1994, the Hollywood Park-Casino opened on
the premises of the Hollywood Park Race Track. Patrons in the Hollywood Park-
Casino pay a fee for seats at gaming tables or for each hand played. Players
bet solely against each other, and the Hollywood Park-Casino does not
participate in the wagers made or in the outcome of any of the games played.
Under California law, the Hollywood Park-Casino may only offer certain forms
of card games, including Poker and the so-called California games: Pai Gow and
California Blackjack. The Hollywood Park-Casino may not offer many of the card
games and other gaming activities permitted in Nevada and other jurisdictions
where Boomtown conducts business. Until October 1995, when California law was
amended to permit publicly-traded pari-mutuel racing associations to operate
card clubs on race track premises, the Hollywood Park-Casino was operated
under a lease arrangement by an unaffiliated operator with Hollywood Park
receiving a fixed lease payment for the facility. Hollywood Park assumed
operational control over the Hollywood Park-Casino effective November 1995.
The Hollywood Park-Casino is the only non-Indian facility in California that
offers pari-mutuel wagering complete with bet runners, which allows card
players to place pari-mutuel wagers without interruption of their games,
including wagering on simulcast racing from the Royal Hong Kong Jockey Club.
The Casino also sponsors special entertainment events, including live concerts
and championship Thai Kick Boxing.
The Hollywood Park-Casino has been able to attract a significant portion of
the southern California High End Poker market ($15 to $30 limit and above).
Hollywood Park believes it will be able to maintain and increase its share of
this profitable market with the expansion of the High End Poker area to offer
20 or more
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gaming tables in a private setting. The Hollywood Park-Casino has expanded its
poker tournaments, which have attracted some of the most famous championship
players. Expansion of the high stakes California games area in the Casino was
recently completed, which doubled the area's playing capacity. The Hollywood
Park-Casino's per hour collection rates per table for conventional poker are
approximately $75 for low limit and $240 for high limit, and for the
California games, $140 for low limit and $700 for high limit.
Crystal Park Hotel & Casino. The Crystal Park Hotel & Casino card club in
Compton, California, which will be California's first hotel and casino, is
expected to open in late 1996 with 110 gaming tables, but with the ability to
substantially increase that number, and 282 hotel rooms. Hollywood Park will
have an 88% interest in the facility, with the minority investors owning a
total of 12% of the facility. If Crystal Park opens under current California
law, which does not allow publicly traded companies such as Hollywood Park to
operate a card club (other than on the same property as a race track, such as
the Hollywood Park-Casino), the Crystal Park Casino will be operated by an
unaffiliated operator already licensed by the State of California and the City
of Compton under a five year lease.
Under the terms of the lease, the operator would pay a monthly rent of
$200,000 for the first six months, $350,000 for the months 7 through 12 and
$759,375 for months 13 through 60. Hollywood Park's total expected investment
in the Crystal Park Hotel and Casino is approximately $22,000,000.
Hollywood Park has an option for five years to purchase the operator's
gaming license and intends to do so if California law is changed. If at the
end of the option, Hollywood Park is not able to operate the card club, the
operator can either negotiate a new lease or acquire the card club site at its
then fair market value. If there is a change in California law, allowing
Hollywood Park to operate card clubs at sites other than its race track
property, Hollywood Park and the minority investors would operate the card
club in partnership with the former operator, with Hollywood Park and such
minority investors owning 67% of the business.
RACING OPERATIONS
Hollywood Park Race Track. The Hollywood Park Race Track is located in
Inglewood, California, which is in the Los Angeles metropolitan area. Since
1938, the Hollywood Park Race Track has been ranked among the country's most
distinguished thoroughbred racing facilities. Hollywood Park conducts two live
on-track thoroughbred horse race meets per year, totalling approximately 95 to
100 race days per year. Race dates must be applied for on an annual basis from
the California Horse Racing Board (the "CHRB"). Live races run Wednesday
through Sunday, usually with nine live races a day. Hollywood Park also sends
the signal of its live races off-track to other locations including
fairgrounds, other race tracks, hotels and casinos. In total, Hollywood Park
simulcasts its live races to 79 sites in 36 states and three countries.
Hollywood Park also accepts the simulcast signal from live races conducted at
other race tracks, including southern and northern California tracks, which
has helped to mitigate the seasonality of Hollywood Park's horse racing
business by allowing for year round operations. Although Hollywood Park has
seen a shift from wagers placed on its live races, both on-track and off-
track, to wagers placed on northern California simulcast races running on the
same days as live racing at Hollywood Park, for which Hollywood Park receives
a lower commission rate, the net effect of expanded simulcasting upon wagering
commissions to date has been positive. Given Hollywood Park's limited
operating experience simulcasting northern California races on live race days,
there can be no assurance that this effect will continue to be positive.
Wagering on live racing is pari-mutuel, meaning that patrons bet against
each other in a pool rather than against the operator of the facility or with
pre-set odds. Hollywood Park derives revenues from a share of the pari-mutuel
handle at rates fixed by the State of California, admission fees and
concession sales. The approximate pari-mutuel commission rates are as follows:
Pari-mutuel commission rates on live Hollywood Park races range from 6.4% of
wagers placed at Hollywood Park to 1.25% of wagers placed off-track on
Hollywood Park races simulcast out-of-state. Pari-mutuel commission rates on
wagers placed on races simulcast at Hollywood Park range from 5.6% for
northern California races to 2.0% for races conducted at other sites.
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Turf Paradise. Turf Paradise, acquired by Hollywood Park in 1994, is located
in Phoenix, Arizona, and covers approximately 275 acres, of which
approximately 100 acres are undeveloped. Turf Paradise conducts one continuous
live thoroughbred meet that starts in September and runs through May and also
offers limited quarter horse and arabian horse racing during certain periods
of the year. Live racing is primarily conducted Friday through Tuesday, with
live races sent to 32 off-track sites in Arizona and 33 out-of-state hubs,
from which the signal is further disseminated to sites including New York, New
Jersey, Pennsylvania, Nevada and Canada. On Wednesday and Thursday and during
the off-season, Turf Paradise generally operates as a simulcast facility.
At Turf Paradise, the state of Arizona fixes the pari-mutuel commissions on
wagers for on-track racing and off-track racing within the state as follows:
between 7.5% and 11.5% for on-track wagers depending on the total amount of
the handle and whether the wager is for win, place or show or two- or three-
or-more-horse pools, and between 9.0% and 17% for off-track wagers depending
on the same factors.
Sunflower operating as the Woodlands. Hollywood Park acquired Sunflower
Racing, Inc. ("Sunflower"), which operates the Woodlands greyhound and horse
racing track, in 1994. Sunflower's property, located in Kansas City, Kansas,
covers 393 acres, of which 222 acres are currently developed and 171 acres are
undeveloped. The Woodlands conducts live greyhound and horse racing and
accepts simulcasts of both. Live greyhound racing runs almost continuously
year round and horse racing is generally conducted in the fall.
On June 22, 1994, riverboat gaming commenced in Missouri, with the largest
boat located within ten miles of Sunflower's Woodlands Race Track. On November
8, 1994, Missouri voters authorized the use of games of chance on riverboats,
including slot machines, which were placed into play on December 9, 1994.
Riverboat gaming has had a very significant negative impact on Sunflower's
financial results.
The Kansas Legislature has not approved other forms of gaming at the
Woodlands including slot machines which would have permitted the Woodlands to
compete more effectively. As a result, Hollywood Park wrote off its
approximately $11,412,000 investment in Sunflower in the quarter ended March
31, 1996 and, on May 17, 1996, Sunflower filed for reorganization under
Chapter 11 of the Bankruptcy Code.
EXPANSION PLANS
The following describes certain expansion opportunities which Hollywood Park
is considering in addition to the Merger and those related to the Boomtown
properties.
Hollywood Park Stadium. Hollywood Park has considered building and operating
a state-of-the-art stadium on its Inglewood property, which would accommodate
football and soccer games played by National Football League teams, local
college teams and Major League Soccer teams. The plans called for a 65,000
seat stadium, expandable to 83,000 seats for Superbowls and other special
events, with approximately 200 luxury suites. Hollywood Park does not intend
to begin construction of the stadium without a binding commitment from an NFL
football team as an anchor tenant. Further, in view of the proposal of the Los
Angeles Memorial Coliseum to the NFL to build a state-of-the-art football
stadium, Hollywood Park has concluded not to actively pursue further efforts
to secure a stadium. Hollywood Park would only consider further discussions
regarding a stadium if the NFL were to determine that the Coliseum is
unacceptable as a venue.
Hollywood Park Arena. Hollywood Park is in the initial stages of evaluating
a proposed arena, where the Los Angeles Lakers basketball and the Los Angeles
Kings hockey teams would play. Presently, these teams play across the street
from the Inglewood property at the Great Western Forum. Hollywood Park would
supply the land for the proposed arena and receive lease payments and net
parking revenues. The proposed arena would be financed and built by the
lessee. Edward P. Roski, Jr., a co-owner of the Los Angeles Kings, is a
Boomtown director and the principal owner of Boomtown's Blue Diamond Las Vegas
casino. See "The Merger--Interests of Certain Persons in the Merger."
Hollywood Park has been told by Mr. Roski and Philip Anschutz, the other owner
of the Kings, that the Hollywood Park site is one of two leading sites, along
with the Convention Center in downtown Los Angeles, for the proposed new
arena.
Other retail and entertainment facilities may be included with development
of either the arena or stadium.
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COMPETITION
The Hollywood Park-Casino competes directly with card clubs in neighboring
cities, including two card clubs within approximately 12 miles of the
Inglewood property, as well as card clubs located on Native American
reservations. The Hollywood Park-Casino also faces competition from casinos in
Las Vegas and other gaming venues which offer more extensive forms of gaming.
Horse racing at Hollywood Park competes for patrons with a wide variety of
live sporting events and cultural activities and with other forms of gaming
activities. There are numerous professional and collegiate sporting events
available in southern California. The race track also competes with Las Vegas
casinos and other gaming venues. The state of California sponsors a lottery,
which Hollywood Park believes has had a negative impact on racing revenues.
Although no local race tracks operate live thoroughbred meets concurrently
with the Hollywood Park Race Track, Hollywood Park believes its operations
have been adversely impacted by the proliferation of additional racing
opportunities both in California and outside the state. Hollywood Park
believes that simulcast legislation has had a positive impact on Hollywood
Park's overall revenues, primarily as the result of a significant increase in
off-track and simulcast racing revenues, although on-track attendance and
pari-mutuel handle have declined.
Turf Paradise's primary competition is from local Indian Casinos with Las
Vegas-style gaming. Twenty of the twenty-one tribes in Arizona are either
already involved in gaming or in the planning stages. Currently, there are
eleven operating casinos with a combined total of approximately 3,500 slot
machines, and a total of 38 additional authorized gaming sites. There are
three functioning casinos within 60 miles of Turf Paradise; with the closest
approximately 28 miles away. Turf Paradise also competes with a state run
lottery, year round greyhound pari-mutuel racing and simulcasts from Prescott
Downs to the same off-track sites Turf Paradise sends its live races.
As a result of intense competition from riverboat gaming, Sunflower, which
operates the Woodlands Race Track, filed for reorganization under Chapter 11
of the Bankruptcy Code in May 1996. See "--Racing Operations--Sunflower
operating as the Woodlands."
EMPLOYEES
Hollywood Park employs approximately 2,075 full-time employees. The number
of seasonal employees varies by race meet due to differences in staffing needs
during live on-track racing as compared to simulcast racing. In 1995, the
number of seasonal employees ranged from approximately 400 to approximately
1,500. Presently, all Hollywood Park-Casino employees are non-union, with the
exception of the approximately 500 culinary employees working in the Hollywood
Park-Casino, who are represented by Hotel Employees & Restaurant Employees,
Local 11. Most race track seasonal employees are covered by collective
bargaining agreements, as are approximately 400 of the full-time employees.
Hollywood Park's collective bargaining agreement with Hotel Employees &
Restaurant Employees, local 11 covering the race track employees expired in
April 1996.
Turf Paradise has a permanent staff of approximately 150 and a non-union
seasonal staff that fluctuates between approximately 425 and 475. Sunflower
has a permanent staff of 41 and a non-union seasonal staff that fluctuates
between approximately 375 and 500.
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BUSINESS OF BOOMTOWN
Boomtown, Inc. ("Boomtown") owns and operates land-based, dockside and
riverboat gaming operations in Verdi, Nevada ("Boomtown Reno"), Biloxi,
Mississippi ("Boomtown Biloxi"), Harvey, Louisiana ("Boomtown New Orleans" or
"Boomtown Belle") and Las Vegas, Nevada ("Boomtown Las Vegas" or "Blue
Diamond"). Boomtown's properties offer hotel accommodations (at Boomtown Reno
and Boomtown Las Vegas) gaming and other entertainment amenities to primarily
middle income, value-oriented customers. Boomtown believes it distinguishes
itself from other casinos by its emphasis on the "old west" and its casual,
friendly atmosphere. At all of the Boomtown properties, Boomtown reinforces
this theme throughout the customers' visit with the use of western memorabilia
in its interior decor, country/western music and the western dress of its
employees. Boomtown believes its western theme and relaxed environment provide
for customer loyalty and a high rate of repeat business.
Boomtown's strategic plan is to continue to expand its existing projects at
Boomtown Reno, Boomtown Biloxi, and Boomtown New Orleans, and enter into
additional markets by replicating its "old west" theme. At its current sites,
Boomtown's goal is to expand its operations by adding more hotel rooms,
restaurants, meeting and retail space and other amenities. Boomtown seeks
generally at its locations to expand the non-gaming entertainment and
amenities offered at the casino sites in order to attract entire families to
the Boomtown casinos while also providing incentive for gaming customers to
increase the frequency and duration of their visits.
Boomtown believes that the Boomtown concept provides a strong basis for
expanding into other gaming jurisdictions. Boomtown actively seeks to expand
into jurisdictions that have legalized gambling or are anticipated to legalize
casino gaming. In this regard, Boomtown is currently seeking a riverboat
gaming license for a gaming operation on the Ohio River in Indiana as part of
a joint venture with Hilton Gaming (Switzerland County) Corporation.
The following table provides certain information relating to the gaming and
hotel room data at Boomtown's existing properties as of August 31, 1996:
<TABLE>
<CAPTION>
BOOMTOWN BOOMTOWN BOOMTOWN BOOMTOWN
RENO NEW ORLEANS BILOXI LAS VEGAS(1) TOTAL(1)((2)
-------- ----------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Casino Square Footage... 40,000 30,000 33,000 30,000 133,000
Slot Machines........... 1,433 865 985 1,100 4,383
Table Games............. 43 51 47 28 169
Hotel Rooms............. 122 0 0 300 422
</TABLE>
- --------
(1) On August 12, 1996, Boomtown entered into an agreement with the lessor of
the Blue Diamond resort and certain other parties pursuant to which, upon
consummation of the Merger, Boomtown will terminate its ongoing interest
in the Blue Diamond resort. See "Business of Boomtown--Boomtown Las
Vegas."
(2) Includes data for Boomtown Las Vegas.
BACKGROUND
Gaming in the United States. Until the mid-1980's, casino gaming was legal
in only Nevada and Atlantic City, New Jersey. Since that time, legalized
gaming has proliferated throughout the United States to include land-based
dockside and riverboat gaming fueled by the need for states and local
jurisdictions to generate revenues in the face of budget concerns, create jobs
for the community and promote economic development without increasing general
taxation. Gaming has expanded to include not only riverboat and dockside
gaming, but also state sponsored video lotteries, small stakes casino gaming
and full-scale casinos owned and operated on Native American land.
In 1986 the first significant move toward the expansion of legalized gaming
occurred with the authorization of a state operated video lottery in Montana.
Casino style gaming again expanded in 1987 when the United States Supreme
Court upheld casino gaming on Indian reservations. Subsequently the Indian
Gaming Regulatory Act of 1988 was issued regulating Indian gaming. In 1991
Mississippi became the first state to legalize casino gaming
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outside of Nevada and New Jersey, although restricting full scale casinos to
dockside riverboats along the Mississippi river. Since that time dockside,
riverboat or small stakes, land-based gaming has been legalized in at least
eight states (Colorado, Iowa, Illinois, Indiana, Louisiana, Mississippi,
Missouri and South Dakota). Video lottery gaming is now legal in at least five
states (Louisiana, Oregon, South Dakota, Rhode Island and Montana) and full-
scale Native American gaming is now legal in at least thirteen states
(Arizona, Connecticut, Iowa, Louisiana, Michigan, Minnesota, Mississippi,
Nebraska, New York, North Carolina, South Dakota, Washington and Wisconsin).
Several other jurisdictions in North America have considered legalizing gaming
or expanding permitted gaming that already exists in their area. However,
several referendums and legislation proposing gaming expansion have failed to
pass and other legislation has been stalled.
Boomtown was organized under the laws of the State of Delaware in June 1987.
Boomtown's headquarters' address is P.O. Box 399, Verdi, Nevada 89439-0399,
and its telephone number is (702) 345-8680.
THE BOOMTOWN CONCEPT AND MARKETING STRATEGY
Boomtown's strategy is to offer casino gaming and a broad range of amenities
in a casual, friendly western atmosphere targeting middle income, value-
oriented customers. The Boomtown concept includes the following:
"Old West" Theme. Interest in the "old west" and the history of the
United States during the 1800's has increased in recent years. Boomtown
believes that a major reason first time customers stop at Boomtown's sites
is their heavily themed appearance, with their flavor of the old west.
Boomtown enhances its "old west" flavor through the use of western
memorabilia in its interior decor, country/western music and the western
dress of its employees. Boomtown has heavily themed all its sites by
presenting the "old west" as experienced in each locale during the 1800's
including the area architecture, clothing, memorabilia, history, food and
entertainment.
Casual, Friendly Atmosphere. An integral part of the Boomtown concept is
to provide its customers with a casual, friendly atmosphere which
management believes distinguishes Boomtown from many large gaming
establishments. Important ingredients in accomplishing this objective, in
the view of management, have been to instill in its employees a sense of
pride in Boomtown and to nurture a sense of "family." Boomtown develops and
reinforces these feelings through continuous training, employee "town
meetings" and Boomtown sponsored recreation and entertainment activities.
The employees are taught through formal and informal training to practice
Boomtown slogan "catch the friendlies at Boomtown" and Boomtown
S.E.C.R.E.T. ("Serve Every Customer Right Every Time"). Boomtown regards
these concepts as critical ingredients of its employee and customer service
philosophy and uses these concepts at all its locations. Boomtown believes
that its friendly atmosphere instills customer loyalty and results in
repeat business.
Value-Oriented Middle Market Customer Base. Boomtown focuses on the
middle market by providing moderately priced, high value amenities,
including restaurants serving "all you can eat" buffet meals at an average
price of approximately $5, low cost entertainment and hotel room rates
which average $33. Boomtown uses similar pricing strategies for its
amenities in each of its new markets. As a result of its middle market
orientation and broad customer base, Boomtown generally experiences high
customer volume and relatively low per customer revenues. Currently,
approximately 78% of Boomtown's gaming revenues are derived from slot
machines, providing a stable base of cash flows. Boomtown does not
generally offer credit to its patrons.
Broad Array of Marketing Programs. During over 25 years of operations in
Reno, Boomtown has developed a broad array of marketing programs to
increase revenues and market share. In addition to billboards, print media,
radio and television, Boomtown has developed innovative charter flights
("FunFlight"), bus programs and a successful format for numerous special
events, including gaming and golf tournaments and other sporting events.
The bus and FunFlight programs are well suited to Boomtown's current
locations.
Boomtown's FunFlight program brings customers to Boomtown Reno from over
30 cities in the western United States and to Boomtown Biloxi from over 20
cities in the southeast. A computer data base
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is used to target and prioritize valued customers for repeat FunFlight
business. In fiscal 1995, the program brought in over 32,000 customers on
390 flights that provided approximately 15% of Boomtown Reno's gaming
revenue. Boomtown Reno's bus programs attracted approximately 243,000
customers on approximately 6,550 buses during fiscal 1995. Boomtown also
sponsors numerous special events such as golf and other sporting
tournaments, gaming tournaments and other special promotions, which are
targeted at premium gaming players and are often provided on a
complimentary basis.
BOOMTOWN RENO
Boomtown Reno has been operating for over a quarter century and is located
seven miles west of Reno on Interstate 80, the major highway connecting
Northern California and Reno. Boomtown Reno was the originator of Boomtown's
"old west" theme and has established a loyal customer base primarily drawn
from Interstate 80 traffic. Boomtown believes it distinguishes itself from
other casinos in the Reno area by its emphasis on the old west theme and by
promoting Boomtown's casual, friendly atmosphere. Boomtown Reno caters to
middle income customers and markets itself as Reno's only gaming and
entertainment property complete with amenities for the entire family. Boomtown
Reno currently employs approximately 1,100 employees.
Boomtown Reno offers its guests a 40,000-square foot casino, including 1,433
slot machines and 43 table games (including blackjack ("21"), multiaction 21,
Caribbean stud, royal match, let-it-ride, craps, roulette, poker and pai gow
poker) and two Keno Games, a 122-room hotel, a 16-acre truck stop with
approximately 200 parking spaces, a 203-space, full-service recreational
vehicle park, a service station, a mini-mart and other related amenities. In
addition, Boomtown Reno offers a 35,000-square foot family entertainment
center featuring a dynamic motion theater, an indoor 18-hole western-themed
miniature golf course, a restaurant and a replica of an 1800's indoor Ferris
Wheel. Boomtown believes that the entertainment center is the only facility
offering these attractions at a single site in Northern Nevada. In addition,
the family entertainment center helps distinguish Boomtown Reno from other
Reno casino hotels as a destination offering entertainment for the entire
family.
Boomtown Reno offers two full service/buffet combination restaurants which
served over 1.2 million meals in fiscal 1995, as well as a 140-seat steakhouse
and a 124-seat deli restaurant in the family entertainment center. Boomtown
Reno's facilities also include four bars for casino and restaurant patrons.
Boomtown Reno's food and beverage services and hotel accommodations are
moderately priced.
Boomtown Reno's 24-hour vehicle facilities include its truck stop, a service
station and a full service convenience store which operate 365 days-a-year.
The truck stop has the capacity to pump over 8 million gallons of fuel
annually and pumped approximately 5.9 million gallons in fiscal 1995 while
servicing approximately 250,000 trucks. Boomtown estimates that the service
station provided gasoline and related services to another 250,000 vehicles in
fiscal 1995.
Boomtown Reno's 203-space, full-service recreational vehicle park opened in
August 1989, and occupancy has increased from 23% for the 1990 fiscal year to
68% in 1995. Recreational vehicle park occupancy in Reno is heavily weighted
toward the summer months and averaged over 96% at Boomtown during the fourth
quarter of fiscal year 1995. Boomtown estimates its recreational vehicle park
generated nearly 100,000 visitors to its casino in fiscal 1995.
Reno Gaming Market. Reno's primary visitor attraction is gaming. The greater
Reno area accounts for substantially all casino gaming which occurs in Washoe
County, Nevada. Reno continues to promote itself as a major entertainment
destination center and remains the third largest gaming region in the United
States behind Las Vegas and Atlantic City. Reno is a popular resort area which
attracts tourists from throughout the country by offering gaming as well as
numerous other summer and winter recreational activities. Reno is located
approximately 50 miles from Lake Tahoe, another popular recreational area. The
continued popularity of Reno is evidenced in the increase in the number of
visitors traveling to Reno. According to the Reno/Lake Tahoe Convention and
Visitors Authority, over 4.5 million tourists visited Reno in 1994. Traffic on
Interstate 80 from the west increased from 7.8 million vehicles in 1987 to 8.7
million in 1994. Air passenger service to Reno's
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airport has also significantly expanded in recent years. According to the
Reno/Sparks Convention and Visitors Authority, the number of passengers flying
into Reno increased from 1.5 million in 1989 to 2.6 million in 1994.
Casino gaining has grown steadily in the greater Reno area over the past
decade and, in 1994, gaming revenues totaled $719 million. According to
statistics compiled by the State of Nevada, casino gaming revenues in Washoe
County increased between fiscal 1986 and fiscal 1994 at an average annual
compound growth rate of approximately 6% and is expected to grow as a result
of several recent events. During 1994 the Clarion Hotel Casino opened its
second hotel tower, adding 287 new rooms and additional casino areas. At a
final cost of $46 million, the National Bowling Stadium was completed and
opened during the first fiscal quarter of 1995. The facility will be the site
of major bowling tournaments hosted by the American Bowling Congress and the
Women's International Bowling Congress. In October 1995, Harrahs Reno
completed construction of a 442 room Hampton Inn hotel tower to complement its
existing hotel/casino facilities, bringing its total rooms to 1,007. In July
1995 Circus Circus and The Eldorado, through a joint venture, opened the $230
million Silver Legacy Hotel and Casino which includes 60,000 square feet of
gaming space, 1,700 rooms and a variety of entertainment amenities.
Additionally, other casino projects and expansions have been announced or are
in progress including the Peppermill Hotel Casino, Harrolds Club, the Clarion
Hotel Casino, John Asquaga's Nugget and the Sands Regency.
Competition. Boomtown Reno competes directly with casinos in the Reno
downtown area for its customers. However, since a substantial percentage of
Boomtown Reno customers stop at Boomtown Reno as they are driving to and from
other Reno area casinos Boomtown believes that Boomtown Reno's success is
favorably influenced by the success of other Reno casinos. Nevertheless,
Boomtown Reno's operations are highly dependent upon the customers coming to
and from Reno to gamble, and a decline in the Reno gaming market or loss of
gaming customers due to increased competition from other gaming areas could
have a material adverse effect on Boomtown's results of operations.
Future Expansion. Boomtown Reno's current plans include an expansion to add
approximately 200 additional hotel rooms, a restaurant, an entertainment
lounge, 10,000 square feet of meeting space, retail space, additional parking
and other amenities. The meeting space would allow Boomtown Reno to add
another market segment composed of small groups, meetings and conventions.
Boomtown Reno's hotel is currently capacity constrained, as occupancy is
currently over 96% during the summer months and is 100% on virtually all
weekends throughout the year. The Reno expansion project is expected to
commence shortly following the Merger.
Assuming completion of this expansion project, Boomtown will have used less
than 66 of the 569 acres it owns on both sides of Interstate 80. Boomtown's
long-term goals with respect to its Reno site is to continue phased expansion
of its gaming, hotel and other entertainment facilities in order to become a
major themed destination resort.
BOOMTOWN BILOXI
Boomtown Biloxi, a Mississippi Limited Partnership (the "Mississippi
Partnership") is majority owned and controlled by Boomtown and commenced
operations in July 1994 and occupies nine acres on Biloxi's historic back bay.
The dockside property consists of a land-based facility which houses all non-
gaming operating space and a 33,000-square foot casino constructed on a 400 x
110 foot barge permanently moored to the land-based building. Boomtown's "old
west" theme is the first of its kind in the Gulf Coast area, and management
believes the casual atmosphere and western theme distinguishes Boomtown Biloxi
from competing casinos. The casino offers 985 slot machines, 47 table games
(including blackjack, dice, roulette, caribbean stud, let it ride, pai gow
poker, poker and royal match) and other non-gaming amenities including a full
service buffet/menu service restaurant, a 40 seat deli-style restaurant, a
western dance hall/cabaret and a 20,000-square foot family entertainment
center. The family entertainment center, complete with a dynamic motion
theater, and the western theme distinguishes Boomtown Biloxi from other
casinos on the Mississippi Gulf Coast as a destination offering entertainment
for the entire family. Boomtown Biloxi currently employs approximately 835
employees.
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Boomtown Biloxi is located one-half mile from Interstate 110, the main
highway connecting Interstate 10 and the Gulf of Mexico. Interstate 10 is the
main thoroughfare connecting New Orleans, Louisiana and Mobile, Alabama.
According to the Mississippi Department of Transportation, over 8 million
vehicles travel past the Boomtown Biloxi site on Interstate 110 each year.
Auto accessibility to the site is superior when approaching from the north due
to its immediate proximity to the Interstate 110 spur from Interstate 10,
which provides the bulk of traffic to the Gulf Coast region. Boomtown Biloxi
is constructed in the back bay area of Biloxi and is the first casino visible
to auto traffic traveling south on Interstate 110.
Operating Structure. In October 1993, prior to beginning construction on the
facility, Boomtown entered into a 99-year lease with Raphael Skrmetta
("Skrmetta Senior") for the site located on the back bay in Biloxi. The lease
stipulates a fixed rent of $200,000 for the first 10 years of the lease plus 5
percent of gaming revenue over $25 million ("Percentage Rent"), and a base
rent based on gaming revenue with a minimum of $500,000 and a maximum of $2
million. At current revenue levels, the base rent is $2 million and is
expected to remain at this maximum level. If gaming revenue exceeds $50
million dollars, the percentage rent increases to 6% of all gaming revenue
over $50 million. For the first two years of the lease, Skrmetta Senior has
forgiven the "base rent" ($2 million per year) in exchange for a 15 percent
limited partnership interest in the Mississippi Partnership. In September
1995, Skrmetta Senior transferred all of his equity ownership in the property
to his son Eric Skrmetta ("Skrmetta").
Under the terms of the partnership agreement, quarterly distributions are
made to Skrmetta in relationship to his percentage interest in Boomtown
Biloxi. The distributions are based on his pro rata share of the cash flow
generated by the property after deducting normal capital expenditures and
total debt service. To date, there have been no partnership distributions.
Each of Boomtown and Skrmetta (or his transferees) has an option exercisable
after three years, but not later than approximately seven years, following
commencement of gaming operations to exchange Skrmetta's (or his transferees')
interest in the Mississippi Partnership for, at Skrmetta's option, cash or a
number of shares (or a combination thereof) of Boomtown's Common Stock equal
to the value of the 15% interest in the Mississippi Partnership. The value of
the Mississippi Partnership is equal to the difference between (A) six times
the sum of (i) Partnership net income for the last completed fiscal year
preceding the exchange, plus (ii) depreciation and amortization charges for
such year, plus (iii) the provision for any income taxes for accounting
purposes for such year, plus (iv) interest expense on long-term debt for such
fiscal year, and (B) the sum of all of the Mississippi Partnership's long term
debt (provided that debt in excess of $2.5 million which is incurred in
connection with the acquisition of property, plant and equipment is not
included until one year after the in-service date for the asset with which the
debt is associated).
Upon commencement of operations at Boomtown Biloxi, Boomtown entered into an
agreement with Hospitality Franchise Systems, Inc. ("HFS") whereby HFS
advanced $11 million in return for ownership of the Biloxi barge and shell
building. Also under this agreement, HFS was to receive 20% of the adjusted
earnings before interest, taxes, depreciation, and amortization ("EBITDA") as
defined in the related contract. HFS was also to provide marketing services to
the Boomtown Biloxi. The assets under this agreement, as well as the related
contractual arrangements, were subsequently transferred to National Gaming
Corporation, Inc. ("NGC"). Boomtown Biloxi leases the assets back from NGC
under a 25-year lease with a 25-year renewal option.
In November, 1995 Boomtown executed an agreement with NGC whereby $2.4
million was returned to NGC in return for a reduction of the EBITDA
distributions from 20% to 16%. Additionally for $100,000, Boomtown secured an
option to buy the barge from NGC as well as to buy out the EBITDA
participation at a cost approximating the original investment made by HFS less
the $2.4 million that was paid. The option terminates on March 31, 1997 but is
renewable for an additional two years for $100,000 a year.
Biloxi and the Mississippi Gaming Market. In 1990, the Mississippi State
Legislature passed the Mississippi Gaming Control Act, which provided for
legalized dockside gaming at the discretion of the 14 counties that either
border the Gulf Coast or the Mississippi River. As of September 16, 1996
dockside gaming was
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permissible in nine of the 14 eligible counties in the State and gaming
operations had commenced in Adams, Coahoma, Hancock, Harrison, Tunica, Warren
and Washington counties. An election to permit gaming in Desoto County (south
of Memphis, Tennessee) has been called for November 5, 1996. The law permits
unlimited stakes gaming on permanently moored vessels on a 24-hour basis and
does not restrict the percentage of space which may be utilized for gaming.
There are no limitations on the number of gaming licenses which may be issued
in Mississippi. State and local gaming taxes for gaming operations in Biloxi
approximate 12% of gaming revenues, plus certain fees.
The Mississippi Gulf Coast has a long tradition as a vacation destination.
Biloxi is within a one and one-half hour drive from New Orleans and a one hour
drive from Mobile, Alabama. With a local population of approximately 300,000,
the Gulf Coast area draws an estimated two million visitors annually primarily
from Louisiana, Mississippi, Alabama, Florida, Tennessee and Georgia. Direct
airline flight service is provided to Gulfport/Biloxi from Atlanta, Houston,
Memphis and Nashville. Excluding Louisiana, a 200-mile radius around Biloxi
encompasses more than 3.3 million people with an average age of 32. A 300-mile
radius, excluding Louisiana, contains more than 7.7 million people. Area
activities include beaches, golf, fishing, boating and water skiing.
With the advantage of the coastal beaches in the Gulf Coast area, the peak
season occurs during the summer months of June through August. The major
factor that limits patronage during the peak season is the limited number of
quality rooms on the coast. Numerous casino properties currently in existence
or under construction are building hotel rooms to support the region as an
entertainment destination resort.
Competition. Dockside gaming has grown rapidly on the Mississippi Gulf
Coast, increasing from no dockside casinos in March 1992 to 11 operating
casinos by August 19, 1996. Boomtown Biloxi's dockside casino operations has
numerous competitors, some of which have greater name recognition and
financial and marketing resources than Boomtown. Boomtown Biloxi also competes
with Louisiana casino operators. Additional casinos are planned for the Gulf
Coast and Louisiana areas, and although not all of the casinos planned are
likely to be developed, the Mississippi Gulf Coast gaming environment has
become increasingly competitive. The Biloxi and Gulf Coast markets are
therefore experiencing significant dilution and any additional casinos could
dilute per unit win even further. Boomtown is addressing this issue by
intensifying its marketing efforts to promote Boomtown Biloxi's western theme
and family entertainment center and believes it will be able to continue to
effectively compete in this market. However, there can be no assurance that
such measures will be successful in addressing the intense competition in this
area.
Management believes Boomtown Biloxi's biggest obstacle to aggressively
competing in the Biloxi/Gulf Coast area is its location. The property is
positioned on the back bay of Biloxi approximately one mile north of the
"strip" on coastal Highway 90. The majority of the casinos in the Biloxi and
Gulfport area are located on Highway 90. The property is difficult to reach
when approached from the south due to the lack of an offramp on Interstate 110
north, although Boomtown Biloxi is working with state and local officials
regarding plans and funding for such an offramp. However, the property is the
first casino visible to auto traffic when traveling south on Interstate 110.
Future Expansion. Boomtown's current plan is to expand Boomtown Biloxi by
adding a minimum of 200 and up to 500 hotel rooms adjacent to the casino as
well as additional parking facilities.
BOOMTOWN NEW ORLEANS
Boomtown New Orleans, a Louisiana limited partnership (the "Louisiana
Partnership") is majority owned and controlled by Boomtown and commenced
operations in August 1994 on a 50-acre site in Harvey, Louisiana,
approximately ten miles from the famous French Quarter of New Orleans. Gaming
operations are conducted from a 250-foot replica of a paddle-wheel riverboat,
offering 865 slot machines and 51 table games (including blackjack ("21"),
craps, poker, roulette, pai gow poker, let it ride and caribbean stud) in a
30,000-square foot casino. The land-based facility adjacent to the riverboat
dock is composed of a western-themed, 88,000-square
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foot facility. The first floor of the building opened December 1994 and offers
the patrons of the Boomtown Belle a deli-style restaurant, a 20,000-square
foot family entertainment center and a western saloon/dancehall. In addition,
the land-based facility provides for staging of the gaming vessel. This
facility is the only one of its type in the New Orleans area and it attracts
both families and adults by providing entertainment for non-gaming customers
while also providing incentive for gaming customers to increase the frequency
and duration of their visit. Boomtown believes it distinguishes itself from
other casinos in the New Orleans area by its location, emphasis on Boomtown's
old west theme and promoting its friendly, casual atmosphere. Boomtown New
Orleans currently employs approximately 950 employees.
Operating Structure. The Louisiana Partnership is 92.5% owned by Boomtown
and Skrmetta owns a 7.5% limited partnership interest. The Louisiana
Partnership agreement stipulates Boomtown make quarterly distributions to
Skrmetta based upon a pro rata share of cash flow generated by the property,
after deducting normal capital expenditures and total debt service.
Each of Boomtown and Skrmetta (or his transferee) has an option exercisable
after three years, but not later than approximately seven years, following
commencement of gaming operations of the Boomtown Belle to exchange Skrmetta's
(or his transferee's) interest in the Louisiana Partnership for, at Skrmetta's
option, cash or a number of shares (or a combination thereof) of Boomtown's
common stock equal to the value of Skrmetta's 7.5% interest in the Louisiana
Partnership. The value of the Louisiana Partnership is equal to the difference
between (A) six times the sum of (i) Partnership net income for the last
completed fiscal year preceding the exchange, plus (ii) depreciation and
amortization charges for such year, plus (iii) the provision for any income
taxes for accounting purposes for such year, plus (iv) interest expense on
long term debt for such fiscal year, less (B) the sum of all of the Louisiana
Partnership's long-term debt (provided that debt in excess of $2.5 million
which is incurred in connection with the acquisition of property, plant and
equipment is not included until one year after the in-service date for the
asset with which the debt is associated).
New Orleans and the Louisiana Gaming Market. Riverboat gaming was legalized
in Louisiana in July 1991 with the enactment of the Riverboat Economic
Development and Gaming Control Act. The law currently limits the number of
gaming licenses to 15 riverboat licenses of which 14 have already been
granted. One land-based casino is also permitted in New Orleans.
Louisiana law requires that all riverboats be built after January 1, 1992
and be of "period" construction, at least 150 feet in length and have a 600-
passenger minimum capacity. Twenty-four hour unlimited stakes gaming is
permitted on the riverboats which are required to cruise for not less than
three nor more than eight hours. Twelve riverboats operate in the state of
Louisiana in the areas of Shreveport, Lake Charles, New Orleans and Baton
Rouge. Four boats are currently operational in the New Orleans area (including
Boomtown's riverboat). The annual license fee to conduct gaming activities on
a riverboat in Louisiana is $50,000 for the first year of operations and
$100,000 per year thereafter. An additional fee of 18.5% of net gaming
proceeds is charged by the state, and, under an alternate fee structure, a
local municipality charges a fee of 6% of net gaming proceeds.
In addition to the riverboat casinos, a single, large-scale land-based
casino to be operated by Harrah's Jazz was approved for the City of New
Orleans. A temporary facility was constructed in New Orleans, and the casino
began operations in 1995. After almost 7 months of operations, Harrahs Jazz
was forced into Chapter 11 bankruptcy on November 22, 1995 due to numerous
occurrences including disappointing gaming revenues. Harrah's is currently in
negotiations with the state of Louisiana and attempting to reorganize and
commence operations.
The New Orleans metropolitan area has a local resident population of over
1.3 million people and attracts over 9 million tourist annually. The "West
Bank," which is located in Jefferson Parish, and is the site of Boomtown New
Orleans, has more than 250,000 local residents.
A large majority of the Boomtown Belle customers are local residents of the
West Bank. These customers are primarily blue-collar, working class and
suburban/rural. Boomtown believes that these customers are attracted
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by Boomtown's value-oriented, middle market philosophy and the related western
atmosphere. Studies have indicated that these customers are local to the West
Bank and do not like to travel into the downtown New Orleans urban area.
The State of Louisiana recently adopted a statute pursuant to which voter
referendums on the continuation of gaming will be held locally where gaming
operations are conducted. The vote will take place on November 5, 1996. While
Boomtown has no reason at this time to believe that the voters of the parish
where Boomtown's Louisiana riverboat operations are located will vote against
riverboat gaming, in the event that they were to do so, Boomtown would have to
discontinue its riverboat gaming operation in that parish upon the expiration
of its license in 1999, which would have a material adverse effect on Boomtown
and, following the Merger, on the combined company.
Competition. Boomtown New Orleans currently competes with other riverboat
casinos in Louisiana and dockside gaming casinos in Mississippi, some of which
have greater name recognition and greater financial and marketing resources
than Boomtown. Boomtown believes that Boomtown New Orleans will face
additional competition from a land-based casino in the City of New Orleans if
it again becomes operational. Boomtown believes that its riverboat operation
competes primarily on the basis of the riverboat's location and overall
atmosphere. Current Louisiana gaming legislation authorizes a total of 15
riverboat casino licenses statewide, of which 14 have been granted. Boomtown
believes that the local residents of the West Bank who frequent the Boomtown
Belle are loyal to the West Bank and do not like to travel into the downtown
New Orleans urban area. If new casinos draw significant numbers of customers
from the West Bank, however, or the Boomtown Belle's customers do travel to
other casinos, customer counts and revenues of the Boomtown Belle could be
adversely affected.
Future Expansion. The Boomtown Belle's current plan is to complete an
expansion of its land-based facility to include a 350 seat full service buffet
and a 150 seat specialty, fine dining restaurant to complement the
entertainment package offered. The Louisiana expansion project is expected to
commence shortly following the Merger.
BOOMTOWN LAS VEGAS
Boomtown Las Vegas commenced operations in May 1994 on a 56-acre site at the
interchange of Blue Diamond Road and Interstate 15, the principal thoroughfare
connecting Southern California to Las Vegas. The property is heavily themed as
an old mining town, as reflected in the outside facade and the interior decor.
Boomtown Las Vegas includes a 30,000-square foot casino with 1,100 slot
machines and 28 gaming tables, 300 hotel rooms, a 460-space full-service
recreational vehicle park, two restaurants, an entertainment lounge, and a
replica of an old mine where customers can pan for real gold. Boomtown Las
Vegas currently employs approximately 1,000 employees.
Prior to opening, Boomtown owned a 50% interest in Blue Diamond Hotel and
Casino, Inc. ("Blue Diamond"), the operating company leasing the hotel/casino
facility and the land (the "Resort"), and was primarily responsible for the
development and management of the Resort. In June 1994, Boomtown exercised its
right to acquire the remaining 50% of Blue Diamond from Edward P. Roski, Jr.
("Roski") in exchange for 714,286 shares of Boomtown's Common Stock. Roski is
a member of the Board of Directors of Boomtown and an affiliate of IVAC, a
California general partnership ("IVAC"), which owns the land and building
leased by Boomtown Las Vegas for the Resort. Boomtown has loaned IVAC
$27.3 million (the "IVAC Loans") which was used to help construct the Resort.
The IVAC Loans are secured by separate deeds of trust on the Resort, which
deeds of trusts are subordinate to separate deeds of trust securing Blue
Diamond and Boomtown obligations in connection with the Indenture (as defined
under "Boomtown Management's Discussion of Financial Condition and Results of
Operations"). Boomtown receives interest income of $2.7 million annually from
IVAC as a result of these loans. In turn, Blue Diamond pays rent to IVAC in
the amount of $5.4 million annually to lease the facility.
Blue Diamond further has the right to purchase the Resort from IVAC in
accordance with the terms of an option which expires in November 1996. On
August 12, 1996, Boomtown, Blue Diamond, Hollywood Park,
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Roski, IVAC and Majestic Realty entered into the Blue Diamond Swap Agreement
(the "Swap Agreement") pursuant to which the parties agreed that, immediately
following consummation of the Merger, and contingent upon the closing of the
Merger, Boomtown and Blue Diamond (or any transferee thereof as set forth in
the Swap Agreement) would exchange their entire interest in the Resort
(including the IVAC Loans which will be transferred to IVAC and, as a result,
will no longer be owed to or collectible by Boomtown), and effectively
transfer all interest in the Resort to Roski, in exchange for a $5.0 million
unsecured promissory note (the "First Note") and an unsecured promissory note
(the "Second Note") valued at approximately $3.5 million and assumption by
Roski, IVAC or an affiliate of certain liabilities (the "Blue Diamond Swap").
The First Note has an interest rate equal to the prime rate plus one and a one
half percent (1.5%) per annum and provides for annual principal payments of $1
million plus accrued interest and maturing on the date that is five years
after the closing. The Second Note has an interest rate equal to the prime
rate plus one-half percent (0.5%) per annum and provides for a payment of all
principal plus accrued interest on the date that is three (3) years after the
closing.
In exchange for its interest in the Resort, Boomtown will receive notes
payable to Boomtown with an approximate value totaling $8.5 million, an
estimated cash payment of $2.1 million, release from lease obligations under
the Resort lease, Roski's assumption of certain liabilities and note
obligations totaling approximately $3.8 million and the ongoing expenses of
the Resort. Additionally, Roski will assume all operating leases including any
residual balances due under such leases. The Swap Agreement requires approvals
from applicable gaming authorities and Boomtown intends to seek the consent of
the holders of a majority of the outstanding principal amount on the First
Mortgage Notes. Boomtown will incur an after-tax loss of $35.7 million as a
result of the Blue Diamond Swap.
In accordance with the terms of the Swap Agreement, with certain exceptions
set forth in the Swap Agreement, Boomtown will continue to operate the
property until consummation of the Merger. Boomtown and Blue Diamond will be
responsible for the liabilities of the Resort accruing prior to the Blue
Diamond Swap and Roski will be responsible for the liabilities of the Resort
accruing subsequent to the Blue Diamond Swap. In addition, Roski will resign
from Boomtown's Board of Directors, effective as of the closing of the Blue
Diamond Swap. If the Blue Diamond Swap were not consummated for any reason,
Boomtown would continue to operate the property through the expiration of the
lease term in July 1999, and the IVAC Notes would be required to be repaid to
Boomtown at such time.
The terms of the Swap Agreement described above were determined in an arms
length negotiation between Timothy J. Parrott, the Chief Executive Officer of
Boomtown, upon direction from the Boomtown Board, and Mr. Roski. In light of
the losses being sustained by the Blue Diamond project, the Boomtown Board had
determined that a transaction which would provide Boomtown at least the
present value of Blue Diamond's net assets (estimated to be approximately
$14.5 million), as well as relief from ongoing liabilities relating to Blue
Diamond, would be in the best interests of the Boomtown stockholders since it
would allow Boomtown to pursue potentially more profitable opportunities. The
opinions of Oppenheimer and Sutro described under "The Merger--Opinions of
Financial Advisors" did not include opinions relating to the Blue Diamond
Swap.
On August 12, 1996, Hollywood Park and Roski further entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") pursuant to which
Hollywood Park will, concurrently with the Blue Diamond Swap, purchase the
714,386 shares of Boomtown Common Stock held by Roski (the "Roski Stock")
following its conversion into Hollywood Park Common Stock in the Merger, for a
purchase price of approximately $3.5 million paid for by an unsecured
promissory note having an interest rate equal to the prime rate plus one
percent (1%) per annum and providing for four equal annual principal payments
plus accrued interest and maturing on the date that is four years after the
closing.
ADDITIONAL EXPANSION OPPORTUNITIES; POTENTIAL INDIANA PROJECT
Boomtown actively seeks to expand its operations into jurisdictions that
have legalized casino gaming. Boomtown believes that the Boomtown concept,
coupled with its experienced management team, provides a strong basis for
expanding into other gaming jurisdictions. Boomtown evaluates new sites
primarily on the basis of four criteria: (i) proximity to interstate highways
or major thoroughfares, (ii) ease of access, (iii) proximity to
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major population or tourist centers and (iv) amount of space for themed
casino/entertainment, parking and expansion.
In December 1995, Boomtown through its wholly-owned subsidiary, Boomtown
Hoosier, Inc., a Nevada corporation ("Boomtown Hoosier"), along with Hilton
Gaming (Switzerland County) Corporation ("Hilton Switzerland"), formed a joint
venture for the purpose of acquiring Pinnacle Gaming Development Corp., a
Colorado corporation ("Pinnacle"), which has a pending application for one of
two remaining riverboat gaming licenses to be awarded for operations on the
Ohio River in Indiana. The application, as amended on December 27, 1995, is
for a license in Switzerland County, Indiana which is located approximately 35
miles south of Cincinnati, Ohio. The Boomtown-Hilton (the "Indiana Project")
is planned to include a cruising riverboat with 38,000 square feet of casino
space and supporting land-based facilities that will incorporate a "western
river-town" themed entertainment complex with up to 300 hotel rooms, a 700
seat multi-purpose special events room and several restaurants and retail
operation. Pinnacle further owns options to lease and purchase real property
in Switzerland County where the land-based facilities will be constructed.
Pursuant to the terms of the agreement relating to the Indiana Project,
Hilton Switzerland and Boomtown Hoosier have formed Indiana Ventures LLC, a
Nevada limited liability company (the "JV Entity") for the purpose of
acquiring Pinnacle and otherwise pursuing the Indiana Project. Hilton
Switzerland and Boomtown Hoosier each own 48.5% (the "Original Percentages")
of the JV Entity, with the remaining interests held by a non-voting minority
partner. So long as Hilton Switzerland and Boomtown Hoosier hold the Original
Percentages (which is dependent upon each such party meeting its share of the
capital requirements of the JV Entity), Hilton Switzerland and Boomtown
Hoosier will share management control of the project. In the event the parties
no longer hold the Original Percentages, the party with the larger interest
will have management control of the project, with certain minority
projections.
In December 1995, Switzerland County Development Corporation, a Nevada
corporation and a wholly-owned subsidiary of JV Entity, agreed to acquire
Pinnacle for an aggregate purchase price of $4,331,000, $100,000 of which has
been paid, with the remainder to be paid upon the achievement of certain
milestones, including Pinnacle receiving a certificate of suitability from the
Indiana Gaming Commission pursuant to its pending application, the ground
breaking of the Indiana Project, and the commencement of operations. The JV
Entity has the right to terminate the agreement for the purchase of Pinnacle
at any time subject to payment of certain termination fees of up to $400,000
depending upon when the termination notice is delivered. In December 1995, the
JV Entity further acquired options to lease additional land in Switzerland
County which would provide the site which Boomtown intends to utilize for
construction of the land-based facilities for the Indiana Project. There is no
assurance that the JV Entity will receive the necessary license and other
governmental approvals and environmental permits to proceed with the Indiana
Project. See "Risk Factors--Dependence on Expansion."
EMPLOYEES
As of December 1, 1995, Boomtown had a total of 3,840 employees, of whom
1,488 were in gaming operations, 132 were in hotel operations, 922 were in
food and beverage, 34 were in vehicle services, 80 were in the family
entertainment centers and 1,184 were employed in other operations. Boomtown
does not directly employ the captains, crew and maintenance personnel who
operate and maintain the Boomtown Belle Riverboat. None of Boomtown's
employees are represented by a labor union. Management considers its labor
relations to be good.
PROPERTIES
Boomtown Reno owns 569 acres of land at the Boomtown Reno location. Boomtown
also owns all of the facilities located at Boomtown Reno, including the
casino, hotel, fun center, truck stop and recreational vehicle park. Current
operations are located on approximately 61 acres. Of the remaining acreage,
approximately 60 acres are zoned commercial and 444 acres are zoned
noncommercial. Boomtown Reno also owns the related water rights. In addition,
Boomtown Reno maintains and operates its own sewer treatment facility at the
site.
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The Boomtown Reno operating facility includes 40,000 square feet of casino
space and a 3,000 square foot family entertainment center. Additionally, the
property includes a 16-acre truck stop with approximately 200 parking spaces,
a 203-space, full-service recreational park, a service station, a mini-mart
and other related amenities.
Boomtown leases all buildings and ground at its Boomtown Las Vegas property
site. On June 30, 1993, Blue Diamond entered into a lease with IVAC, a
California general partnership, for the Boomtown Las Vegas building and
related land of 56 acres. The lease is for an initial term of five years with
renewal options in certain very limited circumstances. Subject to the terms of
the lease, Blue Diamond has an option to acquire the leased property for a
six-month period, commencing May 20, 1996. Boomtown and IVAC, among other
parties, have entered into the Swap Agreement to effect the Blue Diamond Swap,
pursuant to which the lease would terminate and Boomtown would exchange its
entire interest in the Boomtown Las Vegas resort for certain promissory notes
and an assumption of certain liabilities by IVAC. See "--Boomtown Las Vegas"
for a further description of the Las Vegas Property.
In November 1993, the Louisiana Partnership completed the purchase of
approximately 50 acres located in Jefferson Parish, 10 miles from the French
Quarter of New Orleans, Louisiana, for approximately $3 million. This property
is used for land-based amenities related to its riverboat casino at Boomtown
New Orleans. At this property, Boomtown New Orleans owns all facilities,
including the riverboat restaurants, bars, fun center, and entertainment
facility. See "--Boomtown New Orleans" for a further description of the
Boomtown New Orleans property.
During November 1993, the Mississippi Partnership entered into a 99-year
lease of an 8.9 acre site in Biloxi, Mississippi. This land is being used to
operate the land-based amenities and parking for its dockside casino at
Boomtown Biloxi. The Mississippi Partnership has also entered into several
leases from 10 to 25 years on additional land being used for additional
parking. Upon commencement of operations on July 18, 1994, the Mississippi
Partnership sold its casino barge and building to Hospitality Franchise
Systems, Inc. ("HFS") for $11 million and immediately leased them back for 25
years for a rental amount based on adjusted earnings before interest, taxes,
depreciation and amortization, as defined in the relevant contract. HFS
subsequently transferred the contract to NGC. All land-based facilities,
including restaurants, bars, fun center, and entertainment facility are owed
by Boomtown Biloxi. Boomtown Biloxi also leases submerged tidelands at the
casino site from the State of Mississippi. The term of the lease is ten years
with a five-year option to renew. Annual rent is set forth in the lease.
LEGAL MATTERS
From time to time, Boomtown is engaged in legal proceedings in the course of
its business, including the following matters:
In September 1995, Boomtown was named a defendant in a class action suit in
the United States District Court in New Jersey in which the plaintiffs have
alleged that numerous companies operating casinos in the United States have
conspired to exclude card counters from their establishments. (Hyland v.
Griffin Investigations, et al.). A class has not yet been certified in the
action. Boomtown disputes the claims made in this matter and intends to
contest them vigorously. Motions to dismiss are in the process of being filed
by Boomtown and other defendants.
A demand for arbitration has been filed by Eric Skrmetta with the American
Arbitration Association, alleging that Boomtown breached Louisiana Partnership
Agreement and its fiduciary duty to limited partners resulting in less than
anticipated distributions to Mr. Skrmetta. Boomtown disputes this claim and
intends to contest it vigorously.
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GOVERNMENT REGULATION AND LICENSING
The combined company's gaming establishments and horse racing facilities
will be subject to extensive state and local regulation. The following
summarizes certain material features of the regulatory framework in the
jurisdictions in which the combined company will have gaming or racing
operations.
CALIFORNIA
California Card Club Operations. Operation of California card clubs such as
the Hollywood Park-Casino and Crystal Park is governed by the California
Gaming Registration Act (the "CGRA") and is subject to the oversight of the
California Attorney General. Under the CGRA, a California card club may only
offer certain forms of card games, including Poker, Pai Gow, and California
Blackjack. A card club may not offer many of the card games and other games of
chance permitted in Nevada and other jurisdictions where Boomtown conducts
business.
Although the California Attorney General takes the position that, under the
CGRA, only individuals, partnerships or privately-held companies (as opposed
to publicly-traded companies such as Hollywood Park) are eligible to operate
card clubs, the 1995 enactment of California Senate Bill 100 ("SB-100") also
permits a publicly-owned racing association to own and operate a card club if
it also owns and operates a race track on the same premises. The provisions of
SB-100 expire on January 1, 1999, unless the California legislature enacts a
comprehensive scheme for the regulation of gaming under the jurisdiction of a
gaming control commission. There can be no assurance that such legislation
will be adopted by such date or that the legislature will extend the deadline.
See "Risk Factors--Governmental Regulation." SB-100 also imposes a moratorium
through 1998 on public votes or referendums to approve the enactment of any
city ordinance allowing additional card clubs in California.
Pursuant to the CGRA, the operator of a card club, and its officers,
directors and certain stockholders are required to be registered by the
Attorney General and licensed by the municipality in which it is located. In
September 1995, the Attorney General granted Hollywood Park a provisional
registration under SB-100 to operate the Hollywood Park-Casino. A permanent
registration will not be granted until the California Department of Justice
completes its review of the applications of Hollywood Park and its corporate
officers and directors. The Attorney General has broad discretion to deny a
gaming registration and may impose reasonably necessary conditions upon the
granting of a gaming registration. Grounds for denial include felony
convictions, criminal acts, convictions involving dishonesty, illegal gambling
activities, and false statements on a gaming application. Such grounds also
generally include having a financial interest in a business or organization
that engages in gaming activities that are illegal under California law;
however, this provision contains an exception for publicly traded racing
associations such as Hollywood Park. In addition, the Attorney General
possesses broad authority to suspend or revoke a gaming registration on any of
the foregoing grounds, as well as for violation of any federal, state or local
gambling law, failure to take reasonable steps to prevent dishonest acts or
illegal activities on the premises of the card club, failure to cooperate with
the Attorney General in its oversight of the card club and failure to comply
with any condition of the registration.
Hollywood Park's operations at the Hollywood Park-Casino are also regulated
by a City of Inglewood ordinance (the "Inglewood Ordinance"). The Inglewood
Ordinance provides for a single card club located on the premises of the
Hollywood Park Race Track and requires Hollywood Park, as the operator of the
Hollywood Park-Casino, to be licensed by the City and to obtain a card club
operations certificate. The Inglewood City Council has approved Hollywood
Park's application for a gaming license. Hollywood Park's initial city gaming
license will be valid for five years unless revoked, suspended or surrendered,
and is renewable annually thereafter.
In addition to Hollywood Park, the Inglewood Ordinance also requires all
employees, each beneficial owner of at least 10% of the Hollywood Park Common
Stock, and certain key employees of Hollywood Park to have either a permit or
a valid registration from the City of Inglewood. The license to operate the
card club may be
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suspended or revoked if such a stockholder or employee fails to obtain a
permit. Without the prior consent of the City of Inglewood, a 10% stockholder
may not transfer or sell its Hollywood Park shares to any person who is, or by
reason of such transaction would become, a 10% stockholder. These licensing
requirements and transfer restrictions apply to all 10% stockholders of
Hollywood Park, and no waiver from such requirements or restrictions are
provided for institutional or other investors who purchase for investment
purposes only.
The City of Compton has granted the operator of Crystal Park all municipal
gaming licenses necessary for operation of Crystal Park, and the operator has
received a provisional registration from the California Department of Justice.
Racing Operations. The California Horse Racing Board ("CHRB") has
jurisdiction and supervision over all horse race meets in the State of
California. Licenses granted by the CHRB must be obtained annually by
Hollywood Park in order to conduct both the Spring/Summer and Autumn Meeting
race meets. The CHRB has the authority, when granting any license, to vary the
number of weeks allocated to any applicant and the time of year in which such
allocation falls. The CHRB may, at its discretion, refuse to issue a license
to a race track operator such as Hollywood Park that has a financial interest
in another licensed race track operation or in the conduct of horse racing
meets by any other person at any other race track in California. Although no
future assurance can be given, Hollywood Park has applied for and received a
license to conduct thoroughbred horse race meets every year since 1938, except
for 1942 and 1943 due to wartime activities.
Regulation of New Projects. Hollywood Park's contemplated expansion projects
at the Inglewood property, such as the Hollywood Park Stadium and the
Hollywood Park Arena, are subject to approval and regulation by the City of
Inglewood. The Inglewood Planning Commission has approved the development of a
football stadium at Hollywood Park's Inglewood property and has certified an
environmental impact report for the Hollywood Park Stadium. A lawsuit was
filed in Los Angeles Superior Court against the City of Inglewood challenging
the stadium approval alleging that the City failed to comply with requirements
of the California Environmental Quality Act. Hollywood Park has been named as
the real party in interest in such lawsuit. The Superior Court has entered a
judgment in favor of the City and Hollywood Park. While the plaintiff may
appeal the decision, Hollywood Park believes that the decision of the Superior
Court is correct. See "Business of Hollywood Park--Expansion Plans."
NEVADA
The ownership and operation of casino gaming facilities in Nevada are
subject to: the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and various local regulations.
Boomtown's 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"), Washoe County and the Clark
County Liquor and Gaming Licensing Board ("CCLGLB"). The Nevada Commission,
the Nevada Board, Washoe County and the CCLGLB are collectively referred to as
the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedure of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective control over the
financial practice of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenue, providing reliable recordkeeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating
and fraudulent practices; and (v) providing a source of state and local
revenues though taxation and licensing fees. Changes in such laws, regulations
and procedures could have an adverse effect on Boomtown's gaming operation.
Boomtown's subsidiaries which operate Boomtown Reno and Boomtown Las Vegas
(the "Operating Subsidiaries") are required to be licensed by the Nevada
Gaming Authorities. The gaming licenses require the periodic payment of fees
and taxes and are not transferable. Boomtown is presently registered by the
Nevada
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Commission as a publicly traded corporation ("Registered Corporation") and as
such, it is required periodically to submit detailed financial and operating
reports to the Nevada Commission and furnish any other information which the
Nevada Commission may require. After the Merger (which is subject to prior
approval by the Nevada Gaming Authorities), Hollywood Park will be registered
with the Nevada Commission as a Registered Corporation and will be subject to
all gaming laws and requirements applicable to Registered Corporations. No
person may become a stockholder of, or receive any percentage of profits from,
the operating subsidiaries without first obtaining licenses and approvals from
the Nevada Gaming Authorities. Boomtown and its operating subsidiaries have
obtained from the Nevada Gaming Authorities the various registration,
approval, permits and licenses required in order to engage in gaming
activities in Nevada. Hollywood Park has applied for registration with the
Nevada Commission as a Registered Corporation. The application by Hollywood
Park must be favorably acted upon by the Nevada Commission in order for the
Merger to be consummated.
The Merger, the Blue Diamond Swap and related transactions must be approved
by the Nevada Commission upon the recommendation of the Nevada Board. If the
Merger and related transactions are approved, Hollywood Park will become a
Registered Corporation and will be found suitable to own all of the stock of
Boomtown. Upon approval of the Merger, Boomtown will be registered by the
Nevada Commission as an intermediary company owning the stock of the Operating
Subsidiaries. The following regulatory requirements currently apply to
Boomtown and its officers, directors and stockholders, and the Operating
Subsidiaries, and will apply to Hollywood Park and its officers, directors and
stockholders, Boomtown and the Operating Subsidiaries upon the receipt of all
necessary approvals from the Nevada Gaming Authorities in connection with
their applications for registration or licensing, as applicable, in connection
with the Merger. There can be no assurance that the necessary registrations,
findings of suitability, licenses and approvals for the Blue Diamond Swap, the
Merger and related transactions will be obtained, or that they will be
obtained on a timely basis.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, a Registered
Corporation or its operating subsidiaries, in order to determine whether such
individual is suitable or should be licensed as a business associate of a
gaming licensee. Officers, directors and certain key employees of the
operating subsidiaries must file applications with the Nevada Gaming
Authorities and may be required to be licensed or found suitable by the Nevada
Gaming Authorities. Officers, directors and key employees of a Registered
Corporation who are actively and directly involved in gaming activities of the
operating subsidiaries may be required to be licensed or found suitable by the
Nevada Gaming Authorities. The executive officers and certain directors of
Hollywood Park who will be directly involved in the business of the operating
subsidiaries after the Merger have applied for the licenses, findings of
suitability, or approvals, as appropriate, from the Nevada Gaming Authorities
and it is expected that such applications will be addressed at the time
Hollywood Park's application for registration as a Registered Corporation is
acted upon. None of Hollywood Park's officers or directors have previously
been licensed or otherwise found suitable or approved by the Nevada Gaming
Authorities. The Nevada Gaming Authorities may deny an application for
licensing for any cause which they deem reasonable. A finding of suitability
is comparable to licensing, and both require submission of detailed personal
and financial information followed by a thorough investigation. The applicant
for licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensee positions must be reported to the Nevada
Gaming Authorities and in addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue to have a
relationship with a Registered Corporation or its operating subsidiaries, the
companies involved would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Registered Corporation or the
operating subsidiaries to terminate the employment of any person who refuses
to file appropriate application. Determinations of suitability and questions
pertaining to licensing are not subject to judicial review in Nevada.
A Registered Corporation and its operating subsidiaries are required to
submit detailed financial and operating reports to the Nevada Commission.
Substantially all material loans, leases, sales of securities and
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similar financing transactions by the operating subsidiaries must be reported
to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by either of the
operating subsidiaries, the gaming licenses they hold could be limited,
conditioned, suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, the operating subsidiary,
the Registered Corporation, and the persons involved could be subject to
substantial fines for each separate violation of the Nevada Act, at the
discretion of the Nevada Commission. Further, a supervisor could be appointed
by the Nevada Commission to operate the gaming properties and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for the reasonable rental value of the gaming properties) could be forfeited
to the State of Nevada. Limitation, conditioning or suspension of any gaming
license or the appointment of a supervisor could (and revocation of any gaming
license would) materially adversely affect the operating subsidiaries and
their results of operation.
Any beneficial holder of a Registered Corporation's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and have its suitability as a beneficial holder
of the Registered Corporation's voting securities determined, if the Nevada
Commission has reason to believe that such ownership would otherwise be
inconsistent with the declared policies of the State of Nevada. The applicant
must pay all costs of investigation incurred by the Nevada Gaming Authorities
in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of a Registered
Corporation's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of
a Registered Corporation's voting securities apply to the Nevada Commission
for a finding of suitability within thirty days after the Chairman of the
Nevada Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act,
which acquires more than 10%, but not more than 15%, of a Registered
Corporation's voting securities may apply to the Nevada Commission for a
waiver of such finding of suitability if such institutional investor holds the
joint 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 Registered Corporation, any change in the Registered
Corporation's charter, bylaws, management, policies or operations or any of
its gaming affiliates, or any other action which the Nevada Commission finds
to be inconsistent with holding the Registered Corporation's voting securities
for investment purposes only. Activities which 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.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the common
stock of a Registered Corporation beyond such period of time as may be
prescribed by the Nevada Commission may be guilty or a criminal offense. A
Registered Corporation 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 the Registered Corporation or the operating subsidiaries,
the Registered Corporation (i) pays that person any dividend or interest upon
voting securities of said corporation, (ii) allows that person to exercise;
directly or indirectly, a voting right conferred through securities held by
that person, (iii) pays remuneration in
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any form to that person for services rendered or otherwise, or (iv) fails to
pursue all lawful efforts to require such unsuitable person to relinquish his
voting securities for cash at fair market value. Additionally, the CCLGLB has
taken the position that it has the authority to approve all persons owning or
controlling the stock of any corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, 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) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
A Registered Corporation is required to maintain a current stock ledger in
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 holder unsuitable. A Registered Corporation is also
required to render maximum assistance in determining the identity of the
beneficial owner. The Nevada Commission has the power to require a Registered
Corporation's stock certificates to bear a legend indicating that the
securities are subject to the Nevada Act.
A Registered Corporation may not make a public offering of its securities
without the prior approval of the Nevada Commission if the securities or the
proceeds therefrom are intended to be used to construct, acquire or finance
gaming facilities in Nevada, or to retire or extend obligations incurred for
such purposes. Such approval, if given, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities. Any representation to the contrary is unlawful.
Changes in control of a Registered Corporation through merger,
consolidation, stock or asset acquisitions, management or consulting
agreements, or any act or conduct by a person whereby such person obtains
control of a Registered Corporation, may not occur without the prior approval
of the Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and Nevada Commission in a variety
of stringent standards prior to assuming control of such corporation. The
Nevada Commission may also require controlling stockholders, officers,
directors and other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and licensed as
part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees and Registered Corporations that are
affiliated with those licensees, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further 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 are, in certain circumstances, required from the
Nevada Commission before a Registered Corporation can make exceptional
repurchases of voting securities above the current market price thereof and
before a corporate acquisition opposed by management can be consummated. The
Nevada Act also requires prior approval of a plan of recapitalization proposed
by a Registered Corporation's Board of Directors in response to a tender offer
made directly to the corporation's stockholders for the purposes of acquiring
control of the corporation.
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License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to
the State of Nevada.
Any person who is licensed, registered, required to be registered, or is
under common control with such persons (collectively, "Licensees"), and who
proposes to become involved in a gaming venture outside of Nevada, is required
to deposit with the Nevada Board, and thereafter maintain, a revolving fund in
the amount of $10,000 to pay the expenses of the Nevada Board's investigation
of their participation in such foreign gaming. The revolving fund is subject
to increase or decrease in the discretion of the Nevada Commission.
Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. A Licensee is also subject to
disciplinary action by the Nevada Commission if it knowingly violates any laws
of the foreign jurisdiction 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 are harmful to the State of Nevada or its ability to collect
gaming taxes and fees, or employs a person in the foreign operation who has
been denied a license or finding of suitability in Nevada on the ground of
personal unsuitability.
MISSISSIPPI
The ownership and operation of casino facilities in Mississippi are subject
to extensive state and local regulation. Regulation is primarily effected
through the licensing and regulatory control of the Mississippi Gaming
Commission and the Mississippi State Tax Commission (the "Mississippi Gaming
Authorities").
The Mississippi Gaming Control Act (the "Mississippi Act"), which legalized
dockside casinos in Mississippi, was enacted on June 29, 1990. Although not
identical, the Mississippi Act is similar to the Nevada Gaming Control Act.
Effective October 29, 1991, the Mississippi Gaming Commission adopted
regulations which are also similar in many respects to the Nevada gaming
regulations.
The Merger will require the prior approval of the Mississippi Gaming
Commission as an acquisition of control of Boomtown by Hollywood Park pursuant
to the Mississippi Gaming Commission's regulations. Hollywood Park has applied
to the Mississippi Gaming Commission for an approval of the Merger as an
acquisition of control. The issuance of the securities offered by Hollywood
Park to Boomtown stockholders will require the prior approval of the
Mississippi Gaming Commission either as a transaction involving the
acquisition of control of Boomtown by Hollywood Park or as a public offering
by Hollywood Park. The Mississippi Gaming Commission staff has indicated that
certain executive officers and directors of Hollywood Park will be required to
be found suitable by the Commission in connection with the Merger. These
persons have filed applications for findings of suitability.
Hollywood Park will be required to register with and be investigated by the
Mississippi Gaming Commission as a publicly traded holding company of Boomtown
Biloxi, and Boomtown will be required to deregister as a publicly traded
holding company and register as a holding company of Boomtown Biloxi.
Hollywood Park will also be required to place a legend on its securities
describing Mississippi gaming law restrictions, unless it receives an
exemption from this requirement. Hollywood Park will be required to obtain
foreign gaming approval for its current operations in jurisdictions outside of
the State of Mississippi. Hollywood Park has made requests for such approvals
from the Mississippi Gaming Commission.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Gaming Commission seek to: (i) prevent unsavory or unsuitable
persons from having any direct or indirect involvement with gaming
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at any time or in any capacity; (ii) establish and maintain responsible
accounting practices and procedures; (iii) maintain effective control over the
financial practices of licensees, including establishing minimum procedures
for internal fiscal affairs and safeguarding of assets and revenues, providing
reliable record keeping and making periodic reports to the Mississippi Gaming
Commission; (iv) prevent cheating and fraudulent practices; (v) provide a
source of state and local revenues through taxation and licensing fees; and
(vi) ensure that gaming licensees, to the extent practicable, employ
Mississippi residents. The regulations are subject to amendment and
interpretation by the Mississippi Gaming Commission. Changes in Mississippi
laws or regulations may limit or otherwise materially affect the types of
gaming that may be conducted and such changes, if enacted, could have an
adverse effect on the operations of Hollywood Park, Boomtown and Boomtown's
Biloxi, Mississippi gaming operations.
The Mississippi Act provides for legalized dockside gaming in 14 counties
that either border the Gulf Coast or the Mississippi River, but only if the
voters in such counties have not voted to prohibit gaming in that county. As
of September 16, 1996, dockside gaming was permissible in nine of the 14
eligible counties in the State and gaming operations had commenced in Adams,
Coahoma, Hancock, Harrison, Tunica, Warren and Washington counties. An
election to permit gaming in Desoto County (south of Memphis, Tennessee) has
been called for November 5, 1996. Under Mississippi law, gaming vessels must
be located on the Mississippi river or on navigable waters in eligible
counties along the Mississippi River, or in the waters of the State of
Mississippi lying south of the State in eligible counties along the
Mississippi Gulf Coast. At least one lawsuit is pending with respect to the
expansion of eligible gaming sites in Mississippi Gulf Coast counties. The law
permits unlimited stakes gaming on permanently moored vessels on a 24-hour
basis and does not restrict the percentage of space which may be utilized for
gaming. There are no limitations on the number of gaming licenses which may be
issued in Mississippi.
Hollywood Park and Boomtown will be required periodically to submit detailed
financial and operating reports to the Mississippi Gaming Commission and
furnish any other information which the Mississippi Gaming Commission may
require. Hollywood Park, Boomtown and any subsidiary of either Hollywood Park
or of Boomtown (or a partnership in which the subsidiary is a partner) that
operates a casino in Mississippi (a "Mississippi Gaming Subsidiary"), is
subject to the licensing and regulatory control of the Mississippi Gaming
Authorities. If Hollywood Park or Boomtown is unable to continue to satisfy
the registration requirements of the Mississippi Act, Hollywood Park, Boomtown
and its Mississippi Gaming subsidiaries cannot own or operate gaming
facilities in Mississippi. Each Mississippi Gaming Subsidiary must obtain a
gaming license from the Mississippi Gaming Commission to operate casinos in
Mississippi. A gaming license is issued by the Mississippi Gaming Commission
subject to certain conditions, including continued compliance with all
applicable state laws and regulations and physical inspection of the casinos
prior to opening.
Gaming licenses are not transferable, are initially issued for a two-year
period and must be renewed periodically thereafter. Boomtown Biloxi's gaming
license was issued by the Mississippi Gaming Commission on June 30, 1994, and
Boomtown Biloxi was relicensed by the Mississippi Gaming Commission on June
20, 1996 for a two year period expiring June 20, 1998. No person may become a
shareholder of or receive any percentage of profits from a gaming licensee
subsidiary of a holding company without first obtaining licenses and approvals
from the Mississippi Gaming Commission. Boomtown has obtained such approvals
in connection with the licensing of Boomtown Biloxi.
Certain officers and employees of Hollywood Park, Boomtown and the officers,
directors and certain key employees of Boomtown's Mississippi Gaming
Subsidiary must be found suitable or be investigated by the Mississippi Gaming
Commission. Boomtown believes that findings of suitability with respect to
such persons associated with Boomtown or Boomtown Biloxi have been applied for
or obtained, although the Mississippi Gaming Commission in its discretion may
require additional persons to file applications for suitability. Such persons
affiliated with Hollywood Park have filed applications with the Mississippi
Gaming Commission and are currently under investigation. Employees associated
with gaming must obtain work permits that are subject to immediate suspension
under certain circumstances. In addition, any person having a material
relationship or involvement with Hollywood Park or Boomtown may be required to
be found suitable or licensed, in which case
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<PAGE>
those persons must pay the costs and fees associated with such investigation.
The Mississippi Gaming Commission may deny an application for a license for
any cause that it deems reasonable. Changes in licensed positions must be
reported to the Mississippi Gaming Commission. In addition to its authority to
deny an application for a license, the Mississippi Gaming Commission has
jurisdiction to disapprove a change in corporate position. The Mississippi
Gaming Commission has the power to require any Mississippi Gaming Subsidiary,
Hollywood Park and Boomtown to suspend or dismiss officers, directors and
other key employees or sever relationships with other persons who refuse to
file appropriate applications or whom the authorities find unsuitable to act
in such capacities.
After the Merger at any time, the Mississippi Gaming Commission has the
power to investigate and require the finding of suitability of any record or
beneficial shareholder of Hollywood Park or Boomtown. Mississippi law requires
any person who acquires more than 5% of the common stock of a publicly traded
holding company to report the acquisition to the Mississippi Gaming
Commission, and such person may be required to be found suitable. Also, any
person who becomes a beneficial owner of more than 10% of Boomtown's common
stock, as reported to the Securities and Exchange Commission, must apply for a
finding of suitability by the Mississippi Gaming Commission and must pay the
costs and fees that the Mississippi Gaming Commission incurs in conducting the
investigation. The Mississippi Gaming Commission has generally exercised its
discretion to require a finding of suitability of any beneficial owner of more
than 5% of a public company's common stock. However, the Mississippi Gaming
Commission has adopted a policy that could permit certain institutional
investors to beneficially own up to 10% of a public company's common stock
without a finding of suitability. If a shareholder 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. Hollywood Park,
as a publicly traded holding company registered with the Mississippi Gaming
Commission, will be subject to the above described requirements.
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 Mississippi Gaming
Commission may be found unsuitable. After the Merger, any person found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
the securities of Hollywood Park beyond such time as the Mississippi Gaming
Commission prescribes, may be guilty of a misdemeanor. Hollywood Park will be
subject to disciplinary action if, after receiving notice that a person is
unsuitable to be a shareholder or to have any other relationship with Boomtown
or its Mississippi Gaming Subsidiaries, Hollywood Park: (i) pays the
unsuitable person any dividend or other distribution upon the voting
securities of Hollywood Park; (ii) recognizes the exercise, directly or
indirectly, of a voting rights conferred by securities of Hollywood Park;
(iii) recognizes the exercise, directly or indirectly, of any voting rights
conferred by securities held by the unsuitable person; (iv) pays the
unsuitable person any remuneration in any form for services rendered or
otherwise, except in certain limited and specific circumstances; or (v) fails
to pursue all lawful efforts to require the unsuitable person to divest
himself of the securities, including, if necessary, the immediate purchase of
the securities for cash at a fair market value.
Hollywood Park may be required to disclose to the Mississippi Gaming
Commission upon request the identities of security holders including the
holders of any debt securities. In addition, the Mississippi Gaming Commission
under the Mississippi Act may, in its discretion, (i) require holders of debt
securities of registered corporations to file applications; (ii) investigate
such holders, and (iii) require such holders to be found suitable to own such
debt securities. Although the Mississippi Gaming Commission generally does not
require the individual holders of obligations such as notes to be investigated
and found suitable, the Mississippi Gaming Commission retains the discretion
to do so for any reason, including but not limited to a default, or where the
holder of the debt instrument exercises a material influence over the gaming
operations of the entity in question. Any holder of debt securities required
to apply for a finding of suitability must pay all investigative fees and
costs of the Mississippi Gaming Commission in connection with such an
investigation.
The Gaming Subsidiary must maintain a current stock ledger in its principal
office in Mississippi and Hollywood Park after the Merger and Boomtown must
maintain a current list of stockholders in the principal offices of the Gaming
Subsidiary which must reflect the record ownership of each outstanding share
of any class
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<PAGE>
of equity security issued by Hollywood Park and Boomtown. The stockholder list
may thereafter be maintained by adding reports regarding the ownership of such
securities that it receives from Hollywood Park's transfer agent. The ledger
and stockholder lists must be available for inspection by the Mississippi
Gaming Commission at any time. If any securities of Hollywood Park 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 Mississippi Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. Hollywood Park must also render maximum assistance
in determining the identity of the beneficial owner.
The Mississippi Act requires that the certificates representing securities
of a public-traded corporation (as defined in the Mississippi Act) bear a
legend to the general effect that such securities are subject to the
Mississippi Act and the regulations of the Mississippi Gaming Commission. The
Mississippi Gaming Commission has the power to impose additional restrictions
on the holders of Boomtown's securities at any time. Boomtown has received a
waiver from this legend requirement from the Mississippi Gaming Commission.
Hollywood Park intends to request an exemption from this requirement. Although
Hollywood Park believes it will receive an exemption from this legend
requirement, no assurance can be given that Hollywood Park will actually
receive the exemption.
Substantially all loans, leases, sales of securities and similar financing
transactions by a Mississippi Gaming Subsidiary must be reported to or
approved by the Mississippi Gaming Commission. A Mississippi Gaming Subsidiary
may not make an issuance or public offering of its securities, but may pledge
or mortgage casino facilities, if it obtains the prior approval of the
Mississippi Gaming Commission. Hollywood Park may not make an issuance or
public offering of its securities without the prior approval of the
Mississippi Gaming 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 Mississippi or to retire or extend obligations incurred for one
or more such purposes. Such approval, if given, does not constitute a
recommendation or approval of the investment merits of the securities subject
to the offering. Any representation to the contrary is unlawful.
After the Merger, changes in control of Hollywood Park through merger,
consolidation, acquisition of assets, management or consulting agreements or
any form of takeover, and certain recapitalizations and stock repurchases by
Hollywood Park cannot occur without the prior approval of the Mississippi
Gaming Commission. The Mississippi Gaming Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process
relating to the transaction.
The Mississippi legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Mississippi and
corporations whose stock is publicly traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi Gaming Commission has established a regulation scheme to
ameliorate the potentially adverse effects of these business practices upon
Mississippi's gaming industry and to further Mississippi'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. After the Merger, approvals are, in certain
circumstances, required from the Mississippi Gaming Commission before
Hollywood Park may make exceptional repurchases of voting securities above the
current market price of its Common Stock (commonly called "greenmail") or
before a corporate acquisition opposed by management may be consummated.
Mississippi's gaming regulations will also require prior approval by the
Mississippi Gaming Commission if Hollywood Park adopts a plan of
recapitalization proposed by its Board of Directors opposing a tender offer
made directly to the shareholders for the purpose of acquiring control of
Hollywood Park.
After the Merger, none of Hollywood Park, Boomtown nor any subsidiary may
engage in gaming activities in Mississippi while also conducting gaming
operations outside of Mississippi without approval of the Mississippi Gaming
Commission. The Mississippi Gaming Authorities may require determinations
that, among other things, there are means for the Mississippi Gaming
Authorities to have access to information concerning
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<PAGE>
the out-of-state gaming operations of Boomtown and its affiliates. The
Mississippi Gaming Commission has approved Boomtown's operations in Nevada and
Louisiana but must approve Boomtown's or Hollywood Park's operations in any
other jurisdictions in connection with Hollywood Park's registration with the
Mississippi Gaming Commission as a public corporation. Hollywood Park has
applied for registration with the Mississippi Gaming Commission as a public
corporation.
If the Mississippi Gaming Commission decides that a Mississippi Gaming
Subsidiary violated a gaming law or regulation, the Mississippi Gaming
Commission could limit, condition, suspend or revoke the license of the Gaming
Subsidiary. In addition, a Mississippi Gaming Subsidiary, Boomtown and
Hollywood Park and the persons involved could be subject to substantial fines
for each separate violation. Because of such a violation, the Mississippi
Gaming Commission could seek to appoint a supervisor to operate the casino
facilities.
License fees and taxes, computed in various ways depending on the type of
gaming involved, are payable to the State of Mississippi and to the counties
and cities in which a Mississippi Gaming Subsidiary's respective operations
will be conducted. Depending upon the particular fee or tax involved, these
fees and taxes are payable either monthly, quarterly or annually and are based
upon (i) a percentage of the gross gaming revenues received by the casino
operation, (ii) the number of slot machines operated by the casino or (iii)
the number of table games operated by the casino. The license fee payable to
the State of Mississippi is based upon "gaming receipts" (generally defined as
gross receipts less payouts to customers as winnings) and equals a percent of
gaming receipts of $50,000 or less per month, 6 percent of gaming receipts
over $50,000 and less than $134,000 per month, and 8 percent of gaming
receipts over $134,000. The foregoing license fees are allowed as a credit
against the individual partners' Mississippi income tax liability for the year
paid.
In October 1994, the Mississippi Gaming Commission adopted two new
regulations. Under the first regulation, as a condition of licensure or
license renewal, casino vessels on the Mississippi Gulf Coast that are not
self-propelled must be moored to withstand a Category 4 hurricane with 155
mile per hour winds and 15 foot tidal surge. Boomtown Biloxi believes that it
currently meets this requirement. The second regulation requires as a
condition of licensure or license renewal that a gaming establishment's plan
include a 500-car parking facility in close proximity to the casino complex
and infrastructure facilities the expenditures for which will amount to at
least 25% of the casino cost. Such facilities shall include any of the
following: a 250 room hotel of at least a two star rating as defined by the
current edition of the Mobil Travel Guide, a theme park, golf courses,
marinas, a tennis complex, entertainment facilities, or any other such
facility as approved by the Mississippi Gaming Commission as infrastructure.
Parking facilities, roads, sewage and water systems, or facilities normally
provided by cities and/or counties are excluded. The Mississippi Gaming
Commission may in its discretion reduce the number of rooms required, where it
is shown to the Commission's satisfaction that sufficient rooms are available
to accommodate the anticipated visitor load. Boomtown Biloxi believes that it
currently meets such requirements and was relicensed by the Mississippi Gaming
Commission on June 20, 1996 for an additional two-year period. In addition,
Boomtown Biloxi is planning to construct and operate a hotel to satisfy this
requirement: however, there can be no assurance that it will be successful in
completing such a hotel.
The sale of food or alcoholic beverages at the Boomtown Biloxi property is
subject to licensing, control and regulation by the applicable state and local
authorities. The agencies involved have full power to limit, condition,
suspend or revoke any such license, and any such disciplinary action could
(and revocation would) have a material adverse effect upon the operations of
the affected casino or casinos. Certain officers and managers of Hollywood
Park, Boomtown and Boomtown Biloxi must be investigated by the Alcoholic
Beverage Control Division of the State Tax Commission (the "ABC") in
connection with the Casino's liquor permits. Changes in licensed positions
must be approved by the ABC.
LOUISIANA
The ownership and operation of a riverboat gaming vessel is subject to the
Louisiana Riverboat Economic Development and Gaming Control Act (the
"Louisiana Act"). Gaming activities are regulated by the Louisiana Gaming
Control Board (the "Board") with assistance from the Department of Public
Safety and Corrections,
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Office of State Police. The Board is responsible for investigating the
background of all applicants seeking a gaming license, issuing the gaming
license and enforcing, along with the state police, the laws, rules and
regulations relative to riverboat gaming activities. The Board is empowered to
issue up to 15 licenses to conduct gaming activities on a riverboat of new
construction in accordance with applicable law. However, no more than six
licenses may be granted to riverboats operating from any one parish.
The laws and regulations of Louisiana seek to (i) prevent unsavory or
unsuitable persons from having any direct or indirect involvement with gaming
any time or in any capacity; (ii) establish and maintain responsible
accounting practices and procedures; (iii) maintain effective control over the
financial practices of licensees, including establishing procedures for
reliable record keeping and making periodic reports to the Board; (iv) prevent
cheating and fraudulent practices; (v) provide a source of state and local
revenues through fees; and (vi) ensure that gaming licensees, to the extent
practicable, employ and contract with Louisiana residents, women and
minorities.
In addition, the Board must promulgate rules and regulations regarding the
authorized use of a riverboat upon designated waterways, the duration of
riverboat excursions and the stops that a riverboat may make. The Board also
governs the required insurance by a licensee, the issuance of emergency orders
in extreme weather conditions, specifications for the design, appearance of
and construction of riverboats, the procedures for negotiable instrument
transactions, mandatory periodic inspections, and preferential treatment to
Louisiana firms for procurement.
The Louisiana Act specifies certain restrictions and conditions relating to
the operation of riverboat gaming, including but not limited to the following:
(i) gaming is not permitted while a riverboat is docked, other than for forty-
five minutes between excursions, and unless dangerous weather or other
conditions exist; (ii) each round trip riverboat cruise may not be less than
three nor more than eight hours in duration, subject to specified exceptions;
(iii) agents of the Board are permitted on board at any time during gaming
operations; (iv) gaming devices, equipment, and supplies may be purchased or
leased from permitted suppliers; (v) gaming may only take place in the
designated gaming area while the riverboat is upon a designated river or
waterway; (vi) gaming equipment may not be possessed, maintained, or exhibited
by any person on a riverboat except in the specifically designated gaming
area, or a secure area used for inspection, repair, or storage of such
equipment; (vii) wagers may be received only for a person present on a
licensed riverboat; (viii) persons under 21 are not permitted in designated
gaming areas; (ix) except for slot machine play, wagers may be made only with
tokens, chips, or electronic cards purchased from the licensee aboard a
riverboat; (x) licensees may only use docking facilities and routes for which
they are licensed and may only board and discharge passengers at the
riverboat's licensed berth; (xi) licensees must have adequate protection and
indemnity insurance; (xii) licensees must have all necessary federal and state
licenses, certificates, and other regulatory approvals prior to operating a
riverboat and (xiii) gaming may only be conducted in accordance with the terms
of the license and the rules and regulations adopted by the Board.
No person may receive any percentage of the profits from the Louisiana
Partnership without first being found suitable. In March 1994, the Louisiana
Partnership, its officers, key personnel, partners and persons holding a 5% of
greater interest in the partnership were found suitable by the Board's
predecessor. A gaming license is deemed to be a privilege under Louisiana law
and as such may be denied, revoked, suspended, conditioned or limited at any
time by the Board. In issuing a license, the Board must find that the
applicant is a person of good character, honesty and integrity and the
applicant is a person whose prior activities, criminal record, if any,
reputation, habits and associations do not pose a threat to the public
interest of the State of Louisiana or to the effective regulation and control
of gaming, or create or enhance the dangers of unsuitable, unfair or illegal
practices, methods, and activities in the conduct of gaming or the carrying on
of business and financial arrangements in connection therewith. The Board will
not grant any licenses unless if finds that: (i) the applicant is capable of
conducting gaming operations, which means that the applicant can demonstrate
the capability, either through training, education, business experience, or a
combination of the above to operate a gaming casino; (ii) the proposed
financing of the riverboat and the gaming operations is adequate for the
nature of the proposed operation and from a source suitable and acceptable to
the Board; (iii) the applicant demonstrates
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a proven ability to operate a vessel of comparable size, capacity and
complexity to a riverboat so as to ensure the safety of its passengers; (iv)
the applicant submits a detailed plan of design of the riverboat in its
application for a license; (v) the applicant designates the docking facilities
to be used by the riverboat; (vi) the applicant shows adequate financial
ability to construct and maintain a riverboat; (vii) the applicant has a good
faith plan to recruit, train, and upgrade minorities in all employment
classifications; and (viii) the applicant is of good moral character.
The Board may not award a license to any applicant: who fails to provide
information and documentation to reveal any fact material to qualifications or
who supplies information which is untrue or misleading as to a material fact
pertaining to the qualification criteria; who has been convicted of or plead
nolo contendere to an offense punishable by imprisonment of more than one
year; who is currently being prosecuted for or regarding whom charges are
pending in any jurisdiction of an offense punishable by more than one year
imprisonment; if any holder of 5% of more in the profits and losses of the
applicant has been convicted of or plead guilty or nolo contendere to an
offense, which at the time of conviction is punishable as a felony.
The transfer of a license is prohibited. The sale, assignment, transfer,
pledge, or disposition of securities which represent 5% or more of the total
outstanding shares issued by a holder of a license is subject to Board
approval. A security issued by a holder of a license must generally disclose
these restrictions. If a security holder of a licensee is found disqualified,
the Board may prohibit the security holder from (i) receiving any dividend or
interest with regard to the securities; (ii) exercising, directly or
indirectly, any rights conferred by the securities; or (iii) receiving any
remuneration from the licensee for services rendered or otherwise.
A licensee (the Louisiana Partnership) must periodically report the
following information to the Board, which is not confidential and is to be
available for public inspection: the licensee's net gaming proceeds from all
authorized games; the amount of net gaming proceeds tax paid; and all
quarterly and annual financial statements presenting historical data that are
submitted to the Board, including annual financial statements that have been
audited by an independent certified public accountant.
The Board is required to promulgate rules governing the method for approval
of the area of operations, the rules and odds of authorized games and devices
permitted, and prescribe grounds and procedures for the revocation, limitation
or suspension of licenses and permits.
ARIZONA
The Arizona Racing Commission ("ARC") has jurisdiction and supervision over
all racing activities in the State of Arizona. The ARC issues live racing
permits that are valid for three years, and off-track permits are granted on a
year to year basis. In 1994, Turf Paradise received a live racing permit from
the ARC, which will remain in force through the 1996/1997 race year. The
permit specifies that live racing may be conducted between the first week of
September through the third week of May and that, so long as there is live
racing at Turf Paradise at least five days a week, Turf Paradise may have
simulcast wagering on days when there is no live racing.
KANSAS
The Kansas Racing Commission ("KRC") has jurisdiction and supervision over
all racing activity in the State of Kansas. The KRC has granted Sunflower a
license to own and manage the Woodlands facility; however, the license to
conduct races for all race days until the year 2014 has been granted to TRAK
East, an unaffiliated non-profit entity. Sunflower in turn provides management
services to TRAK East. Sunflower has an agreement with TRAK East to provide
the physical race tracks along with management and consulting services for
twenty-five years, with options to renew for one or more successive five year
terms.
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SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT OF BOOMTOWN
The following table sets forth the beneficial ownership of Boomtown Common
Stock as of the Boomtown Record Date by: (i) each person or entity who is
known by Boomtown to own beneficially more than 5% of the outstanding shares
of Boomtown Common Stock; (ii) each of Boomtown's directors; (iii) each of the
five most highly compensated executive officers serving as executive officers
at the end of the fiscal year ended September 30, 1995; (iv) the former
President of the Boomtown; and (v) all current directors and executive
officers as a group. A total of 9,264,291 shares of the Boomtown Common Stock
were issued and outstanding as of the Boomtown Record Date.
<TABLE>
<CAPTION>
NUMBER PERCENT
DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS OF SHARES(1) OWNED
------------------------------------------------- ------------ -------
<S> <C> <C>
State of Wisconsin Investment Board(2)................. 915,000 9.9%
P.O. Box 7842
Madison, WI 53707
Legg Mason Special Investment Trust, Inc.(3)........... 900,000 9.7%
7 East Redwood Street
Baltimore, MD 21203-7023
Edward P. Roski, Jr.(4)................................ 724,586 7.8%
c/o Majestic Realty Co.
13191 Crossroads Parkway North
6th Floor
City of Industry, CA 91746-3497
Timothy J. Parrott(5).................................. 579,245 6.1%
c/o Boomtown, Inc.
P.O. Box 399
Verdi, NV 89439-0399
Kenneth Rainin......................................... 530,666 5.7%
c/o Rainin Research Group
5400 Hollis Street
Emeryville, CA 91608
Richard N. Scott(6).................................... 141,420 1.5%
James W. Middagh(7).................................... 52,519 *
Robert F. List(8)...................................... 25,801 *
Donald E. Dixon(9)..................................... 10,251 *
Richard J. Goeglein(10)................................ 6,943 *
Peter L. Harris(11).................................... 3,034 *
Phil E. Bryan(12)...................................... -- --
Delbert W. Yocam(13)................................... -- --
All executive officers and directors as a group (11
persons)(14).......................................... 1,426,380 14.8%
</TABLE>
- --------
* Less than one percent.
(1) The number and percentage of shares beneficially owned is determined
under rules of the Securities and Exchange Commission (the "SEC"), and
the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rules, beneficial ownership includes any
shares as to which the individual has sole or shared voting power or
investment power and also any shares which the individual has the right
to acquire within 60 days of the Boomtown Record Date through the
exercise of any stock option or other right. Unless otherwise indicated
in the footnotes, each person has sole voting and investment power (or
shares such powers with his or her spouse) with respect to the shares
shown as beneficially owned.
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(2) The beneficial share number is as of August 31, 1996 and is based on
information received from the State of Wisconsin Investment Board.
(3) The beneficial share number is as of August 1996 and is based on
information received from Legg Mason Special Investment Trust ("Legg
Mason"). The shares are held by Legg Mason, with Legg Mason Fund Advisor,
Inc., a wholly owned subsidiary of Legg Mason, Inc., having the power to
vote and dispose of such shares.
(4) Includes 5,199 shares issuable upon the exercise of a stock option to
purchase shares of Common Stock which is exercisable within 60 days of
the Boomtown Record Date. Mr. Roski is a director of Boomtown.
(5) Includes 236,244 shares issuable upon the exercise of a stock option to
purchase shares of Common Stock which is exercisable within 60 days of
the Boomtown Record Date. Mr. Parrott is Chairman of the Board and Chief
Executive Officer of Boomtown.
(6) Includes 141,355 shares issuable upon the exercise of a stock option to
purchase shares of Common Stock which is exercisable within 60 days of
the Boomtown Record Date. Mr. Scott resigned as President, Chief
Operating Officer and a director of Boomtown effective as of April 30,
1996.
(7) Includes 52,518 shares issuable upon the exercise of a stock option to
purchase shares of Common Stock which is exercisable within 60 days of
the Boomtown Record Date. Mr. Middagh is Senior Vice President of
Operations of Boomtown.
(8) Includes 23,900 shares issuable upon the exercise of a stock option to
purchase shares of Common Stock which is exercisable within 60 days of
the Boomtown Record Date. Mr. List is Senior Vice President and Corporate
Counsel and a director of Boomtown.
(9) Includes 9,750 shares issuable upon the exercise of a stock option to
purchase shares of Common Stock which is exercisable within 60 days of
the Boomtown Record Date. Mr. Dixon is Vice President Human Resources of
Boomtown.
(10) Includes 6,943 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
the Boomtown Record Date. Mr. Goeglein is a director of Boomtown.
(11) Includes 3,033 shares issuable upon the exercise of a stock option to
purchase shares of Common Stock which is exercisable within 60 days of
the Boomtown Record Date. Mr. Harris is a director of Boomtown.
(12) Mr. Bryan is President, Chief Operating Officer and a director of
Boomtown.
(13) Mr. Yocam is a director of Boomtown.
(14) Includes 360,892 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
the Boomtown Record Date.
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SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical financial information of Hollywood Park
and Boomtown has been derived from their respective historical financial
statements and should be read in conjunction with such consolidated financial
statements and the notes thereto included herein. The Hollywood Park
historical financial statement data as of and for the six months ended June
30, 1996 and 1995 has been prepared on the same basis as the historical
information derived from the audited financial statements and, in the opinion
of management, contains all adjustments, consisting only of normal recurring
accruals, necessary for the fair presentation of the results of operations for
such periods. The Boomtown historical financial statement data as of and for
the nine months ended June 30, 1996 and 1995 has been prepared on the same
basis as the historical information derived from the audited financial
statements and, in the opinion of management, contains all adjustments,
consisting only of normal recurring accruals, necessary for the fair
presentation of such financial statement data. The unaudited selected pro
forma combined consolidated condensed financial data is derived from the
unaudited pro forma combined consolidated condensed financial statements,
appearing elsewhere herein, which give effect to the Merger as a purchase, and
should be read in conjunction with such pro forma statements and the notes
thereto. For the purpose of the pro forma combined consolidated condensed
statement of operations data, Hollywood Park's financial data for the fiscal
year ended December 31, 1995 and for the six months ended June 30, 1996 have
been combined with Boomtown's financial data for the fiscal year ended
September 30, 1995 and the six months ended June 30, 1996, respectively.
Certain amounts from the Hollywood Park and Boomtown Selected Historical
Financial Data have been reclassified and/or recaptioned to conform with the
selected presentation hereto.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred had the Merger been consummated in an earlier period, nor
is it necessarily indicative of future operating results or financial
position.
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HOLLYWOOD PARK, INC.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31, 1995
------------------------------------------ -------------------------------
PRO FORMA PRO FORMA
EXCLUDING INCLUDING
BOOMTOWN BOOMTOWN
1991 1992 1993 1994 1995 LAS VEGAS(a)(b) LAS VEGAS(a)(c)
------- ------- -------- -------- -------- --------------- ---------------
HISTORICAL (UNAUDITED)
------------------------------------------ -------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Racing operations and
other income.......... $74,057 $80,944 $ 78,985 $ 98,743 $ 93,349 $ 87,363 $ 87,363
Casino operations...... 0 0 0 18,581 37,223 212,236 253,152
Hotel, recreational
vehicle park, truck
stop, and other
income................ 0 0 0 0 0 19,139 24,905
------- ------- -------- -------- -------- -------- --------
74,057 80,944 78,985 117,324 130,572 318,738 365,420
------- ------- -------- -------- -------- -------- --------
Expenses:
Racing operations and
other expenses........ 61,133 63,499 62,798 80,839 79,828 41,734 41,732
Casino operations...... 0 0 0 15,557 29,819 116,425 147,148
Hotel, recreational
vehicle park, truck
stop, and other
expenses.............. 0 0 0 0 0 107,411 128,812
Casino pre-opening and
training expense...... 0 0 850 2,337 0 0 0
Turf Paradise
acquisition costs..... 0 0 0 627 0 0 0
Lawsuit settlement..... 0 0 0 0 6,088 6,088 6,088
Discontinued projects.. 0 0 0 0 0 6,054 6,054
Depreciation and
amortization.......... 5,890 5,899 6,402 9,563 11,384 19,964 20,487
------- ------- -------- -------- -------- -------- --------
67,023 69,398 70,050 108,923 127,119 297,676 350,321
------- ------- -------- -------- -------- -------- --------
Operating income ....... 7,034 11,546 8,935 8,401 3,453 21,062 15,099
Interest expense....... 4,973 4,883 1,517 3,061 3,922 19,284 17,168
------- ------- -------- -------- -------- -------- --------
Income (loss) before
minority interests and
income taxes........... 2,061 6,663 7,418 5,340 (469) 1,778 (2,069)
Minority interests..... 0 0 0 0 0 1,105 1,105
------- ------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary item..... 2,061 6,663 7,418 5,340 (469) 2,883 (964)
Income tax expense..... 255 3,135 1,025 1,568 693 3,339 2,171
------- ------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item..... 1,806 3,528 6,393 3,772 (1,162) (456) (3,135)
Extraordinary item--
Utilization of tax
benefit from net
operating loss
carryforwards.......... 73 1,894 0 0 0 0 0
------- ------- -------- -------- -------- -------- --------
Net income (loss)....... $ 1,879 $ 5,422 $ 6,393 $ 3,772 $ (1,162) $ (456) $ (3,135)
------- ------- -------- -------- -------- -------- --------
Dividends on convertible
preferred stock........ $ 0 $ 0 $ 1,718 $ 1,925 $ 1,925 $ 1,925 $ 1,925
------- ------- -------- -------- -------- -------- --------
Net income (loss)
available to (allocated
to) common
shareholders........... $ 1,879 $ 5,422 $ 4,675 $ 1,847 $ (3,087) $ (2,381) $ (5,060)
======= ======= ======== ======== ======== ======== ========
Per common share:
Income (loss) before
extraordinary item:
Primary................ $ 0.14 $ 0.27 $ 0.30 $ 0.10 $ (0.17) $ (0.10) $ (0.21)
Fully diluted.......... $ 0.14 $ 0.27 $ 0.30 $ 0.10 $ (0.17) $ (0.10) $ (0.21)
Net income (loss):
Primary................ $ 0.14 $ 0.41 $ 0.30 $ 0.10 $ (0.17) $ (0.10) $ (0.21)
Fully diluted.......... $ 0.14 $ 0.41 $ 0.30 $ 0.10 $ (0.17) $ (0.10) $ (0.21)
Dividends.............. $ 0.15 $ 0.04 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
BALANCE SHEET DATA:
Total assets........... $89,777 $90,219 $176,424 $246,573 $286,706 $473,350 $480,045
Other liabilities...... 16,047 34,494 21,876 36,518 105,331 122,041 125,065
Long term obligations.. 68,400 45,538 348 42,800 15,629 126,421 124,851
Stockholders' equity... 5,330 10,187 154,200 167,255 165,746 224,888 230,129
</TABLE>
- -------
(a) Excludes the Pacific Casino Management, Inc. pro forma financial results
prior to Hollywood Park's November 17, 1995, acquisition of Pacific Casino
Management, Inc.
(b) Assumes the Blue Diamond Swap is consummated in connection with the Merger
as of January 1, 1995, and, as a result, excludes the results of
operations of Boomtown Las Vegas. See "Business of Boomtown--Boomtown Las
Vegas."
(c) Assumes the Blue Diamond Swap is not consummated in connection with the
Merger, and, as a result, includes the results of operations of Boomtown
Las Vegas. See "Business of Boomtown--Boomtown Las Vegas."
94
<PAGE>
HOLLYWOOD PARK, INC.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------
1995 1996 1996 1996
-------- -------- --------- ---------
PRO FORMA PRO FORMA
EXCLUDING INCLUDING
BOOMTOWN BOOMTOWN
LAS LAS
HISTORICAL VEGAS(a) VEGAS(b)
----------------- --------- ---------
(UNAUDITED)
---------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Racing operations and other income.... $ 48,868 $ 45,334 $ 44,162 $ 44,162
Casino operations..................... 18,416 28,946 114,474 134,239
Hotel, recreational vehicle park,
truck stop, and other income......... 0 0 12,941 16,157
-------- -------- -------- --------
67,284 74,280 171,577 194,558
-------- -------- -------- --------
Expenses:
Racing operations and other expenses.. 40,494 37,382 19,182 19,182
Casino operations..................... 12,831 24,873 74,154 89,727
Hotel, recreational vehicle park,
truck stop, and other expenses....... 0 0 49,616 59,588
Write off of investment in
subsidiary........................... 0 11,412 11,412 11,412
Loss on termination of Blue Diamond
interest............................. 0 0 36,562 36,562
Depreciation and amortization......... 5,654 5,400 10,123 10,320
-------- -------- -------- --------
58,979 79,067 201,049 226,791
-------- -------- -------- --------
Operating income (loss)................ 8,305 (4,787) (29,472) (32,233)
Interest expense...................... 1,928 898 8,776 7,817
-------- -------- -------- --------
Income (loss) before minority interests
and income taxes...................... 6,377 (5,685) (38,248) (40,050)
Minority interests.................... 0 0 493 493
-------- -------- -------- --------
Income (loss) before income taxes...... 6,377 (5,685) (37,755) (39,557)
Income tax expense.................... 2,114 2,444 2,629 3,042
-------- -------- -------- --------
Net income (loss)...................... $ 4,263 $ (8,129) $(40,384) $(42,599)
-------- -------- -------- --------
Dividends on convertible preferred
stock................................. $ 962 $ 962 $ 962 $ 962
-------- -------- -------- --------
Net income (loss) available to
(allocated to) common shareholders.... $ 3,301 $ (9,091) $(41,346) $(43,561)
======== ======== ======== ========
Per common share:
Net income (loss):
Primary............................... $ 0.18 $ (0.49) $ (1.73) $ (1.79)
Fully diluted......................... $ 0.18 $ (0.49) $ (1.73) $ (1.79)
Dividends............................. $ 0.00 $ 0.00 $ 0.00 $ 0.00
BALANCE SHEET DATA:
Total assets.......................... $263,575 $223,801 $416,743 $419,661
Other liabilities..................... 77,293 66,897 90,428 93,642
Long term obligations................. 15,726 256 110,424 108,578
Stockholders' equity.................. 170,556 156,648 214,669 217,441
</TABLE>
- -------
(a) Assumes the Blue Diamond Swap is consummated in connection with the Merger
as of January 1, 1995, and, as a result, excludes the results of
operations of Boomtown Las Vegas. See "Business of Boomtown--Boomtown Las
Vegas."
(b) Assumes the Blue Diamond Swap is not consummated in connection with the
Merger, and, as a result, includes the results of operations of Boomtown
Las Vegas. See "Business of Boomtown--Boomtown Las Vegas."
95
<PAGE>
BOOMTOWN, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- -------- -------- -------- --------
HISTORICAL
--------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net Revenues:
Casino................. $39,602 $42,009 $ 42,416 $ 76,326 $189,306 $139,832 $139,350
Non-casino............. 13,227 13,714 16,231 27,049 42,461 29,869 34,006
------- ------- -------- -------- -------- -------- --------
52,829 55,723 58,647 103,375 231,767 169,701 173,356
------- ------- -------- -------- -------- -------- --------
Operating Expenses:
Casino................. 16,899 17,782 18,373 31,230(a) 79,044 58,224 59,649
Non-casino............. 10,295 10,425 11,891 23,438 34,110 23,851 28,039
Marketing, general and
administrative........ 12,641 13,412 15,949 33,284(a) 94,890 68,760 69,307
Pre-opening expenses... 0 0 0 15,787 0 -- --
Discontinued
projects/future
developments.......... 0 0 0 0 6,054 6,054 920
Depreciation and
amortization.......... 3,540 3,528 3,839 5,891 10,422 7,635 8,135
Loss on termination of
Blue Diamond
interest.............. -- -- -- -- -- -- 36,563
Compensation charge for
SAR and stock option
plans (b)............. 307 2,783 0 0 0 -- --
Nonrecurring charge for
environmental
remediation (c)....... 0 425 0 0 0 -- --
------- ------- -------- -------- -------- -------- --------
43,682 48,355 50,052 109,630 224,520 164,524 202,613
------- ------- -------- -------- -------- -------- --------
Income (loss) from
operations............. 9,147 7,368 8,595 (6,255) 7,247 5,177 (29,257)
Interest expense, net of
capitalized interest... 4,415 3,368 1,033 5,631 13,434 9,806 10,362
Interest income......... (201) (130) (426) (2,624) (3,081) (2,272) (2,341)
Other income............ -- -- -- -- -- -- (827)
Gain on sale of assets.. 0 0 0 0 0 (173) (240)
Loss on marketable
securities............. 0 0 0 1,691 0 -- --
------- ------- -------- -------- -------- -------- --------
Income (loss) before
minority interest,
extraordinary loss and
income taxes........... 4,933 4,130 7,988 (10,953) (3,106) (2,184) (36,211)
Minority interest....... 0 0 0 351 1,105 112 878
------- ------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary loss and
income taxes........... 4,933 4,130 7,988 (10,602) (2,001) (2,072) (35,333)
Provision (benefit) for
income taxes........... 2,094 1,669 3,036 (2,779) 876 (860) (50)
------- ------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary loss..... 2,839 2,461 4,952 (7,823) (2,877) (1,212) (35,283)
Extraordinary loss-early
extinguishment of debt,
net of tax (d)......... 0 0 370 229 0 -- --
------- ------- -------- -------- -------- -------- --------
Net income (loss)....... $ 2,839 $ 2,461 $ 4,582 $ (8,052) $ (2,877) $ (1,212) $(35,283)
======= ======= ======== ======== ======== ======== ========
Income (loss) before
extraordinary loss per
share of common
stock (e).............. $ 2,639 $ 2,261 $ 4,902 $ (7,823) $ (2,877) $ (1,212) $(35,283)
======= ======= ======== ======== ======== ======== ========
Income (loss) before
extraordinary loss
applicable to common
stock.................. $ 0.71 $ 0.61 $ 0.65 $ (0.90) $ (0.31) $ (0.13) $ (3.82)
Extraordinary loss per
share.................. 0.00 0.00 (0.05) (0.03) 0.00 -- --
------- ------- -------- -------- -------- -------- --------
Net income (loss) per
share of common stock.. $ 0.71 $ 0.61 $ 0.60 $ (0.93) $ (0.31) $ (0.13) $ (3.82)
======= ======= ======== ======== ======== ======== ========
Weighted average shares
outstanding............ 3,708 3,708 7,503 8,690 9,228 9,227 9,243
======= ======= ======== ======== ======== ======== ========
CONSOLIDATED BALANCE
SHEET DATA:
Total Assets........... $52,643 $55,916 $108,616 $238,467 $239,198 $237,377 $204,186
Long term debt
excluding current
portion............... $29,142 $31,973 $ 0 $105,140 $106,547 $107,185 $104,732
Total other
liabilities........... $15,573 $10,632 $ 7,581 $ 25,309 $ 27,406 $ 23,322 $ 29,351
Total stockholders'
equity................ $ 7,928 $13,311 $101,035 $108,018 $105,245 $106,870 $ 70,103
</TABLE>
- -------
(a) Certain amounts for general and administrative expense have been
reclassified to casino expenses from amounts reported on Boomtown's Form
10-K at September 30, 1994.
(b) The compensation charge for SAR and stock option plans included: (i)
expenses relating to an increase in the value of SARs to the holders, and
(ii) for fiscal 1992, a nonrecurring expense of $2.2 million relating to
accelerated vesting and exercisability provisions of the SARs and
outstanding stock options. Upon the closing of Boomtown's initial public
offering in October 1992, all SARs converted to stock options.
(c) Boomtown recognized in the third quarter of fiscal 1992 a nonrecurring
charge of $425,000 for the estimated full cost of remediation for
hydrocarbons on its property.
(d) Boomtown recognized an extraordinary noncash charge of $370,000 (net of
tax) and $229,000 (net of tax) for the write-off of unamortized loan fees
in connection with the early repayment of a $15 million senior note during
April 1993, with proceeds from Boomtown's reducing revolving credit
facility and the cancellation of a credit facility as a result of the
placement of $103.5 million First Mortgage Notes in November 1993.
(e) Income before extraordinary loss applicable to common stock is less than
income before extraordinary loss for fiscal years 1991, 1992 and 1993 due
to a $50,000 quarterly dividend which was paid on outstanding Preferred
Stock through the date of redemption of the Preferred Stock in October
1992.
96
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain historical per share data of Boomtown
and Hollywood Park, and combined per share data on an unaudited pro forma
basis after giving effect to the Merger, assuming the issuance of 0.625 of a
share of Hollywood Park Common Stock in exchange for each share of Boomtown
Common Stock and the assumption by Hollywood Park of each outstanding Boomtown
Option so that it is exercisable for a number of shares for which it was
previously exercisable multiplied by 0.625. The data below should be read in
conjunction with the selected financial data, the unaudited pro forma combined
consolidated condensed financial statements included elsewhere in this Joint
Proxy Statement/Prospectus, and the separate historical financial statements
of Boomtown and Hollywood Park contained elsewhere herein. The unaudited pro
forma combined consolidated condensed financial data are not necessarily
indicative of the operating results that would have been achieved had the
Merger been consummated in an earlier period and should not be construed as
representative of future operations.
<TABLE>
<CAPTION>
BOOMTOWN YEAR HOLLYWOOD PARK
ENDED YEAR ENDED SIX MONTHS
SEPTEMBER 30, DECEMBER 31, ENDED
1995 1995 JUNE 30, 1996
------------- -------------- -------------
<S> <C> <C> <C>
HISTORICAL HOLLYWOOD PARK:
Per share:
Book value....................... -- $ 8.01 $ 7.49
Cash dividend declared........... -- 0.00 0.00
Income (loss) from continuing
operations:
Primary........................ -- (0.17) (0.49)
Fully diluted.................. -- (0.17) (0.49)
HISTORICAL BOOMTOWN:
Per share:
Book value ...................... $11.41 -- $ 7.57
Cash dividend declared........... 0.00 -- 0.00
Income (loss) from continuing
operations:
Primary........................ (0.31) -- (3.77)
Fully diluted.................. (0.31) -- (3.77)
UNAUDITED PRO FORMA COMBINED
(EXCLUDING BOOMTOWN LAS VEGAS)--
HOLLYWOOD PARK (1):
Per share:
Book value....................... -- $ 8.63 $ 8.18
Cash dividend declared........... -- 0.00 0.00
Loss from continuing operations:
Primary........................ -- (0.10) (1.73)
Fully diluted.................. -- (0.10) (1.73)
UNAUDITED PRO FORMA COMBINED
(INCLUDING BOOMTOWN LAS VEGAS)--
HOLLYWOOD PARK (2):
Per share:
Book value....................... -- $ 8.69 $ 8.15
Cash dividend declared........... -- 0.00 0.00
Loss from continuing operations:
Primary........................ -- (0.21) (1.79)
Fully diluted.................. -- (0.21) (1.79)
EQUIVALENT PRO FORMA COMBINED
(EXCLUDING BOOMTOWN LAS VEGAS)--
BOOMTOWN (3):
Per share:
Book value ...................... $ 5.39 -- $ 5.11
Cash dividend declared........... 0.00 -- 0.00
Loss from continuing operations:
Primary........................ (0.06) -- (1.08)
Fully diluted.................. (0.06) -- (1.08)
EQUIVALENT PRO FORMA COMBINED
(INCLUDING BOOMTOWN LAS VEGAS)--
BOOMTOWN (3):
Per share:
Book value ...................... $ 5.43 -- $ 5.09
Cash dividend declared........... 0.00 -- 0.00
Loss from continuing operations:
Primary........................ (0.13) -- (1.12)
Fully diluted.................. (0.13) -- (1.12)
</TABLE>
97
<PAGE>
- --------
(1) For purposes of pro forma combined data, Hollywood Park's financial data
for the fiscal year ended December 31, 1995, and the six months ended June
30, 1996, have been combined with Boomtown's financial data excluding
Boomtown Las Vegas (assumes the Blue Diamond Swap is consummated in
connection with the Merger as of January 1, 1995, and, as a result,
excludes the results of operations of Boomtown Las Vegas) for the fiscal
year ended September 30, 1995 and the six months ended June 30, 1996,
respectively. In addition, Hollywood Park's financial data excludes the
PCM pro forma financial results prior to Hollywood Park's November 17,
1995 acquisition of PCM.
(2) For purposes of pro forma combined data, Hollywood Park's financial data
for the fiscal year ended December 31, 1995, and the six months ended June
30, 1996, have been combined with Boomtown's financial data for the fiscal
year ended September 30, 1995 (assumes the Blue Diamond Swap is not
consummated in connection with the Merger, and, as a result, includes the
results of operations of Boomtown Las Vegas) and the six months ended June
30, 1996, respectively. In addition, Hollywood Park's financial data
excludes the PCM pro forma financial results prior to Hollywood Park's
November 17, 1995 acquisition of PCM.
(3) The equivalent of Boomtown's pro forma per share amounts are calculated by
multiplying the pro forma combined per share amounts by the Exchange Ratio
of 0.625 of a share of Hollywood Park Common Stock for each share of
Boomtown Common Stock.
98
<PAGE>
COMBINED COMPANY LIQUIDITY AND CAPITAL RESOURCES
The following discussion relates to the effects of the Merger on Hollywood
Park's and Boomtown's liquidity and capital resources.
As of June 30, 1996, on a pro forma basis (excluding Boomtown Las Vegas),
the combined company of Hollywood Park and Boomtown had cash and cash
equivalents of approximately $52.1 million, and on a pro forma basis
(including Boomtown Las Vegas) had cash and cash equivalents of approximately
$52.4 million. Hollywood Park currently maintains an unused $75 million credit
facility for expansion and general corporate needs, while Boomtown does not
have any available credit facility. These resources are not sufficient to
satisfy the condition to closing in the Merger Agreement, which requires
Hollywood Park to have access to credit of at least $164.5 million to provide
financing to repurchase the $103.5 million aggregate principal amount of
Boomtown First Mortgage Notes (at 101% of principal amount) if put to Boomtown
following the consummation of the Merger and $60 million for future gaming
projects. Hollywood Park anticipates completing a credit facility of
approximately $225 million (the "New Credit Facility") concurrently with the
completion of the Merger. Hollywood Park has appointed Bank of America
National Trust and Savings Association to act as lead bank in securing the New
Credit Facility.
The New Credit Facility will be the primary source of funds for expansion of
the combined company's properties. Such expansion projects will include some
or all of the following properties: Boomtown Reno, Boomtown New Orleans,
Boomtown Biloxi and the potential Indiana Project, as well as Hollywood Park's
card club casino development.
Of the development projects mentioned above, planning is underway and costs
have been estimated for the following: the Boomtown Reno expansion, which is
anticipated to include 200 additional hotel rooms, a restaurant, meeting
space, retail space and other amenities, and is estimated to cost
approximately $25 million; the Boomtown New Orleans expansion, which is
anticipated to include a full service buffet and a fine dining restaurant on
the land-based facility and is estimated to cost approximately $10 million;
the Boomtown Mississippi expansion, which is expected to include 200 to 500
hotel rooms as well as additional parking facilities and is estimated to cost
$23 to $40 million; and Boomtown Indiana (if the license is awarded to the
Boomtown-Hilton Gaming (Switzerland County) joint venture group), a riverboat
casino and land-based amenities which is estimated to cost $61 million to each
of Boomtown and Hilton Gaming. No assurance can be given that sufficient
financing will be available to fund all of these projects. See "Risk Factors--
Need for Additional Financing; Possible Redemption of Boomtown Debt."
Hollywood Park anticipates that it will need funds of $22 million for its
portion of the Crystal Park Hotel and Casino development, of which
approximately $9.2 million has been funded as of July 1, 1996. Some of the
remaining balance may be funded through the New Credit Facility. Other card
club expansion opportunities for which estimates are not available at this
time may require funding under the New Credit Facility.
Hollywood Park anticipates finalizing a commitment letter with a lending
institution by the end of the third quarter, and completing the New Credit
Facility in conjunction with the closing of the Merger. If such a New Credit
Facility is entered into, the management of the combined company believes that
these resources, together with current available cash and anticipated cash
flow from operations will be sufficient to meet the combined company's
anticipated cash requirements for the foreseeable future (and in any event for
at least the 12 months after the consummation of the Merger).
99
<PAGE>
HOLLYWOOD PARK MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations relates to Hollywood Park's historical financial
condition and results of operations. Stockholders are urged to read the
sections entitled "Summary," "Business of Hollywood Park," "Business of
Boomtown," "The Merger," "Combined Company Liquidity and Capital Resources"
and "Unaudited Pro Forma Combined Consolidated Financial Statements" for
information about the combined company.
RESULTS OF OPERATIONS
Six months ended June 30, 1996 compared to the six months ended June 30, 1995
The 1996 operating results reflect Hollywood Park operating all aspects of
the Casino, including the gaming floors, whereas during the six months ended
June 30, 1995, Hollywood Park leased the gaming floor activities to PCM for a
fixed monthly rent, and directly operated all other aspects of the business.
The results of operations for the six months ended June 30, 1996 excluded the
second quarter results of operations for Sunflower, as this subsidiary is no
longer consolidated due to Hollywood Park's non-cash writeoff of its
approximately $11,412,000 investment in Sunflower and Sunflower's May 17, 1996
filing for reorganization under Chapter 11 of the Bankruptcy Code. Sunflower's
results of operations are included in the financial statements for the six
months ended June 30, 1995.
Total revenues increased by $6,996,000, or 10.4%, during the six months
ended June 30, 1996, as compared to the six months ended June 30, 1995. Pari-
mutuel commissions increased by $1,028,000, or 3.7%, primarily due to three
additional 1996 live race days at Hollywood Park. Gaming-Casino revenues of
$24,803,000 were generated from the gaming floor activities, which Hollywood
Park acquired from PCM on November 17, 1995. While there are no comparable
gaming floor revenues in the 1995 results, during the six months ended June
30, 1995, Hollywood Park recorded lease-casino revenue of $12,670,000, and
concession sales to the former lessee of approximately $1,766,000. Lease and
management fee--Sunflower decreased by $2,074,000, or 65.9%, with $1,638,000
of the decrease attributable to the exclusion of Sunflower's second quarter
1996 results and the remainder of the decline was due to the continued
competition from riverboat gaming on the nearby Missouri River. Admissions,
programs and other racing income declined by $636,000 or 6.9%, with $409,000
of the decline related to the exclusion of Sunflower's second quarter 1996
results, with the balance primarily due to a 4.9% decrease in on-track
attendance at Hollywood Park. Concession sales decreased by $3,168,000, or
29.3%, with $1,051,000 of the decline due to (i) the exclusion of Sunflower's
second quarter 1996 results and riverboat gaming competition in Missouri, and
(ii) the fact that the 1995 results included sales to PCM, the former gaming
floor lessee (as mentioned earlier), with no such sales in the 1996 results.
Other income decreased by $287,000, or 7.7%, primarily due to the cancellation
of the initial parking revenue agreement with the neighboring Great Western
Forum (the "Forum Parking Agreement"), and a decrease in interest income
earned on excess cash reserves. A new Forum Parking Agreement was executed on
October 24, 1995, covering the one year from October 1, 1995, through
September 30, 1996, providing for a minimum annual rent of $1,200,000,
compared to $1,800,000 under the prior agreement. The one year term of the new
Forum Parking Agreement, which is substantially shorter than the twelve year
term of the old Forum Parking Agreement, is intended to provide flexibility
regarding the proposed stadium development and to gain other cross marketing
benefits.
Total operating expenses, inclusive of Casino gaming floor expenses (with no
corresponding gaming floor operating expenses in the 1995 results) and with
the 1996 financial results exclusive of Sunflower's second quarter 1996
operating expenses, increased by $8,930,000, or 16.7%, for the six months
ended June 30, 1996, as compared to the six months ended June 30, 1995.
Salaries, wages and employee benefits increased by $8,177,000, or 40.0%,
primarily because of wages and benefits associated with the gaming floor staff
(hired November 17, 1995). Facilities costs decreased by $904,000, or 17.0%,
with $533,000 of the decline attributable to the exclusion of Sunflower's
second quarter 1996 results, and with the balance primarily due to reduction
in property taxes at Hollywood Park. Cost of concession sales decreased by
$2,716,000, or 20.2%, principally due
100
<PAGE>
to staff reductions at the Casino and the exclusion of Sunflower's second
quarter 1996 results. Marketing costs increased by $1,000,000, or 37.3%,
primarily due to Casino marketing costs. Administrative costs increased by
$3,478,000, or 85.2%, due primarily to costs associated with the operation of
the gaming floors, including the city of Inglewood monthly gaming license fee.
Depreciation and amortization decreased by $254,000, or 4.5%, due primarily
to the exclusion of Sunflower's second quarter 1996 results. Interest expense
decreased by $1,030,000, or 53.4%, due to the exclusion of Sunflower's second
quarter 1996 results.
Income tax expense increased by $330,000, or 15.6%, due to higher pre-tax
income in 1996, and an anticipated slightly higher effective tax rate in 1996.
Year ended December 31, 1995 compared to the year ended December 31, 1994
The 1995 consolidated financial statements include the results of operations
at Hollywood Park, the Hollywood Park-Casino, Sunflower, and Turf Paradise.
From July 1, 1994 until November 17, 1995, the Hollywood Park-Casino was
operated under a lease by an unaffiliated operator who operated the gaming
floor business and Hollywood Park operated all other activities. After a
change in California law permitting Hollywood Park to operate the casino
directly, the gaming floor business was acquired from the operator as of
November 17, 1995, accounted for under the purchase method of accounting. The
1995 Hollywood Park-Casino operating results included ten and a half months of
operations under the lease, and one and a half months under Hollywood Park's
direct ownership and control. 1994's operating results include the six months
of Hollywood Park-Casino activities under the lease arrangement. Sunflower was
acquired as of March 31, 1994, in a transaction accounted for under the
purchase method of accounting. Therefore, the 1994 statement of operations
does not include Sunflower's first quarter results. Turf Paradise was acquired
as of August 11, 1994, accounted for under the pooling of interests method of
accounting. Accordingly, the 1994 results have been restated to include the
operating results of Turf Paradise for the full year.
Total revenues increased by $13,249,000, or 11.3%, during 1995, as compared
to the year ended December 31, 1994. Included in 1995 revenues was $20,624,000
of Hollywood Park-Casino fixed lease rent revenue (of which the operator paid
$12,000,000 in 1995 plus $4,377,000 for food and beverage and interest on
accrued and unpaid rent) and $6,032,000 of gaming floor revenue, compared to
$11,745,000 of Hollywood Park-Casino fixed lease rent revenue in 1994,
covering six months of casino operations. Pari-mutuel commissions increased by
$1,527,000, or 3.0%, primarily due to increased simulcast racing at both
Hollywood Park and Turf Paradise, despite five fewer live race days at
Hollywood Park and thirteen fewer live race days at Turf Paradise. Sunflower
revenues continued to be severely negatively impacted by riverboat gaming in
Missouri. For the year ended December 31, 1995, as compared to the year ended
December 31, 1994, Sunflower's total live pari-mutuel handle decreased by
$60,385,000, or 54.6%. From November 17, 1995, until the end of 1995,
Hollywood Park generated $6,032,000 of casino-gaming revenues. Admissions,
programs and other racing income decreased by $758,000, or 4.0% due primarily
to a 37.1% decline in on-track attendance at Sunflower, and fewer live race
days at Hollywood Park and Turf Paradise. Concession sales declined by
$757,000 or 3.7%, mainly due to a 31.9% decrease in Sunflower's concession
sales, and five fewer live race days at Hollywood Park, and thirteen fewer
live race days at Turf Paradise. Other income increased by $777,000, or 12.3%.
Other non-casino income increased by $940,000, or 15.0%. Revenue declines at
Hollywood Park due to the cancellation of the Forum Parking Agreement were
offset primarily due to Hollywood Park-Casino gift shop and health club sales.
A new Forum Parking Agreement was executed on October 24, 1995, covering the
one year from October 1, 1995.
Total operating expenses, inclusive of $29,819,000 of Hollywood Park-Casino
operating expenses (representing a month and a half of gaming floor operations
and twelve months of other Hollywood Park-Casino operations, for which there
were no gaming floor expenses and just six months of comparable other
Hollywood Park-Casino operations activity in 1994) increased by $13,251,000,
or 13.7%, during the year ended December 31, 1995, as compared to the year
ended December 31, 1994. Salaries, wages and employee benefits increased by
$5,874,000, or 15.8%, principally because of wages and benefits associated
with the gaming floor staff (hired November 17, 1995) and the six additional
months of other Hollywood Park-Casino operations wages
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in 1995 as compared to the same period in 1994. Operations of facilities
increased by $770,000, or 7.6%, primarily related to increased insurance costs
and Hollywood Park-Casino operations. Cost of concession sales increased by
$3,311,000, or 15.2%, essentially due to Hollywood Park-Casino operations.
Professional services increased by $213,000, or 2.8%, primarily due to legal
costs incurred related to Hollywood Park's expansion projects, including the
proposed stadium. Rent expense decreased by $517,000, or 28.4%, mainly due to
the conclusion of Hollywood Park's lease on the infield message board.
Utilities increased by $215,000, or 4.6%, due to the full year of Hollywood
Park-Casino operations in 1995 as compared to just six months of activity in
1994. Marketing costs decreased by $515,000, or 8.5%, due primarily to savings
related to reductions in advertising for Friday night racing and five fewer
live race days at Hollywood Park. Administrative costs increased by
$3,902,000, or 55.5%, principally because of costs incurred related to two
card club initiative campaigns, which were defeated in September and November,
and costs for other expansion endeavors, including the proposed stadium and
other card clubs. All costs associated with projects in the evaluation stages
are expensed as incurred.
As previously reported, on February 26, 1996, the District Court approved
the settlement of the Class Actions and entered a judgment dismissing them in
their entirety. On April 3, 1996, the State Court entered an order approving
the settlement of the Derivative Action. Hollywood Park also separately
settled all purported claims against Hollywood Park and its officers and
directors by the former controlling stockholder of Turf Paradise in connection
with Hollywood Park's acquisition of Turf Paradise. After giving effect to the
amounts to be received by Hollywood Park in settlement of the Derivative
Action and from its insurance carrier, Hollywood Park's net settlement payment
in the Class Actions, the Derivative Action and in resolving the claims of the
former controlling stockholder of Turf Paradise, was approximately $6.1
million (inclusive of all related costs and expenses), which was expensed in
the fourth quarter of 1995.
The 1994 Hollywood Park-Casino pre-opening and training costs of $2,337,000
were primarily related to wages paid during the on-the-job training of staff
hired to open the Hollywood Park-Casino on July 1, 1994. There were no similar
costs in 1995. The Turf Paradise acquisition costs were a result of the August
11, 1994, acquisition of Turf Paradise by Hollywood Park; there were no
similar costs in 1995.
Depreciation and amortization increased by $1,821,000, or 19.0%, for the
year ended December 31, 1995, as compared to the year ended December 31, 1994.
The increase was mainly due to Hollywood Park-Casino operations, and costs
associated with the first quarter of 1995 at Sunflower with no corresponding
amount in 1994. Interest expense increased by $860,000, or 28.1%, principally
due to an additional three months of Sunflower interest expense in the 1995
results. Sunflower's 1994 results are exclusive of the first quarter.
Income tax expense decreased by $875,000, due primarily to the decrease in
pre-tax income in the year ended December 31, 1995 as compared to the year
ended December 31, 1994.
Year ended December 31, 1994 compared to the year ended December 31, 1993
The 1994 consolidated financial statements include the results of operations
at Hollywood Park, Sunflower, Turf Paradise and the Hollywood Park-Casino.
Sunflower was acquired as of March 23, 1994 in a purchase accounting
transaction. Accordingly, there are no comparable results of operations in the
1993 figures. Turf Paradise was acquired as of August 11, 1994 in a pooling of
interests method of accounting transaction. Accordingly, prior years have been
restated to include the results of operations of Turf Paradise. Historically,
Turf Paradise has reported operations with a fiscal year end of June 30 and as
such, the 1993 results of operations are a consolidation of Hollywood Park's
results for the year ended December 31, 1993, and Turf Paradise's results for
the year ended June 30, 1993. The Hollywood Park-Casino began operations on
July 1, 1994, and there are no comparable results of operations in 1993.
The following discussion and analysis is presented net of the results of
operations at Sunflower and the Hollywood Park-Casino, but is inclusive of the
results of operations at Turf Paradise.
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Total revenues increased by $5,506,000, or 7.0%, in 1994 as compared to
1993. Pari-mutuel commissions increased by 10.3%, or $4,827,000. The majority
of the increase was attributable to simulcast and off-track wagering at the
Hollywood Park race track, due primarily to a change in the California racing
law removing all restrictions on simulcasting between northern and southern
California. The remainder of the increase was attributable to three additional
race days at Hollywood Park and eight additional race days at Turf Paradise in
1994 compared to 1993. Other income increased by $678,000, or 16.0%, due
almost entirely to interest income earned on short term investments.
Operating expenses, exclusive of Hollywood Park-Casino pre-opening and
training expenses and acquisition costs associated with Turf Paradise,
increased by $7,306,000, or 11.6%, in 1994 as compared to 1993. Salaries,
wages and employee benefits were $3,177,000 more in 1994, an increase of
11.1%, due primarily to three additional live race days at Hollywood Park and
eight at Turf Paradise, along with increases in permanent employee wages at
both racing facilities. To a lesser extent, a portion of the increase was
attributable to a change in the California racing law related to charity day
expense. Facilities operations expense decreased by $444,000, or 5.8%, the
result of a one time property tax reduction at Turf Paradise, a change at
Hollywood Park from a self insurance health and welfare program to a fully
insured plan and a decrease in "slip and fall" claims. Cost of concession
sales increased by $231,000, or 2.5%, principally related to higher food costs
at Turf Paradise. Professional services increased by $972,000, or 16.8%,
principally related to increased program costs at Hollywood Park due to a net
of three additional race days and increased legal costs due to costs
associated with attempting to eliminate state sales tax on pari-mutuel
commissions. Rent expense increased by $367,000, or 25.8%, essentially because
of higher totalisator rent at both facilities, due to additional race days in
1994, and the 1994 payment of Las Vegas simulcast interface fees for both 1994
and 1993. Utilities increased by $266,000, or 9.4%, due in part to higher
water costs associated with purchasing additional water from the City of
Inglewood, and the addition of Friday night racing during the Autumn Meeting.
Marketing costs increased by $1,504,000, or 44.4%, primarily due to increased
marketing at Hollywood Park, with a focus on Friday night racing during both
live race meets, and a new marketing strategy at Turf Paradise, which, before
its acquisition, had only a limited marketing program. Administrative costs
increased by $1,233,000, or 33.1%, primarily due to increased costs associated
with examining expansion opportunities.
Hollywood Park-Casino pre-opening and training expenses increased by
$764,000. The Hollywood Park-Casino opened on July 1, 1994, and additional
management staff was hired in the weeks immediately before opening. The
majority of the Hollywood Park-Casino staff was hired within one week of
opening and accordingly, Hollywood Park incurred costs associated with an on-
the-job training program. Hollywood Park-Casino senior management was in place
for all of 1994 with most hired during the fourth quarter of 1993. Hollywood
Park expensed the $414,000 of costs it incurred in connection with the
acquisition of Turf Paradise in the third quarter, while Turf Paradise
expensed such costs as incurred.
The Sunflower acquisition was accounted for under the purchase method of
accounting and, Hollywood Park's historical results of operations were not
restated to include Sunflower's operating results; therefore, there can be no
comparison between the year ended December 31, 1994 and 1993. However,
introduction of riverboat gaming in mid-1994 and the addition of slot machines
on the riverboats, as of December 1994 on the nearby Missouri River, had a
very significant negative impact on Sunflower's operating results in 1994. For
the twelve months ended December 31, 1994, compared to the twelve months ended
December 31, 1993, Sunflower's total handle, including both live greyhound and
horse racing and simulcasting of horse racing, declined by $25,823,000, or
15.3%. Sunflower's total revenues declined by $3,631,000, or 13.4%. Cost
savings in essentially every operating department and interest expense were
not enough to offset the decline in revenues, and loss before income tax
expense increased by $910,000.
Depreciation and amortization increased by $225,000, or 3.5%, due to normal
capital expenditures and the amortization of the excess purchase price
associated with the Sunflower acquisition. Interest expense decreased by
$1,041,000, or 68.6%, because as of June 1993 Hollywood Park had retired all
of its outstanding bank debt.
The Hollywood Park-Casino opened on July 1, 1994, under a third party
leasing arrangement, whereby the lessee operated the gaming floor and related
activities, and Hollywood Park managed all other functions
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including security, food and beverage, maintenance and other such functions.
The Hollywood Park-Casino's 1994 income before income tax expense and training
costs was $2,061,000. For the year ended December 31, 1994, $11,745,000 of
lease rent revenue was recognized, representing the $18,000,000 of rent and
$245,000 of accrued interest due under the lease, less a valuation allowance
of $6,500,000.
Income tax expense, including the results of operations at Sunflower and the
Hollywood Park-Casino, increased by $179,000, or 17.5%, basically related to
the inability to deduct the majority of the pooling costs associated with the
acquisition of Turf Paradise, amortization of the goodwill associated with the
Sunflower acquisition and lobbying costs in Kansas.
LIQUIDITY AND CAPITAL RESOURCES
Hollywood Park's principal source of liquidity at June 30, 1996 was cash and
cash equivalents of approximately $30,830,000, which reflected an increase of
approximately $8,424,000 from December 31, 1995. This increase was primarily a
result of a seasonally strong second quarter, maturity of short term
investments, and the release of Hollywood Park's workers' compensation self
insurance deposit, netted against disbursements related to construction of
Crystal Park Hotel & Casino ("Crystal Park") and dividends paid on Hollywood
Park's convertible preferred stock. Cash and cash equivalents decreased by
$1,399,000 during the six months ended June 30, 1995, primarily due to debt
service payments on secured and unsecured loan facilities, off-set by
increases in accounts payable and accrued liabilities.
Cash and cash equivalents decreased by $14,716,000 during 1995, as compared
to the year ended December 31, 1994, primarily related to land acquisitions,
purchases of short term investments, debt service payments on the secured and
unsecured loan facilities, capital expenditures and dividends paid on
Hollywood Park's convertible preferred stock. Cash and cash equivalents
decreased by $23,495,000 during the year ended December 31, 1994, as compared
to the year ended December 31, 1993, primarily because of capital expenditures
for the construction of the Hollywood Park-Casino and the acquisition of
Sunflower.
Hollywood Park. On August 2, 1995, Hollywood Park paid the City of Compton
approximately $2,006,000 to acquire the convention center parcel, which will
be renovated to house the Crystal Park card club. On August 3, 1995, Hollywood
Park paid the unaffiliated operator of Crystal Park $2,000,000 for the
assignment of the Development and Disposition Agreement the operator had with
the city of Compton and an additional $500,000 for a five year option to
purchase the operator's gaming license.
On September 15, 1995, Hollywood Park paid approximately $3,411,000 to
purchase 5.92 acres adjacent to the Inglewood property. On October 27, 1995,
Hollywood Park finalized the acquisition of an additional 37.33 acres, also
adjacent to the Inglewood property, for a total cost of approximately
$7,500,000. Upon consummation of the purchase of the 37.33 acres, Hollywood
Park paid the seller $4,100,000 and signed a non-interest bearing, promissory
note, with a single payment of $3,358,000, made on September 1, 1996. The
additional acreage may be used for development projects currently under
evaluation.
Capital expenditures of $9,132,000 for the six months ended June 30, 1996,
were primarily related to upgrading the audio visual equipment at the
Hollywood Park Race Track, and construction of Crystal Park. With Hollywood
Park increasing its ownership interest in Crystal Park, to 88% from 40%,
Hollywood Park will be responsible for the corresponding greater amount of the
construction costs. Other capital expenditures of approximately $17,639,000
for the year ended December 31, 1995, included initial costs for the Crystal
Park card club and normal and necessary improvements at the Hollywood Park,
Sunflower and Turf Paradise properties. Other capital expenditures represent
normal and necessary improvements at Hollywood Park's properties.
On October 6, 1995, in anticipation of the proposed settlement of the Class
Actions and Derivative Action, Hollywood Park deposited $2,450,000 into a
restricted cash account.
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On April 14, 1995, Hollywood Park executed an unsecured loan facility of up
to $75,000,000 with Bank of America (the "Business Loan Agreement"). The loan
facility consists of a $60,000,000 line of credit (the "Line of Credit") and a
$15,000,000 revolver (the "Revolver"). During the six months ended June 30,
1996, and the year ended December 31, 1995, Hollywood Park did not draw any
funds from its various credit facilities with Bank of America National Trust
and Savings Association ("Bank of America") except for the issuance of a
standby letter of credit on May 1, 1996 mentioned below.
The Line of Credit is an interest only revolving facility, under which
Hollywood Park may borrow, pay and reborrow principal amounts without penalty.
On or before September 1, 1996, Hollywood Park has the option to convert the
Line of Credit to a term repayment line of credit, at a maximum amount of
$60,000,000, with a seven year term period from the date of conversion, which
would require repayment in eighty-four successive equal monthly installments.
The Line of Credit bears interest at the option of Hollywood Park at Bank of
America's prime rate plus 0.25% or the offshore rate plus 2.0%, and Hollywood
Park may further elect an agreed upon fixed rate.
The Revolver, inclusive of a within line facility for standby letters of
credit of up to a maximum of $5,000,000, is available during the two years
ending May 1, 1997, during which Hollywood Park can borrow, pay and reborrow
principal amounts without penalty. The Revolver bears interest at the option
of Hollywood Park at Bank of America's prime rate or the offshore rate plus
1.75%, and Hollywood Park may further elect an agreed upon fixed rate.
As of March 31, 1996, Hollywood Park did not meet the quick assets to
current liabilities bank covenant ("quick ratio"), and as of December 31,
1995, did not meet the tangible net worth and quick ratio covenants, contained
in the Business Loan Agreement. The quick ratio covenant was not met as of
March 31, 1996 due to, among other matters, the full funding by Hollywood Park
of the capital improvements at Crystal Park. The tangible net worth and quick
ratio covenants were not met as of December 31, 1995, due to the November 17,
1995 acquisition of the former operator of the Hollywood Park-Casino, in which
certain tangible current assets were eliminated in the transaction and
goodwill of approximately $21,592,000 was recorded. On May 10, 1996, Bank of
America waived compliance with the quick ratio covenant through June 29, 1996,
and on March 20, 1996, the bank waived compliance with both covenants through
December 31, 1995. As of June 30, 1996, Hollywood Park was in compliance with
all financial covenants.
On July 1, 1996, Hollywood Park and Bank of America executed Amendment Two
to the Business Loan Agreement, which among other things, extended the date
for drawing down on the Line of Credit from July 1, 1996, to September 1,
1996. On April 30, 1996, Hollywood Park and Bank of America executed Amendment
One to the Business Loan Agreement, which among other things, extended the
date for drawing down on the Line of Credit from May 1, 1996 to July 1, 1996,
and adjusted the tangible net worth covenant requirement for December 31,
1996.
On May 1, 1996, Hollywood Park issued a standby letter of credit (from
within the available Revolver facility) in the amount of $2,617,000 as
security for the self-insurance workers' compensation program with the state
of California.
Dividends of $962,000 and $1,925,000 were paid on the convertible preferred
stock during the six months ended June 30, 1996, and for the year ended
December 31, 1995, respectively. Such dividends were made in payments of
approximately $481,000 (representing $17.50 per convertible preferred share)
on February 15, 1995, May 15, 1995, August 18, 1995, November 15, 1995,
February 15, 1996, May 15, 1996 and August 15, 1996.
The convertible preferred stock can be converted at Hollywood Park's option
into shares of Common Stock if, among other requirements, the closing price of
Hollywood Park's common stock exceeds $15.00, subject to adjustments, for 20
trading days, within any period of 30 consecutive trading days, including the
last trading day of such period. The conversion price is equal to 83.33 common
shares for each convertible preferred share, or 0.8333 for each depositary
share. Hollywood Park anticipates converting the convertible preferred stock
at the earliest possible date.
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In 1995, Hollywood Park began investing in corporate bonds, with
approximately $4,053,000 invested as of June 30, 1996, with Moody's ratings of
Ba2 to B3 and Standard and Poors ratings of BB+ to B-, though some of the
bonds are not rated by either agency. The corporate bond investments, as of
June 30, 1996, had a weighted average maturity of 1.5 years, and because
Hollywood Park reasonably expects to liquidate this investment in its normal
operating cycle this investment was classified as short term. Hollywood Park
further classifies the corporate bond investments as available-for-sale, and
as such, they are recorded in the accompanying financial statements at fair
value, which is determined by quoted market price. Investments in corporate
bonds carry a greater amount of principal risk than investments historically
made by Hollywood Park and yield a correspondingly higher return.
Sunflower. In 1991, Sunflower converted a $40,000,000 construction loan to a
term note payable with a group of five local and national banks (the "Banks").
On March 24, 1994, an Amended and Restated Credit and Security Agreement (the
"Senior Credit") was executed in connection with Hollywood Park's acquisition
of Sunflower. The Senior Credit has been amended three times, most recently in
October 1995 by the Standstill Agreement (discussed below); on December 19,
1994, to allow for the Sunflower promissory note (discussed below), and for
the waiver of the default or event of default resulting from the failure to
maintain a fixed charge coverage ratio as of December 31, 1994; and on August
1, 1994, to amend the definition of fixed charge coverage. The Senior Credit
was non-recourse to Hollywood Park, except with respect to the guarantee of
the interest payments required under the Standstill Agreement (as defined
below). The guarantee was terminated without any payments by Hollywood Park,
by reason of the termination of the Standstill Agreement (as discussed below).
As of June 30, 1996, the Senior Credit had an outstanding balance of
$28,667,000.
On December 19, 1994, in anticipation of insufficient cash flow from daily
operations, due to intense competition from riverboat gaming in Missouri,
Sunflower executed a promissory note to Hollywood Park, allowing for the
advancement of up to $3,000,000, for the payment of its Senior Credit
obligations. In 1995, Hollywood Park advanced $2,500,000 to Sunflower, which
along with accrued interest is subordinated to the Senior Credit obligations.
Principal and accrued interest are due by January 23, 1997.
On March 31, 1995, though current on principal and interest due on the
Senior Credit, Sunflower was in technical default of the fixed charge coverage
ratio covenant; however, Sunflower was unable to pay the July 3, 1995, Senior
Credit principal and interest due of approximately $1,200,000.
In October 1995, Sunflower and the Banks executed a Standstill Agreement,
which among other things, provided for the extension of the Senior Credit
maturity. The Standstill Agreement provided for the deferral of 100% of the
principal payments and 50% of the interest payments due under the Senior
Credit from April 1995 through the termination date of the Standstill
Agreement. The Standstill Agreement terminated on May 2, 1996, because the
Kansas Legislature concluded its 1996 session without passing legislation that
would have permitted slot machines or other casino gaming at Kansas race
tracks, including Sunflower. On May 17, 1996, Sunflower filed for
reorganization under Chapter 11 of the Bankruptcy Code.
In December 1995, as required under the Standstill Agreement, Sunflower
notified the Banks that it had not made an approximately $400,000 property tax
payment. On May 2, 1996, the Kansas State Legislature concluded its 1996
legislative session without adoption of legislation permitting slot machines
or other casino gaming at Kansas race tracks, which would have allowed
Sunflower to compete against nearby Missouri riverboat casinos on a more level
playing field. This has resulted in the termination of the Standstill
Agreement as of May 2, 1996; however, Sunflower does not have sufficient
resources to repay the Senior Credit. Consequently, as noted in "Results of
Operations" above, on May 17, 1996, Sunflower filed a Petition for
Reorganization under Chapter 11 of the U.S. Bankruptcy Code.
Turf Paradise On April 13, 1995, Turf Paradise repaid the outstanding
balance of its unsecured revolving loan facility with Bank One of Arizona, and
terminated the $2,500,000 facility. On June 1, 1995, Turf Paradise executed a
$2,500,000 promissory note to Hollywood Park. As of December 31, 1995, Turf
Paradise had paid the promissory note in full.
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General. Hollywood Park is continually evaluating future growth
opportunities in the gaming, sports and entertainment industries, including
the Merger. Hollywood Park expects that funding for growth opportunities,
dividend requirements on the convertible preferred stock, payments on notes
payable or capital expenditure needs will come from existing cash balances,
cash generated from operating activities and borrowings from future
credit facilities with respect to which Hollywood Park is having active
discussions with lending institutions. In the opinion of management, these
resources will be sufficient to meet Hollywood Park's anticipated cash
requirements for the foreseeable future (and in any event for at least the
next 12 months).
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BOOMTOWN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Boomtown's revenues consist primarily of gaming revenues from slot and video
poker machines ("slot machines"), table games and keno as well as non-gaming
revenues generated from the properties' family entertainment centers, food and
beverage sales, hotel room sales and Boomtown's recreational vehicle parks.
Gaming operations have historically contributed a significant portion of
Boomtown's total revenues and substantially all of its income from operations.
In fiscal 1995, gaming operations contributed approximately 82% of Boomtown's
total revenues. The gaming revenue from slot machines is the primary component
of Boomtown's gaming operations, providing approximately 77% of Boomtown's
gaming revenues. Boomtown's non-gaming operations are designed primarily to
enhance the gaming revenues and operating profits of its gaming operations and
contribute a relatively small percentage of Boomtown's income from operations
after deducting promotional allowances and operating costs.
The discussion and analysis set forth below should be read in conjunction
with Boomtown's consolidated financial statements and notes thereto included
elsewhere herein. References to "gaming" and "casino" are synonymous for
purposes of analyzing the operations of Boomtown.
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RESULTS OF OPERATIONS
The following table sets forth certain items from Boomtown's consolidated
statements of operations as a percentage of total revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
-------------------- -----------------
1993 1994 1995 1995 1996
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Gaming (includes FunFlight
program)......................... 72.3% 73.8% 81.7% 82.4% 80.4%
Non-casino........................ 27.7 26.2 18.3 17.6 19.6
----- ----- ----- ------- -------
100.0 100.0 100.0 100.0 100.0
Operating expenses:
Gaming (includes FunFlight
program)......................... 31.3 30.2 34.1 34.3 34.4
Non-casino........................ 20.3 22.7 14.7 14.1 16.2
Marketing, general &
administrative................... 27.2 32.2 41.0 40.5 40.0
Pre-opening expenses.............. -- 15.3 -- -- --
Discontinued projects/future
development...................... -- -- 2.6 3.5 .5
Depreciation and amortization..... 6.6 5.7 4.5 4.5 4.7
Loss on sale of Blue Diamond...... -- -- -- -- 21.1
----- ----- ----- ------- -------
85.4 106.1 96.9 96.9 116.9
Income (loss) from operations...... 14.6 (6.1) 3.1 3.1 (16.9)
Interest expense, net of
capitalized interest.............. (1.7) (5.4) (5.8) (5.8) (5.9)
Interest Income.................... 0.7 2.5 1.3 1.4 1.4
Other Income....................... -- -- -- -- .5
Loss in marketable securities...... -- (1.6) -- -- --
----- ----- ----- ------- -------
Income (loss) before minority
interest, extraordinary loss and
income taxes...................... 13.6 (10.6) (1.4) (1.3) (20.9)
Minority interest.................. -- 0.3 .5 .1 .5
----- ----- ----- ------- -------
Income (loss) before extraordinary
loss and income taxes............. 13.6 (10.3) (.9) (1.2) (20.4)
Provision (benefit) for income
taxes............................. (5.2) 2.7 .4 (.5) --
----- ----- ----- ------- -------
Income (loss) before extraordinary
loss.............................. 8.4 (7.6) (1.3) (.7) (20.4)
Extraordinary loss--early
extinguishment of debt, net of
tax............................... (0.6) (0.2) -- -- --
----- ----- ----- ------- -------
Net income (loss).................. 7.8% (7.8)% (1.3)% (.7)% (20.4)%
===== ===== ===== ======= =======
</TABLE>
Nine Months Ended June 30, 1996 Compared to Nine Months Ended June 30, 1995
During the nine month period ended June 30, 1996 revenues were $173.4
million compared to $169.7 million in the prior year commensurate period. The
improvement in revenues resulted from higher gaming revenues at Boomtown Reno
and Boomtown Biloxi, offset by lower gaming revenues at Boomtown Las Vegas and
Boomtown New Orleans. Boomtown Reno's revenues grew 8.1% over the prior year
period from higher traffic volume on Interstate 80, where the casino receives
the majority of its customer volume. Boomtown Biloxi's revenues were up 9.2%
during the nine month period, attributable to expansion of the gaming market
in the Gulf Coast region combined with higher marketing and promotional
efforts at the Boomtown property. Gaming revenues at Boomtown Las Vegas
continue to be less than expected and lower than the prior year resulting from
increased competition with other casino operators for the local customer
market in the Las Vegas area. Boomtown New Orleans revenues have been
negatively affected by additional cruising of its riverboat casino as mandated
by law.
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Non-gaming revenues for the nine months ended June 30, 1996 were $34.0
million as compared to $29.9 million recorded during the prior year nine month
period. Non-gaming revenues are generated from Boomtown's family entertainment
centers, food and beverage sales, cabaret show, hotel room sales, recreational
vehicle park and other entertainment amenities. Increases in non-gaming
revenues were recorded at all four of the Boomtown casinos during the nine
month period, with the majority of the consolidated improvement due from
higher fuel sales at the Reno truckstop as well as the expansion of the
cabaret show at the New Orleans casino property.
The consolidated gaming margin decreased $1.0 million to 60.8% of gaming
revenues compared to 61.3% during the prior year nine month period. The
decline is primarily a result of a change in the calculation of gaming taxes
at Boomtown New Orleans resulting in the taxes being reclassified and charged
as a gaming expense in the current year period. During the prior year, the
taxes were calculated based on a flat charge per admission and recorded as
general administrative expenses. Additionally, Boomtown's consolidated gaming
margin was negatively effected by gaming lease entered into in April 1995
resulting in higher gaming equipment lease expense during the period. The
decline in the consolidated gaming margin was offset by improvements from
Boomtown Biloxi resulting from the discontinuance of the property's Fun Flight
program in October 1995.
Marketing expenses for the nine months ended June 30, 1996 were $16.6
million, 14% higher than $14.5 million recorded during the prior year.
Marketing expenses consist of costs associated with printed advertising,
outdoor signs, media advertising, promotional events, Boomtown's bus tour and
Fun Flight programs and other administrative expenses. The increase in
marketing expenses during the nine month period resulted from additional
advertising in Biloxi and Las Vegas in order to promote the Boomtown brand and
compete with the local customer market in those areas. Higher promotional
events and player's club redemption costs at all of the Boomtown casinos also
attributed to the increase.
General and administrative ("G&A") expenses were $52.8 million for the nine
months ended June 30, 1996, a 2.8% decline from the $54.2 million recorded
during the same prior year period. G&A expenses were less at Boomtown's Las
Vegas and New Orleans properties offset by higher expenses in Biloxi. The
reduction at Boomtown New Orleans primarily resulted from a reclassification
of gaming taxes from G&A to gaming operating expenses during the current year
period. Lower expenses at Boomtown Las Vegas resulted from a reduction of
overhead costs in most casino departments due to cost control efforts.
Boomtown Biloxi's G&A expenses increased attributable to higher property rent
and building and grounds maintenance associated with the aging of the building
and barge.
During the nine months ended June 30, 1996 Boomtown incurred charges of
$683,000 related to the Merger, as well as $237,000 associated with its
license application in the state of Indiana reflected in "Discontinued
Projects/Future Development."
Depreciation and amortization expense rose 6.5% to $8.1 million during the
nine month period ended June 30, 1996, resulting from property and equipment
purchases at the Boomtown properties. Additionally, the increase is partially
attributable to restructuring certain operating leases to capital leases at
Boomtown's Biloxi and New Orleans properties, capitalizing the equipment and
depreciating the costs over the remaining estimated useful lives.
During the quarter ended June 30, 1996, Boomtown took a non-cash, pre-tax
charge of $36.6 million related to the Swap Agreement which would effectively
provide for an early termination of the existing property lease between
Boomtown and IVAC. The agreement provides that upon consummation of the
Merger, Boomtown would transfer its entire interest in the Resort to Roski in
exchange for certain assets and the assumption by Roski, IVAC or an affiliate
of certain liabilities and termination of the lease. The charge is comprised
of the write-off of Boomtown's investment in lease of $12.7 million, a $18.9
million write-down of the related party notes receivable to $8.5 million and
the write-off of the remaining net assets less the liabilities assumed by
Roski of $5.0 million (approximate value at June 30, 1996, recorded as a
valuation adjustment to property, plant and equipment). The after-tax loss
amounted to $35.7 million, or $3.86 per share. Consummation of the Swap
Agreement is subject to obtaining all necessary governmental approvals,
including gaming approval. In addition, Boomtown intends to solicit the
consent of the holders of a majority amount of the principal amount of the
First Mortgage Notes to effect the Swap Agreement.
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The recorded benefit for income taxes for the nine months ended June 30,
1996, does not necessarily reflect the anticipated benefit from the write-off
associated with the Swap Agreement. The write-off of the $12.7 million
investment in lease, is not tax deductible for income tax purposes, however
the remaining income tax benefit arising from the Swap Agreement has been
offset by a valuation allowance because of the uncertainty regarding future
realization of the related deferred tax asset.
Interest expense for the nine months ended June 30, 1996 was $10.4 million
compared to $9.8 million recorded during the prior year period. Additionally,
Boomtown recorded interest income of $2.3 million, 3% higher than during the
prior year. Interest income is primarily generated from the IVAC notes
receivable, which will be canceled in connection with the Las Vegas lease
termination as described above. During the nine months ended June 30, 1996 the
Company also recorded other income of $827,000 consisting of sales tax
recoveries from double taxation on certain equipment operating leases.
Fiscal Year 1995 Compared to Fiscal Year 1994
Gaming revenues as a percent of total revenues increased from 73.8% to 81.7%
from fiscal 1994 to fiscal 1995. This was due to the opening of the three new
gaming properties, particularly Boomtown Biloxi and Boomtown New Orleans.
Boomtown Biloxi's and Boomtown New Orleans' gaming revenues provide
approximately 90% and 97% of each partnership's total revenues, respectively.
Gaming revenues increased 148% or $113 million, primarily due to the opening
of the three new gaming properties in the third and fourth quarters of fiscal
1994. Boomtown Reno's gaming revenue decreased 3%, from $43.8 million to $42.6
million due to
severe winter weather conditions in the first two fiscal quarters. The new
properties, Boomtown Las Vegas, Biloxi and New Orleans, contributed $32.9
million, $41.7 million and $72.2 million, respectively, to casino revenues.
Non-gaming revenues increased $15.4 million from $26.7 million to $42.0
million. The increases were primarily related to the opening of the new gaming
properties. Boomtown Biloxi contributed an increase of $1.9 million and $1.6
million from its food and beverage operation and its family entertainment
center, respectively in addition to other income of $223,000; Boomtown New
Orleans contributed increases of $789,000 and $548,000 from its family
entertainment center, its food and beverage operation and the cabaret,
respectively, in addition to other income of $374,000; and Boomtown Las Vegas
contributed increases of $4.9 million $2.2 million and $1.2 million from its
food and beverage, hotel operations and recreational vehicle park,
respectively, in addition to other income of $581,000. Boomtown Reno's non-
gaming revenues increased by $717,000 of which $314,000 was due to the opening
of a steakhouse in May 1994. The remainder of the increases at Boomtown Reno
were related to the family entertainment center, hotel, recreational vehicle
park, and entry fees for gaming and golf tournaments.
Gaming expenses increased $47.8 million or 153% from fiscal 1994 to fiscal
1995 and as a percent of revenues from 30.2% to 34.1%. Gaming expenses as a
percent of total revenues were 29.6%, 31.9%, 41.9% and 34.5% at Reno, Las
Vegas, Biloxi, and New Orleans, respectively. Except for Biloxi, the variance
is due primarily to the difference in gaming tax rates. Biloxi's variance is
primarily due to the addition of the FunFlight program in fiscal 1995 which
had operating expenses of $3.1 million and revenues of $1.4 million. In
addition, an increase of $5.4 million was related to gaming equipment lease
expenses due to the sale and leaseback of certain furniture, fixtures and
equipment at the various properties that occurred during the end of the 1994
fiscal year and at the beginning of the 1995 fiscal year.
Non-gaming operating expenses consist of costs incurred for food and
beverage, hotel, recreational vehicle park, family entertainment center,
truckstop, service station, mini-mart and other. Non-gaming operating expenses
increased $10.7 million. The increases were primarily related to the opening
of the three new gaming properties in fiscal 1994.
Marketing, general and administrative expenses increased from $33.3 million
in fiscal 1994 to $94.9 million in fiscal 1995, an increase of $61.6 million.
This increase was primarily due to the opening of the three new
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gaming properties ($59.9 million) in fiscal 1994. The remainder of the
increase is due to the addition of the player's slot club and promotions
related to bus tour programs at Boomtown Reno.
Discontinued projects primarily consists of write-offs and accruals for
development costs associated with Boomtown's research and pursuit into various
gaming jurisdictions for the purpose of applying for gaming licenses.
Significant write-offs in the third quarter included development costs related
to the following projects; Lawrenceburg, Indiana (approximately $4.3 million),
the state of Missouri ($727,000), the state of Iowa ($335,000) and other
miscellaneous projects ($220,000). In addition, Boomtown terminated a merger
and related agreements with NGC in April 1995. As a result, Boomtown wrote-off
$450,000 of accumulated expenses related to the transaction.
Depreciation and amortization expense increased $4.5 million or 77% but
decreased as a percent of revenues. The increase primarily reflects a full
years depreciation on the new assets purchased and constructed for Boomtown
Las Vegas, Boomtown Biloxi and Boomtown New Orleans during fiscal 1994. The
decrease as a percent of total revenues is due to the sale and leaseback of
certain furniture, fixtures and gaming equipment at the end of the second
quarter totalling approximately $5.2 million.
Income from operations improved from a loss from operations of $6.3 million
in fiscal 1994 to income from operations of $7.2 million in fiscal 1995, for
the reasons set forth above.
Interest expense, net of capitalized interest increased by $7.8 million.
This was due to a decrease in capitalized interest of $5.2 million offset by
an increase in interest expense of $2.6 million. Capitalized interest was
significantly higher in the prior fiscal year due to the construction of
Boomtown Biloxi, Boomtown Las Vegas and Boomtown New Orleans. Interest expense
is higher for fiscal 1995 compared to fiscal 1994 primarily due to the
additions of $3.1 million of long-term debt during the end of the fourth
quarter of fiscal 1994 and additions of $5.9 million in the second quarter of
fiscal 1995. The weighted average long-term debt outstanding and the related
interest rate for the year ended September 30, 1995 was $111.9 million and
11.7%, respectively. Loss on marketable securities was $1.7 million in fiscal
1994. This loss was due to a decline in the market value of investments in two
short-term government bond funds purchased for approximately $50.0 million.
The minority partners' share of operations of the consolidated partnership
of Mississippi-I Gaming, L.P. and Louisiana-I Gaming, L.P. are reported as
"minority interest." The $1.1 million of loss related to minority interests in
fiscal 1995 is comprised of $2.0 million loss related to Mississippi-I Gaming,
L.P. offset by $.9 million of income related to Louisiana-I Gaming, L.P. The
$351,000 of minority interest in fiscal 1994 is related primarily to the
minority interest in Mississippi-I Gaming, L.P.
Boomtown has a state income tax provision of $1.1 million related to net
income generated from Boomtown New Orleans and a federal income tax benefit of
approximately $300,000. Boomtown's federal income tax benefit (effective rate
of 15%) is lower than the federal statutory rate due to amortization of
goodwill and an increase in nondeductible items as a result of a change in
deductibility of meals and entertainment from 80% to 50%. At September 30,
1995, Boomtown had deferred tax assets and deferred tax liabilities of
approximately $7.1 million and $8.2 million respectively. Boomtown believes
that the future benefits from the deferred tax assets will be realized in
full.
As a result of the factors discussed above, the net loss decreased $5.2
million from a loss of $8.1 million in fiscal 1994 to a loss of $2.9 million
in fiscal 1995.
Fiscal Year 1994 Compared to Fiscal Year 1993
Gaming revenues increased 80%, from $42.4 million to $76.3 million,
primarily due to the opening of the three new gaming properties. Boomtown
Reno's gaming revenue increased 3%, from $42.4 million to $43.8 million. The
new Boomtown operations at Las Vegas, New Orleans and Biloxi contributed $12.3
million, $12.1 million and $8.1 million, respectively, to gaming revenues.
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Showroom/Cabaret revenues of $329,000 in fiscal 1994 represent the revenue
generated by ticket sales for a western entertainment dinner show in Las
Vegas. The show was produced for Boomtown by the "Grand Ole Opry." The show,
critically acclaimed, was not an economic success and was permanently closed
on October 1, 1994.
Non-gaming revenues increased $10.5 million from $16.2 million to $26.7
million. The increase is primarily related to the opening of the three new
gaming properties ($5.7 million). Boomtown Las Vegas contributed $4.5 million
from its hotel, recreational vehicle park and food and beverage operations.
Boomtown Biloxi contributed $1.1 million in approximately equal amounts from
its food and family entertainment center. Boomtown New Orleans added only
$100,000 in non-gaming revenue from food and beverage, since its land-based
facility did not open until December 1994. Boomtown Reno increased non-gaming
revenue by $4.9 million to $21.3 million due to the truckstop expansion and
family entertainment center which was open for all of fiscal 1994 (as compared
with four months of fiscal 1993). In addition, two restaurants were added mid-
year in fiscal 1993 and one was remodeled into a steakhouse during 1994,
contributing an additional $900,000.
Gaming expenses increased 70% from fiscal 1993 to fiscal 1994, from $18.4
million to $31.2 million, primarily due to the opening of the three new gaming
properties during 1994. Gaming expenses as a percent of total revenue were
29.3%, 27.5%, 36.9%, and 34.9%, at Reno, Las Vegas, New Orleans and Biloxi,
respectively. The variance was due primarily to the difference in gaming tax
rates.
Showroom/Cabaret expenses of $2.1 million in fiscal 1994 consists of all
showroom employee salaries, cost of food and beverage, marketing, cost of
producing, presenting and marketing the show, maintaining the facility and
equipment, and the costs of closing the show.
Non-gaming expenses increased 79% from $11.9 million to $21.3 million.
Boomtown Reno's truckstop accounted for $2.3 million of the increase, due to
higher fuel sales, and $1.2 million of the increase resulted from expenses
associated with increased sales of food at Boomtown Reno. The remainder of the
increase was primarily due to the opening of Boomtown Las Vegas and Boomtown
Biloxi, which added expenses of $4.3 million and $751,000, respectively.
Marketing, general and administrative expenses increased from $15.9 million
in fiscal 1993 to $33.3 million in fiscal 1994, an increase of $17.4 million.
This increase was primarily due to the opening of the three new gaming
properties ($14.8 million) in addition to increased reporting and
administrative costs related to public regulatory reporting and other public
company requirements for the additional locations.
The new properties generally had higher marketing, general and
administrative expenses, as a percent of total revenue, due to aggressive
marketing efforts designed to build market awareness with the opening of each
new property, particularly Las Vegas and Biloxi, where there is greater
competition. The increase at Boomtown Reno is primarily the result of
establishing a corporate group during 1994 to oversee and manage the multiple
new properties and to coordinate ongoing development of new jurisdictions.
Pre-opening expenses consisted of expenses associated with the acquisition,
development and opening of new gaming properties, and consisted primarily of
labor, marketing and legal expenses. The pre-opening expenses of $15.8 million
in fiscal 1994 were due to the Boomtown Las Vegas ($5.0 million), Boomtown
Biloxi ($5.5 million) and Boomtown New Orleans ($5.3 million).
Depreciation and amortization increased from $3.8 million in fiscal 1993 to
$5.9 million in fiscal 1994. The increase in depreciation and amortization
expense for fiscal 1994 reflects the new assets purchased and constructed for
Boomtown Reno during fiscal 1993 and 1994 and Boomtown Las Vegas, Boomtown
Biloxi and Boomtown New Orleans during fiscal 1994.
Income from operations decreased from income of $8.6 million to a loss of
$6.3 million, for the reasons set forth above.
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During November 1993, Boomtown completed its offering of $103.5 million
principal amount of the First Mortgage Notes. Boomtown's weighted average
outstanding debt and related interest rates were $13.2 million and 7.7%,
respectively, in fiscal 1993 and $95.9 million and 11.5%, respectively, in
fiscal 1994. Interest expense increased in fiscal 1994 by $4.6 million from
fiscal 1993, net of capitalized interest of $5.9 million. Capitalized interest
in fiscal 1994 was primarily related to the construction of Boomtown Las
Vegas, Boomtown Biloxi and Boomtown New Orleans. Interest income increased
$2.2 million from fiscal 1993 to fiscal 1994 due to higher average interest
bearing deposits as a result of the bond offering and interest received on the
IVAC loan. Loss on marketable securities was $1.7 million in fiscal 1994. This
loss was due to a decline in the market value of investments in two short-term
government bond funds for approximately $50.0 million in total. When netted
with interest income and fees in the same funds, the principal loss was less
than $800,000 before any tax benefit.
The minority partners' portions of net income in the consolidated
partnerships of Mississippi-I Gaming, L.P. and Louisiana-I Gaming, L.P. are
reported as "Minority interest." The $351,000 of minority interest in fiscal
1994 was related primarily to the minority interest of Mississippi-I Gaming,
L.P.
Boomtown's $2.8 million tax benefit (effective rate of 26.2%) was lower than
the federal statutory rate due to nondeductible losses on marketable
securities, amortization of goodwill and other nondeductible items. At
September 30, 1994, Boomtown had deferred tax assets and liabilities of $6.6
million and $5.8 million, respectively. Boomtown believes that the future
benefits from the deferred tax assets will be realized in full.
Boomtown recognized a non-cash extraordinary loss of approximately $229,000
(net of tax) in fiscal 1994. The fiscal 1994 charge resulted from the write-
off of unamortized loan fees in connection with the termination of a reducing
credit facility and revolving line of credit.
Net income decreased $12.6 million from income of $4.6 million to a loss of
$8.0 million in fiscal 1994, due to the large increase in casino operating
expenses, marketing, general and administrative expenses and pre-opening
expenses.
LIQUIDITY AND CAPITAL RESOURCES
Boomtown's principal source of liquidity at June 30, 1996 was cash and cash
equivalents of approximately $21.6 million, an increase of approximately
$800,000 from September 30, 1995. For the first nine months of fiscal 1996,
Boomtown generated cash from operating activities of $10.2 million as compared
to $4.4 million a year ago. This higher operating cash flow resulted primarily
from the pay down of accounts payable during the prior year period. The net
cash provided from operating activities during the first nine months of the
current fiscal year were derived from a net loss of $35.2 million primarily
related to the non-cash write-off of Blue Diamond of $36.5 million, net
increases in accounts payable, accrued liabilities and accrued compensation of
$2.0 million, a decrease in prepaid expenses of $1.3 million, depreciation
expense of $8.1 million and other uses of $2.5 million, net.
Boomtown used net cash of $6.8 million, in investing activities during the
first nine months of fiscal 1996, primarily related to the purchases of
property and equipment, offset by proceeds of $405,000 from the sale of
equipment.
Net cash used in financing activities for the nine months ended June 30,
1996 were $2.6 million, primarily related to the payment to $2.5 million to
the lessor of the Boomtown Biloxi barge. Under the agreement, Boomtown
returned the $2.4 million to NGC in return for a reduction of the EBITDA
distributions from 20% to 16%. Additionally, for $100,000, Boomtown secured an
option to buy the barge back from NGC as well as to buy out the EBITDA
participation at a cost approximating the original investment made by HFS less
the $2.4 million that was paid back. The option terminates on March 31, 1997
but is renewable for an additional two years for $100,000 a year.
At June 30, 1996, Boomtown's debt was comprised principally of the $103.5
million principal amount of 11.5% First Mortgage Notes due 2003. Interest on
the notes is payable semiannually in arrears each May 1 and
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November 1. Boomtown has five notes payable in the aggregate amount of $5.6
million. Three of the notes totaling $1.6 million are secured by equipment,
furniture and fixtures, bears interest at 11.5% and mature in September 1997.
The fourth note, with a balance of $3.5 million at June 30, 1996, is secured
by the gaming vessel in Harvey, Louisiana, bears interest at 13% and matures
in January 1999. The fifth note, with a balance of $530,000 at June 30, 1996,
is secured by gaming equipment, bears interest at 12.25% and matures in
December 1997. Boomtown also has six capital lease obligations for equipment
with a balance of $2.9 million at June 30, 1996. During March 1996, Boomtown
converted an operating lease on certain furniture, fixtures and equipment to a
note obligation whereby the residual balance on the operating lease was funded
and the remaining outstanding balance was converted to a capital lease. As of
June 30, 1996 the outstanding balance on the lease was $756,000 and matures in
August 1998.
Boomtown believes that its current available cash and cash equivalents and
anticipated cash flow from operations will be sufficient to fund Boomtown's
working capital and normal recurring capital expenditures through the end of
calendar 1996. Boomtown does not believe such sources of liquidity will be
sufficient to fund any of its proposed expansion projects at its current
gaming facilities or in any new gaming jurisdiction. Boomtown believes that
such expansion of its existing facilities is important for continued growth.
Absent the Merger, if any of Boomtown's current proposed expansion projects
were to proceed, Boomtown anticipates that such financing, subject to certain
restrictions set forth in the First Mortgage Notes, would come from one or
more of a number of sources, including cash flow from operations, bank
financing, vendor financing or debt, joint ventures, equity financing or other
long-term debt. However, there can be no assurance that such financing will be
available, or available on terms acceptable to Boomtown or that any proposed
expansion projects by Boomtown will ever be completed. Further, given the
rapidly changing national competitive and legal environments related to
gaming, Boomtown's future operating results could fluctuate significantly.
Should cash flow from Boomtown's operations be below expectations, Boomtown
may have difficulty satisfying capital requirements. In the event the Merger
were to be consummated, Boomtown believes that additional sources of financing
will become available.
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UNAUDITED PRO FORMA COMBINED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined consolidated condensed financial
statements are presented (1) assuming the Blue Diamond Swap is consummated in
connection with the Merger, whereby Boomtown will have no further interest in
Boomtown Las Vegas ("Pro Forma Excluding Boomtown Las Vegas"); and (2)
assuming the Blue Diamond Swap is not consummated in connection with the
Merger, and as a result, Boomtown would retain its interest in Boomtown Las
Vegas through July 1999 when the lease expires ("Pro Forma Including Boomtown
Las Vegas").
The following unaudited pro forma combined consolidated condensed balance
sheets have been prepared by combining the unaudited consolidated balance
sheets of Hollywood Park and Boomtown as of June 30, 1996. The acquisition of
Boomtown will be accounted for using the purchase method of accounting for
business combinations. The unaudited pro forma combined balance sheet should
be read in conjunction with the accompanying notes.
The following unaudited pro forma combined consolidated condensed statements
of operations have been prepared by combining the consolidated statement of
operations of Hollywood Park for the year ended December 31, 1995, with the
consolidated statement of operations of Boomtown for the fiscal year ended
September 30, 1995, and for the six months ended June 30, 1996, for both
Hollywood Park and Boomtown. The pro forma combination of Hollywood Park and
Boomtown will be accounted for using the purchase method of accounting for
business combinations. These pro forma financial statements should be read in
conjunction with the accompanying notes.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated in an earlier period,
nor is it necessarily indicative of the future operating results or financial
position.
These pro forma financial statements are based on, and should be read in
conjunction with, the historical consolidated financial statements and the
related notes thereto of Hollywood Park and Boomtown, included or incorporated
by reference in the Joint Proxy Statement/Prospectus.
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HOLLYWOOD PARK, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED
BALANCE SHEET
(EXCLUDING BOOMTOWN LAS VEGAS)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
---------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
HOLLYWOOD TO ELIMINATE PRO FORMA PRO FORMA PRO FORMA
PARK, BOOMTOWN ADJUSTED ADJUSTMENTS COMBINED
INC. BOOMTOWN, INC. LAS VEGAS BOOMTOWN, INC. FOR MERGER CONSOLIDATED
--------- -------------- ------------ -------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.......... $ 30,830 $ 21,587 $ (324) $ 21,263 $ 0 $ 52,093
Restricted cash....... 10,154 0 0 0 0 10,154
Short term
investments.......... 4,053 0 0 0 0 4,053
Other receivables..... 8,906 0 0 0 0 8,906
Income tax
receivable........... 0 3,112 0 3,112 0 3,112
Deferred tax assets... 2,204 0 0 0 0 2,204
Prepaid expenses and
other assets......... 4,237 8,808 (1,869) 6,939 0 11,176
-------- -------- ------- -------- --------- --------
Total current
assets.............. 60,384 33,507 (2,193) 31,314 0 91,698
Notes receivable........ 839 8,465 0 8,465 0 9,304
Property, plant and
equipment, net......... 121,043 146,413 (1,047) 145,366 (848)(b) 265,561
Goodwill, net........... 20,640 6,362 0 6,362 (5,719)(a) 20,640
-- -- -- -- (643)(b) --
Deferred tax assets..... 0 500 0 500 (500)(b) 0
Long term gaming
assets................. 13,191 0 0 0 0 13,191
Other assets............ 7,704 8,939 (243) 8,696 (51)(b) 16,349
-------- -------- ------- -------- --------- --------
$223,801 $204,186 $(3,483) $200,703 $ (7,761) $416,743
======== ======== ======= ======== ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...... $ 13,147 $ 4,108 $ (994) $ 3,114 $ 0 $ 16,261
Accrued liabilities... 33,954 16,355 (1,556) 14,799 0 48,753
Current portion of
notes payable........ 3,406 4,795 (700) 4,095 693 (d) 8,194
-------- -------- ------- -------- --------- --------
Total current
liabilities......... 50,507 25,258 (3,250) 22,008 693 73,208
Notes payable........... 256 104,732 (233) 104,499 3,590 (c) 110,424
-- -- -- -- 2,079 (d) --
Gaming liabilities...... 11,620 0 0 0 0 11,620
Deferred tax
liabilities............ 4,770 2,607 0 2,607 (2,042)(b) 5,335
Deferred gain on sale
leaseback.............. 0 124 0 124 0 124
Minority interest....... 0 1,363 0 1,363 0 1,363
-------- -------- ------- -------- --------- --------
Total liabilities.... 67,153 134,084 (3,483) 130,601 4,320 202,074
Commitments and
contingencies.......... -- -- -- -- -- --
Stockholders' equity:
Capital stock--
Preferred............. 28 0 0 0 0 28
Common................ 1,850 103,592 0 103,592 (103,592)(e) 2,383
-- -- -- -- 578 (e) --
-- -- -- -- (45)(d) --
Capital in excess of
par value............ 168,479 0 0 0 (5,719)(a) 225,274
-- -- -- -- (3,590)(c) --
-- -- -- -- (3,420)(d) --
-- -- -- -- 103,014 (e) --
-- -- -- -- (33,490)(e) --
Retained earnings
(accumulated
deficit)............. (13,709) (33,490) 0 (33,490) 33,490 (e) (13,016)
-- -- -- -- 693 (d) --
-------- -------- ------- -------- --------- --------
Total stockholders'
equity.............. 156,648 70,102 0 70,102 (12,081) 214,669
-------- -------- ------- -------- --------- --------
$223,801 $204,186 $(3,483) $200,703 $ (7,761) $416,743
======== ======== ======= ======== ========= ========
</TABLE>
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HOLLYWOOD PARK, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED
BALANCE SHEET
(INCLUDING BOOMTOWN LAS VEGAS)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------------------------------------
HOLLYWOOD PRO FORMA PRO FORMA
PARK, ADJUSTMENTS COMBINED
INC. BOOMTOWN, INC. FOR MERGER CONSOLIDATED
--------- -------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equiva-
lents.................. $ 30,830 $ 21,587 $ 0 $ 52,417
Restricted cash......... 10,154 0 0 10,154
Short term investments.. 4,053 0 0 4,053
Other receivables....... 8,906 0 0 8,906
Income tax receivable... 0 3,112 0 3,112
Deferred tax assets..... 2,204 0 0 2,204
Prepaid expenses and
other assets........... 4,237 8,808 0 13,045
-------- -------- --------- --------
Total current assets.. 60,384 33,507 0 93,891
Notes receivable.......... 839 8,465 0 9,304
Property, plant and equip-
ment, net................ 121,043 146,413 (13,064)(b) 254,392
Goodwill, net............. 20,640 6,362 (5,719)(a) 20,640
-- -- (643)(b) --
Deferred tax assets....... 0 500 11,898 (b) 12,398
Long term gaming assets... 13,191 0 0 13,191
Other assets.............. 7,704 8,939 (798)(b) 15,845
-------- -------- --------- --------
$223,801 $204,186 $ (8,326) $419,661
======== ======== ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........ $ 13,147 $ 4,108 $ 0 $ 17,255
Accrued liabilities..... 33,954 16,355 0 50,309
Current portion of notes
payable................ 3,406 4,795 0 8,201
-------- -------- --------- --------
Total current
liabilities.......... 50,507 25,258 0 75,765
Notes payable............. 256 104,732 3,590 (c) 108,578
Gaming liabilities........ 11,620 0 0 11,620
Deferred tax liabilities.. 4,770 2,607 (2,607)(b) 4,770
Deferred gain on sale
leaseback................ 0 124 0 124
Minority interest......... 0 1,363 0 1,363
-------- -------- --------- --------
Total liabilities..... 67,153 134,084 983 202,220
Commitments and
contingencies............ -- -- -- --
Stockholders' equity:
Capital stock--
Preferred............... 28 0 0 28
Common.................. 1,850 103,592 (103,592)(e) 2,428
-- -- 578 (e) --
Capital in excess of par
value.................. 168,479 0 (5,719)(a) 228,694
-- -- (3,590)(c) --
-- -- (33,490)(e) --
-- -- 103,014 (e) --
Retained earnings
(accumulated deficit).. (13,709) (33,490) 33,490 (e) (13,709)
-------- -------- --------- --------
Total stockholders'
equity............... 156,648 70,102 (9,309) 217,441
-------- -------- --------- --------
$223,801 $204,186 $ (8,326) $419,661
======== ======== ========= ========
</TABLE>
118
<PAGE>
HOLLYWOOD PARK, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
(EXCLUDING BOOMTOWN LAS VEGAS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS TO PRO FORMA
HOLLYWOOD ELIMINATE PRO FORMA ADJUSTMENTS PRO FORMA
PARK, BOOMTOWN ADJUSTED FOR COMBINED
INC. BOOMTOWN, INC. LAS VEGAS BOOMTOWN, INC. MERGER(1) CONSOLIDATED
--------- -------------- -------------- -------------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Gaming operations............... $ 6,032 $189,306 $(32,917) $156,389 $ 0 $162,421
Lease--Casino................... 20,624 0 0 0 0 20,624
Concession sales................ 19,783 15,613 (7,665) 7,948 0 27,731
Hotel and recreational vehicle
park........................... 0 6,584 (4,844) 1,740 0 1,740
Other gaming income............. 2,468 6,827 (334) 6,493 0 8,961
Racing operations............... 79,862 0 0 0 0 79,862
Truck stop, service station and
mini-mart...................... 0 10,811 (150) 10,661 0 10,661
Other income.................... 1,803 5,707 (772) 4,935 0 6,738
-------- -------- -------- -------- ----- --------
130,572 234,848 (46,682) 188,166 0 318,738
-------- -------- -------- -------- ----- --------
EXPENSES:
Gaming operations............... 4,848 79,141 (13,374) 65,767 0 70,615
Gaming equipment leases......... 0 5,811 (2,664) 3,147 0 3,147
Cost of concession sales........ 24,749 17,639 (9,552) 8,087 0 32,836
Hotel and recreational vehicle
park........................... 0 3,168 (2,461) 707 0 707
Other gaming expense............ 2,092 3,582 (221) 3,361 0 5,453
Racing operations............... 22,707 0 0 0 0 22,707
Truck stop, service station and
mini-mart...................... 0 9,722 (94) 9,628 0 9,628
Marketing and promotion......... 8,718 19,593 (4,910) 14,683 0 23,401
General and administrative...... 46,533 69,389 (18,846) 50,543 0 97,076
Depreciation and amortization... 11,384 10,422 (1,476) 8,946 (366)(a) 19,964
Lawsuit settlement.............. 6,088 0 0 0 0 6,088
Discontinued projects........... 0 6,054 0 6,054 0 6,054
-------- -------- -------- -------- ----- --------
127,119 224,521 (53,598) 170,923 (366) 297,676
-------- -------- -------- -------- ----- --------
Operating income ................ 3,453 10,327 6,916 17,243 366 21,062
Interest expense (benefit)...... 3,922 13,433 1,796 15,229 (187)(b) 19,284
-- -- -- -- 320 (c) --
-------- -------- -------- -------- ----- --------
Income (loss) before minority
interests and income taxes...... (469) (3,106) 5,120 2,014 233 1,778
Minority interests.............. 0 1,105 0 1,105 0 1,105
-------- -------- -------- -------- ----- --------
Income (loss) before income
taxes........................... (469) (2,001) 5,120 3,119 233 2,883
Income tax expense.............. 693 876 1,677 2,553 93 (d) 3,339
-------- -------- -------- -------- ----- --------
Net income (loss)................ $ (1,162) $ (2,877) $ 3,443 $ 566 $ 140 $ (456)
======== ======== ======== ======== ===== ========
Dividend requirement on
convertible preferred stock..... $ 1,925
Net loss allocated to common
shareholders.................... $ (2,381)
========
Per common share:
Net loss--primary............... $ (0.10)
Net loss--fully diluted......... $ (0.10)
Number of shares primary......... 23,752
Number of shares fully diluted... 26,044
</TABLE>
- -------
(1) Excludes the Pacific Casino Management, Inc. pro forma financial results
prior to Hollywood Park's November 17, 1995, acquisition of Pacific Casino
Management, Inc.
119
<PAGE>
HOLLYWOOD PARK, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
(INCLUDING BOOMTOWN LAS VEGAS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
HOLLYWOOD PRO FORMA PRO FORMA
PARK, ADJUSTMENTS(1) COMBINED
INC. BOOMTOWN, INC. FOR MERGER CONSOLIDATED
--------- -------------- -------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES:
Gaming operations..... $ 6,032 $189,306 $ 0 $195,338
Lease--Casino......... 20,624 0 0 20,624
Concession sales...... 19,783 15,613 0 35,396
Hotel and recreational
vehicle park......... 0 6,584 0 6,584
Other gaming income... 2,468 6,827 0 9,295
Racing operations..... 79,862 0 0 79,862
Truck stop, service
station and mini-
mart................. 0 10,811 0 10,811
Other income.......... 1,803 5,707 0 7,510
-------- -------- ------- --------
130,572 234,848 0 365,420
-------- -------- ------- --------
EXPENSES:
Gaming operations..... 4,848 79,141 0 83,989
Gaming equipment
leases............... 0 5,811 0 5,811
Cost of concession
sales................ 24,749 17,639 0 42,388
Hotel and recreational
vehicle park......... 0 3,168 0 3,168
Other gaming expense.. 2,092 3,582 0 5,674
Racing operations..... 22,707 0 0 22,707
Truck stop, service
station and mini-
mart................. 0 9,722 0 9,722
Marketing and
promotion............ 8,718 19,593 0 28,311
General and
administrative....... 46,533 69,389 0 115,922
Lawsuit settlement.... 6,088 0 0 6,088
Discontinued
projects............. 0 6,054 0 6,054
Depreciation and
amortization......... 11,384 10,422 (774)(a) 20,487
-- -- (545)(e) --
-------- -------- ------- --------
127,119 224,521 (1,319) 350,321
-------- -------- ------- --------
Operating income ....... 3,453 10,327 1,319 15,099
Interest expense
(benefit)............ 3,922 13,433 (187)(b) 17,168
-------- -------- ------- --------
Income (loss) before
minority interests and
income taxes........... (469) (3,106) 1,506 (2,069)
Minority interests.... 0 1,105 0 1,105
-------- -------- ------- --------
Income (loss) before
income taxes........... (469) (2,001) 1,506 (964)
Income tax expense.... 693 876 602 (d) 2,171
-------- -------- ------- --------
Net income (loss)....... $ (1,162) $ (2,877) $ 904 $ (3,135)
======== ======== ======= ========
Dividend requirements on
convertible preferred
stock.................. $ 1,925
Net loss allocated to
common shareholders.... $ (5,060)
========
Per common share:
Net loss--primary..... $ (0.21)
Net loss--fully
diluted.............. $ (0.21)
Number of shares
primary................ 24,199
Number of shares fully
diluted................ 26,490
</TABLE>
- --------
(1) Excludes the Pacific Casino Management, Inc. pro forma financial results
prior to Hollywood Park's November 17, 1995, acquisition of Pacific Casino
Management, Inc.
120
<PAGE>
HOLLYWOOD PARK, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
(EXCLUDING BOOMTOWN LAS VEGAS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS TO
HOLLYWOOD ELIMINATE PRO FORMA PRO FORMA PRO FORMA
PARK, BOOMTOWN ADJUSTED ADJUSTMENTS COMBINED
INC. BOOMTOWN, INC. LAS VEGAS BOOMTOWN, INC. FOR MERGER CONSOLIDATED
--------- -------------- -------------- -------------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Gaming operations...... $24,803 $ 94,356 $(15,747) $ 78,609 $ 0 $103,412
Concession sales....... 7,637 8,376 (3,884) 4,492 0 12,129
Hotel and recreational
vehicle park.......... 0 3,719 (2,929) 790 0 790
Other gaming income.... 1,179 3,071 (134) 2,937 0 4,116
Racing operations...... 38,979 0 0 0 0 38,979
Truck stop, service
station and mini-
mart.................. 0 7,018 (77) 6,941 0 6,941
Other income........... 1,682 3,738 (210) 3,528 0 5,210
------- -------- -------- -------- ----- --------
74,280 120,278 (22,981) 97,297 0 171,577
------- -------- -------- -------- ----- --------
EXPENSES:
Gaming operations...... 13,005 42,810 (6,566) 36,244 0 49,249
Gaming equipment
leases................ 0 3,412 (1,332) 2,080 0 2,080
Cost of concession
sales................. 9,082 9,718 (4,864) 4,854 0 13,936
Hotel and recreational
vehicle park.......... 0 1,488 (1,179) 309 0 309
Other gaming expense... 865 1,605 (61) 1,544 0 2,409
Racing operations...... 11,928 0 0 0 0 11,928
Truck stop, service
station and mini-
mart.................. 0 6,349 (42) 6,307 0 6,307
Marketing and
promotion............. 5,552 10,932 (2,750) 8,182 0 13,734
General and
administrative........ 21,823 29,928 (8,751) 21,177 0 43,000
Depreciation and
amortization.......... 5,400 5,579 (673) 4,906 (183)(a) 10,123
Write off of investment
in subsidiary......... 11,412 0 0 0 0 11,412
Loss on termination of
Blue Diamond
interest.............. 0 36,562 0 36,562 0 36,562
------- -------- -------- -------- ----- --------
79,067 148,383 (26,218) 122,165 (183) 201,049
------- -------- -------- -------- ----- --------
Operating income (loss)
....................... (4,787) (28,105) 3,237 (24,868) 183 (29,472)
Interest expense
(benefit) ............ 898 7,021 829 7,850 (102)(b) 8,776
-- -- -- -- 130 (c) --
------- -------- -------- -------- ----- --------
Income (loss) before
minority interests and
income taxes........... (5,685) (35,126) 2,408 (32,718) 155 (38,248)
Minority interests..... 0 493 0 493 0 493
------- -------- -------- -------- ----- --------
Income (loss) before
income taxes........... (5,685) (34,633) 2,408 (32,225) 155 (37,755)
Income tax expense..... 2,444 294 171 123 62 (d) 2,629
------- -------- -------- -------- ----- --------
Net income (loss)....... $(8,129) $(34,927) $ 2,579 $(32,348) $ 93 $(40,384)
======= ======== ======== ======== ===== ========
Dividend requirements on
convertible preferred
stock.................. $ 962
Net loss allocated to
common shareholders.... $(41,346)
========
Per common share:
Net loss--primary...... $ (1.73)
Net loss--fully
diluted............... $ (1.73)
Number of shares primary
....................... 23,966
Number of shares fully
diluted................ 26,257
</TABLE>
121
<PAGE>
HOLLYWOOD PARK, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
(INCLUDING BOOMTOWN LAS VEGAS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------------
HOLLYWOOD PRO FORMA PRO FORMA
PARK, ADJUSTMENTS COMBINED
INC. BOOMTOWN, INC. FOR MERGER CONSOLIDATED
--------- -------------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES:
Gaming operations........ $24,803 $ 94,356 $ 0 $119,159
Concession sales......... 7,637 8,376 0 16,013
Hotel and recreational
vehicle park............ 0 3,719 0 3,719
Other gaming income...... 1,179 3,071 0 4,250
Racing operations........ 38,979 0 0 38,979
Truck stop, service
station and mini-mart... 0 7,018 0 7,018
Other income............. 1,682 3,738 0 5,420
------- -------- ----- --------
74,280 120,278 0 194,558
------- -------- ----- --------
EXPENSES:
Gaming operations........ 13,005 42,810 0 55,815
Gaming equipment leases.. 0 3,412 0 3,412
Cost of concession
sales................... 9,082 9,718 0 18,800
Hotel and recreational
vehicle park............ 0 1,488 0 1,488
Other gaming expense..... 865 1,605 0 2,470
Racing operations........ 11,928 0 0 11,928
Truck stop, service
station and mini-mart... 0 6,349 0 6,349
Marketing and promotion.. 5,552 10,932 0 16,484
General and
administrative.......... 21,823 29,928 0 51,751
Depreciation and
amortization............ 5,400 5,579 (387)(a) 10,320
-- -- (272)(e) --
Write off of investment
in subsidiary........... 11,412 0 0 11,412
Loss on termination of
Blue Diamond interest... 0 36,562 0 36,562
------- -------- ----- --------
79,067 148,383 (659) 226,791
------- -------- ----- --------
Operating income (loss).... (4,787) (28,105) 659 (32,233)
Interest expense
(benefit)............... 898 7,021 (102)(b) 7,817
------- -------- ----- --------
Income (loss) before
minority interests and
income taxes.............. (5,685) (35,126) 761 (40,050)
Minority interests....... 0 493 0 493
------- -------- ----- --------
Income (loss) before income
taxes..................... (5,685) (34,633) 761 (39,557)
Income tax expense....... 2,444 294 304 (d) 3,042
------- -------- ----- --------
Net income (loss).......... $(8,129) $(34,927) $ 457 $(42,599)
======= ======== ===== ========
Dividend requirements on
convertible preferred
stock..................... $ 962
Net loss allocated to
common shareholders....... $(43,561)
========
Per common share:
Net loss--primary........ $ (1.79)
Net loss--fully diluted.. $ (1.79)
Number of shares primary .. 24,392
Number of shares fully
diluted................... 26,684
</TABLE>
122
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED CONDENSED
BALANCE SHEET
ASSUMPTIONS. The Merger will be accounted for under the purchase method of
accounting for a business combination. The total estimated purchase price is
based on the estimated issuance of approximately 5,779,000 shares of Hollywood
Park Common Stock at an estimated price of $10 per share.
PRO FORMA ADJUSTMENTS. The following adjustments have been made to the
unaudited pro forma combined consolidated condensed balance sheet:
(a) The excess of Boomtown's net assets as of June 30, 1996, (as adjusted
for the change in the First Mortgage Notes discussed below) over the
acquisition cost (Hollywood Park's common stock valued at $10.00 per Common
Share and estimated Merger costs of $3,000,000) is approximately $5,719,000
for both the Pro Forma Including Boomtown Las Vegas, and for Pro Forma
Excluding Boomtown Las Vegas. The allocation of purchase price and this
reduction in net assets was applied to eliminate Boomtown's goodwill.
(b) Excluding Las Vegas--In recording the deferred tax attributes of the
Merger, a portion of Boomtown's remaining noncurrent assets (property,
plant and equipment and other assets) were reduced. These adjustments arose
as a result of (i) allocating the negative goodwill as described in (a)
above and (ii) recording the tax effect of book/tax basis differences
existing after the allocation described in (a) above.
Including Las Vegas--In recording the deferred tax attributes of the
Merger, a deferred tax asset was recorded and a portion of Boomtown's
remaining noncurrent assets (property, plant and equipment and other
assets) were reduced. These adjustments arose as a result of (i) allocating
the negative goodwill as described in (a) above and (ii) recording the tax
effect of book/tax basis differences existing after the allocation
described in (a) above.
(c) Under the Indenture, as a result of the Merger, Boomtown is obligated
to offer to redeem the First Mortgage Notes at 101% of their $103,500,000
aggregate principal amount following the Effective Date. This adjustment
was made to record the First Mortgage Notes at their estimated fair value
based upon this redemption feature.
(d) To record the promissory note payable from Hollywood Park to Roski
(in the Pro Forma Excluding Boomtown Las Vegas version) (assuming the first
anniversary principal payment had been made on January 1, 1996), as
required by the Stock Purchase Agreement, and to adjust the equity accounts
for the retirement of the Hollywood Park Common Stock, which would be
exchanged for the Boomtown Common Stock purchased from Roski.
(e) To eliminate Boomtown's equity accounts. The stockholder's equity
accounts have been adjusted to reflect the approximately 5,779,000 shares
of Hollywood Park Common Stock expected to be issued in the Merger, based
on Hollywood Park's Common Stock valued at $10.00.
123
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
ASSUMPTIONS. Both versions of the unaudited pro forma combined consolidated
condensed statements of operations for the year ended December 31, 1995, and
the six months ended June 30, 1996, are presented as if the Boomtown
acquisition (and, in the case of the Pro Forma Excluding Boomtown Las Vegas
version, the Blue Diamond Swap) had taken place on January 1, 1995. Results of
operations for 1995 were prepared by combining Hollywood Park's consolidated
statement of operations for the year ended December 31, 1995, with Boomtown's
consolidated statement of operations for the fiscal year ended September 30,
1995. Results of operations for the six months ended June 30, 1996, were
prepared by combining the consolidated statement of operations for Hollywood
Park and Boomtown, both for the six months ended June 30, 1996.
PRO FORMA ADJUSTMENTS. The unaudited pro forma combined consolidated
condensed statements of operations have been prepared on the basis that the
acquisition was consummated as set forth above in the Notes to the Unaudited
Pro Forma Combined Consolidated Condensed Balance Sheet included herein,
except that it was assumed that the acquisition and valuation of Boomtown's
assets and liabilities occurred at January 1, 1995.
As a result of the different fiscal year ends for Hollywood Park and
Boomtown, Boomtown's results of operations for the three months ended December
31, 1995, have not been presented in the accompanying pro forma combined
consolidated statements of operations. For the three months ended December 31,
1995, Boomtown recorded revenues of $55,620,000 and a net loss of $357,000.
However, in the opinion of management, the information furnished herein
reflects all normal recurring adjustments that are necessary to present a fair
statement of the pro forma results of the interim period.
The following adjustments have been made to the unaudited pro forma Combined
Consolidated Condensed Statements of Operations.
(a) To reduce the amortization and the depreciation related to Boomtown's
goodwill and property, plant and equipment, respectively, due to the
negative goodwill adjustments.
(b) To eliminate the amortization of the discount associated with the
First Mortgage Notes. Under the terms of the Indenture, as a result of the
Merger, Boomtown is obligated to offer to redeem the First Mortgage Notes
at 101% of their $103,500,000 aggregate principal amount following the
Effective Date. This adjustment was made to write the First Mortgage Notes
payable up to 101% of the $103,500,000. As the First Mortgage Notes were
issued with warrants, the issuing value was recorded at a discount.
(c) To record the interest expense associated with the promissory note
from Hollywood Park to Roski as required by the Stock Purchase Agreement in
the Pro Forma Excluding Boomtown Las Vegas version.
(d) To record the estimated 40% tax expense associated with the net pro
forma savings.
(e) To eliminate Boomtown's amortization expense associated with the
investment in lease in the Pro Forma Including Boomtown Las Vegas version.
NONRECURRING CHARGES. The Unaudited Pro Forma Combined Consolidated
Statements of Operations for the year ended December 31, 1995, do not reflect
the nonrecurring charge of $36,562,000 for the loss on termination of Blue
Diamond interest. The Unaudited Pro Forma Combined Consolidated Statements of
Operations for the six months ended June 30, 1996, do reflect the one-time
charge of $36,562,000 for the loss on termination of Blue Diamond interest.
124
<PAGE>
RECLASSIFICATIONS. Certain reclassifications have been made to the Hollywood
Park and Boomtown historical consolidated statements of operations to conform
to the pro forma combined consolidated condensed statement of operations
presentation.
PRO FORMA PER SHARE DATA. The pro forma earnings per share amounts, as
presented in the unaudited pro forma combined consolidated condensed
statements of operations, were based on the weighted average number of shares
outstanding during the period, inclusive of the effect, when dilutive, of the
exercise of stock options. Included were the approximately 5,779,000 shares of
Hollywood Park Common Stock to be issued in the Merger. In the Pro Forma
Excluding Boomtown Las Vegas version of the pro forma combined consolidated
condensed statements of operations, the number of shares of outstanding Common
Stock has been adjusted for the retirement of the shares of Hollywood Park
Common Stock (which would be exchanged for the Boomtown Common Stock) which
Hollywood Park would purchase from Roski pursuant to the Stock Purchase
Agreement.
COMBINATION COSTS. It is expected that Hollywood Park will incur costs of
approximately $3,000,000 related to the Merger. These costs will be
incorporated into the price of the acquisition under the purchase method of
accounting for a business combination. Costs incurred by Boomtown will be
expensed as incurred.
125
<PAGE>
COMPARISON OF RIGHTS OF STOCKHOLDERSOF HOLLYWOOD PARK AND BOOMTOWN
The rights of Hollywood Park's stockholders are governed by the Hollywood
Park Certificate of Incorporation, as amended (the "Hollywood Park
Certificate"), the Amended and Restated Bylaws of Hollywood Park (the
"Hollywood Park Bylaws") and the laws of the State of Delaware. The rights of
Boomtown's stockholders are governed by the Boomtown Restated Certificate of
Incorporation (the "Boomtown Certificate"), the Amended and Restated Bylaws of
Boomtown (the "Boomtown Bylaws") and the laws of the State of Delaware. After
the Effective Date, the rights of Boomtown stockholders who become Hollywood
Park stockholders will be governed by the Hollywood Park Certificate,
Hollywood Park Bylaws and the laws of the State of Delaware. In most respects,
the rights of Hollywood Park stockholders and Boomtown stockholders are
similar. The following discussion of certain similarities and material
differences between the rights of Hollywood Park stockholders and the rights
of Boomtown stockholders under their respective Certificates of Incorporation
and Bylaws is only a summary of certain provisions and does not purport to be
a complete description of such similarities and differences. The following
discussion is qualified in its entirety by reference to the laws of Delaware
and the full texts of the respective Certificates of Incorporation and Bylaws
of Hollywood Park and Boomtown.
STOCKHOLDER MEETINGS
Under the Boomtown Bylaws, Boomtown stockholders holding shares representing
not less than a majority of the shares entitled to vote at a meeting may call
a special meeting of stockholders for any purpose, and such special meeting
may be held at such time and place as shall be stated in a notice of meeting
or in a duly executed notice of waiver thereof. Conversely, although holders
of Hollywood Park Preferred Stock have certain rights to call special
stockholder meetings if dividends are not paid, holders of Hollywood Park
Common Stock have no right to call a special meeting.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Both Hollywood Park's and Boomtown's Bylaws permit stockholder action to be
taken without a meeting, if a consent in writing setting forth the action
taken is signed by the holders of outstanding stock having the number of votes
that would be necessary to take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
The Hollywood Park Certificate provides that the affirmative vote or written
consent of the stockholders of 70% of all outstanding shares of all classes of
stock of Hollywood Park entitled to vote is required (i) for the adoption of
any agreement for the merger of Hollywood Park with or into any other
corporation or for the consolidation of Hollywood Park with any other
corporation (ii) to authorize any sale, lease, transfer or exchange of all or
substantially all of the assets of Hollywood Park to any other person (a
corporation, partnership, association or other business entity, trust, estate
or individual), (iii) to authorize the dissolution of Hollywood Park and (iv)
to alter, amend or repeal this provision. The Boomtown Certificate contains no
similar provision.
DIRECTOR ELECTIONS AND NOMINATIONS
The Hollywood Park Bylaws currently provide for a Board of Directors
consisting of not less than three (3) and not more than seventeen (17)
directors with the number of directors, subject to such limits, to be
determined by resolution of the Board of Directors or by the stockholders at
the annual meeting. Further, so long as any shares of Hollywood Park Preferred
Stock are outstanding, two (2) directorships on the Board of Directors shall
remain vacant to be filled by the holders of record of the Preferred Stock.
The Boomtown Bylaws provide that the number of directors which shall
constitute the Boomtown Board of Directors shall be seven (7). The directors
shall be elected by a plurality of the votes of the shares present in person
or represented by proxy at an annual meeting of stockholders and entitled to
vote in an election of directors.
126
<PAGE>
The Hollywood Park Bylaws provide that no nomination for directors of
Hollywood Park by any person other than the Hollywood Park Board may be
presented at any annual meeting of stockholders unless the person making the
nomination is a record stockholder and has delivered a written notice to the
secretary of Hollywood Park no later than 90 business days in advance of the
stockholder meeting or, if later, the seventh day following the first public
announcement of the date of such meeting. The Boomtown Certificate and Bylaws
do not impose comparable conditions on the submission of director nominations
by stockholders.
REQUIRED QUORUM FOR STOCKHOLDER MEETINGS
The Hollywood Park Bylaws provide that the holders of one-third of the
outstanding shares entitled to vote at any stockholders' meeting shall
constitute a quorum for the transaction of business. The Boomtown Bylaws
provide that the holders of a majority of the outstanding shares entitled to
vote at any stockholders' meeting shall constitute a quorum for the
transaction of business.
STOCKHOLDER PROPOSALS
The Hollywood Park Bylaws provide that business may be properly brought
before any meeting of the stockholders by a stockholder, if the stockholder
gives notice thereof in writing (which must contain certain representations
and information regarding the stockholder) to the Secretary of Hollywood Park
not less than 90 days in advance of such meeting or, if later, the seventh day
following the first public announcement of the date of such meeting.
Conversely, the Boomtown Certificate and Boomtown Bylaws do not expressly
place limitations on stockholder proposals or the manner in which they are
submitted.
INDEMNIFICATION; LIABILITY FOR BREACH OF FIDUCIARY DUTY
The Hollywood Park Certificate provides that Hollywood Park shall indemnify
its directors and officers to the full extent permissible under Delaware
General Corporation Law. The Boomtown Certificate contains no similar
provision. However, both the Hollywood Park and Boomtown Bylaws provide that
directors and officers (and, to the extent authorized by the Board of
Directors, agents and employees) shall be indemnified and held harmless by the
respective corporations to the fullest extent permitted by the laws of
Delaware against all expenses, liabilities and losses reasonably incurred or
suffered by such person in connection therewith. Under the Hollywood Park and
Boomtown Bylaws, subject to the requirements of Delaware General Corporation
Law, this right includes the right to be paid by the corporation the expenses
incurred in defending any such proceeding in advance of its final disposition.
Furthermore, both the Hollywood Park Certificate and the Boomtown Certificate
provide that no director shall be personally liable to the company or its
stockholders for monetary damages for breach of fiduciary duty by such
director for corporate actions as a director, except to the extent provided by
the DGCL or other applicable law.
PREFERRED STOCK
The Hollywood Park Certificate provides that Hollywood Park may, by vote of
its Board of Directors, issue up to 250,000 shares of Preferred Stock, $1.00
par value, in one or more series, and that the Board may fix the rights,
preferences, privileges and restrictions thereon, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or designation of such series, without further vote or
action by the stockholders. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of Hollywood
Park without further action by the stockholders and may adversely affect the
voting and other rights of the holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others.
Pursuant to its authority, the Hollywood Park Board authorized the issuance
of a series of 27,500 shares of Preferred Stock, $1.00 par value, which is
designated as $70 Convertible Preferred Stock (the "Series"). Shares of the
Series bear cumulative dividends at a rate of $70 per share per annum. In any
liquidation of Hollywood
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Park, holders of shares of the Series are entitled to receive a liquidation
preference equal to $1,000 per share, plus an amount equal to the dividends
accrued an unpaid thereon (whether or not declared) to the date of final
distribution to such holders, prior to any distribution to holders of
Hollywood Park Common Stock. Furthermore, the Hollywood Park Certificate
provides that each share of the Series is convertible at the option of the
holder thereof into shares of Hollywood Park Common Stock at the Conversion
Price then in effect. The initial Conversion Price was set at $15.00, subject
to customary adjustments for stock splits, stock dividends, recapitalizations,
and similar transactions. The Hollywood Park Certificate further provides that
whenever dividends on the shares of this Series shall not have been paid in an
aggregate amount equal to or greater than six quarterly dividends (whether or
not consecutive) on the shares of this Series then outstanding, then the
number of directors then constituting the entire Board of Directors of
Hollywood Park shall automatically be increased by two (2) directors and the
holders of shares of this Series, voting together as a single class, shall be
entitled to fill such newly created vacancies.
Boomtown has no authorized shares of preferred stock.
GAMING APPROVAL; REDEMPTION OF SHARES
The Hollywood Park Certificate of Incorporation provides that so long as
Hollywood Park engages in, or intends to engage in, the operation of licensed
card clubs regulated under the California Gaming Registration Act or any other
applicable federal, state or local statutes, ordinances, rules or regulations,
all securities of Hollywood Park shall be held subject to the provision that
if a person's continued ownership or control of securities would cause
Hollywood Park or any subsidiary thereof to lose, or prevent the reinstatement
of, any government-issued franchise or license necessary for the operation of
any such licensed card club, such securities shall be redeemable by Hollywood
Park to the extent necessary to prevent the loss, or to secure the
reinstatement of, any government-issued franchise or license held by Hollywood
Park or any subsidiary thereof, which franchise or license is conditioned upon
some or all of the holders of Hollywood Park securities possessing prescribed
qualifications. The per share redemption price of such securities shall be the
closing sales price (or, if no closing sale price exists, the mean of the bid
and asked prices on NASDAQ) on the date the notice of redemption is given by
Hollywood Park.
Boomtown has no similar provisions in its Articles of Incorporation, but any
stockholder of Boomtown found unsuitable to be a stockholder of Boomtown by
the Nevada Commission who continues to hold, directly or indirectly, any
beneficial ownership of Boomtown's voting securities beyond such period of
time as may be prescribed by the Nevada Commission or the Mississippi Gaming
Authorities may be guilty of a criminal offense under Nevada law. Furthermore,
Boomtown, as a corporation registered with the Nevada Commission and the
Mississippi Gaming Authorities, is subject to disciplinary action including
loss of its gaming approvals and licenses if, after receiving notice from the
Nevada Gaming Authorities or the Mississippi Gaming Authorities that a
shareholder is found to be unsuitable under Nevada or Mississippi gaming law,
it (i) pays the unsuitable person any dividend or interest upon voting
securities issued by Boomtown, (ii) allows the unsuitable person to exercise,
directly or indirectly, a voting right conferred through securities held by
the person, (iii) pays remuneration in any form to the person for services
rendered or otherwise, or (iv) fails to pursue all lawful efforts to require
the unsuitable person to relinquish his voting securities for cash at fair
market value. See "Government Regulation and Licensing--Nevada."
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ELECTION OF HOLLYWOOD PARK DIRECTORS
(ITEM NO. 2 ON HOLLYWOOD PARK PROXY CARD)
At the Hollywood Park Meeting, holders of Hollywood Park Common Stock will
be asked to vote on the election of seven directors who will constitute the
full Board of Directors of Hollywood Park until the Merger has been
consummated, at which time it is expected that the number of directors would
be expanded to eleven, and four Boomtown representatives would fill the new
positions. Since no nominee other than the nominees listed below has been
properly nominated, abstentions and broker non-votes will not have an effect
on the election of the nominees listed below. Each director so elected will
hold office until the next annual meeting and until his successor is elected
and qualified. See "The Merger--Composition of the Hollywood Park Board of
Directors and Executive Committee."
GENERAL
Each proxy received will be voted for the election of the persons named
below, unless the stockholder signing such proxy withholds authority to vote
for one or more of these nominees in the manner described on the proxy.
Although it is not contemplated that any nominee named below will decline or
be unable to serve as a director, in the event any nominee declines or is
unable to serve as a director, the proxies will be voted by the proxy holders
as directed by the Board of Directors.
There are no family relationships between any director, nominee or executive
officer and any other director, nominee or executive officer of Hollywood Park
(or the Boomtown designees described below). There are no arrangements or
understandings between any director, nominee or executive officer and any
other person pursuant to which he has been or will be selected as a director
and/or executive officer of Hollywood Park.
INFORMATION REGARDING THE DIRECTORS AND NOMINEES FOR THE BOARD OF DIRECTORS OF
HOLLYWOOD PARK
The following table lists the persons nominated by the Board of Directors of
Hollywood Park for election as directors of Hollywood Park at Hollywood Park's
Annual Meeting and provides certain information concerning each such person.
All of the nominees are currently directors of Hollywood Park.
<TABLE>
<CAPTION>
NAME AND AGE, POSITION WITH HOLLYWOOD PARK (IF ANY), SERVED AS A
PRINCIPAL OCCUPATIONS DURING LAST FIVE (5) YEARS; CERTAIN DIRECTOR
DIRECTORSHIPS SINCE
--------------------------------------------------------- -----------
<S> <C>
R.D. HUBBARD, 61, Chairman of the Board and Chief Executive Officer 1990
of Hollywood Park since September 1991; Chairman of the Board and
Chief Executive Officer of Hollywood Park Operating Company since
February 1991; President of Hollywood Park Operating Company from
February to July 1991; Chairman, AFG Industries, Inc. and its
parent company, Clarity Holdings Corp. (glass manufacturing) and
director of AFG Industries, Inc.'s subsidiaries, from 1978 to July
1993; Chairman of the Board (and 60% stockholder until March 1994)
of Sunflower Racing, Inc. (Woodlands Race Tracks--horse racing and
greyhound racing) from 1988; President, Director, and owner of
Ruidoso Downs Racing, Inc. (horse racing) since 1988; Chairman of
the Board, Chief Executive Officer and sole stockholder, Multnomah
Kennel Club, Inc. (greyhound racing) since December 1991; Owner
and breeder of numerous thoroughbreds and quarter horses since
1962. Sunflower Racing, Inc., a wholly-owned subsidiary of
Hollywood Park, filed for reorganization under Chapter 11 of the
U.S. Bankruptcy Code on May 17, 1996.
J.R. JOHNSON, 76, Director, Hollywood Park Operating Company from 1991
February 1991 to January 1992; Chairman, President and Chief
Executive Officer, NEWMAR (marine electronics manufacturing) since
1980; Director, Logicon, Inc. (defense oriented intelligence);
Trustee, Westminster College.
</TABLE>
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<TABLE>
<CAPTION>
NAME AND AGE, POSITION WITH HOLLYWOOD PARK (IF ANY), SERVED AS A
PRINCIPAL OCCUPATIONS DURING LAST FIVE (5) YEARS; CERTAIN DIRECTOR
DIRECTORSHIPS SINCE
--------------------------------------------------------- -----------
<S> <C>
ROBERT T. MANFUSO, 59, Director, Hollywood Park Operating Company 1991
from February 1991 to January 1992; Co-Chairman of the Board,
Laurel Racing Association (horse race track management) from
1984 to February 1994; Vice Chairman of the Board, The Maryland
Jockey Club (horse racing) from 1986 to February 1994; Executive
Vice President, Laurel Racing Association from 1984 to May 1990;
Executive Vice President, The Maryland Jockey Club from 1986 to
June 1990; Director, Maryland Horse Breeders Association from
1984 to 1992 and since 1993; Member, Executive Committee,
Maryland Million since 1991.
HARRY ORNEST, 73, Vice Chairman of the Board of Hollywood Park 1991
since September 1991; Director, Hollywood Park Operating Company
since 1988; Vice Chairman of the Board, Hollywood Park Operating
Company since February 1991; Owner and Chairman, Toronto
Argonauts Football Club (Canadian Football League club) from
1988 to May 1991; Owner, St. Louis Blues (National Hockey League
club) 1983 to 1987; Owner, St. Louis Arena, 1983 to 1987; Owner
and Founder, Vancouver Canadians (Pacific Coast Baseball League
club), 1977 to 1981; Hollywood Park stockholder, 1962 to
present.
LYNN P. REITNOUER, 63, Director, Hollywood Park Operating Company 1991
from September 1991 to January 1992; Partner, Crowell Weedon &
Co. (stock brokerage) since 1969; Director and President, Forest
Lawn Memorial Parks Association, since 1975; Chairman of the
Board of COHR, Inc., since 1986; Trustee, University of
California Santa Barbara Foundation since 1992.
HERMAN SARKOWSKY, 71, Director, Hollywood Park Operating Company 1991
from February 1991 to January 1992; Owner, Sarkowsky Investment
Corporation and SPF Holding, Inc. (real estate development and
investments) since 1980; Director, The Sarkowsky Foundation
(charitable foundation) since 1982; thoroughbred horse breeder
and owner since 1959; Director, Synetics, Inc. (porous plastic
manufacturing); Director, Seafirst Corporation (banking);
Director, Eagle Hardware & Garden, since 1990.
WARREN B. WILLIAMSON, 68, Vice President and Secretary of 1988
Hollywood Park from September 1991 to August 1996; Chairman of
the Board and Chief Executive Officer of Hollywood Park from
1989 to September 1991; Director, Hollywood Park Operating
Company since 1985; Vice President and Secretary, Hollywood Park
Operating Company from February 1991 to August 1996; Secretary
and Treasurer, Hollywood Park Operating Company from 1985 to
November 1990; Chairman and Chief Executive Officer, Chandis
Securities Co. (holding company) since 1985; Director, Times
Mirror Company; Trustee, Hospital of the Good Samaritan;
Trustee, California Thoroughbred Breeders Foundation; Trustee,
Claremont McKenna College; Chairman Emeritus, Art Center College
of Design; Breeder and racer of thoroughbreds since 1970.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ELECTION OF THE NOMINEES
LISTED ABOVE AS DIRECTORS.
INFORMATION REGARDING ANTICIPATED BOOMTOWN DESIGNEES TO THE HOLLYWOOD PARK
BOARD OF DIRECTORS
As noted elsewhere herein, Hollywood Park has agreed that after the Merger
Hollywood Park's Board of Directors will consist of eleven directors, four of
whom will be designees selected by Boomtown from the Boomtown Board of
Directors. Boomtown has already indicated that two of such designees will be
the Boomtown directors described below. See "The Merger--Composition of the
Hollywood Park Board of Directors and Executive Committee."
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RICHARD J. GOEGLEIN, 61, has been a director of Boomtown since October 1992.
Mr. Goeglein has been a private investor since 1987. Since 1990, Mr. Goeglein
has been the President and the principal shareholder of Gaming Associates
Inc., which develops and manages gaming operations in selected niche markets.
From 1984 to 1987, Mr. Goeglein was President and Chief Operating Officer of
Holiday Corporation, the parent corporation of, among others, Holiday Inns and
Harrah's Hotels and Casinos. Mr. Goeglein also serves on the Board of
Directors of AST Research, Inc. and Platinum Software Corp.
TIMOTHY J. PARROTT, 48, joined Boomtown in June 1987 as President and
Treasurer and was elected Chairman of the Board and Chief Executive Officer of
Boomtown in September 1992. Mr. Parrott has been a director of Boomtown since
1987. Mr. Parrott has served as Chairman of the Board and Chief Executive
Officer of Boomtown Hotel & Casino, Inc. since May 1988. Since 1984, Mr.
Parrott has served as Chief Executive Officer of Parrott Investment Company, a
family-held investment company with agricultural interests in California and
has been a board member of The Chronicle Publishing Company since April 1995.
Mr. Parrott is responsible for setting the overall direction, leadership,
culture, focus and service standards of Boomtown.
On October 8, 1995, Boomtown entered into an Employment Agreement (the
"Employment Agreement") with Mr. Parrott, pursuant to which Mr. Parrott will
be employed for a term of three years at an initial base salary of $375,000.
In addition, the Employment Agreement provides that in the event of a change
of control of Boomtown, all options granted to Mr. Parrott prior to such
change of control shall become fully vested and exercisable. The definition of
a change of control under the Employment Agreement includes the approval by
the Boomtown stockholders of the Merger. In addition, the Employment Agreement
provides that in the event of termination of employment without cause, Mr.
Parrott shall receive a severance payment consisting of, among other things,
base salary for three years, subject to mitigation in the event Mr. Parrott
obtains alternative employment during the applicable severance payment period,
as well as accelerated vesting of Mr. Parrott's stock options. The Employment
Agreement provides for Mr. Parrott to receive such fringe benefits and
perquisites as may be granted or established by Boomtown from time to time,
including an automobile allowance.
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ADOPTION OF HOLLYWOOD PARK 1996 STOCK OPTION PLAN
(ITEM NO. 3 ON HOLLYWOOD PARK PROXY CARD)
BACKGROUND
Hollywood Park's 1993 Stock Option Plan (the "1993 Plan") was adopted by the
Hollywood Park Board and approved by the Hollywood Park stockholders in July
1993, and originally provided for the issuance of up to 625,000 shares of
Hollywood Park Common Stock upon exercise of options granted thereunder. As of
April 22, 1996, all shares authorized for issuance under the 1993 Plan had
either been issued or were subject to outstanding options.
PROPOSAL
At the Hollywood Park Meeting, Hollywood Park stockholders are being
requested to approve the adoption of the Hollywood Park, Inc. 1996 Stock
Option Plan (the "1996 Plan"), which provides for the issuance of up to
900,000 shares. Except for the provisions governing the number of shares
issuable under the 1996 Plan and except for provisions which reflect changes
in the tax and securities laws, the provisions of the 1996 Plan are
substantially similar to the provisions of the 1993 Plan. The adoption of the
1996 Plan is unrelated to the proposed Merger. The shares which Hollywood Park
is permitted to issue under the 1996 Plan would represent 4.92% of the
outstanding shares of Hollywood Park Common Stock at September 10, 1996,
assuming the exercise of all options and other rights to acquire Hollywood
Park Common Stock outstanding at such date.
Hollywood Park believes that grants of stock options motivate high levels of
performance, align the economic interests of Hollywood Park's officers and
executives with those of the stockholders, and provide an effective method of
recognizing employee contributions to the success of Hollywood Park. Hollywood
Park also believes that its ability to grant stock options is critical to its
success in attracting and retaining experienced and qualified employees.
Hollywood Park has no shares available for issuance under the 1993 Plan which
are not subject to currently outstanding options. Thus, since the adoption of
the 1996 Plan is required to give the Board of Directors flexibility to grant
additional stock options, Hollywood Park believes it is necessary and in the
best interests of Hollywood Park and its stockholders to adopt the 1996 Plan
as described above.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of the adoption of the 1996 Plan requires the affirmative vote of a
majority of the shares represented in person or by proxy and voting at the
Hollywood Park Meeting. Abstentions will be treated as votes against the
proposal and broker non-votes will not be counted as represented at the
meeting for purposes of calculating the votes for and against the proposal.
HOLLYWOOD PARK'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL.
SUMMARY OF THE 1996 PLAN
The essential features of the 1996 Plan are outlined below. A copy of the
1996 Plan is attached as Appendix D to this Joint Proxy Statement/Prospectus.
The following summary does not purport to be fully descriptive and is subject
in its entirety to the full text of the 1996 Plan attached as Appendix D.
(a) Shares subject to the 1996 Plan. Up to an aggregate of 900,000 shares of
Hollywood Park Common Stock are authorized for issuance under the 1996 Plan.
Shares which are not issued prior to expiration or termination of an option
may thereafter be available for future options under the 1996 Plan and will
not be deemed to increase the aggregate number of shares available under the
1996 Plan. The aggregate number of shares available under the 1996 Plan and
the number of shares subject to outstanding options will be increased to
reflect any changes in the outstanding common stock of Hollywood Park by
reason of any recapitalization, reclassification, stock dividend, stock split,
reverse stock split, merger, combination or other similar transaction.
(b) Type of Options. Two types of options may be granted under the 1996
Plan: options intended to qualify as incentive stock options under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and options not
so qualified for favorable federal income tax treatment. Stock appreciation
rights entitling the holder to exercise an option by taking any appreciation
over the option exercise price in stock or, with the consent of the Committee
(as defined in (c), below), in cash, may be granted to in conjunction with
options.
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(c) Administration. The 1996 Plan is administered by the Compensation
Committee of the Board of Directors of Hollywood Park or another committee so
designated by the Board (the "Committee"). The members of the Committee will
be (i) "non-employee directors" within the meaning of, or otherwise satisfy
the requirements of, Rule 16b-3 under the Exchange Act, and (ii) "outside
directors" within the meaning of Section 162(m) of the Code.
(d) Amendment and Termination of the 1996 Plan. The Committee may amend or
terminate the 1996 Plan from time to time in such respects as the Board may
deem advisable; provided that, to the extent necessary and desirable to comply
with Section 422 or Section 162(m) of the Code or any other successor or
applicable law or regulation, Hollywood Park shall obtain stockholder approval
of any 1996 Plan amendment in such a manner and to such a degree as is
required by the applicable law, rule or regulation. Any amendment or
termination of the 1996 Plan shall not affect options or stock appreciation
rights already granted and such options and stock appreciation rights shall
remain in full force and effect as if the 1996 Plan had not been amended or
terminated, unless mutually agreed otherwise between the optionee and the
Committee, which agreement must be in writing and signed by the optionee and
the Committee. The Code and the rules and regulations thereunder governing
incentive stock option plans currently require stockholder approval for any
increase in the number of shares issuable under a plan and for changes in the
eligibility standards under a plan.
(e) Eligibility and Participation. All key employees, directors, consultants
and advisors of Hollywood Park or of any subsidiary corporation shall be
eligible for selection to participate in the 1996 Plan, except that only
regular employees of Hollywood Park or a subsidiary shall be eligible to
receive incentive stock options under the 1996 Plan. An individual who has
been granted an option may, if such individual is otherwise eligible, be
granted an additional option or options if the Committee shall so determine,
subject to the other provisions of the 1996 Plan. No participant may receive
option grants with respect to more than 90,000 shares of Hollywood Park Common
Stock (subject to adjustment in the event of stock splits, stock dividends and
other similar transactions) during any fiscal year or portion thereof.
(f) Duration of Options. Each option shall be of a duration specified in the
option agreement by the Committee, but all options shall expire within ten
years of the date of grant. Incentive stock options granted to employees
owning in excess of ten percent of the voting securities of Hollywood Park
shall expire within five years of the date of grant.
(g) Duration of the 1996 Plan. The 1996 Plan shall remain in effect until
terminated by the Committee, until all shares subject to it shall have been
purchased pursuant to the exercise of options granted thereunder, or until all
options have expired. All options granted under the 1996 Plan shall be granted
within ten years from the date of stockholder approval of the 1996 Plan.
(h) Rights as a Stockholder and Assignability. The recipient of an option
will have no rights as a stockholder with respect to shares covered by the
recipient's option until the date such recipient becomes the holder of record
of such shares. During the life of the option holder, the option (and any
accompanying stock appreciation rights) will be exercisable only by the
recipient. Options (and any accompanying stock appreciation rights) will be
transferrable only by will and the laws of descent and distribution.
(i) Purchase Price. In the case of incentive stock options, the purchase
price payable upon the exercise of an option must be at least equal to the
fair market value of the stock on the date the option is granted. The exercise
price of a non-qualified stock option need not be equal to the fair market
value of the stock at the date of grant, but may be granted with any exercise
price as the Committee may determine. Additionally, under the 1996 Plan,
grants of incentive stock options to an employee owning over 10% of the voting
stock of Hollywood Park must be at an exercise price of not less than 110% of
the fair market value on the date of grant. Payment in full for the number of
shares purchased upon the exercise of either incentive or non-qualified stock
options shall be made in (i) cash, (ii) Hollywood Park Common Stock already
owned by and in possession of the option holder, (iii) if authorized by the
Committee, or if specified in the option being exercised, by means of a
promissory note or (iv) any combination thereof, at the same time the option
is exercised.
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(j) Basic Terms of Options. Each option shall be evidenced by a stock option
agreement containing terms and conditions not inconsistent with the provisions
of the 1996 Plan. Options may be exercisable in one or more installments and
to the extent that an installment is not exercised when it becomes
exercisable, it shall continue to be exercisable until the option shall
terminate or expire notwithstanding any other provisions of the 1996 Plan or
agreement thereunder.
(k) Limitations on Value of Incentive Option Grants. The 1996 Plan limits
the aggregate market value of stock (valued at the date of option grant)
subject to incentive stock options for any employee in any calendar year to
not more than $100,000.
(l) Stock Appreciation Rights. Any stock option may be coupled with a stock
appreciation right at the time of the grant of the option, or a stock
appreciation right may be granted to any person at any time after granting an
option to such person prior to the end of the term of such associated option.
A stock appreciation right shall entitle the option holder to surrender to
Hollywood Park unexercised the option to which it is related (or any portion
thereof) and to receive from Hollywood Park in exchange therefor (a) that
number of shares having an aggregate value equal to the excess of the fair
market value of the shares subject to the option (or the portion thereof which
is so surrendered) over the exercise price thereof or (b) subject to approval
by the Committee, cash equal to the aggregate fair market value of that part
or all of the shares Hollywood Park would otherwise be obligated to deliver. A
stock appreciation right shall be exercisable only for such period as the
Committee may determine (which period may expire prior to the expiration date
of the option).
(m) Termination of Employment; Death. No incentive stock option will be
exercisable more than three months after termination of the employment of the
option holder except that, if such termination is due to death or disability
of the employee, then no more than one year after such employee's death or
disability. Unless otherwise specified in the individual option agreement,
non-qualified options shall expire thirty days after termination of the
employment or other relationship of the option holder with Hollywood Park
except that, if such termination is due to death or disability, the non-
qualified stock options shall expire no more than six months after such option
holder's death or disability.
FEDERAL INCOME TAX CONSIDERATIONS
Under federal income tax law, the grant of a non-qualified stock option has
no tax effect on Hollywood Park or the optionee to whom it is granted. If the
shares received on exercise of a non-qualified option are not subject to
restrictions on transfer and risk of forfeiture, the exercise will result in
ordinary income to the optionee equal to the excess of the fair market value
of the shares at the time of exercise over the option price. The optionee's
tax basis in the shares received will be equal to the aggregate exercise price
paid by the optionee plus the amount of taxable income recognized. Upon any
subsequent disposition of the shares, any further gain or loss will normally
be capital gain or loss, and will be long-term if held more than one year
after exercise. Subject to the limitations of Section 162(m) of the Code,
discussed below, Hollywood Park will generally be allowed, at the time of
recognition of ordinary income by the optionee upon exercise, to take a
deduction for federal income tax purposes in an amount equal to such
recognized income, provided that Hollywood Park has complied with any
obligation it may have to withhold taxes with respect to such non-qualified
stock option.
If the shares received on exercise of a non-qualified option are subject to
certain restrictions on transfer and risks of forfeiture, the exercise of the
option will only result in a taxable transaction to the employee and a
deduction to Hollywood Park if the optionee elects to be taxed at that time,
and the tax consequences will be as
described in the preceding paragraph. If an effective election is not made,
income will be recognized when restrictions on transfer or risks of forfeiture
lapse, at which time the optionee will recognize ordinary income equal to the
excess of the fair market value of the shares purchased over the option price
at that time and, subject to Section 162(m) of the Code, Hollywood Park will
generally be allowed an equal deduction. The optionee's tax basis in the
shares received will be equal to the aggregate option price plus the amount of
taxable income recognized. Taxation or any subsequent disposition of shares
will normally generate capital gain or loss as described above.
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No tax will occur by reason of the grant of a stock appreciation right.
However, any cash and the fair market value of any shares received constitute
taxable income to the recipient upon the date of exercise except to the extent
the shares received are restricted as to transfer and subject to certain risks
of forfeiture and no effective election is made to be taxed at that time. If
such transfer restrictions and forfeiture risks exist and no effective
election is made, the recipient will recognize ordinary income equal to the
fair market value of the shares when the transfer restrictions or forfeiture
risks lapse. Subject to Section 162(m) of the Code, Hollywood Park will
generally be allowed an equal deduction at the time the recipient recognizes
income. Any subsequent disposition of the shares received will generate
capital gain or loss if the sale price is different from the amount of taxable
income recognized with respect to such shares as described above.
Except as noted below with respect to the alternative minimum tax, there
will also be no federal income tax consequences to Hollywood Park or the
optionee as a result of the grant or exercise of an incentive stock option. If
the optionee holds shares for at least two years from the date of the grant
and at least one year from the date of exercise, a subsequent sale of the
shares at a price different from the option price will generate taxable long-
term capital gain or loss. If the holding periods described above are met, no
deduction will be allowed to Hollywood Park for federal income tax purposes at
any time. If, however, the optionee disposes of the shares prior to satisfying
both the holding periods described above (a "Disqualifying Disposition"), (i)
the optionee will realize ordinary income in the year of such disposition in
an amount equal to the difference between the option price and the lesser of
(a) the fair market value of such shares on the date of exercise or (b) the
sales price; (ii) subject to Section 162(m) of the Code, Hollywood Park will
generally be entitled to a deduction for such year in the amount of the
ordinary income so realized; and (iii) the optionee will realize capital gain
or loss in an amount equal to the difference between (a) the amount realized
by the optionee upon such sale of the shares and (b) the option price paid by
the optionee increased by the amount or ordinary income, if any, realized by
the optionee upon such disposition.
The alternative minimum tax may apply to optionees because the excess of the
fair market value of shares received over the exercise price of an incentive
stock option on the exercise date constitutes an item of preference in the
year of exercise unless there is a Disqualifying Disposition in that year. The
alternative minimum tax may produce a higher tax than the regular income tax
applicable to the optionee.
While there are possible tax advantages to the employees who receive
incentive stock options rather than non-qualified stock options, there are tax
disadvantages to Hollywood Park. As discussed above, Hollywood Park normally
is entitled, subject to Section 162(m) of the Code, to take a deduction for
tax purposes in an amount equal to the ordinary income recognized by the
optionee at the time of exercise of a non-qualified stock option; but in the
case of an incentive stock option where there is no Disqualifying Disposition,
Hollywood Park normally will not be entitled to any deduction.
Section 162(m) of the Code, which was added to the Code in 1993, provides
that any publicly held corporation will be denied a deduction for compensation
paid to a "covered employee" to the extent that the compensation exceeds
$1,000,000. However, the deduction limit does not apply to "performance-based
compensation", as defined in Section 162(m). Performance-based compensation is
compensation where (i) the compensation is payable on account of the
attainment of one or more performance goals; (ii) the performance goals are
established by a compensation committee of the board of directors consisting
of "outside directors"; (iii) the material terms of the compensation and the
performance goals are disclosed to and approved by the stockholders in a
separate vote; and (iv) the compensation committee certifies that the
performance goals have been satisfied. If approved by the stockholders,
Hollywood Park believes that the stock options and stock appreciation rights
granted under this plan (unless granted for purchase prices below the fair
market value of the stock subject to the option or right) will satisfy the
requirements to be treated as performance-based compensation.
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<PAGE>
ADDITIONAL INFORMATION PROVIDED
IN CONNECTION WITH HOLLYWOOD PARK'S ANNUAL MEETING
BOARD COMMITTEES
The following information is being provided to Hollywood Park stockholders
in connection with the Hollywood Park Meeting and pursuant to the applicable
rules promulgated under the Securities Exchange Act of 1934.
Hollywood Park has a standing Executive Committee which is chaired by Mr.
Ornest and currently consists of Messrs. Hubbard, Koch, Ornest and Reitnouer.
The Executive Committee has and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of
Hollywood Park to the fullest extent authorized by Delaware law. The Executive
Committee had four formal meetings in 1995 and acted by unanimous written
consent on three occasions. The Executive Committee acts as Hollywood Park's
nominating committee and generally does not consider nominees recommended by
Hollywood Park's stockholders. The Executive Committee will be reconstituted
after the Merger.
Hollywood Park has a standing Audit Committee which is chaired by Mr. Newman
and currently consists of Messrs. Newman, Reitnouer, Sarkowsky and Johnson.
The functions of the Audit Committee are to review the audits of Hollywood
Park's books performed by outside independent auditors, to consider matters of
accounting policy and to investigate and recommend to the Board independent
auditors for the following year. The Audit Committee met once in 1995.
Hollywood Park has a standing Compensation Committee, which currently
consists of Messrs. Johnson, Manfuso and Sarkowsky. Mr. Johnson chairs the
Compensation Committee. The functions of the Compensation Committee are to
make recommendations to the Board of Directors regarding the annual salaries
and other compensation of the officers of Hollywood Park, to provide
assistance and recommendations with respect to the compensation policies and
practices of Hollywood Park and to assist with the administration of Hollywood
Park's compensation plans. The Compensation Committee had two formal meetings
in 1995 and acted by unanimous written consent on two occasions.
During the year ended December 31, 1995, each incumbent director of
Hollywood Park attended at least 75% of the aggregate of (i) the four meetings
of the Board of Directors and (ii) the total number of meetings of the
committees on which he served (during the periods that he served).
During the year ended December 31, 1995, each director of Hollywood Park
received a fee at the rate of $18,000 per year. In addition, each member of
the Executive Committee receives $1,000 for each meeting of that Committee,
while other committee members receive $500 per meeting. Directors of Hollywood
Park may elect to defer all or a portion of their fees pursuant to the
Directors Deferred Compensation Plan. Any such deferred compensation is
credited to a deferred compensation account, either in cash, shares of
Hollywood Park Common Stock, or a combination of both. Any deferred accounts
that are credited in shares of Hollywood Park Common Stock are also credited
in shares of Hollywood Park Common Stock for any dividends with respect to the
Hollywood Park Common Stock that are declared by the Board. All of Hollywood
Park's directors have elected to defer their fees and to have their deferred
compensation accounts credited with shares of Hollywood Park Common Stock.
In addition, directors and their guests are entitled, without charge, to use
the Directors' Room at Hollywood Park, which is open on weekends and holidays
during the racing season.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of Hollywood Park's Board of
Directors for the 1995 fiscal year were Messrs. Johnson, Manfuso, Sarkowsky
and Williamson. Mr. Williamson served as Secretary of Hollywood Park, but did
not receive compensation for his services as an officer of Hollywood Park.
None of such persons were officers or employees or former officers or
employees of Hollywood Park or any of its subsidiaries, or had any
relationships which would require disclosure by Hollywood Park pursuant to
Item 404 of Regulation S-K ("Certain Relationships and Related Transactions").
EXECUTIVE OFFICERS
Each of the executive officers of Hollywood Park holds office at the
pleasure of the Board of Directors. The current executive officers of
Hollywood Park are as follows:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<C> <S>
R.D. Hubbard................ Chairman of the Board and Chief Executive
Officer
Harry Ornest................ Vice Chairman of the Board
Donald M. Robbins........... President of Hollywood Park, Inc., President of
Racing and Assistant Secretary
G. Michael Finnigan......... President, Sports and Entertainment, Executive
Vice President, Treasurer and Chief Financial
Officer
Mark A. Sterbens, Sr........ President and Chief Operating Officer of Gaming
</TABLE>
Background information is provided above for all executive officers other
than Messrs. Robbins, Finnigan and Sterbens. See "Election of Hollywood Park
Directors."
Mr. Robbins, 48, has been President of Racing since February 1994; President
and Assistant Secretary of Hollywood Park since September 1991; General
Manager of Hollywood Park Operating Company ("Operating Company";
collectively, Hollywood Park and Operating Company are referred to herein as
the "Companies") from 1986 to February 1994, Executive Vice President of
Operating Company since 1988, and President and Secretary of Operating Company
since July 1991.
Mr. Finnigan, 48, has been President, Sports and Entertainment, since
January 1996; President, Gaming and Entertainment, from February 1994 to
January 1996; Executive Vice President and Chief Financial Officer of each of
the Companies since March 1989; and Treasurer of each of the Companies since
March 1992. Mr. Finnigan also serves as Secretary and Treasurer of Sunflower
Racing, Inc., a wholly-owned subsidiary of Hollywood Park, which filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code on May 17, 1996.
Mr. Sterbens, 43, has been President and Chief Operating Officer of Gaming
since January 1996; President and Chief Operating Officer, Par-A-Dice
Riverboat Casino, from March 1993 to December 1995; General Manager, Vice
President of Operations, Silver Eagle Casino Riverboat Casino, from September
1992 to March 1993; Chief Operating Officer, Alladin Casino, May 1992 to
September 1992; and President, Chief Operating Officer and Corporate Officer,
Riviera Hotel & Casino, from 1979 to May 1992.
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<PAGE>
EXECUTIVE COMPENSATION
The following tables summarize the annual and long-term compensation of and
stock options held by Hollywood Park's Chief Executive Officer and the two
additional most highly compensated executive officers whose annual salaries
and bonuses exceeded $100,000 in total during the fiscal year ended December
31, 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------
(a) (b) (c) (d) (e) (f) (g)
SECURITIES
NAME AND OTHER UNDERLYING
PRINCIPAL ANNUAL OPTIONS/ ALL OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) SARS(#) COMPENSATION($)
--------- ---- ------------ --------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
R.D. Hubbard............ 1995 $ 400,000 $ 0 $ 0 0 $ 0
Chairman of the Board 1994 400,000 0 0 0 0
and Chief Executive 1993 400,000(1) 0 0 0 0
Officer
G. Michael Finnigan..... 1995 $ 262,608 $ 0 $ 0 0 $ 0
President, Sports and 1994 262,608 0 0 20,000 1,308(1)
Entertainment, 1993 262,608 0 0 30,000 1,308(1)
Executive Vice
President, Treasurer
and Chief Financial
Officer
Donald M. Robbins....... 1995 $ 255,501 $ 0 $ 0 0 $ 0
President of Hollywood 1994 255,501 0 0 20,000 246,313(2)
Park, Inc., President, 1993 255,501 0 0 30,000 246,313(2)
Racing, and Assistant
Secretary
</TABLE>
- --------
(1) Reflects matching contributions under the Hollywood Park 401(k) Plan.
(2) In April 1992, Hollywood Park and Mr. Robbins entered into an agreement
terminating his employment agreement with Hollywood Park and providing for
the payment to Mr. Robbins of the change of control benefit under that
contract in three equal annual installments of $245,833 in April, 1992,
1993 and 1994. Mr. Robbins is currently employed by Hollywood Park without
an employment contract.
Option Grants Since January 1, 1995
There were no options granted to any of Messrs. Hubbard, Robbins or Finnigan
in 1995. However, as noted below, certain options held by Messrs. Finnigan and
Robbins have been repriced. In addition, in April 1996, options aggregating
80,000, 40,000 and 40,000 shares, respectively, were granted to Messrs.
Hubbard, Robbins and Finnigan, at an exercise price of $10.00 per share.
138
<PAGE>
Report on Repricing of Options/SARs
Options and SARs held by Named Officers were repriced in 1995(1) as set
forth below:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE
UNDERLYING OF STOCK AT EXERCISE PRICE
OPTIONS/SARS TIME OF AT TIME OF NEW LENGTH OF ORIGINAL
REPRICED OR REPRICING OR REPRICING OR EXERCISE TERM REMAINING AT
AMENDED AMENDMENT AMENDMENT PRICE DATE OF REPRICING OR
NAME DATE # ($) ($) ($) AMENDMENT
---- ------- ------------ ------------ -------------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C>
G. Michael Finnigan..... 5/19/95 30,000 13.00 25.50 13.00 8 years, 1 month
5/19/95 20,000 13.00 22.00 13.00 8 years, 9 months
Donald M. Robbins....... 5/19/95 30,000 13.00 25.50 13.00 8 years, 1 month
5/19/95 20,000 13.00 22.00 13.00 8 years, 9 months
</TABLE>
- --------
(1) In connection with the negotiations relating to the Merger Agreement, the
Boomtown Board advised Hollywood Park that it intended to reprice all
Boomtown Options to a price equal to the market price of the Boomtown
Common Stock on the date prior to the approval of the Merger by the Board
(or, if greater, the market price of the Hollywood Park Common Stock on
such date multiplied by the Exchange Ratio). In order to ensure that
executives of the combined company will be comparably treated and are
provided with sufficient incentives, in April 1996 Hollywood Park again
repriced the options shown herein at $10.00 per share.
Pension Plan
<TABLE>
<CAPTION>
YEARS OF QUALIFIED SERVICE
FINAL AVERAGE ----------------------------------------
ANNUAL SALARY 10 15 20 25 30
------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
$100,000.............................. $24,815 $37,223 $49,630 $62,038 $ 67,038
$100,000 to $500,000(1)............... 38,065 57,098 76,130 95,163 102,663
</TABLE>
- --------
(1) Under current provisions of the Internal Revenue Code, the maximum average
salary that may be used in calculating retirement benefits in 1995 is
$150,000. Benefits accrued on April 1, 1994 (based on prior compensation
limits) are grandfathered.
Hollywood Park's Pension Plan (the "Pension Plan") is a non-contributory,
defined benefit plan which applies to eligible employees who are not covered
by a collective bargaining agreement and who meet the Pension Plan's service
requirements, including directors who are employees. In general, pension
benefits are based on years of service and eligible earnings. R.D. Hubbard,
Donald M. Robbins and G. Michael Finnigan are the only officers or directors
of Hollywood Park who are currently participating in the Pension Plan and
currently have approximately one year, nine years and six years of qualified
service, respectively. Only amounts earned by Messrs. Hubbard, Robbins and
Finnigan as "salary" as shown in the above Executive Compensation Table are
considered in determining their benefit levels.
The amounts shown in the Pension Plan table above are estimated annual
retirement benefits under the Pension Plan (assuming payments are made on the
normal life annuity basis and not under the provisions on survivor benefits)
upon normal retirement at age 65 in 1995, after various years of qualified
service and at selected average annual compensation levels. Benefits do not
become vested until an employee has completed five years and are not subject
to deduction for Social Security or other offset amounts.
The amounts required to fund the Pension Plan are determined actuarially and
are paid by Hollywood Park to a life insurance company under an unallocated
group annuity contract. In 1995, Hollywood Park did not make any contributions
to the Pension Plan on behalf of Messrs. Hubbard, Robbins and Finnigan.
In December 1995, the Compensation Committee of the Hollywood Park Board
approved a non-qualified Supplementary Employment Retirement Plan ("SERP"),
which became effective April 1, 1996 (and therefore no actuarial data is yet
available). The SERP is an unfunded plan, implemented primarily for the
purpose of
139
<PAGE>
restoring the retirement benefits for highly compensated employees, which were
eliminated in 1994 by the Internal Revenue Service when the maximum annual
earnings allowed for qualified pension plans was reduced to $150,000 from
$235,840. Currently, Messrs. Hubbard, Robbins and Finnigan are eligible to
participate in the SERP.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, which is composed
entirely of independent outside directors, is responsible for making
recommendations to the Board regarding the annual salaries and other
compensation of the officers of Hollywood Park, providing assistance and
recommendations with respect to the compensation policies and practices of
Hollywood Park and assisting with the administration of Hollywood Park's
compensation plans.
In order to attract and retain well-qualified executives, which the
Compensation Committee believes is crucial to Hollywood Park's success, the
Compensation Committee's general approach to compensating executives is to pay
cash salaries which are commensurate with the executives' experience and
expertise and, where relevant, are competitive with the salaries paid to
executives in Hollywood Park's main industries and primary geographic
locations, which are currently thoroughbred horse racing tracks and card clubs
in Southern California and horse and dog racing tracks in Kansas and Arizona
and other jurisdictions. In addition, to align its executives' compensation
with Hollywood Park's business strategies, values and management initiatives,
both short and long term, the Committee may, with the Board's approval,
authorize the payment of discretionary bonuses based upon an assessment of
each executive's contributions to Hollywood Park. In general, the Compensation
Committee believes that these discretionary bonuses should be related to
Hollywood Park's and the executive's performance, although specific
performance criteria have not been established.
The Compensation Committee also believes that stock ownership by key
executives provides a valuable incentive for such executives and helps align
executives' and stockholders' interests. To facilitate these objectives,
Hollywood Park adopted the 1993 Stock Option Plan, pursuant to which Hollywood
Park may grant stock options to executives (as well as other employees and
directors) to purchase up to 625,000 shares of Hollywood Park Common Stock.
The Compensation Committee believes that the key officers of Hollywood Park
have provided excellent services and been diligent in their commitment to
Hollywood Park. Although Hollywood Park's stock price in the marketplace did
not reflect the quality of their efforts, the Committee believes that stock
ownership by such officers provides an important incentive for their continued
efforts and diligence. In order to ensure that the options fulfilled their
purpose of helping Hollywood Park attract and retain key employees, in 1995,
the Compensation Committee determined to lower the exercise price for all of
Hollywood Park's outstanding stock options to $13.00, Hollywood Park's closing
stock price on the date on which the action was taken. Accordingly, the stock
options of Messrs. Robbins and Finnigan were so amended. Although under the
1993 Stock Option Plan the Committee could have granted additional options to
Hollywood Park's key executives in lieu of repricing the existing options, the
Committee believes that Hollywood Park is better served by a repricing of
existing options, which preserves options for additional grants under the 1993
Stock Option Plan. For these same reasons, and in order to ensure that
executives of the combined company will be treated similarly, these options
were again repriced to $10.00 per share on April 22, 1996. In addition, in
April, 1996, options aggregating 80,000, 40,000 and 40,000 shares,
respectively, were granted to Messrs. Hubbard, Robbins and Finnigan at an
exercise price of $10.00 per share.
In 1995, Mr. Hubbard was paid a salary of $400,000. This payment was fixed
in 1992 based upon an analysis of (i) the annual compensation received by the
Chief Executive Officer of Santa Anita Race Track, (ii) the annual base
salaries currently being paid to Messrs. Robbins and Finnigan, (iii) the
prominence of Mr. Hubbard in the business community in general and the horse
racing community in particular, (iv) the level and value of the contribution
that the Compensation Committee believes Mr. Hubbard has made, and can make in
the future, to Hollywood Park and (v) the fact that Mr. Hubbard was willing to
accept this amount even though the Committee believes that he could command a
much higher compensation level based upon his business experience and
expertise. The Compensation Committee continued this salary level even though
it believes that
140
<PAGE>
Mr. Hubbard would be entitled to significantly higher levels of base
compensation based upon not only the above-mentioned factors, but also
Hollywood Park's expansion into the card club and gaming business, where
executive salaries tend to be substantially higher than those in the
thoroughbred horse racing business. While Mr. Hubbard's base salary is not
dependent upon Hollywood Park's performance, it is anticipated that any
bonuses he may receive, based upon the recommendation of the Compensation
Committee and the approval of the Board of Directors, would be, at least in
part, so dependent.
May 22, 1996 COMPENSATION COMMITTEE
J.R. Johnson (Chairman)
Robert T. Manfuso
Herman Sarkowsky
Warren B. Williamson
141
<PAGE>
PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(1) AMONG HOLLYWOOD PARK,
BOOMTOWN, MEDIA GENERAL STANDARD INDUSTRIAL CODE 7999 INDEX--AMUSEMENT,
RECREATION SERVICES & THE NASDAQ MARKET INDEX(2)
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period HOLLYWOOD BOOMTOWN, INDUSTRY BROAD
(Fiscal Year Covered) PARK, INC. INC.(3) INDEX MARKET
- --------------------- ---------- --------- -------- -------
<S> <C> <C> <C> <C>
Measurement Pt- 1990 $100 $100 $100
FYE 1991 $ 74.85 $157.19 $128.38
FYE 1992 $ 57.9 $100 $185.35 $129.64
FYE 1993 $184.78 $213.95 $300.49 $155.5
FYE 1994 $ 67.75 $155.81 $238.4 $163.26
FYE 1995 $ 61.98 $ 87.21 $343.82 $211.77
</TABLE>
- --------
(1) Assumes $100 invested on December 31, 1990 in Hollywood Park Common Stock,
Media General Standard Industrial Code 7999 Index--Amusement and
Recreation Services & The Nasdaq Market Index and $100 invested in
Boomtown Common Stock on October 23, 1992.
(2) Total return assumes reinvestment of dividends.
(3) Boomtown, Inc. began public trading on October 23, 1992 and has a year end
of September 30.
The above graph shows historical stock price performance (including
reinvestment of dividends) and is not necessarily indicative of future
performance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Hollywood Park entered into an aircraft time sharing agreement with R.D.
Hubbard Enterprises, Inc. ("Hubbard Enterprises"), which is wholly owned by
Mr. Hubbard. The original agreement covered the period November 1, 1993
through December 31, 1994. Thereafter, the agreement automatically renews for
additional terms of one month each, unless written notice of termination is
given by one party to the other at least two weeks before a renewal term.
Hollywood Park agreed to reimburse Hubbard Enterprises for expenses incurred
as a result of Hollywood Park's use of the aircraft, which totalled
approximately $126,000 in 1995.
On March 23, 1994, in connection with Hollywood Park's acquisition of
Sunflower (in which Mr. Hubbard owned a 60% interest), Hollywood Park agreed
that under certain circumstances the former Sunflower shareholders would be
entitled to receive additional shares of Hollywood Park Common Stock. As of
March 23, 1995, the former Sunflower shareholders transferred their right to
such additional consideration to Hollywood Park for nominal consideration and
have no further entitlement thereto.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN HOLLYWOOD PARK BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the name, address (address is provided for
persons listed as beneficial owners of 5% or more of the Hollywood Park Common
Stock or Depositary Shares) and number of shares and percent of the Hollywood
Park Common Stock or Depositary Shares, respectively, beneficially owned as of
September 10, 1996, by each person known to the Board of Directors to be the
beneficial owner of 5% or more of the outstanding shares of Hollywood Park
Common Stock or Depositary Shares, each Director, each named Executive Officer
and Directors and Executive Officers as a group.
<TABLE>
<CAPTION>
HOLLYWOOD PARK COMMON STOCK DEPOSITARY SHARES
-------------------------------------------- ------------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF AMOUNT AND
BENEFICIAL BENEFICIAL PERCENT OF NATURE OF PERCENT OF
NAME OF OWNERSHIP OWNERSHIP SHARES BENEFICIAL SHARES
BENEFICIAL OWNER (PRIMARY) (FULLY DILUTED)(a) OUTSTANDING(a) OWNERSHIP OUTSTANDING
---------------- ---------- ------------------ -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
R. D. Hubbard.......... 2,119,840 2,619,820(c) 13.9% 600,000(d) 21.8%
Hollywood Park, Inc.
1050 South Prairie
Avenue
Inglewood, California
90301
State of Wisconsin
Investment Board...... 1,752,000 1,752,000(e) 9.6% -- --
P.O. Box 7842
Madison, Wisconsin
53707
Legg Mason, Inc........ 1,706,250 1,706,250(f) 9.3% -- --
111 South Calvert
Street
Baltimore, Maryland
21202
Harry Ornest........... 1,206,300 1,256,298(g) 6.8% 60,000 2.2%
Hollywood Park, Inc.
1050 South Prairie
Avenue
Inglewood, California
90301
John J. Brunetti....... 852,980 852,980(h) 4.7% -- --
J.R. Johnson........... 189,583 368,743(i) 2.0% 215,000 7.8%
Warren B. Williamson... 125,000 147,916(j) * 27,500 1.0%
Lynn P. Reitnouer...... 35,000 35,000 * -- --
John V. Newman......... 30,670 30,670(k) * -- --
Robert T. Manfuso...... 20,000 28,333(l) * 10,000 *
Herman Sarkowsky....... 10,938 10,938 * -- --
Howard W. Koch......... 1,458 1,458 * -- --
G. Michael Finnigan.... 25,415 78,749(m) * -- --
Donald M. Robbins...... 12,339 65,673(n) * -- --
Directors and Executive
Officers as a group
(13 persons).......... 4,629,523 5,496,578(o) 28.7% 912,500 32.8%
</TABLE>
- --------
* Less than one percent (1%) of the outstanding common or depositary shares.
(a) Assumes exercise of stock options or conversion of the Depositary Shares
beneficially owned by the named individual or entity into shares of
Hollywood Park Common Stock.
(b) Each depositary share may be converted into 0.8333 shares of Hollywood
Park Common Stock, subject to adjustment in certain circumstances.
(c) Includes 499,980 shares of Hollywood Park Common Stock issuable upon
conversion of 600,000 Depositary Shares, including 300,000 Depositary
Shares owned by the R.D. and Joan Dale Hubbard Foundation.
(d) Includes 300,000 Depositary Shares owned by the R.D. and Joan Dale Hubbard
Foundation.
(e) Based upon information provided by the stockholder in a Schedule 13G filed
with the Securities and Exchange Commission in February 1996.
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<PAGE>
(f) Based upon information provided by the stockholder in a Schedule 13G filed
with the Securities and Exchange Commission on February 14, 1995.
(g) Includes 49,998 shares of Hollywood Park Common Stock issuable upon
conversion of 60,000 Depositary Shares. Also includes 70,000 shares of
Hollywood Park Common Stock held by The Ornest Family Foundation, for
which Mr. Ornest acts as a trustee (Mr. Ornest disclaims any pecuniary
interest in these shares). In addition, as Trustee of the Harry and Ruth
Ornest Trust, Mr. Ornest and his wife, Ruth Ornest, share the power to
vote 60% of the interest in the Ornest Family Partnership (the
"Partnership"), which in turn has the power to dispose of the 1,136,300
shares of Hollywood Park Common Stock held in the name of the Partnership.
(h) All of the shares are owned by Elberon Investment Corp., of which Mr.
Brunetti owns all of the outstanding capital stock.
(i) Includes 179,160 shares of Hollywood Park Common Stock issuable upon
conversion of 215,000 Depositary Shares.
(j) Includes 22,916 shares of Hollywood Park Common Stock issuable upon
conversion of 27,500 Depositary Shares.
(k) All of the shares are owned by the Newman Family Trust, for which Mr.
Newman and his wife serve as trustees.
(l) Includes 8,333 shares of Hollywood Park Common Stock issuable upon
conversion of 10,000 Depositary Shares.
(m) Includes 53,334 shares of Hollywood Park Common Stock which Mr. Finnigan
has the right to acquire pursuant to options granted under Hollywood
Park's 1993 Stock Option Plan which are exercisable within sixty days of
September 10, 1996.
(n) Includes 53,334 shares of Hollywood Park Common Stock which Mr. Robbins
has the right to acquire pursuant to options granted under Hollywood
Park's 1993 Stock Option Plan which are exercisable within sixty days of
September 10, 1996.
(o) Includes 867,054 shares of Hollywood Park Common Stock of which the
Directors and Executive Officers may be deemed to have beneficial
ownership following (i) conversion of 912,500 Depositary Shares and (ii)
the exercise of options to purchase 106,668 shares of Hollywood Park
Common Stock which are exercisable within sixty days of September 10,
1996. Excluding such shares, the Directors and Executive Officers of
Hollywood Park have beneficial ownership of 4,629,523 shares of Hollywood
Park Common Stock, which represents 25.3% of the shares of Hollywood Park
Common Stock outstanding as of September 10, 1996.
Based solely upon a review of reports received by Hollywood Park during or
with respect to the year ended December 31, 1995 pursuant to Rule 16a-3(e) of
the Exchange Act, Mr. Ornest did not timely file one report covering one
purchase of shares of Hollywood Park Common Stock; and Mr. Brunetti did not
timely file six reports, each covering one purchase of shares of Hollywood
Park Common Stock.
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<PAGE>
STOCKHOLDER PROPOSALS
Under Hollywood Park's By-Laws, stockholders may not present proposals for
action or nominate directors any Hollywood Park annual meeting unless written
notice thereof containing the information required by such By-Laws is
delivered to the Secretary of Hollywood Park at least 90 days prior to the
meeting or, if later, the seventh day following the first public announcement
of the date of the meeting.
Stockholders who wish to present proposals for action, or to nominate
directors, at the next annual meeting of stockholders of Hollywood Park (that
is, the next annual meeting following the Hollywood Park Meeting described
herein) must give written notice thereof to the Secretary of Hollywood Park at
the address set forth on the cover page of this Proxy Statement not less than
ninety days in advance of such meeting or, if later, the seventh day following
the first public announcement of such meeting. Such written notice must
contain the information required by Section 2.13 of Article II of Hollywood
Park's By-Laws.
In order to be eligible for inclusion in Hollywood Park's proxy statement
and proxy card for the next annual meeting pursuant to Rule 14a-8 under the
Exchange Act, stockholder proposals would have to be received by the Secretary
of Hollywood Park no later than May 27, 1997 if the next annual meeting were
held in October 1997. However, Hollywood Park may elect to hold its next
annual meeting in the spring or summer of 1997, in which event such
stockholder proposals would have to be received by Hollywood Park a reasonable
time before Hollywood Park's solicitation is made. Further, in order for such
stockholder proposals to be eligible to be brought before the stockholders at
the next annual meeting, the stockholder submitting such proposals must also
comply with the procedures, including the deadlines, required by Section 2.13
of Article II of Hollywood Park's By-Laws, as referenced in the preceding
paragraph. Stockholder nominations of directors are not stockholder proposals
within the meaning of Rule 14a-8 and are not eligible for inclusion in
Hollywood Park's proxy statement.
Proposals of stockholders of Boomtown to be presented by such stockholders
at Boomtown's 1997 Annual Meeting of Stockholders (if the Merger is not
consummated) must have been received by the Secretary of Boomtown no later
than October 3, 1996 in order to be included in the proxy statement and form
of proxy relating to that meeting.
ADJOURNMENT OF MEETINGS
ADJOURNMENT OF HOLLYWOOD PARK MEETING
In the event that there are not sufficient votes to approve the Hollywood
Park Share Issuance Proposal at the time of the Hollywood Park Meeting, such
proposal could not be approved unless the Hollywood Park Meeting were
adjourned in order to permit further solicitation of proxies from holders of
Hollywood Park Common Stock. Proxies that are being solicited by the Hollywood
Park Board grant the discretionary authority to vote for any such adjournment,
if necessary. If it is necessary to adjourn the Hollywood Park Meeting and the
adjournment is for a period of less than 30 days, no notice of the time and
place of the adjourned meeting is required to be given to stockholders other
than an announcement of such time and place at the Hollywood Park Meeting. A
majority of the shares represented and voting at the Hollywood Park Meeting is
required to approve any such adjournment, provided that a quorum is present.
If a quorum is not present, then either the chairman of the meeting or the
stockholders entitled to vote at the meeting may adjourn the meeting.
ADJOURNMENT OF BOOMTOWN MEETING
In the event that there are not sufficient votes to approve and adopt the
Merger Agreement at the time of the Boomtown Meeting, such proposal could not
be approved unless the Boomtown Meeting were adjourned in order to permit
further solicitation of proxies from Boomtown stockholders. Proxies that are
being solicited by the Boomtown Board grant the discretionary authority to
vote for any such adjournment, if necessary. If it is necessary to adjourn the
Boomtown Meeting and the adjournment is for a period of less than 30 days, no
notice of the time and place of the adjourned meeting is required to be given
to stockholders other than an announcement of such time and place at the
Boomtown Meeting. A majority of the voting power represented
145
<PAGE>
and voting at the Boomtown Meeting is required to approve any such
adjournment, provided that a quorum is present. If a quorum is not present,
then either the chairman of the meeting or the stockholders entitled to vote
at the meeting may adjourn the meeting.
EXPERTS
The consolidated financial statements of Hollywood Park for the year ended
December 31, 1995, included in this prospectus and elsewhere in the
Registration Statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
The consolidated financial statements of Hollywood Park Inc. for the year
ended December 31, 1993 have been included herein and in the Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP and Ernst &
Young LLP, independent certified public accountants, appearing elsewhere
herein and upon the authority of said firms as experts in accounting and
auditing.
The consolidated financial statements of Boomtown, Inc. at September 30,
1995 and 1994, and for each of the three years in the period ended September
30, 1995, included in the Joint Proxy Statement of Boomtown, Inc. and
Hollywood Park, Inc., which is referred to and made part of this Prospectus
and Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and the federal
income tax consequences in connection with the Merger will be passed upon for
Hollywood Park by Irell & Manella LLP. The federal income tax consequences in
connection with the Merger will be passed upon for Boomtown by Wilson,
Sonsini, Goodrich & Rosati, P.C.
146
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HOLLYWOOD PARK, INC.
Report of Independent Public Accountants of Arthur Andersen LLP........... F-2
Report of Independent Auditors of KPMG Peat Marwick LLP................... F-3
Consolidated Balance Sheets............................................... F-4
Consolidated Statements of Operations..................................... F-5
Consolidated Statements of Changes in Stockholders' Equity................ F-6
Consolidated Statements of Cash Flows..................................... F-7
Notes to Consolidated Financial Statements................................ F-8
BOOMTOWN, INC.
Report of Ernst & Young LLP, Independent Auditors......................... F-35
Consolidated Balance Sheets............................................... F-36
Consolidated Statements of Operations..................................... F-37
Consolidated Statements of Stockholders' Equity........................... F-38
Consolidated Condensed Statements of Cash Flows........................... F-39
Notes to Consolidated Financial Statements................................ F-40
</TABLE>
F-1
<PAGE>
HOLLYWOOD PARK CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Hollywood Park, Inc.:
We have audited the accompanying consolidated balance sheets of Hollywood
Park, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
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 Hollywood Park, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 14, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Hollywood Park, Inc.
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows of Hollywood Park, Inc. and
Subsidiaries (the Company) for the year ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. We did not audit the financial statements of
Turf Paradise, Inc., a company acquired during 1994 in a transaction accounted
for as a pooling of interests, as discussed in Note 1, for the year ended June
30, 1993. Such statements reflect total revenue constituting 19.9% of the
related consolidated total. These statements were audited by other auditors
whose report has been furnished to us and our opinion, insofar as it relates
to amounts included for Turf Paradise, Inc., is based solely upon the report
of the other auditors.
We conducted our audit 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 audit and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the results of operations and cash flows of Hollywood Park,
Inc. and Subsidiaries for the year ended December 31, 1993, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
February 11, 1994, except for the portion of note 1
dealing with the acquisition of Turf Paradise, Inc.
which is as of August 11, 1994.
F-3
<PAGE>
HOLLYWOOD PARK, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS
OF DECEMBER 31,
------------------ JUNE 30,
1995 1994 1996
-------- -------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............ $ 22,406 $ 37,122 $ 30,830
Restricted cash...................... 3,126 699 10,154
Short term investments............... 6,447 0 4,053
Casino lease and related interest
receivable, net..................... 0 11,745 0
Other receivables, net of allowance
for doubtful accounts of $960,000 in
1996, $1,841,000 in 1995 and
$159,000 in 1994.................... 8,147 8,224 8,906
Prepaid expenses and other assets.... 3,888 3,348 4,201
Deferred tax assets.................. 4,888 4,539 2,204
Current portion of notes receivable.. 34 31 36
-------- -------- --------
Total current assets............... 48,936 65,708 60,384
Notes receivable....................... 857 891 839
Property, plant and equipment, net..... 174,717 160,264 121,043
Lease with TRAK East, net.............. 1,195 1,110 0
Goodwill, net.......................... 26,829 5,813 20,640
Long term gaming assets................ 19,063 0 13,191
Other assets........................... 11,706 11,396 7,704
-------- -------- --------
$283,303 $245,182 $223,801
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................... $ 12,518 $ 6,833 $ 13,147
Accrued lawsuit settlement........... 5,232 0 2,750
Accrued liabilities.................. 13,607 8,204 9,646
Accrued workers' compensation........ 2,277 2,117 2,054
Accrued slip and fall claims......... 1,543 1,273 1,679
Gaming liabilities................... 3,998 0 2,791
Amounts due to horsemen for purses,
stakes and awards................... 709 516 12,030
Outstanding pari-mutuel tickets...... 2,757 1,546 3,004
Current portion of notes payable..... 32,310 5,299 3,406
-------- -------- --------
Total current liabilities.......... 74,951 25,788 50,507
Notes payable.......................... 15,629 42,800 256
Gaming liabilities..................... 16,894 0 11,620
Deferred tax liabilities............... 10,083 9,339 4,770
-------- -------- --------
Total liabilities.................. 117,557 77,927 67,153
Commitments and contingencies.......... -- -- --
Stockholders' Equity:
Capital stock--
Preferred--$1.00 par value,
authorized 250,000 shares; 27,499
issued and outstanding............ 28 28 28
Common--$.10 par value, authorized
40,000,000 shares; 18,504,798
issued and outstanding in 1996 and
1995 and 18,369,634 in 1994....... 1,850 1,837 1,850
Capital in excess of par value....... 168,479 166,892 168,479
Accumulated deficit.................. (4,611) (1,502) (13,709)
-------- -------- --------
Total stockholders' equity......... 165,746 167,255 156,648
-------- -------- --------
$283,303 $245,182 $223,801
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HOLLYWOOD PARK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
-------------------------- ----------------
1995 1994 1993 1996 1995
-------- -------- ------- ------- -------
(UNAUDITED)
----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES:
Pari-mutuel commissions......... $ 53,259 $ 51,732 $46,905 $28,707 $27,679
Lease and management fee--
Sunflower...................... 5,408 7,860 0 1,071 3,145
Lease--Casino................... 20,624 11,745 0 0 12,670
Gaming--Casino.................. 6,032 0 0 24,803 0
Admissions, programs, and other
racing income.................. 18,369 19,127 16,945 8,636 9,272
Concession sales................ 19,783 20,540 10,908 7,637 10,805
Other income.................... 7,097 6,320 4,227 3,426 3,713
-------- -------- ------- ------- -------
130,572 117,324 78,985 74,280 67,284
-------- -------- ------- ------- -------
EXPENSES:
Salaries, wages and employee
benefits....................... 43,124 37,250 29,433 28,614 20,437
Operations of facilities........ 10,865 10,095 7,628 4,404 5,308
Cost of concession sales........ 25,162 21,852 9,400 10,750 13,466
Professional services........... 7,860 7,647 4,989 4,568 4,520
Rent............................ 1,306 1,823 1,423 701 678
Utilities....................... 4,854 4,639 2,820 1,973 2,149
Marketing....................... 5,546 6,062 3,384 3,684 2,684
Administrative.................. 10,930 7,028 3,721 7,561 4,083
Depreciation and amortization... 11,384 9,563 6,402 5,400 5,654
Lawsuit settlement.............. 6,088 0 0 0 0
Casino pre-opening and training
expenses 0 2,337 850 0 0
Turf Paradise acquisition
costs.......................... 0 627 0 0 0
Write off of investment in
Sunflower...................... 0 0 0 11,412 0
-------- -------- ------- ------- -------
127,119 108,923 70,050 79,067 58,979
-------- -------- ------- ------- -------
Operating income (loss)........... 3,453 8,401 8,935 (4,787) 8,305
Interest expense................ 3,922 3,061 1,517 898 1,928
-------- -------- ------- ------- -------
Income (loss) before income tax
expense (benefit)................ (469) 5,340 7,418 (5,685) 6,377
Income tax expense (benefit).... 693 1,568 1,025 2,444 2,114
-------- -------- ------- ------- -------
Net income (loss)................. $ (1,162) $ 3,772 $ 6,393 $(8,129) $ 4,263
======== ======== ======= ======= =======
Dividend requirements on
convertible preferred stock...... $ 1,925 $ 1,925 $ 1,718 $ 962 $ 962
Net income (loss) available to
(allocated to) common
shareholders..................... $ (3,087) $ 1,847 $ 4,675 $(9,091) $ 3,301
Per common share:
Net income (loss)--primary...... $ (0.17) $ 0.10 $ 0.30 $ (0.49) $ 0.18
Net income (loss)--fully
diluted........................ $ (0.17) $ 0.10 $ 0.30 $ (0.49) $ 0.18
Cash dividend per common share.. $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Number of shares--primary......... 18,399 18,224 15,418 18,613 18,370
Number of shares--fully diluted... 20,691 20,516 17,465 20,904 20,661
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HOLLYWOOD PARK, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND
THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
CAPITAL IN TOTAL
PREFERRED COMMON EXCESS OF ACCUMULATED STOCKHOLDERS'
STOCK STOCK PAR VALUE DEFICIT EQUITY
--------- ------ ---------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1992.................... $ 0 $1,080 $ 17,103 $ (7,996) $ 10,187
Net income.............. 0 0 0 6,393 6,393
Issuance of preferred
stock.................. 28 0 25,749 0 25,777
Issuance of common
stock.................. 0 460 112,852 0 113,312
Stock split............. 0 232 (232) 0 0
Net changes related to
Turf Paradise equity... 0 0 253 (246) 7
Preferred stock
dividends--$53.69 per
share.................. 0 0 0 (1,476) (1,476)
--- ------ -------- -------- --------
BALANCE, DECEMBER 31,
1993.................... 28 1,772 155,725 (3,325) 154,200
Net income.............. 0 0 0 3,772 3,772
Net income--Turf
Paradise six months
ended December 31,
1993................... 0 0 0 198 198
Issuance of common stock
to acquire--Sunflower
Racing, Inc. .......... 0 59 11,099 0 11,158
Issuance of contingent
shares related to
Sunflower Racing, Inc.
acquisition............ 0 6 (6) 0 0
Net changes related to
Turf Paradise equity... 0 0 74 (222) (148)
Preferred stock
dividends--$70.00 per
share.................. 0 0 0 (1,925) (1,925)
--- ------ -------- -------- --------
BALANCE, DECEMBER 31,
1994.................... 28 1,837 166,892 (1,502) 167,255
Net loss................ 0 0 0 (1,162) (1,162)
Issuance of common stock
to acquire--
Pacific Casino
Management, Inc. ...... 0 13 1,587 0 1,600
Investment in bonds--
unrealized holding
loss................... 0 0 0 (22) (22)
Preferred stock
dividends--$70.00 per
share.................. 0 0 0 (1,925) (1,925)
--- ------ -------- -------- --------
BALANCE, DECEMBER 31,
1995.................... 28 1,850 168,479 (4,611) 165,746
Net loss................ 0 0 0 (8,129) (8,129)
Investment in bonds--
unrealized holding
loss................... 0 0 0 (7) (7)
Preferred dividends--
$17.50 per share....... 0 0 0 (962) (962)
--- ------ -------- -------- --------
BALANCE, JUNE 30, 1996
(UNAUDITED)............. $28 $1,850 $168,479 $(13,709) $156,648
=== ====== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
HOLLYWOOD PARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------- ------------------
1995 1994 1993 1996 1995
-------- -------- -------- -------- --------
(UNAUDITED)
------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)........... $ (1,162) $ 3,772 $ 6,393 $ (8,129) $ 4,263
Adjustment to reconcile net
income (loss) to net cash
provided by (used in) by
operating activities:
Depreciation and
amortization.............. 10,857 10,064 6,407 4,901 5,653
Changes in accounts due to
deconsolidation of
subsidiary in bankruptcy:
Property, plant and
equipment................. 0 0 0 58,380 0
Secured notes payable...... 0 0 0 (28,904) 0
Unsecured notes payable.... 0 0 0 (15,373) 0
Goodwill and lease with
TRAK East................. 0 0 0 6,908 0
Unrealized gain on short
term bond investing....... 0 0 0 (7) 0
(Gain) loss on sale or
disposal of property,
plant and equipment....... 64 55 8 (5) 66
Changes in assets and
liabilities, net of the
effects of the purchase of
a business:
(Increase) decrease in
restricted cash........... (2,427) (490) 375 (7,028) (10,931)
Increase in casino lease
and related interest
receivable, net........... (9,204) (11,745) 0 0 (7,054)
Decrease (increase) in
other receivables, net.... 77 (5,022) (1,106) (759) 112
Increase (decrease) in
prepaid expenses and other
assets.................... (304) (5,488) (505) 3,689 (2,407)
Increase (decrease) in
deferred tax assets....... (2,361) (2,208) 312 2,684 185
Increase (decrease) in
accounts payable.......... 5,685 (1,596) 2,623 629 3,161
Increase (decrease) in
accrued lawsuit
settlement................ 5,232 0 0 (2,482) 0
Increase (decrease) in
accrued gaming
liabilities............... 3,998 0 0 (1,207) 0
Increase (decrease) in
accrued liabilities....... 5,377 2,716 (1,080) (3,961) 2,458
Increase (decrease) in
accrued workers'
compensation.............. 160 505 65 (223) 95
Increase in slip and fall
claims.................... 270 284 0 136 130
Increase (decrease) in
amounts due to horsemen
for purses, stakes and
awards.................... 193 261 (258) 11,321 11,249
(Decrease) increase in
amounts payable to
charities................. (131) (334) 192 0 0
Increase in outstanding
pari-mutuel tickets....... 1,211 765 258 247 1,239
Increase (decrease) in
deferred tax liabilities.. 2,756 1,174 (404) (5,313) 2,553
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities.............. 20,291 (7,287) 13,280 15,504 10,772
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property,
plant and equipment....... (25,150) (27,584) (12,902) (9,132) (4,233)
Receipts from sale of
property, plant and
equipment................. 98 75 0 6 96
Principal collected on
notes receivable.......... 31 31 28 16 16
Purchase of short term
investments............... (35,875) (96,822) (36,233) (11,154) (12,538)
Proceeds from short term
investments............... 29,428 116,625 16,430 13,548 8,846
Long term gaming assets.... (2,169) 0 0 598 0
Cash acquired in the
purchase of a business,
net of transaction and
other costs............... 2,315 344 0 0 0
-------- -------- -------- -------- --------
Net cash used in
investing activities.... (31,322) (7,331) (32,677) (6,118) (7,813)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from unsecured
notes payable............. 1,681 1,850 850 0 1,681
Proceeds from secured notes
payable................... 3,358 2,300 0 0 0
Payment of unsecured notes
payable................... (3,813) (5,019) (61,518) 0 (3,566)
Payment of secured notes
payable................... (1,333) (5,998) (2,509) 0 (1,458)
Payments under capital
lease obligations......... (53) (135) (52) 0 (53)
Net proceeds from issuance
of preferred stock........ 0 0 25,777 0 0
Net proceeds from issuance
of common stock........... 0 0 113,312 0 0
Turf Paradise equity
transactions.............. 0 50 7 0 0
Common stock issued to
acquire Pacific Casino
Management, Inc. ......... (1,600) 0 0 0 0
Dividends paid to preferred
stockholders.............. (1,925) (1,925) (1,476) (962) (962)
-------- -------- -------- -------- --------
Net cash (used for)
provided by financing
activities.............. (3,685) (8,877) 74,391 (962) (4,358)
-------- -------- -------- -------- --------
Increase (decrease) in cash
and cash equivalents...... (14,716) (23,495) 54,994 8,424 (1,399)
Cash and cash equivalents
at the beginning of the
period.................... 37,122 60,617 5,623 22,406 37,122
-------- -------- -------- -------- --------
Cash and cash equivalents
at the end of the period.. $ 22,406 $ 37,122 $ 60,617 $ 30,830 $ 35,723
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION The consolidated financial statements for the year ended
December 31, 1995, included the accounts of Hollywood Park, Inc. (the
"Company" or "Hollywood Park") and its wholly owned subsidiaries: Hollywood
Park Operating Company (which has two wholly owned subsidiaries, Hollywood
Park Food Services, Inc. and Hollywood Park Fall Operating Company), Sunflower
Racing, Inc. ("Sunflower") (which has one wholly owned subsidiary, S.R. Food
and Beverage, Inc.), and Turf Paradise, Inc. ("Turf Paradise"). Sunflower was
acquired on March 23, 1994, and was accounted for under the purchase method of
accounting. Turf Paradise was acquired on August 11, 1994, and was accounted
for under the pooling of interests method of accounting. The Hollywood Park-
Casino (the "Casino") is a division of Hollywood Park, Inc.
The consolidated financial statements for the year ended December 31, 1993
included the accounts of Hollywood Park, Hollywood Park Operating Company and
its two subsidiaries with a calendar year end of December 31, combined with
the accounts of Turf Paradise, Inc.'s historical fiscal June 30 year end.
The consolidated financial statements for the six months ended June 30, 1996
and 1995 are unaudited, however, in the opinion of management they reflect all
adjustments that are necessary to present a fair statement of the results for
the interim periods. All of such adjustments are of a normal recurring nature.
It should be understood that accounting measurements at the interim dates
inherently involve greater reliance on estimates than at year end. The interim
racing results of operations are not indicative of the results for the full
year due to the seasonality of the horse racing business.
SUNFLOWER On May 17, 1996, Sunflower filed for protection from its creditors
under Chapter 11 of the U.S. Bankruptcy Code. On May 2, 1996, the Kansas
Legislature adjourned without passing legislation that would have allowed
additional gaming at Sunflower. Since June 1994 Sunflower has been
experiencing severe competition from riverboat gaming on the nearby Missouri
River. Hollywood Park has written off its approximately $11,412,000 investment
in Sunflower. There was no cash involved with the write off of this
investment. Sunflower is operating during the reorganization, but Sunflower's
operating results from April 1, 1996 forward were not consolidated with
Hollywood Park's operating results.
ACQUISITION OF PACIFIC CASINO MANAGEMENT, INC. On November 17, 1995,
Hollywood Park acquired substantially all the assets, property and business of
Pacific Casino Management, Inc. ("PCM"), and assumed substantially all of
PCM's liabilities. Prior to the acquisition, under a lease with the Company,
PCM operated the gaming floor activities of the Hollywood Park-Casino.
Immediately following the acquisition PCM was dissolved, and the gaming floor
operations were incorporated into Hollywood Park's Gaming Division.
The purchase price of PCM's net assets was an aggregate $2,640,000, payable
in shares of Hollywood Park common stock, in three installments: (i) shares of
Hollywood Park common stock, having a value of $1,600,000, or 135,164 common
shares, issued on November 17, 1995; (ii) shares of Hollywood Park common
stock, having a value of $540,000 on the first anniversary of the execution of
the acquisition; and (iii) shares of Hollywood Park common stock, having a
value of $500,000 on the second anniversary of the execution of the
acquisition; provided that at any time after November 17, 1995, Hollywood Park
may elect to accelerate the payment of the installments. Shares to be issued
in the remaining two installments will be valued at the average market price
of Hollywood Park common stock for the ten trading days immediately preceding
the payment date.
Virtually all of the approximately $21,592,000 of excess acquisition cost
over the recorded value of the net assets acquired was allocated to goodwill
and will be amortized over 40 years. The amortization of the goodwill is not
deductible for income tax purposes.
F-8
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Incorporated by reference herein are the financial statements of PCM for
periods prior to the acquisition, as well as unaudited pro forma combined
statements of operations which are included in the Form 8-K/A of Hollywood
Park filed January 25, 1996, but dated November 17, 1995.
ACQUISITION OF SUNFLOWER On March 23, 1994, the Company finalized the
transaction to acquire Sunflower, a greyhound and thoroughbred racing facility
located in Kansas City, Kansas. Sunflower, operating as the Woodlands, became
a wholly owned subsidiary of Hollywood Park, with the transaction accounted
for under the purchase method of accounting. The acquisition price was
$15,000,000 paid for with 591,715 shares of Hollywood Park common stock, with
a then market price of $25.35 per share. For financial reporting purposes, the
transaction was valued at $19.00 per Hollywood Park common share, based on the
size of the block of shares issued in the acquisition relative to the then
current trading volume. Immediately following the acquisition, the Company
contributed $5,000,000 in cash to Sunflower to repay a portion of the
subordinated debt Sunflower owed to Mr. Hubbard, in return for more favorable
terms on the balance of the subordinated debt. In December 1994, Sunflower
received notice that it was to receive a refund of approximately $1,641,000
related to property taxes paid in periods before the date of acquisition, and
as such, the financial statements as of the date of the acquisition were
restated to include receipt of the refund. Of the approximately $6,625,000 of
restated excess acquisition cost over recorded value of the net assets
acquired, $1,153,000 was allocated to the racing facility lease and management
agreement Sunflower has with The Racing Association of Kansas East ("TRAK
East") and will be amortized over the remaining lease period of 20 years, with
the balance of $5,472,000 allocated to goodwill, to be amortized over 40
years. The amortization of the goodwill is not deductible for income tax
purposes.
An additional 55,574 shares of Hollywood Park common stock were issued to
Mr. Richard Boushka, a former Sunflower shareholder, as required by the
agreement of merger, because the market price of Hollywood Park common stock
180 days after closing was more than 10% less than the market price on the
closing date of the acquisition. The agreement of merger provided that under
certain circumstances the former Sunflower shareholders were entitled to
receive additional shares of Hollywood Park common stock. As of March 23,
1995, the former Sunflower shareholders transferred their rights to such
additional consideration to Hollywood Park for nominal consideration, and have
no further entitlements to additional consideration.
ACQUISITION OF TURF PARADISE On August 11, 1994, the shareholders of Turf
Paradise approved the Agreement of Merger, entered into on March 30, 1994, by
Hollywood Park and Turf Paradise and as amended on May 27, 1994, pursuant to
which Turf Paradise became a wholly owned subsidiary of Hollywood Park. Turf
Paradise owns and operates a thoroughbred race track in Phoenix, Arizona. The
transaction was accounted for under the pooling of interests method of
accounting, with approximately $627,000 of merger related costs incurred in
total and expensed by both the Company and Turf Paradise. In connection with
the merger, the Company issued a total of 1,498,016 shares of Hollywood Park
common stock, valued as of the date of issuance at approximately $33,800,000.
Each share of Turf Paradise common stock was valued at $13.00 and was
converted to approximately 0.577 shares of Hollywood Park common stock, which
had a then fair market value of $22.53 based on the weighted average of all
trades on the NASDAQ National Market System for the twenty trading days up to
and including August 10, 1994.
As required under the pooling of interests method of accounting, the
consolidated financial statements for the periods prior to the acquisition
have been restated to include the accounts and results of operations of Turf
Paradise. Historically, Turf Paradise has reported results of operations with
a fiscal year end of June 30, and as such the restated consolidated results of
operations for the year of 1993 included Turf Paradise's results for their
fiscal year with Hollywood Park's results with a December 31 year end. The
consolidated financial statements for the year 1994 include the results of
operations for the twelve months ended December 31, 1994, for both Hollywood
Park and Turf Paradise. The following is a summary of Turf Paradise's results
of operations for the
F-9
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
six months ended December 31, 1993, that were recorded as an adjustment to
retained earnings effective January 1, 1994.
<TABLE>
<S> <C>
Total revenues.................................................... $6,126,000
Total expenses.................................................... 5,928,000
----------
Net income...................................................... $ 198,000
==========
</TABLE>
Separate results of the combined entities for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
HOLLYWOOD PARK
Total revenues................................... $100,010,000 $63,243,000
Total expenses................................... 97,563,000 58,066,000
------------ -----------
Net income..................................... $ 2,447,000 $ 5,177,000
============ ===========
TURF PARADISE
Total revenues................................... $ 17,313,000 $15,742,000
Total expenses................................... 15,988,000 14,526,000
------------ -----------
Net income..................................... $ 1,325,000 $ 1,216,000
============ ===========
HOLLYWOOD PARK & TURF PARADISE COMBINED
Total revenues................................... $117,323,000 $78,985,000
Total expenses................................... 113,551,000 72,592,000
------------ -----------
Net income..................................... $ 3,772,000 $ 6,393,000
============ ===========
</TABLE>
PRO FORMA RESULTS OF OPERATIONS The following pro forma results of
operations were prepared under the assumption that the acquisition of PCM had
occurred on July 1, 1994 (PCM's inception) and the acquisition of Sunflower
had occurred on January 1, 1994. The historical results of operations for PCM,
Sunflower and Turf Paradise were combined with the Company's results and pro
forma adjustments related to the PCM acquisition were made for the following:
lease rent revenue due to Hollywood Park from PCM and concession sales made to
PCM; lease rent expense recorded by PCM; other operating expenses including
consulting fees, legal and audit services and other miscellaneous duplicate
expenses; amortization of the excess purchase price allocated to goodwill;
interest expense on the unpaid lease rent; and income taxes. Adjustments
related to the Sunflower acquisition were made for the following: amortization
of the excess purchase price allocated to the lease with TRAK East and to
goodwill; interest expense reduction related to the reduction in both the
principal and interest on Sunflower's subordinated debt; the termination of
the management agreement Sunflower had with a former shareholder and the wages
and payroll taxes paid to a former Sunflower shareholder; director's fees and
income taxes.
The pro forma earnings per share reflect the 135,164 common shares issued to
the former PCM shareholders and an estimated additional 103,354 common shares
due to the former PCM shareholders, based on the market price of Hollywood
Park's common stock on December 31, 1995. The pro forma earnings per share
also reflect the 647,289 shares issued to the former Sunflower shareholders.
F-10
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues
Hollywood Park, Inc. and race tracks......... $ 93,349,000 $ 98,743,000
Hollywood Park, Inc.--Casino Division........ 56,543,000 29,908,000
------------ ------------
149,892,000 128,651,000
------------ ------------
Operating income (loss)........................ (3,664,000) 2,215,000
Loss before income taxes....................... (8,548,000) (1,765,000)
Net income (loss).............................. $ (4,453,000) $ 196,000
============ ============
Dividend requirements on convertible preferred
stock......................................... $ 1,925,000 $ 1,925,000
Net loss allocated to common shareholders...... $ (6,378,000) $ (1,729,000)
Per common share:
Net loss--primary............................ $ (0.34) $ (0.09)
Net loss--fully diluted...................... $ (0.34) $ (0.09)
</TABLE>
The following pro forma results of operations were prepared under the
assumption that the acquisition of PCM had occurred on July 1, 1994 (PCM's
inception). The following pro forma adjustments were made: the elimination of
lease rent revenue due to Hollywood Park from PCM and the concession sales
made to PCM; lease rent expense recorded by PCM; other operating expenses
including consulting fees, legal and audit services and other miscellaneous
duplicate expenses; and increases for the amortization of the excess purchase
price allocated to goodwill, interest expense on the unpaid rent and income
taxes.
Pro forma earnings per share reflect the 135,164 shares of Hollywood Park
common stock issued to the former PCM shareholders at acquisition and an
estimated 108,052 shares of common stock due to the former PCM shareholders,
based on the closing market price of Hollywood Park's common stock on June 28,
1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------------
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues
Hollywood Park, Inc. and race tracks........ $45,334,000 $48,868,000
Hollywood Park, Inc.--Casino Division....... 28,946,000 26,165,000
----------- -----------
74,280,000 75,033,000
----------- -----------
Operating income (loss)....................... (4,787,000)(a) 2,014,000
Loss before income taxes...................... (5,685,000) (287,000)
Net loss...................................... $(8,129,000) $(2,101,000)
=========== ===========
Dividend requirements on convertible preferred
stock........................................ $ 962,000 $ 962,000
Net loss allocated to common shareholders..... $(9,091,000) $(3,063,000)
Per common share:
Net loss--primary........................... $ (0.49) $ (0.16)
Net loss--fully diluted..................... $ (0.49) $ (0.16)
</TABLE>
- --------
(a) Included in operating expenses was the one time, non-cash expense for the
$11,412,000 write off of Hollywood Park's investment in Sunflower. Per
common share net income, before the write off of the investment in
Sunflower was $0.59.
F-11
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
RESTRICTED CASH Restricted cash in 1995 consisted of approximately
$2,482,000 related to the Class Actions lawsuit (see Note 18 Commitments and
Contingencies) settlement and approximately $644,000 related to amounts due to
horsemen for purses, stakes and awards. The 1994 balance was for amounts due
to horsemen for purses, stakes and awards.
Restricted cash as of June 30, 1996, was for amounts do to horsemen for
purses, stakes and awards. In March 1996, amounts due for the Class Action
lawsuits were placed in an escrow account in accordance with the settlement
agreement, and therefore are no longer reflected in the Company's accounts.
ALLOWANCE FOR DOUBTFUL ACCOUNTS With the November 17, 1995, acquisition of
PCM the Company assumed the gaming receivable and associated allowance for
doubtful account accounts that were on PCM's balance sheet.
ESTIMATES Financial statements prepared in accordance with generally
accepted accounting principles require the use of management estimates,
including estimates used to evaluate the recoverability of property, plant and
equipment, to determine the fair value of financial instruments, to account
for the valuation allowance for deferred tax assets, and to determine
litigation related obligations.
CASINO REVENUE AND PROMOTIONAL ALLOWANCES Casino gaming revenue consisted of
fees collected from patrons on a per seat or per hand played basis. Revenues
in the accompanying statements of operations exclude the retail value of food
and beverage provided to players on a complimentary basis. The estimated cost
of providing these promotional allowances was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
Food and Beverage................................. $413,000 $1,668,000
======== ==========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are depreciated
on the straight line method over their estimated useful life ranges as
follows:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Land improvements.................................................... 3 to 25
Buildings............................................................ 3 to 40
Equipment............................................................ 3 to 10
</TABLE>
Maintenance and repairs were charged to operations of facilities;
betterments were capitalized. The cost of property sold or otherwise disposed
of and the accumulated depreciation were eliminated from both the property and
accumulated depreciation accounts with any gain or loss recorded in the
expense accounts.
In 1995, Statement of Financial Accounting Standards No. 121 ("SFAS 121")
was issued which established accounting standards for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill related to those
assets. SFAS 121, which became effective for Hollywood Park in the quarter
ended March 31, 1996, addresses when impairment losses should be recognized
and how impairment losses should be measured. Property, plant and equipment is
carried on the Company's balance sheets at depreciated cost. Whenever there
are recognized events or changes in circumstances that indicate that the
carrying amount of an asset may not be recoverable, management reviews the
assets for possible impairment. In accordance with current accounting
standards, management uses estimated expected future net cash flows
(undiscounted and excluding interest costs and grouped at the lowest level for
which there are identifiable cash flows that are as independent as possible of
the cash flows of other asset groups) to measure the recoverability of the
assets. If the expected future net cash flows are less than the carrying
amount of the asset, an impairment loss would be recognized. An impairment
loss would be measured as the amount by which the carrying amount of the asset
exceeded the fair value of the
F-12
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
asset, with fair value measured as the amount at which the asset could be
bought or sold in a current transaction between willing parties, other than in
a forced or liquidation sale. The estimation of expected future net cash flows
is inherently uncertain and relies to a considerable extent on assumptions
regarding current and future economic and market conditions, and the
availability of capital. If, in future periods, there are changes in the
estimates or assumptions incorporated into the impairment review analysis, the
changes could result in an adjustment to the carrying amount of the asset, but
at no time would previously recognized impairment losses be restored. (See
Note 1, for a discussion of the Sunflower assets.)
INCOME TAXES Effective January 1, 1993, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards
("SFAS 109"), Accounting for Income Taxes, whereby deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that included the enactment date. Effective January 1, 1993, the Company
adopted SFAS 109 and has reported the cumulative effect of the change in the
method of accounting for income taxes in the 1993 Consolidated Statement of
Operations.
PRE-OPENING EXPENSES The Company expensed pre-opening costs associated with
the Hollywood Park Casino, which opened on July 1, 1994, as incurred. These
costs included, project salaries, hiring costs and other pre-opening services.
POOLING OF INTERESTS EXPENSES Hollywood Park's cost of $414,000 incurred in
connection with the acquisition of Turf Paradise, and Turf Paradise's
acquisition costs of approximately $213,000 were expensed in the year of the
acquisition.
EARNINGS PER SHARE Primary earnings per share were computed by dividing net
income (loss) available to (allocated to) common shareholders (net income
(loss) less preferred dividend requirements) by the weighted average number of
common shares outstanding during the period, inclusive of the estimated future
shares of the Company's common stock to be issued to the former PCM
shareholders. Fully diluted per share amounts were similarly computed, but
include the effect, when dilutive, of the conversion of the convertible
preferred shares and the exercise of stock options.
CASH FLOWS Cash and cash equivalents consisted of certificates of deposit
and short term investments with remaining maturities of 90 days or less.
TREASURY STOCK On July 22, 1996, the Company announced its intention to
repurchase and retire up to 2,000,000 shares of its common stock on the open
market or in negotiated transactions. As of August 6, 1996, the Company had
repurchased approximately 51,500 shares at a cost of approximately $439,000.
RECLASSIFICATIONS Certain reclassifications have been made to the 1995, 1994
and 1993 balances to be consistent with the 1996 financial statement
presentation.
F-13
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDING DECEMBER
31,
--------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................. $2,098,000 $1,513,000 $1,521,000
Income taxes............................. 143,000 2,524,000 1,868,000
---------- ---------- ----------
$2,241,000 $4,037,000 $3,389,000
========== ========== ==========
</TABLE>
NOTE 3--SHORT TERM INVESTMENTS
Short term investments consisted of the following, there were no short term
investments as of December 31, 1994:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
Corporate bonds..................................... $4,504,000 $4,053,000
Flexible deposit program............................ 1,000,000 0
U.S. Agency securities.............................. 906,000 0
Accrued interest.................................... 37,000 0
---------- ----------
Total............................................. $6,447,000 $4,053,000
========== ==========
</TABLE>
Available-for-Sale
The December 31, 1995, portfolio consisted of bonds rated from Ba2 to Caa by
Moody's and from BB+ to CCC+ by Standard and Poors, with some bonds not rated
by either agency. The June 30, 1996, portfolio consisted of bonds rated from
Ba2 to B3 by Moody's and from BB+ to B- by Standard and Poors, with some bonds
not rated by either agency. Investments in corporate bonds typically carry a
greater amount of principal risk than investments previously made by the
Company and yield a correspondingly higher return.
Although the corporate bond investments have a weighted average maturity of
approximately two years, the Company classifies them as short term investments
as they are reasonably expected to be liquidated in the normal operating cycle
of the Company in order to meet liquidity needs. The Company further
classifies the corporate bond investments as available-for-sale, and as such,
they are recorded in the accompanying financial statements at fair value,
which is determined by quoted market price.
For the twelve months ended December 31, 1995, proceeds from the sale of the
corporate bonds was approximately $7,806,000, all of which was reinvested, and
gross realized gains and gross realized losses were $34,235 and $3,446,
respectively. For the six months ended June 30, 1996, proceeds from the sale
of the corporate bonds was approximately $3,387,000, all of which was
reinvested, and gross realized gains and gross realized losses were $14,717
and $7,779, respectively. The net unrealized holding losses, which are
included in the accompanying statements of changes in stockholders' equity,
are $22,000 and $7,000 for the twelve months ended December 31, 1995, and for
the six months ended June 30, 1996, respectively.
Held-to-Maturity
The Flexible deposit program is a discretionary investment vehicle with
Bankers Trust that provides capital preservation, if held to maturity, plus
income at a targeted rate. The program is represented by four individual
investment traunches of $250,000, $250,000, $300,000 and $200,000, that mature
on June 15, 1996, July 15, 1996, August 15, 1996 and September 15, 1996,
respectively. These investments are not rated.
F-14
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The U.S. Agency securities included U.S. Treasury Bills that mature in April
1996 and August 1996. Each security is rated AAA by both Moodys and Standard
and Poors.
The Company classifies the Flexible deposit program and U.S. Agency
securities as held-to-maturity, and as such, the assets are recorded in the
accompanying financial statements at amortized cost, which, based on the short
term nature of the assets and their relative liquidity, approximates fair
value.
NOTE 4--CASINO LEASE AND RELATED INTEREST RECEIVABLE, NET
With the November 17, 1995, acquisition of PCM's assets and liabilities the
Casino lease and related interest receivable was eliminated upon consolidation
of the Hollywood Park balance sheet with the PCM balance sheet. As of November
17, 1995 Hollywood Park had a receivable from PCM of approximately $20,950,000
and PCM had a corresponding accrued payable to Hollywood Park for the same
amount.
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held at December 31, 1995, and 1994, and at
June 30, 1996 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1994 1996 (a)
------------ ------------ ------------
<S> <C> <C> <C>
Land and land improvements....... $ 42,490,000 $ 29,621,000 $ 29,378,000
Buildings........................ 175,960,000 166,516,000 134,795,000
Equipment........................ 36,003,000 31,286,000 24,968,000
Construction in progress......... 8,394,000 983,000 11,027,000
------------ ------------ ------------
262,847,000 228,406,000 200,168,000
Less accumulated depreciation.... 88,130,000 68,142,000 79,125,000
------------ ------------ ------------
$174,717,000 $160,264,000 $121,043,000
============ ============ ============
</TABLE>
- --------
(a) The June 30, 1996, figures do not include Sunflower's property, plant and
equipment.
NOTE 6--SECURED AND UNSECURED NOTES PAYABLE
HOLLYWOOD PARK As a condition of the April 23, 1996, Merger Agreement with
Boomtown, Hollywood Park must secure adequate funding to repurchase Boomtown's
First Mortgage notes (if required to be redeemed) and at least $60,000,000 to
fund various gaming projects: the Company has appointed Bank of America to act
as lead bank in securing a credit agreement of approximately $225,000,000.
During the six months ended June 30, 1996, and the year ended December 31,
1995, Hollywood Park did not draw any funds under its various credit
facilities with Bank of America National Trust and Savings Association ("Bank
of America"), except for the May 1, 1996, issuance of a standby letter of
credit. On April 14, 1995, the Company executed an unsecured loan of up to
$75,000,000 with Bank of America. The loan facility consists of a $60,000,000
line of credit (the "Line of Credit") and a $15,000,000 revolver (the
"Revolver").
The Line of Credit is an interest only revolving facility, under which the
Company may borrow, pay and reborrow principal amounts without penalty. On or
before September 1, 1996 per Amendment Two (as defined below), the Company has
the option to convert the Line of Credit to a term repayment line of credit,
at a maximum amount of $60,000,000, with a seven year term period from the
date of conversion, which would require repayment in eighty-four successive
equal monthly installments. The Line of Credit bears interest at the option of
the Company at Bank of America's prime rate plus 0.25% or the offshore rate
plus 2.0%, and the Company may further elect an agreed upon fixed rate.
F-15
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Revolver, inclusive of a within line facility for standby letters of
credit of up to a maximum of $5,000,000, is available for two years, ending
May 1, 1997, during which the Company can borrow, pay and reborrow principal
amounts without penalty. The Revolver bears interest at the option of the
Company at Bank of America's prime rate or the offshore rate plus 1.75%, and
the Company may further elect an agreed upon fixed rate.
On May 1, 1996, Hollywood Park issued a standby letter of credit in the
amount of $2,617,000, as security for its self insurance workers' compensation
program with the state of California. Other than the issuance of the standby
letter of credit during the six months ended June 30, 1996, Hollywood Park did
not draw any funds from its Business Loan Agreement.
On July 1, 1996, Hollywood Park and Bank of America executed Amendment Two
to the Business Loan Agreement, which among other things, extended the date
for drawing down on the Line of Credit from July 1, 1996, to September 1,
1996. On April 30, 1996, Hollywood Park and Bank of America executed Amendment
One to the Business Loan Agreement, which among other things, extended the
date for drawing down on the Line of Credit from May 1, 1996, to July 1, 1996,
and adjusted the tangible net worth covenant requirement for December 31,
1996. As of June 30, 1996, the Company was in compliance with all financial
covenants.
As of March 31, 1996, Hollywood Park did not meet the quick assets to
current liabilities bank covenant ("quick ratio"), and as of December 31,
1995, did not meet the tangible net worth and quick ratio covenants, contained
in the April 14, 1995, Business Loan Agreement between Hollywood Park and Bank
of America. On May 10, 1996, Bank of America waived compliance with the quick
ratio covenant through June 29, 1996, and on March 20, 1996, the bank waived
compliance with both covenants through December 31, 1995. As of June 30, 1996,
Hollywood Park was in compliance with all financial covenants.
Texaco Secured Note Payable On October 27, 1995, the Company finalized the
acquisition of approximately 37.33 acres adjacent to the Inglewood property,
for a total cost of approximately $7,500,000. Hollywood Park paid cash of
$4,100,000 and signed a non-interest bearing, promissory note, with a single
payment of $3,358,000, made on September 1, 1996.
Gold Cup Contest The Company's Gold Cup note payable resulted from the
$1,000,000 Gold Cup Contest on July 20, 1986. The prize money is payable to
the winner in 20 annual installments of $50,000, beginning August 1, 1986. The
remaining liability of $340,000 is net of unamortized discount at 8.5%.
SUNFLOWER On March 24, 1994, an Amended and Restated Credit and Security
Agreement (the "Senior Credit") was executed between Sunflower and five banks
(the "Banks") in connection with the Company's acquisition of Sunflower. The
Senior Credit has been amended three times, most recently in October 1995 by
the Standstill Agreement (discussed below). The Senior Credit was non-recourse
to Hollywood Park, except for the Company's guarantee of the interest payments
required under the Standstill Agreement. The guarantee was terminated without
any payments by the Company, by reason of the termination of the Standstill
Agreement. As of June 30, 1996, the Senior Credit had an outstanding balance
of $28,667,000.
In December 1994, Sunflower executed a promissory note to Hollywood Park,
allowing for the advancement of up to $3,000,000, for the payment of its
Senior Credit obligations. In 1995, Hollywood Park advanced $2,500,000 to
Sunflower, which along with accrued interest is subordinated to the Senior
Credit obligations.
In October 1995, Sunflower and the Banks executed a Standstill Agreement,
which among other things, provided for the extension of the Senior Credit
maturity. The Standstill Agreement provided for the deferral of 100% of the
principal payments and 50% of the interest payments due under the Senior
Credit from April 1995 through the termination date of the Standstill
Agreement. The Standstill Agreement terminated on May 2, 1996, because the
Kansas Legislature concluded its 1996 session without passing legislation that
would have permitted slot machines or other casino gaming at Kansas race
tracks, including Sunflower. On May 17, 1996, Sunflower filed for
reorganization under Chapter 11 of the Bankruptcy Code.
F-16
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unsecured Credit On March 24, 1994, pursuant to the merger agreement between
Hollywood Park and Sunflower, Sunflower and Mr. Hubbard executed the
Subordination and Amendment Agreement (the "Subordination Agreement"). The
Subordination Agreement was a condition to the consummation of the merger,
whereby all of the indebtedness owed by Sunflower to Mr. Hubbard was
subordinated to the Senior Credit (the "Subordinated Credit"). In addition,
pursuant to the Subordinated Agreement, Hollywood Park contributed $5,000,000
in cash to Sunflower to pay the accrued interest and a portion of the
Subordinated Credit in exchange for a reduction in the associated interest
rate from 14.0% to 9.0%. As of December 31, 1995, the principal balance of the
Subordinated Credit was approximately $13,059,000, all of which is payable on
January 1, 2003, with associated accrued interest payable.
The remaining $2,515,000 of unsecured credit relates to a Special Assessment
note payable levied by Wyandotte County, Kansas for the cost of construction
of certain streets and sewers serving the Sunflower property. The Special
Assessment note payable is a 15 year note, entered into in 1990 with a fixed
interest rate of 6.59%.
TURF PARADISE On April 13, 1995, Turf Paradise repaid the outstanding
balance of its unsecured revolving loan facility with Bank One of Arizona, and
terminated the $2,500,000 facility. On June 1, 1995, Turf Paradise executed a
$2,500,000 promissory note to Hollywood Park. As of December 31, 1995, Turf
Paradise had paid the promissory note in full.
ANNUAL MATURITIES As of December 31, 1995, annual maturities, of total notes
and loans payable were as follows:
<TABLE>
<CAPTION>
YEAR ENDING:
------------
<S> <C>
December 31, 1996............................................. $32,310,000
December 31, 1997............................................. 301,000
December 31, 1998............................................. 301,000
December 31, 1999............................................. 301,000
December 31, 2000............................................. 301,000
Thereafter.................................................... 14,409,000
</TABLE>
The fair values of the Company's various debt instruments discussed above
approximate their carrying amounts based on the fact that borrowings bear
interest at variable market based rates.
NOTE 7--LONG TERM GAMING ASSETS
The Company purchased the convention center parcel at the Crystal Park Hotel
and Casino site, which is under renovation to house a card club, and entered
into a capital lease with the City of Compton covering the adjoining hotel,
surrounding parking and an expansion parcel. The capital lease was valued at
approximately $13,741,000. The lease was entered into on August 3, 1995, and
has a term of up to 50 years. The annual rent payments start at $600,000 and
increase every fifth year until year 46 when they stabilize at $2,850,000.
Hollywood Park will receive a rent payment credit equal to the costs incurred
to renovate the card club and the hotel. No cash rent payments are expected to
be made until year 19 of the lease, or 2014.
The balance of the long term gaming assets related to lease costs incurred
for the operating lease between Hollywood Park and CEI, and will be amortized
over the five year term of the lease.
NOTE 8--LONG TERM GAMING LIABILITIES
Long term gaming liabilities consisted of the Company's capital lease
obligation associated with the lease of the hotel, surrounding parking and the
expansion parcel from the City of Compton for the Crystal Park Hotel and
Casino. This liability will be reduced as the construction disbursements are
made, and upon submission of any purchase option payment.
F-17
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--ACCOUNTING FOR STOCK-BASED COMPENSATION
In 1995, Statement of Financial Accounting Standards No. 123 ("SFAS 123")
Accounting for Stock-based Compensation was issued which established
accounting standards for stock-based compensation, and was effective in 1996
for Hollywood Park. The objective of SFAS 123 is to estimate the fair value,
based on the stock price at the grant date, of the Company's stock options to
which employees become entitled when they have rendered the requisite service
and satisfied any other conditions necessary to earn the right to benefit from
the stock option. The fair market value of a stock option is to be estimated
using an option-pricing model that takes into account, as of the grant date,
the exercise price and expected life of the option, the current price of the
underlying stock and the expected volatility, expected dividends on the stock
and the risk-free rate for the expected term of the options.
The Company has calculated the pro forma financial results as required under
the implementation rule of SFAS 123 and noted that the impact on net income
for the six months ended June 30, 1996 and 1995 was immaterial.
NOTE 10--DEVELOPMENT EXPENSES
Included in Administrative expenses were project development costs of
approximately $2,716,000 in 1995 and $1,275,000 in 1994, and approximately
$167,000 in 1993. The expenses in 1995 consisted primarily of costs related to
the following projects: the environmental impact study for the proposed
stadium at Hollywood Park, and card clubs under consideration in the cities of
Stockton, Pomona and South San Francisco, and the retail center project (since
abandoned). The costs incurred in 1994 were primarily generated by the initial
financial and economic analysis of the proposed stadium, numerous card clubs,
and the music dome.
Included in Administrative expenses for the six months ended June 30, 1996,
was approximately $705,000 of development expenses. These expenses consisted
primarily of costs related to the proposed stadium, the Inglewood master site
plan and the card clubs in California.
Included in Administrative expenses for the six months ended June 30, 1995,
was approximately $401,000 of development expenses. These expenses consisted
primarily of costs related to Kansas gaming surveys, the proposed stadium and
card clubs in California.
NOTE 11--RACING OPERATIONS
The Company conducts thoroughbred racing at Hollywood Park race track,
Sunflower, operating as the Woodlands race track and Turf Paradise race track,
located in California, Kansas and Arizona, respectively. The Woodlands is also
a greyhound racing facility. Under Kansas racing law, Sunflower is not granted
any race days and does not generate any pari-mutuel commissions. The Kansas
Racing Commission granted Sunflower the facility ownership and management
licenses; with all race days until the year 2014 granted to TRAK East, a
Kansas not-for-profit corporation. Sunflower has an agreement with TRAK East
to provide the physical race tracks along with management and consulting
services for twenty-five years with options to renew for one or more
successive five year terms. The Agreement and Restatement of Lease and
Management Agreement was entered into as of September 14, 1989. Historically,
Turf Paradise reported results of operations with a fiscal year end of June
30, and the information presented for 1993 is for the year ended June 30.
F-18
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LIVE ON-TRACK RACE DAYS
<TABLE>
<CAPTION>
1996 1994
ESTIMATE 1995 ACTUAL 1993
-------- ---- ------ ----
<S> <C> <C> <C> <C>
Hollywood Park race track.......................... 102 97 102 99
Turf Paradise race track........................... 167 171 185 177
Sunflower--Horses.................................. 60 49 62 --
Sunflower--Greyhounds.............................. 259 294 213 --
</TABLE>
A summary of the pari-mutuel handle and deductions, by racing facility for
the year ended December 31, are as follows:
HOLLYWOOD PARK--LIVE HORSE RACING
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Total pari-mutuel handle............ $663,118,000 $720,204,000 $713,396,000
Less patrons' winning tickets....... 536,432,000 582,261,000 577,652,000
------------ ------------ ------------
126,686,000 137,943,000 135,744,000
Less:
State pari-mutuel tax............. 21,556,000 27,197,000 29,120,000
City pari-mutuel tax.............. 1,449,000 1,779,000 1,933,000
Racing purses and awards.......... 27,671,000 32,067,000 32,703,000
Satellite wagering fees........... 14,006,000 17,105,000 19,532,000
Interstate location fees.......... 34,170,000 27,547,000 19,023,000
Other fees........................ 1,136,000 1,331,000 1,477,000
------------ ------------ ------------
Pari-mutuel commissions............. 26,698,000 30,917,000 31,956,000
Add off-track independent handle
commissions........................ 2,251,000 1,797,000 1,254,000
------------ ------------ ------------
Total pari-mutuel commissions
including charity days............. 28,949,000 32,714,000 33,210,000
Less charity day pari-mutuel
commissions........................ 0 739,000 1,491,000
------------ ------------ ------------
Total pari-mutuel commissions net of
charity days....................... $ 28,949,000 $ 31,975,000 $ 31,719,000
============ ============ ============
</TABLE>
F-19
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Turf Paradise races live five days a week; on three of these days Turf
Paradise concurrently operates as a simulcast site.
TURF PARADISE--LIVE HORSE RACING
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Total pari-mutuel handle.............. $111,507,000 $96,494,000 $90,671,000
Less patrons' winning tickets......... 86,460,000 74,918,000 70,470,000
------------ ----------- -----------
25,047,000 21,576,000 20,201,000
Less:
State pari-mutuel tax............... 345,000 669,000 762,000
Racing purses and awards............ 4,757,000 5,399,000 6,152,000
State sales tax..................... 415,000 537,000 595,000
Off-track commissions............... 117,000 137,000 61,000
Interstate location fees............ 10,943,000 6,006,000 3,255,000
------------ ----------- -----------
Pari-mutuel commissions............... 8,470,000 8,828,000 9,376,000
Add off-track independent handle
commissions.......................... 699,000 297,000 239,000
------------ ----------- -----------
Total pari-mutuel commissions
including charity days............... 9,169,000 9,125,000 9,615,000
Less charity day pari-mutuel
commissions.......................... 0 29,000 17,000
------------ ----------- -----------
Total pari-mutuel commissions net of
charity days......................... $ 9,169,000 $ 9,096,000 $ 9,598,000
============ =========== ===========
</TABLE>
The acquisition of Sunflower was accounted for under the purchase method of
accounting and as such results of operations prior to the March 23, 1994
acquisition date are not presented.
TRAK EAST AT SUNFLOWER--LIVE RACING 1995
<TABLE>
<CAPTION>
GREYHOUNDS HORSES
1995 1995
----------- ----------
<S> <C> <C>
Total pari-mutuel handle............................. $47,406,000 $2,844,000
Less patrons' winning tickets........................ 37,379,000 2,273,000
----------- ----------
10,027,000 571,000
Less: State pari-mutuel tax.......................... 1,721,000 104,000
Racing purses and awards....................... 2,230,000 190,000
----------- ----------
Total pari-mutuel commissions........................ $ 6,076,000 $ 277,000
=========== ==========
</TABLE>
TRAK EAST AT SUNFLOWER--LIVE RACING 1994
<TABLE>
<CAPTION>
GREYHOUNDS HORSES
1994 1994
----------- ----------
<S> <C> <C>
Total pari-mutuel handle............................. $74,941,000 $6,274,000
Less patrons' winning tickets........................ 59,778,000 5,012,000
----------- ----------
15,163,000 1,262,000
Less: State pari-mutuel tax.......................... 2,527,000 210,000
Racing purses and awards....................... 3,372,000 421,000
----------- ----------
Total pari-mutuel commissions........................ $ 9,264,000 $ 631,000
=========== ==========
</TABLE>
F-20
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As a stipulation to the granting of race dates the California Horse Racing
Board ("CHRB") requires that Hollywood Park designate three days from both the
live Spring/Summer Meet and the Autumn Meeting as charity days. With the start
of the 1994 Autumn Meeting the charity day law was changed such that the
Company's maximum charity day liability will not exceed the net proceeds from
the charity days not to exceed 2/10 of 1% of the total live on-track handle
for the respective race meet. Charity day payments must be made to a
distributing agent approved by the CHRB. The following table summarizes the
revenues and expenses that were excluded from the statements of operations for
the period prior to the 1994 Autumn Meeting and the total charity day
liability for the past three years:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- ----------
<S> <C> <C> <C>
Racing revenues................................ $ 0 $961,000 $1,861,000
Less: Salaries, wages and employee benefits.... 0 285,000 509,000
Other expenses................................. 0 298,000 517,000
-------- -------- ----------
Net proceeds (old charity day law)............. 0 378,000 $ 835,000
==========
Add: 2/10 of 1% of live on track pari-mutuel
handle as of the Autumn Meeting 1994 (revised
charity day law).............................. 370,000 117,000
-------- --------
Total charity day payable.................... $370,000 $495,000
======== ========
</TABLE>
Arizona racing law requires that 1% of the total in-state pari-mutuel handle
(on-track live pari-mutuel handle and off-track within the state pari-mutuel
handle) of three charity days be paid to a distributing agent approved by the
Arizona Racing Commission. The Arizona Department of Racing did not assign any
charity days in 1995, therefore no payments were required. Turf Paradise paid
$29,000 and $16,000 to the distributing agent in 1994, and 1993, respectively.
The Kansas Racing Commission requires that TRAK East, pay not less than
$450,000 in 1994, to a designated charity distributing agent and not less than
$500,000 in each year thereafter. Presently, charity payments have been
suspended pending the outcome of the current Kansas legislative gaming issues.
If Sunflower is able to operate slot machines, then as of May 1996 the charity
payments are to resume. If Sunflower is not able to operate slot machines
Sunflower's charity agreement with TRAK East will be re-evaluated.
Hollywood Park conducts simulcast meets of live races held at local southern
California race tracks. As of 1993, the Company began to simulcast races from
northern California concurrently with live on-track racing. In July 1994,
Assembly Bill 1418 was enacted allowing for unrestricted simulcasting between
northern and southern California. Previous legislation, enacted in September
1993, limited such simulcasting to races with purses of at least $20,000. A
summary of simulcast pari-mutuel handle and commissions for the years ended
December 31, are as follows:
HOLLYWOOD PARK--SIMULCAST RACING
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Pari-mutuel handle:
Thoroughbred meets.................. $359,689,000 $273,317,000 $190,068,000
Quarter Horse meets................. 22,793,000 18,754,000 14,349,000
Harness meets....................... 4,391,000 3,948,000 7,630,000
------------ ------------ ------------
$386,873,000 $296,019,000 $212,047,000
============ ============ ============
Pari-mutuel commissions:
Thoroughbred meets.................. $ 10,687,000 $ 6,795,000 $ 3,863,000
Quarter Horse meets................. 457,000 377,000 287,000
Harness meets....................... 86,000 79,000 153,000
------------ ------------ ------------
$ 11,230,000 $ 7,251,000 $ 4,303,000
============ ============ ============
</TABLE>
F-21
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
TRAK East at Sunflower operates year round simulcasting of both greyhounds
and horses. Pari-mutuel handle and commissions earned by TRAK East for the
year ended December 31, 1995 and March 23, 1994 (the date Sunflower was
acquired) through December 31, 1994, are as follows:
TRAK EAST AT SUNFLOWER--SIMULCAST RACING
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Pari-mutuel handle:
Greyhounds......................................... $10,871,000 $ 7,162,000
Horses............................................. 29,600,000 24,010,000
----------- -----------
$40,471,000 $31,172,000
=========== ===========
Pari-mutuel commission:
Greyhounds......................................... $ 2,342,000 $ 1,361,000
Horses............................................. 5,742,000 4,690,000
----------- -----------
$ 8,084,000 $ 6,051,000
=========== ===========
</TABLE>
Turf Paradise accepts simulcasts of live races from other tracks
concurrently with live on-track racing as well as operating as a simulcast
site for Prescott Downs between live meets. Turf Paradise also accepts
simulcast signals on the two dark days (days without live racing) a week
during the live on-track meet.
TURF PARADISE--SIMULCAST RACING
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Pari-mutuel handle all meets............ $55,093,000 $46,549,000 $22,766,000
Pari-mutuel commissions all meets....... 3,909,000 3,410,000 1,285,000
</TABLE>
The following table summarizes the pari-mutuel handle and commissions earned
by TRAK East for the three months ended March 31, 1996 and 1995.
TRAK EAST--AT SUNFLOWER
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------
1996 1995 1996 1995
----------- ----------- ---------- ----------
GREYHOUNDS HORSES
----------------------- ---------------------
<S> <C> <C> <C> <C>
Pari-mutuel handle:
On-track..................... $ 7,502,000 $14,107,000 $ 0 $ 0
Simulcast.................... 3,467,000 1,563,000 6,997,000 7,536,000
----------- ----------- ---------- ----------
$10,969,000 $15,670,000 $6,997,000 $7,536,000
=========== =========== ========== ==========
Pari-mutuel commissions:
On-track..................... $ 972,000 $ 1,804,000 $ 0 $ 0
Simulcast.................... 303,000 161,000 424,000 786,000
----------- ----------- ---------- ----------
$ 1,275,000 $ 1,965,000 $ 424,000 $ 786,000
=========== =========== ========== ==========
</TABLE>
F-22
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--INCOME TAXES
As discussed in Note 1, effective January 1, 1993, the Company adopted SFAS
109. The cumulative effect of the adoption of SFAS 109 of $76,000, as
determined as of January 1, 1993, was included as a reduction of income tax
expense in the accompanying 1993 consolidated statement of operations. On
November 17, 1995, the Company acquired PCM and accounted for the acquisition
under the purchase method of accounting. Before the acquisition, PCM was an S-
Corporation for income tax purposes and under the terms of the merger was
dissolved into Hollywood Park. On March 23, 1994, the Company acquired
Sunflower and accounted for the acquisition under the purchase method of
accounting. Before the acquisition, Sunflower was an S-corporation and under
the terms of the merger became a C-corporation for income tax purposes. Turf
Paradise was acquired on August 11, 1994, and was accounted for under the
pooling of interests method of accounting. There was no impact to Turf
Paradise related to the adoption of SFAS 109.
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ----------- ----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
U.S. Federal......................... $ 0 $ 473,000 $ 473,000
State................................ 42,000 178,000 220,000
----------- ----------- ----------
$ 42,000 $ 651,000 $ 693,000
=========== =========== ==========
YEAR ENDED DECEMBER 31, 1994:
U.S. Federal......................... $ 1,094,000 $ 656,000 $1,750,000
State................................ (1,155,000) 973,000 (182,000)
----------- ----------- ----------
$ (61,000) $ 1,629,000 $1,568,000
=========== =========== ==========
YEAR ENDED DECEMBER 31, 1993:
U.S. Federal......................... $ 720,000 $ 1,217,000 $1,937,000
State................................ 200,000 (1,112,000) (912,000)
----------- ----------- ----------
$ 920,000 $ 105,000 $1,025,000
=========== =========== ==========
</TABLE>
The following table reconciles the Company's income tax expense to the
statutory income tax expense:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Income (loss) before income tax
expense............................... $(159,000) $1,816,000 $2,522,000
Pooling costs........................ 0 213,000 0
Goodwill............................. 72,000 0 0
Political and lobbying costs......... 353,000 179,000 71,000
State income taxes................... 145,000 (120,000) (603,000)
Valuation allowance.................. 0 (465,000) (533,000)
Non-deductible expenses.............. 260,000 0 0
Cumulative effect of SFAS 109........ 0 0 (249,000)
Other................................ 22,000 (55,000) (183,000)
--------- ---------- ----------
Income tax expense..................... $ 693,000 $1,568,000 $1,025,000
========= ========== ==========
</TABLE>
F-23
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For the years ended December 31, 1995, and 1994, the tax effects of temporary
differences that gave rise to significant portions of the deferred tax assets
and deferred tax liabilities are presented below, along with a summary of
activity in the valuation allowance.
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CURRENT DEFERRED TAX ASSETS:
Workers' compensation insurance reserve...... $ 905,000 $ 852,000
General liability insurance reserve.......... 619,000 529,000
Legal accrual................................ 76,000 45,000
Construction period interest and taxes....... 0 60,000
Charitable contributions..................... 0 90,000
Development costs............................ 268,000 0
Lawsuit settlement........................... 2,087,000 0
Vacation and sick pay accrual................ 377,000 107,000
Bad debt allowance........................... 739,000 2,718,000
Los Angeles revitalization zone credit....... 0 2,982,000
Other........................................ 177,000 375,000
------------ ------------
Current deferred tax assets................ 5,248,000 7,758,000
Less valuation allowance..................... (109,000) (2,931,000)
------------ ------------
Current deferred tax assets................ 5,139,000 4,827,000
CURRENT DEFERRED TAX LIABILITIES:
Business insurance and other................. (251,000) (288,000)
------------ ------------
Net current deferred tax assets................ $ 4,888,000 $ 4,539,000
============ ============
NON-CURRENT DEFERRED TAX ASSETS:
Net operating loss carryforwards............. $ 931,000 $ 0
Investment tax credits....................... 468,000 746,000
Los Angeles revitalization zone tax credits.. 6,406,000 0
Other........................................ 156,000 0
Alternative minimum tax credit............... 412,000 412,000
------------ ------------
Non-current deferred tax assets............ 8,373,000 1,158,000
Less valuation allowance..................... (5,221,000) (55,000)
------------ ------------
Non-current deferred tax assets............ 3,152,000 1,103,000
NON-CURRENT DEFERRED TAX LIABILITIES:
Expansion plans.............................. (400,000) 0
Los Angeles revitalization zone accelerated
write-off................................... (560,000) 0
Depreciation and amortization................ (11,862,000) (10,442,000)
Other........................................ (413,000) 0
------------ ------------
Non-current deferred tax liabilities....... (13,235,000) (10,442,000)
------------ ------------
Net non-current deferred tax liabilities....... $(10,083,000) $ (9,339,000)
============ ============
</TABLE>
F-24
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is located in the Los Angeles revitalization tax zone and is
entitled to special state of California income tax credits related to sales
tax paid on operating materials and supplies, on construction assets and wages
paid to staff who reside within the zone. With the construction of the Casino
the Company earned substantial tax credits related to sales tax paid on the
assets acquired and on wages paid to construction employees.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
---------- ----------
<S> <C> <C>
Valuation allowance at beginning of period........... $2,986,000 $ 746,000
Valuation allowance utilized during the year......... 0 (465,000)
Valuation allowance established for California state
Los Angeles revitalization zone tax credit......... 2,344,000 2,705,000
---------- ----------
Valuation allowance at end of period................. $5,330,000 $2,986,000
========== ==========
</TABLE>
At December 31, 1995, the Company had approximately $412,000 of alternative
minimum tax credits ("AMT") available to reduce future federal taxes. The AMT
credits do not expire; however, the utilization of the AMT credits cannot
reduce federal taxes paid below the calculated annual amount of AMT. Hollywood
Park recognized investment tax credits ("ITC") using the flow-through method,
and these are a reduction of the provision for deferred taxes on income in the
year in which the credit arises. ITC are not available to offset AMT. The
Company has approximately $468,000 of general business credits available to
reduce future U.S. Federal taxes that would otherwise be payable. The ITC
expire as follows: 1999--$425,000; and 2000--$43,000. The Tax Reform Act of
1986 effectively eliminated new ITC from being generated in the future.
The Company has recorded a deferred tax asset of $8,291,000, which includes
$931,000 reflecting the benefit of $3,208,000 in federal and state net
operating loss carryforwards ("NOL's") generated in 1995. These NOL's expire
in 2010. Realization is dependent on generating sufficient taxable income
prior to expiration of the NOL's. Although realization is not assured,
management believes it is more likely than not that all of this deferred tax
asset will be realized. The amount of this deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
A valuation allowance was established for the full amount of the initial ITC
of $746,000 at December 31, 1993. During the year ended December 31, 1994, the
Company reduced the valuation allowance by $465,000, due to the fact that the
Casino was profitable in the fourth quarter; therefore, the presumption was
that it will continue to have profitable operations that will result in
taxable income in the future. The Company was able to utilize approximately
$278,000 of ITC on 1994's tax return.
NOTE 13--STOCKHOLDERS' EQUITY
On November 17, 1995, the Company issued 135,164 shares of Hollywood Park
common stock as the first installment of the purchase price in the acquisition
of PCM. On the first anniversary of the date of acquisition Hollywood Park
will issue additional shares of common stock valued at $540,000, and on the
second anniversary of the date of acquisition Hollywood Park will issue
additional shares of common stock valued at $500,000.
On March 23, 1994, the Company issued 591,715 shares of Hollywood Park
common stock to acquire Sunflower. An additional 55,574 shares of Hollywood
Park common stock were subsequently issued to Mr. Richard Boushka, a former
Sunflower shareholder, as required by the agreement of merger. The acquisition
of Sunflower was accounted for under the purchase method of accounting.
On August 11, 1994, the Company issued 1,498,016 shares of Hollywood Park
common stock to acquire Turf Paradise. The acquisition of Turf Paradise was
accounted for under the pooling of interests method of
F-25
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accounting and the historical per common share earnings of the Company have
been restated as if the acquisition had occurred at the beginning of each
period presented.
On February 9, 1993, the Company successfully completed the issuance of
2,750,000 depositary shares at an offering price of $10.00 per share. Each
depositary share represents 1/100 of a share of $70.00 convertible preferred
stock of the Company and entitles the holder to all proportional rights and
preferences of the underlying convertible preferred stock. The proportionate
dividend rate per annum and liquidation preference of the depositary shares
are $0.70 and $10.00, respectively, per depositary share.
Dividends on the convertible preferred stock at an annual rate of $70.00 per
share or $0.70 per depositary share are cumulative from the date of original
issue and are payable quarterly, starting May 15, 1993. Dividends of
approximately $1,925,000 were paid in both 1995 and 1994, and of approximately
$1,476,000 in 1993.
The depositary shares are convertible at the option of the holder at any
time, unless previously converted, into common stock, par value $0.10 per
share, of the Company at a conversion price of $12.00 per share of common
stock (equivalent to a conversion rate of 0.8333 shares of common stock for
each depositary share) subject to adjustment under certain circumstances.
The depositary shares are not convertible before January 1, 1996, and will
never be redeemed for cash. On or after January 1, 1996, the depositary shares
will be convertible at a conversion ratio of 0.8333 shares of common stock for
each depositary share, subject to adjustment in certain circumstances. The
Company may exercise this option only if for 20 trading days within any period
of 30 consecutive trading days, including the last day of such period, the
closing price of the common stock on its principal trading market exceeds
$15.00 per share, subject to adjustment in certain circumstances. The
convertible preferred stock will not be entitled to the benefit of a sinking
fund.
NOTE 14--LEASE OBLIGATIONS
The Company leases certain equipment primarily for use in racing operations
and acquired an immaterial lease of a playing card wash machine in the PCM
acquisition. Minimum lease payments required under operating leases that have
initial terms in excess of one year as of December 31, 1995 are approximately
$1,235,000 in 1996, $1,228,000 in 1997, and $662,000 thereafter. Total rent
expense for these long-term lease obligations for the years ended December 31,
1995, 1994 and 1993 was $1,318,000, $1,437,000 and $1,240,000, respectively.
NOTE 15--RETIREMENT PLANS
Hollywood Park Operating Company has a noncontributory group annuity
retirement plan and records pension expense using the projected unit credit
cost method. Eligible employees are those employees not covered by a
collective bargaining agreement and meet the retirement plan's service
requirement. The benefits are based on years of service and the employee's
compensation during the last five years of employment. The Company's funding
policy is to contribute amounts to the fund at least equal to the minimum
funding requirements of the Employee Retirement Income Security Act of 1974
(ERISA), but not in excess of the maximum deductible limit. The Company
contributed $21,930 to the plan in 1995, and the plan was subject to full
funding limitations in 1994; therefore, no contribution was made in 1994.
F-26
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
RETIREMENT PLANS FUNDED STATUS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $4,078,000 and $3,803,000 at December
31, 1995 and 1994, respectively.................. $4,190,000 $3,874,000
========== ==========
Projected benefit obligation for service rendered
to date.......................................... $5,080,000 $4,555,000
Plan assets at fair value......................... 5,754,000 5,296,000
Plan contribution................................. 22,000 0
---------- ----------
Plan assets in excess of projected benefit
obligation....................................... 696,000 741,000
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions........................... (323,000) (141,000)
Unrecognized net asset being recognized over 15
years............................................ (539,000) (626,000)
---------- ----------
Pension liability................................. $ (166,000) $ (26,000)
========== ==========
Net pension expense--Service cost................. $ 314,000 $ 326,000
Net pension expense--Interest cost................ 354,000 316,000
Actual return on assets........................... (753,000) (88,000)
Net amortization and deferral..................... 247,000 (433,000)
---------- ----------
Net periodic pension cost......................... $ 162,000 $ 121,000
========== ==========
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligations were 8.0% and 5.0%, respectively, at
December 31, 1995 and 1994. The expected long-term rate of return on assets
was 8.0% at December 31, 1995 and 1994.
The Company also contributes to several collectively-bargained multi-
employer pension and retirement plans (covering full and part-time employees)
which are administered by unions, and to a pension plan covering non-union
employees which is administered by an association of race track owners.
Amounts charged to pension cost and contributed to these plans for the years
ended December 31, 1995, 1994 and 1993 totaled $1,781,000, $1,846,000 and
$1,775,000, respectively. Contributions to the collectively-bargained plans
are determined in accordance with the provisions of negotiated labor contracts
and generally are based on the number of employee hours or days worked.
Contributions to the non-union plans are based on the covered employees'
compensation.
Information from the plans administrators is not available to permit the
Company to determine its share of unfunded vested benefits or prior service
liability. It is the opinion of management that no material liability exists.
There is no defined benefit pension plan for Sunflower or Turf Paradise.
In December 1995 the Board of Director's Compensation Committee approved a
non-qualified Supplementary Employment Retirement Plan ("SERP"), effective
April 1, 1996 (therefore no actuarial data is available). The SERP is an
unfunded plan, primarily for the purpose of restoring retirement benefits for
highly compensated employees. Currently, Messrs. Hubbard, Robbins and Finnigan
are eligible to participate in the SERP. The SERP will restore the retirement
benefit that was eliminated in 1994 by the Internal Revenue Service, when the
maximum annual earnings allowed for qualified pension plans was reduced to
$150,000 from $235,840.
F-27
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--RELATED PARTY TRANSACTIONS
The Company entered into an aircraft time sharing agreement with R.D.
Hubbard Enterprises, Inc. ("Hubbard Enterprises"), which is wholly owned by
Mr. Hubbard, with initial terms of November 1, 1993, through December 31,
1994, and thereafter automatically renews for additional terms of one month
each unless written notice of termination is given by either party at least
two weeks before the start of a renewal term. The Company agreed to reimburse
Hubbard Enterprises for expenses incurred as a result of the Company's use of
the aircraft, which totaled approximately $126,000 in 1995, and approximately
$139,000 in 1994.
On March 23, 1994, the Company acquired Sunflower, a greyhound and
thoroughbred race track located in Kansas City, Kansas, in which Mr. Hubbard
was a 60% shareholder. Sunflower became a wholly owned subsidiary of the
Company. The agreement of merger provided that under certain circumstances the
former Sunflower shareholders were entitled to receive additional shares of
Hollywood Park common stock. As of March 23, 1995, the former Sunflower
shareholders transferred their rights to such additional consideration to
Hollywood Park for nominal consideration and have no further entitlements to
additional consideration.
NOTE 17--STOCK OPTION PLAN
In 1993, the Company adopted a Stock Option Plan (the "1993 Plan"). The 1993
Plan is administered and terms of option grants are established by the Board
of Directors' Compensation Committee. Under the terms of the 1993 Plan,
options alone or coupled with stock appreciation rights may be granted to
selected key employees, directors, consultants and advisors of the Company.
Options become exercisable ratably over a vesting period as determined by the
Compensation Committee and expire over terms not exceeding ten years from the
date of grant, one month after termination of employment, or six months after
the death or permanent disability of the optionee. The purchase price for all
shares granted under the 1993 Plan shall be determined by the Compensation
Committee, but in the case of incentive stock options, the price will not be
less than the fair market value of the common stock at the date of grant. On
May 19, 1995, the Company amended the non-qualified stock option agreements
issued through this date, to reflect the substantial decline in the fair
market value of the common stock, lowering the per share price of the
outstanding options to $13.00. In connection with the execution of the Merger
Agreement, Hollywood Park reduced the exercise price of each outstanding
option to acquire Hollywood Park Common Stock to $10.00 (the fair market value
of the applicable underlying stock on the date of repricing). The Company
repriced these options solely to provide additional incentives to its officers
and employees.
At the October 30, 1996 Hollywood Park Annual Meeting, Hollywood Park
shareholders are being requested to approve the adoption of the Hollywood
Park, Inc. 1996 Stock Option Plan (the "1996 Plan"), which provides for the
issuance of up to 900,000 shares. The 1993 Plan originally provided for the
issuance of up to 625,000 shares of Hollywood Park Common Stock upon exercise
of options granted thereunder. As of April 22, 1996, all shares authorized for
issuance under the 1993 Plan had either been issued or were subject to
outstanding options.
Except for the provisions governing the number of shares issuable under the
1996 Plan and except for provisions which reflect changes in tax and
securities laws, the provisions of the 1996 Plan are substantially similar to
the provisions of the 1993 Plan.
In 1994 Turf Paradise had approximately 23,000 stock options outstanding,
all of which were fully exercised prior to the acquisition.
F-28
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information related to shares under option
and shares available for grant under the 1993 Plan.
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Options outstanding at beginning of year.......... 235,000 150,000 0
Options granted during the year................... 15,000 85,000 150,000
Options expired during the year................... (1,000) 0 0
------- ------- -------
Options outstanding at end of year................ 249,000 235,000 150,000
======= ======= =======
Total shares available for issuance under the
plan............................................. 625,000 625,000 625,000
Per share price of outstanding options issued in
prior year....................................... $13.00 $25.50 $ 0.00
Per share price of outstanding options issued in
current year..................................... $13.25 $22.00 $25.50
Number of shares subject to exercisable option at
end of year...................................... 128,000 50,000 0
</TABLE>
NOTE 18--COMMITMENTS AND CONTINGENCIES
As previously reported by the Company, and described in the Company's Annual
Report on Form 10-K for 1994, six purported class actions (the "Class
Actions") were filed beginning in September 1994, against the Company and
certain of its directors and officers in the United States District Court,
Central District of California (the "District Court") and consolidated in a
single action entitled In re Hollywood Park Securities Litigation. The
plaintiffs in the Class Actions purported to assert violations of federal
securities laws based upon, among other things, allegations that the
defendants made overly optimistic statements about the Company. On September
15, 1995 a related stockholder derivative action, entitled Barney v. Hubbard,
et al. (the "Derivative Action"), was filed in the California Superior Court
for the County of San Diego (the "State Court"). The plaintiff in the
Derivative Action purported to assert claims against certain officers and
directors of the Company for alleged breach of fiduciary duties.
The Company and other defendants each denied any liability or wrongdoing and
asserted various defenses. The District Court ordered the parties to engage in
non-binding mediation in an effort to settle all related claims. As previously
reported, as a result of the court ordered mediation, the parties reached an
agreement-in-principle to settle all claims raised in the Class and Derivative
Actions. The Company entered into the settlements in order to avoid the
expense, uncertainty and distraction of further litigation.
On November 6 and 13, 1995, respectively, the parties executed definitive
settlement agreements in the Derivative and Class Actions. Those agreements
provided for the release and dismissal of all claims raised or which might
have been raised in the Class and Derivative actions, subject to approval by
each of the respective courts. In settlement of the Class Actions, a
settlement fund in the principal amount of $5,800,000 has been created for the
benefit of the alleged class with contributions from the Company and the
insurance carrier for its directors and officers. After giving consideration
to the amounts to be received by the Company in settlement of the Derivative
Action, the Company's net settlement payment in the Class Actions was less
than $2,500,000. Under settlement of the Derivative Action, the Company will
receive a $2,000,000 payment from the insurance carrier which the Company will
use to pay plaintiff's attorneys fees and expenses and partially to defray the
Company's payment in the settlement of the Class Actions. The Derivative
Action settlement also includes provisions enhancing the Company's financial
controls and modifying certain terms of its acquisition of Sunflower.
On February 26, 1996, the District Court approved the settlement of the
Class Actions and entered a judgment dismissing the Class Actions in their
entirety. On April 3, 1996, the State Court entered an order approving the
settlement of the Derivative Action.
F-29
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company also executed a separate settlement as to all purported claims
against the Company and its officers and directors by the former controlling
stockholder of Turf Paradise (the "Walkers") in connection with the Company's
acquisition of Turf Paradise. Under the terms of the consummation of the
settlement of the Class and Derivative Actions, the Walkers were excluded from
participating in the Class Actions settlement fund, agreed to release all of
their potential threatened claims, and are to receive a payment in the
principal amount of $2,750,000.
According to the terms of the settlements of the three actions described
above, the Company recorded an accrued lawsuit settlement in the accompanying
financial statements of $5,232,000 as of December 31, 1995, which represents a
gross amount of $4,482,000 for the Class Actions less the recovery of
$2,000,000 from the insurance carrier for the Derivative Action plus
$2,750,000 for the Walkers. Lawsuit settlement expense recorded in the
accompanying financial statements for the year ended December 31, 1995,
represents the $5,232,000 accrued liability discussed above plus $856,000 in
legal costs. The accrued lawsuit settlement recorded in the accompanying
financial statements as of June 30, 1996 of $2,750,000 represents the
settlement with the Walkers.
NOTE 19--UNAUDITED QUARTERLY INFORMATION
The following is a summary of unaudited quarterly financial data for the
years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995
--------------------------------------------
JUNE
DECEMBER 31, SEPTEMBER 30, 30, MARCH 31,
------------ ------------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues...................... $36,693 $26,595 $42,828 $24,456
======= ======= ======= =======
Net income (loss)............. $ 212 $(5,637) $ 4,857 $ (594)
======= ======= ======= =======
Net income (loss) available to
(allocated to) common
shareholders................. $ (270) $(6,118) $ 4,376 $(1,075)
======= ======= ======= =======
Per common share:
Net income (loss)--primary.. $ (0.01) $ (0.33) $ 0.24 $ (0.06)
======= ======= ======= =======
Net income (loss)--fully
diluted.................... $ (0.01) $ (0.33) $ 0.24 $ (0.06)
======= ======= ======= =======
Cash dividends.............. $ 0.00 $ 0.00 $ 0.00 $ 0.00
======= ======= ======= =======
<CAPTION>
1994
--------------------------------------------
JUNE
DECEMBER 31, SEPTEMBER 30, 30, MARCH 31,
------------ ------------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues...................... $38,339 $30,104 $35,975 $12,906
======= ======= ======= =======
Net income (loss)............. $ 2,736 $(2,398) $ 4,855 $(1,421)
======= ======= ======= =======
Net income (loss) available to
(allocated to) common
shareholders................. $ 2,254 $(2,879) $ 4,374 $(1,902)
======= ======= ======= =======
Per common share:
Net income (loss)--primary.. $ 0.12 $ (0.16) $ 0.24 $ (0.10)
======= ======= ======= =======
Net income (loss)--fully
diluted.................... $ 0.12 $ (0.16) $ 0.24 $ (0.10)
======= ======= ======= =======
Cash dividends.............. $ 0.00 $ 0.00 $ 0.00 $ 0.00
======= ======= ======= =======
</TABLE>
F-30
<PAGE>
HOLLYWOOD PARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 20--SUBSEQUENT EVENTS--BOOMTOWN, INC.
On April 23, 1996, the respective Board of Directors of Hollywood Park and
of Boomtown, Inc. ("Boomtown") approved and signed the Agreement and Plan of
Merger (the "Merger"), among Hollywood Park, Inc., HP Acquisition, Inc. and
Boomtown, Inc., where by way of a merger with HP Acquisition, Inc. (a wholly
owned subsidiary of Hollywood Park) Boomtown will become a wholly owned
subsidiary of the Company. The Merger will be accounted for under the purchase
method of accounting, with each issued and outstanding share of Boomtown
common stock converted into 0.625 shares of Hollywood Park common stock.
Approximately 5,779,000 newly issued shares of the Company's common stock will
be issued in the Merger.
Boomtown owns and operates land-based, dockside and riverboat gaming
operations in Verdi, Nevada ("Boomtown Reno"), Las Vegas, Nevada ("Boomtown
Las Vegas"), Biloxi, Mississippi ("Boomtown Biloxi"), and Harvey, Louisiana
("Boomtown New Orleans"). Boomtown's properties offer hotel accommodations (at
Reno and Boomtown Las Vegas only), gaming and other entertainment amenities to
primarily middle income, value oriented customers. The Boomtown properties
incorporate an "old west" theme through the use of western memorabilia in
their interior decor, country/western music and western dress of their
employees.
The consummation of the Merger is subject to, among other things, (i)
approval by the respective stockholders and Boards of Directors of the Company
and Boomtown, (ii) receipt of "fairness opinions" from the respective
investment bankers representing the Company and Boomtown, (iii) receipt of
requisite regulatory approvals and gaming licenses, and (iv) availability of
sufficient financing to fund future gaming projects and to fund the repurchase
of Boomtown's outstanding notes if "put" to Boomtown by the holders as a
consequence of the Merger.
F-31
<PAGE>
HOLLYWOOD PARK, INC.
SELECTED FINANCIAL DATA BY OPERATIONAL LOCATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS
---------------------------------------------- YEAR ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1995 1995 1995 1995 1996
--------- -------- ------------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Hollywood Park, Inc.
and Race Track........ $ 5,786 $27,542 $14,750 $18,011 $ 66,089 $ 33,736
Sunflower Racing,
Inc. ................. 2,638 2,835 2,385 1,917 9,775 1,782
Turf Paradise, Inc. ... 6,443 3,624 1,480 5,938 17,485 9,816
Hollywood Park, Inc.--
Casino Division....... 9,589 8,827 7,980 10,827 37,223 28,946
------- ------- ------- ------- -------- --------
24,456 42,828 26,595 36,693 130,572 74,280
------- ------- ------- ------- -------- --------
EXPENSES:
Hollywood Park, Inc.
and Race Track........ 8,517 19,697 13,634 15,231 57,079 28,857
Lawsuit settlement..... 0 0 5,627 461 6,088 0
Sunflower Racing,
Inc. ................. 2,265 2,337 2,544 2,033 9,179 1,703
Turf Paradise, Inc. ... 4,530 3,148 1,859 4,033 13,570 6,822
Hollywood Park, Inc.--
Casino Division....... 6,312 6,519 6,542 10,446 29,819 24,873
------- ------- ------- ------- -------- --------
21,624 31,701 30,206 32,204 115,735 62,255
------- ------- ------- ------- -------- --------
INCOME (LOSS) BEFORE
INTEREST, INCOME TAXES,
DEPRECIATION,
AMORTIZATION AND WRITE
OFF OF INVESTMENT IN
SUBSIDIARY:
Hollywood Park, Inc.
and Race Track........ (2,731) 7,845 1,116 2,780 9,010 4,879
Lawsuit settlement..... 0 0 (5,627) (461) (6,088) 0
Sunflower Racing,
Inc. ................. 373 498 (159) (116) 596 79
Turf Paradise, Inc. ... 1,913 476 (379) 1,905 3,915 2,994
Hollywood Park, Inc.--
Casino Division....... 3,277 2,308 1,438 381 7,404 4,073
------- ------- ------- ------- -------- --------
2,832 11,127 (3,611) 4,489 14,837 12,025
------- ------- ------- ------- -------- --------
WRITE OFF OF INVESTMENT
IN SUBSIDIARY:
Write off of investment
in Sunflower Racing,
Inc. ................. 0 0 0 0 0 11,412
DEPRECIATION AND
AMORTIZATION:
Hollywood Park, Inc.
and Race Track........ 1,351 1,368 1,378 1,389 5,486 2,843
Sunflower Racing,
Inc. ................. 621 616 616 615 2,468 536
Turf Paradise, Inc. ... 329 369 311 302 1,311 610
Hollywood Park, Inc.--
Casino Division....... 491 509 519 600 2,119 1,411
------- ------- ------- ------- -------- --------
2,792 2,862 2,824 2,906 11,384 5,400
------- ------- ------- ------- -------- --------
INTEREST EXPENSE:
Hollywood Park, Inc.
and Race Track........ 49 49 44 60 202 117
Sunflower Racing,
Inc. ................. 888 922 913 967 3,690 781
Turf Paradise, Inc. ... 17 3 1 9 30 0
------- ------- ------- ------- -------- --------
954 974 958 1,036 3,922 898
------- ------- ------- ------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAX EXPENSE
(BENEFIT):
Hollywood Park, Inc.
and Race Track........ (4,131) 6,428 (306) 1,331 3,322 1,919
Sunflower Racing,
Inc. ................. (1,136) (1,040) (1,688) (1,698) (5,562) (1,238)
Write off of investment
in Sunflower Racing,
Inc. ................. 0 0 0 0 0 (11,412)
Lawsuit settlement..... 0 0 (5,627) (461) (6,088) 0
Turf Paradise, Inc. ... 1,567 104 (691) 1,594 2,574 2,384
Hollywood Park, Inc.--
Casino Division....... 2,786 1,799 919 (219) 5,285 2,662
------- ------- ------- ------- -------- --------
(914) 7,291 (7,393) 547 (469) (5,685)
Income tax expense
(benefit).............. (320) 2,434 (1,756) 335 693 2,444
------- ------- ------- ------- -------- --------
Net income (loss)....... $ (594) $ 4,857 $(5,637) $ 212 $ (1,162) $ (8,129)
======= ======= ======= ======= ======== ========
Dividend requirements on
convertible preferred
stock.................. $ 481 $ 481 $ 481 $ 482 $ 1,925 $ 962
------- ------- ------- ------- -------- --------
Net income (loss)
available to (allocated
to) common
shareholders........... $(1,075) $ 4,376 $(6,118) $ (270) $ (3,087) $ (9,091)
======= ======= ======= ======= ======== ========
Per common share:
Net income (loss)--
primary............... $ (0.06) $ 0.24 $ (0.33) $ (0.01) $ (0.17) $ (0.49)
Net income (loss)--
fully diluted......... $ (0.06) $ 0.24 $ (0.33) $ (0.01) $ (0.17) $ (0.49)
Number of shares--
primary................ 18,370 18,370 18,370 18,486 18,399 18,613
Number of shares--fully
diluted................ 20,661 20,661 20,661 20,778 20,691 20,904
</TABLE>
F-32
<PAGE>
HOLLYWOOD PARK, INC.
PARI-MUTUEL WAGERING DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- -----------------
1995 1994 1993 1996 1995
---------- ---------- ---------- -------- --------
HOLLYWOOD PARK (IN THOUSANDS,
-------------- UNAUDITED)
<S> <C> <C> <C> <C> <C>
Pari-mutuel handle:
On-track................... $ 185,218 $ 229,667 $ 245,383 $ 90,716 $ 94,351
Off-track--shared handle
wagering.................. 476,815 490,537 468,013 277,802 229,650
Simulcast.................. 386,873 296,019 212,047 191,516 194,042
---------- ---------- ---------- -------- --------
Total..................... $1,048,906 $1,016,223 $ 925,443 $560,034 $518,043
========== ========== ========== ======== ========
Pari-mutuel commissions:
On-track................... $ 11,777 $ 13,855 $ 14,559 $ 5,860 $ 5,985
Off-track--shared handle
wagering.................. 14,922 16,371 15,993 8,105 7,436
Off-track--independent
handle.................... 2,251 1,749 1,167 1,214 1,076
Simulcast.................. 11,229 7,251 4,303 6,022 5,794
---------- ---------- ---------- -------- --------
Total..................... $ 40,179 $ 39,226 $ 36,022 $ 21,201 $ 20,291
========== ========== ========== ======== ========
<CAPTION>
TURF PARADISE
-------------
<S> <C> <C> <C> <C> <C>
Pari-mutuel handle:
On-track................... $ 28,524 $ 35,046 $ 42,065 $ 16,193 $ 18,268
Off-track--shared handle
wagering.................. 82,983 61,448 48,606 69,189 46,492
Simulcast.................. 55,093 46,549 22,766 31,203 29,124
---------- ---------- ---------- -------- --------
Total..................... $ 166,600 $ 143,043 $ 113,437 $116,585 $ 93,884
========== ========== ========== ======== ========
Pari-mutuel commissions:
On-track................... $ 3,753 $ 4,289 $ 5,177 $ 1,926 $ 2,483
Off-track--shared handle
wagering.................. 4,719 4,509 4,182 2,958 2,956
Off-track--independent
handle.................... 699 297 239 103 507
Simulcast.................. 3,909 3,410 1,285 2,519 1,442
---------- ---------- ---------- -------- --------
Total..................... $ 13,080 $ 12,505 $ 10,883 $ 7,506 $ 7,388
========== ========== ========== ======== ========
<CAPTION>
COMBINED
--------
<S> <C> <C> <C> <C> <C>
Pari-mutuel handle:
On-track................... $ 213,742 $ 264,713 $ 287,448 $106,909 $112,619
Off-track--shared handle
wagering.................. 559,798 551,985 516,619 346,991 276,142
Simulcast.................. 441,966 342,568 234,813 222,719 223,166
---------- ---------- ---------- -------- --------
Total..................... $1,215,506 $1,159,266 $1,038,880 $676,619 $611,927
========== ========== ========== ======== ========
Pari-mutuel commissions:
On-track................... $ 15,530 $ 18,144 $ 19,736 $ 7,786 $ 8,468
Off-track--shared handle
wagering.................. 19,641 20,880 20,175 11,063 10,392
Off-track--independent
handle.................... 2,950 2,046 1,406 1,317 1,583
Simulcast.................. 15,138 10,661 5,588 8,541 7,236
---------- ---------- ---------- -------- --------
Total..................... $ 53,259 $ 51,731 $ 46,905 $ 28,707 $ 27,679
========== ========== ========== ======== ========
</TABLE>
F-33
<PAGE>
HOLLYWOOD PARK, INC.
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31,
------------------------------------------
ASSUMING FULL
PRIMARY DILUTION (a)
--------------------- --------------------
1995 1994 1993 1995 1994 1993
------ ------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Average number of
common shares
outstanding...... 18,486 18,370 17,685 18,486 18,370 17,685
Average common
shares due to
assumed
conversion of
convertible
preferred
shares........... 0 0 0 2,292 2,292 2,292
------ ------ ------ ------ ------ ------
Total shares.... 18,486 18,370 17,685 20,778 20,662 19,977
====== ====== ====== ====== ====== ======
Net income........ $ 212 $2,736 $1,105 $ 212 $2,736 $1,105
Less dividend
requirements on
convertible
preferred
shares........... 482 481 481 0 0 0
------ ------ ------ ------ ------ ------
Net income (loss)
available to
(allocated to)
common
shareholders..... $ (270) $2,255 $ 624 $ 212 $2,736 $1,105
====== ====== ====== ====== ====== ======
Net income (loss)
per share........ $(0.01) $ 0.12 $ 0.04 $ 0.01 $ 0.13 $ 0.06
====== ====== ====== ====== ====== ======
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
ASSUMING FULL
PRIMARY DILUTION (a)
---------------------- ----------------------
1995 1994 1993 1995 1994 1993
------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Average number of
common shares
outstanding...... 18,399 18,224 15,418 18,399 18,224 15,418
Average common
shares due to
assumed
conversion of
convertible
preferred
shares........... 0 0 0 2,291 2,291 2,047
------- ------ ------ ------- ------ ------
Total shares.... 18,399 18,224 15,418 20,690 20,515 17,465
======= ====== ====== ======= ====== ======
Net income
(loss)........... $(1,162) $3,772 $6,393 $(1,506) $3,772 $6,393
Less dividend
requirements on
convertible
preferred
shares........... 1,925 1,925 1,718 0 0 0
------- ------ ------ ------- ------ ------
Net income (loss)
available to
(allocated to)
common
shareholders..... $(3,087) $1,847 $4,675 $(1,506) $3,772 $6,393
======= ====== ====== ======= ====== ======
Net income (loss)
per share........ $ (0.17) $ 0.10 $ 0.30 $ (0.07) $ 0.18 $ 0.37
======= ====== ====== ======= ====== ======
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
ASSUMING FULL
PRIMARY DILUTION (a)
---------------- ----------------
1996 1995 1996 1995
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Average number of common shares
outstanding................................ 18,613 18,370 18,613 18,370
Average common shares due to assumed
conversion of convertible preferred
shares..................................... 0 0 2,291 2,291
------- ------- ------- -------
Total shares.............................. 18,613 18,370 20,904 20,661
======= ======= ======= =======
Net loss.................................... $(8,129) $ 4,263 $(8,129) $ 4,263
Less dividend requirements on convertible
preferred shares........................... 962 962 0 0
------- ------- ------- -------
Net loss allocated to common shareholders... $(9,091) $ 3,301 $(8,129) $ 4,263
======= ======= ======= =======
Net loss per share.......................... $ (0.49) $ 0.18 $ (0.39) $ 0.21
======= ======= ======= =======
</TABLE>
- --------
(a) The computed values assuming full dilution are anti-dilutive; therefore,
the primary share values are presented on the face of the consolidated
Statements of Operations.
F-34
<PAGE>
BOOMTOWN CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors Boomtown, Inc.
We have audited the accompanying consolidated balance sheets of Boomtown,
Inc. (the "Company") as of September 30, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
upon 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Boomtown,
Inc. at September 30, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Reno, Nevada
November 17, 1995
F-35
<PAGE>
BOOMTOWN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- JUNE 30,
1995 1994 1996
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents (including
restricted cash of approximately $2.4
million and $3.2 million at September 30,
1995 and 1994, respectively)................ $ 20,775 $ 11,391 $ 21,587
Accounts receivable, net..................... 924 1,321 921
Income taxes receivable, net................. 1,508 -- 3,112
Inventories.................................. 2,715 3,016 1,596
Prepaid expenses............................. 7,025 7,118 5,707
Other current assets......................... 765 664 584
-------- -------- --------
Total current assets..................... 33,712 23,510 33,508
Property, plant and equipment, at cost, net.. 150,955 157,298 146,413
Goodwill, net................................ 6,644 7,020 6,361
Investment in lease, net..................... 13,077 13,622 --
Notes receivable from a related party........ 27,294 27,294 8,465
Other assets................................. 7,516 9,723 9,439
-------- -------- --------
Total assets............................... $239,198 $238,467 $204,186
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable............................. $ 3,747 $ 9,069 $ 4,108
Accrued compensation......................... 2,930 1,610 4,458
Other accrued liabilities.................... 9,740 6,954 9,747
Accrued interest payable..................... 4,959 4,959 2,034
Income taxes payable......................... 506 483 116
Long-term debt due within one year........... 2,948 2,195 4,795
-------- -------- --------
Total current liabilities................ 24,830 25,270 25,258
Long-term debt due after one year (net of
unamortized discount of approximately $2.66
million, $2.85 million and $2.50 million, at
September 1995 and 1994 and June 30, 1996
(unaudited), respectively).................. 106,547 105,140 104,732
Deferred income taxes........................ 1,621 -- 2,607
Deferred gain on sale leaseback.............. 213 -- 124
Minority interest............................ 741 39 1,363
Commitments and contingencies (Notes 7 and
13)
Stockholders' equity:
Common stock, $.01 par value, 20,000,000
shares authorized, 9,233,074, 9,224,404
and 9,255,915 issued and outstanding, at
September 30, 1995 and 1994 and June 30,
1996 (unaudited), respectively, net of a
note receivable from stockholder of
$221,000 ................................. 103,453 103,348 103,593
Retained earnings (deficit)................ 1,793 4,670 (33,490)
-------- -------- --------
Total stockholders' equity............... 105,246 108,018 70,103
-------- -------- --------
Total liabilities and Stockholders'
equity.................................... $239,198 $238,467 $204,186
======== ======== ========
</TABLE>
See accompanying notes.
F-36
<PAGE>
BOOMTOWN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
--------------------------- ------------------
1995 1994 1993 1996 1995
-------- -------- ------- -------- --------
(UNAUDITED)
------------------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES:
Gaming/hotel operations:
Gaming.................... $189,306 $ 76,326 $42,416 $139,350 $139,832
Family entertainment
center................... 6,387 3,656 1,240 4,428 4,370
Food and beverage......... 15,613 7,973 3,877 12,294 11,373
Hotel and recreational
vehicle park............. 6,584 3,082 1,450 5,479 4,858
Showroom.................. 440 329 -- -- --
Truck stop, service station
and mini-mart.............. 10,811 10,858 8,407 9,815 7,405
Other income................ 2,626 1,152 1,256 1,990 1,863
-------- -------- ------- -------- --------
231,767 103,376 58,646 173,356 169,701
COSTS AND EXPENSES:
Gaming/hotel operations:
Gaming.................... 73,233 30,818 18,373 54,608 54,085
Gaming equipment leases... 5,811 412 -- 5,041 4,139
Family entertainment
center................... 3,274 1,762 648 2,390 2,260
Food and beverage......... 17,638 8,179 3,349 14,569 12,656
Hotel and recreational
vehicle park............. 3,168 1,706 530 2,211 2,316
Showroom.................. 308 2,130 -- -- --
Pre-opening expenses...... -- 15,787 -- -- --
Discontinued projects/future
development................ 6,054 -- -- 920 6,054
Truck stop, service station
and mini-mart.............. 9,722 9,661 7,364 8,869 6,619
Marketing and promotion..... 19,593 7,524 3,358 16,556 14,512
General and administrative.. 75,297 25,760 12,591 52,751 54,248
Depreciation and
amortization............... 10,422 5,891 3,839 8,135 7,635
Loss on termination of Blue
Diamond interest........... -- -- -- 36,563 --
-------- -------- ------- -------- --------
224,520 109,630 50,052 202,613 164,524
-------- -------- ------- -------- --------
Income (loss) from
operations................... 7,247 (6,254) 8,594 (29,257) 5,177
Interest expense, net of
capitalized interest......... (13,434) (5,632) (1,033) (10,362) (9,806)
Interest income............... 3,081 2,624 426 2,341 2,272
Other income.................. -- -- -- 827 --
Gain on sale of assets........ -- -- -- 240 173
Loss on marketable securities
(before interest income)..... -- (1,691) -- -- --
-------- -------- ------- -------- --------
Income (loss) before minority
interests in operations of
consolidated partnerships,
extraordinary items and
income taxes................. (3,106) (10,953) 7,987 (36,211) (2,184)
Minority interests in
operations of consolidated
partnerships................. 1,105 351 -- 878 112
-------- -------- ------- -------- --------
Income (loss) before
extraordinary items and
income taxes................. (2,001) (10,602) 7,987 (35,333) (2,072)
Provision (benefit) for income
taxes........................ 876 (2,779) 3,035 (50) (860)
-------- -------- ------- -------- --------
Income (loss) before
extraordinary loss........... (2,877) (7,823) 4,952 (35,283) (1,212)
Extraordinary loss--early
extinguishment of debt, net
of tax effect of
approximately $141 in 1994
and $226 in 1993............. -- (229) (370) -- --
-------- -------- ------- -------- --------
Net income (loss)............. $ (2,877) $ (8,052) $ 4,582 $(35,283) $ (1,212)
======== ======== ======= ======== ========
PER COMMON SHARE:
Income (loss) before
extraordinary item:
Primary................... $ (0.31) $ (0.90) $ 0.65 $ (3.82) $ (.13)
Fully diluted............. $ (0.31) $ (0.90) $ 0.65 $ (3.82) $ (.13)
Net income (loss):
Primary................... $ (0.31) $ (0.93) $ 0.60 $ (3.82) $ (.13)
Fully diluted............. $ (0.31) $ (0.93) $ 0.60 $ (3.82) $ (.13)
Number of Shares--primary..... 9,228 8,690 7,503 9,243 9,227
Number of Shares--fully
diluted...................... 9,228 8,690 7,503 9,243 9,227
</TABLE>
See accompanying notes.
F-37
<PAGE>
BOOMTOWN, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994, 1993
AND THE NINE MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED TOTAL
--------------- EARNINGS STOCKHOLDERS'
SHARES AMOUNT (DEFICIT) EQUITY
------ -------- --------- -------------
<S> <C> <C> <C> <C>
Balances, September 30, 1992 3,380 $ 5,122 $ 8,189 $ 13,311
Proceed from public offerings........ 5,126 83,191 -- 83,191
Dividends paid....................... -- -- (50) (50)
Net income........................... -- -- 4,583 4,583
----- -------- -------- --------
Balances, September 30, 1993........... 8,506 $ 88,313 $ 12,722 $101,035
Issuance of common stock warrants.... -- 2,995 -- 2,995
Employer 401(k) contributions........ 4 76 -- 76
Shares issued in exchange for
additional interest in Blue Diamond
Hotel & Casino, Inc. ............... 714 11,964 -- 11,964
Net loss............................. -- -- (8,052) (8,052)
----- -------- -------- --------
Balances, September 30, 1994........... 9,224 103,348 4,670 108,018
Employer 401(k) contributions........ 9 105 -- 105
Net loss............................. -- -- (2,877) (2,877)
----- -------- -------- --------
Balances, September 30, 1995........... 9,233 103,453 1,793 105,246
Employer 401(k) contributions
(unaudited)......................... 23 140 -- 140
Net loss (unaudited)................. -- -- (35,283) (35,283)
----- -------- -------- --------
Balances, June 30, 1996 (unaudited).... 9,256 $103,593 $(33,490) $ 70,103
===== ======== ======== ========
</TABLE>
See accompanying notes.
F-38
<PAGE>
BOOMTOWN, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
----------------------------- ------------------
1995 1994 1993 1996 1995
-------- --------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).......... $ (2,877) $ (8,052) $ 4,582 $(35,283) $ (1,212)
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Lease expense recorded in
exchange for limited
partnership interest..... 2,000 389 -- 1,500 1,500
Minority interests in
operations of
consolidated
partnerships............. (1,105) (351) -- (878) (112)
Gain (loss) on sale of
property, plant and
equipment................ 164 (57) 126 240 173
Depreciation and
amortization............. 10,422 5,891 3,933 8,135 7,635
Loss on termination of
Blue Diamond interest.... -- -- -- 36,563 --
Deferred income taxes..... 1,614 (4,145) 397 1,199 962
Changes in operating assets
and liabilities:
Accounts receivable....... 397 (1,011) (87) (31) 213
Income taxes receivable... (1,508) -- -- (1,605) (1,108)
Inventories............... 301 (2,453) (135) 275 (162)
Prepaid expenses.......... 93 (4,971) (620) 1,319 2,109
Accounts payable.......... (5,406) 7,950 (303) 377 (5,056)
Income taxes payable...... 24 213 (530) 1,096 12
Accrued compensation...... 1,320 631 (121) 1,528 1,704
Other accrued
liabilities.............. 4,189 4,467 (646) 57 2,036
Other changes, net........ 312 1,317 (31) (4,297) (4,319)
-------- --------- -------- -------- --------
Net cash provided by
(used in) operating
activities.............. 9,940 (182) 6,565 10,195 4,375
-------- --------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of
property and equipment.... 7,953 17,464 23 405 7,789
Payments for purchases of
property and equipment.... (15,146) (114,729) (23,849) (7,168) (13,363)
Payments of future
development costs......... 1,871 (1,775) -- -- 1,871
Loans to a related party... -- (7,794) (19,500) -- --
Change in construction
related payables.......... (1,472) 680 821 (16) (1,456)
-------- --------- -------- -------- --------
Net cash used in
investing activities.... (6,794) (106,154) (42,505) (6,779) (5,159)
-------- --------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from additions to
short-term borrowings..... 5,000 -- -- -- 5,000
Repayments on short-term
borrowings................ (5,000) -- -- -- (5,000)
Pre-payment of property
lease..................... -- -- -- (2,480) --
Net proceeds from additions
to long-term debt......... 8,794 100,240 14,998 2,457 9,036
Principal payments on long-
term debt................. (2,363) (107) (47,631) (2,581) (1,686)
Net proceeds from public
stock offerings........... -- -- 83,191 -- --
Payment of accrued
preferred dividends....... -- -- (50) -- --
Redemption of preferred
stock..................... -- -- (2,000) -- --
Distributions to limited
partner................... (193) -- -- -- (242)
-------- --------- -------- -------- --------
Net cash provided by
(used in) financing
activities.............. 6,238 100,133 48,508 (2,604) 7,108
-------- --------- -------- -------- --------
Net increase (decrease) in
cash and cash equivalents.. 9,384 (6,203) 12,568 812 6,324
Cash and cash equivalents
Beginning of period........ 11,391 17,594 5,026 20,775 11,391
-------- --------- -------- -------- --------
End of period.............. $ 20,775 $ 11,391 $ 17,594 $ 21,587 $ 17,715
======== ========= ======== ======== ========
</TABLE>
See accompanying notes.
F-39
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation--The consolidated financial
statements include the accounts of Boomtown, Inc. (the "Company"), a Delaware
corporation, and all of its controlled subsidiaries and partnerships. The
significant operating subsidiaries include gaming operations in Reno, Las
Vegas ("Blue Diamond"), Biloxi ("Mississippi Partnership") and New Orleans
("Louisiana Partnership"). All significant intercompany accounts and
transactions have been eliminated.
Interim Financial Information--The interim financial information is
unaudited. In the opinion of management, all adjustments considered necessary
for a fair presentation of its consolidated financial position at June 30,
1996, the consolidated results of operations for the nine months ended June
30, 1996 and 1995 and the consolidated cash flows for the nine months ended
June 30, 1996 and 1995 have been included. All adjustments to the interim
financial information were of a normal recurring nature and consistent with
the adjustments made in the financial statements for the fiscal years ended
September 30, 1993, 1994 and 1995, respectfully. The Company's operations are
seasonal and thus consolidated operating results for the nine months ended
June 30, 1996 should not be considered indicative of the results that may be
expected for the fiscal year ending September 30, 1996.
Use of Estimates--The accompanying consolidated financial statements have
been prepared in conformity with generally accepted accounting principles
which require the Company's management to make estimates and assumptions that
affect the amounts reported therein. Actual results could vary from such
estimates.
Cash and cash equivalents--Cash and cash equivalents consist of cash on hand
and in banks, interest bearing deposits and highly liquid investments with
original maturities of three months or less. Cash equivalents are carried at
cost which approximates market. The Company paid interest of approximately
$1,157,000 (net of $192,000 capitalized), $107,000 (net of $5,895,000
capitalized) and $13,111,000 (net of $701,000 capitalized) and income taxes of
approximately $3,145,000, $1,089,000 and $746,000 during the years ended
September 30, 1993, 1994, and 1995, respectively. Long-term debt incurred for
the purchase of property and equipment during the years ended September 30,
1994 and 1995 amounted to approximately $6,296,000 and $1,677,000 respectively
(none in 1993).
Included in cash and cash equivalents at September 30, 1994 and 1995 was
approximately $2,400,000 held by the Company for future construction by the
Mississippi Partnership (Note 7). In addition, approximately $800,000 was
restricted for the payment of construction costs related to property
expansions in process at September 30, 1994.
Concentrations of credit risk--The Company places its cash in short-term
investments which potentially subject the Company to concentrations of credit
risk. Such investments are made with financial institutions having a high
credit quality, and are collateralized by securities issued by the United
States Government and other investment grade securities.
Inventories--Inventories consist primarily of fuel and petroleum products,
food and beverage stock, and hotel linens and supplies, and are stated at the
lower of cost (determined using the first-in, first-out method) or market.
Depreciation and amortization--Depreciation and amortization of property,
plant and equipment is provided on the straight-line method over the lesser of
the estimated useful lives of the respective assets or the lease term.
Specific estimated useful lives of each class of property, plant and equipment
are as follows:
<TABLE>
<S> <C>
Buildings and Improvements.................................... 20-35 years
Furniture and fixtures........................................ 7-10 years
Gaming equipment.............................................. 5-10 years
Outdoor signs................................................. 10-20 years
Other assets.................................................. 3-15 years
</TABLE>
F-40
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Intangibles--Goodwill relates to the acquisition of the Reno property in
1988 and the investment in lease resulted when the Company purchased the
remaining 50% ownership interest in Blue Diamond (Note 4). Also, as more fully
discussed in Note 4, Blue Diamond has an option to purchase the resort. Should
the Company exercise the resort purchase option the investment in lease will
be capitalized as a part of the resort purchase price. Conversely, should the
Company not exercise the resort purchase option the investment in lease will
be expensed. Both goodwill and the investment in lease are being amortized on
the straight-line method over twenty-five years. Accumulated amortization at
September 30, 1994 and 1995 was approximately $2,393,000 and $3,314,000
respectively.
The carrying value of intangibles is periodically evaluated by management
and if facts and circumstances indicate an impairment, the amount will be
reduced.
Future development costs--The Company capitalizes costs associated with new
gaming projects until 1) the project is no longer considered viable and the
costs are expensed or 2) the likelihood of the project is relatively certain
and the costs are reclassified to pre-opening and expensed when operations
commence. Capitalized future development costs amounted to approximately
$2,164,000 at September 30, 1994 and is included on the accompanying
consolidated balance sheet as other assets. During the year ended September
30, 1995, the Company expensed approximately $6,054,000 of future development
costs (none in 1993 or 1994). These amounts are classified as discontinued
projects in the accompanying statements of operations.
Income taxes--The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes", which requires the Company to record deferred income taxes for
temporary differences that are reported in different years for financial
reporting and for income tax purposes, and classifies deferred tax liabilities
and assets into current and non-current amounts based on the classification of
the related assets and liabilities.
Minority interest--Minority interest represents the minority limited
partners' proportionate share of the equity and operations of the consolidated
partnerships.
Gaming revenues and promotional allowances--In accordance with industry
practice, the Company recognizes as gaming revenues the net win from gaming
activities, which is the difference between gaming wins and losses. Revenues
in the accompanying consolidated statements of operations exclude the retail
value of rooms, food and beverage, and other promotional allowances provided
to customers without charge. The estimated costs of providing such promotional
allowances have been classified as gaming operating expenses through
interdepartmental allocations as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
Food and beverage........................ $3,099,000 $5,433,000 $11,638,000
Hotel.................................... 134,000 172,000 400,000
Other.................................... 17,000 43,000 167,000
---------- ---------- -----------
Total costs allocated to gaming operating
expenses................................ $3,250,000 $5,648,000 $12,205,000
========== ========== ===========
</TABLE>
Pre-opening expenses--Pre-opening expenses were associated with the
acquisition, development and opening of the Company's new casino resorts.
These amounts were expensed in fiscal 1994 when the casinos commenced
operations and include items that were capitalized as incurred prior to
opening and items that are directly related to the opening of the property and
are non-recurring in nature.
Net income (loss) per share of common stock--Net income per share of common
stock is computed based on the weighted average number of shares of common
stock and dilutive common stock equivalents outstanding
F-41
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
during the period. Net loss per share is computed using the weighted average
number of shares of common stock outstanding and common equivalent shares from
stock options and warrants are excluded from the computation because their
effect is antidilutive.
Fully diluted earnings (loss) per share amounts are the same as primary per
share amounts for the periods presented.
Supplementary earnings per share data--In connection with a public offering
of the Company's common stock during October 1992, the Company used a portion
of the net proceeds to repay the subordinated term note and redeem its
outstanding preferred stock (Note 2). The following reflects supplementary
earnings per share data as if the subordinated debt and preferred stock
transactions described occurred on October 1, 1992, and the weighted average
shares outstanding reflect only the increase in the number of shares necessary
on a net proceeds of offering basis to repay the subordinated debt and redeem
all outstanding preferred stock:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1993
------------------
<S> <C>
Net income applicable to common stock.................. $5,036,430
==========
Net income per share of common stock................... $ .90
==========
Weighted average shares outstanding.................... 5,611,403
==========
</TABLE>
Reclassifications--Certain reclassifications have been made to the year
ended September 30, 1993, and 1994 consolidated financial statements to
conform to the 1995 presentation. In addition, certain reclasses were also
made to the nine months ended June 30, 1995 consolidated financial statements
to conform to the June 30, 1996 presentation.
2. ISSUANCE OF COMMON STOCK AND WARRANTS
During October 1992, the Company sold 2,901,786 shares of common stock in an
initial public offering which generated net proceeds of approximately $26
million after deducting underwriting discounts and expenses. In addition, a
stockholder of the Company (the "Selling Stockholder") sold 835,714 shares of
common stock in the public offering and received proceeds, net of underwriting
discounts, of approximately $7.8 million. The Company used $15 million of its
proceeds to repay a subordinated term note and $2 million to redeem all of its
outstanding preferred stock held by the Selling Stockholder.
In connection with the Company's initial public offering, the Company sold
to the underwriters, for an aggregate of $25,000, warrants to purchase 162,500
shares of the Company's common stock at $12 per share. The warrants expire in
October 1997 and 50% became exercisable in October 1993 and the remaining 50%
became exercisable in October 1994. At any time after October 1994 and prior
to the expiration of the warrants, the holders have a one time right to demand
a registration of the underlying shares, with expenses of such registration to
be paid by the Company.
During June 1993, the Company sold 2,223,380 shares of common stock in a
public offering which generated net proceeds of approximately $57.2 million
after deducting underwriting discounts and expenses. The proceeds were used to
fund a portion of the construction costs of the new gaming facilities and for
general corporate purposes. In addition, a stockholder of the Company sold
1,686,620 shares of common stock in the public offering and received proceeds,
net of underwriting discounts, of $43.9 million.
During November 1993, in connection with the placement of the First Mortgage
Notes (Note 5), the Company issued 472,500 warrants to purchase Common Stock
at $21.19 per share. The warrants became exercisable on December 10, 1993 and
expire on November 1, 1998.
F-42
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Buildings and improvements................... $ 78,741 $102,979 $102,508
Equipment.................................... 30,931 24,834 27,844
Boat......................................... 18,274 18,925 18,925
Land and land improvements................... 18,888 17,397 17,686
Furniture and fixtures....................... 11,163 13,166 10,099
Construction-in-progress..................... 19,290 1,631 1,089
-------- -------- --------
177,287 178,932 178,151
Less accumulated depreciation and
amortization................................ 19,989 27,977 32,785
-------- -------- --------
157,298 150,955 145,366
Plus property, plant, and equipment to be
disposed of................................. -- -- 1,047
-------- -------- --------
$157,298 $150,955 $146,413
======== ======== ========
</TABLE>
The construction-in-progress amounts at September 30, 1994 and 1995 relate
primarily to the costs associated with the construction of the land-based
facility in Harvey, Louisiana.
Amortization of leased assets is included in depreciation and amortization
expense.
4. RELATED PARTY TRANSACTIONS
The note receivable from a stockholder was issued in connection with the
stockholder's purchase of the Company's Common Stock, and therefore has been
presented as a reduction of common stockholders' equity in the accompanying
consolidated balance sheets. This note, as amended, bears interest at 6% with
interest and principal payable in four annual installments commencing December
31, 1995.
The Company has loaned IVAC, a California general partnership controlled by,
Edward P. Roski, Jr. a stockholder and a member of the Company's Board of
Directors (the "Stockholder"), approximately $27.3 million (the "IVAC Notes")
at September 30, 1994 and 1995. One of the notes has a principal balance of
$7.5 million and the other note, a variable principal note, has a principal
balance of $19.8 million at September 30, 1994 and 1995, and both notes bear
interest at 10%. The IVAC Notes are secured by separate deeds of trust on the
resort, which deeds of trusts are subordinate to separate deeds of trust
securing Blue Diamond and the Company's obligations in connection with the
Indenture. As defined in the terms of the IVAC Notes, interest became payable
upon commencement of Blue Diamond's Las Vegas operations. If the Company
exercises the purchase option, the IVAC notes, and all unpaid interest
(including approximately $1.5 million in interest on the IVAC Notes prior to
the commencement of operations, which the Company has not accrued) will be
forgiven as part of the resorts purchase price. Should the Company elect not
to exercise the purchase option, IVAC will be required to repay the IVAC Notes
to the Company 30 months after the date the Resort Option has expired without
exercise (May 1999) (including the pre-commencement interest referred to
previously). Interest income related to the IVAC Notes amounted to
approximately $975,000 and $2,729,000 during the years ended September 30,
1994 and 1995, and offsets a portion of the rent discussed in the following
paragraph. Interest receivable from IVAC at September 30, 1995 amounted to
approximately $227,000.
Prior to commencing gaming operations at the Las Vegas site on May 20, 1994,
the Company owned 50% of Blue Diamond and the Stockholder owned the remaining
50% of Blue Diamond. After commencement of operations of Blue Diamond, the
Company exercised its option to purchase all of the stockholder's ownership
interest in Blue Diamond for 714,286 shares of the Company's common stock.
Blue Diamond is leasing the resort from IVAC for an initial term of five years
with certain renewal options in certain very limited
F-43
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
circumstances. Blue Diamond has an option to purchase the resort from IVAC
exercisable during a period of six months beginning in May 1996 in exchange
for, at IVAC's option, either 1) shares of the Company's Common Stock (which
would be at a minimum of 2.5 million shares) or 2) cash (which amount would be
a minimum of $40 million). At the time of exercise, the investment in lease
(Note 1) would be capitalized as a part of the resort purchase price. In
addition, the Company's loans to IVAC including accrued interest (preceding
paragraph) would be capitalized as part of the resort purchase price.
If Blue Diamond does not exercise the Resort Purchase Option prior to the
expiration of the option term, Blue Diamond would not have the right to renew
its current lease of the Resort which expires in July 1999 (the "Expiration
Date"), and would effectively lose all interest in the resort upon the
Expiration Date. If the Company does not exercise the purchase option, upon
expiration of the lease, IVAC will have a right to purchase at book value all
of Blue Diamond's furniture, fixtures and equipment at the property (including
owned gaming equipment, valued at approximately $5.2 million as of September
30, 1995). Further, should the Company not exercise the Resort Purchase
Option, at the end of the option term, if it expires unexercised, the
investment in lease (with a carrying value of approximately $13.1 million at
September 30, 1995) will be expensed and IVAC, would be required to repay the
loans made by Boomtown to IVAC 30 months after the Resort Option has expired
(May 1999).
Subsequent to June 30, 1996, the Company entered into an agreement to
terminate the lease related to the Blue Diamond resort. See Note 13 for a
further discussion of the Agreement.
The Company owns an 85% interest in the Mississippi Partnership. As a result
of executing a lease for the property upon which Mississippi Partnership's
Biloxi, Mississippi gaming facility is located (Note 7), a 15% limited
partnership interest was transferred to an individual (the "Lessor") in lieu
of base rent payments for the first two years. After three years of operation,
either the Company or the Lessor may exercise an option to convert the
Lessor's ownership interest into the Company's common stock or cash, at the
option of the Lessor, at an amount calculated per the agreement which is based
upon a multiple of earnings.
The Company owns a 92.5% interest in the Louisiana Partnership. The
remaining 7.5% limited partnership interest is owned by the Lessor identified
in the preceding paragraph (the "Partner"). After three years of operation,
either the Company or the Partner may exercise an option to convert the
Partner's ownership interest in the Louisiana Partnership into the Company's
common stock or cash, at the option of the Partner, at an amount calculated
per the agreement which is based upon a multiple of earnings. Quarterly
distributions to all partners, will be required in both the Mississippi
Partnership and the Louisiana Partnership based upon the pro-rata share of
cash flow generated, as defined.
F-44
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
11.5% first mortgage notes (net of unamortized
discount of approximately $2.8 million and
$2.7 million at September 30, 1994 and 1995
and $2.5 million at June 30, 1996
(unaudited).................................. $100,655 $100,842 $100,998
13% note payable.............................. -- 4,336 3,519
11.5% note payable............................ 490 2,431 1,568
Capital lease obligations..................... -- 1,126 2,911
12.25% note payable........................... -- 760 531
12% note payable.............................. 6,042 -- --
Non-interest bearing notes payable............ 148 -- --
-------- -------- --------
107,335 109,495 109,527
Less amounts due within one year.............. 2,195 2,948 4,795
-------- -------- --------
$105,140 $106,547 $104,732
======== ======== ========
</TABLE>
On November 24, 1993, the Company completed the private placement of $103.5
million of 11.5% First Mortgage Notes Due November 2003 (the "Notes").
Interest on the Notes is payable semi-annually. The Notes will be redeemable
at the option of the Company, in whole or in part, on or after November 1,
1998, at a premium to the face amount ($103.5 million) which decreases on each
subsequent anniversary date, plus accrued interest to the date of redemption.
The Notes are secured by substantially all of the Company's assets.
The Indenture governing the Notes places certain business, financial and
operating restrictions on the Company and its subsidiaries including, among
other things, the incurrence of additional indebtedness, issuance of preferred
equity interests and entering into operating leases; limitations on dividends,
repurchases of capital stock of the Company and redemption's of subordinated
debt; limitations on transactions with affiliates; limitations on mergers,
consolidations and sales of assets; limitations on amending existing
partnership and facility construction agreements; and limitations on the use
of proceeds from the issuance of the Notes.
The 13%, 11.5% and 12.25% notes payable are secured by property, plant and
equipment with net book values of approximately $18,053,000, $2,472,000 and
$823,000 at September 30, 1995, respectively. The notes mature in January
1999, September 1997, and January 1998, respectively.
The capital lease obligations are secured by equipment with a net book value
of $1,652,000 at September 30, 1995. The capital lease obligations mature
between September 1997 and January 1998.
Principal maturities of long-term debt by fiscal year as of September 30,
1995 are as follows:
<TABLE>
<S> <C>
1996........................................ $ 2,948,000
1997........................................ 3,541,000
1998........................................ 1,657,000
1999........................................ 506,000
2000........................................ --
Thereafter.................................. 103,500,000
------------
$112,152,000
============
</TABLE>
During the years ended September 30, 1993, and 1994, the Company repaid, in
full, its senior term note and subordinated notes and canceled its $25 million
reducing revolving credit facility, respectively. As a result, the Company
wrote-off unamortized loan fees and recognized losses of approximately
$370,000 (net of tax effect
F-45
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of $226,000), and $229,000 (net of tax effect $141,000), respectively. These
amounts have been classified as extraordinary items in the accompanying
consolidated statements of operations.
6. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal.............................. $2,528,000 $ 947,000 $(1,805,000)
State................................ -- 195,000 768,000
---------- ----------- -----------
2,528,000 1,142,000 (1,037,000)
Deferred (primarily federal)........... 507,000 (3,921,000) 1,913,000
---------- ----------- -----------
$3,035,000 $(2,779,000) $ 876,000
========== =========== ===========
</TABLE>
The difference between the Company's provision (benefit) for income taxes as
presented in the accompanying consolidated statements of operations, and a
provision (benefit) for income taxes computed at the federal statutory rate is
comprised of the items shown in the following table as a percentage of pre-tax
earnings:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1993 1994 1995
---- ----- -----
<S> <C> <C> <C>
Income tax provision (benefit) at the statutory
rate............................................... 34.0% (34.0)% (34.0)%
Goodwill amortization............................... 2.1 1.6 8.3
Meals and entertainment............................. .7 1.3 17.5
Loss on investments................................. -- 5.4 --
State income taxes, net of federal benefit.......... -- (1.4) 41.0
Operating loss benefit limitation................... -- -- 8.0
Other, net.......................................... 1.2 .9 3.0
---- ----- -----
38.0% (26.2)% 43.8%
==== ===== =====
</TABLE>
The significant components of the deferred income tax assets and liabilities
included in the accompanying consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1994 1995
---------- -----------
<S> <C> <C>
Deferred income tax assets:
Pre-opening costs, net of amortization.............. $5,388,000 $ 3,768,000
Compensation accrued for stock appreciation rights
and stock option plans............................. 1,062,000 1,062,000
Alternative minimum tax credit carryforward......... -- 887,000
Capital loss carryforward........................... 575,000 575,000
Operating loss carryforward......................... -- 160,000
Less valuation allowance--loss carryforwards........ (575,000) (735,000)
Accrued expenses.................................... 199,000 1,410,000
---------- -----------
6,649,000 7,127,000
Deferred income tax liabilities:
Excess of book basis over tax basis of assets
acquired........................................... 3,278,000 3,232,000
Depreciation........................................ 1,884,000 3,692,000
Prepaid expenses.................................... 693,000 1,322,000
---------- -----------
5,855,000 8,246,000
---------- -----------
Net deferred income tax asset (liability)............. $ 794,000 $(1,119,000)
========== ===========
</TABLE>
F-46
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
Operating leases--The Company and its subsidiaries lease facilities,
billboards and certain equipment under noncancelable operating lease
arrangements with terms in excess of one year. The aggregate future minimum
annual rental commitments as of September 30, 1995 under operating leases
having noncancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
RELATED PARTY
(NOTE 4) OTHER
------------- -----------
<S> <C> <C>
1996............................................ $ 5,429,000 $11,832,000
1997............................................ 5,429,000 10,694,000
1998............................................ 5,429,000 2,566,000
1999............................................ 3,456,000 533,000
2000............................................ 358,000
Thereafter...................................... -- $ 1,211,000
----------- -----------
$19,743,000 $27,194,000
=========== ===========
</TABLE>
Barge lease--The Mississippi Partnership sold the barge in Biloxi,
Mississippi and the building upon the barge housing the casino to HFS Gaming
Corporation ("HFS"), a Delaware corporation. $2.4 million of the $11 million
sales price was held by the Company to be used for the development and
construction at the Mississippi casino site. Simultaneously with the sale, the
Mississippi Partnership leased the barge and building for 25 years and was
granted the option to purchase the leased asset for fair market value at the
end of the lease or upon the occurrence of certain events as defined in the
lease agreement. In the event of default by the Mississippi Partnership, HFS
may terminate the lease or require the Mississippi Partnership to repurchase
the assets for fair market value. HFS agreed to provide certain marketing
services for the Mississippi Partnership. The Mississippi Partnership will pay
HFS aggregate rent under the lease and payments for services under the
marketing agreement equal to approximately 20% of the annual adjusted earnings
before interest, taxes, depreciation and amortization, as defined, for the
Partnership (including the proposed hotel). As the lease payments represent
contingent rentals, they are excluded from the future minimum annual rental
commitments schedule above. HFS subsequently transferred its contractual
rights to National Gaming Corporation, Inc. ("NGC").
In November, 1995 Boomtown executed an agreement with NGC whereby the $2.4
million was returned to NGC in return for reduction of the EBITDA
distributions from 20% to 16%. Additionally, for $100,000, the Company secured
an option to buy the barge from NGC as well as to buy out the EBITDA
participation at a cost approximating the original investment made by HFS less
the $2.4 million that was paid. The option terminates on March 31, 1997 but is
renewable for an additional two years for $100,000 a year.
Tidelands lease--The Mississippi Partnership leases submerged tidelands at
the casino site from the State of Mississippi. Annual rent is $525,000 and the
term of the lease is ten years with a five-year option to renew. Rent in the
second five-year period of the lease will be determined in accordance with
Mississippi law. Annual rent in the five-year renewal term will be based on an
appraisal obtained by the State of Mississippi.
Land lease with a related party--The Company signed an agreement to lease
property through the Mississippi Partnership intended for the development,
construction and operation of the Mississippi gaming facility. The Mississippi
Partnership invested $2 million as a long-term deposit on the lease and
committed to annual rentals of base rent (estimated at $2 million) and
percentage rent (5% of adjusted gaming win over $25 million), plus $200,000
per year during the first ten years of the lease. The Mississippi Partnership
exchanged a 15% interest with the lessor in lieu of base rent payments for the
first two years. Rent expense is being charged to operations for the two year
period and the lessor's limited partner capital account is being credited. The
lease term is 99 years and is cancelable upon one year's notice.
F-47
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rental expense included in the accompanying consolidated statements of
operations amounted to approximately $396,000, $3,879,000 (including $389,000
in contingent rentals) and $16,102,000 (including $511,000 in contingent
rentals) during the years ended September 30, 1993, 1994 and 1995,
respectively. During the years ended September 30, 1994 and 1995, $2,418,000
and $8,140,000 of rental expense was with related parties, respectively (none
in 1993).
Self-insurance--The Company maintains a plan of partial self-insurance for
medical and dental coverage for substantially all full-time employees and
their dependents. Claims aggregating between $50,000 and $75,000 or more per
individual during the policy year are fully covered by insurance. Management
has established reserves considered adequate to cover estimated future
payments on claims incurred through September 30, 1995.
Gaming license requirements--In October 1994, the Mississippi Gaming
Commission adopted a regulation that requires, as a condition of licensure or
license renewal, for a gaming establishment's plan to include various
expenditures including parking facilities and infrastructure facilities
amounting to at least 25% of the casino cost. Although the Company believes
they have satisfied this requirement, there can be no assurance the
Mississippi Gaming Commission will not require further development on the
casino site including hotel rooms and additional parking facilities.
Additionally, there can be no assurance that the Partnership will be
successful in completing such a project or that the Partnership would be able
to obtain a waiver if the Partnership decides not to build.
8. FUNFLIGHT PROGRAM
The Company operates a gaming junket program under the name Boomtown
FunFlights. This program contracts with agents in various cities to book
passengers on a chartered airplane for either overnight or "turn-around"
flights to Boomtown Reno, Boomtown Las Vegas or Boomtown Biloxi. The agents
are paid a commission for each passenger booked. The passenger pays a nominal
"boarding fee" which is recorded as revenue upon the passenger's arrival at
the applicable Boomtown casino. The Company pays all costs associated with
this program.
9. STOCK OPTION PLANS
Stock Option Plan--On March 8, 1991, the Company's Board of Directors
adopted a non-qualified stock option plan for officers and key employees (the
"Option Plan"). The Option Plan authorized the grant of up to 198,744 shares
of the Company's common stock. All available shares under the Option Plan were
granted retroactive to October 1, 1989 to one individual at $.66 per share
subject to certain contingent exercisability provisions. This option was
amended in 1992 to provide full vesting and exercisability as of June 30, 1992
and it expires in March 2001.
The Option Plan was amended and restated on September 10, 1992 to provide
for the granting to employees of the Company of incentive stock options and
for the granting of nonstatutory stock options and stock purchase rights to
employees and consultants of the Company. The options granted will be for
various terms not exceeding ten years and will vest over periods determined at
the date of grant. The exercise price for incentive stock options granted will
be not less than the fair market value of the common stock at the date of
grant. At September 30, 1995, the total number of shares reserved for issuance
under the Option Plan is 1,892,066 of which options to purchase 1,004,992
shares have been granted at exercise prices ranging from $.66 to $20.75 per
share. At September 30, 1995, options to purchase 398,242 shares of the
Company's common stock at exercise prices ranging from $.66 to $20.75 per
share were exercisable. In addition, subsequent to September 30, 1995 an
additional 530,000 options were granted at exercise prices of $9.00 and $9.25
per share and certain non-executive options totaling 165,000 shares were
revalued to $9.00 from prices ranging from $11.50 to $20.75.
1992 Directors' Option Plan--On September 10, 1992, the Company's Board of
Directors adopted a directors' option plan (the "Directors' Plan") whereby
each nonemployee director is granted an option to
F-48
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
purchase 3,900 shares of the Company's common stock upon joining the Board,
and an option to purchase 1,300 shares of common stock on each anniversary
date thereafter during their tenure as a director. The options granted have a
ten-year term and vest ratably over a three-year period. The exercise price is
the fair market value of the common stock on the date of grant. Options
granted under the Directors' Plan may be exercised only (1) while the optionee
director is serving as a director on the Company's Board, (2) within twelve
months after termination by death or disability, or (3) within three months
after termination as a director for any other reason. A total of 45,000 shares
have been reserved for issuance under this plan. At September 30, 1995,
options to purchase 22,100 shares have been granted under this plan at
exercise prices ranging from $7.75 to $26.50 per share. At September 30, 1995,
options to purchase 11,400 shares of the Company's common stock at prices
ranging from $10.00 to $26.50 per share were exercisable under this plan.
1993 Employee Stock Bonus Plan--On February 25, 1993, the Company's Board of
Directors adopted a Stock Bonus Plan (the "Bonus Plan") which covers certain
employees of the Company. The Company has authorized and reserved 5,000 shares
of common stock for granting under the Bonus Plan. The shares granted under
the plan vest ratably over a four-year period. At September 30, 1995, the
Company has not granted any shares under the Bonus Plan.
10. 401(K) PLAN
On January 1, 1993, the Company's Board of Directors approved a voluntary
savings and investment plan (the "401(k) Plan"). The 401(k) Plan is available
to all eligible employees of the Company and subsidiaries. Under the 401(k)
Plan the Company will match 50% of employees' contributions up to a maximum of
5% of the employees' wages. The Company's 401(k) Plan expense was
approximately $107,000, $233,000 and $384,000 during the years ended September
1993, 1994, and 1995, respectively.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported on the
accompanying consolidated balance sheet for cash and cash equivalents
approximates its fair value.
Notes receivable: The fair value of the Company's notes receivable is
estimated by discounting the future cash flows using interest rates
determined by management to reflect the credit risk and remaining
maturities of the related notes receivable.
11.5% first mortgage notes: The fair value of the Company's long-term
notes are estimated based upon market quotes of notes with similar
characteristics and remaining maturities.
Other long-term debt: The fair values of the Company's notes payable and
capital lease obligations are estimated using discounted cash flow
analyses, based on the Company's current incremental borrowing rates for
similar types of borrowing instruments.
The carrying amounts and fair values of the Company's financial instruments
at September 30, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
------------------------
CARRYING
AMOUNT FAIR VALUE
------------ -----------
<S> <C> <C>
Cash and Cash equivalents....................... $ 11,391,000 $11,391,000
Notes receivable................................ $ 27,294,000 $27,294,000
11.5% first mortgage notes...................... $100,655,000 $78,000,000
Other long-term debt............................ $ 6,680,000 $ 6,544,000
</TABLE>
F-49
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
------------------------
CARRYING
AMOUNT FAIR VALUE
------------ -----------
<S> <C> <C>
Cash and Cash equivalents....................... $ 20,775,000 $20,775,000
Notes receivable................................ $ 27,294,000 $26,652,000
11.5% first mortgage notes...................... $100,842,000 $95,738,000
Other long-term debt............................ $ 8,653,000 $ 8,390,000
</TABLE>
12. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION
In connection with the First Mortgage Notes issued in November, 1993, the
subsidiaries of the Company
(guarantor entities) have guaranteed the Notes. Summarized consolidating
financial information is as follows:
SUMMARIZED CONSOLIDATING FINANCIAL INFORMATION
AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR ENTITIES
---------------------------------------------
BLUE DIAMOND BOOMTOWN NON-WHOLLY ELIMINATION'S &
BOOMTOWN, INC. HOTEL & CASINO HOTEL & CASINO OWNED RECLASSIFICATIONS BOOMTOWN, INC.
(PARENT CO.) INC.(1) INC.(2) SUBSIDIARIES(3) DR (CR)(4) (CONSOLIDATED)
-------------- -------------- -------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Current assets.......... $ 22,100 $ 5,275 $ 4,515 $ 10,820 $ (8,996) $ 33,714
Advances to affiliates.. 109,342 -- -- -- (109,342) --
Non-current assets...... 83,250 19,878 61,699 92,172 (51,515) 205,484
-------- -------- ------- -------- --------- --------
$214,692 $ 25,153 $66,214 $102,992 $(169,853) $239,198
======== ======== ======= ======== ========= ========
Current liabilities..... $ 7,872 $ 8,047 $ 5,326 $ 12,582 $ (8,996) $ 24,831
Non-current
liabilities............ 101,149 894 5,882 4,283 (3,086) 109,122
Advances from parent.... -- 29,021 6,359 73,962 (109,342) --
Equity.................. 105,671 (12,809) 48,647 12,165 (48,429) 105,245
-------- -------- ------- -------- --------- --------
$214,692 $ 25,153 $66,214 $102,992 $(169,853) $239,198
======== ======== ======= ======== ========= ========
Revenues................ $ -- $ 46,642 $64,295 $120,830 $ -- $231,767
Income (loss) from
operation.............. $ (7,049) $ (7,832) $ 3,906 $ 18,222 $ -- $ 7,247
Equity in earnings
(loss) of consolidated
subsidiaries........... $ 3,576 $ -- $ -- $ -- $ (3,576) $ --
Net income (loss)....... $ (6,453) $ (7,609) $ 1,059 $ 9,021 $ 1,105 $ (2,877)
Net cash provided by
(used in) operating
activities............. $ (9,756) $ (1,799) $ 605 $ 20,991 $ (101) $ 9,940
Net cash provided by
(used in) investing
activities............. 16,208 372 (1,457) (7,433) (14,484) (6,794)
Net cash provided by
(used in) financing
activities............. 1,014 2,242 (49) (11,554) 14,585 6,238
-------- -------- ------- -------- --------- --------
Net increase (decrease)
in cash and cash
equivalents............ 7,466 815 (901) 2,004 -- 9,384
Cash and cash
equivalents:
Beginning of year...... 3,345 1,815 2,235 3,996 -- 11,391
-------- -------- ------- -------- --------- --------
End of period.......... $ 10,811 $ 2,630 $ 1,334 $ 6,000 $ -- $ 20,775
======== ======== ======= ======== ========= ========
</TABLE>
F-50
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SUMMARIZED CONSOLIDATING FINANCIAL INFORMATION
AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR ENTITIES
---------------------------------------------
BLUE DIAMOND BOOMTOWN NON-WHOLLY ELIMINATION'S &
BOOMTOWN, INC. HOTEL & CASINO HOTEL & CASINO OWNED RECLASSIFICATIONS BOOMTOWN, INC.
(PARENT CO.) INC.(1) INC.(2) SUBSIDIARIES(3) DR (CR)(4) (CONSOLIDATED)
-------------- -------------- -------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Current assets.......... $ 11,701 $ 11,537 $ 5,552 $ 10,158 $ (5,440) $ 33,508
Advances to affiliates.. 120,616 -- -- -- (120,616) --
Non-current assets...... 46,575 1,290 59,959 96,951 (34,097) 170,678
-------- -------- ------- -------- --------- --------
$178,892 $ 12,827 $65,511 $107,109 $(160,153) $204,186
======== ======== ======= ======== ========= ========
Current liabilities..... $ 7,039 $ 4,472 $ 5,663 $ 13,524 $ (5,440) $ 25,258
Non-current
liabilities............ 101,176 233 5,848 3,272 (1,704) 108,825
Advances from parent.... -- 45,505 4,986 70,125 (120,616) --
Equity.................. 70,677 (37,383) 49,014 20,188 (32,393) 70,103
-------- -------- ------- -------- --------- --------
$178,892 $ 12,827 $65,511 $107,109 $(160,153) $204,186
======== ======== ======= ======== ========= ========
Revenues................ $ 2,250 $ 34,480 $47,602 $ 91,274 $ (2,250) $173,356
Income (loss) from
operation.............. $(20,443) $(23,521) $ 1,333 $ 13,374 $ -- $(29,257)
Equity in earnings
(loss) of consolidated
subsidiaries........... $(17,222) $ -- $ -- $ -- $ 17,222 $ --
Net income (loss)....... $(18,427) $(24,574) $ 366 $ 6,474 $ 878 $(35,283)
Net cash provided by
(used in) operating
activities............. $ (3,561) $ (4,594) $ 4,884 $ 13,466 $ -- $ 10,195
Net cash provided by
(used in) investing
activities............. 1,810 (511) (1,378) (4,885) (1,815) (6,779)
Net cash provided by
(used in) financing
activities............. (119) 5,572 (1,936) (7,936) 1,815 (2,604)
-------- -------- ------- -------- --------- --------
Net increase (decrease)
in cash and cash
equivalents............ (1,870) 467 1,570 645 -- 812
Cash and cash
equivalents:
Beginning of year...... 10,811 2,630 1,334 6,000 -- 20,775
-------- -------- ------- -------- --------- --------
End of period.......... $ 8,941 $ 3,097 $ 2,904 $ 6,645 $ -- $ 21,587
======== ======== ======= ======== ========= ========
</TABLE>
- --------
Notes to Summarized Consolidating Financial Information
(1) Blue Diamond Hotel & Casino, Inc. is a wholly-owned subsidiary that is
consolidated in the accompanying consolidated financial statements.
(2) Boomtown Hotel & Casino, Inc. is a wholly-owned subsidiary that is
consolidated in the accompanying consolidated financial statements. These
amounts do not include the operations of the Company's wholly-owned
subsidiaries which are general partners of the Company's non-wholly-owned
subsidiaries. The operations of such wholly-owned subsidiaries are
insignificant and have been included in the column "Non-wholly Owned
Subsidiaries".
(3) Non-wholly Owned Subsidiaries include Boomtown, Inc.'s subsidiaries in
Mississippi and Louisiana and 100% of the assets, liabilities and equity
of the limited partnerships formed to operate the gaming facilities in
those states.
(4) Elimination's consist of Boomtown, Inc.'s (a) investment in the guarantor
entities, (b) advances to the guarantor and non-guarantor subsidiaries and
(c) equity earnings (loss) of consolidated subsidiaries and partnerships.
The advances are subordinated in right of payment to the guarantees of the
Notes.
F-51
<PAGE>
BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. OTHER EVENTS (UNAUDITED)
Louisiana Developments--In a recent development potentially affecting
Boomtown's Harvey, Louisiana riverboat gaming operations, the State of
Louisiana adopted a statute pursuant to which voter referendums on the
continuation of gaming will be held locally (on a parish-by-parish basis)
where gaming operations are conducted. While Boomtown has no reason at this
time to believe that the voters of Jefferson Parish (where Boomtown's
Louisiana riverboat operations are located) will vote against riverboat
gaming, in the event they were to do so, Boomtown would have to discontinue
its riverboat gaming operation in that parish upon the expiration of its
license in 1999.
Termination of Agreement with SES Gaming--In April 1996, Boomtown and
related entities (the "Boomtown Group") entered into a termination agreement
with SES Gaming, Inc. and related entities (the "SES Group") terminating that
certain Master Agreement by and between the Boomtown Group and the SES Group
dated February 1, 1994 relating to a proposed gaming project in Lawrenceburg,
Indiana (the "Lawrenceburg Project"). The parties were denied a license for
the Lawrenceburg Project in July 1994. The Termination Agreement provided
that, among other things, (i) the Boomtown Group transferred to the
SES Facilities all of the Boomtown Group's rights, title and interest in and
to the Lawrenceburg Project, (ii) the SES Group waived any rights it might
have to Boomtown's potential project with Hilton Gaming Corporation in
Switzerland County, Indiana, (iii) the SES group agreed not to use the
Boomtown name in any way and (iv) the parties mutually released one another
from all claims that might arise out of the Master Agreement.
Termination of Las Vegas Property Lease--On August 12, 1996, Boomtown, Blue
Diamond, Hollywood Park, Roski, IVAC and Majestic Realty entered into the Blue
Diamond Swap Agreement (the "Swap Agreement") pursuant to which the parties
agreed that, upon consummation of the Merger, and contingent upon the closing
of the Merger, Boomtown and Blue Diamond (or any transferee thereof as set
forth in the Swap Agreement) would exchange their entire interest in the Blue
Diamond Resort (the "Resort") (including the IVAC Loans), and effectively
transfer all interest in the Resort to Roski, in exchange for a $5.0 million
unsecured promissory note (the "First Note") and an unsecured promissory note
(the "Second Note") valued at approximately $3.5 million and assumption by
Roski, IVAC or an affiliate of certain liabilities (the "Swap"). The First
Note has an interest rate equal to the prime rate plus one and one half
percent (1.5%) per annum and provides for annual principal payments of one
million dollars ($1,000,000) plus accrued interest and maturing on the date
that is five years after the Exchange Date (as such term is defined in the
Swap Agreement). The Second Note has an interest rate equal to the prime rate
plus one-half percent (5%) per annum and provides for a payment of all
principal plus accrued interest on the date that is three (3) years after the
Exchange Date. Consummation of the Swap is subject to obtaining all necessary
Governmental approvals, including gaming approval.
In exchange for its interest in the Resort, Boomtown will receive notes
payable to Boomtown with an approximate value totaling $8.5 million, an
estimated cash payment of $2.1 million, release from lease obligations under
the resort lease, Roski's assumption of certain liabilities and note
obligations totaling approximately $3.8 million and the ongoing expenses of
the Resort. Additionally, Roski will assume all operating leases including any
residual balances due under such leases. The Swap Agreement requires approvals
from applicable gaming authorities and Boomtown intends to seek the consent of
the holders of a majority of the outstanding principal amount on the Notes
(see Note 5). The Swap would be effected immediately following the Company's
Merger with Hollywood Park which is expected to be completed by the end of the
1996 calendar year or during the first quarter of calendar 1997.
Boomtown took a non-cash, pre-tax charge of $36.6 million related to the
Swap Agreement. The charge is comprised of the write-off of Boomtown's
investment in lease of $12.7 million, an $18.9 million write-down of the
related party notes receivable to $8.5 million and the write-off of the
remaining net assets less the liabilities assumed by Roski of $5.0 million
(approximate value at June 30, 1996; recorded as a valuation adjustment to
property plant and equipment).
F-52
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BOOMTOWN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In accordance with the terms of the Swap Agreement, with certain exceptions
set forth in the Swap Agreement, Boomtown will continue to operate the
property until consummation of the Merger. Boomtown and Blue Diamond will be
responsible for the liabilities of the Resort accruing prior to the Swap and
Roski will be responsible for the liabilities of the Resort accruing
subsequent to the Swap. In addition, Roski will resign from Boomtown's Board
of Directors, effective as of the Exchange Date. Subject to certain conditions
set forth in the Swap Agreement, the Swap may be effectuated through any
structure agreed upon by Boomtown and Hollywood Park. If the Swap were not
consummated for any reason, Boomtown would continue to operate the property
through the expiration of the lease term in July 1999, and the IVAC Notes
would be required to be repaid to Boomtown at such time.
On August 12, 1996, Hollywood Park and Roski further entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") pursuant to which
Hollywood Park will, concurrently with the Swap, purchase the stock in
Boomtown held by Roski (the "Roski Stock") for a purchase price of
approximately $3.5 million paid for by an unsecured promissory note having an
interest rate equal to the prime rate plus one percent (1%) per annum and
providing for four equal annual principal payments plus accrued interest and
maturing on the date that is four years after the Exchange Date. The Stock
Purchase Agreement may also be terminated by Hollywood Park in the event that
Boomtown and Hollywood Park, in accordance with the provisions set forth in
the Swap Agreement, elect to utilize a structure to effect the Swap which
would require Roski to retain the Roski Stock.
F-53
<PAGE>
APPENDIX A
AGREEMENT AND PLAN
OF MERGER
DATED AS OF
APRIL 23, 1996
AMONG
HOLLYWOOD PARK, INC.
HP ACQUISITION, INC.
AND
BOOMTOWN, INC.
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TABLE OF CONTENTS
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ARTICLE I THE MERGER.................................................... 1
Section 1.1 The Merger............................................. 1
Section 1.2 Effective Date of the Merger........................... 1
ARTICLE II THE SURVIVING CORPORATION.................................... 1
Section 2.1 Certificate of Incorporation........................... 1
Section 2.2 By-Laws................................................ 1
Section 2.3 Board of Directors; Officers........................... 1
Section 2.4 Effects of Merger...................................... 2
ARTICLE III CONVERSION OF SHARES........................................ 2
Section 3.1 Exchange Ratio......................................... 2
Section 3.2 Exchange of Certificates............................... 2
Section 3.3 Dividends; Transfer Taxes.............................. 3
Section 3.4 No Fractional Shares................................... 3
Section 3.5 Board of Directors; Executive Committee................ 4
Section 3.6 Stockholders' Meetings................................. 5
Section 3.7 Closing of the Company's Transfer Books................ 6
Section 3.8 Assistance in Consummation of the Merger............... 6
Section 3.9 Closing................................................ 6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT..................... 6
Section 4.1 Organization and Qualification......................... 6
Section 4.2 Subsidiaries........................................... 6
Section 4.3 Capitalization......................................... 7
Section 4.4 Compliance with Charter Documents...................... 7
Section 4.5 Authority Relative to this Merger Agreement............ 8
Section 4.6 Reports and Financial Statements....................... 8
Section 4.7 Absence of Certain Changes or Events................... 9
Section 4.8 Litigation............................................. 9
Section 4.9 Information in Disclosure Documents, Registration
Statements, Etc....................................... 9
Section 4.10 Employee Benefit Plans and Other Employment Matters.... 10
Section 4.11 ERISA.................................................. 10
Section 4.12 Takeover Provisions Inapplicable....................... 11
Section 4.13 Parent Action.......................................... 11
Section 4.14 Fairness Opinion....................................... 11
Section 4.15 Financial Advisor, No Brokers or Finders............... 11
Section 4.16 No Excess Parachute Payments........................... 11
Section 4.17 Compliance with Applicable Laws........................ 11
Section 4.18 Liabilities............................................ 12
Section 4.19 Taxes.................................................. 12
Section 4.20 Certain Agreements..................................... 13
Section 4.21 Insurance.............................................. 13
Section 4.22 Intellectual Property.................................. 13
Section 4.23 Environmental Laws..................................... 14
Section 4.24 Real Property.......................................... 14
Section 4.25 Title to Personal Property; Liens...................... 16
Section 4.26 Labor Relations........................................ 16
Section 4.27 Parent Disclosure Schedule............................. 16
Section 4.28 No Material Adverse Effect............................. 17
Section 4.29 Woodlands Investment................................... 17
Section 4.30 No Ownership of Company Common Stock by Parent
Interested Stockholders............................... 17
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 17
Section 5.1 Organization and Qualification......................... 17
Section 5.2 Subsidiaries........................................... 17
Section 5.3 Capitalization......................................... 18
Section 5.4 Compliance with Charter Documents...................... 18
Section 5.5 Authority Relative to this Merger Agreement............ 18
Section 5.6 Reports and Financial Statements....................... 19
Section 5.7 Absence of Certain Changes or Events................... 19
Section 5.8 Litigation............................................. 20
Section 5.9 Information in Disclosure Documents.................... 20
Section 5.10 Employee Benefit Plans and Other Employment Matters.... 20
Section 5.11 ERISA.................................................. 21
Section 5.12 Takeover Provisions Inapplicable....................... 21
Section 5.13 Company Action......................................... 22
Section 5.14 Fairness Opinion....................................... 22
Section 5.15 Financial Advisor; No Brokers or Finders............... 22
Section 5.16 No Excess Parachute Payments........................... 22
Section 5.17 Compliance with Applicable Laws........................ 22
Section 5.18 Liabilities............................................ 23
Section 5.19 Taxes.................................................. 23
Section 5.20 Certain Agreements..................................... 24
Section 5.21 Insurance.............................................. 24
Section 5.22 Intellectual Property.................................. 24
Section 5.23 Environmental Laws..................................... 24
Section 5.24 Real Property.......................................... 25
Section 5.25 Title to Assets; Liens................................. 27
Section 5.26 Labor Relations........................................ 27
Section 5.27 Company Disclosure Schedule............................ 27
Section 5.28 No Material Adverse Effect............................. 27
Section 5.29 No Ownership of Parent Common Stock by Company
Interested Stockholders............................... 27
ARTICLE VI REPRESENTATIONS AND WARRANTIES REGARDING SUB................. 27
Section 6.1 Organization........................................... 27
Section 6.2 Capitalization......................................... 28
Section 6.3 Authority Relative to this Merger Agreement............ 28
ARTICLE VII CONDUCT OF BUSINESS PENDING THE MERGER...................... 28
Section 7.1 Conduct of Business by Parent and the Company Pending
the Merger............................................ 28
Section 7.2 Conduct of Business of Sub............................. 31
Section 7.3 Notice of Breach....................................... 31
ARTICLE VIII ADDITIONAL AGREEMENTS...................................... 31
Section 8.1 Access and Information................................. 31
Section 8.2 Registration Statement/Proxy Statement................. 31
Section 8.3 Regulatory Approvals................................... 32
Section 8.4 Affiliates; Voting Agreements.......................... 32
Section 8.5 NASDAQ/NMS Listing..................................... 33
Section 8.6 Employee Arrangements.................................. 33
Section 8.7 Indemnification........................................ 34
Section 8.8 HSR Act................................................ 35
Section 8.9 Additional Agreements.................................. 35
Section 8.10 No Solicitation........................................ 35
</TABLE>
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Section 8.11 Takeover Provisions Inapplicable...................... 36
Section 8.12 Exception to Standstill Covenant...................... 36
Section 8.13 Reservation of Shares; Agreement to Issue Parent
Common Stock......................................... 37
ARTICLE IX CONDITIONS PRECEDENT......................................... 37
Section 9.1 Conditions to Each Party's Obligation to Effect the
Merger............................................... 37
Section 9.2 Conditions to Obligation of the Company to Effect the
Merger............................................... 37
Section 9.3 Conditions to Obligations of Parent and Sub to Effect
the Merger........................................... 38
ARTICLE X TERMINATION, AMENDMENT AND WAIVER............................. 39
Section 10.1 Termination........................................... 39
Section 10.2 Effect of Termination................................. 40
Section 10.3 Amendment............................................. 40
Section 10.4 Waiver................................................ 40
Section 10.5 Fees and Expenses..................................... 41
ARTICLE XI GENERAL PROVISIONS........................................... 42
Section 11.1 Non-Survival of Representations, Warranties and
Agreements........................................... 42
Section 11.2 Notices............................................... 42
Section 11.3 Publicity............................................. 43
Section 11.4 Specific Performance.................................. 43
Section 11.5 Interpretation........................................ 43
Section 11.6 Miscellaneous......................................... 43
Section 11.7 Governing Law......................................... 44
Section 11.8 Parties in Interest................................... 44
Section 11.9 No Control of the Company By Parent Under Company
Gaming Laws.......................................... 44
Section 11.10 Approval of the Company or Parent..................... 44
Section 11.11 Severability.......................................... 44
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement"), dated as of
April 23, 1996, by and among HOLLYWOOD PARK, INC., a Delaware corporation
("Parent"), HP ACQUISITION, INC., a Delaware corporation and a wholly owned
subsidiary of Parent ("Sub"), and BOOMTOWN, INC., a Delaware corporation (the
"Company"):
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have each determined that it is advisable and in the best interests of their
respective stockholders for Parent and the Company to enter into a strategic
combination upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the respective Boards of
Directors of Parent, Sub and the Company have each approved the merger of Sub
with and into the Company (the "Merger"), upon the terms and subject to the
conditions set forth herein; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein the parties hereto
agree as follows:
ARTICLE I
The Merger
Section 1.1 The Merger. Upon the terms and subject to the conditions hereof,
on the Effective Date (as defined in Section 1.2), Sub shall be merged into
the Company and the separate existence of Sub shall thereupon cease, and the
name of the Company, as the surviving corporation in the Merger (the
"Surviving Corporation"), shall in the Merger remain "Boomtown, Inc."
Section 1.2 Effective Date of the Merger. The Merger shall become effective
when a properly executed Certificate of Merger is duly filed with the
Secretary of State of the State of Delaware, which filing shall be made as
soon as practicable after the closing of the transactions contemplated by this
Merger Agreement in accordance with Section 3.9. When used in this Merger
Agreement, the term "Effective Date" shall mean the date and time at which
such Certificate is so filed or at such time thereafter as is provided in such
Certificate.
ARTICLE II
The Surviving Corporation
Section 2.1 Certificate of Incorporation. The Amended and Restated
Certificate of Incorporation of the Surviving Corporation shall be amended to
read in its entirety as set forth on Exhibit 2.1, and thereafter may be
amended in accordance with its terms and as provided by law and this Agreement
including without limitation Section 8.7(b) below.
Section 2.2 By-Laws. The By-laws of Sub as in effect on the Effective Date
shall be the By-laws of the Surviving Corporation and shall contain the
provisions required by Section 8.7(b) below.
Section 2.3 Board of Directors; Officers. As of the Effective Date, the
Surviving Corporation shall have no more than three directors. Such directors
shall be selected by the Company from among persons who
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<PAGE>
are members of the Board of Directors of the Company prior to the Effective
Date (provided that at least two of such directors shall be Timothy J. Parrott
and Robert F. List), and such directors shall, in each case, serve until their
respective successors are duly elected and qualified. As of the Effective
Date, the officers of the Company immediately prior to the Effective Date
shall be the officers of the Surviving Corporation, in each case until their
respective successors are duly elected and qualified.
Section 2.4 Effects of Merger. The Merger shall have the effects set forth
in the Delaware General Corporation Law (the "DGCL").
ARTICLE III
Conversion of Shares
Section 3.1 Exchange Ratio. As of the Effective Date, by virtue of the
Merger and without any action on the part of any holder of any common stock,
$0.01 par value, of the Company ("Company Common Stock"):
(a) All shares of Company Common Stock which are held by the Company or
any subsidiary of the Company, and any shares of Company Common Stock owned
by Parent, Sub or any other subsidiary of Parent, shall be cancelled and
retired and shall cease to exist and no stock of Parent or other
consideration shall be delivered in exchange therefor.
(b) Subject to Section 3.4, each remaining issued and outstanding share
of Company Common Stock shall be converted into the right to receive 0.625
(the "Exchange Ratio") of a fully paid and nonassessable share of the
voting common stock, $.10 par value, of Parent ("Parent Common Stock"). All
such shares of Company Common Stock shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist, and
each holder of a certificate representing any such shares shall cease to
have any rights with respect thereto, except the right to receive the
shares of Parent Common Stock to be issued in consideration therefor upon
surrender of such certificate in accordance with Section 3.2, without
interest.
(c) In the event of any stock dividend, stock split, reclassification,
recapitalization, combination or exchange of shares with respect to, or
rights issued in respect of, Parent Common Stock or Company Common Stock
after the date hereof, the Exchange Ratio shall be adjusted accordingly;
provided, however, that any such changes shall be subject to compliance
with Section 7.1.
(d) Each issued and outstanding share of capital stock of Sub shall be
converted into and become 9,500 fully paid and nonassessable shares of
Common Stock, $.01 par value, of the Surviving Corporation. Each stock
certificate of Sub evidencing ownership of any such shares shall continue
to evidence ownership of such converted shares of Common Stock of the
Surviving Corporation.
Section 3.2 Exchange of Certificates.
(a) Prior to the Closing, Parent shall select its transfer agent or such
other person or persons reasonably satisfactory to the Company to act as
Exchange Agent for the Merger (the "Exchange Agent"). As soon as reasonably
practicable after the Effective Date, Parent shall make available, and each
holder of Company Common Stock will be entitled to receive, upon surrender to
the Exchange Agent of one or more certificates ("Certificates") representing
such stock for cancellation, certificates representing the number of shares of
Parent Common Stock into which such shares are converted in the Merger and
cash in consideration of fractional shares as provided in Section 3.4 .
(b) As soon as reasonably practicable after the Effective Date, the Exchange
Agent shall mail to each holder of record of a Certificate or Certificates
whose shares were converted into the right to receive shares of Parent Common
Stock pursuant to Section 3.1, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent and the Company may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates
A-2
<PAGE>
representing the shares of Parent Common Stock and the cash in lieu of
fractional shares, if any, into which the shares of Company Common Stock
represented by such Certificate or Certificates shall have been converted
pursuant to this Merger Agreement. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such properly completed
letter of transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor, as applicable, (i) a certificate
representing that number of whole shares of Parent Common Stock, if any, to
which such holder of Company Common Stock shall have become entitled pursuant
to the provisions of Article III hereof and (ii) a check representing the
amount of cash in lieu of fractional shares, if any, which such holder has the
right to receive in respect of the Certificate surrendered pursuant to the
provisions of Section 3.4 and the Certificate of Merger, and the Certificate
so surrendered shall forthwith be cancelled. No interest will be paid or
accrued on the cash in lieu of fractional shares, if any, payable to holders
of Certificates.
(c) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond in such amount as Parent may determine is
reasonably necessary as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the shares of Parent Common
Stock and/or cash in lieu of fractional shares deliverable in respect thereof
pursuant to this Merger Agreement.
Section 3.3 Dividends; Transfer Taxes. No dividends or other distributions
with a record date after the Effective Date that are declared or made on
Parent Common Stock will be paid to persons entitled to receive certificates
representing Parent Common Stock pursuant to this Merger Agreement until such
persons surrender their Certificates representing Company Common Stock. Upon
such surrender, there shall be paid to the person in whose name the
certificates representing such Parent Common Stock shall be issued any
dividends or other distributions which shall have become payable with respect
to such Parent Common Stock in respect of a record date after the Effective
Date. In no event shall the person entitled to receive such dividends be
entitled to receive interest on such dividends. In the event that any
certificates for any shares of Parent Common Stock are to be issued in a name
other than that in which the Certificates representing shares of Company
Common Stock surrendered in exchange therefor are registered, it shall be a
condition of such exchange that the person requesting such exchange shall pay
to the Exchange Agent any transfer or other taxes required by reason of the
issuance of certificates for such shares of Parent Common Stock in a name
other than that of the registered holder of the Certificate surrendered, or
shall establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable. Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto shall be liable to a holder of shares of
Company Common Stock for any shares of Parent Common Stock (or dividends or
distributions with respect thereto) or any cash in lieu of fractional shares
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar laws.
Section 3.4 No Fractional Shares. (a) No certificates or scrip representing
less than one share of Parent Common Stock shall be issued upon the surrender
for exchange of Certificates representing Company Common Stock pursuant to
Section 3.1(b). In lieu of any such fractional share, each holder of Company
Common Stock who would otherwise have been entitled to a fraction of a share
of Parent Common Stock upon surrender of Certificates for exchange pursuant to
Section 3.1(b) shall be paid upon such surrender cash (without interest) in an
amount equal to the per share market value of Parent Common Stock determined
by multiplying (i) the average of the closing prices of a share of Parent
Common Stock as quoted on the NASDAQ National Market System ("NMS") for the
last five (5) full trading days prior to the Effective Date by (ii) the
fraction of a share of Parent Common Stock to which such holder would
otherwise be entitled. The fractional share interests of each stockholder of
the Company shall be aggregated, so that no Company stockholder shall receive
cash in an amount equal to or greater than the value of one full share of
Parent Common Stock.
(b) Any shares of Parent Common Stock made available to the Exchange Agent
and any portion of cash in lieu of fractional shares which remain unclaimed by
the stockholders of the Company for twelve months after the Effective Date
shall be delivered to Parent, upon demand, and any stockholders of the Company
who have
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<PAGE>
not theretofore complied with this Article shall thereafter only look to
Parent for payment of the shares of Parent Common Stock or their claim for any
cash in lieu of fractional shares of Parent Common Stock deliverable in
respect of their shares of Company Common Stock.
Section 3.5 Board of Directors; Executive Committee. (a) At the Effective
Date, the total number of persons serving on the Board of Directors of Parent
shall be 11 (unless otherwise agreed in writing by the parties hereto prior to
the Effective Date), seven of whom shall be Parent Directors and four of whom
shall be Company Directors (as such terms are defined below); provided that,
the number of persons serving on the Parent Board of Directors may be
increased prior to the Effective Date without the consent of the parties if
the increase is divisible by three and one Company Director is added for every
two Parent Directors added. The persons to serve on the Board of Directors of
Parent at the Effective Date who are "Parent Directors" shall be selected
solely by and at the absolute discretion of the Board of Directors of Parent
from among persons who are members of the Board of Directors of Parent prior
to the Effective Date, and the persons to serve on the Board of Directors of
Parent at the Effective Date who are "Company Directors" shall be selected
solely by and at the absolute discretion of the Board of Directors of the
Company prior to the Effective Date from among persons who are members of the
Board of Directors of the Company prior to the Effective Date. Each of Parent
and the Company shall, if it is necessary to obtain any regulatory approval
under any Company Gaming Laws (as defined herein) or Parent Gaming Laws (as
defined herein) in order to consummate the transactions contemplated under
this Merger Agreement, replace any persons selected by such party to be a
Parent Director or a Company Director or a director of any subsidiary of
Parent with a substitute nominee who is licensable under all applicable gaming
laws. Parent agrees that for a period of three years from the Effective Date
the number of members of the Parent Board of Directors shall not be greater
than 11 members (plus up to two representatives of the holders of Parent's $70
Convertible Preferred Stock to the extent they exercise their right to elect
up to two additional directors to the Parent Board of Directors ("Preferred
Directors")) unless otherwise agreed to by a majority of the Company Directors
then on the Parent Board of Directors (provided that such approval of the
Company Directors shall not be required in the case of an increase, which is
divisible by three, in the number of persons serving on the Parent Board of
Directors where one Company Director (selected by a majority of the Company
Directors then on the Parent Board of Directors) is added for every two Parent
Directors added). Any Preferred Director shall not be considered to be either
a Company Director or a Parent Director. Parent shall cause the Board of
Directors of Parent and any nominating committee thereof to take such steps as
are necessary to nominate the initial Company Directors (or their replacement,
which replacement shall be selected by a majority of the Company Directors)
for re-election at the first three annual stockholders meetings following the
Effective Date.
(b) Upon the Effective Date and for a period of three years thereafter, the
Executive Committee of Parent's Board of Directors (the "Executive Committee")
will consist of six members, comprised of four Parent representatives (the
"Parent Members") and two Company representatives (the "Company Members");
provided that if one of the initial Parent Members ceases to be a member of
the Executive Committee for any or no reason, the Executive Committee will
consist of five members, comprised of three Parent Members and two Company
Members. The Executive Committee will have the full powers provided by the
DGCL. The number of members of the Executive Committee shall not be greater
than six members (or five members if one of the Parent Members ceases to be a
member of the Executive Committee) at any time during such three year period
without the consent of the majority of the Company Members. The initial
Company Members will be Timothy J. Parrott and Richard J. Goeglein. If either
Messrs. Parrott or Goeglein shall be unavailable to serve, any replacement
Company Members shall be selected by a majority of the Company Directors then
on the Parent Board of Directors. The initial Parent Members shall be R.D.
Hubbard and three other Parent Directors selected by a majority of the Parent
Directors then on the Parent Board of Directors. Subject to the proviso set
forth in the first sentence of this Section (b), if either Mr. Hubbard or one
or more of such other Parent Members shall be unavailable to serve, any
replacement Parent Member shall be selected by a majority of the Parent
Directors then on the Parent Board of Directors. Notice of meetings of the
Executive Committee shall state the place, date and hour of the meeting and
shall be given to each member of the Executive Committee personally, by mail,
courier, telephone, telecopy or telegram on not less than twenty-four (24)
hours' notice. Members of the Executive Committee may participate in such
meetings by means of conference telephone. Meetings of the
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<PAGE>
Executive Committee may be held without notice if all the members thereof are
present or if all those not present waive such notice in writing whether
before or after the meeting.
(c) Effective as of the Effective Date, the By-laws of Parent shall be
amended in the form attached as Exhibit 3.5 (the "Bylaw Amendment") to reflect
the provisions set forth in Sections (a) and (b) above (including the
composition and size of the Parent Board of Directors, the composition and
size of the Executive Committee and the charter of the Executive Committee).
Such Bylaw Amendment shall further provide that it may not be amended for a
period of three years from the Effective Date without the approval of a
majority of the Company Directors then on the Parent Board of Directors.
(d) Effective as of the Effective Date, Parent will establish an Office of
the Chairman comprised of Parent's Chief Executive Officer, Parent's President
of Sports & Entertainment and the Chief Executive Officer of the Company. The
Office of the Chairman shall provide advice to the Chief Executive Officer of
Parent on such matters as he may request and undertake such other
responsibilities as he may delegate to the Office of the Chairman from time to
time.
Section 3.6 Stockholders' Meetings.
(a) The Company shall take all action necessary, in accordance with
applicable law and its Amended and Restated Certificate of Incorporation and
Amended and Restated By-laws, to convene a meeting of the holders of Company
Common Stock (the "Company Meeting") as promptly as practicable for the
purpose of considering and taking action upon this Merger Agreement, and shall
use its reasonable best efforts to cause the Company Meeting to occur on the
same date as the Parent Meeting or such other date as the parties may agree.
Subject to the provisions of the next sentence and Section 8.10, the Board of
Directors of the Company will recommend that holders of Company Common Stock
vote in favor of and approve the Merger and the adoption of the Merger
Agreement at the Company Meeting. The Board of Directors of the Company may
fail to make such recommendation, or withdraw, modify or change any such
recommendation in a manner adverse to Parent, if such Board of Directors,
after consultation with its outside legal counsel, has determined that the
making of such recommendation, or the failure to withdraw, modify or change
its recommendation, would result in a substantial risk of liability for a
breach of the fiduciary duties of the members of such Board of Directors under
applicable law. Whether or not the Company's Board of Directors fails to make,
withdraws, modifies or changes its recommendation, the Company shall still
hold the Company Meeting as scheduled and permit the stockholders of the
Company to vote on the Merger and the adoption of the Merger Agreement, unless
this Merger Agreement is earlier terminated in accordance with Article X.
(b) Parent shall take all action necessary, in accordance with applicable
law and its Certificate of Incorporation and Amended By-laws, to convene a
meeting of the holders of Parent Common Stock (the "Parent Meeting") as
promptly as practicable for the purpose of considering and taking action to
authorize the issuance of Parent Common Stock pursuant to (i) the Merger,
under the applicable guidelines of the NASD, (ii) the stock options issued and
outstanding at the Effective Date under the Company's Stock Option Plan
assumed by Parent in the Merger, (iii) warrants to purchase Company Common
Stock which are outstanding at the Effective Date that may be exercised for
Parent Common Stock thereafter and (iv) the exercise or conversion in full of
all outstanding rights to acquire Company Common Stock (to the extent they may
be converted into rights to acquire Parent Common Stock) under the Louisiana
Option, the Mississippi Option and the Resort Purchase Option as such terms
are defined or referenced in Section 5.3 of the Company Disclosure Schedule
(as hereinafter defined) (the issuances of shares of Parent Common Stock under
clauses (ii) through (iv) are referred to herein as the "Other Issuances")
(the foregoing are collectively referred to as the "Parent Share Proposal").
Parent shall use its best efforts to cause the Parent Meeting to occur on the
same date as the Company Meeting or such other date as the parties may agree.
Subject to the provisions of the next sentence and Section 8.10, the Board of
Directors of Parent will recommend that holders of Parent Common Stock vote in
favor of and approve the Parent Share Proposal at the Parent Meeting. The
Board of Directors of Parent may fail to make such recommendation, or
withdraw, modify or change any such recommendation in a manner adverse to the
Company, if such Board of Directors, after consultation with its outside legal
counsel, has determined that the making of
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such recommendation, or the failure to withdraw, modify or change its
recommendation, would result in a substantial risk of liability for a breach
of the fiduciary duties of the members of such Board of Directors under
applicable law. Whether or not Parent's Board of Directors fails to make,
withdraws, modifies or changes its recommendation, Parent shall still hold
Parent Meeting as scheduled and permit the stockholders of Parent to vote on
the matters described above, unless this Merger Agreement is earlier
terminated in accordance with Article X.
Section 3.7 Closing of the Company's Transfer Books. At the Effective Date,
the stock transfer books of the Company shall be closed and no transfer of
shares of Company Common Stock shall be made thereafter. In the event that,
after the Effective Date, Certificates are presented to the Surviving
Corporation, they shall be cancelled and exchanged for Parent Common Stock
and/or cash as provided in Sections 3.1(b) and 3.4.
Section 3.8 Assistance in Consummation of the Merger. Each of Parent, Sub
and the Company shall provide all reasonable assistance to, and shall
cooperate with, each other to bring about the consummation of the Merger as
soon as possible in accordance with the terms and conditions of this Merger
Agreement. Parent shall cause Sub to perform all of its obligations in
connection with this Merger Agreement.
Section 3.9 Closing. The closing (the "Closing") of the transactions
contemplated by this Merger Agreement shall take place (i) at the offices of
Irell & Manella LLP, 1800 Avenue of the Stars, Suite 900, Los Angeles,
California 90067, at 9:00 A.M. local time on a date to be mutually agreed upon
by the parties, which date shall be no later than the third Business Day (as
defined below) after all of the conditions set forth in Article IX shall have
been satisfied (or waived in accordance with Section 10.4) unless another date
is agreed to in writing by the parties. As used in this Merger Agreement,
"Business Day" shall mean any day, other than a Saturday, Sunday or legal
holiday on which banks are permitted to close in the City and State of New
York.
ARTICLE IV
Representations and Warranties of Parent
Parent represents and warrants to the Company as follows:
Section 4.1 Organization and Qualification. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has the corporate power to carry on its business as it is now
being conducted or currently proposed to be conducted. Parent is duly
qualified or licensed to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under license
or lease or the nature of its activities make such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
reasonably be expected to, individually or in the aggregate, have a material
adverse effect on the business, properties, assets, condition (financial or
otherwise), liabilities or operations of Parent and its subsidiaries taken as
a whole or a material adverse effect on Parent's ability to consummate the
transactions contemplated hereby (a "Parent Material Adverse Effect").
Complete and correct copies as of the date hereof of the Certificate of
Incorporation, By-laws, and other governing documents of Parent and each of
its subsidiaries have previously been delivered to the Company.
Section 4.2 Subsidiaries. The only "Significant Subsidiaries" (as such term
is defined in Rule 1-02 of Regulation S-X of the Securities and Exchange
Commission (the "Commission")) ("Significant Subsidiaries") of Parent are
those named in the Parent SEC Reports (as hereinafter defined). For purposes
of this Article IV, the term Significant Subsidiaries shall include a
subsidiary of Parent the acquisition of which would require regulatory
approval under any Parent Gaming Law (as defined herein). Each Significant
Subsidiary is a corporation, partnership or limited liability company duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization and has the requisite corporate,
partnership or limited liability company power and authority to carry on its
business as it is now being conducted or currently proposed to be conducted.
Each Significant Subsidiary is duly qualified or licensed to do business, and
is in good standing, in each jurisdiction where the character of its
properties owned or held under license or lease or the nature of its
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activities makes such qualification or licensing necessary except where the
failure to be so qualified or licensed would not reasonably be expected to
have a Parent Material Adverse Effect. Except as disclosed in Section 4.2 of
the Parent Disclosure Schedule (as herein defined), all the outstanding shares
of capital stock or other equity interests (including partnership interests
and limited liability company membership interests) of each Significant
Subsidiary (i)(a) are validly issued, fully paid and nonassessable, in the
case of capital stock or other equity interests (other than partnership
interests, limited liability company membership interests or their
equivalents) and (b) are validly issued and the consideration therefor has
been paid, and no unmet capital contribution call is outstanding, in the case
of partnership interests, limited liability company membership interests or
their equivalents and (ii) are owned by Parent or by a Significant Subsidiary
of Parent free and clear of any liens, claims or encumbrances. There are no
existing options, warrants, calls or other rights, agreements or commitments
of any character to which Parent is a party relating to the issued or unissued
capital stock or other securities or equity interests of any of the
Significant Subsidiaries of Parent. Except as described in Parent's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 or as
disclosed in Section 4.2 of the Parent Disclosure Schedule and except for
wholly owned subsidiaries which are formed after the date hereof in the
ordinary course of business, Parent does not directly or indirectly own any
interest in any other corporation, partnership, joint venture or other
business association or entity.
Section 4.3 Capitalization. The authorized capital stock of Parent consists
of 40,000,000 shares of Parent Common Stock and 250,000 shares of preferred
stock, $1.00 par value. As of the close of business on April 19, 1996,
18,504,798 shares of Parent Common Stock and 27,499 shares of $70 Convertible
Preferred Stock were validly issued and outstanding, fully paid, and
nonassessable. All outstanding shares of Parent Common Stock and Preferred
Stock have been issued in accordance with the registration provisions or
exemptions therefrom of applicable Federal and state securities laws. As of
the date hereof, there are no bonds, debentures, notes or other indebtedness
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which the Parent's stockholders
may vote ("Parent Voting Debt") issued or outstanding. As of the close of
business on the day immediately prior to the date hereof, except for employee
stock options to acquire 297,667 shares of Parent Common Stock, 27,499 shares
of Parent's $70 Convertible Preferred Stock, which are presently convertible
into 2,291,492 shares of Parent Common Stock, and 100,000 shares of Parent
Common Stock issuable under the Directors Deferred Compensation Plan, and,
except as provided herein or as disclosed on Section 4.3 of the Parent
Disclosure Schedule, there are no options, warrants, calls or other rights,
agreements or commitments presently outstanding obligating Parent to issue,
deliver or sell shares of its capital stock or debt securities, or obligating
Parent to grant, extend or enter into any such option, warrant, call or other
such right, agreement or commitment. Except as set forth or referenced above
and except for the Parent Common Stock to be issued in the Merger or in the
Other Issuances, as of the date of this Merger Agreement, no shares of capital
stock or other voting securities of Parent were issued, reserved for issuance
or outstanding. There are no outstanding stock appreciation rights which were
not granted in tandem with a related stock option, restricted stock grant or
contingent stock grant, and, other than as may be contained in employee
benefit plans, stock options, employment agreements, and similar plans,
agreements and instruments, there are no other outstanding contractual rights
to which Parent is a party (other than Parent Benefit Plans, the Directors
Deferred Compensation Plan and the terms governing Parent's $70 Convertible
Preferred Stock) the value of which is derived from the Parent Common Stock.
All outstanding shares of capital stock of Parent are, and all shares which
may be issued will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. Except as
disclosed in Section 4.3 of the Parent Disclosure Schedule, there are no
outstanding registration rights relating to Parent's securities to which
Parent is subject. No change in such capitalization has occurred between April
19, 1996 and the date hereof except issuances of Parent Common Stock that
would be permitted pursuant to Section 7.1 below. All of the shares of Parent
Common Stock issuable in accordance with this Merger Agreement in exchange for
Company Common Stock at the Effective Date in accordance with this Merger
Agreement will be, when so issued, duly authorized, validly issued, fully paid
and nonassessable.
Section 4.4 Compliance with Charter Documents. Neither Parent nor any of its
subsidiaries is in violation of any term or provision of its charter, by-laws
or other organizational document where the consequences of such violation
would be reasonably expected to result in a Parent Material Adverse Effect.
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Section 4.5 Authority Relative to this Merger Agreement. Parent has the
requisite corporate power and authority to enter into this Merger Agreement
and to carry out its obligations hereunder. The execution and delivery of this
Merger Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by Parent's Board of Directors. The Merger Agreement
constitutes a valid and binding obligation of Parent enforceable in accordance
with its terms except as enforcement may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors' rights generally
and except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought. Except for the approval of the holders of
the Parent Common Stock described in Section 3.6(b), no other corporate
proceedings on the part of Parent are necessary to authorize this Merger
Agreement and the transactions contemplated hereby. Except as set forth in
Section 4.5 of the Parent Disclosure Schedule, neither Parent nor any of its
subsidiaries is subject to or obligated under (i) any charter, by-law,
indenture or other loan document provision or (ii) any other contract,
license, franchise, permit, order, decree, concession, lease, instrument,
judgment, statute, law, ordinance, rule or regulation applicable to Parent or
any of its subsidiaries or their respective properties or assets, which would
be breached or violated, or under which there would be a default (with or
without notice or lapse of time, or both), or under which there would arise a
right of termination, cancellation or acceleration of any obligation or the
loss of a material benefit, by its executing and carrying out this Merger
Agreement other than, in the case of clause (ii) only, (A) any breaches,
violations, defaults, terminations, cancellations, accelerations or losses
which, either singly or in the aggregate, would not reasonably be expected to
have a Parent Material Adverse Effect and (B) the laws and regulations
referred to in the next sentence. Except as referred to herein or in
connection, or in compliance, with (i) the provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Securities
Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the corporation, securities or blue
sky laws or regulations of the various states, or (ii) the approval under the
Parent Gaming Laws (as defined in Section 4.17(b)) and the Company Gaming Laws
(as defined in Section 5.17(b)), no filing or registration with, or
authorization, consent or approval of, any public body or authority is
necessary for the consummation by Parent of the Merger or the other
transactions contemplated by this Merger Agreement, other than filings,
registrations, authorizations, consents or approvals the failure of which to
make or obtain would not reasonably be expected to have a Parent Material
Adverse Effect.
Section 4.6 Reports and Financial Statements. Parent has filed all required
material reports, proxy statements, and registration statements with the
Commission and under any Parent Gaming Laws since December 31, 1992. Parent
has previously furnished the Company with true and complete copies of its (i)
Annual Reports on Form 10-K for the three fiscal years ended December 31,
1995, as filed with the Commission, (ii) proxy statements related to all
meetings of its shareholders (whether annual or special) since December 31,
1992, and (iii) all other reports or registration statements filed by Parent
with the Commission since December 31, 1992, except registration statements on
Form S-8 relating to employee benefit plans which are all the reports, proxy
statements or registration statements (other than preliminary material) that
Parent was required to file with the Commission since that date (clauses (i)
through (iii) being referred to herein collectively as the "Parent SEC
Reports"). As of their respective dates, the Parent SEC Reports complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the
Commission thereunder applicable to such Parent SEC Reports. As of their
respective dates, the Parent SEC Reports did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements
of Parent included in the Parent SEC Reports comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto, and the financial
statements included in the Parent SEC Reports have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto) and fairly
present the financial position of Parent and its subsidiaries as at the dates
thereof and the results of their operations and changes in financial position
for the periods then ended, subject, in the case of the unaudited interim
financial statements, to normal year-end audit adjustments and any other
adjustments described therein.
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Section 4.7 Absence of Certain Changes or Events. Except as disclosed in the
Parent SEC Reports filed and publicly available prior to the date hereof or as
disclosed in a disclosure schedule delivered by Parent to the Company prior to
or on the date of this Merger Agreement (the "Parent Disclosure Schedule") or
as permitted by this Merger Agreement, since December 31, 1995 there has not
been (i) any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary
course of business) individually or in the aggregate which has had or could
reasonably be expected to have a Parent Material Adverse Effect; (ii) any
damage, destruction or loss, whether or not covered by insurance, which,
insofar as reasonably can be foreseen, in the future would have a Parent
Material Adverse Effect; (iii) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property) with
respect to the capital stock of Parent (except for regularly scheduled cash
dividends on Parent's $70 Convertible Preferred Stock at a rate provided in
the documents governing Parent's $70 Convertible Preferred Stock); (iv) except
for normal increases in the ordinary course of business and, except as
required by applicable law, any increases by Parent or its subsidiaries in the
wages, salaries, compensation, pension or other fringe benefits or perquisites
payable to any named executive officer (within the meaning of Regulation S-K
of the Commission) or director, other than persons newly hired for such
positions, from the amount thereof in effect as of December 31, 1995, grants
by Parent or its subsidiaries of any severance or termination pay, execution
by Parent or its subsidiaries of any contract to make or grant any severance
or termination pay, or payments by Parent or its subsidiaries of any bonus, in
each case with respect to any such named executive officer or director, other
than pursuant to preexisting agreements or arrangements; (v) any strike, work
stoppage, slow-down or other labor disturbance with respect to employees of
Parent or its subsidiaries, which in the aggregate would reasonably be
expected to have a Parent Material Adverse Effect; or (vi) entry into any
commitment or transaction material to Parent and its subsidiaries taken as a
whole (including, without limitation, any borrowing or sale of assets) except
in the ordinary course of business consistent with past practice.
Section 4.8 Litigation. Except as disclosed in the Parent SEC Reports or as
disclosed in Section 4.8 of the Parent Disclosure Schedule, there is no legal,
administrative, arbitral or other proceeding, claim, action, or governmental
or regulatory investigation of any nature pending or, to the best knowledge of
Parent, threatened against or affecting Parent or any of its subsidiaries or
any rights or properties owned, leased and/or operated by Parent or any of its
subsidiaries (nor to the best knowledge of Parent is there any reasonable
basis for any such proceeding, claim, action or investigation) which, either
alone or in the aggregate, could reasonably be expected to have a Parent
Material Adverse Effect, nor is there any judgment, decree, injunction, rule
or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against Parent or any of its
subsidiaries or any director, officer or key employee of Parent or any of its
subsidiaries which, either alone or in the aggregate, could reasonably be
expected to have any such Parent Material Adverse Effect.
Section 4.9 Information in Disclosure Documents, Registration Statements,
Etc. None of the information supplied by Parent or Sub for inclusion in (i)
the Registration Statement to be filed with the Commission by Parent on Form
S-4 under the Securities Act for the purpose of registering the shares of
Parent Common Stock to be issued in the Merger (the "Registration Statement")
and (ii) the joint prospectus/proxy statement of the Company and Parent (the
"Proxy Statement") required to be mailed to the stockholders of the Company
and Parent in connection with the Merger will, in the case of the Proxy
Statement or any amendments or supplements thereto, at the time of the mailing
of the Proxy Statement and any amendments or supplements thereto, and at the
time of the Parent Meeting of stockholders to be held in connection with the
Merger, or, in the case of the Registration Statement, at the time it becomes
effective and at the Effective Date, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Registration
Statement will comply as to form in all material respects with the provisions
of the Securities Act, and the rules and regulations promulgated thereunder.
The Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder. No
representation or warranty made by Parent contained in this Merger Agreement
and no statement contained in any certificate, list, exhibit or other
instrument specified in this Agreement, including without limitation Parent's
Disclosure Schedule, contains any untrue statement of a material fact or omits
or will omit to state a material
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fact necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
Section 4.10 Employee Benefit Plans and Other Employment Matters. (a) Except
as disclosed in the Parent SEC Reports or in Section 4.10 of the Parent
Disclosure Schedule, neither Parent nor any ERISA Affiliate (as defined in
Section 4.11) (i) maintains any material employee benefit or compensation
plans, agreements or arrangements, including "employee benefit plans," as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and including, but not limited to, plans,
agreements or arrangements relating to former employees, including, but not
limited, to retiree medical plans (together, the "Parent Benefit Plans"), or
(ii) is a party to collective bargaining agreements to which Parent or any of
its subsidiaries is a party. To the best knowledge of Parent, no default
exists with respect to the obligations of Parent or any ERISA Affiliate under
any such Benefit Plan, which default, alone or in the aggregate, would
reasonably be expected to have a Parent Material Adverse Effect. An entity
maintains a plan if it sponsors it, contributes to it, adopts it, or is
obligated, actually or only contingently, to contribute to it. Since January
1, 1994, there have been no disputes or grievances subject to any grievance
procedure, unfair labor practice proceedings, arbitration or litigation
involving Parent or any of its subsidiaries or under such Benefit Plans, which
have not been finally resolved, settled or otherwise disposed of, nor is there
any default, or any condition which, with notice or lapse of time or both,
would constitute such a default, under any such Plans, by Parent or its
subsidiaries or, to the best knowledge of Parent and its subsidiaries, any
other party thereto, which failure to resolve, settle or otherwise dispose of
or default, alone or in the aggregate, would be reasonably expected to have a
Parent Material Adverse Effect.
(b) Except as set forth in the Parent SEC Reports or in Section 4.10 of the
Parent Disclosure Schedule, there is no employment or consulting agreement or
arrangement with any person providing service to Parent or any of its
subsidiaries under which such person would be entitled to annual compensation
plus the most recent annual bonus paid exceeding $150,000 which is not
terminable at will or under which such person would be entitled to a severance
or similar payment in connection with the consummation of the transactions
contemplated hereby in excess of $100,000 for any particular person providing
service to Parent and its subsidiaries.
Section 4.11 ERISA. Except as disclosed in Section 4.11 of the Parent
Disclosure Schedule, all Parent Benefit Plans have been administered in
accordance with their terms and are in compliance with the applicable
provisions of ERISA, except where such failures to administer or comply would
not reasonably be expected to have a Parent Material Adverse Effect. Each
single-employer pension plan of Parent or any ERISA Affiliate as defined in
Section 3(2) of ERISA that is subject to Part 2 or Part 3 of Title I of ERISA
has been determined by the Internal Revenue Service to be "qualified" within
the meaning of Section 401(a) of the Code, and subsequent to such
determination nothing has occurred which is likely to have an adverse effect
on such qualified status. The actuarial present value of accumulated benefits
as of the most recent anniversary date or valuation date of each single-
employer pension plan of Parent or any ERISA Affiliate subject to Section 412
of the Code did not exceed the value of all assets then held in trust or under
an insurance or annuity contract pursuant to such plan, and with respect to
each such plan no accumulated funding deficiency within the meaning of Section
412 existed at such date. Except as disclosed in Section 4.11 of the Parent
Disclosure Schedule, the actuarial present value of all accumulated benefits
as of the end of Parent's most recent fiscal year of each single-employer
pension plan not subject to Part 2 or Part 3 of Title I of ERISA did not
exceed the value of all assets then set aside (in trust or otherwise
segregated) to pay such benefits. No prohibited transaction, within the
meaning of Section 4975 of the Code has occurred with respect to any Parent
Benefit Plan unless such transaction has been corrected and all tax
liabilities occasioned thereby shall have been discharged in full. Neither
Parent nor any ERISA Affiliate is subject to any liability under Title IV of
ERISA, whether by reason of the termination or partial termination of any
Parent Benefit Plan that is subject to Title IV of ERISA; or by reason of the
partial or complete withdrawal from or the reorganization of any multiemployer
pension plan as defined in Section 4001(a)(3) of ERISA (regardless of whether
such liability has been asserted by the Pension Benefit Guaranty Corporation
or by any such multiemployer plan) and no such termination or withdrawal is
presently anticipated. Parent and each ERISA Affiliate is in compliance with
the provisions of Part 6 of Title I of ERISA, and neither Parent nor any ERISA
Affiliate has incurred any liability under Section 4980B of the Code.
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Parent and each ERISA Affiliate have complied with all material reporting
and disclosure requirements under ERISA and the Code, and neither Parent nor
any ERISA Affiliate has incurred any liability by reason of the failure to
file any report or notice required under ERISA or the Code unless such
liability would not reasonably be expected to have a Parent Material Adverse
Effect. An "ERISA Affiliate" for purposes of this Article IV is any entity
which is part of a controlled group of corporations or entities under common
control within the meaning of Section 414(b), (c), (m), or (o) of the Code if
such group includes Parent.
Section 4.12 Takeover Provisions Inapplicable. As of the date hereof and at
all times on or prior to the Effective Date, the restrictions of Section 203
of the DGCL are, and shall be, inapplicable to the Merger, and the
transactions contemplated by this Merger Agreement.
Section 4.13 Parent Action. The Board of Directors of Parent (at a meeting
duly called and held) has by the requisite vote of all directors present (a)
determined that the Parent Share Proposal is advisable (and, with respect to
the Merger, fair) and in the best interests of Parent and its stockholders,
(b) approved this Merger Agreement, the Merger, the issuance of the Parent
Common Stock in the Merger, the Other Issuances and the other transactions
contemplated hereby in accordance with Parent's Certificate of Incorporation
and Amended By-laws, (c) recommended the approval of the Parent Share Proposal
by the holders of Parent Common Stock and directed that the Parent Share
Proposal be submitted for consideration by Parent's stockholders at the Parent
Meeting, or (d) taken any necessary steps to render the restrictions of
Section 203 of the DGCL inapplicable to the Merger and the transactions
contemplated by this Merger Agreement (assuming the accuracy of the Company's
representation in Section 5.29). The affirmative vote of the holders of a
majority of all the shares of Parent Common Stock represented in person or by
proxy at the Parent Meeting approving the Parent Share Proposal is the only
vote of the holders of any class or series of Parent's capital stock necessary
to approve the Parent Share Proposal in connection with the transactions
contemplated by this Merger Agreement.
Section 4.14 Fairness Opinion. Parent has received the written opinion of
Oppenheimer & Co., Inc., financial advisors to Parent dated the date hereof,
to the effect that the Exchange Ratio is fair to its stockholders from a
financial point of view.
Section 4.15 Financial Advisor, No Brokers or Finders. Parent represents and
warrants that, except for Oppenheimer & Co., Inc., no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Merger Agreement based upon arrangements made by or on behalf of Parent.
Section 4.16 No Excess Parachute Payments. To the best knowledge of Parent,
any amount that could be received (whether in cash or property or the vesting
of property) as a result of any of the transactions contemplated by this
Merger Agreement by any employee, officer or director of Parent or any of its
affiliates who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Parent Benefit
Plan currently in effect does not constitute an "excess parachute payment" (as
such term is defined in Section 280G(b)(1) of the Code and the proposed
regulations thereunder).
Section 4.17 Compliance with Applicable Laws. (a) Except as disclosed in
Section 4.17 of the Parent Disclosure Schedule, Parent and its subsidiaries
and each of their respective directors, officers and gaming and racing
managers hold all permits, registrations, findings of suitability, licenses,
variances, exemptions, orders and approvals of all courts, administrative
agencies or commissions or other governmental authorities or
instrumentalities, domestic or foreign (each, a "Governmental Entity")
(including all authorizations under Environmental Laws and Parent Gaming Laws)
necessary to conduct the business and operations of Parent and each of its
subsidiaries, each of which is in full force and effect in all material
respects, except for such permits, licenses, variances, exemptions, orders and
approvals the failure of which to hold would not, individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse Effect
(the "Parent Permits") and no event has occurred which permits, or upon the
giving of notice or passage of time or both would permit, revocation, non-
renewal, modification, suspension or termination of any Parent Permit that
currently is in effect
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the loss of which either individually or in the aggregate would reasonably be
expected to have a Parent Material Adverse Effect. Parent and its subsidiaries
and each of their respective directors, officers and gaming and racing
managers are in compliance with the terms of the Parent Permits, except for
such failures to comply, which singly or in the aggregate, would not
reasonably be expected to have a Parent Material Adverse Effect. Except as
disclosed in the Parent SEC Reports filed and publicly available prior to the
date of this Merger Agreement, the businesses of Parent and its subsidiaries
are not being conducted in violation of any law, ordinance or regulation of
any Governmental Entity, except for possible violations which individually or
in the aggregate do not and would not reasonably be expected to have a Parent
Material Adverse Effect. No investigation or review by any Governmental Entity
with respect to Parent or any of its subsidiaries is pending, or, to the best
knowledge of Parent, threatened, nor has any Governmental Entity indicated an
intention to conduct the same, other than those the outcome of which would
not, individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect.
(b) Each of Parent and its subsidiaries is in compliance with all applicable
Parent Gaming Laws, except for possible noncompliance which individually or in
the aggregate would not reasonably be expected to result in a Parent Material
Adverse Effect. The term "Parent Gaming Laws" means any Federal, state, local
or foreign statute, ordinance, rule, regulation, permit, consent,
registration, finding of suitability, approval, license, judgment, order,
decree, injunction or other authorization, including any condition or
limitation placed thereon, governing or relating to the current or
contemplated racing and casino activities and operations of Parent and its
subsidiaries, including without limitation the rules and regulations of the
California Horse Racing Board, the Kansas Racing Commission and the Arizona
Racing Commission, the rules and regulations of the California Attorney
General and the City of Inglewood, and the California Gaming Registration Act
and the rules and regulations promulgated thereunder.
(c) Except as disclosed in Section 4.17 of the Parent Disclosure Schedule,
to the best knowledge of Parent, neither Parent nor any Significant Subsidiary
of Parent nor any director, officer or racing or gaming manager of Parent or
any Significant Subsidiary of Parent has received any written claim, demand,
notice, complaint, court order or administrative order from any Governmental
Entity in the past three years, asserting that a license of it or them, as
applicable, under any Parent Gaming Laws, should be revoked or suspended.
Neither Parent nor any of its Significant Subsidiaries knows of any facts,
which if known to the regulators under the Parent Gaming Laws or the Company
Gaming Laws, could reasonably be expected to result in the revocation or
suspension of a license of it or them, or of any officer, director or racing
or gaming manager, under any Parent Gaming Laws or would reasonably be
expected to disqualify it or them from licensing under the Company Gaming
Laws. Neither Parent nor any of its Significant Subsidiaries has suffered a
suspension or revocation of any material license held under the Parent Gaming
Laws.
Section 4.18 Liabilities. Except as disclosed in the most recent Parent SEC
Reports filed and publicly available prior to the date of this Merger
Agreement or as disclosed in Section 4.18 of the Parent Disclosure Schedule,
and except for liabilities and operations incurred in the ordinary course of
business since the date of the most recent consolidated balance sheet included
in such Parent SEC Reports, neither Parent nor any of its subsidiaries has any
material liabilities or obligations (absolute, accrued, contingent or
otherwise) of any nature required by generally accepted accounting principles
to be set forth on a consolidated balance sheet of Parent or in the notes
thereto.
Section 4.19 Taxes. Except as disclosed in Section 4.19 of the Parent
Disclosure Schedule, each of Parent and its subsidiaries has filed all tax
returns required to be filed by any of them and has paid (or Parent has paid
on its behalf), or has set up an adequate reserve for the payment of, all
taxes required to be paid in respect of the periods covered by such returns
(except where the failure to pay would not reasonably be expected to have a
Parent Material Adverse Effect). The information contained in such tax returns
is true, complete and accurate in all material respects. Except as disclosed
in Section 4.19 of the Parent Disclosure Schedule, neither Parent nor any
subsidiary of Parent is delinquent in the payment of any tax, assessment or
governmental charge except where the delinquency would not reasonably be
expected to have a Parent Material Adverse Effect. Except as disclosed in
Section 4.19 of the Parent Disclosure Schedule, no deficiencies for any taxes
have been
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proposed, asserted or assessed against Parent or any of its subsidiaries that
have not been finally settled or paid in full which would reasonably be
expected to have a Parent Material Adverse Effect, and no requests for waivers
of the time to assess any such tax are pending. For the purposes of this
Merger Agreement, the term "tax" shall include all Federal, state, local and
foreign income, profits, franchise, gaming, gross receipts, payroll, sales,
employment, use, property, withholding, excise and other taxes, duties and
assessments of any nature whatsoever together with all interest, penalties and
additions imposed with respect to such amounts.
Section 4.20 Certain Agreements. (a) Except as disclosed in the Parent SEC
Reports filed prior to the date of this Merger Agreement or as disclosed in
Section 4.20 of the Parent Disclosure Schedule, neither Parent nor any of its
subsidiaries is a party to any oral or written (i) agreement, contract,
indenture or other instrument relating to Indebtedness (as defined below) in
an amount exceeding $500,000, (ii) other contract, agreement or commitment to
be performed after the date hereof which would be a material contract (as
defined in Item 601(b)(10) of Regulation S-K of the Commission), or (iii)
contract, agreement or commitment which materially restricts the conduct of
any line of business by Parent. "Indebtedness" means any liability in respect
of (A) borrowed money, (B) capitalized lease obligations, (C) the deferred
purchase price of property or services (other than trade payables in the
ordinary course of business) and (D) guarantees of any of the foregoing
incurred by any other person other than the Parent or the Company, as
appropriate, or any of their respective subsidiaries, except that Indebtedness
shall not include short term credit facilities entered into in the ordinary
course of business. Except as disclosed in the Parent SEC Reports or as
disclosed in Section 4.20 of the Parent Disclosure Schedule, (i) there is no
material breach or violation of or default by Parent or any of its
subsidiaries under any indenture, note, credit agreement, loan document,
lease, license or other agreement including, but not limited to, any Parent
Benefit Plan ("Parent Contracts"), whether or not such breach, violation or
default has been waived, and (ii) no event has occurred which, with notice or
lapse of time or both, would constitute a material breach, violation or
default, or give rise to a right of termination, modification, cancellation,
foreclosure, imposition of a lien, prepayment or acceleration under such
Parent Contracts, which breach, violation or default referred to in clauses
(i) or (ii), alone or in the aggregate with other such breaches, violations or
defaults referred to in clauses (i) or (ii), would reasonably be expected to
have a Parent Material Adverse Effect.
(b) Except as disclosed in Section 4.20 of the Parent Disclosure Schedule,
neither Parent nor any of its subsidiaries is a party to any oral or written
agreement which by its terms directly obligates any new subsidiaries of Parent
(which were not subsidiaries of Parent at the time such agreement was entered
into) with respect to any of Parent's obligations under such agreement (it
being understood that a "successors and assigns" provision in any such
agreement shall not be deemed to be such a term) and which would reasonably be
expected (if the Company and its subsidiaries became new subsidiaries of
Parent) to have a Company Material Adverse Effect.
Section 4.21 Insurance. Parent and its Significant Subsidiaries have
obtained and maintained in full force and effect insurance with responsible
and reputable insurance companies or associations in such amounts, on such
terms and covering such risks, including fire and other risks insured against
by extended coverage, as is reasonably prudent, and each has maintained in
full force and effect public liability insurance, insurance against claims for
personal injury or death or property damage occurring in connection with any
of the activities of Parent or its Significant Subsidiaries or any of any
properties owned, occupied or controlled by Parent or its Significant
Subsidiaries, which are of the type and in amounts customarily carried by
persons conducting businesses similar to those of Parent and its subsidiaries
("Parent Insurance Policies"). Except as disclosed in Section 4.21 of the
Parent Disclosure Schedule, there is no material claim by Parent or any of its
subsidiaries pending under any of the material Parent Insurance Policies.
Section 4.22 Intellectual Property. Section 4.22 of the Parent Disclosure
Schedule lists all (i) trademark and service mark registrations and
applications owned by Parent or any of its subsidiaries and (ii) trademark,
service mark and trade name license agreements to which Parent or any of its
subsidiaries is a party. Except as disclosed in Section 4.22 of the Parent
Disclosure Schedule, Parent and its subsidiaries own or possess adequate and
enforceable rights to use all material trademarks, trademark applications,
trade names, service marks, trade secrets (including customer lists and
customer databases), copyrights, patents, licenses, know-how and other
proprietary intellectual property rights as are necessary in connection with
the businesses of Parent
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and its subsidiaries as currently conducted or as Parent proposes to conduct
such businesses without material restrictions or material conditions on use,
and to the best knowledge of Parent, there is no conflict with the rights of
Parent and its subsidiaries therein or any conflict by them with the rights of
others therein which, individually or in the aggregate, insofar as reasonably
can be foreseen, could have a Parent Material Adverse Effect. Parent has taken
and will take all actions and precautions necessary to preserve the
confidentiality of its trade secrets (including customer lists and customer
databases) except where the failure to take such actions or precautions would
not reasonably be expected to have a Parent Material Adverse Effect.
Section 4.23 Environmental Laws. (a) As used herein, the term "Environmental
Laws" means any and all federal, state, local or foreign law or laws relating
to pollution or protection of human health or the environment (including,
without limitation, air, surface water, groundwater, land surface or the
subsurface (collectively, "Environment")), including, without limitation, laws
relating to emissions, discharges, spills, releases or threatened releases
(collectively, "Releases") of chemicals, pollutants, contaminants, or
industrial, toxic or hazardous substances or wastes or other substances that
would result in liability to any person or entity from exposure to a discharge
of such material under any statutory or common law theory (collectively,
"Hazardous Materials") into the Environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as any and all
authorizations, codes, consent decrees or orders, decrees, demands or demand
letters, injunctions, judgments, licenses, notices or notice letters, orders,
regulations, rules, permits, plans or regulations issued, entered, promulgated
or approved thereunder or pursuant thereto.
(b) Except as disclosed in Section 4.23 of the Parent Disclosure Schedule,
with respect to Parent or any of its subsidiaries or the Parent Real Property
(as defined herein), there are no (i) past, present or anticipated violations
of Environmental Law(s), (ii) past, present or anticipated Releases of
Hazardous Materials at the Parent Real Property or, to the best of Parent's
knowledge, upon any property adjacent to the Parent Real Property that have
affected or could reasonably be expected to affect the Parent Real Property,
(iii) past, present or anticipated generation of Hazardous Materials by Parent
or its subsidiaries, or (iv) other past, present, threatened or anticipated
actions, activities, circumstances, claims, conditions, demands, events,
incidents, orders, requests for information, lawsuits or other proceedings,
contractual obligations, or notices or receipts of notices, which,
individually or in the aggregate, have given rise to or which could reasonably
be expected to give rise to any liability, damage, cost, penalty and/or
expense, whether under or pursuant to any common law theory or any
Environmental Law(s), which liability, damage, cost, penalty and/or expense,
either individually or in the aggregate, would be reasonably expected to have
a Parent Material Adverse Effect. Parent has furnished (and until the Closing
will furnish) to the Company true, accurate and complete copies of all
documents in its possession, custody or control pertaining to the foregoing.
Except as disclosed in Section 4.23 of the Parent Disclosure Schedule, to the
best knowledge of Parent, no portion of the Parent Real Property has been used
for the manufacture, processing, treatment, storage, disposal, transport or
handling of Hazardous Materials the result of which could reasonably be
expected to have a Parent Material Adverse Effect.
(c) Except as disclosed in Section 4.23 of the Parent Disclosure Schedule,
Parent and its subsidiaries possess and are in compliance with and will
maintain in full force, effect and compliance until the Closing all permits,
licenses, registrations, permissions, authorizations or other approvals
(collectively, "Permits") necessary to comply with all applicable
Environmental Law(s), except for Permits or compliance with Permits which,
either individually or in the aggregate, would not reasonably be expected to
have a Parent Material Adverse Effect.
Section 4.24 Real Property. (a) Section 4.24 of the Parent Disclosure
Schedule identifies all real property owned by Parent and its subsidiaries
(the "Parent Owned Property") and all real property leased or operated by
Parent and its subsidiaries (the "Parent Leased Property"). The Parent Owned
Property and the Parent Leased Property shall be referred to collectively as
the "Parent Real Property".
(b) Parent and its subsidiaries have good and marketable fee simple absolute
title to the Parent Owned Property, and the right to use the Parent Leased
Property, free and clear of any and all liens, encumbrances, restrictions,
leases, options to purchase, options to lease, conditions, covenants,
assessments, defects, claims or
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exceptions, except for the exceptions described on Schedule 4.24 of the Parent
Disclosure Schedule or as shown on the policies of title insurance or
preliminary title reports (if more recent) attached as part of the Parent
Disclosure Schedule.
(c) True and correct copies of the documents under which the Parent Owned
Property and Parent Leased Property is leased or operated (the "Parent Lease
Documents") have been delivered to the Company. The Parent Lease Documents are
unmodified and in full force and effect, and there are no other agreements,
written or oral, between Parent or any of its subsidiaries and any third
parties claiming an interest in the interest of Parent or any of its
subsidiaries in the Parent Owned Property, Parent Leased Property or otherwise
relating to the use and occupancy of the Parent Owned Property or Parent
Leased Property. Neither Parent, any of its subsidiaries nor any other party
is in material default under the Parent Lease Documents, and no defaults
(whether or not subsequently cured) by Parent, any of its subsidiaries nor any
other party have been alleged thereunder. To the best knowledge of Parent and
its subsidiaries, each landlord named in any of the Parent Lease Documents is
not in material default thereunder, and no material defaults (whether or not
subsequently cured) by such landlord have been alleged thereunder.
(d) Except as disclosed in Section 4.24 of the Parent Disclosure Schedule,
(i) the Parent Real Property complies with, and is operated in accordance
with, all applicable laws (including without limitation all Environmental Laws
to the extent stated in Section 4.23 as supplemented by the Parent Disclosure
Schedule) affecting the Parent Real Property or the ownership, improvement,
development, possession, use, occupancy or operation thereof, and with any and
all liens, encumbrances, agreements, covenants, conditions and restrictions
(collectively, "Restrictions") affecting the Parent Real Property, except
where the failure to comply, individually or in the aggregate, would not
reasonably be expected to result in a Parent Material Adverse Effect; (ii) to
the best knowledge of Parent and its subsidiaries, no land or property
adjacent to the Parent Real Property is in material violation of any
applicable laws, regulations or Restrictions, except for such violations
which, individually or in the aggregate, would not reasonably be expected to
result in a Parent Material Adverse Effect; (iii) there are no material
defects in the physical condition of the Parent Real Property or the
improvements located on the Parent Real Property, except for defects which,
individually or in the aggregate, would not reasonably be expected to have a
Parent Material Adverse Effect; and (iv) neither Parent nor any Significant
Subsidiary of Parent has received any notice from any governmental body (a)
requiring it to make any material repairs or changes to the Parent Real
Property or the improvements located on the Parent Real Property or (b) giving
notice of any material governmental actions pending, except for such repairs,
changes or actions which, individually or in the aggregate, would not
reasonably be expected to have a Parent Material Adverse Effect.
(e) Except as disclosed in Section 4.24 of the Parent Disclosure Schedule,
there is no action, proceeding or litigation pending (or, to the best
knowledge of Parent, contemplated or threatened): (i) to take all or any
portion of the Parent Real Property, or any interest therein, by eminent
domain; (ii) to modify the zoning of, or other governmental rules or
restrictions applicable to, the Parent Real Property or the use or development
thereof; (iii) for any street widening or changes in highway or traffic lanes
or patterns in the immediate vicinity of the Parent Real Property; or (iv)
otherwise relating to the Parent Real Property or the interests of Parent and
its subsidiaries therein, or which otherwise would interfere with the use,
ownership, improvement, development and/or operation of the Parent Real
Property.
(f) Except as disclosed in Section 4.24 of the Parent Disclosure Schedule,
no portion of the Parent Real Property or the roads immediately adjacent to
the Parent Real Property: (i) is situated in a "Special Flood Hazard Area," as
set forth on a Federal Emergency Management Agency Flood Insurance Rate Map or
Flood Hazard Boundary Map; (ii) to the best knowledge of Parent, was the
former site of any public or private landfill, dump site, retention basin or
settling pond; (iii) to the best knowledge of Parent, was the former site of
any oil or gas drilling operations; (iv) to the best knowledge of Parent, was
the former site of any experimentation, processing, refining, reprocessing,
recovery or manufacturing operation for any petrochemicals; or (v) has any
defect or condition which would materially impair either (a) the current use
of the Parent Real Property or (b) the use of the Parent Real Property for
racing, gaming or other currently contemplated activities, as applicable.
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(g) The parcels constituting the Parent Real Property are assessed
separately from all other adjacent property for purposes of real property
taxes.
(h) Except as disclosed in Section 4.24 of the Parent Disclosure Schedule,
(i) all improvements on the Parent Real Property are in compliance with
current building codes, to the extent applicable and (ii) Parent has not
received any written notices of any material violations of any applicable
building codes relating to the Parent Real Property which have not been
remedied.
(i) The Parent Real Property is connected to and serviced by adequate water,
sewage disposal, gas and electricity facilities in accordance with all
applicable laws, statutes, ordinances, rules and regulations of all public or
quasi public authorities having or claiming jurisdiction thereover. All
material systems (heating, air conditioning, electrical, plumbing and the
like) for the basic operation of the Parent Real Property are operable and in
good condition (ordinary wear and tear excepted);
(j) There are no material commitments to or agreements with any governmental
authority or agency (federal, state or local) affecting the Parent Real
Property which are not listed in Schedule 4.24 of the Parent Disclosure
Schedule or described in the Parent SEC Reports.
(k) Except as disclosed in Section 4.24 of the Parent Disclosure Schedule or
as shown in the policies of title insurance or preliminary title reports (if
more recent) delivered previously to the Company, there are no commitments,
agreements, understandings or other Restrictions materially adversely
affecting Parent's ability to utilize the Parent Real Property for its
intended purposes or to improve or develop or effect expansion of Parent's
business on the Parent Real Property in the manner currently contemplated;
(l) There are no contracts or other obligations outstanding for the sale,
exchange or transfer of any of the Parent Real Property, or any portion of it,
or the business operated thereon, except as disclosed on Schedule 4.24 of the
Parent Disclosure Schedule.
Section 4.25 Title to Personal Property; Liens. To the best knowledge of
Parent, each of Parent and each of its Significant Subsidiaries has
sufficiently good and valid title to, or an adequate leasehold interest in,
its material tangible personal properties and assets in order to allow it to
conduct, and continue to conduct, its business as currently conducted or as
Parent proposes to conduct such business. Such material tangible personal
assets and properties are sufficiently free of liens to allow each of Parent
and each of its subsidiaries to conduct, and continue to conduct, its business
as currently conducted, or as Parent proposes to conduct such business and, to
the knowledge of Parent, the consummation of the transactions contemplated by
this Merger Agreement will not alter or impair such ability in any respect
which individually or in the aggregate would be reasonably likely to have a
Parent Material Adverse Effect.
Section 4.26 Labor Relations. Except as disclosed in the Parent SEC Reports
or in Section 4.26 of the Parent Disclosure Schedule, no strike or other labor
dispute involving Parent or any of its subsidiaries is pending or, to the
knowledge of Parent, threatened, and, to the knowledge of Parent, there is no
activity involving any unorganized employees of Parent or any of its
subsidiaries seeking to certify a collective bargaining unit or engaging in
any other organization activity. Except as set forth in Section 4.26 of the
Parent Disclosure Schedule and as disclosed in the Parent SEC Reports, since
December 31, 1995, there has not been any adoption or amendment in any
material respect by Parent or any of its subsidiaries of any collective
bargaining agreement. Other than those filed as exhibits to the Parent SEC
Reports, Section 4.26 of the Parent Disclosure Schedule lists all collective
bargaining agreements of Parent or any of its subsidiaries.
Section 4.27 Parent Disclosure Schedule. Notwithstanding anything in this
Merger Agreement to the contrary, disclosure by Parent under one Section of
the Parent Disclosure Schedule shall be deemed to be disclosure for all other
purposes on the Parent Disclosure Schedule for which such disclosure may be
relevant.
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Section 4.28 No Material Adverse Effect. Except as disclosed in the Parent
SEC Reports or in the Parent Disclosure Schedule, Parent is not aware of any
fact which, alone or together with another fact, would reasonably be expected
to result in a Parent Material Adverse Effect.
Section 4.29 Woodlands Investment. Parent has delivered to the Company true
and correct copies of all material agreements (written or verbal) to which it
or any of its subsidiaries (other than Sunflower Racing, Inc. and its
subsidiaries) is a party relating to Sunflower Racing, Inc. and its
subsidiaries.
Section 4.30 No Ownership of Company Common Stock by Parent Interested
Stockholders. Neither Parent nor any "interested stockholder" of Parent
(within the meaning of Section 203 of the DGCL) beneficially owns any shares
of Company Common Stock.
ARTICLE V
Representations and Warranties of the Company
The Company represents and warrants to Parent and Sub as follows:
Section 5.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power to carry on its business as it
is now being conducted or currently proposed to be conducted. The Company is
duly qualified or licensed to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under license
or lease or the nature of its activities makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
reasonably be expected to, individually or in the aggregate, have a material
adverse effect on the business, properties, assets, condition (financial or
otherwise), liabilities or operations of the Company and its subsidiaries
taken as a whole or a material adverse effect on the Company's ability to
consummate the transactions contemplated hereby (a "Company Material Adverse
Effect"). Complete and correct copies as of the date hereof of the Certificate
of Incorporation, By-laws, partnership agreements and other governing
documents of the Company and each of its subsidiaries have previously been
delivered to Parent.
Section 5.2 Subsidiaries. Except for wholly owned subsidiaries which were
formed after the date hereof in the ordinary course of business, the only
Significant Subsidiaries of the Company are those named in the Company SEC
Reports. For purposes of this Article V, the term Significant Subsidiary shall
include a subsidiary of the Company the acquisition of which would require
regulatory approval under any Company Gaming Law. Each Significant Subsidiary
is a corporation, partnership or limited liability company duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization and has the requisite corporate, partnership or
limited liability company power and authority to carry on its business as it
is now being conducted or currently proposed to be conducted. Each Significant
Subsidiary is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under license or lease or the nature of its activities makes such
qualification or licensing necessary except where the failure to be so
qualified or licensed would not reasonably be expected to have a Company
Material Adverse Effect. Except as disclosed in Section 5.2 of the Company
Disclosure Schedule (as hereinafter defined), all the outstanding shares of
capital stock or other equity interests (including partnership interests and
limited liability company membership interests) of each Significant Subsidiary
(i)(a) are validly issued, fully paid and nonassessable, in the case of
capital stock or other equity interests (other than partnership interests,
limited liability company membership interests or their equivalents) and (b)
are validly issued and the consideration therefor has been paid, and no unmet
capital contribution call is outstanding, in the case of partnership interests
and their equivalents and (ii) are owned by the Company or by a Significant
Subsidiary of the Company free and clear of any liens, claims or encumbrances.
There are no existing options, warrants, calls or other rights, agreements or
commitments of any character to which the Company is a party relating to the
issued or unissued capital stock or other securities or equity interests
(including partnership interests) of any of
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the Significant Subsidiaries of the Company. Except as described in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1995 or as disclosed in Section 5.2 of the Company Disclosure Schedule and
except for wholly owned subsidiaries which are formed after the date hereof in
the ordinary course of business, the Company does not directly or indirectly
own any interest in any other corporation, partnership, joint venture or other
business association or entity.
Section 5.3 Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock. As of the close of
business on April 19, 1996, 9,246,951 shares of Company Common Stock were
validly issued and outstanding, fully paid and nonassessable. All outstanding
shares have been issued in accordance with the registration provisions or
exemptions therefrom of applicable Federal and state securities laws. As of
the date hereof, there are no bonds, debentures, notes or other indebtedness
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which the Company's stockholders
may vote ("Company Voting Debt") issued or outstanding. As of the close of
business on the day immediately prior to the date hereof, except for (i)
employee stock options to acquire 1,486,492 shares of Company Common Stock,
(ii) director stock options to acquire 28,600 shares of Company Common Stock
and (iii) warrants ("Warrants") to purchase (x) 162,500 shares of Company
Common Stock issued pursuant to the Warrants dated October 30, 1992 between
the Company and certain lead underwriters and (y) 472,500 shares of Company
Common Stock issued pursuant to the Warrant Agreement dated as of November 10,
1993 between the Company and First Trust National Association (collectively,
the "Warrant Agreements"), and, except as disclosed in Section 5.3 of the
Company Disclosure Schedule, there are no options, warrants, calls or other
rights, agreements or commitments to which the Company is a party presently
outstanding obligating the Company to issue, deliver or sell shares of its
capital stock or debt securities, or obligating the Company to grant, extend
or enter into any such option, warrant, call or other such right, agreement or
commitment. Except as set forth above, as of the date of this Merger
Agreement, no shares of capital stock or other voting securities of the
Company were issued, reserved for issuance or outstanding. There are no
outstanding stock appreciation rights which were not granted in tandem with a
related stock option, restricted stock grant or contingent stock grant, and,
other than as may be contained in employee benefit plans, stock options,
employment agreements, and similar plans, agreements and instruments, there
are no other outstanding contractual rights to which the Company is a party
(other than Company Benefit Plans) the value of which is derived from the
financial performance of the Company or the value of shares of Company Common
Stock. All outstanding shares of capital stock of the Company are, and all
shares which may be issued will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except as disclosed in Section 5.3 of the Company Disclosure Schedule, there
are no outstanding registration rights relating to the Company's securities to
which the Company is subject. No change in such capitalization has occurred
between April 19, 1996 and the date hereof except issuances of Company Common
Stock that would be permitted pursuant to Section 7.1 below.
Section 5.4 Compliance with Charter Documents. Neither the Company nor any
of its subsidiaries is in violation of any term or provision of its charter,
by-laws, partnership agreement or other organizational document where the
consequences of such violation would be reasonably expected to result in a
Company Material Adverse Effect.
Section 5.5 Authority Relative to this Merger Agreement. The Company has the
requisite corporate power and authority to enter into this Merger Agreement
and to carry out its obligations and, subject to approval of this Merger
Agreement by the holders of the Company Common Stock, to consummate the
transactions contemplated hereunder. The execution and delivery of this Merger
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Company's Board of Directors. The Merger Agreement
constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors'
rights generally and except that the availability of equitable remedies,
including specific performance, is subject to the discretion of the court
before which any proceeding therefor may be brought. Except for the approval
of the holders of Company Common Stock as described in Section 3.6(a), no
other corporate proceedings on the part of the Company are necessary to
authorize this Merger Agreement and the
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transactions contemplated hereby. Except as set forth in Section 5.5 of the
Company Disclosure Schedule, neither the Company nor any of its subsidiaries
is subject to or obligated under (i) any charter, by-law, indenture,
partnership agreement or other loan document provision or (ii) any other
contract, license, franchise, permit, order, decree, concession, lease,
instrument, judgment, statute, law, ordinance, rule or regulation applicable
to the Company or any of its subsidiaries or their respective properties or
assets which would be breached or violated, or under which there would be a
default (with or without notice or lapse of time, or both), or under which
there would arise a right of termination, cancellation or acceleration of any
obligation or the loss of a material benefit, by its executing and carrying
out this Merger Agreement, other than, in the case of clause (ii) only, (A)
any breaches, violations, defaults, terminations, cancellations, accelerations
or losses which, either singly or in the aggregate, would not reasonably be
expected to have a Company Material Adverse Effect and (B) the laws and
regulations referred to in the next sentence. Except as referred to herein or,
with respect to the Merger or the transactions contemplated thereby, in
connection, or in compliance, with (i) the provisions of the HSR Act, the
Securities Act, the Exchange Act and the corporation, securities or blue sky
laws or regulations of the various states, or (ii) the approval under the
Company Gaming Laws and the Parent Gaming Laws, no filing or registration
with, or authorization, consent or approval of, any public body or authority
is necessary for the consummation by the Company of the Merger, or the other
transactions contemplated hereby, other than filings, registrations,
authorizations, consents or approvals the failure of which to make or obtain
would not reasonably be expected to have a Company Material Adverse Effect.
Section 5.6 Reports and Financial Statements. The Company has filed all
required material reports, proxy statements, and registration statements with
the Commission and under any Company Gaming Laws since December 31, 1992. The
Company has previously furnished Parent with true and complete copies of its
(i) Annual Reports on Form 10-K for the three years ended September 30, 1995,
as filed with the Commission, (ii) Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995, as filed with the Commission, (iii) proxy
statements related to all meetings of its stockholders (whether annual or
special) since December 31, 1992 and (iv) all other reports or registration
statements filed by the Company with the Commission since December 31, 1992,
except registration statements on Form S-8 relating to employee benefit plans,
which are all the reports, proxy statements or registration statements (other
than preliminary material) that the Company was required to file with the
Commission since that date (clauses (i) through (iv) being referred to herein
collectively as the "Company SEC Reports"). As of their respective dates, the
Company SEC Reports complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the Commission thereunder applicable to such Company SEC
Reports. As of their respective dates, the Company SEC Reports did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of the Company included in the Company SEC Reports comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the Commission with respect thereto,
and the financial statements included in the Company SEC Reports, have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis (except as may be indicated therein or in the notes
thereto) and fairly present the financial position of the Company and its
subsidiaries as at the dates thereof and the results of their operations and
changes in financial position for the periods then ended, subject, in the case
of the unaudited interim financial statements, to normal year-end audit
adjustments and any other adjustments described therein.
Section 5.7 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Reports filed and publicly available prior to the date hereof or
as disclosed in a disclosure schedule delivered by the Company to Parent prior
to or on the date of this Merger Agreement (the "Company Disclosure Schedule")
or as permitted by this Merger Agreement, since December 31, 1995, there has
not been (i) any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary
course of business) individually or in the aggregate which has had or could
reasonably be expected to have a Company Material Adverse Effect; (ii) any
damage, destruction or loss, whether or not covered by insurance, which,
insofar as reasonably can be foreseen, in the future would have a Company
Material Adverse Effect; (iii) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock
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or property) with respect to the capital stock of the Company, (iv) except for
normal increases in the ordinary course of business and, except as required by
applicable law, increases by the Company in the wages, salaries, compensation,
pension or other fringe benefits or perquisites payable to any named executive
officer (within the meaning of Regulation S-K of the Commission) or director,
other than persons newly hired for such position, from the amount thereof in
effect as of December 31, 1995, grants by the Company or its subsidiaries of
any severance or termination pay, execution by the Company or its subsidiaries
of any contract to make or grant any severance or termination pay, or payments
by the Company or its subsidiaries of any bonus, in each case with respect to
any such named executive officer or director, other than pursuant to
preexisting agreements or arrangements; (v) any strike, work stoppage, slow-
down or other labor disturbance with respect to employees of the Company or
its subsidiaries which in the aggregate would reasonably be expected to have a
Company Material Adverse Effect; or (vi) entry into any commitment or
transaction material to the Company and its subsidiaries taken as a whole
(including, without limitation, any borrowing or sale of assets) except in the
ordinary course of business consistent with past practice.
Section 5.8 Litigation. Except as disclosed in the Company SEC Reports or as
disclosed in Section 5.8 of the Company Disclosure Schedule, there is no
legal, administrative, arbitral or other proceeding, claim, action or
governmental or regulatory investigation of any nature pending or, to the best
knowledge of the Company, threatened against or affecting the Company or any
of its subsidiaries or any rights or properties owned, leased and/or operated
by the Company or any of its subsidiaries (nor to the best knowledge of the
Company is there any reasonable basis for any such proceeding, claim, action
or investigation) which, either alone or in the aggregate, could reasonably be
expected to have a Company Material Adverse Effect, nor is there any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against the
Company or any of its subsidiaries or any director, officer or key employee of
the Company or any of its subsidiaries which, either alone or in the
aggregate, could reasonably be expected to have any such Company Material
Adverse Effect.
Section 5.9 Information in Disclosure Documents. None of the information
with respect to the Company or its subsidiaries to be included or incorporated
by reference in the Proxy Statement or the Registration Statement will, in the
case of the Proxy Statement or any amendments or supplements thereto, at the
time of the mailing of the Proxy Statement and any amendments or supplements
thereto, and at the time of the Company Meeting of stockholders to be held in
connection with the Merger, or, in the case of the Registration Statement, at
the time it becomes effective and at the Effective Date, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The Proxy
Statement will comply as to form in all material respects with the provisions
of the Exchange Act and the rules and regulations thereunder. No
representation or warranty made by the Company contained in this Merger
Agreement and no statement contained in any certificate, list, exhibit or
other instrument specified in this Agreement, including without limitation the
Company's Disclosure Schedule, contains any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
Section 5.10 Employee Benefit Plans and Other Employment Matters. (a) Except
as disclosed in the Company SEC Reports or as set forth in Section 5.10 of the
Company Disclosure Schedule, neither the Company nor any ERISA Affiliate (as
defined in Section 5.11) (i) maintains any material employee benefit or
compensation plans, agreements or arrangements, including "employee benefit
plans," as defined in Section 3(3) of ERISA, and including, but not limited
to, plans, agreements or arrangements relating to former employees, including,
but not limited to, retiree medical plans (together, the "Company Benefit
Plans") or (ii) is a party to collective bargaining agreements to which the
Company or any of its subsidiaries is a party. To the best knowledge of the
Company, no default exists with respect to the obligations of the Company or
any ERISA Affiliate under such Company Benefit Plan, which default, alone or
in the aggregate, would reasonably be expected to have a Company Material
Adverse Effect. An entity maintains a plan if it sponsors it, contributes to
it, adopts it, or is obligated, actually or contingently, to contribute to it.
Since January 1, 1994, there have been no disputes or
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grievances subject to any grievance procedure, unfair labor practice
proceedings, arbitration or litigation involving the Company or any of its
subsidiaries or under such Company Benefit Plans, which have not been finally
resolved, settled or otherwise disposed of, nor is there any default, or any
condition which, with notice or lapse of time or both, would constitute such a
default, under any such Plans, by the Company or its subsidiaries or, to the
best knowledge of the Company and its subsidiaries, any other party thereto,
which failure to resolve, settle or otherwise dispose of or default, alone or
in the aggregate, would reasonably be expected to have a Company Material
Adverse Effect.
(b) Except as set forth in the Company SEC Reports or in Section 5.10 of the
Company Disclosure Schedule, there is no employment or consulting agreement or
arrangement with any person providing service to the Company or any of its
subsidiaries under which such person would be entitled to annual compensation
plus the most recent annual bonus paid exceeding $150,000 which is not
terminable at will or under which such person would be entitled to a severance
payment or similar payment in connection with the consummation of the
transactions contemplated hereby in excess of $100,000 for any particular
person providing service to the Company and its subsidiaries.
Section 5.11 ERISA. Except as disclosed in Section 5.11 of the Company
Disclosure Schedule, all Company Benefit Plans have been administered in
accordance with their terms and are in compliance with the applicable
provisions of ERISA, except where such failures to administer or comply would
not reasonably be expected to have a Company Material Adverse Effect. Each
single-employer pension plan of the Company or any ERISA Affiliate as defined
in Section 3(2) of ERISA that is subject to Part 2 or Part 3 of Title I of
ERISA has been determined by the Internal Revenue Service to be "qualified"
within the meaning of Section 401(a) of the Code, and subsequent to such
determination nothing has occurred which is likely to have an adverse effect
on such qualified status. The actuarial present value of accumulated benefits
as of the most recent anniversary date or valuation date of each single-
employer pension plan of the Company or any ERISA Affiliate subject to
Section 412 of the Code did not exceed the value of all assets then held in
trust or under an insurance or annuity contract pursuant to such plan, and
with respect to each such plan no accumulated funding deficiency within the
meaning of Section 412 existed at such date. Except as disclosed in Section
5.11 of the Company Disclosure Schedule, the actuarial present value of all
accumulated benefits as of the end of the Company's most recent fiscal year of
each single-employer pension plan not subject to Part 2 or Part 3 of Title I
of ERISA did not exceed the value of all assets then set aside (in trust or
otherwise segregated) to pay such benefits. No prohibited transaction, within
the meaning of Section 4975 of the Code has occurred with respect to any
Company Benefit Plan unless such transaction has been corrected and all tax
liabilities occasioned thereby shall have been discharged in full. Neither the
Company nor any ERISA Affiliate is subject to any liability under Title IV of
ERISA, whether by reason of the termination or partial termination of any
Company Benefit Plan that is subject to Title IV of ERISA; or by reason of the
partial or complete withdrawal from or the reorganization of any multiemployer
pension plan as defined in Section 4001(a)(3) of ERISA (regardless of whether
such liability has been asserted by the Pension Benefit Guaranty Corporation
or by any such multiemployer plan) and no such termination or withdrawal is
presently anticipated. The Company and each ERISA Affiliate is in compliance
with the provisions of Part 6 of Title I of ERISA, and neither the Company nor
any ERISA Affiliate has incurred any liability under Section 4980B of the
Code.
The Company and each ERISA Affiliate have complied with all material
reporting and disclosure requirements under ERISA and the Code, and neither
the Company nor any ERISA Affiliate has incurred any liability by reason of
the failure to file any report or notice required under ERISA or the Code
unless such liability would not reasonably be expected to have a Company
Material Adverse Effect. An "ERISA Affiliate" for purposes of this Article V
is any entity which is part of a controlled group of corporations or entities
under common control within the meaning of Section 414(b), (c), (m), or (o) of
the Code if such group includes the Company.
Section 5.12 Takeover Provisions Inapplicable. As of the date hereof and at
all times on or prior to the Effective Date, the restrictions of Section 203
of the DGCL are, and shall be, inapplicable to the Merger, and the
transactions contemplated by this Merger Agreement.
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Section 5.13 Company Action. The Board of Directors of the Company (at a
meeting duly called and held) has by the requisite vote of the directors
present (a) determined that the Merger is advisable and fair and in the best
interests of the Company and its stockholders, (b) approved the Merger and the
Merger Agreement in accordance with the provisions of Section 251 of the DGCL
and the Company's Amended and Restated Certificate of Incorporation and
Amended and Restated By-laws, (c) recommended the adoption and approval of
this Merger Agreement, the Merger and the other transactions contemplated
hereby by the holders of the Company Common Stock and directed that the Merger
and this Merger Agreement be submitted for consideration by the Company's
stockholders at the Meeting, and (d) taken all necessary steps to render the
restrictions of Section 203 of the DGCL inapplicable to the Merger and the
transactions contemplated by this Merger Agreement (assuming the accuracy of
Parent's representation in Section 4.30). The affirmative vote of the holders
of a majority of all outstanding shares of Company Common Stock entitled to
vote approving this Merger Agreement is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve this
Merger Agreement and the transactions contemplated by this Merger Agreement.
Section 5.14 Fairness Opinion. The Company has received the written opinion
of Sutro & Co. Incorporated, financial advisors to the Company, dated the date
hereof, to the effect that the consideration to be received by the Company's
stockholders is fair to the stockholders of the Company from a financial point
of view.
Section 5.15 Financial Advisor; No Brokers or Finders. The Company
represents and warrants that, except for Sutro & Co. Incorporated, no broker,
finder or investment banker is entitled to any brokerage, finder's or other
fee or commission in connection with the Merger or the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of the Company.
Section 5.16 No Excess Parachute Payments. To the best knowledge of the
Company, any amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by
this Merger Agreement by any employee, officer or director of the Company or
any of its affiliates who is a "disqualified individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation arrangement
or Company Benefit Plan currently in effect does not constitute an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the Code
and the proposed regulations thereunder).
Section 5.17 Compliance with Applicable Laws. (a) The Company and its
subsidiaries and each of their respective directors, officers and gaming
managers hold all permits, registrations, findings of suitability, licenses,
variances, exemptions, orders and approvals of all Governmental Entities
(including all authorizations under Environmental Laws and Company Gaming
Laws), necessary to conduct the business and operations of the Company and
each of its subsidiaries, each of which is in full force and effect in all
material respects, except for such permits, licenses, variances, exemptions,
orders and approvals the failure of which to hold would not, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect (the "Company Permits") and no event has occurred which permits, or
upon the giving of notice or passage of time or both would permit, revocation,
non-renewal, modification, suspension or termination of any Company Permit
that currently is in effect the loss of which either individually or in the
aggregate would reasonably be expected to have a Company Material Adverse
Effect. The Company and its subsidiaries and each of their respective
directors, officers and gaming managers are in compliance with the terms of
the Company Permits, except for such failures to comply, which singly or in
the aggregate, would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect. Except as disclosed in the
Company SEC Reports filed and publicly available prior to the date of this
Merger Agreement, the businesses of the Company and its subsidiaries are not
being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except for possible violations which individually or in
the aggregate do not and would not reasonably be expected to have a Company
Material Adverse Effect. No investigation or review by any Governmental Entity
with respect to the Company or any of its subsidiaries is pending, or, to the
best knowledge of the Company, threatened, nor has any Governmental Entity
indicated an intention to conduct the same, other than those the outcome of
which would not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect.
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(b) Each of the Company and its subsidiaries is in compliance with all
applicable Company Gaming Laws, except for possible noncompliance which
individually or in the aggregate would not reasonably be expected to result in
a Company Material Adverse Effect. The term "Company Gaming Laws" means any
Federal, state, local or foreign statute, ordinance, rule, regulation, permit,
consent, registration, finding of suitability, approval, license, judgment,
order, decree, injunction or other authorization, including any condition or
limitation placed thereon, governing or relating to the current or
contemplated casino and gaming activities and operations of the Company,
including without limitation the Nevada Gaming Control Act and the rules and
regulations promulgated thereunder, the Washoe County, Nevada Code and the
rules and regulations promulgated thereunder, the Clark County, Nevada Code
and the rules and regulations promulgated thereunder, the Mississippi Gaming
Control Act and the rules and regulations promulgated thereunder, the rules
and regulations of the Mississippi State Tax Commission, the codes, rules and
regulations of Harrison County, Mississippi, the Louisiana Riverboat Economic
Development and Gaming Control Act and the rules and regulations promulgated
thereunder, the rules and regulations of the Louisiana Riverboat Gaming
Enforcement Division of the Louisiana State Police, the codes, rules and
regulations of Jefferson Parish, Louisiana, the rules and regulations of the
Indiana Gaming Commission, the codes, rules and regulations of Switzerland
County, Indiana and any federal or state laws relating to currency
transactions.
(c) Except as disclosed in Section 5.17 of the Company Disclosure Schedule,
to the best knowledge of the Company, neither the Company nor any Significant
Subsidiary of the Company nor any director, officer or gaming manager of the
Company or any Significant Subsidiary of the Company has received any written
claim, demand, notice, complaint, court order or administrative order from any
Governmental Entity in the past three years, asserting that a license of it or
them, as applicable, under any Company Gaming Laws, should be revoked or
suspended. Neither the Company nor any of its Significant Subsidiaries knows
of any facts, which if known to the regulators under the Company Gaming Laws
could reasonably be expected to result in the revocation or suspension of a
license of it or them, or of any officer, director or gaming manager, under
any Company Gaming Laws or would be reasonably expected to disqualify it or
them from licensing under the Parent Gaming Laws. Neither the Company nor any
of its Significant Subsidiaries has suffered a suspension or revocation of any
material license held under the Company Gaming Laws.
Section 5.18 Liabilities. Except as disclosed in the most recent Company SEC
Reports filed and publicly available prior to the date of this Merger
Agreement or as disclosed in Section 5.18 of the Company Disclosure Schedule,
and except for liabilities and operations incurred in the ordinary course of
business since the date of the most recent consolidated balance sheet included
in such Company SEC Reports, neither the Company nor any of its subsidiaries
has any material liabilities or obligations (absolute, accrued, contingent or
otherwise) of any nature required by generally accepted accounting principles
to be set forth on a consolidated balance sheet of the Company or in the notes
thereto.
Section 5.19 Taxes. Except as disclosed in Section 5.19 of the Company
Disclosure Schedule, each of the Company and its subsidiaries has filed all
tax returns required to be filed by any of them and has paid (or the Company
has paid on its behalf), or has set up an adequate reserve for the payment of,
all taxes required to be paid in respect of the periods covered by such
returns (except where the failure to pay would not reasonably be expected to
have a Company Material Adverse Effect). The information contained in such tax
returns is true, complete and accurate in all material respects. Except as
disclosed in Section 5.19 of the Company Disclosure Schedule, neither the
Company nor any subsidiary of the Company is delinquent in the payment of any
tax, assessment or governmental charge, except where such delinquency would
not reasonably be expected to have a Company Material Adverse Effect. Except
as disclosed in Section 5.19 of the Company Disclosure Schedule, no
deficiencies for any taxes have been proposed, asserted or assessed against
the Company or any of its subsidiaries that have not been finally settled or
paid in full, which would reasonably be expected to have a Company Material
Adverse Effect, and no requests for waivers of the time to assess any such tax
are pending. For the purposes of this Merger Agreement, the term "tax" shall
include all Federal, state, local and foreign income, profits, franchise,
gaming, gross receipts, payroll, sales, employment, use, property,
withholding, excise and other taxes, duties and assessments of any nature
whatsoever together with all interest, penalties and additions imposed with
respect to such amounts.
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Section 5.20 Certain Agreements. (a) Except as disclosed in the Company SEC
Reports filed prior to the date of this Merger Agreement or in Section 5.20 of
the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries is a party to any oral or written (i) agreement, contract,
indenture or other instrument relating to Indebtedness in an amount exceeding
$500,000, (ii) other contract, agreement or commitment to be performed after
the date hereof which would be a material contract (as defined in Item
601(b)(10) of Regulation S-K of the Commission), or (iii) contract, agreement,
or commitment which materially restricts the conduct of any line of business
by the Company. Except as disclosed in the Company SEC Reports or as disclosed
in Section 5.20 of the Company Disclosure Schedule, (i) there is no material
breach or violation of or default by the Company or any of its subsidiaries
under any indenture, note, credit agreement, loan document, lease, license or
other agreement including, but not limited to, any Company Benefit Plan
("Company Contracts"), whether or not such breach, violation or default has
been waived, and (ii) no event has occurred which, with notice or lapse of
time or both, would constitute a material breach, violation or default, or
give rise to a right of termination, modification, cancellation, foreclosure,
imposition of a lien, prepayment or acceleration under such Company Contracts,
which breach, violation or default referred to in clauses (i) or (ii), alone
or in the aggregate with other such breaches, violations or defaults referred
to in clauses (i) or (ii), would reasonably be expected to have a Company
Material Adverse Effect.
(b) Except as disclosed in Section 5.20 of the Company Disclosure Schedule,
neither the Company nor any of its subsidiaries is a party to any oral or
written agreement which by its terms directly obligates any parent (i.e. any
entity owning more than 50% of the Company's voting securities) of the Company
with respect to any of the Company's obligations under such agreement (it
being understood that a "successors and assigns" provision in any such
agreement shall not be deemed to be such a term) and which would reasonably be
expected (if Parent became such a parent) to have a Parent Material Adverse
Effect.
Section 5.21 Insurance. The Company and its Significant Subsidiaries have
obtained and maintained in full force and effect insurance with responsible
and reputable insurance companies or associations in such amounts, on such
terms and covering such risks, including fire and other risks insured against
by extended coverage, as is reasonably prudent, and each has maintained in
full force and effect public liability insurance, insurance against claims for
personal injury or death or property damage occurring in connection with any
of the activities of the Company or its Significant Subsidiaries or any of any
properties owned, occupied or controlled by the Company or its Significant
Subsidiaries, which are of the type and in amounts customarily carried by
persons conducting businesses similar to those of the Company and its
subsidiaries ("Company Insurance Policies"). There is no material claim by the
Company or any of its subsidiaries pending under any of the material Company
Insurance Policies.
Section 5.22 Intellectual Property. Section 5.22 of the Company Disclosure
Schedule lists all (i) trademark and service mark registrations and
applications owned by the Company or any of its subsidiaries and (ii)
trademark, service mark and trade name license agreements to which the Company
or any of its subsidiaries is a party. Except as disclosed in Section 5.22 of
the Company Disclosure Schedule, the Company and its subsidiaries own or
possess adequate and enforceable rights to use all material trademarks,
trademark applications, trade names, service marks, trade secrets (including
customer lists and customer databases), copyrights, patents, licenses, know-
how and other proprietary intellectual property rights as are necessary in
connection with the businesses of the Company and its subsidiaries as
currently conducted or as the Company proposes to conduct such businesses
without material restrictions or material conditions on use, and, to the best
knowledge of the Company, there is no conflict with the rights of the Company
and its subsidiaries therein or any conflict by them with the rights of others
therein which, individually or in the aggregate, insofar as reasonably can be
foreseen, could have a Company Material Adverse Effect. The Company has taken
and will take all actions and necessary precautions to preserve the
confidentiality of its trade secrets (including customer lists and customer
databases) except where the failure to take such actions or precautions would
not reasonably be expected to have a Company Material Adverse Effect.
Section 5.23 Environmental Laws. (a) Except as disclosed in Section 5.23 of
the Company Disclosure Schedule, with respect to the Company or any of its
subsidiaries or the Company Real Property (as defined
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herein), there are no (i) past, present or anticipated violations of
Environmental Law(s), (ii) past, present or anticipated Releases of Hazardous
Materials at the Company Real Property or, to the best of the Company's
knowledge, upon any property adjacent to the Company Real Property that have
affected or could reasonably be expected to affect the Company Real Property,
(iii) past, present or anticipated generation of Hazardous Materials by the
Company, or (iv) other past, present, threatened or anticipated actions,
activities, circumstances, claims, conditions, demands, events, incidents,
orders, requests for information, lawsuits or other proceedings, contractual
obligations, or notices or receipts of notices, which, individually or in the
aggregate, have given rise to or which could reasonably be expected to give
rise to any liability, damage, cost, penalty and/or expense, whether under or
pursuant to any common law theory or any Environmental Law(s), which
liability, damage, cost penalty and/or expense, either individually or in the
aggregate, would reasonably be expected to have a Company Material Adverse
Effect. The Company has furnished (and until the Closing will furnish) to
Parent true, accurate and complete copies of all documents in its possession,
custody or control pertaining to the foregoing. Except as disclosed in Section
5.23 of the Company Disclosure Schedule, to the best knowledge of the Company,
no portion of the Company Real Property has been used for the manufacture,
processing, storage, disposal, transport or handling of Hazardous Materials
the result of which could reasonably be expected to have a Company Material
Adverse Effect.
(b) Except as disclosed in Section 5.23 of the Company Disclosure Schedule,
Company and its subsidiaries possess and are in compliance with and will
maintain in full force, effect and compliance until the Closing all permits,
licenses, registrations, permissions, authorizations or other approvals
(collectively, "Permits") necessary to comply with all applicable
Environmental Law(s), except for Permits or compliance with Permits which,
either individually or in the aggregate, would not reasonably be expected to
have a Company Material Adverse Effect.
Section 5.24 Real Property. (a) Section 5.24 of the Company Disclosure
Schedule identifies all real property owned by the Company and its
subsidiaries (the "Company Owned Property") and all real property leased or
operated by the Company and its subsidiaries (the "Company Leased Property").
The Company Owned Property and the Company Leased Property shall be referred
to collectively as the "Company Real Property".
(b) The Company and its subsidiaries have good and marketable fee simple
absolute title to the Company Owned Property, and the right to use the Company
Leased Property, free and clear of any and all liens, encumbrances,
restrictions, leases, options to purchase, options to lease, conditions,
covenants, assessments, defects, claims or exceptions, except for the
exceptions described on Schedule 5.24 of the Company Disclosure Schedule or as
shown on the policies of title insurance or preliminary title reports (if more
recent) attached as part of the Company Disclosure Schedule.
(c) True and correct copies of the documents under which the Company Owned
Property and Company Leased Property is leased or operated (the "Lease
Documents") have been delivered to Parent. The Lease Documents are unmodified
and in full force and effect, and there are no other agreements, written or
oral, between the Company or any of its subsidiaries and any third parties
claiming an interest in the interest of the Company or any of its subsidiaries
in the Company Owned Property, Company Leased Property or otherwise relating
to the use and occupancy of the Company Owned Property or Company Leased
Property. Neither the Company, any of its subsidiaries nor any other party is
in material default under the Lease Documents, and no defaults (whether or not
subsequently cured) by the Company, any of its subsidiaries nor any other
party have been alleged thereunder. To the best knowledge of the Company and
its subsidiaries, each landlord named in any of the Lease Documents is not in
material default thereunder, and no material defaults (whether or not
subsequently cured) by such landlord have been alleged thereunder.
(d) Except as disclosed in Section 5.24 of the Company Disclosure Schedule,
(i) the Company Real Property complies with, and is operated in accordance
with, all applicable laws, (including without limitation all Environmental
Laws to the extent stated in Section 5.23 as supplemented by the Company
Disclosure Schedule) affecting the Company Real Property or the ownership,
improvement, development, possession, use, occupancy or operation thereof, and
with any and all liens, encumbrances, agreements, covenants, conditions and
restrictions
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(collectively, "Restrictions") affecting the Company Real Property, except
where the failure to comply, individually or in the aggregate, would not
reasonably be expected to result in a Company Material Adverse Effect; (ii) to
the best knowledge of the Company and its subsidiaries, no land or property
adjacent to the Company Real Property is in material violation of any
applicable laws, regulations or Restrictions, except for such violations
which, individually or in the aggregate, would not reasonably be expected to
result in a Company Material Adverse Effect; (iii) there are no material
defects in the physical condition of the Company Real Property or the
improvements located on the Company Real Property, except for defects which,
individually or in the aggregate, would not reasonably be expected to have a
Company Material Adverse Effect; and (iv) neither the Company nor any
Significant Subsidiary of the Company has received any notice from any
governmental body (a) requiring it to make any material repairs or changes to
the Company Real Property or the improvements located on the Company Real
Property or (b) giving notice of any material governmental actions pending,
except for such repairs, changes or actions which, individually or in the
aggregate, would not reasonably be expected to have a Company Material Adverse
Effect.
(e) Except as disclosed in Section 5.24 of the Company Disclosure Schedule,
there is no action, proceeding or litigation pending (or, to the best
knowledge of the Company, contemplated or threatened): (i) to take all or any
portion of the Company Real Property, or any interest therein, by eminent
domain; (ii) to modify the zoning of, or other governmental rules or
restrictions applicable to, the Company Real Property or the use or
development thereof; (iii) for any street widening or changes in highway or
traffic lanes or patterns in the immediate vicinity of the Company Real
Property; or (iv) otherwise relating to the Company Real Property or the
interests of the Company and its subsidiaries therein, or which otherwise
would interfere with the use, ownership, improvement, development and/or
operation of the Company Real Property.
(f) Except as disclosed in Section 5.24 of the Company Disclosure Schedule,
no portion of the Company Real Property or the roads immediately adjacent to
the Company Real Property: (i) is situated in a "Special Flood Hazard Area,"
as set forth on a Federal Emergency Management Agency Flood Insurance Rate Map
or Flood Hazard Boundary Map; (ii) to the best knowledge of the Company, was
the former site of any public or private landfill, dump site, retention basin
or settling pond; (iii) to the best knowledge of the Company, was the former
site of any oil or gas drilling operations; (iv) to the best knowledge of the
Company, was the former site of any experimentation, processing, refining,
reprocessing, recovery or manufacturing operation for any petrochemicals; or
(v) has any defect or condition which would materially impair either (a) the
current use of the Company Real Property or (b) the use of the Company Real
Property for gaming or other currently contemplated activities, as applicable.
(g) The parcels constituting the Company Real Property are assessed
separately from all other adjacent property for purposes of real property
taxes.
(h) Except as disclosed in Section 5.24 of the Company Disclosure Schedule,
(i) all improvements on the Company Real Property are in compliance with
current building codes, to the extent applicable and (ii) the Company has not
received any written notices of any material violations of any applicable
building codes relating to the Company Real Property which have not been
remedied.
(i) The Company Real Property is connected to and serviced by adequate
water, sewage disposal, gas and electricity facilities in accordance with all
applicable laws, statutes, ordinances, rules and regulations of all public or
quasi public authorities having or claiming jurisdiction thereover. All
material systems (heating, air conditioning, electrical, plumbing and the
like) for the basic operation of the Company Real Property are operable and in
good condition (ordinary wear and tear excepted).
(j) There are no material commitments to or agreements with any governmental
authority or agency (federal, state or local) affecting the Company Real
Property which are not listed in Schedule 5.24 of the Company Disclosure
Schedule or described in the Company SEC Reports.
(k) Except as disclosed in Section 5.24 of the Company Disclosure Schedule
or as shown in the policies of title insurance or preliminary title reports
(if more recent) delivered previously to Parent, there are no commitments,
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agreements, understandings or other Restrictions materially adversely
affecting Company's ability to utilize the Company Real Property for its
intended purposes or to improve or develop or effect expansion of Company's
business on the Company Real Property in the manner currently contemplated.
(l) There are no contracts or other obligations outstanding for the sale,
exchange or transfer of any of the Company Real Property, or any portion of
it, or the business operated thereon, except as disclosed on Schedule 5.24 of
the Company Disclosure Schedule.
Section 5.25 Title to Assets; Liens. To the best knowledge of the Company,
each of the Company and each of its Significant Subsidiaries has sufficiently
good and valid title to, or an adequate leasehold interest in, its material
tangible personal properties and assets in order to allow it to conduct, and
continue to conduct, its business as currently conducted or as the Company
proposes to conduct such business. Such material tangible personal assets and
properties are sufficiently free of liens to allow each of the Company and
each of its subsidiaries to conduct, and continue to conduct, its business as
currently conducted, or as the Company proposes to conduct such business and,
to the knowledge of the Company, the consummation of the transactions
contemplated by this Merger Agreement will not alter or impair such ability in
any respect which individually or in the aggregate would be reasonably likely
to have a Company Material Adverse Effect.
Section 5.26 Labor Relations. Except as disclosed in the Company SEC Reports
or in Section 5.26 of the Company Disclosure Schedule, no strike or other
labor dispute involving the Company or any of its subsidiaries is pending or,
to the knowledge of the Company, threatened, and, to the knowledge of the
Company, there is no activity involving any unorganized employees of the
Company or any of its subsidiaries seeking to certify a collective bargaining
unit or engaging in any other organization activity. Except as set forth in
Section 5.26 of the Company Disclosure Schedule and as disclosed in the
Company SEC Reports, since December 31, 1995, there has not been any adoption
or amendment in any material respect by the Company or any of its subsidiaries
of any collective bargaining agreement. Other than those filed as exhibits to
the Company SEC Reports, Section 5.26 of the Company Disclosure Schedule lists
all collective bargaining agreements of the Company or any of its
subsidiaries.
Section 5.27 Company Disclosure Schedule. Notwithstanding anything in this
Merger Agreement to the contrary, disclosure by the Company under one Section
of the Company Disclosure Schedule shall be deemed to be disclosure for all
other purposes on the Company Disclosure Schedule for which such disclosure
may be relevant.
Section 5.28 No Material Adverse Effect. Except as disclosed in the Company
SEC Reports or in the Company Disclosure Schedule, the Company is not aware of
any fact which, alone or together with another fact, would reasonably be
expected to result in a Company Material Adverse Effect.
Section 5.29 No Ownership of Parent Common Stock by Company Interested
Stockholders. Neither the Company nor any "interested stockholder" of the
Company (within the meaning of Section 203 of the DGCL) beneficially owns any
shares of Parent Common Stock.
ARTICLE VI
Representations and Warranties Regarding Sub
Parent and Sub jointly and severally represent and warrant to the Company as
follows:
Section 6.1 Organization. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Sub has
not engaged in any business (other than certain organizational matters) since
it was incorporated. Complete and correct copies as of the date hereof of the
Certificate of Incorporation, By-laws, and other governing documents of Sub
have previously been delivered to the Company.
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Section 6.2 Capitalization. The authorized capital stock of Sub consists of
1,000 shares of Common Stock, par value $0.01 per share, 1,000 shares of which
are validly issued and outstanding, fully paid and nonassessable and are owned
by Parent free and clear of all liens, claims and encumbrances.
Section 6.3 Authority Relative to this Merger Agreement. Sub has the
requisite corporate power and authority to enter into this Merger Agreement
and to carry out its obligations hereunder. The execution and delivery of this
Merger Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by its Board of Directors and sole stockholder in
accordance with the provisions of Section 251 of the DGCL and Sub's
Certificate of Incorporation and Bylaws, and no other corporate proceedings on
the part of Sub are necessary to authorize this Merger Agreement and the
transactions contemplated hereby. Except as referred to herein or in
connection, or in compliance, with the provisions of the HSR Act, the
Securities Act, the Exchange Act, and the environmental, corporation,
securities or blue sky laws or regulations of the various states, no filing or
registration with, or authorization, consent or approval of, any public body
or authority is necessary for the consummation by Sub of the Merger or the
transactions contemplated by this Merger Agreement, other than filings,
registrations, authorizations, consents or approvals the failure to make or
obtain would not prevent the consummation of the transactions contemplated
hereby.
ARTICLE VII
Conduct of Business Pending the Merger
Section 7.1 Conduct of Business by Parent and the Company Pending the
Merger. During the period from the date of this Merger Agreement and
continuing until the Effective Date, the Company and Parent each agree as to
itself and its subsidiaries that (except as expressly contemplated or
permitted by this Merger Agreement or as set forth in Section 7.1 of the
Parent Disclosure Schedule or the Company Disclosure Schedule, as the case may
be, or except to the extent that the other party shall otherwise consent in
writing):
(i) Each party shall, and shall cause its subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, and shall, and shall
cause its subsidiaries to, use their reasonable best efforts to preserve
intact their present business organizations, keep available the services of
their present officers and employees and preserve their relationships with
customers, suppliers and others having business dealings with them. Each
party shall, and shall cause its subsidiaries to, (a) maintain insurance
coverages and its books, accounts and records in the usual manner
consistent with prior practices; (b) comply in all material respects with
all laws, ordinances and regulations of Governmental Entities applicable to
such entity and its subsidiaries; (c) maintain and keep its properties and
equipment in good repair, working order and condition, ordinary wear and
tear excepted; and (d) perform in all material respects its obligations
under all contracts and commitments to which it is a party or by which it
is bound, in each case other than where the failure to so maintain, comply
or perform, either individually or in the aggregate, would reasonably be
expected to result in a Company Material Adverse Effect or a Parent
Material Adverse Effect, as the case may be. Neither the Company nor Parent
shall take any action which would reasonably be expected to adversely
affect or delay the ability of either the Company or Parent to obtain any
approvals of any Governmental Entity required to consummate the
transactions contemplated hereby or to perform its covenants and agreements
under this Merger Agreement (other than activities otherwise permitted
under this Merger Agreement);
(ii) neither the Company nor Parent shall or propose to (A) sell,
transfer, mortgage, encumber, dispose or pledge or agree to sell or pledge
any capital stock owned by it in any of its subsidiaries, (B) amend its
Certificate of Incorporation or By-laws, (C) split, combine or reclassify
its outstanding capital stock or issue or authorize or propose the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of capital stock of the Company or Parent, as the case may be, or
declare, set aside or pay any dividend or other distribution payable in
cash, stock or property (other than (i) with respect to Parent (a) the
regular dividends on Parent's $70 Convertible Preferred Stock (b) a wholly
owned subsidiary of Parent may declare and pay a dividend to Parent and (c)
any subsidiary of Parent may make a distribution or payment
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required under any of its existing agreements or agreements entered into in
respect of new projects listed on Section 7.1 of the Parent Disclosure
Schedule, and (ii) with respect to the Company (a) a wholly owned
subsidiary of the Company may declare and pay a dividend to the Company and
(b) any subsidiary of the Company may make a distribution or payment
required under any of its existing agreements or agreements entered into in
respect of new projects listed on Section 7.1 of the Company Disclosure
Schedule, or (D) directly or indirectly redeem, purchase or otherwise
acquire or agree to redeem, purchase or otherwise acquire any shares of
Company or Parent capital stock, as the case may be;
(iii) neither party shall, nor shall it permit any of its subsidiaries
to, (A) except as required by this Merger Agreement, issue, deliver or sell
or agree to issue, deliver or sell any additional shares of, or rights of
any kind to acquire any shares of, its capital stock of any class, any
Indebtedness or any option, rights or warrants to acquire, or securities
convertible into, shares of capital stock other than issuances of Company
Common Stock or Parent Common Stock, as the case may be, (1) pursuant to
the exercise of employee stock options or warrants outstanding on the date
hereof and disclosed in this Merger Agreement or issued thereafter in
accordance with the terms of this Merger Agreement pursuant to the Company
Stock Option Plan or the Parent Stock Option Plan, as the case may be, (2)
(x) pursuant to the authorization, issuance and grant of stock options
pursuant to the Company Stock Option Plan to employees of the Company to
purchase shares that do not exceed an aggregate of 375,000 shares of
Company Common Stock plus stock options granted to newly hired employees
(provided that the Company will not authorize, issue or grant any stock
options to its Chief Executive Officer or Chief Operating Officer without
Parent's consent) and (y) pursuant to the authorization, issuance and grant
of stock options pursuant to the Parent Stock Option Plan to employees of
Parent to purchase shares that do not exceed remaining available shares of
Parent Common Stock under the Parent Stock Option Plan plus stock options
granted to newly hired employees (provided that Parent will not authorize,
issue or grant any stock options to its Chief Executive Officer without the
Company's consent) and pursuant to the authorization, issuance and grant of
shares of Parent Common Stock under the Directors Deferred Compensation
Plan; and (3) upon the exercise of other outstanding rights to acquire
stock or issue stock pursuant to existing agreements as set forth in
Section 7.1 of the Company Disclosure Schedule or the Parent Disclosure
Schedule, as the case may be; (B) acquire, lease or dispose or agree to
acquire, lease or dispose of any capital assets or any other assets, or
make any capital expenditures aggregating over $5 million, other than (x)
in the ordinary course of business or (y) pursuant to contracts or
agreements in force at the date of this Merger Agreement or (z) pursuant to
plans disclosed in Section 7.1 of the Parent Disclosure Schedule or the
Company Disclosure Schedule, as the case may be; (C) incur additional
Indebtedness or encumber or grant a security interest in any asset or enter
into any other material transaction other than in each case in the ordinary
course of business; (D) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in, or
by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, except that
such party may create new wholly owned subsidiaries in the ordinary course
of business; (E) except for transactions in the ordinary course of
business, enter into or terminate any contract or agreement, or make any
changes in any of its leases or contracts, in each case that is material to
such party, other than renewals of contracts and leases without materially
adverse changes in the terms thereof; or (F) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
(iv) except as previously disclosed to the other party in the Company
Disclosure Schedule or the Parent Disclosure Schedule, as the case may be,
and except as otherwise contemplated by this Merger Agreement, each party
shall not, nor shall it permit, any of its subsidiaries to, except as
required to comply with applicable law and except as provided in Section
8.6 hereof, (A) adopt, enter into, terminate or amend any bonus, profit
sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other Company Benefit Plan
or Parent Benefit Plan, as the case may be, agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer or current
or former employee, other than in the ordinary course of business, (B)
increase in any manner the compensation or fringe benefit of any director,
officer or employee (except for normal increases in the ordinary course of
business and that, in the aggregate, do not result in a material increase
in benefits or compensation expense to such party and its subsidiaries
relative to the level in effect prior to such
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amendment), (C) pay any benefit not provided under any existing plan or
arrangement, (D) grant any awards under any bonus, incentive, performance
or other compensation plan or arrangement or Company Benefit Plan or Parent
Benefit Plan (including, without limitation, the grant of stock options,
stock appreciation rights, stock based or stock related awards, performance
units or restricted stock, or the removal of existing restrictions in any
benefit plans or agreements or awards made thereunder) (other than such
plans and arrangements (other than stock options, which are covered under
subparagraph (iii) above) which are made in the ordinary course of
business), (E) take any action to fund or in any other way secure the
payment of compensation or benefits under any employee plan, agreement,
contract or arrangement or Company Benefit Plan or Parent Benefit Plan, as
the case may be, other than in the ordinary course of business, (F) adopt
or amend in any material respect any collective bargaining agreement, other
than in the ordinary course of business and provided that no such adoption
or amendment would reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect or a Parent Material
Adverse Effect, as the case may be, or (G) adopt, enter into, amend or
terminate any contract, agreement, commitment or arrangement to do any of
the foregoing;
(v) each party shall not, nor shall it permit any of its subsidiaries to,
make any investments in non-investment grade securities exceeding $10
million provided, however, that (x) such party will be permitted to create
new wholly owned subsidiaries in the ordinary course of business, (y)
Parent or its affiliates will be permitted to acquire, upon the prior
written approval of the Company, any amount of the Company's 11 1/2% First
Mortgage Notes due 2003, and (z) any such investments pursuant to clauses
(x) and (y) shall not count toward such $10 million investment limit;
(vi) neither party shall, nor shall it permit any of its subsidiaries to,
settle any claim, action or proceeding involving money damages not covered
by applicable insurance which is material to the Company or Parent, as
applicable, (x) except in the ordinary course of business, (y) except for
settlement of the pending class and derivative actions relating to Parent
substantially in accordance with the current proposed settlement terms and
(z) either party may settle any claim, action or proceeding which, as of
the date hereof, has been disclosed in the Parent SEC Reports or the Parent
Disclosure Schedule or the Company SEC Reports or the Company Disclosure
Schedule, as the case may be;
(vii) each party will not and will not permit any of its subsidiaries to
change, in any material respect, any of its accounting principles, or to
change, in any material respect, its accounting policies or procedures
(including any material change in any assumption underlying, or method of
calculating, any bad debt, contingency or other reserve), except as may be
required by GAAP;
(viii) each party will not, and will not permit any of its subsidiaries
to, make any tax election or settle or compromise any tax liability or
agree to an extension of a statute of limitations (except for elections,
settlements, compromises or extensions of statutes of limitations that are
consistent with such party's reserves as reflected on its financial
statements or which are not, individually or in the aggregate, material to
such party and its subsidiaries taken as a whole);
(ix) each party shall not knowingly, nor shall it permit any of its
subsidiaries to knowingly, take or cause to be taken any action, whether
before or after the Effective Date, which would disqualify the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code; and
(x) each party shall not, nor shall it permit any of its subsidiaries to,
authorize or enter into any contract, agreement, commitment or arrangement
to do any of the foregoing.
Notwithstanding anything in this Section 7.1 to the contrary, neither Parent
nor its subsidiaries nor the Company nor its subsidiaries shall be prohibited
from engaging in acquisitions or new projects seeking to expand their
respective businesses which (x) are disclosed to the other party in Section
7.1 of the Parent Disclosure Schedule or the Company Disclosure Schedule, as
the case may be, (y) do not involve an investment or other consideration
(including the amount of any borrowings), individually or in the aggregate, in
an amount exceeding ten percent (10%) of such party's total consolidated
assets immediately prior to entering into such acquisition or new project or
(z) relate to any disposition by the Company or any of its subsidiaries of all
or any portion of the Blue Diamond Project located in Las Vegas, Nevada (a
"Blue Diamond Disposition").
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Section 7.2 Conduct of Business of Sub. During the period from the date of
this Merger Agreement to the Effective Date, Sub shall not engage in any
activities of any nature except as provided in or contemplated by this Merger
Agreement.
Section 7.3 Notice of Breach. Each party shall promptly give written notice
to the other party upon becoming aware of the occurrence or, to its knowledge,
impending or threatened occurrence, of any event which would likely (a) cause
any representation or warranty contained in this Merger Agreement to be untrue
or inaccurate in any material respect at any time from the date of this Merger
Agreement to the Effective Date, or (b) any failure of such party or of any of
its officers, directors, employees or agents thereof, to comply with any
covenant to be complied with under this Merger Agreement, and will use its
reasonable best efforts to prevent or promptly remedy the same. Any such
notification shall not be deemed an amendment of the Company Disclosure
Schedule or the Parent Disclosure Schedule.
ARTICLE VIII
Additional Agreements
Section 8.1 Access and Information. Each of the Company and Parent and their
respective subsidiaries shall afford to the other and to the other's
accountants, counsel and other representatives full access during normal
business hours (and at such other times as the parties may mutually agree)
throughout the period prior to the Effective Date to all of its properties,
books, contracts, commitments, records and to its officers, employees,
accountants, counsel and other representatives and, during such period, each
shall, and shall cause their subsidiaries to, make available or furnish
promptly to the other (i) a copy of each report, schedule, registration
statement and other document filed or received by it pursuant to the
requirements of federal or state securities laws, and (ii) all other
information concerning its business, properties and personnel as the other may
reasonably request. Each of the Company and Parent shall hold, and shall cause
their respective employees and agents to hold, in confidence all such
information in accordance with the terms of the Letter Agreement regarding
confidentiality dated February 27, 1996 between Parent and the Company (the
"Confidentiality Agreement"). No investigation by either of the parties or
their respective representatives shall affect or otherwise obviate or diminish
the representations, warranties, covenants or agreements, or conditions to the
obligations of the other set forth herein.
Section 8.2 Registration Statement/Proxy Statement. As promptly as
practicable after the execution of this Merger Agreement, the Company and
Parent shall prepare and file with the Commission preliminary proxy materials
which shall constitute the preliminary Proxy Statement and a preliminary
prospectus with respect to the Parent Common Stock to be issued in connection
with the Merger and which shall be in form and substance satisfactory to each
of Parent and the Company. Each of Parent and the Company will use its
reasonable best efforts to respond to any comments of the Commission. Each of
Parent and the Company will notify the other promptly of the receipt of any
comments from the Commission and of any request by the Commission for
amendments or supplements to the Proxy Statement or the Registration
Statement, and will supply the other party with copies of all correspondence
between such party or any of its representatives and the Commission with
respect to the Proxy Statement or the Registration Statement. As promptly as
practicable after comments are received from the Commission with respect to
the preliminary proxy materials and after the furnishing by the Company and
Parent of all information required to be contained therein, the Company shall
file with the Commission the definitive Proxy Statement and Parent shall file
with the Commission the definitive Proxy Statement and the Registration
Statement and Parent and the Company shall use all reasonable efforts to cause
the Registration Statement to become effective as soon thereafter as
practicable, and the Company and Parent shall thereafter mail the definitive
Proxy Statement to their respective stockholders. Whenever any event occurs
that is required to be set forth in an amendment or supplement to the Proxy
Statement or the Registration Statement, Parent or the Company, as the case
may be, shall promptly inform the other party of such occurrence and cooperate
in filing with the Commission and/or mailing to stockholders of Parent and the
Company, such amendment or supplement. The Proxy Statement shall, subject to
the provisions of Sections 3.6 and 8.10, include the recommendations of the
Board of Directors of Parent in favor of the Parent Share Proposal and the
Board of Directors of the Company in favor of the Merger.
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Section 8.3 Regulatory Approvals.
(a) The parties hereto shall cooperate with each other and use reasonable
best efforts (and, with respect to Parent Gaming Laws and Company Gaming
Laws, shall use reasonable best efforts to cause their respective directors
and officers to do so) to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings,
to obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this
Merger Agreement (including without limitation the Merger) ("Governmental
Approvals"), and to comply (and, with respect to Parent Gaming Laws and
Company Gaming Laws, to cause their respective directors and officers to so
comply) with the terms and conditions of all such permits, consents,
approvals and authorizations of all such Governmental Entities. Each of the
parties hereto and their respective officers, directors and affiliates
shall use their reasonable best efforts to file within 30 days after the
date hereof (or, in the case of any required Governmental Approvals under
Indiana gaming laws, within 30 days after the receipt of the notification
that the appropriate Indiana Governmental Entity has issued a certificate
of preliminary approval of the Company's contemplated Switzerland County,
Indiana project (the "Indiana Preliminary Approval")), and in all events
shall file within 60 days after the date hereof (or, in the case of any
required Governmental Approvals under Indiana gaming laws, within 60 days
after receipt of the Indiana Preliminary Approval) all required initial
applications and documents in connection with obtaining the Governmental
Approvals (including without limitation under applicable Parent Gaming Laws
and Company Gaming Laws) and shall act reasonably and promptly thereafter
in responding to additional requests in connection therewith. Parent and
the Company shall have the right to review in advance, and to the extent
practicable each will consult the other on, in each case subject to
applicable laws relating to the exchange of information, all the
information relating to Parent or the Company, as the case may be, and any
of their respective subsidiaries, directors, officers and stockholders
which appear in any filing made with, or written materials submitted to,
any third party or any Governmental Entity in connection with the
transactions contemplated by this Merger Agreement. Without limiting the
foregoing, each of Parent and the Company (the "Notifying Party") will
notify the other promptly of the receipt of comments or requests from
Governmental Entities relating to Governmental Approvals, and will supply
the other party with copies of all correspondence between the Notifying
Party or any of its representatives and Governmental Entities with respect
to Governmental Approvals; provided, however, that it shall not be required
to supply the other party with copies of correspondence relating to the
personal applications of individual applicants except for evidence of
filing.
(b) Parent and the Company shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by
this Merger Agreement which causes such party to believe that there is a
reasonable likelihood that any Requisite Regulatory Approval (as defined
below) will not be obtained or that the receipt of any such approval will
be materially delayed.
Section 8.4 Affiliates; Voting Agreements. (a) The Company shall use its
reasonable best efforts to cause each director, executive officer and other
person who is an "affiliate" (for purposes of Rule 145 under the Securities
Act) of the Company to deliver to Parent, as soon as practicable after the
date of this Merger Agreement, and in any event prior to the date of the
stockholders meetings called by Parent and the Company pursuant to Section 3.6
hereof, a written agreement, in the form of Exhibit 8.4(a) hereto.
(b) Concurrently with the execution and delivery of this Merger Agreement,
as a condition and inducement to each party's willingness to enter into this
Merger Agreement, the Company's Chief Executive Officer shall enter into a
Voting Agreement with Parent and Parent's Chief Executive Officer shall enter
into a Voting Agreement with the Company, such Voting Agreements to be dated
the date hereof in the forms of Exhibits 8.4(b)(i) and (ii) hereto, pursuant
to which the Company's Chief Executive Officer has agreed to vote his Company
Common Stock in favor of the Merger and Parent's Chief Executive Officer has
agreed to vote his Parent Common Stock in favor of the Parent Share Proposal.
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Section 8.5 NASDAQ/NMS Listing. Parent shall use its best efforts to list on
the NASDAQ National Market System, upon official notice of issuance, the
Parent Common Stock to be issued pursuant to the Merger including shares of
Parent Common Stock issuable upon exercise of Company Stock Options (as
defined in Section 8.6(b) below).
Section 8.6 Employee Arrangements. (a) After the Effective Date, Parent
shall, or shall cause the Surviving Corporation to, honor in accordance with
their terms (as such terms may be amended from time to time to the extent not
prohibited by this Merger Agreement) all employment, severance, consulting and
other compensation contracts between the Company or any of its subsidiaries
and any current or former director, officer or employee thereof, and all
provisions for vested benefits or other vested amounts earned or accrued
through the Effective Date under any Company Benefit Plan or agreement, each
as of the date hereof except for changes thereto which are (i) permitted by
this Merger Agreement, or (ii) otherwise agreed to by the parties hereto prior
to the Effective Date. Parent agrees to provide employees of the Company with
credit for all service with the Company or its affiliates for purposes of
vesting and eligibility under any employee benefit plan, program or
arrangement of Parent or its affiliates. Parent agrees that employees of the
Company who continue to be employed by the Company after the Effective Date
("Continuing Employees") may continue to participate in their current Company
sponsored employee benefit programs for a period of no less than one year
after the Effective Date so long as they remain employed by the Company,
provided that during such one-year period Parent may substitute Parent
sponsored employee benefit programs if such programs offer Continuing
Employees benefits that are equal to or more favorable than benefits offered
under the comparable Company sponsored employee benefit programs; and,
provided further, that Parent may change or discontinue any such Company
program during such one-year period with the consent of a majority of the
Company Directors then on the Parent Board of Directors; and, provided
further, that if any Continuing Employees participate in Parent employee
benefit programs, such participation shall be on substantially the same terms
and conditions as all other Parent employees similarly situated.
(b) Parent acknowledges that, except as set forth in the Company Disclosure
Schedule, the Company Stock Options (as defined herein) held by the officers
of the Company shall become fully vested and exercisable as a result of the
transactions contemplated hereby pursuant to the terms of such officers'
employment agreements existing as of the date of this Merger Agreement.
(c) At the Effective Date, all rights with respect to the Company's Common
Stock pursuant to stock options ("Company Stock Options") granted under
Company Benefit Plans which are outstanding on the Effective Date shall be
converted into and become rights with respect to Parent Common Stock, and
Parent shall assume each Company Stock Option, in accordance with the terms,
as of the date hereof, of the stock option plan under which it was issued and
the stock option agreement by which it is evidenced. From and after the
Effective Date, (i) each Company Stock Option assumed by Parent may be
exercised solely for shares of Parent Common Stock, (ii) the number of shares
of Parent Common Stock subject to each Company Stock Option shall be equal to
the number of shares of Company Common Stock subject to such Company Stock
Option immediately prior to the Effective Date multiplied by the Exchange
Ratio rounded up or down, as the case may be, to the nearest whole integer,
and (iii) the per share exercise price under each such Company Stock Option
shall be adjusted by dividing the per share exercise price under each such
Company Stock Option by the Exchange Ratio, with such exercise price per share
rounded up or down, as the case may be, to the nearest whole cent; provided,
however, that each such Company Stock Option shall, in accordance with its
terms, be subject to further adjustment as appropriate to reflect any stock
split, stock dividend, recapitalization or other similar transaction
subsequent to the Effective Date. In connection with the execution of this
Merger Agreement, the Company shall have the right, in its sole discretion, to
lower the exercise price of any outstanding Company Stock Option to no less
than the higher of (x) the per share closing price of the Company Common Stock
on the NASDAQ National Market on the trading date immediately prior to the
date of the Company's Board of Directors meeting at which this Merger
Agreement and the transactions contemplated hereby was approved or (y) the
product of (A) the per share closing price of the Parent Common Stock on the
NASDAQ National Market on the trading date immediately prior to the date of
the Company Board of Directors meeting at which this Merger Agreement and the
transactions
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contemplated hereby was approved and (B) the Exchange Ratio. The Company
acknowledges that Parent shall have the right to adjust the exercise price of
any or all outstanding options to purchase Parent Common Stock to the same
equivalent price.
(d) Nothing in this Section 8.6 shall be interpreted as preventing Parent or
its subsidiaries from amending, modifying or terminating any Company Benefit
Plans or other Company sponsored employee benefit programs after the first
anniversary of the Effective Date (or prior thereto with the consent of a
majority of the Company Directors then on the Parent Board of Directors) in
accordance with their terms and applicable law.
(e) On or before the first Business Day after the Effective Date, Parent
shall deliver to each holder of a Company Stock Option a document evidencing
the foregoing assumption of such Company Stock Option by Parent. As soon as
reasonably practicable but in all events within 10 days (or if such tenth day
is not a Business Day, then on or before the next succeeding Business Day)
after the Effective Date, Parent shall file a registration statement on Form
S-8 to cover such assumed Company Stock Options, and shall use its reasonable
best efforts to maintain the effectiveness of such registration statement (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such Company Stock Options remain outstanding. With
respect to those individuals who subsequent to the Merger will be subject to
the reporting requirements under Section 16(a) of the Exchange Act, where
applicable, Parent shall administer the Company Benefit Plans assumed pursuant
to this Section 8.6 in a manner that complies with Rule 16b-3 promulgated by
the Commission under the Exchange Act.
Section 8.7 Indemnification. (a) Upon the Effective Date, Parent shall
assume all of the obligations of the Company under the Company's existing
indemnification agreements with each of the directors and officers of the
Company, as such agreements relate to the indemnification of such persons for
expenses and liabilities arising from facts or events which occurred on or
before the Effective Date or relating to the Merger or transactions
contemplated by this Merger Agreement.
(b) Parent agrees that all rights to indemnification existing in favor of
the directors, officers or employees of the Company as provided in the
Company's Certificate of Incorporation or By-Laws, as in effect as of the date
hereof, with respect to matters occurring through the Effective Date, shall
survive the Merger and shall continue in full force and effect for a period of
not less than six years from the Effective Date. The By-laws of the Surviving
Corporation shall contain provisions identical with respect to indemnification
to those set forth in Article V of the Amended and Restated By-laws of the
Company as in effect on the date of this Merger Agreement, which provisions
and Article Eighth of the Amended and Restated Certificate of Incorporation of
the Company as in effect as of the date of this Merger Agreement shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Date in any manner that would adversely affect any rights of
indemnification of persons covered thereby on the Effective Date.
(c) Parent agrees to cause Surviving Corporation to maintain in effect for
not less than six years, after the Effective Date the current policies of
directors' and officers' liability insurance maintained by the Company with
respect to matters occurring prior to the Effective Date; provided, however,
that (i) Parent or Surviving Corporation may substitute therefor policies of
at least the same coverage (with carriers comparable to the Company's existing
carriers) containing terms and conditions which are no less advantageous to
the Indemnified Parties and (ii) Parent need only maintain such policies to
the extent such insurance is available upon commercially reasonable terms;
provided that such insurance shall be deemed available upon commercially
reasonable terms if the cost of premiums for such insurance coverage does not
exceed 200% of the annual premium currently being paid by the Company, and
provided, further, that officers and directors of the Company may be required
to make application and provide customary representations and warranties to
Parent's or Surviving Corporation's insurance carrier for the purpose of
obtaining such insurance.
(d) From and after the Effective Date, the directors, officers and employees
of the Company and its subsidiaries who become directors, officers or
employees of Parent or any of its subsidiaries, except for the indemnification
rights set forth in Section 8.7 (a) and (b) or as otherwise provided by
applicable law, shall have
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indemnification rights (with respect to their capacities as directors,
officers or employees of Parent or any of its subsidiaries at or subsequent to
the Effective Date), with prospective application only, to the extent provided
in the Certificate of Incorporation or similar governing documents of Parent
and its subsidiaries, as in effect from time to time after the Effective Date,
as applicable, and provisions of applicable law as in effect from time to time
after the Effective Date.
Section 8.8 HSR Act. The Company and Parent shall use their reasonable best
efforts to file as soon as practicable notifications under the HSR Act in
connection with the Merger and the transactions contemplated hereby, and to
respond as promptly as practicable to any inquiries received from the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Department of
Justice (the "Antitrust Division") for additional information or documentation
and to respond as promptly as practicable to all inquiries and requests
received from any State Attorney General or other governmental authority in
connection with antitrust matters.
Section 8.9 Additional Agreements. (a) Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Merger Agreement, including using all reasonable efforts to obtain all
necessary waivers, consents and approvals, to effect all necessary
registrations and filings (including, but not limited to, filings under the
HSR Act and with all applicable Governmental Entities) and to lift any
injunction or other legal bar to the Merger (and, in such case, to proceed
with the Merger as expeditiously as possible), subject, however, in the case
of the Merger Agreement and the Parent Share Proposal, to the appropriate vote
of the stockholders of the Company and Parent, respectively.
(b) In case at any time after the Effective Date any further action is
necessary or desirable to carry out the purposes of this Merger Agreement
(including, without limitation, any merger between a subsidiary of Parent and
a subsidiary of the Company) or to vest the Surviving Corporation with full
title to all properties, assets, rights, approvals, immunities, franchises of
any of the parties to the Merger, the proper officers and/or directors of
Parent, the Company and the Surviving Corporation shall take all such
necessary action.
(c) Neither Parent nor any of its subsidiaries shall enter into any
agreements or take any other action that would be reasonably likely to
preclude Parent from obtaining the financing referred to in Section 9.2(d).
Section 8.10 No Solicitation. Each of the Company and Parent will
immediately cease any existing discussions or negotiations with any third
parties with respect to any Acquisition Proposal (as defined below). Neither
the Company nor Parent shall, directly or indirectly, take (nor shall the
Company nor Parent authorize or permit their respective subsidiaries,
officers, directors, employees, representatives, investment bankers,
attorneys, accountants or other agents or affiliates, to take) any action to
(i) encourage, solicit or initiate the submission of any Acquisition Proposal,
(ii) enter into any agreement with respect to any Acquisition Proposal or
(iii) participate in any way in discussions or negotiations with, or furnish
any information to, any person in connection with, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal, provided,
however, that the Company or Parent, as the case may be, may, in response to
an unsolicited bona fide Acquisition Proposal, participate in discussions or
negotiations with or furnish information to a third party making such
Acquisition Proposal, if all of the following events have occurred: (1) such
third party has made a written proposal to the Board of Directors of the
Company or Parent, as the case may be, to consummate an Acquisition Proposal
which proposal identifies a price or range of values to be paid for the
outstanding securities or substantially all of the assets of the Company or
Parent, as the case may be, and if consummated, after consultation with the
investment bankers for the Company or Parent, as the case may be, such Board
of Directors has determined is reasonably likely to be financially more
favorable to the stockholders of the Company or Parent, as the case may be,
than the terms of the Merger (a "Superior Proposal"); (2) such Board of
Directors has determined, after consultation with its investment bankers, that
such third party is financially capable of consummating such Superior
Proposal; (3) such Board of Directors shall have determined, after
consultation with its outside legal counsel, that the failure to participate
in discussions or negotiations with or furnish information to such third party
would result in a substantial risk of liability for a
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breach of the fiduciary duties of the members of such Board of Directors under
applicable law; and (4) Parent or the Company, as the case may be, shall have
been notified in writing of such Acquisition Proposal, including its principal
financial and other material terms and conditions, including the identity of
the person and its affiliates (if relevant) making such Acquisition Proposal.
Notwithstanding the foregoing, the Company or Parent, as the case may be,
shall not provide any non-public information to such third party unless (1) it
has prior to the date thereof provided such information to Parent or the
Company, as the case may be, or its representatives, and (2) it has provided
such non-public information pursuant to a non-disclosure agreement with terms
which are at least as restrictive as the nondisclosure agreement heretofore
entered into between the Company and Parent. In addition to the foregoing, the
Company or Parent, as the case may be, shall not accept or enter into any
agreement concerning a Superior Proposal for a period of not less than 36
hours after the other party's receipt of the notification in clause (4) of the
preceding paragraph. Upon the occurrence of the events in the preceding
paragraph and this paragraph, the Company or Parent, as the case may be, shall
be entitled to (1) change its recommendation concerning the Merger, (2) accept
such Superior Proposal, and (3) enter into an agreement with such third party
concerning a Superior Proposal provided that the Company or Parent, as the
case may be, shall immediately make payment in full to Parent or the Company,
as the case may be, of the cash fee and out-of-pocket expenses provided for in
Section 10.5 (b) or (c), as the case may be. Each of the Company and Parent
will promptly communicate to the other party the principal terms of any
proposal or inquiry, including the identity of the person and its affiliates
making the same, that it may receive in respect of any such Acquisition
Proposal, or of any such information requested from it or of any such
negotiations or discussions being sought to be initiated with it regarding an
Acquisition Proposal. "Acquisition Proposal" shall mean, with respect to any
person, any tender or exchange offer, written or oral proposal for a merger,
consolidation or other business combination involving the Company or Parent or
any of their respective subsidiaries or any written or oral proposal or offer
to acquire in any manner a substantial equity interest in, or a substantial
portion of the assets of, the Company or Parent or any of their respective
subsidiaries other than the transactions contemplated or permitted by this
Merger Agreement. Notwithstanding anything in this Section 8.10 to the
contrary, (i) neither the Company nor any of its subsidiaries shall be
prohibited from authorizing or effecting a Blue Diamond Disposition and a Blue
Diamond Disposition shall not be deemed to be an "Alternative Transaction" for
any purpose under this Merger Agreement and (ii) nothing in this Section 8.10
shall affect the rights of the Boards of Directors of the Company or Parent to
change its recommendation pursuant to Section 3.6 above. Notwithstanding the
foregoing, Parent and the Company shall provide copies of this Section 8.10 to
third parties who, on an unsolicited basis after the date of this Merger
Agreement, contact such party regarding an Acquisition Proposal, provided that
the party providing such copies shall concurrently notify the other party of
such delivery of such copy.
Section 8.11 Takeover Provisions Inapplicable. The Company and Parent shall
take all actions necessary to ensure that the consummation of the Merger and
the other transactions contemplated hereby shall not render the restrictions
of Section 203 of the DGCL applicable to such transactions.
Section 8.12 Exception to Standstill Covenant. Notwithstanding the
standstill provisions of Section 8 of the Confidentiality Agreement (the
"Standstill Provisions"), either party (the "Unrestricted Party") shall be
free to take any of the actions prohibited by the Standstill Provisions, but
shall to the extent practicable seek to cooperate with the other party with
respect to a new Acquisition Proposal, upon the occurrence of any of the
events described below:
(a) the Unrestricted Party terminates this Merger Agreement pursuant to
Section 10.1 (f); or
(b) a Superior Proposal Termination where such other party accepts or
recommends a Superior Proposal; or
(c) the Unrestricted Party terminates this Merger Agreement pursuant to
Section 10.1 (d) and within six (6) months of such termination (1) a third
party proposes or commences an Alternative Transaction with respect to such
other party or makes or participates in a solicitation of proxies or
consents with respect to the voting securities of such other party, or (2)
such other party accepts or recommends to its stockholders an Alternative
Transaction within such six-month period.
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Section 8.13 Reservation of Shares; Agreement to Issue Parent Common
Stock. From and after the Effective Date, Parent shall at all times reserve
and keep available for issue such number of its authorized but unissued shares
of Common Stock as will be sufficient to permit the exercise in full of all
outstanding Company Stock Options. Parent agrees that, from and after the
Effective Date, upon any exercise of the Warrants, the Louisiana Option, the
Mississippi Option or the Resort Purchase Option (as such terms are defined or
referenced in Section 5.3 of the Company Disclosure Schedule) for shares of
stock, Parent shall issue shares of Parent Common Stock in lieu of shares of
Company Common Stock, with adjustments as to the number of shares and exercise
price as provided therein.
ARTICLE IX
Conditions Precedent
Section 9.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following conditions:
(a) This Merger Agreement and the transactions contemplated hereby shall
have been approved and adopted by the requisite affirmative vote of the
holders of the Company Common Stock (as described in Section 5.13) in
accordance with applicable law.
(b) The Parent Share Proposal shall have been approved by the requisite
affirmative vote of the holders of the Parent Common Stock (as described in
Section 4.13) in accordance with applicable law and the rules and
regulations of the NASD.
(c) The Parent Common Stock issuable in the Merger shall have been
authorized for listing on the NASDAQ National Market System upon official
notice of issuance.
(d) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(e) All consents, approvals, orders, authorizations of, or registrations,
findings of suitability, licenses, declarations or filings with, any
Governmental Entity in respect of Company Gaming Laws or Parent Gaming Laws
required to consummate the transactions contemplated hereby (including
changes in the composition of the Board of Directors of the Company and
Parent, subject to the parties' obligation to select suitable substitute
nominees pursuant to Section 3.5) shall have been obtained and shall remain
in full force and effect and all statutory waiting periods in respect
thereof shall have expired (all such approvals and the expiration of all
such waiting periods being referred to herein as the "Requisite Regulatory
Approvals") and no such approval shall contain any conditions, limitations
or restrictions which the Board of Directors of either Parent or the
Company reasonably determines in good faith will have or reasonably be
expected to have a Parent Material Adverse Effect or a Company Material
Adverse Effect.
(f) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act. No stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and remain in effect nor shall have any proceedings seeking a
stop order been initiated or threatened by the Commission. Parent shall
have received all state securities or "blue sky" permits and other
authorizations necessary to issue the shares of Parent Common Stock in the
Merger.
(g) No temporary restraining order, preliminary or permanent injunction
or other order by any federal or state court in the United States which
prevents the consummation of the Merger shall have been issued and remain
in effect (each party agreeing to use its best efforts to have any such
injunction lifted). There shall not be any action taken, or any statute,
rule, regulation or order enacted entered, enforced or deemed applicable to
the Merger, which makes the consummation of the Merger illegal.
(h) No legislation shall have been adopted or proposed (with a reasonable
likelihood of being adopted) in California that would prohibit the
ownership of the combined company of Parent and the Company.
Section 9.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the additional following
conditions, unless waived by the Company:
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(a) The representations and warranties of Parent and Sub set forth in
this Merger Agreement shall be true and correct (determined without regard
to any materiality qualifiers, including without limitation "Parent
Material Adverse Effect" contained in the specific representation or
warranty) (i) as of the date hereof and (ii) as of the date of the Closing
(provided that in the cases of clauses (i) and (ii) any such representation
and warranty made as of a specific date shall be true and correct as of
such specific date), except for such inaccuracies that individually or in
the aggregate would not reasonably be expected to have a Parent Material
Adverse Effect, and the Company shall have received a certificate signed by
the president and the chief financial officer of Parent and the president
of Sub to such effect.
(b) Each of Parent and Sub shall have performed in all material respects
all obligations and covenants required to be performed by it under this
Merger Agreement prior to or as of the date of the Closing, and the Company
shall have received a certificate signed by the president and the chief
financial officer of Parent and the president of Sub to such effect.
(c) The Board of Directors of Parent shall consist of eleven members,
comprised of four Company Directors and seven Parent Directors, the
Executive Committee shall consist of five or six members, comprised of
three or four Parent Members and two Company Members, and the Bylaw
Amendment shall be in effect, all as provided in Section 3.5.
(d) The Company shall have received written assurances from Parent that
there will be available sufficient financing of up to $164.5 million to
fund (i) the repurchase of the Company's outstanding 11 1/2% First Mortgage
Notes due 2003 if put to the Company by the holders thereof in accordance
with the terms of the Company's Indenture in connection with the
transactions contemplated hereby and (ii) up to $60 million for future
gaming projects, such written assurances to be in form and substance
reasonably satisfactory to the Company.
(e) There shall have been no material adverse change in the business,
properties, assets, condition (financial or otherwise), liabilities or
operations of Parent and its subsidiaries taken as a whole after the date
of this Merger Agreement through the Effective Date; provided, however,
that a bankruptcy or foreclosure or deed in lieu of foreclosure or similar
action involving Sunflower Racing, Inc. and/or its subsidiaries shall not
constitute such a material adverse change nor shall litigation with respect
thereto constitute such a material adverse change unless such litigation
would reasonably be expected to result in a Parent Material Adverse Effect
with respect to Parent and its subsidiaries other than Sunflower Racing,
Inc. and its subsidiaries.
(f) The Company and Parent shall have received all third-party consents
and approvals required to be obtained by the Company or Parent in
connection with the transactions contemplated hereby, under any contract to
which the Company or Parent (or any of their respective subsidiaries) may
be a party, including without limitation any consents that may be required
pursuant to the Company's Indenture relating to its 11 1/2% First Mortgage
Notes due 2003 (the "Noteholders Consent"), which consents and approvals
are listed on Schedule 9 hereto, except for such third-party consents and
approvals (other than the Noteholders Consent) as to which the failure to
obtain, either individually or in the aggregate, would not reasonably be
expected to result in a Company Material Adverse Effect or a Parent
Material Adverse Effect, as the case may be.
(g) The Company shall have received a favorable opinion of Wilson Sonsini
Goodrich & Rosati, based upon certain assumptions and factual
representations of the Company, Parent and Sub and certain stockholders of
the Company reasonably requested by such counsel, dated the Effective Date,
to the effect that the Merger will constitute a reorganization for Federal
income tax purposes within the meaning of Section 368(a) of the Code.
Section 9.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the additional
following conditions, unless waived by Parent:
(a) The representations and warranties of the Company set forth in this
Merger Agreement shall be true and correct (determined without regard to
any materiality qualifiers, including without limitation
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"Company Material Adverse Effect" contained in the specific representation
or warranty) (i) as of the date hereof and (ii) as of the date of the
Closing (provided that in the cases of clauses (i) and (ii) any such
representation and warranty made as of a specific date shall be true and
correct as of such specific date), except for such inaccuracies that
individually or in the aggregate would not reasonably be expected to have a
Company Material Adverse Effect, and Parent and Sub shall have received a
certificate signed by the chief executive officer and the chief financial
officer of the Company to such effect.
(b) The Company shall have performed in all material respects all
obligations and covenants required to be performed by it under this Merger
Agreement prior to or as of the date of the Closing, and Parent and Sub
shall have received a certificate signed by the chief executive officer and
the chief financial officer of the Company to such effect.
(c) There shall have been no material adverse change in the business,
properties, assets (financial or otherwise), liabilities or operations of
the Company and its subsidiaries taken as a whole after the date hereof
through the Effective Date; provided, however, that neither a Blue Diamond
Disposition nor a decision by the Company not to exercise the Resort
Purchase Option (as such term is defined in Section 5.3 of the Company
Disclosure Schedule) relating to Blue Diamond shall not constitute such a
material adverse change.
(d) Parent and the Company shall have received all third-party consents
and approvals required to be obtained by the Company or Parent in
connection with the transactions contemplated hereby, under any contract to
which the Company or Parent (or any of their respective subsidiaries) may
be a party, including without limitation any consents that may be required
pursuant to the Company's Indenture relating to its 11 1/2% First Mortgage
Notes due 2003, except for such third-party consents and approvals (other
than the Noteholders Consent) as to which the failure to obtain, either
individually or in the aggregate, would not reasonably be expected to
result in a Company Material Adverse Effect or a Parent Material Adverse
Effect, as the case may be.
(e) Parent shall have received a favorable opinion of Irell & Manella
LLP, based upon certain assumptions and factual representations of the
Company, Parent, Sub and certain stockholders of the Company, reasonably
requested by such counsel, dated the Effective Date, to the effect that the
Merger will constitute a reorganization for Federal income tax purposes
within the meaning of Section 368(a) of the Code.
ARTICLE X
Termination, Amendment and Waiver
Section 10.1 Termination. This Merger Agreement may be terminated at any
time prior to the Effective Date, whether before or after the approval by the
stockholders of the Company or Parent contemplated hereby:
(a) by mutual consent of the Board of Directors of Parent and the Board
of Directors of the Company; or
(b) by either the Board of Directors of Parent or the Board of Directors
of the Company if (i) any Governmental Entity which must grant a Requisite
Regulatory Approval has denied approval of the Merger and such denial has
become final and nonappealable (provided that the denial of a license under
any Company Gaming Laws or Parent Gaming Laws to any one or more directors
or officers of a party or a subsidiary of such party is not grounds for
termination of this Merger Agreement and each party covenants and agrees
that, in the event of such a denial of a license, or the notification
(whether formally or informally) by the relevant Governmental Entity of an
anticipated denial of a license or related approval, to one or more
directors, officers or racing or gaming managers of such party or a
subsidiary of such party, such party agrees to select alternative designees
for licensing to replace the directors, officers or racing or gaming
managers whose licenses were denied or are anticipated to be denied) or
(ii) any Governmental Entity of competent jurisdiction shall have issued a
final nonappealable order enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement; or
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(c) by either Parent or the Company if the Merger shall not have been
consummated on or before December 31, 1996, provided that if the Merger
shall not have been consummated by such date due to failure to receive all
Required Regulatory Approvals by such date, then such date shall be
extended to June 30, 1997, and provided further that the right to terminate
this Merger Agreement pursuant to this Section 10.1(c) shall not be
available to any party whose action or failure to act has been the cause of
or resulted in the failure of the Merger to occur on or before such date
and such action or failure to act constituted a breach of this Agreement;
or
(d) by either the Board of Directors of Parent or the Board of Directors
of the Company if the other party shall have breached (i) any of the
covenants or agreements made by such other party herein or (ii) any of the
representations or warranties made by such other party herein, and in
either case, such breach (x) is not cured within thirty (30) days following
written notice to the party committing such breach, or which breach, by its
nature, cannot be cured prior to the Closing and (y) would entitle the non-
breaching party not to consummate the transactions contemplated hereby
under Article IX hereof; or
(e) by either the Board of Directors of Parent or the Board of Directors
of the Company if any approval of the stockholders of Parent or the Company
contemplated by this Merger Agreement shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting of
stockholders or at any adjournment or postponement thereof; or
(f) by either the Board of Directors of Parent or the Board of Directors
of the Company, if, without the consent of such party, the Board of
Directors of the other party (x) shall have failed to recommend, or shall
have withdrawn, modified or changed in a manner adverse to the terminating
party its approval or recommendation, of this Merger Agreement and the
transactions contemplated hereby (in the case of the Company) or the Parent
Share Proposal (in the case of Parent), or (y) shall have submitted or
recommended to the stockholders of such other party or shall have approved
an Alternative Transaction (as defined in Section 10.5), or (z) shall have
publicly announced its intention to do any of the foregoing; or
(g) by either the Board of Directors of Parent or the Board of Directors
of the Company, if either party shall have accepted or recommended to its
stockholders a Superior Proposal (a "Superior Proposal Termination")
(provided that in the case of a termination by the party accepting or
recommending a Superior Proposal pursuant to this Section 10.1(g), such
party shall have paid to the other party all amounts owing under Section
10.5(b) or (c), as the case may be); or
(h) by either the Board of Directors of Parent or the Board of Directors
of the Company if a condition to such party's performance set forth in
Article IX shall not have been satisfied at any time prior to the Closing
and such condition shall be impossible to satisfy.
Section 10.2 Effect of Termination. In the event of termination of this
Merger Agreement by either Parent or the Company, as provided above, this
Merger Agreement shall forthwith become void and (except for the willful
breach of this Merger Agreement by any party hereto) there shall be no
liability on the part of either the Company, Parent or Sub or their respective
officers or directors; provided that Sections 10.2 (effect of termination),
10.5 (fees and expenses) and Article XI (general) shall survive the
termination.
Section 10.3 Amendment. To the fullest extent permitted by applicable law,
this Merger Agreement may be amended by the parties hereto, by or pursuant to
action taken by their respective Boards of Directors, at any time before or
after the approvals contemplated hereby by the stockholders of the Company and
Parent, but, after such approval, no amendment shall be made which by law
requires further approval of the stockholders, without the further approval of
such stockholders. This Merger Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
Section 10.4 Waiver. At any time prior to the Effective Date, the parties
hereto, by or pursuant to action taken by their respective Boards of
Directors, may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
documents delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party.
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Section 10.5 Fees and Expenses. (a) Except as provided in Sections 10.5(b)
and (c), whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Merger Agreement and the transactions
contemplated by this Merger Agreement shall be paid by the party incurring
such expenses, provided, however, that (i) the costs and expenses of printing
and mailing the Proxy Statement and the Registration Statement and all filing
and other fees paid to the Commission in connection with the Merger shall be
borne equally by Parent and the Company, (ii) Parent shall pay all filing and
other fees payable to any Governmental Entity in connection with compliance
with the HSR Act, and (iii) notwithstanding anything to the contrary contained
in this Merger Agreement, neither Parent nor the Company shall be relieved or
released from any liabilities or damages arising out of its willful breach of
any provision of this Merger Agreement.
(b) Subject to Section 10.5(d) below, the Company shall pay Parent a cash
fee of $3,500,000 plus up to an aggregate of $1,500,000 of actual documented
out-of-pocket expenses of Parent relating to the transactions contemplated by
this Merger Agreement (including, but not limited to, fees and expenses of
Parent's counsel, accountants and financial advisors), upon the earliest to
occur of the following:
(i) a Superior Proposal Termination by Parent or the Company where the
Company is the party accepting or recommending a Superior Proposal; or
(ii) the Merger shall not have been approved by the Company's
stockholders at the Company Meeting or such meeting shall not have been
held or shall have been cancelled, if (x) prior thereto it shall have been
publicly announced that any person (other than Parent) shall have proposed
or disclosed an intention to propose or that it is considering an
Alternative Transaction (other than an Alternative Transaction previously
approved by Parent in writing) involving the Company or any of its
Significant Subsidiaries and (y) within nine (9) months following such
disapproval or cancellation, the Company shall have entered into a written
agreement regarding an Alternative Transaction with such person; or
(iii) the termination of this Merger Agreement by Parent pursuant to
Section 10.1(f) unless the Company's Board of Directors shall have failed
to recommend or shall have withdrawn or modified its recommendation due to
a material adverse change respecting Parent which would entitle the Company
not to consummate the transactions contemplated hereby under Section
9.2(e).
(c) Subject to Section 10.5(d) below, Parent shall pay the Company a cash
fee of $3,500,000 plus up to an aggregate of $1,500,000 of actual documented
out-of-pocket expenses of the Company relating to the transactions
contemplated by this Merger Agreement (including, but not limited to, fees and
expenses of the Company's counsel, accountants and financial advisors), upon
the earliest to occur of the following:
(i) a Superior Proposal Termination by Parent or the Company where Parent
is the party accepting or recommending a Superior Proposal; or
(ii) the Parent Share Proposal shall not have been approved by Parent's
stockholders at the Parent Meeting or such meeting shall not have been held
or shall have been cancelled, if (x) prior thereto it shall have been
publicly announced that any person (other than the Company) shall have
proposed or disclosed an intention to propose or that it is considering an
Alternative Transaction (other than an Alternative Transaction previously
approved by the Company in writing) involving Parent or any of its
Significant Subsidiaries and (y) within nine (9) months following such
disapproval or cancellation, Parent shall have entered into a written
agreement regarding an Alternative Transaction with such person; or
(iii) the termination of this Merger Agreement by the Company pursuant to
Section 10.1(f) unless Parent's Board of Directors shall have failed to
recommend or shall have withdrawn or modified its recommendation due to a
material adverse change respecting the Company which would entitle Parent
not to consummate the transactions contemplated hereby under Section
9.3(c).
As used herein, the term "Alternative Transaction" shall mean either (w) a
transaction pursuant to which any person (or group of persons) other than the
parties hereto or their current affiliates (a "Third Party") acquires
securities representing more than twenty percent (20%) of the outstanding
voting power of the Company or Parent, as the case may be, whether from the
issuer or pursuant to a tender offer or exchange offer or otherwise, (x) a
merger or other business combination involving the Company or Parent, as the
case may be, pursuant to
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which any Third Party or Third Parties acquire(s) securities representing more
than twenty percent (20%) of the outstanding voting power of the Company or
Parent, as the case may be, or the entity surviving such merger or business
combination, (y) any other transaction except for transactions described in
Section 7.1 of the Company Disclosure Schedule or the Parent Disclosure
Schedule, as the case may be, pursuant to which a Third Party acquires control
of assets (including equity securities of subsidiaries) of the Company or
Parent, as the case may be, or any of their respective subsidiaries having a
fair market value equal to or greater than twenty percent (20%) of the total
consolidated assets of the Company or Parent, as the case may be, and their
respective subsidiaries, taken as a whole, calculated immediately prior to
such transaction or (z) in the case of Parent, the acquisition by Parent
(except for transactions described in Section 7.1 of the Parent Disclosure
Schedule) of the assets or stock of any other business with a fair market
value equal to or greater than twenty percent (20%) of the total consolidated
assets of Parent and its subsidiaries, taken as a whole, calculated
immediately prior to any such acquisition.
(d) Payment of the amounts described in Sections 10.5(b), (c) or (e) shall
not be in lieu of damages incurred in the event of breach of this Merger
Agreement.
(e) Upon the termination of this Merger Agreement by Parent or the Company,
as the case may be, pursuant to Section 10.1(d) as a result of a material
breach by the other party of this Merger Agreement, such other party shall pay
Parent or the Company, as the case may be, the actual, documented and
reasonable out-of-pocket expenses of the other party relating to the
transactions contemplated by this Merger Agreement (including, but not limited
to, fees and expenses of such other party's counsel, accountants and financial
advisors).
(f) The fees and expenses payable pursuant to paragraphs (b), (c) and (e)
above shall be paid within five business days after the first to occur of the
events described in paragraphs (b), (c) and (e) above.
ARTICLE XI
General Provisions
Section 11.1 Non-Survival of Representations, Warranties and Agreements. No
representations, warranties or agreements in this Merger Agreement shall
survive the Merger, except for the agreements contained in Sections 3.1
(conversion of shares), 3.2 (exchange of certificates), 3.3 (dividends,
transfer taxes), 3.4 (fractional shares), 3.5 (Board, Executive Committee),
3.7 (transfer books), 8.6 (employee arrangements), 8.7 (indemnification), 8.9
(additional agreements), the last sentence of 10.3 (amendment), 10.5 (fees and
expenses) and Article XI (general).
Section 11.2 Notices. All notices or other communications under this Merger
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
Boomtown, Inc.
P.O. Box 399
Verdi, Nevada 89439-0399
Attention: Mr. Timothy J. Parrott
Telecopy No.: (702) 345-2327
With a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: John V. Roos, Esq.
Telecopy: (415) 493-6811
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If to Parent or Sub:
Hollywood Park, Inc.
1050 South Prairie Avenue
Inglewood, California 90301
Attention: Mr. R.D. Hubbard
Telecopy No.: (310) 671-4460
With a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067-4276
Attention: Alvin G. Segel, Esq.
Telecopy No.: (310) 203-7199
or to such other address as any party may have furnished to the other parties
in writing in accordance with this Section.
Section 11.3 Publicity. Neither Parent nor the Company shall, or shall
permit any of its respective subsidiaries to, issue or cause the publication
of any press release or other public announcement with respect to, or
otherwise make any public statement concerning, the transactions contemplated
by this Merger Agreement without the prior consent of the other party, which
consent shall not be unreasonably withheld, except as may be required by law
or by obligations pursuant to any listing agreement with any national
securities exchange or the NASDAQ National Market System. The commencement of
litigation relating to this Merger Agreement or the transactions contemplated
hereby or any proceedings in connection therewith shall not be deemed a
violation of this Section 11.3.
Section 11.4 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Merger
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Merger
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
Section 11.5 Interpretation. When a reference is made in this Merger
Agreement to subsidiaries of Parent or the Company, the word "subsidiaries"
means corporations, partnerships, joint ventures, associations, trusts,
unincorporated organizations, limited liability companies or other entities,
50% or more of the outstanding voting securities or interests of which (or the
right to select a majority of the Board of Directors or other governing body),
or, if there are no such voting securities or interests, 50% or more of the
equity interests of which, are directly or indirectly owned by Parent or the
Company, as the case may be. Notwithstanding the foregoing, with respect to
the Company, Indiana Ventures, LLC shall be deemed to be a subsidiary of the
Company. The headings contained in this Merger Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Merger Agreement.
Section 11.6 Miscellaneous. This Merger Agreement (including the documents
and instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof (other than as provided in the Confidentiality Agreement, as the same
may be amended) including without limitation the Letter of Intent dated March
19, 1996 between Parent and the Company; and (b) shall not be assigned by
operation of law or otherwise, except that Sub shall have the right to assign
to Parent or any direct wholly owned subsidiary of Parent any and all rights
and obligations of Sub under this Merger Agreement. This Merger Agreement may
be executed in two or more counterparts which together shall constitute a
single agreement.
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Section 11.7 Governing Law. This Merger Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without regard
to any applicable principles of conflicts of law.
Section 11.8 Parties in Interest. This Merger Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Merger Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under
or by reason of this Merger Agreement except that (i) the officers, directors
and employees of the Company are intended beneficiaries of the covenants and
agreements set forth in Section 8.7, (ii) the holders of Company Stock Options
are the intended beneficiaries of the covenants set forth in Section 8.6(b)
and (c) and (iii) the employees and consultants of the Company are the
intended beneficiaries of the covenants and agreements set forth in
Section 8.6(a).
Section 11.9 No Control of the Company By Parent Under Company Gaming
Laws. Notwithstanding any provision contained in this Merger Agreement, Parent
shall not have the power, directly or indirectly, to direct or cause the
direction of the management and policies of the Company until Parent receives
all Requisite Regulatory Approvals under Company Gaming Laws to acquire
control of the Company pursuant to the terms of this Merger Agreement. To the
extent that any provision contained in this Merger Agreement would purport to
give Parent such power prior to the receipt of all such Requisite Regulatory
Approvals, such provision shall be deemed amended to the extent necessary, but
only to the extent necessary, so as not to give Parent such power.
Section 11.10 Approval of the Company or Parent. In each instance where this
Merger Agreement requires or contemplates the consent, approval, waiver or
action of the Company or Parent, as the case may be, such consent, approval,
waiver or action shall be deemed given or taken, if given or taken by the
Chief Executive Officer of such party, unless expressly provided otherwise or
as otherwise required by applicable law or the Certificate of Incorporation or
Bylaws of such party.
Section 11.11 Severability. In case any one or more of the provisions
contained in this Merger Agreement should be invalid, illegal or unenforceable
in any respect against a party hereto, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby, and such invalidity, illegality or
unenforceability shall only apply as to such party in the specific
jurisdiction where such judgment shall be made. Notwithstanding the foregoing,
if such provision could be more narrowly drawn so as not to be invalid,
prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Merger Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Merger
Agreement to be signed by their respective officers thereunder duly authorized
all as of the date first written above.
Hollywood Park, Inc.
/s/ R.D. Hubbard
By: _________________________________
R.D. Hubbard
Chairman of the Board and
Chief Executive Officer
HP Acquisition, Inc.
/s/ R.D. Hubbard
By: _________________________________
R.D. Hubbard
President
Boomtown, Inc.
/s/ Timothy J. Parrott
By: _________________________________
Timothy J. Parrott
Chairman of the Board and
Chief Executive Officer
A-45
<PAGE>
APPENDIX B--OPINION OF OPPENHEIMER & CO., INC.
[OPPENHEIMER & CO., INC. LETTERHEAD]
April 24, 1996
CONFIDENTIAL
The Board of Directors
Hollywood Park, Inc.
1050 South Prairie Avenue
Inglewood, California 90301
Gentlemen:
You have asked Oppenheimer & Co., Inc. ("Oppenheimer") to render an opinion
(the "Opinion") as to the fairness, from a financial point of view, to the
stockholders of Hollywood Park, Inc. ("HPRK") of the consideration to be
received by the holders of common stock of Boomtown, Inc. ("BMTN") in
connection with the proposed merger of BMTN with HPRK (the "Merger"), pursuant
to the terms and conditions set forth in the Boomtown Agreement and Plan of
Merger between HPRK and BMTN dated April 23, 1996 (the "Merger Agreement").
As more fully described in the Merger Agreement, upon the consummation of
the Merger (a) BMTN will be merged with and into HPRK and (b) each outstanding
share of BMTN common stock, par value $.01 per share ("BMTN Common Stock"),
subject to the terms of the Merger Agreement, will be converted into the right
to receive six hundred twenty-five one thousandths (.625) of one paid and non-
assessable share of common stock, par value $.10 per share, of HPRK ("HPRK
Common Stock").
In arriving at our Opinion we:
(i) reviewed the draft Boomtown Agreement and Plan of Merger dated April
17, 1996;
(ii) reviewed HPRK's annual reports to stockholders and annual reports on
Form 10-K for the five fiscal years ended December 31, 1995 and HPRK's
quarterly reports on Form 10-Q for fiscal years 1994 and 1995;
(iii) reviewed BMTN's annual reports to stockholders and annual reports
on Form 10-K for the three fiscal years ended September 30, 1995, audited
financials for the two fiscal years ended September 30, 1992 and BMTN's
quarterly reports on Form 10-Q for fiscal years 1994, 1995 and the first
two quarters of fiscal 1996;
(iv) held discussions with the senior managements of HPRK and BMTN and
visited certain major properties of HPRK and BMTN;
(v) reviewed financial projections for HPRK prepared by HPRK's
management;
(vi) reviewed financial projections for BMTN prepared by BMTN's
management;
(vii) held discussions with HPRK regarding the plans for BMTN after
consummation of the Merger;
(viii) reviewed current and historical market prices and trading data of
HPRK Common Stock and BMTN Common Stock;
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HOLLYWOOD PARK, INC.
PAGE 2 OF 3
APRIL 24, 1996
(ix) reviewed financial and market data for certain public companies we
deemed comparable to HPRK and BMTN;
(x) reviewed and analyzed recent mergers and acquisitions of companies we
deemed comparable to BMTN; and
(xi) performed such other analyses and reviewed such other information as
we deemed appropriate.
In rendering our Opinion we relied upon and assumed, without independent
verification or investigation, the accuracy and completeness of all of the
financial and other information available to us from public sources or
provided to us by HPRK and BMTN and their respective representatives. With
respect to forecasts regarding HPRK's and BMTN's future financial condition
and operating results provided to us as described in clauses (v) and (vi)
above, we assumed, without independent verification or investigation, that
such forecasts were reasonably prepared based on the best available
information, estimates and judgement of HPRK's and BMTN's respective
managements. We are not expressing any opinion as to what the value of the
HPRK Common Stock actually will be when issued to holders of BMTN Common Stock
pursuant to the Merger or the price at which the HPRK Common Stock will trade
subsequent to the Merger. In addition, we have neither made nor obtained any
independent evaluation or appraisal of the assets or liabilities of HPRK or
BMTN.
Our Opinion is based upon analyses of the foregoing factors in light of our
assessment of general economic, financial and market conditions as of the date
hereof that can be evaluated by us as of such date.
Oppenheimer, as part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities and private placements. Oppenheimer has performed
investment banking and other services for both HPRK and BMTN in the past and
has been compensated for such services. In the past, Oppenheimer has performed
the following investment banking and financial advisory services for Boomtown;
lead manager of its October 1992 IPO; lead manager of its May 1993 follow-on
common stock offering; lead manager of its November 1993 units offering
consisting of $103,500,000 of first mortgage bonds and 472,500 warrants to
purchase common stock; and financial advisor to BMTN in connection with the
development of BMTN's New Orleans and Biloxi properties. In connection with
the October 1992 IPO of Boomtown, Oppenheimer and certain of its affiliates
and employees received 106,641 warrants exercisable for Boomtown common stock
at a price of $12.00 per share. With regard to HPRK, Oppenheimer: (i) acted as
lead manager of its June 1993 follow-on common stock offering and (ii)
rendered a fairness opinion with regard to HPRK's purchase of The Woodlands
Race Track and related facilities in Kansas.
As mentioned above, Oppenheimer has been engaged to render financial
advisory services to HPRK in connection with the Merger for which Oppenheimer
will receive a fee, a significant portion of which is contingent upon the
consummation of the Merger. Oppenheimer will also receive a fee upon the
delivery of this Opinion. In the ordinary course of business, Oppenheimer may
actively trade the securities of HPRK and BMTN for its own account or for the
account of its customers and accordingly may at any time hold a long or short
position in such securities.
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HOLLYWOOD PARK, INC.
PAGE 3 OF 3
APRIL 24, 1996
Based upon and subject to the foregoing, it is our Opinion that, as of the
date hereof, the consideration to be received by the holders of BMTN Common
Stock in connection with the Merger is fair, from a financial point of view, to
the stockholders of HPRK.
Very truly yours,
OPPENHEIMER & CO., INC.
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APPENDIX C--OPINION OF SUTRO & CO. INCORPORATED
[SUTRO & CO. LETTERHEAD]
April 23, 1996
The Board of Directors
Boomtown, Inc.
Post Office Box 399
Verdi, Nevada 89439-0399
Gentlemen:
You have requested our opinion (the "Opinion") as to the fairness, from a
financial point of view, to the common shareholders of Boomtown, Inc. (the
"Company" or "Boomtown"), of the consideration to be received by such
shareholders pursuant to the terms of the Agreement and Plan of Merger draft
dated as of April 16, 1996 (the "Merger Agreement"), between the Company and
Hollywood Park, Inc. (the "Acquiror" or "Hollywood Park"). As more fully
described in the Merger Agreement at the effective time of the Merger, (i) the
Company will be merged with and into Hollywood Park and (ii) each outstanding
share of the Company Common Stock will, subject to the terms of the Merger
Agreement, be converted into the right to receive 0.625 of fully paid and
nonassessable shares of Common Stock, par value $0.01 per share, of Hollywood
Park, Inc. (the "Exchange Ratio") (the "Merger").
In arriving at our Opinion, we have reviewed the financial terms of the Merger
Agreement as well as publicly available business and financial information
relating to the Company and the Acquiror for recent years and interim periods
to date. We have also reviewed certain internal financial forecasts and
projections provided to us by the Company and have met with management of the
Company to review and discuss such information as well as the Company's
business, operations, assets, financial condition and future prospects. We
have also reviewed certain internal financial forecasts and projections of the
Acquiror provided to us by the Acquiror's financial advisor (on behalf of the
Acquiror) and have discussed with the management of the Acquiror such
information and the respective business, operations, assets, financial
condition and future prospects. In addition, we have compared certain
financial and securities data of the Company and the Acquiror with various
other companies in the casino and entertainment industries, reviewed the
historical stock prices and trading volumes of the common stock of the Company
and the Acquiror, reviewed the financial terms of other business combinations
and conducted such other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In our review and analysis and in formulating our Opinion, we have assumed and
relied upon the accuracy and completeness of all the financial and other
information provided to us or publicly available, and we have not assumed any
responsibility for independently verifying any such information. We have
assumed, with your consent, that the financial forecasts and projections
provided to us by the Company and the Acquiror's financial advisor (on behalf
of the Acquiror) were prepared in good faith and on bases reflecting the best
currently available judgments and estimates of the management of each Company.
In addition, we have made certain assumptions concerning the operations of the
combined entity consistent with the financial projections supplied by the
Company and the Acquiror. Our Opinion, as set forth herein, relates to the
relative values of the Company and the Acquiror. We are not expressing any
opinion as to what the value of the Acquiror Common Stock actually will be
when issued to holders of the Company Common Stock pursuant to the Merger or
the price at which the Acquiror Common Stock will actually trade subsequent to
the Merger.
[JOHN HANCOCK LOGO]
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<PAGE>
We have relied as to all legal matters on advice of counsel of the Company. We
have made no independent investigation of any legal matters affecting the
Company or the Acquiror. We have assumed the correctness of the legal advice
given to the Board of Directors of the Company by its counsel, and have
assumed that upon consummation of the Merger, each company shall have all the
appropriate licenses and permits, including all gaming licenses, to conduct
its business as proposed.
We have not been authorized to and have not solicited alternative offers for
the Company or its assets, or investigated alternative transactions which may
be available to the Company. However, we are aware of other transactions which
have been previously considered by the Company. For the purposes of this
Opinion, we have assumed that the final form the Merger Agreement as executed
by the parties thereto, will not differ in any material respect from the draft
provided to us.
Sutro & Co. Incorporated ("Sutro"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations. We have acted as financial advisor to the Board of Directors of
the Company in connection with the Merger described above and we will receive
a fee for rendering this Opinion. In the ordinary course of our business, we
may actively trade the securities of the Company and the Acquiror for our own
account or the account of our customers and, accordingly, may at any time hold
a long or short position in such securities. Sutro has previously provided
investment banking services for Boomtown. Sutro acted as a managing
underwriter for the Company's initial public offering in October 1992 of
3,737,500 shares at a price of $10.00, the follow-on common stock offering
3,910,000 shares at a price of $27.50 and the units offering in November 1993
consisting of $103,500,000 of First Mortgage Notes and Warrants to purchase
472,500 shares of common stock. In addition, Sutro acted as financial advisor
to Boomtown in June 1993 in connection with the Blue Diamond Hotel & Casino,
Inc. joint venture.
Our Opinion is necessarily based on economic, market, financial and other
conditions as they exist and can be evaluated as of the date of this letter
and change in such conditions would require a re-evaluation of this Opinion.
We disclaim any obligation to update, revise or reaffirm this Opinion.
It is understood that this letter is for the benefit and use of the Board of
Directors of the Company in its consideration of the Merger Agreement and may
not be used for any other purpose or reproduced, disseminated, quoted or
referred to at any time, in any manner or for any purpose without our prior
written consent. Our Opinion may not be published or otherwise used or
referred to, nor shall any public reference to Sutro's Opinion be made, other
than in connection with the filings required to be made by the Company with
the Securities and Exchange Commission pursuant to the Securities Act of 1933
or the Securities Exchange Act of 1934 and in materials delivered to the
stockholders, without Sutro's prior written consent.
Based upon and subject to the foregoing and such other factors as we deemed
relevant, it is our opinion that the Exchange Ratio, from a financial point of
view, is fair to the common shareholders of Boomtown.
Sincerely,
SUTRO & CO. INCORPORATED
[SUTRO & CO. LOGO]
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APPENDIX D
HOLLYWOOD PARK, INC.
1996 STOCK OPTION PLAN
1. Purpose.
The purpose of this 1996 Stock Option Plan (the "Plan") of Hollywood Park,
Inc., a Delaware corporation (the "Company"), is to secure for the Company and
its stockholders the benefits arising from stock ownership by selected key
employees, directors, consultants and advisors of the Company or its
subsidiaries, as the Committee (hereinafter defined) may from time to time
determine. The Plan will provide a means whereby (i) such employees may
purchase shares of the Common Stock of the Company pursuant to options which
will qualify as "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), (ii) such employees or other
persons may purchase shares of the Common Stock of the Company pursuant to
"non-incentive" or "non-qualified" stock options and (iii) any of such persons
may receive shares of the Common Stock of the Company, or cash in lieu
thereof, pursuant to stock appreciation rights granted in tandem with such
options.
2. Administration.
The Plan shall be administered by the Company's Compensation Committee or to
another committee established by the Board of Directors of the Company to
administer the Plan and to whom administration of the Plan will be duly
delegated (in either event, the "Committee"), which Committee shall consist of
two or more directors, each of whom shall be both (i) a "non-employee"
director within the meaning of, or shall otherwise satisfy the requirements
of, Rule 16b-3(c)(2)(i) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and (ii) an "outside director" within the meaning of
Treasury Regulation (S)1.162-27(e)(3). Any action of the Committee with
respect to administration of the Plan shall be taken by a majority vote or
written consent of its members.
Subject to the express provisions of the Plan, the Committee shall have
authority (i) to construe and interpret the Plan, (ii) to define the terms
used herein, (iii) to prescribe, amend and rescind rules and regulations
relating to the Plan, (iv) to determine the individuals to whom and the time
or times at which options shall be granted, the terms and provisions of the
option agreements (which need not be identical), whether such options will be
incentive stock options or non-qualified stock options, whether to include a
stock appreciation right with an option and the terms of such rights, the
number of shares to be subject to each option, the option price, the number of
installments, if any, in which each option may be exercised, and the duration
of each option, (v) to approve and determine the duration of leaves of absence
which may be granted to participants without constituting a termination of
their employment for the purposes of the Plan, and (vi) to make all other
determinations necessary or advisable for the administration of the Plan. All
determinations and interpretations made by the Committee shall be binding and
conclusive on all participants in the Plan and their legal representatives and
beneficiaries.
The Company will indemnify and hold harmless the members of the Board of
Directors and the Committee from and against any and all liabilities, costs
and expenses incurred by such persons as a result of any act, or omission to
act, in connection with the performance of such persons' duties,
responsibilities and obligations under the Plan, other than such liabilities,
costs and expenses as may result from the gross negligence, bad faith, willful
misconduct and/or criminal acts of such persons.
3. Shares Subject to the Plan.
Subject to adjustment as provided in paragraph 17 hereof, the shares to be
offered under the Plan shall consist of the Company's authorized but unissued
Common Stock, par value $.10 per share (hereinafter called
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<PAGE>
"stock") and the aggregate amount of such stock which may be issued upon
exercise of all options under the Plan shall not exceed 900,000 shares. If any
option granted under the Plan shall expire or terminate for any reason (other
than surrender at the time of exercise of a related stock appreciation right
provided for in paragraph 9 hereof), without having been exercised in full,
the unpurchased shares subject thereto shall again be available for options to
be granted under the Plan.
4. Maximum Shares for Each Employee.
Each employee eligible to participate in the Plan may be granted options or
stock appreciation rights with respect to a maximum of 90,000 shares
(adjusted, if necessary, pursuant to paragraph 17, below) during any fiscal
year or portion thereof. If an option is cancelled, the cancelled option
continues to be counted against the maximum number of shares for which options
may be granted to an employee during any such fiscal year. If the exercise
price of an option is reduced after the grant of the option, the repricing of
the option shall be treated as a cancellation of the option and the grant of a
new option for purposes of applying the limitation imposed by this paragraph
4. This paragraph 4 is intended to comply with the requirements of Treasury
Regulation (S)1.162-27(e)(2)(vi), and shall be interpreted as required to
accomplish such compliance.
5. Eligibility and Participation.
All key employees, directors (other than Committee members), consultants and
advisers, of the Company or of any subsidiary corporation (as defined in
Section 425(f) of the Code) shall be eligible for selection to participate in
the Plan, except that only regular employees of the Company or a subsidiary
may receive incentive stock options under the Plan. An individual who has been
granted an option may, if such individual is otherwise eligible, be granted an
additional option or options if the Committee shall so determine, subject to
the other provisions of the Plan. Such options may be granted in lieu of
outstanding options previously granted under this Plan or may be in addition
to such options.
No incentive stock option may be granted to any person who, at the time the
incentive stock option is granted, owns shares of the Company's outstanding
Common Stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company (and of its affiliates, if
applicable), unless the exercise price of such option is at least 110 percent
(110%) of the fair market value of the stock subject to the option and such
option by its terms is not exercisable after the expiration of five years from
the date such option is granted.
The aggregate fair market value (determined at the time the options are
granted) of the shares covered by incentive stock options granted to any one
employee under this Plan or any other incentive stock option plan of the
Company which may become exercisable for the first time in any one calendar
year shall not exceed $100,000; provided, however, that if the Code or the
regulations thereunder shall permit a greater amount of incentive stock
options to vest in any calendar year, then such higher limit shall be
applicable, subject to the provisions of the specific option agreement.
All options granted under the Plan shall be granted within ten years from
the effective date of the Plan.
6. Duration of Options.
Each option and all rights associated therewith shall expire on such date as
the Committee may determine, and shall be subject to earlier termination as
provided herein; provided, however, that in the case of incentive stock
options, each incentive stock option and all rights associated therewith shall
expire in any event within ten (10) years of the date on which such incentive
stock option is granted; and provided further that all such options and rights
shall be subject to earlier termination as hereinafter provided.
7. Purchase Price.
The purchase price of the stock covered by each option shall be determined
by the Committee, but in the case of incentive stock options, shall be not
less than one hundred percent (100%) of the fair market value of
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such stock on the date the incentive stock option is granted. The Committee
shall have the discretion to grant non-qualified stock options and any stock
appreciation rights coupled therewith at a purchase price that is less than
the fair market value of the stock covered by the option or right as of the
date of the grant; however, the Company acknowledges that any such option or
right may not qualify as performance-based compensation, and therefore the
Company may be unable to deduct the expense of the option or right for income
tax purposes when such option or right is exercised. The purchase price of the
shares upon exercise of an option shall be paid in full at the time of
exercise (i) in cash or by check payable to the order of the Company, (ii) by
delivery of shares of Common Stock of the Company already owned by, and in the
possession of the option holder, or (iii) if authorized by the Committee or if
specified in the option being exercised, by a promissory note made by the
option holder in favor of the Company, upon the terms and conditions
determined by the Committee and secured by the shares issuable upon exercise
complying with applicable law (including, without limitation, state corporate
and federal margin requirements), or any combination thereof. Shares of Common
Stock used to satisfy the exercise price of an option shall be valued at their
fair market value determined (in accordance with paragraph 10 hereof) as of
the close of the business day immediately preceding the date of exercise.
Deliveries of cash, shares, and notices to the Company shall be directed to
the Secretary of the Company.
8. Exercise of Options.
Each option granted under this Plan shall be exercisable, and the total
number of shares subject thereto shall be purchasable, in such installments
(which need not be equal) during the period prior to its expiration date as
the Committee shall determine. Unless otherwise determined by the Committee,
if the option holder shall not in any given installment period purchase all of
the shares which the option holder is entitled to purchase in such installment
period, then the option holder's right to purchase any shares not purchased in
such installment period shall continue until the expiration date or sooner
termination of the option holder's option. No option or installment thereof
may be exercised except in respect of whole shares, and fractional share
interest shall be disregarded except that they may be accumulated in
accordance with the preceding sentence. No partial exercise of any option may
be for less than one hundred (100) shares.
Nothing contained in this Plan (or in any option granted pursuant to this
Plan) shall confer upon any option holder who is an employee any right to
continue in the employ of the Company or of any subsidiary, or interfere in
any way with the right of the Company or any subsidiary to terminate his
employment at any time or to increase or decrease his compensation from the
rate in existence at the time of the granting of an option, and further,
nothing contained herein or in any option agreement shall affect any
contractual rights of an option holder who is an employee.
Nothing contained in this Plan (or in any option granted pursuant to this
Plan) shall confer upon any option holder who is not an employee the right to
continue serving as a director of the Company or of any subsidiary, or
interfere in any way with the right of the Company or any subsidiary to remove
a director.
9. Stock Appreciation Rights.
If deemed appropriate by the Committee, any stock option may be coupled with
a stock appreciation right at the time of the grant of the option, or, the
Committee may grant a stock appreciation right to any person at any time after
granting an option to such person prior to the end of the term of such
associated option. Such stock appreciation right shall be subject to such
terms and conditions not inconsistent with the Plan as the Committee shall
impose, provided that:
(1) A stock appreciation right shall be exercisable to the extent, and
only to the extent, the associated option is exercisable and shall be
exercisable only for such period as the Committee may determine (which
period may expire prior to the expiration date of the option).
(2) A stock appreciation right shall entitle the option holder to
surrender to the Company unexercised the option to which it is related, or
any portion thereof, and to receive from the Company in exchange therefor
that number of shares (rounded down to the nearest whole number) having an
aggregate value equal
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to the excess of the fair market value of one share (determined as
hereinafter provided) over the option price per share specified in such
option multiplied by the number of shares subject to the option, or portion
thereof, which is so surrendered.
(3) The Committee may, at its sole discretion, elect to settle, or the
stock appreciation right may permit the optionee to elect to receive
(subject to approval by the Committee), any part or all of the Company's
obligation arising out of the exercise of a stock appreciation right by the
payment of cash having a value equal to the aggregate fair market value of
that part or all of the shares it would otherwise be obligated to deliver.
10. Fair Market Value of Common Stock.
The fair market value of a share of Common Stock of the Company shall be
determined for purposes of the Plan by reference to the closing price on the
principal stock exchange on which such shares are then listed, or if such
shares are not then listed on a stock exchange, by reference to the closing
price (if a National Market issue) or the mean between the bid and asked price
(if other over-the-counter issue) of a share as supplied by the National
Association of Securities Dealers through NASDAQ (or its successor in
function), in each case as reported by The Wall Street Journal, for the
business day the option or stock appreciation right is granted or exercised,
or on the next preceding day on which such stock is traded or listed if none
of such stock was traded on the day such option was granted or exercised (or,
if for any reason no such price is available, in such other manner as the
Committee may deem appropriate to reflect the then fair market value thereof).
11. Withholding Tax.
Upon (i) the disposition by an employee or other person of shares of stock
acquired pursuant to the exercise of an incentive stock option granted
pursuant to the Plan within two years of the granting of the incentive stock
option or within one year after exercise of the incentive stock option; (ii)
the exercise by an employee or other person of "non-incentive" or "non-
qualified" options; or (iii) the exercise by an employee or other person of a
stock appreciation right; the Company shall have the right to (a) require such
employee or other person to pay the Company the amount of any taxes which the
Company may be required to withhold with respect to such shares or (b) deduct
from all amounts paid in cash with respect to the exercise of a stock
appreciation right the amount of any taxes which the Company may be required
to withhold with respect to such cash amounts.
12. Non-Transferability.
All options (and any accompanying stock appreciation rights) granted under
the Plan shall, by their terms, be non-transferable by the option holder,
either voluntarily or by operation of law, otherwise than by will or the laws
of descent and distribution, and shall be exercisable during the option
holder's lifetime only by the option holder, regardless of any community
property interest therein of the spouse of the option holder, or such spouse's
successors in interest. If the spouse of the option holder shall have acquired
a community property interest in any such option (or accompanying stock
appreciation right), the option holder, or the option holder's permitted
successors in interest, may exercise the option (or accompanying stock
appreciation right) on behalf of the spouse of the option holder or such
spouse's successors in interest.
13. Holding of Stock After Exercise of Option.
At the discretion of the Committee, any option may provide that the option
holder, by accepting such option, represents and agrees, for the option holder
and the option holder's permitted transferees (by will or the laws of descent
and distribution), that none of the shares purchased upon exercise of the
option or any accompanying stock appreciation right will be acquired with a
view to any sale, transfer or distribution of such shares in violation of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder, or any applicable state "blue sky" laws, and the person entitled
to exercise the same shall furnish evidence satisfactory to the Company
(including a written and signed representation) to that effect in form and
substance satisfactory to the Company, including an indemnification of the
Company in the event of any violation of the Securities Act of 1933 or state
blue sky law by such person.
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14. Termination of Employment or Services Rendered.
If a holder of an incentive stock option ceases to be employed by the
Company or one of its subsidiaries for any reason other than the option
holder's death or permanent disability (within the meaning of 22(e)(3) of the
Code), the option holder's incentive stock option (and any accompanying stock
appreciation rights) shall be exercisable for a period of three (3) months
after the date the option holder ceases to be an employee of the Company or
such subsidiary (unless by its terms it sooner expires) to the extent
exercisable on the date of such cessation of employment and shall thereafter
expire and be void and of no further force or effect.
Unless otherwise specified in the individual option agreement, if a holder
of a non-qualified stock option ceases to be employed by or perform services
for the Company or one of its subsidiaries for any reason other than the
option holder's death or permanent disability (within the meaning of Section
22(e)(3) of the Code), the option holder's non-qualified stock option (and any
accompanying stock appreciation rights) shall be exercisable for a period of
one (1) month after the date the option holder ceases to be an employee of or
to perform services for the Company or such subsidiary (unless by its terms it
sooner expires) to the extent exercisable on the date of such cessation of
employment and shall thereafter expire and be void and of no further force or
effect.
A leave of absence approved in writing by the Committee shall not be deemed
a termination of employment for the purposes of this paragraph 14, but no
incentive stock option may be exercised during any such leave of absence,
except during the first three (3) months thereof.
Unless otherwise specified in the individual option agreement, during such
period after notice to terminate, such option shall be exercisable only as to
those shares with respect to which installments, if any, had accrued as of the
date of termination.
15. Death or Permanent Disability of Option Holder.
If the holder of an incentive stock option dies or becomes permanently
disabled while option holder is employed by the Company or one of its
subsidiaries, the option holder's option (and any accompanying stock
appreciation right) shall expire one (1) year after the date of such death or
permanent disability unless by its terms it sooner expires. During such period
after death, such option (and any accompanying stock appreciation right) may,
to the extent that it remained unexercised (but exercisable by the option
holder according to such option's terms) on the date of such death or
permanent disability, be exercised by the person or persons to whom the option
holder's rights under the option shall pass by will or by the laws of descent
and distribution.
Unless otherwise specified in the individual option agreement, if the holder
of a non-qualified stock option dies or becomes permanently disabled, the
option holder's option (and any accompanying stock appreciation right) shall
expire six (6) months after the date of such death or permanent disability
unless by its terms it sooner expires. During such period after death, such
option (and any accompanying stock appreciation right) may, to the extent that
it remained unexercised (but exercisable by the option holder according to
such option's terms) on the date of such death or permanent disability, be
exercised by the person or persons to whom the option holder's rights under
the option shall pass by will or by the laws of descent and distribution.
16. Privileges of Stock Ownership.
No person entitled to exercise any option or stock appreciation right
granted under the Plan shall have any of the rights or privileges of a
stockholder of the Company in respect of any shares of stock issuable upon
exercise of such option or stock appreciation right until such option holder
has become the holder of record of such shares. No adjustment shall be made
for dividends or distributions of rights in respect of such shares if the
record date is prior to the date on which such option holder becomes the
holder of record, except as set forth in Paragraph 17 hereof.
Upon the exercise of an option or any accompanying stock appreciation right,
unless there is in effect at that time a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") permitting
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the resale of such shares received upon exercise to the public by the option
holder (and there is available for delivery a prospectus meeting the
requirements of Section 10(a)(3) of the Securities Act), the option holder (or
the option holder's permitted transferees by will or the laws of descent and
distribution) shall represent and warrant in writing to the Company that the
shares purchased upon exercise of the option or any accompanying stock
appreciation right are being acquired for investment and not with a view to
the sale, transfer or distribution thereof in violation of the Securities Act
and the rules and regulations promulgated thereunder, or any applicable state
"blue sky" laws. The person entitled to exercise the option or the
accompanying stock appreciation rights shall furnish evidence satisfactory to
the Company, including a written and signed representation to the foregoing
effect in form and substance satisfactory to the Company, including an
indemnification of the Company in the event of any violation of the Securities
Act of 1933 or state blue sky laws by such person. If, subsequent to the
exercise of an option, there should become effective under the Securities Act,
a registration statement permitting the resale to the public of shares of the
capital stock of the Company issued upon exercise of options granted under
this Plan, and if there is available for delivery by the option holder a
prospectus meeting the requirements of Section 10(a)(3) of the Securities Act,
then any representations and warranties previously made that such shares were
being acquired for investment and not with a view to the sale, transfer or
distribution thereof shall be disregarded, and the holders of shares shall be
released from such representations and warranties with respect to such shares.
No shares shall be sold, issued or delivered upon the exercise of any option
or accompanying stock appreciation right unless and until there shall have
been full compliance with any then applicable requirements of the Securities
Act of 1933 (whether by registration or satisfaction of exemption conditions),
all applicable listing requirements of any national securities exchange on
which shares of the same class are then listed, and any other requirements of
law or of any regulatory bodies having jurisdiction over such sale, issuance
and delivery.
17. Adjustments.
If the outstanding shares of the Common Stock of the Company are increased,
decreased, changed into or exchanged for a different number or kind of shares
or securities of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, merger,
consolidation, combination, exchange of shares, or other similar transaction,
the Committee shall make an appropriate and proportionate adjustment in the
maximum number and kind of shares as to which options may be granted under
this Plan, including the maximum number that may be granted hereunder or to
any one participant. A corresponding adjustment changing the number or kind of
shares allocated to unexercised options or portions thereof, which shall have
been granted prior to any such change, shall likewise be made, to the end that
the optionee's proportionate interest shall be maintained as before the
occurrence of such events. Any such adjustment in the outstanding options
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of the option but with a corresponding adjustment in the
price for each share or other unit of any security covered by the option,
provided, however, that each such adjustment in the number and kind of shares
subject to outstanding options, including any adjustment in the option price,
shall be made in such a manner as not to constitute a "modification" as
defined in Section 424 of the Code. Any such adjustment made by the Committee
shall be conclusive.
Upon (i) the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation
(except for a transaction the principal purpose of which is to change the
State of the Company's incorporation), (ii) a sale of all or substantially all
the property or more than eighty percent (80%) of the then outstanding shares
of stock of the Company to another corporation or (iii) if the majority of any
class of directors be comprised of individuals who were not either nominated
by the then existing Board of Directors or had not been appointed by the then
existing Board of Directors (any of the foregoing, a "Corporate Transaction"),
subject to the following sentence, the Plan shall terminate and all options
and stock appreciation rights theretofore granted hereunder shall terminate
and be of no further force and effect. Notwithstanding the foregoing, the
Committee shall provide in writing in connection with any such transaction for
any or all of the following alternatives (separately or in
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combination): (i) for the options and any accompanying stock appreciation
rights theretofore granted to become immediately exercisable notwithstanding
the provisions of paragraph 8 hereof; (ii) for the assumption by the successor
corporation of the options and stock appreciation rights theretofore granted
or the substitution by such corporation for such options and rights of new
options and rights covering the stock of the successor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and prices; (iii) for the continuance of the Plan by such
successor corporation in which event the Plan and the options and any
accompanying stock appreciation rights theretofore granted shall continue in
the manner and under the terms so provided, or (iv) for the payment in cash or
stock in lieu of and in complete satisfaction of such options and rights. It
is expressly contemplated that an option can be exercised subject to the
consummation of a Corporate Transaction.
Adjustments under this paragraph 17 shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. No fractional shares of stock shall be
issued under the Plan upon any such adjustment.
At the discretion of the Committee, any option may contain provisions to the
effect that upon the happening of certain events, including a change in
control (as defined by the Committee in the option) of the Company, any
outstanding options and accompanying stock appreciation rights not theretofore
exercisable shall immediately become exercisable in their entirety,
notwithstanding any of the other provisions of the option.
18. Amendment and Termination of Plan.
The Committee may at any time suspend, amend or terminate the Plan and may
with the consent of an option holder, make such modifications of the terms and
conditions of his option as it shall deem advisable; provided that except as
permitted under the provisions of Paragraph 17 hereof, an amendment or
modification which would:
(a) increase the maximum shares available for grant under the Plan;
(b) change the minimum purchase price of incentive stock options set forth
in Paragraph 6 (provided, however, that the Committee may cancel and
regrant at a lower price all or any options granted under the Plan);
(c) materially modify the requirements as to eligibility for participation
in the Plan;
(d) materially increase the benefits accruing to participants under the
Plan;
(e) increase the maximum term of incentive stock options provided for in
paragraph 6;
(f) permit the granting of options or stock appreciation rights to anyone
other than as provided in paragraphs 4 and 5; or
(g) otherwise require Shareholder Approval (as defined below) under Section
422 or Section 162(m) of the Code,
may not be adopted without further approval by the affirmative vote of the
holders of a majority of securities of the Company present, or represented,
and entitled to vote at a meeting duly held in accordance with the applicable
laws of the State or other jurisdiction in which the Company is incorporated,
or by the written consent of the holders of a majority of the securities of
the Company entitled to vote ("Shareholder Approval").
No option may be granted during any suspension or after such termination.
The amendment, suspension or termination of the Plan shall not, without the
consent of the option holder, alter or impair any rights or obligations under
any option or accompanying stock appreciation right theretofore granted under
the Plan. An option may be terminated by agreement between an optionee and the
Company and in lieu of the terminated option, a new option may be granted with
an exercise price which may be higher or lower than the exercise price of the
terminated option.
19. Effective Date of Plan.
This Plan shall be effective upon initial Shareholder Approval (as defined
in Paragraph 18) of the Plan.
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PART II.
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation or is or was serving at its request in such capacity in another
corporation or business association, against expenses (including attorney
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit.
As permitted by Section 102(b)(7) of the DGCL, the Registrant's Certificate
of Incorporation, as amended, includes a provision that limits a director's
personal liability to the Registrant or its stockholders for monetary damages
for breaches of his or her fiduciary duty as a director. Article XIII of the
Registrant's Certificate of Incorporation, as amended, provides that no
director of the Registrant shall be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty to the fullest
extent permitted by the DGCL.
As permitted by Section 145 of the DGCL, the Registrant's Bylaws provide
that, to the fullest extent permitted by the DGCL, directors, officers and
certain other persons who are made, or are threatend to be made, parties to,
or are involved in, any action, suit or proceeding will be indemnified by the
Registrant with respect thereto.
The Registrant maintains insurance policies under which its directors and
officers are insured, within the limits and subject to the limitations of the
policies, against expenses in connection with the defense of actions, suits or
proceedings, and certain liabilities that might be imposed as a result of such
actions, suits or proceedings, to which they are parties by reason of being or
having been directors or officers of the Registrant.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibit
The following exhibits are filed herewith unless otherwise indicated:
2.1 Agreement and Plan of Merger dated April 23, 1996, between the
Registrant, HPI Acquisition, Inc. and Boomtown, Inc. (included as
Appendix A to the Joint Proxy Statement/Prospectus included as part
of this Registration Statement)
3.1 Certificate of Incorporation of Hollywood Park, Inc. (incorporated by
reference to the Registrant's Registration Statement on Form S-1
dated January 29, 1993)
3.2 Amended By-laws of Hollywood Park, Inc. (incorporated by reference to
the Registrant's Registration Statement on Form S-1 dated January 29,
1993)
4.5 Convertible Preferred Stock Depositary Stock Agreement between
Chemical Trust Company of California and Hollywood Park, Inc., dated
February 9, 1993 (incorporated by reference to the Form S-1 dated
January 29, 1993, of Hollywood Park, Inc.)
5.1 Opinion of Irell & Manella LLP as to the legality of the Registrant's
Common Stock being registered hereby
8.1 Tax Opinion of Irell & Manella LLP
8.2 Tax Opinion of Wilson, Sonsini, Goodrich & Rosati, PC
10.1 Directors Deferred Compensation Plan for Hollywood Park, Inc.
(incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1991)
10.2 Lease Agreement dated as of January 1, 1989, by and between Hollywood
Park Realty Enterprises, Inc. and Hollywood Park Operating Company,
as amended (incorporated by reference to the Joint Annual Report on
Form 10-K for the fiscal year ended December 31, 1989, of Hollywood
Park Operating Company and Hollywood Park Realty Enterprises, Inc.)
10.3 Aircraft rental agreement dated November 1, 1993, by and between
Hollywood Park, Inc. and R.D. Hubbard Enterprises, Inc. (incorporated
by reference to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993)
10.4 Amended and Restated Credit Agreement dated March 23, 1994, by and
between Sunflower Racing, Inc. and First Union National Bank of North
Carolina, Bank One Lexington, Texas Commerce Bank, Home State Bank of
Kansas City and Intrust Bank, N.A. (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994)
10.5 Pledge Agreement dated March 23, 1994, by and between Hollywood Park,
Inc., First Union National Bank of North Carolina, as agent for the
ratable benefit of itself and the Banks named in the Amended and
Restated Credit Agreement included as Exhibit 10.4 thereto
(incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994)
10.6 Agreement Respecting Pyramid Casino dated December 3, 1994, by and
between Hollywood Park, Inc. and Compton Entertainment, Inc.
(incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994)
10.7 Amendment of Oil and Gas Lease dated January 10, 1995, by and between
Hollywood Park, Inc. and Casex Co., Nunn Ltd., and Vortex Energy &
Minerals (incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994)
10.8 Business Loan Agreement dated April 14, 1995, by and between Hollywood
Park, Inc., and Bank of America National Trust and Savings Association
(incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995)
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10.9 Amendment No. 1 dated April 30, 1996, by and between Hollywood Park,
Inc. and Bank of America National Trust and Savings Association, to
the Business Loan Agreement dated April 14, 1995 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996)
10.10 Amendment No. Two, dated July 1, 1996, by and between Hollywood Park,
Inc., and Bank of America National Trust and Savings Association, to
the Business Loan Agreement dated April 14, 1995 (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996)
10.11 Amendment to Agreement Respecting Pyramid Casino dated April 14,
1995, by and between Hollywood Park, Inc., and Compton Entertainment,
Inc. (incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995)
10.12 Amended and Restated Agreement Respecting Pyramid Casino dated July
14, 1995, by and between Hollywood Park, Inc., and Compton
Entertainment, Inc. (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995)
10.13 Amended and Restated Disposition and Development Agreement of
Purchase and Sale, and Lease with Option to Purchase, dated August 2,
1995, by and between The Community Redevelopment Agency of the City
of Compton and Compton Entertainment, Inc. (incorporated by reference
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995)
10.14 Guaranty, dated July 31, 1995, by Hollywood Park, Inc., in favor of
the Community Redevelopment Agency of the City of Compton
(incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995)
10.15 Lease by and between HP Compton, Inc. and Compton Entertainment,
Inc., dated August 3, 1995 (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995)
10.16 Guaranty, dated July 31, 1995, by Hollywood Park, Inc. in favor of
the Community Redevelopment Agency of the City of Compton,
(incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995)
10.17 Lease, by and between HP Compton, Inc. and Compton Entertainment,
Inc., dated August 3, 1995, (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995)
10.18 Standstill Agreement, dated October 27, 1995, by and between
Sunflower Racing, Inc., and First Union National Bank of Florida,
Bank One Lexington, N.A., Bank Midwest, N.A., Intrust Bank, N.A.,
and FCLT Loans, L.P. (incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995)
10.19 License Agreement, dated June 27, 1996, by and between HP Compton,
Inc. and Radisson Hotels International, Inc. (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996)
10.20 Hollywood Park 1993 Stock Option Plan (incorporated by reference to
Exhibit A to the Notice of Annual Meeting to Shareholders and Proxy
Statement relating to the Annual Meeting of Stockholders of
Hollywood Park, Inc. held on May 17, 1993)
10.21 Agreement and Plan of Reorganization by and among Hollywood Park,
Inc. and Pacific Casino Management, Inc. dated November 17, 1995
(incorporated by reference to the Registrant's Current Report on
Form 8-K, filed November 30, 1995 and to the Registrant's Current
Report on Form 8-K/A, filed January 25, 1996)
10.22 Blue Diamond Swap Agreement, dated as of August 12, 1996, by and
among Boomtown, Inc., Blue Diamond Hotel & Casino, Inc., Hollywood
Park, Inc., Edward P. Roski, Jr., IVAC and Majestic Realty Co.
10.23 Stock Purchase Agreement, dated as of August 12, 1996, by and between
Hollywood Park, Inc., and Edward P. Roski, Jr.
II-3
<PAGE>
10.24 Hollywood Park, Inc., 1996 Stock Option Plan (included as Appendix D
to the Proxy Statement/Prospectus included as part of this
Registration Statement)
21 Subsidiaries of the Registrant
23.1 Consent of Oppenheimer & Co. with respect to its fairness opinion
23.2 Consent of Sutro & Co. with respect to its fairness opinion
23.3 Consent of Arthur Andersen LLP, Independent Auditors
23.4 Consent of KPMG Peat Marwick LLP, Independent Auditors
23.5 Consent of Ernst & Young LLP, Independent Auditors
23.6 Consent of Ernst & Young LLP, Independent Auditors
23.7 Consent of Ernst & Young LLP, Independent Auditors
23.8 Consent of Wilson, Sonsini, Goodrich & Rosati, PC, with respect to
certain tax matters (included in Exhibit 8.2)
23.9 Consent of Irell & Manella LLP with respect to certain tax matters
(included in Exhibit 8.1)
23.10 Consent of Irell & Manella LLP with respect to the legality of the
securities being registered (included in Exhibit 5.1)
24.1 Power of Attorney (included on Page II-6)
99.1 Proxy Card of Hollywood Park
99.2 Proxy Card of Boomtown
99.3 Voting Agreement, dated April 23, 1996, between the Registrant and
Timothy J. Parrott
99.4 Voting Agreement, dated April 23, 1996, between Boomtown, Inc. and
R.D. Hubbard
99.5 Consent of Timothy J. Parrott
99.6 Consent of Richard J. Goeglein
ITEM 22. UNDERTAKINGS
(a) The undersigned 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, as amended (the "Securities Act");
(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; and
(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.
(2) That, for the purpose of determining any liability under the Securities
Act, 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.
II-4
<PAGE>
(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, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to section 15(d) of the Exchange Act) 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.
(c) The undersigned Registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
that is a part of the Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by
the other Items of the applicable form.
(d) The Registrant hereby undertakes that every prospectus (i) that is filed
pursuant to paragraph (c) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes 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.
(e) Insofar as indemnification for liabilities arising under the Securities
Act 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 Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that such 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 person 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 Securities Act and will be governed by
the final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF
CALIFORNIA, ON SEPTEMBER 18, 1996.
HOLLYWOOD PARK, INC.
/s/ G. Michael Finnigan
By: _________________________________
G. MICHAEL FINNIGAN
EXECUTIVE VICE PRESIDENT,
TREASURER AND CHIEF FINANCIAL
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints R.D. Hubbard and G. Michael Finnigan, and each
of them, his attorneys-in-fact and agents, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or
the substitute or substitutes of any or all of them, may lawfully do or cause
to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATE INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ R.D. Hubbard Chairman of the September 18,
- ------------------------------------- Board, Chief 1996
R.D. HUBBARD Executive Officer
and Director
(Principal
Executive Officer)
/s/ Harry Ornest Vice Chairman of the September 18,
- ------------------------------------- Board and Director 1996
HARRY ORNEST
/s/ G. Michael Finnigan Executive Vice September 18,
- ------------------------------------- President and Chief 1996
G. MICHAEL FINNIGAN Financial Officer
(Principal
Financial and
Accounting Officer)
II-6
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ J.R. Johnson Director September 18,
- ------------------------------------ 1996
J.R. JOHNSON
/s/ Howard W. Koch Director September 18,
- ------------------------------------ 1996
HOWARD W. KOCH
/s/ Robert T. Manfuso Director September 18,
- ------------------------------------ 1996
ROBERT T. MANFUSO
/s/ John V. Newman Director September 18,
- ------------------------------------ 1996
JOHN V. NEWMAN
/s/ Lynn P. Reitnouer Director September 18,
- ------------------------------------ 1996
LYNN P. REITNOUER
/s/ Herman Sarkowsky Director September 18,
- ------------------------------------ 1996
HERMAN SARKOWSKY
/s/ Warren B. Williamson Director September 18,
- ------------------------------------ 1996
WARREN B. WILLIAMSON
II-7
<PAGE>
EXHIBIT 5.1
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
September 18, 1996
Hollywood Park, Inc.
1050 South Prairie Avenue
Inglewood, California 90301
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 filed by you with
the Securities Exchange Commission (the "Commission") on September 18, 1996
(the "Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of 6,652,581 shares of your Common Stock
(the "Shares"). As your counsel in connection with this transaction, we have
examined the proceedings proposed taken and proposed to be taken in connection
with said sale and issuance of the Shares and such other matters and documents
as we have deemed necessary or relevant as a basis for this opinion.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, the Shares, when issued and sold in the manner described in the
Registration Statement, will be legally and validly issued, fully paid and
non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in
the Registration Statement, including the proxy statement/prospectus
constituting a part thereof, and any amendment thereto. In giving the above
consents, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules
and regulations of the Commission promulgated thereunder.
Very truly yours,
IRELL & MANELLA LLP
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF IRELL & MANELLA LLP]
September 13, 1996
Hollywood Park, Inc.
1050 South Prairie Avenue
Inglewood, California 90301
Gentlemen:
We have acted as counsel for Hollywood Park, Inc., a Delaware corporation
("HPI" or "Parent"), in connection with the preparation, execution, and delivery
of the Agreement and Plan of Merger (the "Merger Agreement"), dated as of April
23, 1996, by and among HPI, HP Acquisition, Inc., a Delaware corporation
("Sub"), and Boomtown, Inc., a Delaware corporation ("Boomtown" or "Company")
(HPI, Sub, and Boomtown are sometimes referred to collectively as the
"Parties"), and certain documents related or incidental thereto and transactions
to be effected thereunder. You have requested our opinion concerning certain
United States federal income tax consequences of the exchange by Boomtown
stockholders of Company Common Stock for Parent Common Stock in connection with
the statutory merger of Sub with and into Boomtown (the "Merger") pursuant to
the Merger Agreement. Unless otherwise defined, capitalized terms used herein
have the meanings assigned to them in the Merger Agreement.
In connection with this opinion, we have reviewed such documents as we
have found necessary or appropriate, including the Registration Statement, the
Merger Agreement, and related documents pertaining to the Merger. In expressing
our opinion, we are relying upon, and the opinion stated in this letter is
expressly based upon, the information and representations contained in the
documents provided to us by the Parties and the information and representations
provided in our discussions with representatives of the Parties. Certain of the
representations of the Parties are set forth in the Officers' Certificates for
HPI and Boomtown (the "Officers' Certificates"), which are appended hereto as
Exhibits A and B, respectively. We assume, and have relied on
<PAGE>
[LETTERHEAD OF IRELL & MANELLA LLP]
Hollywood Park, Inc.
September 13, 1996
Page 2
the assumption, (i) that the Officers' Certificates will be executed by
appropriate officers of HPI, Sub, and Boomtown and delivered to us at or before
the time we render this opinion, (ii) that if we are asked to reaffirm this
opinion at the time of the Closing, then the Parties will reaffirm the Officers'
Certificates at that time, (iii) that the Officers' Certificates will be true
and correct at the time delivered and will be true and correct at the time of
the Closing and at the time of the Merger, and (iv) that all statements made in
the Officers' Certificates "to the knowledge" of any person or entity (or in any
way qualified based on such person's or entity's knowledge) would be correct if
made without such qualification. We assume that the documents and information
provided to us present an accurate and complete description of all of the facts
relevant to the Merger.
Based upon the foregoing, and assuming that the transactions contemplated
by the documents referred to above are consummated in accordance with their
terms, we are of the opinion that, subject to all the qualifications,
limitations, and assumptions set forth herein, (i) the Merger will constitute a
"reorganization" for federal income tax purposes within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii)
the discussion under the caption "Certain Federal Income Tax Matters" in the
Registration Statement, insofar as such discussion relates to statements of law
or legal conclusions (the "Discussion"), is correct in all material respects.
In expressing this opinion, we mean that, if the Internal Revenue Service (the
"IRS") were to assert a position contrary to the conclusions described herein or
in the Discussion, the conclusions described herein and in the Discussion, if
properly presented to a court, should prevail. The IRS may take positions
contrary to the conclusions expressed herein and in the Discussion, and there is
a risk that such positions of the IRS might ultimately be sustained by the
courts. Our opinion is not binding on the IRS or the courts, and should not be
construed as a guarantee of ultimate results.
We hereby consent to the use of the name of our firm under the caption
"Certain Federal Income Tax Matters" in the Registration Statement and the
related Proxy Statement and consent to the filing of this opinion as an exhibit
to the Registration Statement.
In giving the above consents, we do not thereby admit that we come within
the category of persons whose consent is
<PAGE>
[LETTERHEAD OF IRELL & MANELLA LLP]
Hollywood Park, Inc.
September 13, 1996
Page 3
required under Section 7 of the Securities Act or the rules and regulations of
the Commission promulgated thereunder.
The opinion set forth herein is based on our interpretation of the
applicable provisions of the Code, the Income Tax Regulations promulgated
thereunder (the "Regulations"), and administrative and judicial interpretations
of the Code and the Regulations, all as currently in effect. Any or all of
these could change, and any such change could require a conclusion or
conclusions different from the opinion expressed herein. We do not undertake to
advise you as to any future changes in the Code, the Regulations, or
administrative or judicial interpretations of either that may affect our opinion
unless we are specifically retained to do so.
This opinion is being delivered to you in our capacity as counsel for HPI
and is being delivered to you for the purposes of satisfying the requirements of
Section 9.3(e) of the Merger Agreement and of being included as an exhibit to
the Registration Statement.
Very truly yours,
/s/ Irell & Manella LLP
<PAGE>
EXHIBIT A
TO TAX OPINION
--------------
OFFICER'S CERTIFICATE
---------------------
HOLLYWOOD PARK, INC.
1050 SOUTH PRAIRIE AVENUE
INGLEWOOD, CALIFORNIA 90301
September 13, 1996
Irell & Manella LLP Wilson Sonsini Goodrich & Rosati, P.C.
1800 Avenue of the Stars 650 Page Mill Road
Suite 900 Palo Alto, California 94304
Los Angeles, California 90067
RE: MERGER PURSUANT TO THE AGREEMENT AND PLAN OF MERGER (THE "MERGER
AGREEMENT") DATED AS OF APRIL 23, 1996, AMONG HOLLYWOOD PARK, INC., A
DELAWARE CORPORATION ("HPI"), BOOMTOWN, INC., A DELAWARE CORPORATION
("BOOMTOWN"), AND HP ACQUISITION, INC., A WHOLLY-OWNED SUBSIDIARY OF
HPI INCORPORATED IN DELAWARE ("SUB").
Gentlemen:
This letter is supplied to you in connection with your rendering of
opinions regarding certain federal income tax consequences of the Merger.
Unless otherwise indicated, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement including exhibits and schedules
attached thereto.
A. REPRESENTATIONS. After consulting with their counsel, auditors, and
---------------
investment bankers regarding the meaning of and factual support for the
following representations, HPI and Sub each hereby certifies, warrants, and
represents that the following facts are now true and will continue to be true as
of the Closing and as of the time of the Merger:
1. The fair market value of the HPI common stock and other
consideration received by each Boomtown shareholder will be approximately equal
to the fair market value of the Boomtown stock surrendered in exchange therefor.
2. HPI and Sub have no knowledge of any plan or intention on the
part of Boomtown's shareholders to sell, exchange, or otherwise dispose of a
number of shares of HPI stock received in the Merger that would reduce the
Boomtown
<PAGE>
shareholders' ownership of HPI stock to a number of shares having a value, as of
the date of the Merger, of less than fifty percent (50%) of the value of all of
the formerly outstanding stock of Boomtown as of the same date. For purposes of
this representation, shares of Boomtown stock (or the portion thereof) exchanged
for cash or other property, surrendered by dissenters, if any, or exchanged for
cash in lieu of fractional shares of HPI common stock will be treated as
outstanding Boomtown stock on the date of the Merger. Moreover, shares of
Boomtown stock and shares of HPI common stock held by Boomtown shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the Merger will
be considered in making this representation.
3. To the knowledge of HPI and Sub, following the Merger and all
Related Transactions (as hereinafter defined), Boomtown will hold at least 90
percent of the fair market value of its net assets and at least 70 percent of
the fair market value of its gross assets, and at least 90 percent of the fair
market value of Sub's net assets and at least 70 percent of the fair market
value of Sub's gross assets held immediately prior to the Merger (or, if
earlier, immediately prior to any Related Transaction). For purposes of this
representation, amounts paid by Boomtown or Sub to dissenters, if any, amounts
paid by Boomtown or Sub to shareholders who receive cash or other property,
amounts used by Boomtown or Sub to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made by
Boomtown will be included as assets of Boomtown or Sub, respectively,
immediately prior to the Merger (or, if earlier, immediately prior to any
Related Transaction). "Related Transactions" means all transactions related to
the Merger or occurring (other than in the ordinary course of business) at or
around the period of the Merger, including without limitation the Blue Diamond
Swap, where "Blue Diamond Swap" means any transactions connected to the
termination of Boomtown's operations at its Las Vegas resort, including without
limitation (i) the termination of the lease under which such resort is operated,
and (ii) the restructuring of the debt attributable to the loans made by
Boomtown to IVAC, a California general partnership, in the aggregate amount of
approximately $27.3 million. The Blue Diamond Swap will be effectuated by a
direct exchange of assets or other consideration between Boomtown (or its
subsidiaries), on the one hand, and IVAC (or a designated affiliate), on the
other hand, and HPI will provide no assets to Boomtown for any purpose in
connection therewith.
4. Prior to the Merger, HPI will be in control of Sub within the
meaning of Section 368(c) of the Internal Revenue Code of 1986, as amended (the
"Code") (control within the meaning of Section 368(c) of the Code is hereinafter
referred to as "Control").
5. HPI has no plan or intention to cause Boomtown to issue
additional shares of stock after the Merger, or take any other action, that
would result in HPI losing Control of Boomtown.
6. Other than with respect to the Roski Stock Purchase (as
hereinafter defined), HPI has no plan or intention to reacquire any of its stock
issued in the Merger. "Roski Stock Purchase" means the purchase by HPI of the
shares in Boomtown held by
-2-
<PAGE>
Mr. Edward P. Roski, Jr. -- which stock interest of Mr. Roski represents no more
than 7.8% of the total outstanding shares of Boomtown immediately prior to the
Merger (or, if earlier, immediately prior to any Related Transaction) -- either
by the purchase, immediately prior to the Merger, of the shares in Boomtown held
by Mr. Roski or the reacquisition, immediately after the Merger, of the HPI
shares into which Mr. Roski's Boomtown shares may be converted in the Merger.
Boomtown will provide no assets to Mr. Roski in connection with the purchase or
reacquisition of his stock interest.
7. HPI has no plan or intention to liquidate Boomtown; to merge
Boomtown with or into another corporation; to sell or otherwise dispose of the
stock of Boomtown except for transfers of stock to corporations controlled by
HPI; or to cause Boomtown to sell or otherwise dispose of any of its assets or
of any of the assets acquired from Sub, except for dispositions made in the
ordinary course of business or transfers of assets to a corporation controlled
by Boomtown.
8. The liabilities of Sub, if any, assumed by Boomtown and the
liabilities, if any, to which the transferred assets of Sub are subject were
incurred by Sub in the ordinary course of its business.
9. Following the Merger and all Related Transactions, Boomtown will
continue its historic business or use a significant portion of its historic
business assets in a business.
10. HPI, Sub, Boomtown, and the shareholders of Boomtown will each
pay their respective expenses, if any, incurred in connection with the Merger,
all Related Transactions, and the Roski Stock Purchase.
11. There is no intercorporate indebtedness existing between HPI and
Boomtown or between Sub and Boomtown that was issued, acquired, or will be
settled at a discount.
12. In the Merger, shares of Boomtown stock representing Control of
Boomtown will be exchanged solely for voting stock of HPI. For purposes of this
representation, shares of Boomtown stock exchanged for cash or other property
originating with HPI, including without limitation in connection with the Roski
Stock Purchase, will be treated as outstanding Boomtown stock on the date of the
Merger. Moreover, for purposes of this representation, in the case of HPI
shares issued in the Merger and reacquired in the Roski Stock Purchase or a
Related Transaction, the Boomtown shares to which such HPI shares are
attributable will be treated as having been exchanged in the Merger for other
than voting stock.
13. To the knowledge of HPI and Sub, at the time of the Merger, (i)
Boomtown will have no outstanding equity interests other than as described in
Section 5.3 of the Merger Agreement, and (ii) Boomtown will not have outstanding
any warrants, options, convertible securities, or any other type of right
pursuant to which
-3-
<PAGE>
any person could acquire stock in Boomtown that, if exercised or converted,
would affect HPI's acquisition or retention of Control of Boomtown.
14. HPI does not own, nor has it owned during the past five years,
any shares of the stock of Boomtown.
15. Neither HPI nor Sub is an "investment company" as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
16. To the knowledge of HPI and Sub, on the date of the Merger, the
fair market value of the assets of Boomtown will exceed the sum of its
liabilities, plus the amount of liabilities, if any, to which such assets are
subject.
17. To the knowledge of HPI and Sub, Boomtown is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
18. Following the Merger, HPI, Sub, and Boomtown will comply with the
record-keeping and information filing requirements of Treas. Reg. Section
1.368-3.
19. The payment of cash in lieu of fractional shares of HPI stock is
solely for the purpose of avoiding the expense and inconvenience to HPI of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the
transaction to shareholders of Boomtown instead of issuing fractional shares of
HPI stock will not exceed one percent of the total consideration that will be
issued in the transaction to the shareholders of Boomtown in exchange for their
shares of Boomtown. The fractional share interests of each shareholder of
Boomtown will be aggregated, and no shareholder of Boomtown will receive cash in
an amount equal to or greater than the value of one full share of HPI stock.
20. None of the compensation received by any shareholder-employee of
Boomtown will be separate consideration for, or allocable to, any of their
shares of Boomtown stock; none of the shares of HPI stock received by any
shareholder-employees will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any shareholder-employees
will be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services.
21. To the knowledge of HPI and Sub, the shares of Boomtown stock are
not a "United States real property interest" within the meaning of Section
897(c) of the Code.
22. HPI has a bona fide business reason for engaging in the Merger.
-4-
<PAGE>
B. RELIANCE BY YOU IN RENDERING OPINIONS; LIMITATIONS ON YOUR OPINIONS.
-------------------------------------------------------------------
1. HPI and Sub each recognizes that (i) your opinions will be based
on the representations set forth herein, and on the statements contained in the
Merger Agreement and the documents related thereto and (ii) your opinions will
be subject to certain limitations and qualifications including without
limitation that they may not be relied upon if any such representations are not
accurate.
2. HPI and Sub each recognizes that your opinions will not address
any tax consequences of the Merger or any action taken in connection therewith
except as expressly set forth in such opinions.
3. HPI and Sub each understands that, if you are asked to reaffirm
your opinions at the Closing, then in connection with such reaffirmation, you
will require HPI and Sub to reaffirm this letter and the representations set
forth herein.
Very truly yours,
HOLLYWOOD PARK, INC.
a Delaware corporation
By:____________________________
Title:_________________________
HP ACQUISITION, INC.
a Delaware corporation
By:____________________________
Title:_________________________
-5-
<PAGE>
EXHIBIT B
TO TAX OPINION
--------------
OFFICER'S CERTIFICATE
---------------------
BOOMTOWN, INC.
P.O. BOX 399
VERDI, NEVADA 89439-0399
September 13, 1996
Irell & Manella LLP Wilson Sonsini Goodrich & Rosati, P.C.
1800 Avenue of the Stars 650 Page Mill Road
Suite 900 Palo Alto, California 94304
Los Angeles, California 90067
RE: MERGER PURSUANT TO THE AGREEMENT AND PLAN OF MERGER (THE "MERGER
AGREEMENT") DATED AS OF APRIL 23, 1996, AMONG HOLLYWOOD PARK, INC., A
DELAWARE CORPORATION ("HPI"), BOOMTOWN, INC., A DELAWARE CORPORATION
("BOOMTOWN"), AND HP ACQUISITION, INC., A WHOLLY-OWNED SUBSIDIARY OF
HPI INCORPORATED IN DELAWARE ("SUB").
Gentlemen:
This letter is supplied to you in connection with your rendering of
opinions regarding certain federal income tax consequences of the Merger.
Unless otherwise indicated, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement including exhibits and schedules
attached thereto.
A. REPRESENTATIONS. After consulting with its counsel, auditors, and
---------------
investment bankers regarding the meaning of and factual support for the
following representations, Boomtown hereby certifies, warrants, and represents
that the following facts are now true and will continue to be true as of the
Closing and as of the time of the Merger:
1. The fair market value of the HPI common stock and other
consideration received by each Boomtown shareholder will be approximately equal
to the fair market value of the Boomtown stock surrendered in exchange therefor.
2. Based upon due inquiry of officers, of directors, and of each
shareholder of Boomtown who owns five percent (5%) or more of Boomtown stock,
there is no plan or intention by the shareholders of Boomtown who own five
percent (5%) or more of the Boomtown stock, and to the best of the knowledge of
the management of Boomtown, there is no plan or intention on the part of the
remaining
<PAGE>
shareholders of Boomtown, to sell, exchange, or otherwise dispose of a number of
shares of HPI stock received in the Merger that would reduce the Boomtown
shareholders' ownership of HPI stock to a number of shares having a value, as of
the date of the Merger, of less than fifty percent (50%) of the value of all of
the formerly outstanding stock of Boomtown as of the same date. For purposes of
this representation, shares of Boomtown stock (or the portion thereof) exchanged
for cash or other property, surrendered by dissenters, if any, or exchanged for
cash in lieu of fractional shares of HPI common stock will be treated as
outstanding Boomtown stock on the date of the Merger. Moreover, shares of
Boomtown stock and shares of HPI common stock held by Boomtown shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the Merger will
be considered in making this representation.
3. Following the Merger and all Related Transactions (as hereinafter
defined), Boomtown will hold at least 90 percent of the fair market value of its
net assets and at least 70 percent of the fair market value of its gross assets,
and at least 90 percent of the fair market value of Sub's net assets and at
least 70 percent of the fair market value of Sub's gross assets held immediately
prior to the Merger (or, if earlier, immediately prior to any Related
Transaction). For purposes of this representation, amounts paid by Boomtown or
Sub to dissenters, if any, amounts paid by Boomtown or Sub to shareholders who
receive cash or other property, amounts used by Boomtown or Sub to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by Boomtown will be included as assets of
Boomtown or Sub, respectively, immediately prior to the Merger (or, if earlier,
immediately prior to any Related Transaction). "Related Transactions" means all
transactions related to the Merger or occurring (other than in the ordinary
course of business) at or around the period of the Merger, including without
limitation the Blue Diamond Swap, where "Blue Diamond Swap" means any
transactions connected to the termination of Boomtown's operations at its Las
Vegas resort, including without limitation (i) the termination of the lease
under which such resort is operated, and (ii) the restructuring of the debt
attributable to the loans made by Boomtown to IVAC, a California general
partnership, in the aggregate amount of approximately $27.3 million. The Blue
Diamond Swap will be effectuated by a direct exchange of assets or other
consideration between Boomtown (or its subsidiaries), on the one hand, and IVAC
(or a designated affiliate), on the other hand, and HPI will provide no assets
to Boomtown for any purpose in connection therewith.
4. Boomtown has made no transfer of any of its assets in
contemplation of the Merger or during the pre-Merger period other than in the
ordinary course of business or in connection with the Blue Diamond Swap.
5. Boomtown has no obligation, understanding, agreement, plan or
intention to issue additional shares of its stock that would result in HPI
losing control of Boomtown within the meaning of Section 368(c) of the Internal
Revenue Code of 1986, as amended (the "Code") (control within the meaning of
Section 368(c) of the Code is hereinafter referred to as "Control").
-2-
<PAGE>
6. To the knowledge of Boomtown, other than with respect to the Roski
Stock Purchase, HPI has no plan or intention to reacquire any of its stock
issued in the Merger. "Roski Stock Purchase" means the purchase by HPI of the
shares in Boomtown held by Mr. Edward P. Roski, Jr. -- which stock interest of
Mr. Roski represents no more than 7.8% of the total outstanding shares of
Boomtown immediately prior to the Merger (or, if earlier, immediately prior to
any Related Transaction) -- either by the purchase, immediately prior to the
Merger, of the shares in Boomtown held by Mr. Roski or the reacquisition,
immediately after the Merger, of the HPI shares into which Mr. Roski's Boomtown
shares may be converted in the Merger. Boomtown will provide no assets to Mr.
Roski in connection with the purchase or reacquisition of his stock interest.
7. To the knowledge of Boomtown, HPI has no plan or intention to
liquidate Boomtown; to merge Boomtown with or into another corporation; to sell
or otherwise dispose of the stock of Boomtown except for transfers of stock to
corporations controlled by HPI; or to cause Boomtown to sell or otherwise
dispose of any of its assets or of any of the assets acquired from Sub, except
for dispositions made in the ordinary course of business or transfers of assets
to a corporation controlled by Boomtown.
8. To the knowledge of Boomtown, following the Merger and all
Related Transactions, HPI will cause Boomtown to continue its historic business
or use a significant portion of its historic business assets in a business.
9. HPI, Sub, Boomtown, and the shareholders of Boomtown will each
pay their respective expenses, if any, incurred in connection with the Merger,
all Related Transactions, and the Roski Stock Purchase.
10. There is no intercorporate indebtedness existing between HPI and
Boomtown or between Sub and Boomtown that was issued, acquired, or will be
settled at a discount.
11. In the Merger, shares of Boomtown stock representing Control of
Boomtown will be exchanged solely for voting stock of HPI. For purposes of this
representation, shares of Boomtown stock exchanged for cash or other property
originating with HPI, including without limitation in connection with the Roski
Stock Purchase, will be treated as outstanding Boomtown stock on the date of the
Merger. Moreover, for purposes of this representation, in the case of HPI
shares issued in the Merger and reacquired in the Roski Stock Purchase or a
Related Transaction, the Boomtown shares to which such HPI shares are
attributable will be treated as having been exchanged in the Merger for other
than voting stock.
12. At the time of the Merger, (i) Boomtown will have no outstanding
equity interests other than as described in Section 5.3 of the Merger Agreement,
and (ii) Boomtown will not have outstanding any warrants, options, convertible
securities, or any other type of right pursuant to which any person could
acquire stock in Boomtown
-3-
<PAGE>
that, if exercised or converted, would affect HPI's acquisition or retention of
Control of Boomtown.
13. HPI does not own, nor has it owned during the past five years,
any shares of the stock of Boomtown.
14. Boomtown is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
15. On the date of the Merger, the fair market value of the assets of
Boomtown will exceed the sum of its liabilities, plus the amount of liabilities,
if any, to which such assets are subject.
16. Boomtown is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
17. The liabilities of Boomtown have been incurred by Boomtown in the
ordinary course of its business.
18. To the knowledge of Boomtown, following the Merger, HPI will
cause Boomtown to comply with the record-keeping and information filing
requirements of Treas. Reg. Section 1.368-3.
19. The payment of cash in lieu of fractional shares of HPI stock is
solely for the purpose of avoiding the expense and inconvenience to HPI of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the
transaction to shareholders of Boomtown instead of issuing fractional shares of
HPI stock will not exceed one percent of the total consideration that will be
issued in the transaction to the shareholders of Boomtown in exchange for their
shares of Boomtown. The fractional share interests of each shareholder of
Boomtown will be aggregated, and no shareholder of Boomtown will receive cash in
an amount equal to or greater than the value of one full share of HPI stock.
20. None of the compensation received by any shareholder-employee of
Boomtown will be separate consideration for, or allocable to, any of their
shares of Boomtown stock; none of the shares of HPI stock received by any
shareholder-employees will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any shareholder-employees
will be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services.
21. The shares of Boomtown stock are not a "United
States real property interest" within the meaning of Section 897(c) of the Code.
-4-
<PAGE>
22. Boomtown has a bona fide business reason for engaging in the
Merger.
B. RELIANCE BY YOU IN RENDERING OPINIONS; LIMITATIONS ON YOUR OPINIONS.
-------------------------------------------------------------------
1. Boomtown recognizes that (i) your opinions will be based on the
representations set forth herein, and on the statements contained in the Merger
Agreement and the documents related thereto and (ii) your opinions will be
subject to certain limitations and qualifications including without limitation
that they may not be relied upon if any such representations are not accurate.
2. Boomtown recognizes that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except as
expressly set forth in such opinions.
3. Boomtown understands that, if you are asked to reaffirm your
opinions at the Closing, then in connection with such reaffirmation, you will
require Boomtown to reaffirm this letter and the representations set forth
herein.
Very truly yours,
BOOMTOWN, INC.
a Delaware corporation
By:______________________________
Title:____________________________
-5-
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF WILSON, SONSINI GOODRICH & ROSATI, P.C.]
September 18, 1996
Boomtown, Inc.
P.O. Box 399
Verdi, Nevada 89439-0399
Ladies and Gentlemen:
We have acted as counsel for Boomtown, Inc., a Delaware corporation
("Boomtown") in connection with the preparation and execution of the Agreement
and Plan of Merger dated as of April 23, 1996 (the "Merger Agreement") among
Hollywood Park, Inc., a Delaware corporation ("HPI"), HP Acquisition
Corporation, a Delaware corporation which is a newly formed and wholly-owned
subsidiary of HPI ("Merger Sub"), and Boomtown. Pursuant to the Merger
Agreement, Merger Sub will merge with and into Boomtown (the "Merger"), and
Boomtown will become a wholly-owned subsidiary of HPI. Unless otherwise
defined, capitalized terms referred to herein have the meanings set forth in the
Merger Agreement. All section references, unless otherwise indicated, are to
the Internal Revenue Code of 1986, as amended (the "Code").
You have requested our opinion regarding certain United States federal
income tax consequences of the Merger. In delivering this opinion, we have
reviewed and relied upon the facts, statements, descriptions and representations
set forth in the Registration Statement on Form S-4 filed by Boomtown and HPI
with the Securities and Exchange Commission (which contains a joint proxy
statement/prospectus) (the "Registration Statement"), the Merger Agreement
(including Exhibits) and such other documents pertaining to the Merger as we
have deemed necessary or appropriate. We have also relied upon certificates of
officers of Boomtown and HPI respectively (the "Officers' Certificates").
In connection with rendering this opinion, we have also assumed (without
any independent investigation) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Closing) due execution and delivery of all documents where
due execution and delivery are prerequisites to effectiveness thereof;
2. Any statement made in any of the documents referred to herein, "to the
best of the knowledge" of any person or party is correct without such
qualification;
<PAGE>
Boomtown, Inc.
September 18, 1996
Page 2
3. All statements, descriptions and representations contained in any of
the documents referred to herein or otherwise made to us are true and correct in
all material respects and no actions have been (or will be) taken which are
inconsistent with such representations; and
4. The Merger will be reported by Boomtown and HPI on their respective
federal income tax returns in a manner consistent with the opinion set forth
below.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that, if the Merger is consummated in accordance with the Merger
Agreement (and without any waiver, breach or amendment of any of the provisions
thereof) and the statements set forth in the Officers' Certificates are true and
correct as of the date hereof, on the effective date of the Registration
Statement and at the Closing, then:
(a) For federal income tax purposes, the Merger will qualify as a
"reorganization" as defined in Section 368(a) of the Code; and
(b) The discussion entitled "Certain Federal Income Tax Matters" in
the Prospectus constituting a part of the Registration Statement insofar as it
relates to the statements of law or legal conclusions is correct in all material
respects.
This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws arising under the Code, existing judicial
decisions, administrative regulations and published rulings and procedures. Our
opinion is not binding upon the Internal Revenue Service or the courts, and
there is no assurance that the Internal Revenue Service will not successfully
assert a contrary position. Furthermore, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, we undertake no responsibility to advise you of
any new developments in the application or interpretation of the federal income
tax laws.
This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code, and does not address any other
federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transaction undertaken in
connection with the Merger). Furthermore, this opinion relates only to the
holders of HPI stock who hold such stock as a capital asset. No opinion is
expressed as to the Federal income tax treatment that may be relevant to a
particular investor in light of personal circumstances or to certain types of
investors subject to special treatment under the Federal income tax laws (for
example, life insurance companies, dealers in securities, taxpayers subject to
the alternative minimum tax, banks, tax-exempt organizations, non-United States
persons, and stockholders who acquired their shares of Boomtown stock pursuant
to the exercise of options or otherwise as compensation).
<PAGE>
Boomtown, Inc.
September 18, 1996
Page 3
No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever, including
the Merger, if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms of such Merger Agreement and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
This opinion has been delivered to you in our capacity as counsel to
Boomtown and is being delivered to you for the purposes of being included as an
exhibit to the Registration Statement and satisfying the requirements of Section
9.2(g) of the Merger Agreement. We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement and to the use of our name under the
heading "Certain Federal Income Tax Matters" in the Registration Statement.
Very truly yours,
/s/ Wilson Sonsini Goodrich & Rosati
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT A
TO TAX OPINION
--------------
OFFICER'S CERTIFICATE
---------------------
HOLLYWOOD PARK, INC.
1050 SOUTH PRAIRIE AVENUE
INGLEWOOD, CALIFORNIA 90301
September 13, 1996
Irell & Manella LLP Wilson Sonsini Goodrich & Rosati, P.C.
1800 Avenue of the Stars 650 Page Mill Road
Suite 900 Palo Alto, California 94304
Los Angeles, California 90067
RE: MERGER PURSUANT TO THE AGREEMENT AND PLAN OF MERGER (THE "MERGER
AGREEMENT") DATED AS OF APRIL 23, 1996, AMONG HOLLYWOOD PARK, INC., A
DELAWARE CORPORATION ("HPI"), BOOMTOWN, INC., A DELAWARE CORPORATION
("BOOMTOWN"), AND HP ACQUISITION, INC., A WHOLLY-OWNED SUBSIDIARY OF
HPI INCORPORATED IN DELAWARE ("SUB").
Gentlemen:
This letter is supplied to you in connection with your rendering of
opinions regarding certain federal income tax consequences of the Merger.
Unless otherwise indicated, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement including exhibits and schedules
attached thereto.
A. REPRESENTATIONS. After consulting with their counsel, auditors, and
---------------
investment bankers regarding the meaning of and factual support for the
following representations, HPI and Sub each hereby certifies, warrants, and
represents that the following facts are now true and will continue to be true as
of the Closing and as of the time of the Merger:
1. The fair market value of the HPI common stock and other
consideration received by each Boomtown shareholder will be approximately equal
to the fair market value of the Boomtown stock surrendered in exchange therefor.
2. HPI and Sub have no knowledge of any plan or intention on the
part of Boomtown's shareholders to sell, exchange, or otherwise dispose of a
number of shares of HPI stock received in the Merger that would reduce the
Boomtown
<PAGE>
shareholders' ownership of HPI stock to a number of shares having a value, as of
the date of the Merger, of less than fifty percent (50%) of the value of all of
the formerly outstanding stock of Boomtown as of the same date. For purposes of
this representation, shares of Boomtown stock (or the portion thereof) exchanged
for cash or other property, surrendered by dissenters, if any, or exchanged for
cash in lieu of fractional shares of HPI common stock will be treated as
outstanding Boomtown stock on the date of the Merger. Moreover, shares of
Boomtown stock and shares of HPI common stock held by Boomtown shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the Merger will
be considered in making this representation.
3. To the knowledge of HPI and Sub, following the Merger and all
Related Transactions (as hereinafter defined), Boomtown will hold at least 90
percent of the fair market value of its net assets and at least 70 percent of
the fair market value of its gross assets, and at least 90 percent of the fair
market value of Sub's net assets and at least 70 percent of the fair market
value of Sub's gross assets held immediately prior to the Merger (or, if
earlier, immediately prior to any Related Transaction). For purposes of this
representation, amounts paid by Boomtown or Sub to dissenters, if any, amounts
paid by Boomtown or Sub to shareholders who receive cash or other property,
amounts used by Boomtown or Sub to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made by
Boomtown will be included as assets of Boomtown or Sub, respectively,
immediately prior to the Merger (or, if earlier, immediately prior to any
Related Transaction). "Related Transactions" means all transactions related to
the Merger or occurring (other than in the ordinary course of business) at or
around the period of the Merger, including without limitation the Blue Diamond
Swap, where "Blue Diamond Swap" means any transactions connected to the
termination of Boomtown's operations at its Las Vegas resort, including without
limitation (i) the termination of the lease under which such resort is operated,
and (ii) the restructuring of the debt attributable to the loans made by
Boomtown to IVAC, a California general partnership, in the aggregate amount of
approximately $27.3 million. The Blue Diamond Swap will be effectuated by a
direct exchange of assets or other consideration between Boomtown (or its
subsidiaries), on the one hand, and IVAC (or a designated affiliate), on the
other hand, and HPI will provide no assets to Boomtown for any purpose in
connection therewith.
4. Prior to the Merger, HPI will be in control of Sub within the
meaning of Section 368(c) of the Internal Revenue Code of 1986, as amended (the
"Code") (control within the meaning of Section 368(c) of the Code is hereinafter
referred to as "Control").
5. HPI has no plan or intention to cause Boomtown to issue
additional shares of stock after the Merger, or take any other action, that
would result in HPI losing Control of Boomtown.
6. Other than with respect to the Roski Stock Purchase (as
hereinafter defined), HPI has no plan or intention to reacquire any of its stock
issued in the Merger. "Roski Stock Purchase" means the purchase by HPI of the
shares in Boomtown held by
-2-
<PAGE>
Mr. Edward P. Roski, Jr. -- which stock interest of Mr. Roski represents no more
than 7.8% of the total outstanding shares of Boomtown immediately prior to the
Merger (or, if earlier, immediately prior to any Related Transaction) -- either
by the purchase, immediately prior to the Merger, of the shares in Boomtown held
by Mr. Roski or the reacquisition, immediately after the Merger, of the HPI
shares into which Mr. Roski's Boomtown shares may be converted in the Merger.
Boomtown will provide no assets to Mr. Roski in connection with the purchase or
reacquisition of his stock interest.
7. HPI has no plan or intention to liquidate Boomtown; to merge
Boomtown with or into another corporation; to sell or otherwise dispose of the
stock of Boomtown except for transfers of stock to corporations controlled by
HPI; or to cause Boomtown to sell or otherwise dispose of any of its assets or
of any of the assets acquired from Sub, except for dispositions made in the
ordinary course of business or transfers of assets to a corporation controlled
by Boomtown.
8. The liabilities of Sub, if any, assumed by Boomtown and the
liabilities, if any, to which the transferred assets of Sub are subject were
incurred by Sub in the ordinary course of its business.
9. Following the Merger and all Related Transactions, Boomtown will
continue its historic business or use a significant portion of its historic
business assets in a business.
10. HPI, Sub, Boomtown, and the shareholders of Boomtown will each
pay their respective expenses, if any, incurred in connection with the Merger,
all Related Transactions, and the Roski Stock Purchase.
11. There is no intercorporate indebtedness existing between HPI and
Boomtown or between Sub and Boomtown that was issued, acquired, or will be
settled at a discount.
12. In the Merger, shares of Boomtown stock representing Control of
Boomtown will be exchanged solely for voting stock of HPI. For purposes of this
representation, shares of Boomtown stock exchanged for cash or other property
originating with HPI, including without limitation in connection with the Roski
Stock Purchase, will be treated as outstanding Boomtown stock on the date of the
Merger. Moreover, for purposes of this representation, in the case of HPI
shares issued in the Merger and reacquired in the Roski Stock Purchase or a
Related Transaction, the Boomtown shares to which such HPI shares are
attributable will be treated as having been exchanged in the Merger for other
than voting stock.
13. To the knowledge of HPI and Sub, at the time of the Merger, (i)
Boomtown will have no outstanding equity interests other than as described in
Section 5.3 of the Merger Agreement, and (ii) Boomtown will not have outstanding
any warrants, options, convertible securities, or any other type of right
pursuant to which
-3-
<PAGE>
any person could acquire stock in Boomtown that, if exercised or converted,
would affect HPI's acquisition or retention of Control of Boomtown.
14. HPI does not own, nor has it owned during the past five years,
any shares of the stock of Boomtown.
15. Neither HPI nor Sub is an "investment company" as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
16. To the knowledge of HPI and Sub, on the date of the Merger, the
fair market value of the assets of Boomtown will exceed the sum of its
liabilities, plus the amount of liabilities, if any, to which such assets are
subject.
17. To the knowledge of HPI and Sub, Boomtown is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
18. Following the Merger, HPI, Sub, and Boomtown will comply with the
record-keeping and information filing requirements of Treas. Reg. Section
1.368-3.
19. The payment of cash in lieu of fractional shares of HPI stock is
solely for the purpose of avoiding the expense and inconvenience to HPI of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the
transaction to shareholders of Boomtown instead of issuing fractional shares of
HPI stock will not exceed one percent of the total consideration that will be
issued in the transaction to the shareholders of Boomtown in exchange for their
shares of Boomtown. The fractional share interests of each shareholder of
Boomtown will be aggregated, and no shareholder of Boomtown will receive cash in
an amount equal to or greater than the value of one full share of HPI stock.
20. None of the compensation received by any shareholder-employee of
Boomtown will be separate consideration for, or allocable to, any of their
shares of Boomtown stock; none of the shares of HPI stock received by any
shareholder-employees will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any shareholder-employees
will be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services.
21. To the knowledge of HPI and Sub, the shares of Boomtown stock are
not a "United States real property interest" within the meaning of Section
897(c) of the Code.
22. HPI has a bona fide business reason for engaging in the Merger.
-4-
<PAGE>
B. RELIANCE BY YOU IN RENDERING OPINIONS; LIMITATIONS ON YOUR OPINIONS.
-------------------------------------------------------------------
1. HPI and Sub each recognizes that (i) your opinions will be based
on the representations set forth herein, and on the statements contained in the
Merger Agreement and the documents related thereto and (ii) your opinions will
be subject to certain limitations and qualifications including without
limitation that they may not be relied upon if any such representations are not
accurate.
2. HPI and Sub each recognizes that your opinions will not address
any tax consequences of the Merger or any action taken in connection therewith
except as expressly set forth in such opinions.
3. HPI and Sub each understands that, if you are asked to reaffirm
your opinions at the Closing, then in connection with such reaffirmation, you
will require HPI and Sub to reaffirm this letter and the representations set
forth herein.
Very truly yours,
HOLLYWOOD PARK, INC.
a Delaware corporation
By:____________________________
Title:_________________________
HP ACQUISITION, INC.
a Delaware corporation
By:____________________________
Title:_________________________
-5-
<PAGE>
EXHIBIT B
TO TAX OPINION
--------------
OFFICER'S CERTIFICATE
---------------------
BOOMTOWN, INC.
P.O. BOX 399
VERDI, NEVADA 89439-0399
September 13, 1996
Irell & Manella LLP Wilson Sonsini Goodrich & Rosati, P.C.
1800 Avenue of the Stars 650 Page Mill Road
Suite 900 Palo Alto, California 94304
Los Angeles, California 90067
RE: MERGER PURSUANT TO THE AGREEMENT AND PLAN OF MERGER (THE "MERGER
AGREEMENT") DATED AS OF APRIL 23, 1996, AMONG HOLLYWOOD PARK, INC., A
DELAWARE CORPORATION ("HPI"), BOOMTOWN, INC., A DELAWARE CORPORATION
("BOOMTOWN"), AND HP ACQUISITION, INC., A WHOLLY-OWNED SUBSIDIARY OF
HPI INCORPORATED IN DELAWARE ("SUB").
Gentlemen:
This letter is supplied to you in connection with your rendering of
opinions regarding certain federal income tax consequences of the Merger.
Unless otherwise indicated, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement including exhibits and schedules
attached thereto.
A. REPRESENTATIONS. After consulting with its counsel, auditors, and
---------------
investment bankers regarding the meaning of and factual support for the
following representations, Boomtown hereby certifies, warrants, and represents
that the following facts are now true and will continue to be true as of the
Closing and as of the time of the Merger:
1. The fair market value of the HPI common stock and other
consideration received by each Boomtown shareholder will be approximately equal
to the fair market value of the Boomtown stock surrendered in exchange therefor.
2. Based upon due inquiry of officers, of directors, and of each
shareholder of Boomtown who owns five percent (5%) or more of Boomtown stock,
there is no plan or intention by the shareholders of Boomtown who own five
percent (5%) or more of the Boomtown stock, and to the best of the knowledge of
the management of Boomtown, there is no plan or intention on the part of the
remaining
<PAGE>
shareholders of Boomtown, to sell, exchange, or otherwise dispose of a number of
shares of HPI stock received in the Merger that would reduce the Boomtown
shareholders' ownership of HPI stock to a number of shares having a value, as of
the date of the Merger, of less than fifty percent (50%) of the value of all of
the formerly outstanding stock of Boomtown as of the same date. For purposes of
this representation, shares of Boomtown stock (or the portion thereof) exchanged
for cash or other property, surrendered by dissenters, if any, or exchanged for
cash in lieu of fractional shares of HPI common stock will be treated as
outstanding Boomtown stock on the date of the Merger. Moreover, shares of
Boomtown stock and shares of HPI common stock held by Boomtown shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the Merger will
be considered in making this representation.
3. Following the Merger and all Related Transactions (as hereinafter
defined), Boomtown will hold at least 90 percent of the fair market value of its
net assets and at least 70 percent of the fair market value of its gross assets,
and at least 90 percent of the fair market value of Sub's net assets and at
least 70 percent of the fair market value of Sub's gross assets held immediately
prior to the Merger (or, if earlier, immediately prior to any Related
Transaction). For purposes of this representation, amounts paid by Boomtown or
Sub to dissenters, if any, amounts paid by Boomtown or Sub to shareholders who
receive cash or other property, amounts used by Boomtown or Sub to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by Boomtown will be included as assets of
Boomtown or Sub, respectively, immediately prior to the Merger (or, if earlier,
immediately prior to any Related Transaction). "Related Transactions" means all
transactions related to the Merger or occurring (other than in the ordinary
course of business) at or around the period of the Merger, including without
limitation the Blue Diamond Swap, where "Blue Diamond Swap" means any
transactions connected to the termination of Boomtown's operations at its Las
Vegas resort, including without limitation (i) the termination of the lease
under which such resort is operated, and (ii) the restructuring of the debt
attributable to the loans made by Boomtown to IVAC, a California general
partnership, in the aggregate amount of approximately $27.3 million. The Blue
Diamond Swap will be effectuated by a direct exchange of assets or other
consideration between Boomtown (or its subsidiaries), on the one hand, and IVAC
(or a designated affiliate), on the other hand, and HPI will provide no assets
to Boomtown for any purpose in connection therewith.
4. Boomtown has made no transfer of any of its assets in
contemplation of the Merger or during the pre-Merger period other than in the
ordinary course of business or in connection with the Blue Diamond Swap.
5. Boomtown has no obligation, understanding, agreement, plan or
intention to issue additional shares of its stock that would result in HPI
losing control of Boomtown within the meaning of Section 368(c) of the Internal
Revenue Code of 1986, as amended (the "Code") (control within the meaning of
Section 368(c) of the Code is hereinafter referred to as "Control").
-2-
<PAGE>
6. To the knowledge of Boomtown, other than with respect to the Roski
Stock Purchase, HPI has no plan or intention to reacquire any of its stock
issued in the Merger. "Roski Stock Purchase" means the purchase by HPI of the
shares in Boomtown held by Mr. Edward P. Roski, Jr. -- which stock interest of
Mr. Roski represents no more than 7.8% of the total outstanding shares of
Boomtown immediately prior to the Merger (or, if earlier, immediately prior to
any Related Transaction) -- either by the purchase, immediately prior to the
Merger, of the shares in Boomtown held by Mr. Roski or the reacquisition,
immediately after the Merger, of the HPI shares into which Mr. Roski's Boomtown
shares may be converted in the Merger. Boomtown will provide no assets to Mr.
Roski in connection with the purchase or reacquisition of his stock interest.
7. To the knowledge of Boomtown, HPI has no plan or intention to
liquidate Boomtown; to merge Boomtown with or into another corporation; to sell
or otherwise dispose of the stock of Boomtown except for transfers of stock to
corporations controlled by HPI; or to cause Boomtown to sell or otherwise
dispose of any of its assets or of any of the assets acquired from Sub, except
for dispositions made in the ordinary course of business or transfers of assets
to a corporation controlled by Boomtown.
8. To the knowledge of Boomtown, following the Merger and all
Related Transactions, HPI will cause Boomtown to continue its historic business
or use a significant portion of its historic business assets in a business.
9. HPI, Sub, Boomtown, and the shareholders of Boomtown will each
pay their respective expenses, if any, incurred in connection with the Merger,
all Related Transactions, and the Roski Stock Purchase.
10. There is no intercorporate indebtedness existing between HPI and
Boomtown or between Sub and Boomtown that was issued, acquired, or will be
settled at a discount.
11. In the Merger, shares of Boomtown stock representing Control of
Boomtown will be exchanged solely for voting stock of HPI. For purposes of this
representation, shares of Boomtown stock exchanged for cash or other property
originating with HPI, including without limitation in connection with the Roski
Stock Purchase, will be treated as outstanding Boomtown stock on the date of the
Merger. Moreover, for purposes of this representation, in the case of HPI
shares issued in the Merger and reacquired in the Roski Stock Purchase or a
Related Transaction, the Boomtown shares to which such HPI shares are
attributable will be treated as having been exchanged in the Merger for other
than voting stock.
12. At the time of the Merger, (i) Boomtown will have no outstanding
equity interests other than as described in Section 5.3 of the Merger Agreement,
and (ii) Boomtown will not have outstanding any warrants, options, convertible
securities, or any other type of right pursuant to which any person could
acquire stock in Boomtown
-3-
<PAGE>
that, if exercised or converted, would affect HPI's acquisition or retention of
Control of Boomtown.
13. HPI does not own, nor has it owned during the past five years,
any shares of the stock of Boomtown.
14. Boomtown is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
15. On the date of the Merger, the fair market value of the assets of
Boomtown will exceed the sum of its liabilities, plus the amount of liabilities,
if any, to which such assets are subject.
16. Boomtown is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
17. The liabilities of Boomtown have been incurred by Boomtown in the
ordinary course of its business.
18. To the knowledge of Boomtown, following the Merger, HPI will
cause Boomtown to comply with the record-keeping and information filing
requirements of Treas. Reg. Section 1.368-3.
19. The payment of cash in lieu of fractional shares of HPI stock is
solely for the purpose of avoiding the expense and inconvenience to HPI of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the
transaction to shareholders of Boomtown instead of issuing fractional shares of
HPI stock will not exceed one percent of the total consideration that will be
issued in the transaction to the shareholders of Boomtown in exchange for their
shares of Boomtown. The fractional share interests of each shareholder of
Boomtown will be aggregated, and no shareholder of Boomtown will receive cash in
an amount equal to or greater than the value of one full share of HPI stock.
20. None of the compensation received by any shareholder-employee of
Boomtown will be separate consideration for, or allocable to, any of their
shares of Boomtown stock; none of the shares of HPI stock received by any
shareholder-employees will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any shareholder-employees
will be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services.
21. The shares of Boomtown stock are not a "United
States real property interest" within the meaning of Section 897(c) of the Code.
-4-
<PAGE>
22. Boomtown has a bona fide business reason for engaging in the
Merger.
B. RELIANCE BY YOU IN RENDERING OPINIONS; LIMITATIONS ON YOUR OPINIONS.
-------------------------------------------------------------------
1. Boomtown recognizes that (i) your opinions will be based on the
representations set forth herein, and on the statements contained in the Merger
Agreement and the documents related thereto and (ii) your opinions will be
subject to certain limitations and qualifications including without limitation
that they may not be relied upon if any such representations are not accurate.
2. Boomtown recognizes that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except as
expressly set forth in such opinions.
3. Boomtown understands that, if you are asked to reaffirm your
opinions at the Closing, then in connection with such reaffirmation, you will
require Boomtown to reaffirm this letter and the representations set forth
herein.
Very truly yours,
BOOMTOWN, INC.
a Delaware corporation
By:______________________________
Title:____________________________
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<PAGE>
EXHIBIT 10.22
BLUE DIAMOND SWAP AGREEMENT
DATED AS OF AUGUST 12, 1996
BY AND AMONG
BOOMTOWN, INC.,
BLUE DIAMOND HOTEL & CASINO, INC.,
HOLLYWOOD PARK, INC.,
EDWARD P. ROSKI, JR.,
IVAC
AND
MAJESTIC REALTY CO.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. DEFINITIONS AND RULES OF INTERPRETATION..................................... 2
1.1 Definitions........................................................... 2
1.2 Rules of Interpretation............................................... 7
2. TRANSFER OF ROSKI NOTES..................................................... 8
2.1 Transfer of Roski Notes on the Exchange Date.......................... 8
2.2 Excluded Assets....................................................... 8
2.3 No Liabilities Assumed; Excluded Liabilities.......................... 8
3. TRANSFER OF BD INTEREST..................................................... 8
3.1 Transfer of BD Interest on the Exchange Date.......................... 8
3.2 Excluded Assets....................................................... 9
3.3 Liabilities Assumed................................................... 9
4. CASH PAYMENT................................................................ 9
5. EXCHANGE OF ASSETS.......................................................... 9
5.1 Exchange Date......................................................... 9
5.2 Cash Payment; Proration............................................... 10
5.3 Deliveries by BD Transferor........................................... 10
5.4 Deliveries by Roski................................................... 11
5.5 Additional Undertakings by Roski...................................... 12
5.6 Additional Undertakings by Boomtown, Blue Diamond,
Hollywood Park and BD Transferor...................................... 13
6. REPRESENTATIONS AND WARRANTIES.............................................. 14
6.1 Representations and Warranties of the Roski Entities.................. 14
6.2 Representations and Warranties of Boomtown, Blue Diamond,
Hollywood Park and BD Transferor...................................... 16
7. CONDITIONS PRECEDENT........................................................ 17
7.1 Conditions to Execution and Delivery of this Agreement by Boomtown.... 17
7.2 Conditions to Execution and Delivery of this Agreement by Roski....... 17
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
7.3 Conditions to Exchange by BD Transferor............................... 17
7.4 Conditions to Exchange by Roski....................................... 18
8. INDEMNIFICATION............................................................. 19
8.1 Indemnification by the Roski Entities................................. 19
8.2 Indemnification by Boomtown, Blue Diamond and BD Transferor........... 20
8.3 Procedure............................................................. 20
9. ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES.......................... 21
9.1 Approvals............................................................. 21
9.2 Consents, Authorizations and Waivers.................................. 21
9.3 Transfer Taxes........................................................ 21
9.4 Additional Deliveries; Further Assurances............................. 21
9.5 Maintenance of Resort Business........................................ 22
9.6 Director's Insurance.................................................. 22
10. TERMINATION................................................................. 22
10.1 Termination.......................................................... 22
10.2 Other Merger......................................................... 22
11. MISCELLANEOUS............................................................... 23
11.1 Changes, Waivers, etc................................................ 23
11.2 Payment of Fees and Expenses......................................... 23
11.3 Notices.............................................................. 23
11.4 Entire Agreement..................................................... 24
11.5 Survival of Representations and Warranties, etc...................... 24
11.6 Headings; References to Agreement.................................... 24
11.7 Choice of Law; Interpretation........................................ 24
11.8 Counterparts......................................................... 24
11.9 Severability......................................................... 24
11.10 Successors and Assigns............................................... 24
11.11 No third Party Beneficiaries......................................... 24
11.12 Waiver of Jury Trial................................................. 25
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
LIST OF EXHIBITS AND SCHEDULES
------------------------------
<S> <C> <C>
EXHIBIT A RELEASE
EXHIBIT B ROSKI NOTE
EXHIBIT C TERMINATION AGREEMENT
SCHEDULE 1-A NOTES AND LEASES
SCHEDULE 1-B MAINTENANCE CONTRACTS
SCHEDULE 1-C OUTDOOR SIGNS
SCHEDULE 1-D LICENSE AND PROGRESSIVE SERVICE AGREEMENTS
</TABLE>
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<PAGE>
BLUE DIAMOND SWAP AGREEMENT
This Blue Diamond Swap Agreement (this "Agreement") is made as of the 12th
day of August, 1996 by and among Boomtown, Inc., a Delaware corporation
("Boomtown"), Blue Diamond Hotel & Casino, Inc., a Nevada corporation and a
wholly-owned subsidiary of Boomtown ("Blue Diamond"), Hollywood Park, Inc., a
Delaware corporation ("Hollywood Park"), Edward P. Roski, Jr., an individual
residing in the State of California ("Roski"), IVAC, a California general
partnership of which Roski is a partner ("IVAC") and Majestic Realty Co., a
California corporation ("Majestic").
WHEREAS, IVAC owns certain real property in Las Vegas, Nevada, on which a
resort consisting of a casino, hotel, restaurant, recreational vehicle park and
related facilities (as more fully defined below, the "Resort") is being operated
by Blue Diamond as Boomtown Las Vegas;
WHEREAS, Boomtown has advanced certain funds to IVAC to enable IVAC to
complete development and construction of the Resort, which advances are
evidenced by certain promissory notes issued by IVAC, which notes are governed
by loan agreements and secured by deeds of trust on the Resort site and certain
related property;
WHEREAS, Blue Diamond has entered into a lease with IVAC for the Resort
site, and has purchased and installed certain trade fixtures in the Resort;
WHEREAS, Hollywood Park intends to enter into a strategic combination (the
"Merger") with Boomtown pursuant to an Agreement and Plan of Merger dated as of
April 23, 1996 by and among Hollywood Park, Boomtown and HP Acquisition, Inc., a
Delaware corporation and a wholly-owned subsidiary of Hollywood Park (as amended
and in effect from time to time, the "Merger Agreement");
WHEREAS, subject to consummation of the Merger pursuant to the Merger
Agreement, Boomtown and Blue Diamond intend either (a) to effect any one or
combination of the following transfers of their respective interests in the
Resort (i) a transfer to a subsidiary of Boomtown (an "SPC") created for the
purpose and designated as an "Unrestricted Subsidiary" under the Boomtown
Indenture (as defined below), or (ii) as set forth in Section 3.1, any other
transfer which would achieve the result contemplated by this Agreement or (b) to
retain their respective interests in the Resort, for the purpose of entering
directly into the transactions contemplated by this Agreement;
WHEREAS, it is the intent of the parties hereto that, upon consummation of
the Merger pursuant to the Merger Agreement, subject to the terms and conditions
set forth in this Agreement, the holder of such interests in the Resort,
regardless of whether such holder
<PAGE>
is then Boomtown, Blue Diamond, Hollywood Park, any designated Affiliate (as
defined below) of Hollywood Park, any SPC or other designated subsidiary of
Boomtown or any combination thereof (any such holder(s), "BD Transferor") would
either exchange such interests in the Resort for the Roski Notes (as defined
below) or effect the same result through a series of related transactions, and,
in any such case, Roski would exchange the Roski Notes for such interests in the
Resort (such exchange, however effected, the "Blue Diamond Swap");
NOW THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, Boomtown, Blue Diamond, Hollywood Park, Roski, IVAC and Majestic
hereby agree as follows:
1. DEFINITIONS AND RULES OF INTERPRETATION
---------------------------------------
1.1 Definitions. The following terms shall have the respective
-----------
meaning set forth below, or in the Sections of this Agreement respectively
referred to below:
"Affiliate" of any person or entity organized as a corporation,
partnership, joint venture, business trust or other non-individual person, shall
mean (i) any person or entity which directly or indirectly owns fifty percent
(50%) or more of the stock, partnership or other beneficial interest of such
person or entity, (ii) any corporation, partnership or other entity of which
fifty percent (50%) or more of the stock, partnership or other beneficial
interest is owned directly or indirectly by such person or entity, and (iii) any
corporation, partnership or entity of which fifty percent (50%) or more of the
stock, partnership or other beneficial interest is owned directly or indirectly
by any person or entity that owns fifty percent (50%) or more of the stock,
partnership or other beneficial interest of such person or entity.
"Affiliate Loan Agreement" shall mean the Affiliate Loan Agreement
dated as of June 30, 1993, by and among IVAC, Majestic and Boomtown.
"Affiliate Note" shall mean the Affiliate Loan Note dated as of June
30, 1993, made by IVAC in favor of Boomtown.
"Affiliate Loan Deed of Trust" shall mean the Deed of Trust and
Assignment of Rents and Security Agreement dated as of June 30, 1993, by and
among IVAC, as trustor, Nevada Title Company, a Nevada corporation, as trustee
and Boomtown and Majestic as tenants in common, as beneficiaries.
"Approvals" shall mean all governmental approvals, consents, licenses,
findings of suitability, and permits, including without limitation, any
approvals of Gaming Authorities, as may be required to effect the Blue Diamond
Swap.
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<PAGE>
"Assumed Contracts" shall mean (i) the leases and notes identified on
Schedule 1-A hereto, (ii) the gift shop leases and the sports book agreement
- ------------
between Boomtown and Leroy's Horse and Sports Place, dated November 30, 1995,
(iii) the agreement for the family amusement center at the Resort, (iv) the
maintenance contracts listed on Schedule 1-B hereto, (v) the outdoor sign
------------
agreements listed on Schedule 1-C hereto, (vi) the license and progressive
------------
service agreements listed on Schedule 1-D hereto and (vii) the agreements for
------------
entertainment at the Resort in effect on the Exchange Date.
"BD Interest" shall mean all of BD Transferor's right, title and
interest in and to (i) the Affiliate Note, the Bridge Note, the Affiliate Loan
Agreement, the Bridge Loan Agreement, the Purchase Option Agreement, the
Affiliate Loan Deed of Trust, the Bridge Loan Deed of Trust and the Purchase
Option Deed of Trust, (ii) the mortgage liens on, and other rights in, the
Resort site and related properties respectively conveyed in trust under the
Affiliate Loan Deed of Trust, the Bridge Loan Deed of Trust and the Purchase
Option Deed of Trust, (iii) the Blue Diamond Lease, the Assumed Contracts, the
FF&E and the Specified Assets and (iv) security systems, customer lists,
telephone numbers, books and records, user manuals, plans, surveys, liquor and
other licenses and inventories which are located at, or used principally in
connection with, the Resort; provided, however, that the BD Interest shall
include all interests of Boomtown and Blue Diamond in the foregoing as of the
Exchange Date.
"BD Transferor" shall have the meaning ascribed thereto in the
recitals hereto.
"Blue Diamond" shall have the meaning ascribed to such term in the
recitals hereto.
"Blue Diamond Lease" shall mean the Lease dated as of June 30, 1993,
as amended by a First Amendment to Lease dated as of November 10, 1993, by and
between IVAC as lessor and Blue Diamond as lessee, pursuant to which IVAC has
agreed to lease to Blue Diamond, and Blue Diamond has agreed to lease from IVAC,
the real property in Las Vegas, Nevada on which the Resort is situated.
"Blue Diamond Swap" shall have the meaning ascribed thereto in the
recitals hereto.
"Boomtown" shall have the meaning ascribed thereto in the preamble
hereto.
"Boomtown Indenture" shall mean the Indenture dated as of November 1,
1993, by and among Boomtown, Blue Diamond, certain of their Affiliates and the
Trustee.
"Bridge Loan Agreement" shall mean the Bridge Loan Agreement dated as
of June 30, 1993, by and between IVAC and Boomtown, as amended by an Amendment
No. 1 to Bridge Loan Agreement dated as of November 10, 1993.
-3-
<PAGE>
"Bridge Note" shall mean the Amended and Restated Promissory Note
(Bridge) dated as of June 30, 1993, made by IVAC in favor of Boomtown.
"Bridge Loan Deed of Trust" shall mean the Deed of Trust and
Assignment of Rents and Security Agreement dated as of June 30, 1993, by and
among IVAC, as trustor, Nevada Title Company, a Nevada corporation, as trustee
and Boomtown as beneficiary.
"Designated Roski Entity" shall mean an entity designated by Roski and
either (i) reasonably acceptable to Boomtown and Hollywood Park or (ii) the
obligations of which hereunder and under the Related Documents, including all
indemnities for which such Roski Entity is liable, shall have been
unconditionally guaranteed by Roski pursuant to the Roski Guaranty.
"Effective Date" shall mean the date of this Agreement.
"Employees" shall mean the employees of Boomtown, Blue Diamond or
their Affiliates employed at or in connection with the Resort exclusively and
not employed at other facilities.
"Exchange Date" shall mean the date on which the conditions precedent
specified in Sections 7.3 and 7.4 hereof have been satisfied or waived.
"FF&E" shall mean all trade fixtures, other fixtures and equipment
located at or used principally in connection with the Resort, including, in any
event, those assets (however characterized) listed on the fixed asset register
of Blue Diamond as of the Effective Date and those assets (however
characterized) leased or purchased under the leases and notes listed on Schedule
--------
1-A; provided, however, that FF&E shall be deemed to include any replacements of
- ---
any such assets and any similar assets acquired for use at or principally in
connection with the Resort by Boomtown, Blue Diamond or BD Transferor during the
period from the Effective Date until the Exchange Date and shall be deemed to
exclude any such assets that no longer exist as of the Exchange Date due to
obsolescence or use in the ordinary course of business.
"Fixture Filings" shall mean the fixture filings with respect to the
Resort listed as of the Exchange Date on Schedule 1 to the Termination
-------- -
Agreement.
"GAAP" shall mean generally accepted accounting principles as in
effect on the relevant date of determination, consistently applied.
"Gaming Authority" shall mean the Nevada Gaming Commission, the Nevada
State Gaming Control Board, the Clark County Liquor and Gaming Licensing Board
and any other state, county or other governmental authority having
responsibility for, jurisdiction over, or regulatory authority, oversight or
supervisory responsibilities in respect of, any
-4-
<PAGE>
gaming related business operated or contemplated to be operated at or in
connection with the Resort.
"Gaming Law" shall mean all applicable provisions (i) the Nevada
Gaming Control Act and the statutes rules, and regulations promulgated
thereunder and (ii) all interpretations, decisions, judgments, orders and
decrees of any Gaming Authority.
"Hollywood Park" shall have the meaning ascribed to such term in the
preamble hereto.
"IVAC" shall have the meaning ascribed to such term in the preamble
hereto.
"Majestic" shall have the meaning ascribed to such term in the
preamble hereto.
"Merger" shall have the meaning ascribed to such term in the recitals
hereto.
"Merger Agreement" shall have the meaning ascribed to such term in the
recitals hereto.
"Permitted Liens" shall mean (a) liens and encumbrances, including
rights of consent to assignment, arising under the Assumed Contracts in
accordance with the terms thereof, (b) restrictions imposed by Gaming Laws and
other applicable governmental authorities and (c) other encumbrances arising in
the ordinary course of business in connection with the operation of the Resort.
"Perishable Inventory" shall mean all liquor, beverages, foodstuff and
other consumable or perishable inventory purchased by Blue Diamond or any of its
Affiliates for consumption or use at the Resort, valued at cost on a FIFO basis.
"Purchase Option Agreement" shall mean the Purchase Option Agreement
dated as of June 30, 1993 by and among IVAC, Boomtown and Blue Diamond.
"Purchase Option Deed of Trust" shall mean the Deed of Trust and
Assignment of Rents and Security Agreement dated as of June 30, 1993, by and
among IVAC, as trustor, Nevada Title Company, a Nevada corporation, as trustee
and Blue Diamond, as beneficiary.
"Related Agreements" shall mean the Termination Agreement, the Roski
Notes, the Roski Guaranty, if applicable, the Release and all of the other
documents, instruments and agreements executed and delivered in connection with
any of the foregoing, and the transactions respectively contemplated hereby and
thereby.
-5-
<PAGE>
"Release" shall mean the general release by each of (i) the Roski
Entities of BD Transferor, Boomtown, Blue Diamond and their respective
Affiliates of the obligations related to the Resort created by or contained in
the Blue Diamond Lease, the Assumed Contracts, the Specified Liabilities and all
obligations, liabilities and claims relating to the Resort arising or accruing
prior to the date on which Boomtown or Blue Diamond took possession of the
"Premises" (as defined in the Blue Diamond Lease) or arising or accruing on or
after the Exchange Date and (ii) BD Transferor, Boomtown and Blue Diamond of the
Roski Entities of all obligations, liabilities and claims arising under the
Affiliate Note, the Bridge Note, the Affiliate Loan Agreement, the Bridge Loan
Agreement, the Purchase Option Agreement, the Affiliate Loan Deed of Trust, the
Bridge Loan Deed of Trust and the Purchase Option Deed of Trust in substantially
the form of Exhibit A hereto.
---------
"Resort" shall mean the facility located at 3333 Blue Diamond Road,
Las Vegas, Nevada consisting of a casino, hotel, restaurant, recreational
vehicle park and related facilities, and all assets located at, used principally
in connection with, or arising principally from such facilities, including the
FF&E, the Specified Assets, certain rights under the Assumed Contracts, security
systems, customer lists, telephone numbers, books and records, user manuals,
plans, surveys, liquor and other licenses and inventories.
"Retained Employees" shall have the meaning ascribed thereto in
Section 5.6(a) of this Agreement.
"Roski" shall have the meaning ascribed to such term in the preamble
hereto.
"Roski Entities" shall mean collectively, Roski, IVAC (including
Edward P. Roski, Sr. as a general partner of IVAC) and Majestic.
"Roski Guaranty" shall mean a guaranty by Roski of the obligations of
the Designated Roski Entity hereunder and under the other Related Agreements to
which the Designated Roski Entity is a party, if required by Boomtown and
Hollywood Park, in form and substance satisfactory to Boomtown and Hollywood
Park.
"Roski Notes" shall mean (i) an unsecured promissory note made by the
Designated Roski Entity, in an initial principal amount of five million dollars
($5,000,000) having an interest rate equal to the Prime Rate, as announced by
Bank of America from time to time, plus one and one half percent (1.5%) per
annum and providing for annual principal payments of one million dollars
($1,000,000) plus accrued interest and maturing on the date that is five years
after the Exchange Date, in substantially the form of Exhibit B-1 hereto and
-----------
(ii) an unsecured promissory note, made by the Designated Roski Entity, in an
initial principal amount of $3,464,287 having an interest rate equal to the
Prime Rate, as announced by Bank of American from time to time, plus one-half
percent (.5%) per annum and providing for a payment of all principal plus
accrued interest on the date that is three (3) years after the Exchange Date, in
substantially the form of Exhibit B-2 hereto.
-6-
<PAGE>
"Roski Stock" shall mean 714,386 shares of the common stock of
Boomtown held, as of the Effective Date, by Roski, and all shares of the common
stock of Hollywood Park into which such Boomtown common stock had then
converted, or which Roski then had a right to receive in exchange for such
Boomtown common stock.
"Roski Stock Purchase Agreement" means an agreement of even date
herewith between Roski and Hollywood Park pursuant to which Roski is selling,
transferring and conveying the Roski Stock to Hollywood Park, and Hollywood Park
is purchasing and acquiring the Roski Stock for the Roski Stock Purchase Price.
"Roski Stock Purchase Price" shall mean a note to be issued by
Hollywood Park to Roski in the principal amount of $3,464,772 pursuant to the
Roski Purchase Agreement as consideration for the purchase of the Roski Stock.
"SPC" shall have the meaning ascribed to such term in the preamble
hereto.
"Specified Assets" shall mean (i) prepaid deposits with utilities with
respect to the Resort, security deposits and any other prepaid expenses, (ii)
cash in the Resort, whether in machines, gaming tables, change stations, the
gaming control center or at the hotel front desk, the restaurant or the
recreational vehicle park, (iii) Perishable Inventory (iv) applicable property
tax refunds accrued prior to the Exchange Date and not included in the tax
proration contemplated by Section 5.2 and (v) all trade receivables and all
other liquid assets other than markers (i.e., receivables and other uncontingent
payment rights convertible into cash within 90 days after the respective
issuance dates thereof), in each case, accruing or arising through the last day
prior to the Exchange Date.
"Specified Liabilities" shall mean (i) trade payables, (ii) players
points (Players Club), (iii) progressive slot winnings liability as shown on
Boomtown's books and records, (iv) caribbean stud liability, (v) advance
deposits, (vi) outstanding tokens and (vii) pre-sold concerts, with respect to
the Resort, in each case, accruing or arising through the last day prior to the
Exchange Date.
"Termination Agreement" shall have the meaning ascribed to such term
in Section 5.3(a) hereof.
"Trustee" shall mean First Trust National Association, as trustee
under the Boomtown Indenture.
1.2 Rules of Interpretation
-----------------------
(a) A reference to any document or agreement shall, unless
otherwise provided, include such document or agreement as amended, modified or
-7-
<PAGE>
supplemented from time to time in accordance with its terms and, if applicable,
as permitted by this Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any applicable amendment or
modification to such law, or any applicable successor law.
(d) A reference to any person or entity includes its permitted
successors and permitted assignees.
(e) Accounting terms not otherwise defined herein have the
respective meanings assigned to them by GAAP applied on a consistent basis by
the accounting entity to which they refer.
(f) The words "include," "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by GAAP, which
terms are defined in the Uniform Commercial Code as in effect in the State of
Nevada, shall have the respective meanings assigned to them therein.
(h) Reference to a particular "Section" refers to that section of
this Agreement unless otherwise indicated.
(i) The words "herein," "hereof," "hereunder" and words of like
import shall refer to this Agreement as a whole and not to any particular
section or subdivision of this Agreement.
2. TRANSFER OF ROSKI NOTES.
-----------------------
2.1 Transfer of Roski Notes on the Exchange Date. Subject to the
--------------------------------------------
terms and conditions of this Agreement, (i) the Designated Roski Entity agrees,
on the Exchange Date, to issue the Roski Notes to BD Transferor and (ii) BD
Transferor agrees, on the Exchange Date, to acquire and accept from Roski the
Roski Notes.
2.2 Excluded Assets. No other assets of the Roski Entities, except
---------------
those specifically listed in Section 2.1 and the cash payments respectively
contemplated by Sections 3.1 and 5.2, if applicable, shall be transferred or
deemed to be transferred hereby.
2.3 No Liabilities Assumed; Excluded Liabilities. BD Transferor is
--------------------------------------------
not assuming and shall not be responsible for any liability or obligation of any
Roski Entity, any
-8-
<PAGE>
Specified Liabilities, any obligations under Assumed Contracts accruing on or
after the Exchange Date or any other claims or liabilities with respect to the
Resort arising or accruing on or after the Exchange Date, or any liability or
obligation arising from or relating to any of the following:
(a) any costs or expenses, including, but not limited to, legal
fees, accounting fees, consulting, other finder, broker and financing costs
incurred by Roski or his Affiliates in connection with this Agreement or the
Related Agreements or the consummation of the transactions contemplated hereby
or thereby; or
(b) any taxes owed by any Roski Entity or assessed as a result of
or in connection with the transactions contemplated hereby, including, without
limitation, any income, property, sales, use or withholding taxes.
In no event shall Hollywood Park be deemed to have assumed, or
otherwise become liable for, any liability whatsoever of any Roski Entity
(regardless of whether Hollywood Park is designated as BD Transferor).
3. TRANSFER OF BD INTEREST.
-----------------------
3.1 Transfer of BD Interest on the Exchange Date. Subject to the
--------------------------------------------
terms and conditions of this Agreement, BD Transferor agrees, on the Exchange
Date, to transfer, convey, assign and deliver to Roski, or the Designated Roski
Entity, and Roski agrees to acquire, accept and assume (or cause the Designated
Roski Entity to acquire, accept and assume) from the BD Transferor, all right,
title and interest of BD Transferor in and to the BD Interest. The parties
intend that this exchange shall occur by means of a series of contemporaneous
steps as follows: (a) Boomtown and Blue Diamond would transfer the BD Interest
to the SPC, (b) the Designated Roski Entity would convey the Roski Notes and any
cash payments to be made hereunder to the SPC and assume the liabilities
described herein, (c) the SPC would transfer and convey the BD Interest to the
Designated Roski Entity as contemplated herein, subject to the Assumed Contracts
and (d) the SPC would transfer the Roski Notes and any cash payments to be made
hereunder to Boomtown. The parties acknowledge and agree that Boomtown and
Hollywood Park may mutually agree without the consent of Roski, to utilize a
structure other than the foregoing structure, to accomplish the objectives of
the parties set forth herein, provided that such structure is economically
equivalent to the contemplated structure set forth above. It is further
acknowledged that as part of such alternative structure, Boomtown and Hollywood
Park may require Roski to continue to own and hold the Roski Stock.
3.2 Excluded Assets. No other rights, interests or assets of BD
---------------
Transferor or any of its Affiliates, except those specifically listed in Section
3.1 and the cash payment contemplated by Section 5.2, if applicable, shall be
transferred or deemed to be transferred hereby.
-9-
<PAGE>
3.3 Liabilities Assumed. Upon and after the Exchange Date, the
-------------------
Designated Roski Entity shall be solely liable for the Specified Liabilities,
accrued liabilities relating to vacation earned but unused under the Blue
Diamond employee benefits policy in effect as of the date hereof associated with
the employees hired by Roski pursuant to Section 5.5(F) and liabilities arising
under the Assumed Contracts and all other costs, expenses, claims, liabilities
and obligations of the Resort, of every kind and nature, in each case, arising
or accruing on or after the Exchange Date. The Designated Roski Entity shall
take such actions to assume the liabilities of the Resort accruing after the
Exchange Date under the Assumed Contracts as may be necessary to substitute the
Designated Roski Entity for BD Transferor or, as applicable, any of its
Affiliates, and/or shall relieve BD Transferor and its Affiliates of all
liability thereunder. Except for the Specified Liabilities, accrued liabilities
relating to vacation earned but unused to the extent described above, amounts
accruing under the Assumed Contracts on or after the Exchange Date and all of
the other costs, expenses, claims, liabilities and obligations arising on or
after the Exchange Date in connection with the Resort, the Designated Roski
Entity will not assume or otherwise become responsible for any liability or
obligation of Boomtown, Blue Diamond, Hollywood Park or any of their respective
Affiliates, or any other claims or liabilities whatsoever, including, any costs
or expenses, including, but not limited to, legal fees, accounting fees,
consulting, other finder, broker and financing costs incurred by Boomtown, Blue
Diamond, Hollywood Park, BD Transferor or any of their Affiliates in connection
with this Agreement or the Related Agreements or the consummation of the
transactions contemplated hereby or thereby.
4. CASH PAYMENT. Subject to the terms and conditions of this Agreement,
------------
each of the parties agrees to make the cash payments respectively contemplated
to be made by such party in Sections 3.1 and 5.2, as applicable.
5. EXCHANGE OF ASSETS.
------------------
5.1 Exchange Date. Subject to a restructuring in accordance with
-------------
Section 3.1, on the Exchange Date, (a) BD Transferor shall transfer, convey,
assign and deliver to Roski, and Roski shall acquire, accept and assume from BD
Transferor, the BD Interest and (b) Roski shall deliver to BD Transferor, and BD
Transferor shall acquire and accept from Roski, the Roski Notes. Each party
shall deliver to the other such endorsements, assignments, releases and other
instruments as the other party shall reasonably request or as necessary to vest
in the other party valid and marketable title, free and clear of all liens or
encumbrances (except, with respect to the BD Interest, Permitted Liens) to the
BD Interest, in the case of Roski, and to the Roski Notes, in the case of BD
Transferor.
5.2 Cash Payment; Proration. On the Exchange Date, if the amount of
-----------------------
Specified Assets is greater than the amount of Specified Liabilities as of the
Exchange Date, then Roski shall pay to BD Transferor an amount equal to the
amount of Specified Assets less the amount of Specified Liabilities. On the
Exchange Date, if the amount of Specified Liabilities is greater than the amount
of Specified Assets as of the Exchange Date, then BD
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<PAGE>
Transferor shall pay to Roski an amount equal to the amount of Specified
Liabilities less the amount of Specified Assets. In addition, all outstanding
taxes, rent, utilities and payments under the Assumed Contracts shall be pro
rated as of the Exchange Date, so that all such amounts accruing prior to the
Exchange Date shall be for the account of Blue Diamond or Boomtown and all such
amounts accruing from and after the Exchange Date shall be for the account of
the applicable Roski Entity.
5.3 Deliveries by BD Transferor. On the Exchange Date, subject to
---------------------------
the terms and conditions hereof, BD Transferor shall deliver to Roski each of
the following:
(a) a termination agreement in substantially the form of Exhibit
-------
C hereto (the "Termination Agreement"), duly executed by BD Transferor, Boomtown
- -
and Blue Diamond terminating all of the respective rights and obligations of BD
Transferor and the Roski Entities under the Affiliate Note, the Bridge Note, the
Affiliate Loan Agreement, the Bridge Loan Agreement, the Purchase Option
Agreement, the Affiliate Loan Deed of Trust, the Bridge Loan Deed of Trust, the
Purchase Option Deed of Trust, the Blue Diamond Lease and all or other documents
relating to the Resort and the relationship among Boomtown, Blue Diamond and any
one or more of the Roski Entities, providing, inter alia, for the acceptance by
Roski of BD Transferor's transfer of the BD Interest in a condition which
complies with the terms of the Blue Diamond Lease and this Agreement;
(b) the Affiliate Note, marked canceled;
(c) the Bridge Note, marked canceled;
(d) a discharge of the Affiliate Loan Deed of Trust, in
recordable form;
(e) a discharge of the Bridge Loan Deed of Trust, in recordable
form;
(f) a discharge of the Purchase Option Deed of Trust, in
recordable form;
(g) a quitclaim deed, in recordable form, regarding the Resort
(including BD Transferor's interest under the Blue Diamond Lease and the
Purchase Option Agreement);
(h) a discharge in recordable form of the Construction and
Permanent Deed of Trust, Security Agreement and Fixture Filing with Assignment
of Rents dated as of November 10, 1993, among Blue Diamond, as trustor, Nevada
Title Company, as trustee, and the Trustee, as beneficiary;
-11-
<PAGE>
(i) a discharge in recordable form of the Construction and
Permanent Deed of Trust, Security Agreement and Fixture Filing with Assignment
of Rents (Subordinated) dated as of November 10, 1993, among Blue Diamond, as
trustor, Nevada Title Company, as trustee, and Boomtown, as beneficiary;
(j) a termination in recordable form of the Collateral Assignment
of Deed of Trust dated as of November 10, 1993, between Boomtown and the
Trustee;
(k) UCC-3 termination statements, terminating the Fixture
Filings;
(l) the Release, duly executed by BD Transferor, Blue Diamond and
Boomtown;
(m) assignment agreements and any such other documents, consents,
authorizations and waivers as may be reasonably required by Roski, lessors or
other contracting parties, to assign all of BD Transferor's rights and
obligations under the Assumed Contracts;
(n) bills of sale for all personal property owned by BD
Transferor and included in the BD Interest;
(o) vehicle certificates of title and appropriate transfer
documents for all automobiles or other vehicles owned by BD Transferor and
included in the BD Interest;
(p) a list of all Employees employed at the Resort as of the
business day prior to the Exchange Date;
(q) an accounting of all cash on hand and Perishable Inventory on
the premises of the Resort on the business day prior to the Exchange Date; and
(r) an accounting of Specified Assets and Specified Liabilities.
5.4 Deliveries by Roski. On the Exchange Date, subject to the terms
-------------------
and conditions hereof, Roski shall deliver to BD Transferor each of the
following:
(a) the Termination Agreement, duly executed by Roski and each
other affected Roski Entity;
(b) the Roski Notes;
(c) the Release, duly executed by each affected Roski Entity; and
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<PAGE>
(d) assumption agreements and other documents as may be
reasonably required by BD Transferor to cause Roski to assume the obligations of
BD Transferor under the Assumed Contracts.
5.5 Additional Undertakings by Roski. In addition to the transfer
--------------------------------
of the property listed in Section 2.1 and the deliveries listed in Section 5.4,
each applicable Roski Entity agrees as follows:
(a) Roski shall resign as a director of Boomtown, effective as of
the Exchange Date.
(b) Roski shall take such action as is necessary to cancel the
options on the stock of Boomtown received by Roski in connection with his
service as a director of Boomtown, effective as of the Exchange Date.
(c) From and after the Exchange Date, Roski shall maintain the
confidentiality of any non-public information pertaining to Boomtown, Blue
Diamond, Hollywood Park or BD Transferor acquired by him in his capacity as a
director of Boomtown; provided, however, that Roski shall not be obligated to
maintain the confidentiality of any information which is already in the public
domain through no act of Roski or which is required to be disclosed by court
order or applicable law.
(d) No Roski Entity shall use the name "Boomtown," or any other
trademark, trade name, service mark or similar property of Boomtown or any of
its Affiliates, after the 180th day following the Exchange Date, and no Roski
Entity shall at any time use the name "Hollywood Park" or any other trademark,
tradename, service mark or similar property of Hollywood Park or any of its
Affiliates, except by agreement with Hollywood Park or such Affiliates. So long
as any Roski Entity uses the name "Boomtown", the Roski Entities shall maintain
the condition, service and operations of the Resort in substantial conformity
with those maintained by Blue Diamond and Boomtown prior to the Exchange Date.
The applicable Roski Entities and BD Transferor shall enter into a trademark
license agreement on the Exchange Date, including the protections to Boomtown
set forth in the Trademark License Agreement dated as of June 30, 1993, by and
between Boomtown and Blue Diamond.
(e) After the Exchange Date, the Roski Entities shall allow the
BD Transferor, its Affiliates and designees or appropriate governmental agencies
reasonable access to all books and records kept in connection with the Resort
prior to the Exchange Date, as reasonably requested by the BD Transferor for
legitimate business purposes. The parties will develop and follow a mutually
agreed upon retention policy with respect to the books and records of the
Resort.
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<PAGE>
(f) Prior to the Exchange Date, the Designated Roski Entity,
shall make offers of employment to substantially all of the Employees; provided,
however, that no Roski Entity shall attempt to solicit, or interfere in any
manner with, the employment of the Retained Employees.
(g) Each Roski Entity agrees, if Boomtown determines that it is
appropriate to solicit the consents to the Blue Diamond Swap from the holders of
the notes issued pursuant to the Boomtown Indenture, to cooperate as reasonably
requested by Boomtown in such consent solicitation and to cooperate reasonably
in any other actions which may be necessary to effect the transactions
contemplated hereby, regardless of the structure or form of the Blue Diamond
Swap; provided, that no Roski Entity shall be required to incur any expense or
liability in connection therewith.
(h) Roski or the Designated Roski Entity agrees to give such
notices as may be required by the Worker Adjustment and Retraining Notification
Act.
(i) The Designated Roski Entity, if not a party to this
Agreement, shall become a party to this Agreement.
5.6 Additional Undertakings by Boomtown, Blue Diamond, Hollywood
------------------------------------------------------------
Park and BD Transferor. In addition to the transfer of the property listed in
- ----------------------
Section 5.3, Boomtown, Blue Diamond, Hollywood Park and BD Transferor agree as
follows:
(a) Boomtown, Blue Diamond and the BD Transferor recognize that
the Designated Roski Entity will generally need to retain the services of the
Employees (other than the Retained Employees as defined below) in order to
operate the Resort in a businesslike and efficient manner following the Exchange
Date. Accordingly, Boomtown, Blue Diamond and BD Transferor agree not to
transfer any Employees from the Resort to their other operations after the
Effective Date and agree to terminate, as of the Exchange Date, all Employees.
Notwithstanding the foregoing, Boomtown, Blue Diamond or BD Transferor may
designate, by means of a written notice received by Roski within thirty (30)
days after the Effective Date, up to five (5) Employees as "Retained Employees"
and Boomtown, Blue Diamond and BD Transferor shall have the right to transfer
the Retained Employees from the Resort to their other operations and shall have
no obligation to terminate the Retained Employees. Following the Exchange Date,
none of Boomtown, Blue Diamond or BD Transferor, nor any of their Affiliates,
shall attempt to solicit from the Designated Roski Entity the Employees hired by
the Designated Roski Entity or otherwise interfere in their employment at the
Resort; provided that this Section 5.6 shall not be construed to restrain
Boomtown, Blue Diamond, BD Transferor or their Affiliates from hiring former
employees of the Designated Roski Entity.
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<PAGE>
(b) Boomtown, Blue Diamond, Hollywood Park and BD Transferor
shall maintain the confidentiality of any nonpublic information pertaining to
the Resort, including Resort-specific customer lists and other information
relating to patrons of the Resort; provided, however, that Boomtown, Blue
Diamond, Hollywood Park and BD Transferor shall not be obligated to maintain the
confidentiality of any information which is already in the public domain through
no act of Boomtown, Blue Diamond, Hollywood Park or BD Transferor or which is
required to be disclosed by court order or applicable law.
(c) Boomtown, Blue Diamond, and BD Transferor shall not extend
any Assumed Contract by a period of greater than one (1) year, or otherwise
amend any Assumed Contract, without obtaining the consent of Roski, which
consent shall not be unreasonably withheld.
(d) Boomtown, Blue Diamond, and BD Transferor agree to allow
Roski reasonable access to all books and records necessary to verify the amount
of Specified Assets and Specified Liabilities as of the Exchange Date, to
participate in taking a joint inventory with Roski of cash in the Resort, FF&E
and Perishable Inventory on the Exchange Date and to assist Roski in making a
general inspection of the Resort on the Exchange Date.
(e) If applicable, BD Transferor shall be designated by Boomtown
and Hollywood Park to facilitate, in Hollywood Park's and Boomtown's judgment,
the consummation of the Blue Diamond Swap. Once designated, if not a party to
this Agreement, Boomtown and Hollywood Park shall cause BD Transferor to become
a party to this Agreement.
(f) Boomtown, Blue Diamond and BD Transferor acknowledge the need
for Roski to obtain the information necessary to effect a smooth transition of
the operations of the Resort and agree to permit designees of the Roski Entities
access at reasonable times during customary business hours onto the premises of
the Resort; provided that no activities by such designees shall materially
interfere with the operations of the Resort.
(g) Blue Diamond agrees to change its name to a name not
including the words "Blue Diamond" prior to the Exchange Date so as to permit
the use of such a name by Roski.
(h) Boomtown and Hollywood Park shall take appropriate steps to
comply with the Boomtown Indenture so as to effect the transactions contemplated
hereby, by, at Boomtown and Hollywood Park's sole election, any of the following
means: (i) soliciting, commencing no later than 45 days prior to the scheduled
termination date of the Merger Agreement, as the same may be extended from time
to time, the consent of the holders of the notes issued pursuant to the Boomtown
Indenture to the Blue Diamond Swap
-15-
<PAGE>
or (ii) such other means, utilizing such other transactional structure, as
Boomtown and Hollywood Park may devise, in compliance with the Boomtown
Indenture (including without limitation, effecting, prior to or
contemporaneously with the Exchange Date, an asset disposition from Boomtown and
Blue Diamond to Hollywood Park or an Affiliate of Hollywood Park, in compliance
with the asset sale restrictions contained in the Boomtown Indenture).
(i) Boomtown and Blue Diamond shall cooperate with the Roski
Entities in providing such notice to the employees of Blue Diamond as may be
required by the Worker Adjustment and Retraining Notification Act.
6. REPRESENTATIONS AND WARRANTIES
------------------------------
6.1 Representations and Warranties of the Roski Entities. Each Roski
----------------------------------------------------
Entity (except Edward P. Roski, Sr. and Roski hereby represents and warrants on
behalf of Edward P. Roski, Sr.) represents and warrants to BD Transferor and its
Affiliates, as of the Effective Date and the Exchange Date (unless a specific
date is referenced below), jointly and severally, as follows:
(a) Legal Capacity. Roski is an individual with capacity to
--------------
contract; he has all requisite power and authority and is entitled to carry on
his business as now being conducted, and to own, lease or operate his properties
in the places where his business is now conducted and where his properties are
now owned, leased or operated.
Each other Roski Entity (other than Edward P. Roski, Sr.) is
duly organized and validly existing under the laws of its jurisdiction of
organization. Such Roski Entity has all requisite power and authority to, and is
entitled to, carry on its business as now conducted and to own or lease its
properties as and in the places where such business is now conducted and such
properties are now owned, leased or operated. Such Roski Entity is qualified to
do business in all foreign jurisdictions in which it is required to be so
qualified, except where the failure to be so qualified would not have a material
adverse effect on the business or assets of such Roski Entity.
(b) Authorization, etc. Each Roski Entity has all requisite
------------------
power and full legal right to enter into this Agreement and the Related
Agreements to which such Roski Entity is a party and to consummate the
transactions contemplated hereby and thereby. This Agreement and each of the
Related Agreements to which such Roski Entity is a party have been duly executed
and delivered by and constitute the valid and binding obligations of such Roski
Entity, enforceable in accordance with their respective terms, except insofar as
the enforceability thereof may be limited by applicable bankruptcy, insolvency,
receivership, reorganization, moratorium or other laws providing relief to
debtors, or laws or principles of equity generally.
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<PAGE>
(c) Execution, Delivery and Performance. Subject to obtaining
-----------------------------------
the Approvals, neither execution and delivery nor performance of this Agreement
or any of the Related Agreements to which any Roski Entity is a party by such
Roski Entity will, with or without the giving of notice or the passage of time,
or both, conflict with, result in a default, right to accelerate by any other
party to, require any consent not obtained prior to the Exchange Date with
respect to, or result in the creation of any lien, charge or encumbrance
pursuant to any provisions of any material indenture, bond, note, loan
agreement, guaranty, franchise, mortgage, deed of trust, lease or other
agreement by which such Roski Entity is bound or conflict with, result in a
default, right to accelerate by any other party to, or result in the creation of
any lien, charge or encumbrance pursuant to any law, ordinance, rule or
regulation, or any order, judgment, award or decree to which such Roski Entity
is a party or by which it or any part of the Roski Notes may be bound or
affected.
(d) Roski Notes etc. The Roski Notes will, on the Exchange
---------------
Date, be the valid and binding obligations of the Designated Roski Entity,
enforceable against the Designated Roski Entity in accordance with its terms.
The Roski Guaranty, if required by Boomtown and Hollywood Park, will be the
valid and binding obligation of Roski, enforceable against Roski in accordance
with its terms. No part of the Roski Notes on the Exchange Date will be subject
to any mortgage, deed of trust, pledge, lien, charge, security interest,
encumbrance, restriction, lease, license, easement, shop rights, covenants not
to sue, or adverse claim of any kind or nature, or other encumbrances of any
kind, rights of use or occupancy, or any other rights or privileges, other than
as set forth in the Related Agreements. In addition to the Roski Stock, 5,001
shares of Boomtown common stock held by Roski and the options to acquire
Boomtown common stock held by Roski in his capacity as a Boomtown director, as
of the Effective Date no Roski Entity owns any other securities of Boomtown or
any of its Affiliates, or rights (contingent or otherwise) to acquire securities
of Boomtown or any of its Affiliates.
(e) Representations Complete. There is no fact known to Roski
------------------------
which could reasonably be expected to affect in a materially adverse manner, the
enforceability of the Roski Notes or the ability of any Roski Entity to carry
out the transactions contemplated by this Agreement and the Related Agreements
or for the Designated Roski Entity to satisfy such Person's obligations under
the Roski Notes.
6.2 Representations and Warranties of Boomtown, Blue Diamond,
--------------------------------------------------------
Hollywood Park and BD Transferor. Each of Boomtown, Blue Diamond and BD
- --------------------------------
Transferor (other than Hollywood Park) jointly and severally represents and
warrants to the Roski Entities, and, with respect to Subsections 6.2(a)-(c),
Hollywood Park severally represents and warrants to the Roski Entities as to
itself, as of the Effective Date and the Exchange Date (unless a specific date
is referenced below), as follows:
(a) Organization. Such entity is duly organized and validly
------------
existing under the laws of its jurisdiction of incorporation. Such entity has
all requisite power and
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<PAGE>
authority to, and is entitled to, carry on its business as now conducted and to
own or lease its properties as and in the places where such business is now
conducted and such properties are now owned, leased or operated. Such entity is
qualified to do business in all foreign jurisdictions in which it is required to
be so qualified, except where the failure to be so qualified would not have a
material adverse effect on the business or assets of such entity.
(b) Authorization, etc. Such entity has all requisite corporate
------------------
power and authority to enter into this Agreement and the Related Agreements to
which it is or is to become a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Related Agreements to which it is or is to become a party by such entity
and the consummation by such entity of the transactions contemplated hereby and
thereby have been duly authorized by all requisite action of such entity. This
Agreement has been, and the Related Agreements to which such entity is or is to
become a party have been or will be, duly executed and delivered by and
constitute the valid and binding obligations of such entity, enforceable in
accordance with their respective terms, except insofar as the enforceability
thereof may be limited by applicable bankruptcy, insolvency, receivership,
reorganization, moratorium or other laws providing relief for debtors or
principles of equity generally.
(c) Execution, Delivery and Performance. Subject to obtaining
-----------------------------------
the Approvals and compliance prior to the Exchange Date with the Boomtown
Indenture, neither execution and delivery nor performance of this Agreement by
such entity will, with or without the giving of notice or the passage of time,
or both, conflict with, result in a default, right to accelerate by any other
party to, or result in the creation of any lien, charge or encumbrance pursuant
to any provisions of such person's organizational documents or by-laws or any
material franchise, mortgage, deed of trust, lease, license, agreement or
understanding, or conflict with, result in a default, right to accelerate by any
other party to, or result in the creation of any lien, charge or encumbrance
pursuant to any law, ordinance, rule or regulation, or any order, judgment,
award or decree to which such entity is a party or by which it may be bound or
affected.
(d) Title to BD Interest. BD Transferor will on the Exchange
--------------------
Date, immediately prior to the transfer to Roski contemplated hereby, have valid
and marketable title to, and unrestrained right to transfer, all of the BD
Interest. No part of the BD Interest will, prior to such transfer on the
Exchange Date, be subject to any mortgage, deed of trust, pledge, lien, charge,
security interest, encumbrance, restriction, lease, license, easement, shop
rights, covenants not to sue, or adverse claim of any kind or nature, or other
encumbrances of any kind, rights of use or occupancy, or any other rights or
privileges other than Permitted Liens. BD Transferor makes no representation or
warranty as to any interest in the Resort owned by any Roski Entity prior to the
Exchange Date or the effect of any encumbrance created by any Roski Entity on
the Resort.
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<PAGE>
(e) Liabilities. Other than the Specified Liabilities and the
-----------
liabilities of Blue Diamond and Boomtown arising under the Boomtown Indenture
and the Blue Diamond Lease and certain related documents, the Assumed Contracts
constitute all of the indebtedness and lease obligations of Boomtown, Blue
Diamond, Hollywood Park and BD Transferor incurred in connection with the
Resort.
7. CONDITIONS PRECEDENT.
--------------------
7.1 Conditions to Execution and Delivery of this Agreement by
---------------------------------------------------------
Boomtown. This Agreement shall not take effect until Boomtown, Blue Diamond and
- --------
Hollywood Park shall have received an original or facsimile counterpart of this
Agreement, duly executed and delivered by the appropriate Roski Entities.
7.2 Conditions to Execution and Delivery of this Agreement by Roski.
---------------------------------------------------------------
This Agreement shall not take effect until each of the Roski Entities (excluding
Edward P. Roski, Sr.) shall have received an original or facsimile counterpart
of this Agreement, duly executed and delivered by Boomtown, Blue Diamond and
Hollywood Park.
7.3 Conditions to Exchange by BD Transferor. The obligation of BD
---------------------------------------
Transferor to transfer to Roski the BD Interest in exchange for the Roski Notes
is subject to the satisfaction (or waiver by BD Transferor) of the conditions
set forth below:
(a) The representations and warranties made by the Roski Entities
in this Agreement and the Related Agreements shall be true and correct in all
material respects on and as of the Exchange Date with the same effect as if made
on and as of the Exchange Date, except as otherwise contemplated by this
Agreement and the Related Agreements. Each Roski Entity shall have performed and
complied with all agreements, covenants and conditions on the part of such Roski
Entity required to be performed or complied with on or prior to the Exchange
Date in all material respects.
(b) The execution, delivery and performance of this Agreement and
the Related Agreements and the consummation of the transactions contemplated by
this Agreement and the Related Agreements shall not violate any law, rule or
regulation applicable to BD Transferor, including without limitation, Gaming
Laws, federal and state securities laws or any order, decree or judgment of any
court or governmental body having competent jurisdiction, and no order shall
have been issued by a court of competent jurisdiction restraining, prohibiting
or rendering unlawful the execution, delivery and performance of this Agreement
or the Related Agreements or the consummation of the transactions contemplated
by this Agreement and the Related Agreements. No default or breach by any Roski
Entity shall have occurred and be continuing in respect of any document,
instrument or agreement comprising a part of the BD Interest, except as would
not be material after giving effect to the transactions contemplated hereby as
of the Exchange Date.
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<PAGE>
(c) All Approvals necessary to effect the transactions hereunder
and under the Related Agreements shall have been obtained and shall be in full
force and effect. No Gaming Authority shall have indicated to the parties hereto
that in, the opinion of such Gaming Authority, any Approvals required for the
consummation of the transactions contemplated hereby are likely to be revoked or
rejected. No registration with any governmental authority or agency (except for
filing and recording of UCC statements and real estate documents) which has not
been effected shall be necessary to effect the transactions contemplated hereby.
(d) Roski shall have duly delivered each item listed in Section
5.4.
(e) All of the conditions precedent to the Merger shall have been
satisfied or waived and the Merger shall have been consummated.
(f) The consummation of the transactions contemplated by this
Agreement and the Stock Purchase Agreement shall not, as a result of any changes
in tax law occurring after the Effective Date (including without limitation
statutory, regulatory, administrative or judicial changes) create a material
risk that the contemplated treatment of the Merger as a tax-free reorganization
would be impaired or adversely affected in the view of either Boomtown or
Hollywood Park, based upon advise of its respective tax counsel.
(g) Subject to a restructuring in accordance with Section 3.1,
the transactions contemplated by the Roski Stock Purchase Agreement, including
the sale and transfer of the Roski Stock to Hollywood Park, shall have been
consummated.
7.4 Conditions to Exchange by Roski. The obligation of Roski to
-------------------------------
transfer to BD Transferor the Roski Notes in exchange for the BD Interest
hereunder shall be subject to the satisfaction (or waiver by Roski) of the
conditions set forth below:
(a) The representations and warranties made by Boomtown, Blue
Diamond, Hollywood Park and BD Transferor in this Agreement and the Related
Agreements shall be true and correct in all material respects on and as of the
Exchange Date with the same effect as if made on and as of the Exchange Date,
except as otherwise contemplated by this Agreement and the Related Agreements.
Each of Boomtown, Blue Diamond, Hollywood Park and BD Transferor, as applicable,
shall have performed and complied with all agreements, covenants and conditions
on the part of such entity required to be performed or complied with on or prior
to the Exchange Date in all material respects.
(b) The execution, delivery and performance of this Agreement and
the Related Agreements and the consummation of the transactions contemplated by
this Agreement and the Related Agreements shall not violate any law, rule or
regulation applicable to the Roski Entities, including, without limitation,
Gaming Laws, federal and state securities laws, or any order, decree or judgment
of any court or governmental body
-20-
<PAGE>
having competent jurisdiction, and no order shall have been issued by a court of
competent jurisdiction restraining, prohibiting or rendering unlawful the
execution, delivery and performance of this Agreement or the Related Agreements
or the consummation of the transactions contemplated by this Agreement and the
Related Agreements. No default or breach on the part of Boomtown, Blue Diamond,
Hollywood Park or BD Transferor shall have occurred and be continuing in respect
of any document, instrument or agreement comprising a part of the BD Interest,
except as would not be material after giving effect to the transactions
contemplated hereby as of the Exchange Date.
(c) All Approvals necessary to effect the transactions
contemplated hereby and by the Related Agreements and for the Designated Roski
Entity (or its designee) to operate the Resort shall have been obtained. No
Gaming Authority shall have indicated to the parties hereto that the opinion of
such Gaming Authority, any Approvals required for the consummation of the
transactions contemplated hereby are likely to be revoked or rejected. No
registration or filing with any governmental agency or authority (other than UCC
filings and recordings in the real estate records) which has not been effected
shall be necessary to effect the transaction contemplated hereby.
(d) BD Transferor shall have duly delivered each item listed in
Section 5.3 and any other documents of transfer Roski may reasonably request to
effect the transfer of the BD Interest.
8. INDEMNIFICATION.
---------------
8.1 Indemnification by the Roski Entities. The Roski Entities party
-------------------------------------
hereto jointly and severally agree to indemnify and hold harmless Boomtown, Blue
Diamond and BD Transferor and their respective Affiliates, officers, directors,
employees, agents and attorneys against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses of investigation incurred by any of them (a) as a result of any
inaccuracy of a representation or breach of any warranty by any Roski Entity
contained herein, in any Related Agreement delivered pursuant hereto or in the
Roski Stock Purchase Agreement by any Roski Entity, or any failure by any Roski
Entity to perform or comply with any covenant of such Roski Entity contained
herein, in any Related Agreement or in the Roski Stock Purchase Agreement or any
other document delivered by any Roski Entity pursuant hereto or thereto, (b)
related to any costs, expenses, claims, liabilities or obligations incurred in
connection with the Resort arising or accruing prior to the "Original Term" of
the Blue Diamond Lease (as defined therein) or arising or accruing on or after
the Exchange Date (including, but not limited to, any costs, expenses, claims,
liabilities or obligations arising in connection with the Assumed Contracts or
Hazardous Substances) or in connection with the Specified Liabilities as of the
Exchange Date, other than the consequences of any act or omission by Boomtown,
Blue Diamond or any of their respective Affiliates, officers, directors, agents,
employees or attorneys, (c) related to any guaranties made by Boomtown, Blue
Diamond or any of their Affiliates of any obligations of
-21-
<PAGE>
IVAC or any of its Affiliates under construction or development financing
relating to the Resort or any bond or similar obligations with Clark County,
Nevada, or (d) as a result of acts or omissions of the Roski Entities, including
but not limited to acts or omissions related to the construction of the Resort.
8.2 Indemnification by Boomtown, Blue Diamond and BD Transferor.
-----------------------------------------------------------
Boomtown, Blue Diamond and BD Transferor jointly and severally agree to
indemnify and hold harmless the Roski Entities and their respective Affiliates,
officers, directors, employees, agents and attorneys against all claims, losses,
liabilities, damages, deficiencies, costs and expenses, including reasonable
attorneys' fees and expenses of investigation incurred by any of them (a) as a
result of any inaccuracy of a representation or breach of any warranty by
Boomtown, Blue Diamond or BD Transferor contained herein or in any Related
Agreement delivered pursuant hereto by Boomtown, Blue Diamond or BD Transferor,
or any failure by Boomtown, Blue Diamond or BD Transferor to perform or comply
with any covenant of Boomtown, Blue Diamond or BD Transferor contained herein or
in any Related Agreement, or any such other document delivered by Boomtown, Blue
Diamond or BD Transferor pursuant hereto or thereto and (b) related to any
costs, expenses, claims, liabilities or obligations of the Resort both accruing
during the "Original Term" of the Blue Diamond Lease (as defined therein) and
arising or accruing prior to the Exchange Date (including, but not limited to,
any costs, expenses, claims, liabilities, or obligations arising in connection
with the Assumed Contracts or, except as set forth below, Hazardous Substances)
other than (i) the Specified Liabilities as of the Exchange Date, (ii)
obligations accruing under the Assumed Contracts on or after the Exchange Date
and (iii) the consequences of any act or omission by any of the Roski Entities
or any of their respective Affiliates, officers, directors, employees, agents or
attorneys. Notwithstanding the foregoing, (i) in no event shall the BD
Transferor (other than Blue Diamond and Boomtown) have any liability or
responsibility for any "Hazardous Substances" (as defined in the Blue Diamond
Lease) or any other environmental matters with respect to the Resort, (ii) in no
event shall the liability of Boomtown for any such Hazardous Substances or any
other environmental matters with respect to the Resort exceed the remaining
principal amount of the Note the form of which is attached hereto as Exhibit B-1
as of the date a claim for indemnity is made hereunder, and (iii) the extent of
the liability of Boomtown and Blue Diamond for all Hazardous Substances or other
environmental matters shall be limited to applicable law or to the extent of
liability under Blue Diamond's paragraph 6.2(c) of the Blue Diamond Lease. In
addition, from and after the Exchange Date, Boomtown shall continue at all times
to indemnify Roski with respect to his actions as a director of Boomtown to the
same extent as it is obligated to provide such indemnification immediately prior
to the Exchange Date. In no event shall the provisions of this section 8.2
subject Hollywood Park to any indemnity obligation or other liability,
contingent or otherwise, regardless of whether Hollywood Park is designated as
BD Transferor.
8.3 Procedure. Upon obtaining knowledge of the institution of any
---------
action, proceeding, or other event which could give rise to a claim of indemnity
pursuant to this
-22-
<PAGE>
Section 8, the party seeking indemnification (the "indemnified party") shall
promptly give written notice thereof to the other party (the "indemnifying
party"); provided, however, that the failure to give such notice shall not
-------- -------
relieve the indemnifying party of its obligations under this Section 8 unless it
is materially prejudiced by such failure. Each party will cooperate with the
other in determining the validity of any such claim or assertion. If such claim
or demand relates to a claim or demand asserted by a third party, the
indemnifying party shall have the right at its expense to employ counsel
satisfactory to the indemnified party to defend such claim or demand and the
indemnified party shall have the right, but not the obligation, to participate
in the defense of any such claim or demand at its expense. Each party agrees not
to settle or compromise any such third party suit, claim or proceeding without
the prior written consent of the other, which consent shall not be unreasonably
withheld. The indemnified party shall make available to the indemnifying party
all records and other materials reasonably required by it in contesting a claim
or demand asserted by a third party against the indemnified party and shall
cooperate in the defense thereof.
9. ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES.
--------------------------------------------------
9.1 Approvals. The parties agree to use their best efforts and to
---------
cooperate with each other to obtain the Approvals necessary to effect the
transactions hereunder.
9.2 Consents, Authorizations and Waivers. The parties agree to use
------------------------------------
their best efforts and to cooperate with each other to obtain, prior to the
Exchange Date, all consents, authorizations or waivers necessary to assign the
Assumed Contracts to the Designated Roski Entity. If the parties are unable to
obtain any consents, authorizations or waivers necessary to assign any of the
Assumed Contracts, the Designated Roski Entity shall indemnify the BD Transferor
against any claims or losses resulting from the failure to obtain such consents,
authorizations or waivers. The parties agree that any failure to so obtain such
consents, authorizations or waivers shall not prevent the parties from, or
relieve the parties from the obligation of, consummating the transactions
contemplated hereunder.
9.3 Transfer Taxes. The parties acknowledge and agree that all
--------------
transfer, stamp, recording and similar taxes assessed or otherwise payable by
reason of the conveyances contemplated hereby, or in connection with the Blue
Diamond Swap, shall be for the account of the Roski Entities. The parties agree
to cooperate with each other to the extent legally permitted to minimize any
such taxes and charges.
9.4 Additional Deliveries; Further Assurances. After the Effective
-----------------------------------------
Date, each party to this Agreement shall, at the request of the other, furnish,
execute, and deliver such documents, instruments, certificates, notices or other
further assurances as the requesting party shall reasonably request as necessary
or desirable to effect complete consummation of this Agreement, the Related
Agreements and the transactions contemplated hereby and thereby. After the
Exchange Date, Roski and its Affiliates shall, at the request of BD Transferor,
(a) execute and deliver and file or record, such further instruments of sale,
-23-
<PAGE>
conveyance, transfer and assignment, and (b) take such other actions as BD
Transferor may reasonably request in order to effectuate the purposes hereof.
After the Exchange Date, BD Transferor and its Affiliates shall, at the request
of Roski, (a) take such further actions as may be reasonably necessary to vest
in the applicable Roski Entity title to the BD Interest, (b) execute and deliver
and file or record, such further instruments of sale, conveyance, transfer and
assignment, and (c) take such other actions, as Roski may reasonably request in
order effectively to sell, convey, transfer and assign the BD Interest to Roski
and otherwise to effectuate the purposes hereof.
9.5 Maintenance of Resort Business. During the period from the
------------------------------
Effective Date until the Exchange Date, Boomtown, Blue Diamond and BD Transferor
(but not Hollywood Park, regardless of whether Hollywood Park is designated as
BD Transferor) agree to operate the Resort in all material respects in the
ordinary course of business at not less than the same standards of operation,
maintenance, services and advertising as are in effect as of the Effective Date
and agree to remain in compliance in all material respects with the Blue Diamond
Lease at all times. Without limiting the foregoing, from the Effective Date
until the Exchange Date Boomtown, Blue Diamond and BD Transferor agree not to
transfer from the Resort any material assets thereof.
9.6 Director's Insurance. Boomtown shall continue to provide
--------------------
insurance covering Roski with respect to his actions as a director of Boomtown,
to the extent that such insurance is provided for directors or former directors
of Boomtown, as set forth in the Merger Agreement.
10. TERMINATION.
-----------
10.1 Termination. If (a) the Exchange Date has not occurred prior to
-----------
or on June 30, 1997, or, if the Merger Agreement is extended, such later date as
may then be the scheduled termination date of the Merger Agreement, or such
later date as may have been agreed to by the parties in writing, or (b) the
Merger Agreement has terminated in accordance with its terms, then this
Agreement and the Related Agreements shall, on such date, automatically and
without further action by either party, terminate and have no further force and
effect. In addition, if any representation or warranty made by any party herein
or in any Related Agreement shall prove to have been false, inaccurate or
misleading in any material respect when made, then the party to whom such
representation or warranty is made may terminate this Agreement and the Related
Agreements by notice to the breaching party any time prior to the Exchange Date.
In the event that this Agreement shall terminate by reason of the material
falsity, inaccuracy or misleading character of any representation or warranty,
the party to whom such representation or warranty is made shall retain, both
before and after such termination, all rights and remedies available under
applicable law.
10.2 Other Merger. Notwithstanding any other provision of this
------------
Agreement, if Boomtown enters into a merger or similar transaction with any
person or entity other than
-24-
<PAGE>
Hollywood Park, the failure of the Merger to be consummated shall not result in
the termination of this Agreement or any of the Related Agreements except as to
Hollywood Park. Boomtown shall cause any such person or entity with which it
plans to enter into a merger or similar transaction to become a party to this
Agreement and the Related Agreements and to assume the obligations of Hollywood
Park hereunder and thereunder. Nothing in this Agreement shall alter the rights
or obligations of Hollywood Park and Boomtown under the Merger Agreement.
11. MISCELLANEOUS.
-------------
11.1 Changes, Waivers, etc. Neither this Agreement nor any
---------------------
provision hereof may be changed, waived, discharged or terminated orally, except
by a statement in writing which references this Agreement and is signed by the
party against whom enforcement of the change, waiver, discharge or termination
is sought.
11.2 Payment of Fees and Expenses. Each of the parties hereto shall
----------------------------
pay its own respective fees and expenses incurred in connection herewith. In the
event of any litigation or other proceeding resulting from a dispute hereunder,
the legal fees, costs and expenses of the prevailing party shall be paid by the
losing party.
11.3 Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing and shall be
delivered, or mailed first-class postage prepaid, registered or certified mail,
or delivered via overnight courier;
If to Hollywood Park: Hollywood Park, Inc.
1050 South Prairie Avenue
Inglewood, California 90301
Attention: Michael Finnigan
with copy to: Irell & Manella LLP
1800 Avenue of the Stars
Suite 900
Los Angeles, CA 90067
Attention: Al Segel, Esq.
If to Boomtown or Boomtown, Inc.
Blue Diamond: Interstate 80/Garson Road
Verdi, Nevada 89439
Attention: Timothy J. Parrott
with copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94306
Attention: John V. Roos, Esq.
-25-
<PAGE>
If to any Roski Entity: Edward P. Roski, Jr.
Majestic Realty Co.
13191 Crossroads Parkway North
6th Floor
City of Industry, California 91746
with a copy to: Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: David B. Rogers, Esq.
Such notices and other communications shall for all purposes of this Agreement
be treated as being effective or having been given on the date of delivery, if
delivered personally, one (1) day following the date of delivery, if delivered
by overnight courier or, if sent by mail, five (5) days thereafter.
11.4 Entire Agreement. This Agreement and the Related Agreements,
----------------
including the schedules and exhibits which are incorporated into and made an
integral part of this Agreement or any of the Related Agreements by reference,
set forth the entire understanding of the parties and supersede all prior
agreements of the parties with respect to the subject matter hereof and thereof.
11.5 Survival of Representations and Warranties, etc. All
-----------------------------------------------
representations and warranties contained herein shall survive the execution and
delivery of this Agreement.
11.6 Headings; References to Agreement. The headings of the sections
---------------------------------
of this Agreement have been inserted for convenience of reference only and do
not constitute a part of this Agreement. References herein to "this Agreement"
shall include all exhibits and schedules hereto.
11.7 Choice of Law; Interpretation. THIS AGREEMENT SHALL FOR ALL
-----------------------------
PURPOSES BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEVADA (WITHOUT REFERENCE TO CONFLICTS OF LAW).
11.8 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but which shall
together constitute but one and the same instrument. To make proof of this
Agreement, it shall only be necessary to produce one such counterpart.
-26-
<PAGE>
11.9 Severability. To the extent any provision of this Agreement
------------
shall be invalid or unenforceable, it shall be considered deleted from this
Agreement and the remaining provisions of this Agreement shall be unaffected and
shall continue in full force and effect.
11.10 Successors and Assigns. This Agreement shall be binding upon
----------------------
and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that neither party may assign its
rights or obligations hereunder other than to an Affiliate without the prior
written approval of the other party.
11.11 No third Party Beneficiaries. This Agreement is not intended to
----------------------------
confer upon any person or entity other than each party hereto (and their
successors and assigns permitted hereby) any rights or remedies hereunder.
11.12 Waiver of Jury Trial. EACH PARTY HERETO KNOWINGLY, ABSOLUTELY
--------------------
AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS IT MAY OTHERWISE HAVE HAD TO A
TRIAL BY JURY WITH RESPECT TO OR IN CONNECTION WITH THIS AGREEMENT, THE RELATED
DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY.
-27-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed and delivered as of the date and year first above written.
BOOMTOWN, INC.
By: /s/ TIMOTHY J. PARROTT /s/ EDWARD P. ROSKI, JR.
--------------------------------- -----------------------------------
EDWARD P. ROSKI, JR.
Title: Chief Executive Officer
------------------------------
BLUE DIAMOND HOTEL & CASINO, INC. IVAC
By: EDWARD P. ROSKI, JR.
its General Partner
By: /s/ TIMOTHY J. PARROTT
---------------------------------
Title: Chief Executive Officer /s/ EDWARD P. ROSKI, JR.
------------------------------ -----------------------------------
EDWARD P. ROSKI, JR.
HOLLYWOOD PARK, INC. MAJESTIC REALTY CO.
By: /s/ G. MICHAEL FINNIGAN By: /s/ EDWARD P. ROSKI, JR.
--------------------------------- -----------------------------------
Title: Executive Vice President and Title:
Chief Financial Officer ----------------------------
------------------------------
-28-
<PAGE>
Exhibit A
---------
FORM OF
MUTUAL RELEASE
--------------
This MUTUAL RELEASE ("Mutual Release") is given and entered into as of
______ __, 199__ , by and among the following parties: (i) Edward P. Roski,
Jr., IVAC and Majestic Realty Co. (collectively, the "Roski Entities") and (ii)
BD Transferor, Boomtown, Blue Diamond and their respective Affiliates
(collectively, the "Boomtown Entities").
All terms used without definition herein shall have the respective meanings
ascribed to such terms in the Blue Diamond Swap Agreement Dated as of August 12,
1996 (the "Swap Agreement") by and among Boomtown, Inc., Blue Diamond Hotel &
Casino, Inc., Hollywood Park, Inc., Edward P. Roski, Jr., IVAC and Majestic
Realty Co. to which the form of this Mutual Release is an Exhibit.
WHEREAS, IVAC owns certain real property in Las Vegas, Nevada, on which a
resort consisting of a casino, hotel, restaurant and related facilities (as more
fully defined in the Swap Agreement, the "Resort") has been built by Majestic
and is being operated by Blue Diamond;
WHEREAS, Boomtown has advanced certain funds to IVAC to enable IVAC to
complete development and construction of the Resort, which advances are
evidenced by certain promissory notes issued by IVAC, which notes are governed
by loan agreements and secured by deeds of trust on the Resort site and certain
related property;
WHEREAS, Blue Diamond has entered into a lease with IVAC for the Resort
site, and has purchased and installed certain trade fixtures in the Resort;
WHEREAS, Hollywood Park intends to enter into a strategic combination (the
"Merger") with Boomtown pursuant to an Agreement and Plan of Merger dated as of
April 23, 1996 by and among BD Transferor, Boomtown and HP Acquisition Inc., a
Delaware corporation and a wholly-owned subsidiary of Hollywood Park (as amended
and in effect from time to time, the "Merger Agreement");
WHEREAS, subject to consummation of the Merger pursuant to the Merger
Agreement, Boomtown and Blue Diamond might agree to transfer their respective
interests in the Resort to Hollywood Park or one or more Affiliates of Hollywood
Park designated by Hollywood Park, and Hollywood Park or such Affiliate(s) might
acquire and accept such interests;
A-1
<PAGE>
WHEREAS, it is the intent of the parties hereto that, upon consummation of
the Merger pursuant to the Merger Agreement, subject to the terms and conditions
set forth in the Swap Agreement, the holder of such interests in the Resort,
regardless of whether such holder is then Boomtown, Blue Diamond, Hollywood
Park, any designated Affiliate of Hollywood Park, or any combination thereof
(any such holder(s), "BD Transferor") would exchange such interests in the
Resort for the Roski Notes or would effect the same result through a series of
related transactions, and, in either case, Roski would either exchange the Roski
Notes Paper for such interests in the Resort (such exchange, the "Blue Diamond
Swap");
NOW, THEREFORE, in accordance with the foregoing recitals, and for good and
valuable consideration receipt of which is hereby acknowledged, the parties
hereto are desirous of putting to rest all disputes and controversies between
them and the other parties hereto arising from, related to, or in any way
connected with any and all obligations, liabilities and claims relating to the
Affiliate Note, the Bridge Note, the Affiliate Loan Agreement, the Bridge Loan
Agreement, the Purchase Option Agreement, the Affiliate Loan Deed of Trust, the
Bridge Loan Deed of Trust, the Purchase Option Deed of Trust, the Blue Diamond
Lease, the Boomtown Stockholders Agreement dated as of June 30, 1996, Boomtown,
Roski and IVAC, and the Stockholders and Affiliates Agreement dated as of June
30, 1993, by and among Blue Diamond, Roski, Edward P. Roski, Sr., Boomtown, IVAC
and Majestic (all such documents, instruments and agreements, collectively, the
"Blue Diamond Documents"). Accordingly, each of the Boomtown Entities and the
Roski Entities hereby agree and covenant as follows:
1. Release by Roski Entities. As of the date hereof, the Roski Entities
-------------------------
forever release, discharge and acquit the Boomtown Entities, and each Boomtown
Entity's present, former or future directors, partners, principals, officers,
employees, agents, trustees, attorneys, parents, subsidiaries, Affiliates,
divisions, representatives, predecessors or successors, partnerships or
corporations, and their respective administrators, successors and assigns, from
any and all claims, demands, rights and causes of action, known or unknown,
suspected or unsuspected, fixed or contingent, including, without limitation,
all legal fees and costs, that they or any of them may have acquired or
hereafter acquire against each or any other of them, based upon, arising from,
or in any way connected with or related to the Specified Assets, the Specified
Liabilities, the BD Interest, the Resort or the Blue Diamond Documents,
including the obligations arising under the Blue Diamond Lease; provided, that
nothing contained herein shall operate to release any Boomtown Entity from its
obligations under the Swap Agreement and the Related Agreements.
2. Release by Boomtown Entities. As of the date hereof, the Boomtown
----------------------------
Entities forever release, discharge and acquit each of the Roski Entities, and
each Roski Entity's present, former or future directors, partners, principals,
officers, employees, agents, trustees, attorneys, parents, subsidiaries,
affiliates, divisions, representatives, predecessors or successors, partnerships
or corporations, and their respective administrators, successors and assigns,
from any and all claims, demands, rights and causes of action, known or unknown,
suspected or
A-2
<PAGE>
unsuspected, fixed or contingent, including, without limitation, all legal fees
and costs, that they or any of them may have acquired or hereafter acquire
against each or any other of them, based upon, arising from, or in any way
connected with or related to the Blue Diamond Documents; provided, that nothing
contained herein shall operate to release any Roski Entity from its obligations
under the Swap Agreement, and the Related Agreements or from liability arising
from or relating to Roski's role as a director of Boomtown. Such release shall
not effect the availability to Roski of any indemnification or directors' and
officers' insurance covering any claims relating to his activities as a
director.
3. Mutual Release as Defense. Each party to this Mutual Release
-------------------------
understands, acknowledges and agrees that this Mutual Release may be pleaded as
a full and complete defense to, and used as a basis for an injunction against,
any action, suit or other proceeding that may be instituted, prosecuted or
attempted in breach of this Mutual Release.
4. Successors and Assigns. Each party to this Mutual Release
----------------------
understands, acknowledges and agrees that this Mutual Release shall be binding
on each of them and upon their respective successors, representatives, and
assigns.
5. Beneficiaries. Each party to this Mutual Release understands,
-------------
acknowledges and agrees that this Mutual Release inures to the benefit of all
other persons described in paragraphs 1 and 2 above.
6. Entire Agreement. Each party to this Mutual Release understands,
----------------
acknowledges and agrees that this Mutual Release constitutes the entire
agreement among the parties regarding the release of the matters set forth
herein and that this Mutual Release may not be altered, amended, modified, or
otherwise changed in any respect whatsoever except in writing signed by the
parties hereto.
7. Parties Represented by Counsel, Etc. Each party to this Mutual
------------------------------------
Release understands, represents and warrants that it has entered into this
Mutual Release upon the legal advice of its attorneys, that said attorneys have
explained the terms of this Mutual Release, and that each party has read, fully
understands, and voluntarily accepts the terms of this Mutual Release.
8. Authority. Each signatory to this Mutual Release who signs on behalf
---------
of another hereby warrants that he or she has the authority to sign on behalf of
said person or entity.
9. Counterparts. This Mutual Release may be executed in one or more
------------
counterparts. All executed counterparts, and each of them, shall be deemed to
be one and the same instrument. Counsel for the parties to this Mutual Release
shall exchange among themselves original signed counterparts.
A-3
<PAGE>
10. Construction. This Mutual Release or any uncertainty or ambiguity
------------
herein shall be construed as if this Mutual Release was jointly prepared by the
parties hereto.
11. GOVERNING LAW. THIS MUTUAL RELEASE, IN ALL RESPECTS, SHALL BE
-------------
INTERPRETED, ENFORCED AND GOVERNED BY AND UNDER THE INTERNAL SUBSTANTIVE LAWS OF
THE STATE OF NEVADA AS THEY EXIST ON THE DATE THAT THIS MUTUAL RELEASE IS FULLY
EXECUTED BY THE PARTIES.
A No Transfer. Each party to this Mutual Release acknowledges,
-----------
represents and warrants that it has not assigned, sold, transferred or otherwise
disposed of any of the claims, demands, rights and causes of action described
in paragraph 1 above except, if applicable, the transfer of the BD Interest to
BD Transferor.
A Unknown Claims. With respect to the matters described in paragraphs 1
--------------
and 2 above, each party to this Mutual Release acknowledges that it may have
sustained damages, losses, fees, costs or expenses that are presently unknown
and unsuspected, and that such damages, losses, fees, costs, or expenses as may
have been sustained by the party or parties hereto might give rise to additional
damages, losses, fees, costs or expenses in the future. Notwithstanding such
unknown claims, the parties to this Mutual Release acknowledge that each
signatory hereto has been advised by an attorney concerning the effect of the
Mutual Release on any and all unknown and presently unsuspected claims and such
parties wish to expressly release and extinguish any and all disputes and
controversies as described in paragraphs 1 and 2, above, between and among them,
whether now known or unknown, which such parties hereto may have, or claim at
any future time to have against any or all of the parties hereto, based in whole
or in part, upon any act or omission to the date of this Mutual Release, without
regard to present actual knowledge of such acts or omissions. Each party to
this Mutual Release understands, acknowledges and agrees that if any fact now
believed to be true is found hereafter to be other than, or different from, that
which is now believed, each expressly assumes the risk of such difference in
fact and agrees that this Mutual Release shall be, and will remain, effective
notwithstanding any such difference in fact. As to the matters covered by this
Mutual Release, each party does hereby expressly waive and relinquish, to the
fullest extent permitted by law, the provisions, rights, and benefits of any
applicable law, including the common law and any and all other provisions,
rights and benefits of any state or federal law, rule or regulation.
A-4
<PAGE>
IN WITNESS WHEREOF, intending to be legally bound, the undersigned have
caused this Mutual Release to be duly executed and delivered, to take effect as
a contract under the laws of the State of Nevada as of the date first
hereinabove written.
BOOMTOWN, INC.
By:______________________________ ____________________________________
EDWARD P. ROSKI, JR.
Title:___________________________
BLUE DIAMOND HOTEL & CASINO, INC. IVAC
By: EDWARD P. ROSKI, JR.,
By:______________________________ its General Partner
Title:___________________________ ____________________________________
EDWARD P. ROSKI, JR.
HOLLYWOOD PARK, INC. MAJESTIC REALTY CO.
By:______________________________ By:__________________________________
Title:___________________________ Title:_______________________________
[BD Transferor, if not named above]
By:______________________________
Title:___________________________
A-5
<PAGE>
Exhibit B-1
------- ---
FORM OF PROMISSORY NOTE
$____________ Los Angeles, California
_______ __, 199_
FOR VALUE RECEIVED, [ ] (the "Maker") hereby absolutely and
unconditionally promises to pay to [ ] (the "Holder"), or order, in
accordance with the payment schedule set forth below, in immediately available
funds, the principal amount of ____________________ Dollars ($____________), and
to pay interest on the unpaid principal amount hereof at an annual rate of
interest equal to the rate announced by Bank of America from time to time as its
"reference rate", adjusted on the first business day of the next succeeding
calendar month after any change to such rate is announced, plus one and one half
percent (1.5%), in immediately available funds; payable annually in arrears on
the anniversary of the issuance of this Note provided, that interest on any
amounts not paid when due hereunder shall accrue at an annual rate which is two
percent (2%) above the rate otherwise payable hereunder; and provided, further,
that in no event shall the interest rate of this Note exceed the maximum rate
permitted by applicable law. This Note is issued pursuant to the Blue Diamond
Swap Agreement dated as of August 12, 1996 (the "Swap Agreement") by and among
the Maker, the Holder and certain other parties named therein and constitutes
one of the "Roski Notes" described therein. Capitalized terms defined in the
Swap Agreement, whether directly or indirectly by reference, shall have the
respective meanings herein assigned to such terms in the Swap Agreement.
Principal obligations of the Maker evidenced hereby shall be paid in four
(4) equal installments of $1,000,000 each, on each anniversary of the issuance
date of this Note, and an additional, final payment on the [ ]
anniversary thereof in an amount equal to all obligations of the Maker then
outstanding hereunder.
Upon the occurrence and during the continuance of any of the following
events (each, an "Event of Default"): (i) failure to pay any interest accrued
hereunder within five days following the date such payment was due, or the
failure to pay any principal amount owing by the Maker hereunder when due and
payable, (ii) material falsity of any representations or warranties by the Maker
in the Swap Agreement, (iii) initiation of any bankruptcy, insolvency,
moratorium, receivership or reorganization by or against the Maker, or (iv)
acceleration of any indebtedness in excess of $1,000,000 by other creditors of
the Maker, the entire unpaid principal balance of this Note, all of the unpaid
interest accrued thereon and all other amounts owing in respect thereof may
automatically become, in the case of a default under clauses (iii) or (iv), or
may be declared, in the case of a default under clauses (i) or (ii), to be
immediately due and payable. Thereupon, the Holder may proceed
B-1
<PAGE>
to enforce its rights and remedies under this Note and applicable law, all of
such remedies being cumulative and not exclusive.
No delay or omission on the part of the Holder or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or any
other right of the Holder or of such holder, nor shall any delay, omission or
waiver of any one occasion be deemed a bar to or waiver of the same or any other
right or any other occasion. The Maker and every endorser and guarantor of this
Note regardless of the time, order or place of signing hereby waives
presentment, demand, protest and notice of every kind, and assents to any
extension or postponement of the time for payment or any other indulgence, to
any substitution, exchange or release of collateral, and to the addition or
release of any other party or person or entity primarily or secondarily liable.
All costs incurred in any litigation arising from this Note shall be borne
by the prevailing party. All other expenses of enforcement of the Holder's
rights hereunder (including reasonable legal and other professional fees) shall
be for the account of the Maker.
THIS NOTE SHALL FOR ALL PURPOSES BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA (WITHOUT REFERENCE TO CONFLICTS
OF LAW).
This Note shall be binding upon the Maker's successors and assigns, and
shall inure to the benefit of the Holder's successors and assigns.
B-2
<PAGE>
IN WITNESS WHEREOF, the Maker has caused this Note to be [duly] executed
[by its duly authorized officer] to take effect as of the date first hereinabove
written.
[Maker]
By: ______________________________
[Title: __________________________]
B-3
<PAGE>
Exhibit B-2
------- ---
FORM OF PROMISSORY NOTE
$____________Los Angeles, California
_______ __, 199_
FOR VALUE RECEIVED, [ ] (the "Maker") hereby absolutely and
unconditionally promises to pay to [ ] (the "Holder"), or order, in
accordance with the payment schedule set forth below, in immediately available
funds, the principal amount of ____________________ Dollars ($____________), and
to pay interest on the unpaid principal amount hereof at an annual rate of
interest equal to the rate announced by Bank of America from time to time as its
"reference rate", adjusted on the first business day of the next succeeding
calendar month after any change to such rate is announced, plus one half percent
(.5%), in immediately available funds; payable annually in arrears on the
anniversary of the issuance of this Note provided, that interest on any amounts
not paid when due hereunder shall accrue at an annual rate which is two percent
(2%) above the rate otherwise payable hereunder; and provided, further, that in
no event shall the interest rate of this Note exceed the maximum rate permitted
by applicable law. This Note is issued pursuant to the Blue Diamond Swap
Agreement dated as of August 12, 1996 (the "Swap Agreement") by and among the
Maker, the Holder and certain other parties named therein and constitutes one of
the "Roski Notes" described therein. Capitalized terms defined in the Swap
Agreement, whether directly or indirectly by reference, shall have the
respective meanings herein assigned to such terms in the Swap Agreement.
Principal obligations of the Maker evidenced hereby shall be paid in full
on the third anniversary of the issuance date of this Note in an amount equal to
all obligations of the Maker then outstanding hereunder.
Upon the occurrence and during the continuance of any of the following
events (each, an "Event of Default"): (i) failure to pay any interest accrued
hereunder within five days following the date such payment was due, or the
failure to pay any principal amount owing by the Maker hereunder when due and
payable, (ii) material falsity of any representations or warranties by the Maker
in the Swap Agreement, (iii) initiation of any bankruptcy, insolvency,
moratorium, receivership or reorganization by or against the Maker, or (iv)
acceleration of any indebtedness in excess of $1,000,000 by other creditors of
the Maker, the entire unpaid principal balance of this Note, all of the unpaid
interest accrued thereon and all other amounts owing in respect thereof may
automatically become, in the case of a default under clauses (iii) or (iv), or
may be declared, in the case of a default under clauses (i) or (ii), to be
immediately due and payable. Thereupon, the Holder may proceed
B-4
<PAGE>
to enforce its rights and remedies under this Note and applicable law, all of
such remedies being cumulative and not exclusive.
No delay or omission on the part of the Holder or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or any
other right of the Holder or of such holder, nor shall any delay, omission or
waiver of any one occasion be deemed a bar to or waiver of the same or any other
right or any other occasion. The Maker and every endorser and guarantor of this
Note regardless of the time, order or place of signing hereby waives
presentment, demand, protest and notice of every kind, and assents to any
extension or postponement of the time for payment or any other indulgence, to
any substitution, exchange or release of collateral, and to the addition or
release of any other party or person or entity primarily or secondarily liable.
All costs incurred in any litigation arising from this Note shall be borne
by the prevailing party. All other expenses of enforcement of the Holder's
rights hereunder (including reasonable legal and other professional fees) shall
be for the account of the Maker.
THIS NOTE SHALL FOR ALL PURPOSES BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA (WITHOUT REFERENCE TO CONFLICTS
OF LAW).
This Note shall be binding upon the Maker's successors and assigns, and
shall inure to the benefit of the Holder's successors and assigns.
B-5
<PAGE>
IN WITNESS WHEREOF, the Maker has caused this Note to be [duly] executed
[by its duly authorized officer] to take effect as of the date first hereinabove
written.
[Maker]
By: ______________________________
[Title: __________________________]
B-6
<PAGE>
Exhibit C
---------
FORM OF
TERMINATION AGREEMENT
This Termination Agreement (this "Agreement") is made as of this __ day of
____, 199_, by and among Boomtown, Inc., a Delaware corporation ("Boomtown"),
Blue Diamond Hotel & Casino, Inc., a Nevada corporation and a wholly-owned
subsidiary of Boomtown ("Blue Diamond"), Hollywood Park, Inc., a Delaware
corporation ("Hollywood Park") [Blue Diamond Transferor, if not already named
("BD Transferor")], Edward P. Roski, Jr., an individual residing in California
("Roski"), Majestic Realty Co., a California corporation ("Majestic") and IVAC,
a California general partnership of which Roski is a general partner ("IVAC").
WHEREAS, the parties hereto have entered into a Blue Diamond Swap Agreement
dated as of August 12, 1996 (as amended and in effect from time to time, the
"Swap Agreement");
WHEREAS, it is a condition precedent to the consummation of the Blue
Diamond Swap (as defined in the Swap Agreement), that the parties hereto
terminate their respective obligations under the Blue Diamond Documents (as
defined below) on the terms set forth herein;
NOW THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
(S)1. Definitions.
-----------
(a) "Blue Diamond Documents" shall mean, collectively, the
Stockholders and Affiliates Agreement dated as of June 30, 1993, the Affiliate
Note, the Bridge Note, the Affiliate Loan Agreement, the Bridge Loan Agreement,
the Purchase Option Agreement, the Affiliate Loan Deed of Trust, the Bridge Loan
Deed of Trust, the Purchase Option Deed of Trust and the Blue Diamond Lease, the
Boomtown Stockholders Agreement dated as of June 30, 1996, Boomtown, Roski and
IVAC, and the Stockholders and Affiliates Agreement dated as of June 30, 1993,
by and among Blue Diamond, Roski Edward P. Roski, Sr., Boomtown, IVAC and
Majestic.
(b) "Note Documents" shall mean (i) the Indenture dated as of
November 1, 1993, by and among Boomtown, Blue Diamond, certain of their
affiliates and First Trust
C-1
<PAGE>
National Association as trustee and (ii) the documents listed in Sections
5.3(h), (i) and (j) of the Swap Agreement.
(c) Terms defined in the Swap Agreement (whether directly or
indirectly by reference) and used herein without definition shall have the
respective meanings herein assigned to such terms in the Swap Agreement.
(S)2. Satisfaction or Waiver of Conditions Precedent. Each of the parties
----------------------------------------------
hereto acknowledges that the conditions precedent to its obligation to effect
the Blue Diamond Swap have been satisfied or waived. The Designated Roski
Entity hereby accepts the BD Interest in its present condition, and acknowledges
receipt of the Blue Diamond Documents. No liabilities arising under the Blue
Diamond Documents shall survive such termination; provided, that the foregoing
shall not be construed to relieve the applicable parties of the Surviving
Indemnities or any liabilities arising under the Swap Agreement or the Related
Documents or in connection with the transactions contemplated thereby.
(S)3. Termination of Blue Diamond Documents. Each of the Blue Diamond
-------------------------------------
Documents shall be automatically terminated as of the date of this Agreement,
without the necessity of further action by any party, and shall have no further
force or effect.
(S)4. Release. Each party hereto is delivering the Release
-------
contemporaneously with this Agreement.
(S)5. Release of Collateral Security. The Roski Entities acknowledge
------------------------------
receipt, as of the date hereof, of termination statements, releases, discharges,
quitclaim deeds and other appropriate documents and instruments to terminate of
record each of the filings and recordings listed on Schedule 1 hereto. Each of
-------- -
the parties hereto (a) acknowledges that any other party may record or file the
discharges, termination statements, quitclaim deeds and similar documents
delivered to such party pursuant to the Swap Agreement, to evidence of record
the release of the security interests and liens granted pursuant to the Blue
Diamond Documents and the Note Documents, and (b) agrees to execute and deliver
such additional documents and instruments, and take such other action, as any
other party may reasonably request to release of record all such security
interests and liens, all at the expense of the requesting party.
(S)6. Counterparts. This Agreement may be executed in any number of
------------
counterparts, which shall together constitute but one and the same agreement.
To make proof of this Agreement, it shall only be necessary to produce one such
counterpart.
(S)7. GOVERNING LAW. THIS AGREEMENT SHALL FOR ALL PURPOSES BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE
C-2
<PAGE>
LAWS OF THE STATE OF NEVADA (WITHOUT REFERENCE TO CONFLICTS OF LAW).
C-3
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused its duly
authorized representative to execute this agreement to take effect under the
laws of the State of Nevada as of the date first hereinabove written.
BOOMTOWN, INC.
By: ____________________________ ___________________________________
EDWARD P. ROSKI, JR.
Title: _________________________
BLUE DIAMOND HOTEL & CASINO, INC. IVAC
By: EDWARD P. ROSKI, JR.,
By: ____________________________ its General Partner
Title: _________________________ ____________________________________
EDWARD P. ROSKI, JR.
HOLLYWOOD PARK, INC. MAJESTIC REALTY CO.
By: ____________________________ By:__________________________________
Title: _________________________ Title: ______________________________
BD Transferor, if not named above
By: _____________________________
Title: __________________________
C-4
<PAGE>
EXHIBIT 10.23
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made as of the 12th day
of August, 1996 by and between Hollywood Park, Inc., a Delaware corporation
("Hollywood Park"), and Edward P. Roski, Jr., an individual residing in the
State of California ("Roski").
WHEREAS, Hollywood Park intends to enter into a strategic combination (the
"Merger") with Boomtown, Inc., a Delaware corporation ("Boomtown"), pursuant to
an Agreement and Plan of Merger dated as of April 23, 1996 by and among
Hollywood Park, Boomtown and HP Acquisition, Inc., a Delaware corporation and a
wholly-owned subsidiary of Hollywood Park (as amended and in effect from time to
time, the "Merger Agreement"); and
WHEREAS, subject to consummation of the Merger pursuant to the Merger
Agreement and certain other conditions set forth herein, Hollywood Park intends
to purchase from Roski, and Roski intends to sell to Hollywood Park, the Roski
Stock (as defined herein).
NOW THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, Hollywood Park and Roski hereby agree as follows:
1. DEFINITIONS AND RULES OF INTERPRETATION
---------------------------------------
1.1 Definitions. The following terms shall have the respective
-----------
meaning set forth below, or in the Sections of this Agreement respectively
referred to below:
"Affiliate" of any person or entity organized as a corporation,
partnership, joint venture, business trust or other non-individual person, shall
mean (i) any person or entity which directly or indirectly owns fifty percent
(50%) or more of the stock, partnership or other beneficial interest of such
person or entity, (ii) any corporation, partnership or other entity of which
fifty percent (50%) or more of the stock, partnership or other beneficial
interest is owned directly or indirectly by such person or entity, and (iii) any
corporation, partnership or entity of which fifty percent (50%) or more of the
stock, partnership or other beneficial interest is owned directly or indirectly
by any person or entity that owns fifty percent (50%) or more of the stock,
partnership or other beneficial interest of such person or entity.
"Approvals" shall mean all governmental approvals, consents,
licenses, findings of suitability, and permits, including without limitation,
any approvals of Gaming Authorities, as may be required to effect the
transactions contemplated hereby.
"Boomtown" shall have the meaning ascribed thereto in the
recitals hereto.
"Effective Date" shall mean the date of this Agreement.
<PAGE>
"Exchange Date" shall mean the date on which the conditions
precedent specified in Sections and hereof have been satisfied or waived.
"GAAP" shall mean generally accepted accounting principles as in
effect on the relevant date of determination consistently applied.
"Gaming Authority" shall mean the Nevada Gaming Commission, the
Nevada State Gaming Control Board, the Clark County Liquor and Gaming Licensing
Board and any other state, county or other governmental authority having
responsibility for, jurisdiction over, or regulatory authority, oversight or
supervisory responsibilities in respect of, any gaming related business operated
or contemplated to be operated at or in connection with the Resort.
"Gaming Laws" shall mean (i) all applicable provisions of the
Nevada Gaming Control Act and the statutes rules, and regulations promulgated
thereunder and (ii) all interpretations, decisions, judgments, orders and
decrees of any Gaming Authority.
"Hollywood Park" shall have the meaning ascribed to such term in
the preamble hereto.
"IVAC" shall mean IVAC, a California general partnership.
"Merger" shall have the meaning ascribed to such term in the
recitals hereto.
"Merger Agreement" shall have the meaning ascribed to such term
in the recitals hereto.
"Resort" shall mean the facility located at 3333 Blue Diamond
Road, Las Vegas, Nevada consisting of a casino, hotel, restaurant, recreational
vehicle park and related facilities, and all assets located at, used principally
in connection with, or arising principally from such facilities.
"Roski" shall have the meaning ascribed to such term in the
preamble hereto.
"Roski Stock" shall mean 714,386 shares of the common stock of
Boomtown held, as of the Effective Date, by Roski, and all shares of the common
stock of Hollywood Park into which such Boomtown common stock may hereafter be
converted in the Merger, or which Roski may hereafter have a right to receive in
exchange for such Boomtown common stock.
"Roski Stock Value" shall mean the average per share closing
price of the Boomtown common stock on the Nasdaq National Market over the five
trading days preceding the date of signing this Agreement multiplied by the
number of shares of Roski Stock.
"Swap Agreement" shall mean that certain Blue Diamond Swap
Agreement, dated as of even date herewith, by and among Boomtown, Hollywood
Park, Roski, IVAC and certain other Affiliates of such parties.
-2-
<PAGE>
1.2 Rules of Interpretation
-----------------------
(a) A reference to any document or agreement shall, unless
otherwise provided, include such document or agreement as amended, modified or
supplemented from time to time in accordance with its terms and, if applicable,
as permitted by this Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any applicable amendment or
modification to such law, or any applicable successor law.
(d) A reference to any person or entity includes its permitted
successors and permitted assignees.
(e) Accounting terms not otherwise defined herein have the
respective meanings assigned to them by GAAP applied on a consistent basis by
the accounting entity to which they refer.
(f) The words "include," "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by GAAP, which
terms are defined in the Uniform Commercial Code as in effect shall have the
respective meanings assigned to them therein.
(h) Reference to a particular "Section" refers to that section of
this Agreement unless otherwise indicated.
(i) The words "herein," "hereof," "hereunder" and words of like
import shall refer to this Agreement as a whole and not to any particular
section or subdivision of this Agreement.
2. TRANSFER OF ROSKI STOCK
-----------------------
Subject to the terms and conditions of this Agreement, (i) Roski agrees, on
the Exchange Date, to transfer, convey, assign and deliver to Hollywood Park all
of Roski's right, title and interest in and to the Roski Stock and (ii)
Hollywood Park agrees, on the Exchange Date, to acquire and accept from Roski
all of Roski's right, title and interest in and to the Roski Stock, in exchange
for a promissory note to be issued by Hollywood Park in the principal amount of
the Roski Stock Value in the form attached as Exhibit A hereto (the "Hollywood
Park Note").
3. EXCHANGE DATE DELIVERIES
------------------------
On the Exchange Date, subject to the terms and conditions hereof, (a) Roski
shall transfer, convey, assign, and deliver to Hollywood Park, and Hollywood
Park shall acquire and accept from Roski, the Roski Stock and (b) Hollywood Park
shall deliver to Roski the Hollywood Park Note. Each party shall deliver to the
other such endorsements, assignments, stock powers,
-3-
<PAGE>
releases and other instruments as the other party shall reasonably request or as
necessary to vest in the other party valid and marketable title, free and clear
of all liens or encumbrances to the Hollywood Park Note, in the case of Roski,
and to the Roski Stock, in the case of Hollywood Park.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Representations and Warranties of Roski. Roski represents and
---------------------------------------
warrants to Hollywood Park, as of the Effective Date and the Exchange Date
(unless a specific date is referenced below), as follows:
(a) Legal Capacity. Roski is an individual with capacity to
--------------
contract; he has all requisite power and authority and is entitled to carry on
his business as now being conducted, and to own, lease or operate his properties
in the places where his business is now conducted and where his properties are
now owned, leased or operated.
(b) Authorization, etc. Roski has all requisite power and
------------------
full legal right to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by and
constitutes the valid and binding obligation of Roski, enforceable in accordance
with its terms, except insofar as the enforceability hereof may be limited by
applicable bankruptcy, insolvency, receivership, reorganization, moratorium or
other laws providing relief to debtors, or laws or principles of equity
generally.
(c) Execution, Delivery and Performance. Neither execution and
-----------------------------------
delivery nor performance of this Agreement by Roski will, with or without the
giving of notice or the passage of time, or both, conflict with, result in a
default, right to accelerate by any other party to, require any consent not
obtained prior to the Exchange Date with respect to, or result in the creation
of any lien, charge or encumbrance pursuant to any provisions of any material
indenture, bond, note, loan agreement, guaranty, franchise, mortgage, deed of
trust, lease or other agreement by which Roski is bound or conflict with, result
in a default, right to accelerate by any other party to, or result in the
creation of any lien, charge or encumbrance pursuant to any law, ordinance, rule
or regulation, or any order, judgment, award or decree to which Roski is a party
or by which Roski or any portion of the Roski Stock may be bound or affected.
(d) Title to Roski Stock, etc. Roski has, and will on the
-------------------------
Exchange Date, immediately prior to the transfer to Hollywood Park contemplated
hereby, have, valid and marketable title to, and unrestrained right to transfer,
all of the Roski Stock. No part of the Roski Stock on the Exchange Date will be
subject to any mortgage, deed of trust, pledge, lien, charge, security interest,
encumbrance, restriction, lease, license, easement, shop rights, covenants not
to sue, or adverse claim of any kind or nature, or other encumbrances of any
kind, rights of use or occupancy, or any other rights or privileges, other than
those imposed by Gaming Laws on the Roski Stock. In addition to the Roski Stock
and 5,001 shares of Boomtown common stock held by Roski as of the Effective Date
and the options to acquire shares of Boomtown common stock in his capacity as a
Boomtown director, neither Roski nor any of his Affiliates owns any other
securities of Boomtown or any of its Affiliates, or rights (contingent or
otherwise) to acquire securities of Boomtown or any of its Affiliates.
-4-
<PAGE>
(e) Representations Complete. There is no fact known to Roski
------------------------
which could reasonably be expected to affect, in a materially adverse manner,
the transferability of the Roski Stock or otherwise to carry out the
transactions contemplated by this Agreement.
4.2 Representations and Warranties of Hollywood Park. Hollywood Park
------------------------------------------------
represents and warrants to Roski, as of the Effective Date and the Exchange Date
(unless a specific date is referenced below), as follows:
(a) Organization. Hollywood Park is duly organized and
------------
validly existing under the laws of its jurisdiction of incorporation. Hollywood
Park has all requisite power and authority to, and is entitled to, carry on its
business as now conducted and to own or lease its properties as and in the
places where such business is now conducted and such properties are now owned,
leased or operated. Hollywood Park is qualified to do business in all foreign
jurisdictions in which it is required to be so qualified, except where the
failure to be so qualified would not have a material adverse effect on the
business or assets of Hollywood Park.
(b) Authorization, etc. Hollywood Park has all requisite
------------------
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Hollywood Park and the consummation by Hollywood Park of the transactions
contemplated hereby have been duly authorized by all requisite action of
Hollywood Park. This Agreement has been duly executed and delivered by and
constitutes the valid and binding obligation of Hollywood Park, enforceable in
accordance with its terms, except insofar as the enforceability hereof may be
limited by applicable bankruptcy, insolvency, receivership, reorganization,
moratorium or other laws providing relief for debtors or principles of equity
generally.
(c) Execution, Delivery and Performance. Neither execution,
-----------------------------------
delivery nor performance of this Agreement by Hollywood Park will, with or
without the giving of notice or the passage of time, or both, conflict with,
result in a default, right to accelerate by any other party to, or result in the
creation of any lien, charge or encumbrance pursuant to any provisions of such
person's organizational documents or by-laws or any material franchise,
mortgage, deed of trust, lease, license, agreement or understanding, or conflict
with, result in a default, right to accelerate by any other party to, or result
in the creation of any lien, charge or encumbrance pursuant to any law,
ordinance, rule or regulation, or any order, judgment, award or decree to which
Hollywood Park is a party or by which it may be bound or affected.
(d) Validity of Note. The Hollywood Park Note will, on the
----------------
Exchange Date, be the valid and binding obligation of Hollywood Park,
enforceable against Hollywood Park in accordance with its terms.
5. CONDITIONS PRECEDENT
--------------------
5.1 Conditions to Execution and Delivery of this Agreement by
---------------------------------------------------------
Hollywood Park. This Agreement shall not take effect until Hollywood Park shall
- --------------
have received a facsimile or an original counterpart of this Agreement, duly
executed and delivered by Roski.
-5-
<PAGE>
5.2 Conditions to Execution and Delivery of this Agreement by Roski.
---------------------------------------------------------------
This Agreement shall not take effect until Roski shall have received a facsimile
or an original counterpart of this Agreement duly executed and delivered by
Hollywood Park.
5.3 Conditions to Exchange by Hollywood Park. The obligation of
----------------------------------------
Hollywood Park to transfer to Roski the Hollywood Park Note in exchange for the
Roski Stock is subject to the satisfaction (or waiver by Hollywood Park) of the
conditions set forth below:
(a) The representations and warranties made by Roski in this
Agreement shall be true and correct in all material respects on and as of the
Exchange Date with the same effect as if made on and as of the Exchange Date,
except as otherwise contemplated by this Agreement. Roski shall have performed
and complied with all agreements, covenants and conditions on his part required
to be performed or complied with on or prior to the Exchange Date in all
material respects.
(b) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated by this Agreement shall not
violate any law, rule or regulation applicable to Hollywood Park, including
without limitation, Gaming Laws, federal and state securities laws, or any
order, decree or judgment of any court or governmental body having competent
jurisdiction, and no order shall have been issued by a court of competent
jurisdiction restraining, prohibiting or rendering unlawful the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated by this Agreement.
(c) All Approvals necessary to effect the transactions hereunder
and to vest valid and marketable title to the Roski Stock in Hollywood Park
shall have been obtained and shall be in full force and effect. No Gaming
Authority shall have indicated to any party hereto that in, the opinion of such
Gaming Authority, any Approvals required for the consummation of the
transactions contemplated hereby are likely to be revoked or rejected. No
registration with any governmental authority or agency which has not been
effected shall be necessary to effect the transactions contemplated hereby.
(d) Roski shall have duly delivered the Roski Stock as set forth
in Section and any other documents of transfer Hollywood Park may reasonably
request to effect the transfer of the Roski Stock.
(e) All of the conditions precedent to the Merger shall have been
satisfied or waived and the Merger shall have been consummated.
(f) Each of the transactions contemplated by the Swap Agreement
shall have been consummated under the terms of the Swap Agreement.
(g) The consummation of the transactions contemplated by this
Agreement and the Swap Agreement shall not, as a result of any changes in tax
law occurring after the signing of this Agreement (including without limitation
statutory, regulatory, administrative, or judicial changes), create a material
risk that the contemplated treatment of the
-6-
<PAGE>
Merger as a tax-free reorganization would be impaired or adversely affected in
the view of either Hollywood Park or Boomtown, based upon advice of its
respective tax counsel.
5.4 Conditions to Exchange by Roski. The obligation of Roski to
-------------------------------
transfer to Hollywood Park the Roski Stock in exchange for the Hollywood Park
Note hereunder shall be subject to the satisfaction (or waiver by Roski) of the
conditions set forth below:
(a) The representations and warranties made by Hollywood Park in
this Agreement shall be true and correct in all material respects on and as of
the Exchange Date with the same effect as if made on and as of the Exchange
Date, except as otherwise contemplated by this Agreement. Hollywood Park shall
have performed and complied with all agreements, covenants and conditions on the
part of such entity required to be performed or complied with on or prior to the
Exchange Date in all material respects.
(b) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated by this Agreement shall not
violate any law, rule or regulation applicable to Roski, including, without
limitation, Gaming Laws, federal and state securities laws, or any order, decree
or judgment of any court or governmental body having competent jurisdiction, and
no order shall have been issued by a court of competent jurisdiction
restraining, prohibiting or rendering unlawful the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated by this Agreement.
(c) All Approvals necessary to effect the transactions
contemplated hereby shall have been obtained. No Gaming Authority shall have
indicated to any party hereto that, in the opinion of such Gaming Authority, any
Approvals required for the consummation of the transactions contemplated hereby
are likely to be revoked or rejected. No registration with any governmental
authority or agency which has not been effected shall be necessary to effect the
transactions contemplated hereby.
(d) Hollywood Park shall have duly delivered the Hollywood Park
Note as set forth in Section and any other documents of transfer Roski may
reasonably request to effect the issuance of the Hollywood Park Note.
(e) Each of the transactions contemplated by the Swap Agreement
shall have been consummated under the terms of the Swap Agreement.
6. ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES.
--------------------------------------------------
6.1 Approvals. The Parties agree to use their best efforts and to
---------
cooperate with each other to obtain the Approvals necessary to effect the
transactions hereunder.
6.2 Transfer Taxes. The parties acknowledge and agree that all
--------------
transfer, stamp, recording and similar taxes assessed or otherwise payable by
reason of the conveyance contemplated hereby shall be for the account of Roski.
The parties agree to
-7-
<PAGE>
cooperate with each other to the extent legally permitted to minimize any such
taxes and charges.
6.3 Additional Deliveries; Further Assurances. After the Effective
-----------------------------------------
Date, each party to this Agreement shall, at the request of the other, furnish,
execute, and deliver such documents, instruments, certificates, notices or other
further assurances as the requesting party shall reasonably request as necessary
or desirable to effect complete consummation of this Agreement and the
transactions contemplated hereby. After the Exchange Date, Roski and his
Affiliates shall, at the request of Hollywood Park, (a) take such further
actions as may be reasonably necessary to vest in Hollywood Park marketable
title to the Roski Stock, (b) execute and deliver and file or record, such
further instruments of sale, conveyance, transfer and assignment, and (c) take
such other actions, as Hollywood Park may reasonably request in order
effectively to sell, convey, transfer and assign the Roski Stock to Hollywood
Park and otherwise to effectuate the purposes hereof. After the Exchange Date,
Hollywood Park and its Affiliates shall take such further actions as Roski may
reasonably request in order effectively to issue the Hollywood Park Note to
Roski and otherwise to effectuate the purposes hereof.
7. TERMINATION.
-----------
If (a) the Exchange Date has not occurred prior to or on June 30,
1997, or, if the Merger Agreement is extended, such later date as may then be
the scheduled termination date of the Merger Agreement, or such later date as
may have been agreed to by the parties in writing, or (b) the Merger Agreement
has terminated in accordance with its terms, then this Agreement shall, on such
date, automatically and without further action by either party, terminate and
have no further force and effect. In addition, if any representation or warranty
made by any party herein shall prove to have been false, inaccurate or
misleading in any material respect when made, then the party to whom such
representation or warranty is made may terminate this Agreement by notice to the
breaching party any time prior to the Exchange Date. In the event that this
Agreement shall terminate by reason of the material falsity, inaccuracy or
misleading character of any representation or warranty, the party to whom such
representation or warranty is made shall retain, both before and after such
termination, all rights and remedies available under applicable law.
Furthermore, in the event that Boomtown and Hollywood Park elect to utilize an
alternate structure to effect the transactions contemplated by the Blue Diamond
Swap Agreement in accordance with such agreement, which structure involves Roski
retaining the Roski Stock, then Hollywood Park may terminate this Agreement
without any liability to Roski. If Roski is so required to retain the Roski
Stock, the shares of Hollywood Park common stock he would be entitled to receive
in the Merger will be covered by the same Registration Statement on Form S-4 as
the other shares of Hollywood Park common stock issuable in the Merger.
-8-
<PAGE>
8. MISCELLANEOUS.
-------------
8.1 Changes, Waivers, etc. Neither this Agreement nor any provision
---------------------
hereof may be changed, waived, discharged or terminated orally, except by a
statement in writing which references this Agreement and is signed by the party
against whom enforcement of the change, waiver, discharge or termination is
sought.
8.2 Payment of Fees and Expenses. Each of the parties hereto shall
----------------------------
pay its own respective fees and expenses incurred in connection herewith. In the
event of any litigation or other proceeding resulting from a dispute hereunder,
the legal fees, costs and expenses of the prevailing party shall be paid by the
losing party.
8.3 Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing and shall be
delivered, or mailed first-class postage prepaid, registered or certified mail,
or delivered via overnight courier;
If to Hollywood Park: Hollywood Park, Inc.
1050 South Prairie Avenue
Inglewood, CA 90301
Attention: Michael Finnigan
with copy to: Irell & Manella LLP
1800 Avenue of the Stars
Suite 900
Los Angeles, CA 90067
Attention: Al Segel, Esq.
If to Roski: Edward P. Roski, Jr.
Majestic Realty Co.
13191 Crossroads Parkway North
6th Floor
City of Industry, California 91746
with a copy to: Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: David B. Rogers, Esq.
Such notices and other communications shall for all purposes of this Agreement
be treated as being effective or having been given on the date of delivery, if
delivered personally, one (1) day following the date of delivery, if delivered
by overnight courier or, if sent by mail, five (5) days thereafter.
-9-
<PAGE>
8.4 Entire Agreement. This Agreement, including the exhibits which
----------------
are incorporated into and made an integral part of this Agreement by reference,
set forth the entire understanding of the parties and supersede all prior
agreements of the parties with respect to the subject matter hereof.
8.5 Survival of Representations and Warranties, etc. All
-----------------------------------------------
representations and warranties contained herein shall survive the execution and
delivery of this Agreement.
8.6 Headings; References to Agreement. The headings of the sections
---------------------------------
of this Agreement have been inserted for convenience of reference only and do
not constitute a part of this Agreement. References herein to "this Agreement"
shall include all exhibits hereto.
8.7 Choice of Law; Interpretation. THIS AGREEMENT SHALL FOR ALL
-----------------------------
PURPOSES BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF CALIFORNIA (WITHOUT REFERENCE TO CONFLICTS OF LAW).
8.8 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but which shall
together constitute but one and the same instrument. To make proof of this
Agreement, it shall be necessary to produce one such counterpart.
8.9 Severability. To the extent any provision of this Agreement
-------------
shall be invalid or unenforceable, it shall be considered deleted from this
Agreement and the remaining provisions of this Agreement shall be unaffected and
shall continue in full force and effect.
8.10 Successors and Assigns. This Agreement shall be binding upon
----------------------
and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that neither party may assign its
rights or obligations hereunder other than to an Affiliate without the prior
written approval of the other party.
8.11 Waiver of Jury Trial. EACH PARTY HERETO KNOWINGLY, ABSOLUTELY
--------------------
AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS IT MAY OTHERWISE HAVE HAD TO A
TRIAL BY JURY WITH RESPECT TO OR IN CONNECTION WITH THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY.
-10-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed and delivered as of the date and year first above written.
/s/ Edward P. Roski, Jr.
- -----------------------------------
EDWARD P. ROSKI, JR.
HOLLYWOOD PARK, INC.
By: /s/ G. Michael Finnigan
---------------------------------
Title: Chief Financial Officer
S-1
<PAGE>
Exhibit A
---------
FORM OF PROMISSORY NOTE
$_________ Los Angeles, California
_________________, 1996
FOR VALUE RECEIVED, Hollywood Park, Inc., a Delaware corporation (the
"Maker") hereby absolutely and unconditionally promises to pay to Edward J.
Roski, Jr. (the "Holder"), or order, in accordance with the payment schedule set
forth below, in immediately available funds, the principal amount of
__________________________ ($_________), and to pay interest on the unpaid
principal amount hereof at an annual rate of interest equal to the rate
announced by Bank of America from time to time as its "reference rate", adjusted
on the first business day of the next succeeding calendar month after any change
to such rate is announced, plus one percent (1.0%), in immediately available
funds, payable annually in arrears on the anniversaries of the issuance date of
this Note, provided, that interest on any amounts not paid when due hereunder
shall accrue at an annual rate which is two percent (2%) above the rate
otherwise payable hereunder; and provided, further, that in no event shall the
interest rate of this Note exceed the maximum rate permitted by applicable law.
This Note is issued pursuant to the Stock Purchase Agreement dated as of August
__, 1996 (the "Purchase Agreement") by and among the Maker and the Holder and
constitutes the "Hollywood Park Note" described therein. Capitalized terms
defined in the Purchase Agreement, whether directly or indirectly by reference,
shall have the respective meanings herein assigned to such terms in the Purchase
Agreement.
Principal obligations of the Maker evidenced hereby shall be paid in four
(4) equal installments of $_________ each [20% of the principal amount], on each
anniversary of the issuance date of this Note, and an additional, final payment
on the fifth anniversary thereof in an amount equal to all obligations of the
Maker then outstanding hereunder.
Upon the occurrence and during the continuance of any of the following
events (each, an "Event of Default"): (i) failure to pay any interest accrued
hereunder within five days following the date such payment was due, or the
failure to pay any principal amount owing by the Maker hereunder when due and
payable, (ii) material falsity of any representations or warranties by the Maker
in the Purchase Agreement, (iii) initiation of any bankruptcy, insolvency,
moratorium, receivership or reorganization by or against the Maker, or (iv)
acceleration of any indebtedness in excess of $1,000,000 by other creditors of
the Maker, the entire unpaid principal balance of this Note, all of the unpaid
interest accrued thereon and all other amounts owing in respect thereof may
automatically become, in the case of a default under clauses (iii) or (iv), or
may be declared to be, in the case of a
-1-
<PAGE>
default under clauses (i) or (ii), immediately due and payable. Thereupon, the
Holder may proceed to enforce its rights and remedies under this Note and
applicable law, all of such remedies being cumulative and not exclusive.
No delay or omission on the part of the Holder or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or any
other right of the Holder, nor shall any delay, omission or waiver of any one
occasion be deemed a bar to or waiver of the same or any other right or any
other occasion. The Maker and every endorser and guarantor of this Note
regardless of the time, order or place of signing hereby waives presentment,
demand, protest and notice of every kind, and assents to any extension or
postponement of the time for payment or any other indulgence, to any
substitution, exchange or release of collateral, and to the addition or release
of any other party or person or entity primarily or secondarily liable.
All costs incurred in any litigation arising from this Note shall be borne
by the prevailing party. All other expenses of enforcement of the Holder's
rights hereunder (including reasonable legal and other professional fees) shall
be for the account of the Maker.
THIS NOTE SHALL FOR ALL PURPOSES BY GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT REFERENCE TO
CONFLICTS OF LAW).
This Note shall be binding upon the Maker's successors and assigns, and
shall inure to the benefit of the Holder's successors and assigns.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed by its
duly authorized officer to take effect as of the date first hereinabove written.
"Maker"
Hollywood Park, Inc.
By: ______________________________
G. Michael Finnigan
Chief Financial Officer
-2-
<PAGE>
EXHIBIT 21
Hollywood Park Operating Company, a Delaware corporation
Hollywood Park Fall Operating Company, a Delaware corporation
Hollywood Park Food Services, Inc., a Delaware corporation
Sunflower Racing, Inc., a Kansas corporation
SR Food and Beverage, Inc., a Kansas corporation
Turf Paradise, Inc. an Arizona corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF OPPENHEIMER & CO., INC.
We hereby consent of the inclusion in the Joint Proxy Statement/Prospectus
forming part of this Registration Statement on Form S-4 of our opinion to the
Board of Directors of Hollywood Park, Inc. attached as Appendix B to such
Joint Proxy Statement/Prospectus and the reference to such opinion and to our
firm in such Joint Proxy Statement/Prospectus thereof. In giving such consent,
we do not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 and the rules and
regulations of the Securities and Exchange Commission issued thereunder.
OPPENHEIMER & CO., INC.
By: /s/ Steven H. Reiner
-----------------------------------
Name: Steven H. Reiner
------------------------------
Title: Vice President
-------------------------------
Dated: September 17, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF SUTRO & CO. INCORPORATED
We hereby consent to the inclusion in the Joint Proxy Statement/Prospectus
forming part of this Registration Statement on Form S-4 of our Opinion to the
Board of Directors of Boomtown, Inc. attached as Appendix C to such Joint Proxy
Statement/Prospectus and the reference to such opinion and to our firm in such
Joint Proxy Statement/Prospectus thereof.
SUTRO & CO. INCORPORATED
/s/ Michael D. Brown
By:__________________________________
Michael D. Brown
Managing Director
Dated: 9/16/96
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the reference to our
Firm under the caption "Experts" and to the use of our report dated February
14, 1996, included in the Proxy Statement of Hollywood Park, Inc. that is made
part of the Registration Statement (Form S-4) and Prospectus of Hollywood Park,
Inc. for the registration of 6,105,000 shares of its common stock.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Los Angeles, California
September 17, 1996
<PAGE>
EXHIBIT 23.4
The Board of Directors
Hollywood Park, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Registration Statement.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
September 11, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 and related joint proxy
statement/prospectus of Hollywood Park, Inc. for the registration of 6,105,000
shares of its common stock and to the incorporation by reference therein of
our report dated March 3, 1995 with respect to the financial statements of
Pacific Casino Management, Inc. included in its Form 8-K/A for the year ended
December 31, 1994 filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Woodland Hills, California
September 13, 1996
<PAGE>
EXHIBIT 23.6
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 26, 1993 with respect to the statements of
income and cash flows of Turf Paradise, Inc. for the year ended June 30, 1993,
included in the Hollywood Park, Inc. Annual Report on Form 10-K for the year
ended December 31, 1995 incorporated by reference in the Prospectus and
Registration Statement (Form S-4) of Hollywood Park, Inc. for the registration
of 6,105,000 shares of its common stock.
/s/ Ernst & Young LLP
Ernst & Young LLP
Phoenix, Arizona
September 12, 1996
<PAGE>
EXHIBIT 23.7
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated November 17, 1995, with respect to the
consolidated financial statements of Boomtown, Inc. included in the Joint
Proxy Statement of Boomtown, Inc. and Hollywood Park, Inc. that is made a part
of the Registration Statement (Form S-4) and related Prospectus of Hollywood
Park, Inc. for the registration of 6,105,000 shares of its common stock.
/s/ Ernst & Young LLP
Ernst & Young LLP
Reno, Nevada
September 16, 1996
<PAGE>
- --------------------------------------------------------------------------------
PROXY
HOLLYWOOD PARK, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD OCTOBER 30, 1996
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders of Hollywood Park, Inc. ("Hollywood Park") dated September 20,
1996 and the accompanying Joint Proxy Statement/Prospectus relating to the
above-referenced Annual Meeting, and hereby appoints R.D. Hubbard, or in his
absence, Donald M. Robbins, with full power to each of substitution in each, as
attorneys and proxies of the undersigned.
Said proxies are hereby given authority to vote all shares of common stock of
Hollywood Park, Inc. which the undersigned may be entitled to vote at the
Annual Meeting of Stockholders of Hollywood Park, to be held at 9:00 a.m.,
local time, on Wednesday, October 30, 1996, at the Four Seasons Hotel, 57 East
57th Street, New York, New York 10022 and at any and all adjournments or
postponements thereof (the "Annual Meeting") on behalf of the undersigned on
the matters set forth on the reverse side hereof and in the manner designated
thereon.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF HOLLYWOOD PARK, AND WHEN
PROPERLY EXECUTED, THE SHARES REPRESENTED HEREBY WILL BE VOTED IN ACCORDANCE
WITH THE INSTRUCTIONS IN THIS PROXY. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL PROPOSALS AND FOR THE ELECTION OF ALL NOMINEES NAMED AS
DIRECTORS OF HOLLYWOOD PARK ON THE REVERSE SIDE HEREOF.
PLEASE DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY
IN THE ENCLOSED ENVELOPE
(SEE REVERSE SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
- --------------------------------------------------------------------------------
Please mark
your votes as [X]
indicated in
this example
1. Proposal to approve the issuance of shares of Hollywood Park Common Stock
pursuant to the terms of the Agreement and Plan of Merger dated as of April
23, 1996, among Hollywood Park, HP Acquisition, Inc., a wholly-owned
subsidiary of Hollywood Park ("Sub"), and Boomtown, Inc. ("Boomtown"),
providing for Sub to merge with and into Boomtown, with Boomtown becoming a
wholly-owned subsidiary of Hollywood Park.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. Election of Seven (7) Directors:
NOMINEES: R.D. Hubbard, J.R. Johnson, Robert T. Manfuso, Harry Ornest, Lynn
P. Reitnouer, Herman Sarkowsky and Warren B. Williamson
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED:
---------------------------------------------------------------------------
FOR WITHHOLD AUTHORITY
[_] [_]
3. Proposal to approve the adoption of the Hollywood Park 1996 Stock Option
Plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
This Proxy will be voted as directed or, if no direction is indicated, the
proxies are authorized to vote in their discretion "FOR" each of the proposals
listed and "FOR" the election of the above-listed nominees or such substitute
nominee(s) for directors as the Board of Directors of the Company shall select
and upon such other matters as may come before the Annual Meeting.
Dated: , 1996
------------------
------------------------------
(Signature)
------------------------------
(Title)
------------------------------
(Signature if held jointly)
Note: Please date and sign
exactly as your name(s) appear
on this proxy card. If shares
are registered in more than one
name, all such persons should
sign. A corporation should sign
in its full corporate name by a
duly authorized officer, stating
his title. When signing as
attorney, executor,
administrator, trustee or
guardian, please sign in your
official capacity and give your
full title as such. If a
partnership, please sign in the
partnership name by an
authorized person.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
PROXY [FORM OF PROXY]
BOOMTOWN, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS
The undersigned Stockholder of BOOMTOWN, INC., a Delaware corporation, hereby
acknowledges receipt of the Notice of Special Meeting of Stockholders and Joint
Proxy Statement/Prospectus, each dated September 20, 1996, and hereby appoints
Timothy J. Parrott and Robert F. List, and each of them, proxies and attorneys-
in-fact, with full power to each of substitution, on behalf and in the name of
the undersigned, to represent the undersigned at the Special Meeting of
Stockholders of BOOMTOWN, INC., to be held on Wednesday, November 13, 1996, at
10:00 a.m., at Boomtown, Inc.'s principal executive offices located at the
intersection of Interstate 80 and Boomtown Road, Verdi, Nevada 89439-0399 and
at any adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side hereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
IN THE ENCLOSED ENVELOPE PROVIDED.
(SEE REVERSE SIDE)
<PAGE>
Please mark
your votes [X]
as this
THE BOOMTOWN BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1
1. PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER DATED AS OF
APRIL 23, 1996 BY AND AMONG BOOMTOWN, INC., HOLLYWOOD PARK, INC., A DELAWARE
CORPORATION, AND HP ACQUISITION, INC., A NEWLY FORMED, WHOLLY-OWNED
SUBSIDIARY OF HOLLYWOOD PARK, INC. ("SUB"), PROVIDING FOR SUB TO BE MERGED
WITH AND INTO BOOMTOWN, INC. WITH BOOMTOWN, INC. BEING THE SURVIVING
CORPORATION AND BECOMING A WHOLLY-OWNED SUBSIDIARY OF HOLLYWOOD PARK, INC.:
FOR AGAINST ABSTAIN
[_] [_] [_]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL BE
VOTED "FOR" THE PROPOSAL LISTED, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY COME BEFORE THE MEETING, INCLUDING, AMONG OTHER THINGS,
CONSIDERATION OF ANY MOTION MADE FOR ADJOURNMENT OF THE MEETING (INCLUDING,
WITHOUT LIMITATION, FOR PURPOSES OF SOLICITING ADDITIONAL VOTES TO APPROVE AND
ADOPT THE MERGER AGREEMENT AND THE MERGER).
Please sign exactly as name appears on Proxy
Dated:
---------------------------------------
---------------------------------------------
Signature
--------------------------------------------
(Signature, if held jointly)
---------------------------------------------
(Title)
Note: When shares are held by joint tenants,
both should sign. When signing as attorney,
executor, administrator, trustee, guardian or
corporate officer or partner, please give full
title as such. If a corporation, please sign
in corporate name by authorized person.
Signature(s) ___________________________ Date _______________________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
<PAGE>
EXHIBIT 99.3
VOTING AGREEMENT
This VOTING AGREEMENT (this "Agreement"), dated as of April 23, 1996, is
entered into by and among Hollywood Park, Inc., a Delaware corporation
("Parent"), on the one hand, and Timothy J. Parrott, in his capacity as a
stockholder ("Stockholder") of Boomtown, Inc., a Delaware corporation (the
"Company"), on the other hand.
WHEREAS, concurrently herewith, Parent, HP Acquisition, Inc., a Delaware
corporation and wholly owned subsidiary of Parent ("Sub"), and the Company are
entering into an Agreement and Plan of Merger (the "Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Merger Agreement);
WHEREAS, Stockholder is as of the date hereof the beneficial owner of the
number of shares of Company Common Stock (collectively, the "Proxy Shares") set
forth on Schedule 1 to this Agreement;
WHEREAS, approval and adoption of the Merger Agreement by the Company's
stockholders is a condition to the consummation of the Merger;
WHEREAS, as a condition to its entering into the Merger Agreement, Parent
has required that Stockholder agree, and Stockholder has agreed, to enter into
this Agreement; and
WHEREAS, the Board of Directors of the Company has approved the Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote Shares. At every meeting of the stockholders
------------------------
of the Company called with respect to any of the following, and at every
adjournment thereof, and on every action or approval by written consent of the
stockholders of the Company with respect to any of the following, Stockholder
shall vote the Proxy Shares: (i) in favor of approval and adoption of the
Merger Agreement and the Merger and any matter that could reasonably be expected
to facilitate the Merger and (ii) against approval or adoption of any proposal
made in opposition to or which would prevent the consummation of the Merger
(each of the foregoing is hereinafter referred to as an "Opposing Proposal").
Subject to the provisions of Section 5 below, Stockholder agrees to use his
reasonable best efforts to cause the stockholders of the Company to approve and
adopt the Merger and the Merger Agreement and Stockholder shall not, directly or
indirectly, solicit or encourage any Acquisition Proposal concerning the Company
from any other party. Stockholder agrees not to grant any proxies or enter into
any voting agreement or arrangement inconsistent with this Agreement or the
Proxy (as defined herein).
Section 2. Irrevocable Proxy. Concurrently with the execution of this
-----------------
Agreement, Stockholder agrees to deliver to Parent a proxy in the form attached
hereto as
<PAGE>
Exhibit A (the "Proxy"), which shall be irrevocable to the fullest extent
- ---------
provided by law, with the total number of shares of capital stock of the Company
beneficially owned by the Stockholder set forth therein.
Section 3. Representations and Warranties of Stockholder. Stockholder
---------------------------------------------
hereby represents and warrants to Parent that:
a. This Agreement has been duly executed and delivered by Stockholder
and is the legal, valid and binding obligation of Stockholder.
b. No consent of any court, governmental authority, beneficiary, co-
trustee or other person is necessary for the execution, delivery and
performance of this Agreement by Stockholder.
c. The Proxy Shares of Stockholder have been duly authorized and
validly issued, and are fully paid and nonassessable. The Proxy Shares are
owned by Stockholder free and clear of any pledge, lien, security interest,
charge, claim, equity or encumbrance of any kind, other than this
Agreement.
Section 4. Covenants of the Holder. Stockholder hereby agrees and
-----------------------
covenants that:
a. Prior to the Termination Date and subject to the provisions of
Section 5 below, he will not, and will not permit any entity under his
control, to: (i) solicit proxies or become a "participant" in a
"solicitation" (as such terms are defined in Regulation 14A under the
Exchange Act) with respect to an Opposing Proposal or otherwise encourage
or assist any party in taking or planning any action that would prevent the
timely consummation of the Merger in accordance with the terms of the
Merger Agreement; (ii) initiate a stockholders' vote or action by written
consent of the Company's stockholders with respect to an Opposing Proposal;
or (iii) become a member of a "group" (as such term is used in Section
13(d) of the Exchange Act) with respect to any voting securities of the
Company with respect to an Opposing Proposal.
b. Stockholder agrees not to transfer, sell, exchange, pledge or
otherwise dispose of or encumber any of the Proxy Shares or make any offer
or agreement relating thereto at any time prior to the earlier of the
termination of this Agreement pursuant to the terms hereof or the approval
and adoption by the Company's stockholders of the Merger Agreement and the
Merger, unless the proposed transferee or assignee of the Proxy Shares has
executed and delivered to Parent a Voting Agreement and Irrevocable Proxy
substantially identical to this Agreement and the attached Proxy.
c. Stockholder agrees that any shares of capital stock of the Company
(including Company Common Stock) that Stockholder purchases or with respect
to which Stockholder otherwise acquires beneficial ownership after the date
of this Agreement and prior to the termination of this Agreement pursuant
to the terms
-2-
<PAGE>
hereof shall be considered "Proxy Shares" and subject to each of the terms
and conditions of this Agreement.
Section 5. Limitation on Voting Power. It is expressly understood and
--------------------------
acknowledged by the parties hereto that nothing contained herein is intended to
restrict the Stockholder from voting on any matter, or otherwise from acting, in
the Stockholder's capacity as a director of the Company with respect to any
matter.
Section 6. Adjustment Upon Changes in Capitalization. In the event of any
-----------------------------------------
change in the Company Common Stock by reason of stock dividends, split-ups,
recapitalizations, combinations, exchanges of shares or the like, the number of
Proxy Shares shall be adjusted appropriately.
Section 7. Assignment. The rights of Parent hereunder may be assigned, in
----------
whole or in part, to Sub or any direct or indirect wholly owned subsidiary of
Parent. Other than as permitted in the foregoing sentence, this Agreement shall
not be assignable by any party hereto without the prior written consent of the
other parties.
Section 8. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given (and shall be deemed
to have been duly received if so given) if personally delivered or sent by
facsimile, or registered or certified mail, postage prepaid, addressed to the
respective parties as follows:
If to Stockholder:
Timothy J. Parrott
Boomtown, Inc.
P.O. Box 399
Verdi, Nevada 89439-0399
Telecopier No.
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: John V. Roos, Esq.
Telecopier No. (415) 496-4006
If to Parent or Sub:
Hollywood Park, Inc.
1050 South Prairie Avenue
Inglewood, California 90301
Attention: R.D. Hubbard
with a copy to:
-3-
<PAGE>
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attention: Alvin G. Segel, Esq.
Telecopier No. (310) 203-7199
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
Section 9. Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state thereof having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
Section 10. Amendment. This Agreement may not be amended, except by an
---------
instrument in writing signed on behalf of each of the parties hereto.
Section 11. Governing Law. This Agreement and all disputes hereunder
-------------
shall be governed by and construed and enforced in accordance with the internal
laws of the State of Delaware without regard to principles of conflicts of law.
Section 12. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
Section 13. Termination. This Agreement shall terminate on the earlier of
-----------
(the "Termination Date") (i) the Effective Date (as such term is defined in the
Merger Agreement), (ii) at any time upon written notice by Parent to Stockholder
terminating this Agreement, (iii) upon the action by the Company's Board of
Directors to withdraw or modify or change, in a manner adverse to Parent, its
approval or recommendation of the Merger Agreement and the transactions
contemplated thereby in the exercise of its fiduciary duties in accordance with
Section 3.6(a) or Section 8.10 of the Merger Agreement, or (iv) the termination
of the Merger Agreement in accordance with its terms.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
HOLLYWOOD PARK, INC.
By: /s/ G. Michael Finnigan
--------------------------------
Name: G. Michael Finnigan
Title: Chief Financial Officer
"STOCKHOLDER"
/s/ Timothy J. Parrott
------------------------------------
Timothy J. Parrott
-5-
<PAGE>
SCHEDULE 1
Number of
Stockholder Shares
- ----------- ------
Timothy J. Parrott 343,001
-6-
<PAGE>
EXHIBIT A
---------
IRREVOCABLE PROXY
The undersigned stockholder of Boomtown, Inc., a Delaware corporation (the
"Company"), hereby irrevocably appoints Hollywood Park, Inc., a Delaware
corporation ("Parent"), the attorney-in-fact and proxy of the undersigned, with
full power of substitution, with respect to shares of Common Stock, $.01 par
value per share, of the Company owned of record or beneficially by the
undersigned (the "Shares") with respect to the matters specified below. Upon
the execution hereof, all prior proxies given by the undersigned or its nominee
with respect to the Shares are hereby revoked and no subsequent proxies will be
given. This Proxy is irrevocable (to the extent permitted under Delaware law),
and coupled with an interest and is granted in consideration of the Company and
Parent entering into the Agreement and Plan of Merger dated as of April 23, 1996
among Parent, HP Acquisition, Inc. and the Company (the "Merger Agreement").
The attorney and proxy named above will be empowered at any time prior to the
earliest of (i) the effectiveness of the Merger as defined in the Merger
Agreement, (ii) notice from Parent that Parent elects to terminate this Proxy or
(iii) the termination of the Voting Agreement dated as of April 23, 1996 between
Parent and the undersigned in accordance with its terms, to exercise all voting
and other rights to the extent specified in the succeeding paragraph. Upon the
occurrence of the earliest of the foregoing events described in clauses (i),
(ii), or (iii) above, this Proxy shall expire and be of no further force or
effect.
The attorney and proxy named above may only exercise this proxy to vote the
Shares subject hereto at any annual, special or other meeting of the holders of
capital stock of the Company and any adjournments thereof (including, without
limitation, the power to execute and deliver written consents with respect to
the Shares) in favor of approval and adoption of the Merger Agreement and the
Merger and any matter that could reasonably be expected to facilitate the
Merger, and against any proposal made in opposition to or which would prevent
the consummation of the Merger, and may not exercise this Proxy on any other
matters. The undersigned stockholder may vote the Shares on all other matters.
The undersigned will, upon request, execute and deliver any additional documents
deemed by the above-named attorney-in-fact and proxy to be necessary or
desirable to effect the irrevocable proxy created hereby.
Any obligation of the undersigned shall be binding upon the successors and
assigns of the undersigned.
/s/ Timothy J. Parrott
--------------------------------------
Timothy J. Parrott
Shares of Company Common Stock Owned: 343,001
-7-
<PAGE>
EXHIBIT 99.4
VOTING AGREEMENT
This VOTING AGREEMENT (this "Agreement"), dated as of April 23, 1996, is
entered into by and among Boomtown, Inc., a Delaware corporation (the
"Company"), on the one hand, and R.D. Hubbard, in his capacity as a stockholder
("Stockholder") of Hollywood Park, Inc., a Delaware corporation (the "Parent"),
on the other hand.
WHEREAS, concurrently herewith, Parent, HP Acquisition, Inc., a Delaware
corporation and wholly owned subsidiary of Parent ("Sub"), and the Company are
entering into an Agreement and Plan of Merger (the "Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Merger Agreement);
WHEREAS, Stockholder is as of the date hereof the beneficial owner of the
number of shares of Parent Common Stock (collectively, the "Proxy Shares") set
forth on Schedule 1 to this Agreement;
WHEREAS, the approval by Parent's stockholders of the issuance of Parent
Common Stock pursuant to (a) the Merger, (b) the Company stock options to be
assumed by Parent in the Merger and (c) any warrants of the Company or other
rights to acquire Company Common Stock which may become exercisable for shares
of Parent Common Stock, is a condition to the consummation of the Merger
(collectively, the "Share Issuance Proposal");
WHEREAS, as a condition to its entering into the Merger Agreement, the
Company has required that Stockholder agree, and Stockholder has agreed, to
enter into this Agreement; and
WHEREAS, the Board of Directors of Parent has approved the Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote Shares. At every meeting of the stockholders
------------------------
of Parent called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Parent with respect to any of the following, Stockholder shall vote the Proxy
Shares: (i) in favor of approval of the Share Issuance Proposal and any matter
that could reasonably be expected to facilitate the Merger and (ii) against
approval or adoption of any proposal made in opposition to consummation of the
Merger or which would prevent the consummation of the Merger (each of the
foregoing is hereinafter referred to as an "Opposing Proposal"). Subject to the
provisions of Section 5 below, Stockholder agrees to use his reasonable best
efforts to cause the stockholders of Parent to approve the Share Issuance
Proposal and Stockholder shall not, directly or indirectly, solicit or encourage
any Acquisition Proposal concerning Parent from any other party or any
Alternative Transaction involving Parent. Stockholder agrees not to grant any
proxies or enter into any voting agreement or arrangement inconsistent with this
Agreement or the Proxy (as defined herein).
<PAGE>
Section 2. Irrevocable Proxy. Concurrently with the execution of this
-----------------
Agreement, Stockholder agrees to deliver to the Company a proxy in the form
attached hereto as Exhibit A (the "Proxy"), which shall be irrevocable to the
---------
fullest extent provided by law, with the total number of shares of capital stock
of Parent beneficially owned by the Stockholder set forth therein.
Section 3. Representations and Warranties of Stockholder. Stockholder
---------------------------------------------
hereby represents and warrants to the Company that:
a. This Agreement has been duly executed and delivered by Stockholder
and is the legal, valid and binding obligation of Stockholder.
b. No consent of any court, governmental authority, beneficiary, co-
trustee or other person is necessary for the execution, delivery and
performance of this Agreement by Stockholder.
c. The Proxy Shares of Stockholder have been duly authorized and
validly issued, and are fully paid and nonassessable. The Proxy Shares are
owned by Stockholder free and clear of any pledge, lien, security interest,
charge, claim, equity or encumbrance of any kind, other than this
Agreement.
Section 4. Covenants of the Holder. Stockholder hereby agrees and
-----------------------
covenants that:
a. Prior to the Termination Date and subject to the provisions of
Section 5 below, he will not, and will not permit any entity under his
control, to: (i) solicit proxies or become a "participant" in a
"solicitation" (as such terms are defined in Regulation 14A under the
Exchange Act) with respect to an Opposing Proposal or otherwise encourage
or assist any party in taking or planning any action that would prevent the
timely consummation of the Merger in accordance with the terms of the
Merger Agreement; (ii) initiate a stockholders' vote or action by written
consent of Parent's stockholders with respect to an Opposing Proposal; or
(iii) become a member of a "group" (as such term is used in Section 13(d)
of the Exchange Act) with respect to any voting securities of Parent with
respect to an Opposing Proposal.
b. Stockholder agrees not to transfer, sell, exchange, pledge or
otherwise dispose of or encumber any of the Proxy Shares or make any offer
or agreement relating thereto at any time prior to earlier of the
termination of this Agreement pursuant to the terms hereof or the approval
of the Share Issuance Proposal by the Parent stockholders, unless the
proposed transferee or assignee of the Proxy Shares has executed and
delivered to the Company a Voting Agreement and Irrevocable Proxy
substantially identical to this Agreement and the attached Proxy.
c. Stockholder agrees that any shares of capital stock of Parent
(including the Parent Common Stock) that Stockholder purchases or with
respect to which Stockholder otherwise acquires beneficial ownership after
the date of this Agreement
-2-
<PAGE>
and prior to the termination of this Agreement pursuant to the terms hereof
shall be considered "Proxy Shares" and subject to each of the terms and
conditions of this Agreement.
Section 5. Limitation on Voting Power. It is expressly understood and
--------------------------
acknowledged by the parties hereto that nothing contained herein is intended to
restrict the Stockholder from voting on any matter, or otherwise from acting, in
the Stockholder's capacity as a director of Parent with respect to any matter.
Section 6. Adjustment Upon Changes in Capitalization. In the event of any
-----------------------------------------
change in the Parent Common Stock by reason of stock dividends, split-ups,
recapitalizations, combinations, exchanges of shares or the like, the number of
Proxy Shares shall be adjusted appropriately.
Section 7. Assignment. This Agreement shall not be assignable by any
----------
party hereto without the prior written consent of the other parties.
Section 8. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given (and shall be deemed
to have been duly received if so given) if personally delivered or sent by
facsimile, or registered or certified mail, postage prepaid, addressed to the
respective parties as follows:
If to the Company:
Boomtown, Inc.
P.O. Box 399
Verdi, Nevada 89439-0399
Attention: Timothy J. Parrott
Telecopier No.
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: John V. Roos, Esq.
Telecopier No. (415) 496-4006
If to Stockholder:
R.D. Hubbard
Hollywood Park, Inc.
1050 South Prairie Avenue
Inglewood, California 90301
Telecopier No.
with a copy to:
-3-
<PAGE>
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attention: Alvin G. Segel, Esq.
Telecopier No. (310) 203-7199
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
Section 9. Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state thereof having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
Section 10. Amendment. This Agreement may not be amended, except by an
---------
instrument in writing signed on behalf of each of the parties hereto.
Section 11. Governing Law. This Agreement and all disputes hereunder
-------------
shall be governed by and construed and enforced in accordance with the internal
laws of the State of Delaware without regard to principles of conflicts of law.
Section 12. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
Section 13. Termination. This Agreement shall terminate on the earlier of
-----------
(the "Termination Date") (i) the Effective Date (as such term is defined in the
Merger Agreement), (ii) at any time upon written notice by the Company to
Stockholder terminating this Agreement, (iii) upon the action by Parent's Board
of Directors to withdraw or modify or change, in a manner adverse to the
Company, its approval or recommendation of the Merger Agreement and the
transactions contemplated thereby in the exercise of its fiduciary duties in
accordance with Section 3.6(b) or Section 8.10 of the Merger Agreement, or (iv)
the termination of the Merger Agreement in accordance with its terms.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
BOOMTOWN, INC.
By: /s/ Timothy J. Parrott
-----------------------
Name: Timothy J. Parrott
Title: Chief Executive Officer
"STOCKHOLDER"
/s/ R.D. Hubbard
-----------------------------------------
R.D. Hubbard
-5-
<PAGE>
SCHEDULE 1
Number of
Stockholder Shares
- ----------- ------
R.D. Hubbard 2,119,840
-6-
<PAGE>
EXHIBIT A
---------
IRREVOCABLE PROXY
The undersigned stockholder of Hollywood Park, Inc., a Delaware corporation
(the "Parent"), hereby irrevocably appoints Boomtown, Inc., a Delaware
corporation (the "Company"), the attorney-in-fact and proxy of the undersigned,
with full power of substitution, with respect to shares of Common Stock, $.10
par value per share, of Parent owned of record or beneficially by the
undersigned (the "Shares") with respect to the matters specified below. Upon
the execution hereof, all prior proxies given by the undersigned or its nominee
with respect to the Shares are hereby revoked and no subsequent proxies will be
given. This Proxy is irrevocable (to the extent permitted under Delaware law),
and coupled with an interest and is granted in consideration of Parent and the
Company entering into the Agreement and Plan of Merger dated as of April 23,
1996 among Parent, HP Acquisition, Inc. and the Company (the "Merger
Agreement"). The attorney and proxy named above will be empowered at any time
prior to the earliest of (i) the effectiveness of the Merger as defined in the
Merger Agreement, (ii) notice from the Company that the Company elects to
terminate this Proxy or (iii) the termination of the Voting Agreement dated as
of April 23, 1996 between the Company and the undersigned in accordance with its
terms, to exercise all voting and other rights to the extent specified in the
succeeding paragraph. Upon the occurrence of the earliest of the foregoing
events described in clauses (i), (ii), or (iii) above, this Proxy shall expire
and be of no further force or effect.
The attorney and proxy named above may only exercise this proxy to vote the
Shares subject hereto at any annual, special or other meeting of the holders of
capital stock of Parent and any adjournments thereof (including, without
limitation, the power to execute and deliver written consents with respect to
the Shares) in favor of approval of (x) the issuance of Parent Common Stock
pursuant to (a) the Merger, (b) the Company stock options to be assumed by
Parent in the Merger and (c) any warrants of the Company or other rights to
acquire Company Common Stock which may become exercisable for shares of Parent
Common Stock and (y) any matter that could reasonably be expected to facilitate
the Merger, and against any proposal made in opposition to or which would
prevent the consummation of the Merger, and may not exercise this Proxy on any
other matters. The undersigned stockholder may vote the Shares on all other
matters. The undersigned will, upon request, execute and deliver any additional
documents deemed by the above-named attorney-in-fact and proxy to be necessary
or desirable to effect the irrevocable proxy created hereby.
Any obligation of the undersigned shall be binding upon the successors and
assigns of the undersigned.
/s/ R.D. Hubbard
-------------------------------------
R.D. Hubbard
Shares of Parent Common Stock Owned: 2,119,840
<PAGE>
EXHIBIT 99.5
CONSENT OF PERSON TO BECOME A DIRECTOR
The undersigned hereby consents to the reference to the undersigned in the
Registration Statement on Form S-4 to be filed by Hollywood Park, Inc., with
respect to the merger of HP Acquisition, Inc. with and into Boomtown, Inc., as
a person named therein to become a Director of Hollywood Park, Inc.
Dated: September 18, 1996
/s/ Timothy J. Parrott
Timothy J. Parrott
<PAGE>
EXHIBIT 99.6
CONSENT OF PERSON TO BECOME A DIRECTOR
The undersigned hereby consents to the reference to the undersigned in the
Registration Statement on Form S-4 to be filed by Hollywood Park, Inc., with
respect to the merger of HP Acquisition, Inc. with and into Boomtown, Inc., as
a person named therein to become a Director of Hollywood Park, Inc.
Dated: September 18, 1996
/s/ Richard J. Goeglein
Richard J. Goeglein
