FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the period ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission file number: 1-2500
BALLY'S GRAND, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-0980760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3645 Las Vegas Boulevard South
Las Vegas, Nevada 89109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 739-4111
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
Indicate by a check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes: X No:
As of October 31, 1996, 8,441,590 shares of the registrant's common stock were
outstanding.
<PAGE>
BALLY'S GRAND, INC.
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Condensed consolidated balance sheet (unaudited)
September 30, 1996 and December 31, 1995.................... 1
Consolidated statement of income (unaudited)
Nine months ended September 30, 1996 and 1995............... 2
Consolidated statement of income (unaudited)
Three months ended September 30, 1996 and 1995.............. 3
Consolidated statement of stockholders' equity (unaudited)
Nine months ended September 30, 1996........................ 4
Consolidated statement of cash flows (unaudited)
Nine months ended September 30, 1996 and 1995............... 5
Notes to condensed consolidated financial
statements (unaudited)...................................... 7
Item 2. Management's discussion and analysis of financial
condition and results of operations.................... 9
PART II. OTHER INFORMATION
Item 1. Legal proceedings......................................... 11
Item 6. Exhibits and reports on Form 8-K.......................... 12
SIGNATURE PAGE...................................................... 13
<PAGE>
<TABLE>
BALLY'S GRAND, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
<CAPTION>
September 30 December 31
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.......................... $ 110,062 $ 64,750
Marketable securities, at fair value
(includes Bally Entertainment Corporation
common stock of $41,166 in 1996)............ 41,635 1,781
Receivables, less allowances of $6,389 and
$5,862...................................... 15,042 12,530
Receivables from affilites.................... 2,670 123
Inventories................................... 3,021 3,506
Deferred income taxes......................... 5,142 6,678
Other current assets.......................... 3,523 3,223
------------ ------------
Total current assets...................... 181,095 92,591
Property and equipment, less accumulated
depreciation of $64,333 and $48,010........... 375,263 409,441
Other assets.................................... 16,840 16,055
------------ ------------
$ 573,198 $ 518,087
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 10,086 $ 13,613
Income taxes payable to Bally Entertainment
Corporation................................. 13,125
Accrued liabilities........................... 37,050 26,580
------------ ------------
Total current liabilities................. 60,261 40,193
Long-term debt.................................. 315,000 315,000
Deferred income taxes........................... 83,362 84,838
Other long-term liabilities..................... 1,657 761
Stockholders' equity............................ 112,918 77,295
------------ ------------
$ 573,198 $ 518,087
============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except share data)
(Unaudited)
<CAPTION>
Nine months
ended September 30
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Revenues:
Casino............................................. $ 116,226 $ 101,310
Rooms.............................................. 48,288 45,005
Food and beverage.................................. 33,487 30,968
Other.............................................. 35,700 32,332
--------- ---------
233,701 209,615
Costs and expenses:
Casino............................................. 59,813 57,241
Rooms.............................................. 14,647 13,999
Food and beverage.................................. 29,030 28,483
Other operating expenses........................... 37,415 37,200
Selling, general and administrative................ 25,831 24,797
Depreciation and amortization...................... 20,038 17,597
--------- ---------
186,774 179,317
--------- ---------
Operating income..................................... 46,927 30,298
Gain on sales of marketable securities............... 820 539
Interest expense..................................... (25,178) (23,991)
--------- ---------
Income before income taxes........................... 22,569 6,846
Provision for income taxes........................... (7,158) (2,513)
--------- ---------
Net income........................................... $ 15,411 $ 4,333
========= =========
Net income per common and common equivalent share.... $ 1.73 $ .49
========= =========
Average common and common equivalent shares
outstanding........................................ 8,925,539 8,848,648
========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except share data)
(Unaudited)
<CAPTION>
Three months
ended September 30
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Revenues:
Casino............................................. $ 37,336 $ 36,382
Rooms.............................................. 14,705 13,936
Food and beverage.................................. 10,435 9,416
Other.............................................. 11,487 10,175
--------- ---------
73,963 69,909
Costs and expenses:
Casino............................................. 18,814 20,021
Rooms.............................................. 4,792 4,541
Food and beverage.................................. 9,415 8,895
Other operating expenses........................... 13,226 12,968
Selling, general and administrative................ 8,821 7,859
Depreciation and amortization...................... 6,569 6,437
--------- ---------
61,637 60,721
--------- ---------
Operating income..................................... 12,326 9,188
Gain on sales of marketable securities............... 870 221
Interest expense..................................... (8,404) (8,073)
--------- ---------
Income before income taxes........................... 4,792 1,336
Provision for income taxes........................... (872) (497)
--------- ---------
Net income........................................... $ 3,920 $ 839
========= =========
Net income per common and common equivalent share.... $ .44 $ .10
========= =========
Average common and common equivalent shares
outstanding........................................ 9,006,915 8,809,924
========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
<CAPTION>
Total
Shares of common stock Additional Common stock-
---------------------- Common paid-in Retained stock in holders'
Issued Treasury stock capital earnings treasury equity
---------- ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.. 10,600,000 2,159,506 $ 106 $ 82,408 $ 20,116 $ (25,335) $ 77,295
Net income.................. 15,411 15,411
Excess of sales price over
historical basis of
subsidiary sold to Bally
Entertainment Corporation. 19,672 19,672
Change in unrealized gain/
loss on available-for-
sale securities........... 529 529
Exercise of warrants........ 1,096 11 11
---------- ---------- --------- --------- --------- --------- ---------
Balance at September 30, 1996. 10,601,096 2,159,506 $ 106 $ 102,091 $ 36,056 $ (25,335) $ 112,918
========== ========== ========= ========= ========= ========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine months
ended September 30
---------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING:
Net income......................................... $ 15,411 $ 4,333
Adjustments to reconcile to cash provided -
Depreciation and amortization.................... 20,038 17,597
Other amortization included in interest expense.. 704 703
Provision for doubtful receivables............... 663 1,266
Deferred income taxes............................ (1,392) 1,668
Gain on sales of marketable securities........... (820) (539)
Change in operating assets and liabilities....... 8,417 566
Other, net....................................... 21 (807)
--------- ---------
Cash provided by operating activities.......... 43,042 24,787
INVESTING:
Proceeds from sale of subsidiary to Bally
Entertainment Corporation........................ 17,500
Purchases and construction of property and
equipment........................................ (13,609) (34,761)
Decrease in construction-related liabilities....... (2,148) (308)
Purchases of marketable securities................. (9,748)
Net proceeds from sales of marketable securities... 1,830 4,003
Advance to nonconsolidated venture................. (3,000)
Other, net......................................... (84) (92)
--------- ---------
Cash provided by (used in) investing
activities................................... 3,489 (43,906)
FINANCING:
Purchases of common stock for treasury (includes
December 1995 purchases settled in January 1996) (1,230) (6,432)
Proceeds from exercise of warrants................. 11
--------- ---------
Cash used in financing activities.............. (1,219) (6,432)
--------- ---------
Increase (decrease) in cash and equivalents.......... 45,312 (25,551)
Cash and equivalents, beginning of period............ 64,750 86,359
--------- ---------
Cash and equivalents, end of period.................. $ 110,062 $ 60,808
========= =========
(continued)
</TABLE>
5
<PAGE>
<TABLE>
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
(In thousands)
(Unaudited)
<CAPTION>
Nine months
ended September 30
---------------------
1996 1995
--------- ---------
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and liabilities,
net of effects from the sale of subsidiary to
Bally Entertainment Corporation, were as follows-
Increase in receivables and receivables from
affiliates................................... $ (4,860) $ (343)
Increase in inventories, other current
assets and other assets...................... (360) (1,907)
Increase in accounts payable, accrued
liabilities and other long-term liabilities.. 9,937 2,816
Increase in income taxes payable to Bally
Entertainment Corporation.................... 3,700
--------- ---------
$ 8,417 $ 566
========= =========
Operating activities include cash payments for
interest and income taxes as follows -
Interest paid.................................. $ 16,375 $ 16,341
Interest capitalized........................... (59) (1,223)
Income taxes paid (net of refunds)............. 4,850 933
Investing activities exclude the following
non-cash transactions -
Bally Entertainment Corporation common stock
received upon sale of subsidiary to Bally
Entertainment Corporation.................... $ 40,000 $
Purchases of marketable securities on margin... 13,610
Sales of margined marketable securities
(including unsettled sales).................. 10,221
<FN>
See accompanying notes.
</FN>
</TABLE>
6
<PAGE>
BALLY'S GRAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands)
(Unaudited)
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Bally's Grand, Inc., a Delaware corporation (the "Company") and its
subsidiaries. As of September 30, 1996, a wholly owned subsidiary of Bally
Entertainment Corporation ("BEC") owned approximately 85% (78% on a fully
diluted basis) of the outstanding common stock of the Company. The Company owns
and operates the casino hotel resort in Las Vegas, Nevada known as "Bally's Las
Vegas." The Company operates in one industry segment and all significant
revenues arise from its casino and supporting hotel operations. Unless otherwise
specified in the text, references to the Company include the Company and its
subsidiaries. These condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
All adjustments have been recorded which are, in the opinion of management,
necessary for a fair presentation of the condensed consolidated balance sheet of
the Company at September 30, 1996, its consolidated statements of income for the
three and nine months ended September 30, 1996 and 1995, its consolidated
statement of stockholders' equity for the nine months ended September 30, 1996,
and its consolidated statement of cash flows for the nine months ended September
30, 1996 and 1995. All such adjustments were of a normal recurring nature.
The accompanying condensed 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. In addition,
certain reclassifications have been made to prior period financial statements to
conform with the 1996 presentation.
ACQUISITION OF BEC BY HILTON HOTELS CORPORATION
In June 1996, BEC and Hilton Hotels Corporation ("Hilton") entered into an
agreement pursuant to which BEC will merge with and into Hilton (the "Merger").
The transaction, which has been approved by the Board of Directors and
shareholders of BEC and Hilton, is subject to approval by gaming regulators of
several jurisdictions, and is expected to close before year-end 1996.
SEASONAL FACTORS
The Company's operations are somewhat seasonal and, therefore, the results of
operations for the three and nine months ended September 30, 1996 and 1995 are
not necessarily indicative of the results of operations for the full year.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share is computed by dividing net
income by the weighted average number of shares of common stock and common stock
equivalents outstanding during each period. Common stock equivalents, which
represent the dilutive effect of the assumed exercise of outstanding warrants,
increased the weighted average number of shares outstanding by 565,536 shares
and 287,405 shares for the three months ended September 30, 1996 and 1995,
respectively, and by 484,635 shares and 219,169 shares for the nine months ended
September 30, 1996 and 1995, respectively.
INCOME TAXES
For the period from January 1, 1995 through March 21, 1995 (the date BEC's
ownership percentage of outstanding common stock of the Company reached 80%),
the Company filed its own separate consolidated federal income tax return.
7
<PAGE>
BALLY'S GRAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands)
(Unaudited)
For periods subsequent to March 21, 1995, taxable income or loss of the Company
is included in the consolidated federal income tax return of BEC. Under a tax
sharing arrangement between BEC and the Company, income taxes are allocated to
the Company based on amounts the Company would pay or receive if it filed a
separate consolidated federal income tax return. Payments to BEC for tax
liabilities are due at such time and in such amounts as payments would be
required to be made to the Internal Revenue Service. Payments from BEC for tax
benefits are due at the time BEC files the applicable consolidated federal
income tax return.
LONG-TERM DEBT
The indenture governing the Company's 10-3/8% First Mortgage Notes due 2003 (the
"Notes") contains covenants that (i) restrict mergers and asset sales and (ii)
limit indebtedness, restricted payments, transactions with affiliates,
encumbrances and liens, dividends and guarantees. As of September 30, 1996,
$6,968 was unrestricted under the indenture covenants for the payment of
dividends.
In October 1996, Hilton announced an offer to purchase for cash any and all of
the Notes (the "Tender Offer") and a solicitation of consents to proposed
amendments to the indenture for the Notes (the "Consent Solicitation"). The
Tender Offer and Consent Solicitation are subject to consummation of the Merger,
receipt of tenders and consents for at least a majority of the principal amount
of the Notes and the receipt of any necessary gaming regulatory approvals, as
well as certain other conditions described in the Offer to Purchase and Consent
Solicitation.
TRANSACTIONS WITH BEC
In August 1993, the Company, BEC and Bally's Grand Management Co., Inc. (the
"Manager"), a Nevada corporation and a wholly owned subsidiary of BEC, entered
into a management agreement (the "Management Agreement") whereby the Manager
provides management services to the Company and BEC licenses the use of the
"Bally" name and certain computer software to the Company for a $3,000 annual
management fee. Pursuant to the Management Agreement, management fees for each
of the three and nine month periods ended September 30, 1996 and 1995 were $750
and $2,250, respectively. In addition, certain of the Company's insurance
coverage is obtained by BEC pursuant to corporate-wide programs. In these
circumstances, BEC charges the Company its proportionate share of the respective
insurance premiums.
In August 1996, the Company sold Paris Casino Corp. (a wholly owned subsidiary
that owns 24 acres of land next to Bally's Las Vegas upon which the Paris
Casino-Resort is planned to be developed) to BEC for consideration having an
aggregate value of $57,500 ($17,500 in cash and 1,457,195 shares of BEC common
stock, which are included in marketable securities on the condensed consolidated
balance sheet of the Company at September 30, 1996). In addition, BEC reimbursed
the Company for Paris Casino-Resort development costs incurred to date and
certain transaction-related costs, and granted the Company certain operating
considerations pursuant to a shared facilities agreement. The transaction was
negotiated and approved by an independent Special Committee of the Board of
Directors of the Company. The Special Committee retained independent legal
counsel and financial advisors in connection with the evaluation and negotiation
of the transaction. For financial accounting purposes, because BEC owns
approximately 85% of the outstanding common stock of the Company, the excess of
the sales price over the historical net book value of Paris Casino Corp. (net of
income taxes of $10,593) was accounted for as an increase to stockholders'
equity.
8
<PAGE>
BALLY'S GRAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the three months ended September 1996 and 1995
Revenues for the three months ended September 30, 1996 were $74.0 million
compared to $69.9 million for the 1995 quarter, an increase of $4.1 million
(6%). Casino revenues for the 1996 quarter were $37.3 million compared to $36.4
million for 1995, an increase of $.9 million (2%). Slot revenues increased $1.9
million (11%) due to a 30% increase in slot handle (volume) offset, in part, by
a decline in the win percentage from 6.3% in the 1995 quarter to 5.4% in 1996.
On average, Bally's Las Vegas had 205 (13%) more slot machines for the three
months ended September 30, 1996 compared to the 1995 quarter. Table game
revenues decreased $1.7 million (9%) due to a 7% decrease in the drop (amount
wagered) and a decrease in the hold percentage from 15.5% in the 1995 quarter to
15.1% in 1996. Other casino revenues increased $.7 million (49%) due to
additional revenues generated by the relocated and expanded race and sports book
room, which opened in September 1995. Rooms revenue increased $.8 million (6%)
primarily due to a higher average room rate compared to the 1995 quarter. Food
and beverage revenues increased $1.0 million (11%) primarily due to increased
convention business, and other revenues increased $1.3 million (13%) due, in
part, to increased entertainment revenues.
The expansion of existing casino hotel resorts and the development of new casino
hotel resorts in Las Vegas continues. In particular, two casino hotel resorts
opened in mid-1996 and another is expected to open in early 1997. These three
casino hotel resorts are adding a total of approximately 270,000 square feet of
gaming space and 6,500 guest rooms to the Las Vegas Strip. Management believes
that the additional casino and hotel room capacity resulting from the opening of
new casino hotels may have a short-term negative impact on the Company, but that
over the long term the Company benefits from the increase in the number of
visitors to Las Vegas that these new properties attract. To enhance its
competitiveness in the Las Vegas market, Bally's Las Vegas completed an
extensive capital improvement program over the last three years including, among
others, improvements to its frontage area along the Strip, a monorail system, a
renovation of all of its hotel rooms, the new race and sports book room and a
slot machine upgrade.
Operating income for the three months ended September 30, 1996 was $12.3 million
compared to $9.2 million for the 1995 quarter, an increase of $3.1 million (34%)
as the aforementioned 6% increase in revenues was offset, in part, by a 2%
increase in operating expenses. Selling, general and administrative costs
increased $1.0 million (12%) due, in part, to certain trademark-related costs,
and food and beverage expenses increased $.5 million (6%) due to the
aforementioned increase in volume from convention-related business. In addition,
rooms expense increased $.3 million (6%) and other operating expenses increased
$.3 million (2%). These increases in operating expenses were offset, in part, by
a $1.2 million (6%) decrease in casino expenses.
Interest expense was $8.4 million for the three months ended September 30, 1996
compared to $8.1 million for the 1995 quarter, an increase of $.3 million (4%)
primarily due to a decrease in the amount of capitalized interest.
Comparison of the nine months ended September 30, 1996 and 1995
Revenues for the nine months ended September 30, 1996 were $233.7 million
compared to $209.6 million for the 1995 period, an increase of $24.1 million
(11%). Casino revenues for the 1996 period were $116.2 million compared to
$101.3 million for 1995, an increase of $14.9 million (15%) due, in part, to
additional walk-in business resulting from the June 1995 opening of the monorail
system connecting Bally's Las Vegas and MGM Grand. Slot revenues increased $7.3
million (16%) due to a 27% increase in slot handle offset, in
9
<PAGE>
BALLY'S GRAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
part, by a decline in the win percentage from 6.1% in the 1995 period to 5.6% in
1996. On average, Bally's Las Vegas had 196 (13%) more slot machines for the
nine months ended September 30, 1996 compared to the 1995 period. Table game
revenues increased $4.9 million (10%) due to a 7% increase in the drop and an
increase in the hold percentage from 14.7% in the 1995 period to 15.1% in 1996.
Other casino revenues increased $2.7 million (60%) due to additional revenues
generated by the relocated and expanded race and sports book room. Rooms revenue
increased $3.3 million (7%) primarily due to a higher average room rate compared
to the 1995 period. Food and beverage revenues increased $2.5 million (8%)
primarily due to increased convention business and the reinstatement of beverage
service in the showrooms in the second quarter of 1995. Other revenues increased
$3.4 million (10%) primarily due to increased entertainment revenues.
Operating income for the nine months ended September 30, 1996 was $46.9 million
compared to $30.3 million for the 1995 period, an increase of $16.6 million
(55%) as the aforementioned 11% increase in revenues was offset, in part, by a
4% increase in operating expenses. Casino operating expenses increased $2.6
million (4%) due principally to increased promotional and marketing costs and to
increased gaming taxes associated with higher casino revenues. Depreciation and
amortization expense increased $2.4 million (14%) due to the aforementioned
major capital improvements.
Interest expense was $25.2 million for the nine months ended September 30, 1996
compared to $24.0 million for the 1995 period, an increase of $1.2 million (5%)
due to a decrease in the amount of capitalized interest.
For the nine months ended September 30, 1996 and 1995, the effective rate of the
provision for income taxes differed from the U.S. statutory tax rate (35%) due
principally to the elimination of a valuation allowance no longer required in
the 1996 period and certain nondeductible expenses in both periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company has no scheduled principal payments on its long-term debt until
2003. Management plans to make capital expenditures totalling approximately $33
million at Bally's Las Vegas over the next twelve months for various
improvements, renovations and equipment to maintain the casino hotel resort in
first-class condition. The Company believes that it will be able to satisfy its
debt service (interest on the Notes is approximately $32.7 million per annum)
and the aforementioned capital expenditure requirements over the next twelve
months out of existing cash balances.
10
<PAGE>
BALLY'S GRAND, INC.
PART II. OTHER INFORMATION
Item 1. Legal proceedings
Two purported derivative actions against the Company, its directors and
BEC, one commenced in October 1995 (described in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995) and the other
in September 1996, have been consolidated under the caption In re:
Bally's Grand Derivative Litigation in the Court of Chancery of the
State of Delaware, New Castle County. The consolidated complaint
alleges breaches of fiduciary duty and waste of corporate assets in
connection with certain actions including the sale by the Company to
BEC of the capital stock of Paris Casino Corp. (the "Paris
Transaction"), alleged improper delegation of duties by the Company's
Board of Directors by virtue of the Management Agreement, the Manager's
designation pursuant to the Management Agreement of recipients awarded
Company common stock pursuant to an incentive stock plan, purchases of
Company common stock by the Company and BEC, and a consulting agreement
entered into by the Company with Arveron Investments, L.P. in
connection with the Company's investments in publicly-traded securities
and certain repurchases of its common stock. The plaintiffs seek, among
other things: (i) rescission of the Paris Transaction, (ii) a
declaration that the Management Agreement is unlawful, (iii) an
accounting of damages to the Company and profits to defendants as a
result of the transactions complained of, (iv) an accounting for
purchases of Company common stock by the Company and BEC, and (v) costs
and expenses including reasonable attorneys' fees. A third purported
derivative action against the Company, its directors, BEC, the Manager
and Hilton was commenced in November 1996 under the caption Tower
Investment Group, Inc., et al. v. Bally's Grand, Inc., et al. in the
Court of Chancery of the State of Delaware, New Castle County. The
complaint alleges breach of fiduciary duty and waste of corporate
assets by the Company's directors and BEC in connection with the Paris
Transaction, aiding and abetting by Hilton of the breaches of fiduciary
duty and waste by the Company's directors and BEC, fraud, willful
misconduct or gross negligence by BEC and the Manager in connection
with the Management Agreement, breach of fiduciary duty by the
Company's directors in connection with purchases of Company common
stock by BEC while in possession of material inside information
concerning the Company's earnings, breach of fiduciary duty by BEC in
connection with alleged threats to abuse its controlling interest in
the Company, and violation by the Company's directors and BEC of
Section 203 of the Delaware General Corporation Law in connection with
the Paris Transaction. The plaintiffs seek, among other things: (i)
rescission of the Paris Transaction, (ii) termination of the Management
Agreement, (iii) appointment of a custodian to manage the Company's
affairs, (iv) compensatory damages, (v) an order enjoining BEC and
Hilton from conveying the Paris Casino-Resort, (vi) disgorgement by BEC
and Hilton of the profits of the Paris Casino-Resort, (vii)
disgorgement by Arthur M. Goldberg of all payments, warrants and
interests received in connection with the Merger, and (viii)
disgorgement by BEC of profits earned from any transactions in shares
of the Company's common stock based upon material inside information.
The defendants believe the complaints are without merit.
11
<PAGE>
BALLY'S GRAND, INC.
PART II. OTHER INFORMATION--(CONTINUED)
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
10 Stock Purchase Agreement dated August 22, 1996 by and among
Bally Entertainment Corporation, Bally's Grand, Inc. and
Bally's Grand Property Sub I, Inc.
27 Financial Data Schedule (filed electronically only).
(b) Reports on Form 8-K:
<TABLE>
<CAPTION>
Financial
Date Item statements
---------------- ----------------- ----------------
<S> <C> <C>
October 31, 1996 #5 None
November 1, 1996 #5 None
November 6, 1996 #5 None
</TABLE>
12
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALLY'S GRAND, INC.
--------------------------------------------
Registrant
/s/ Jerry A. Blumenshine
--------------------------------------------
Jerry A. Blumenshine
Vice President and Chief Financial Officer
(principal financial and accounting officer)
Dated: November 12, 1996
13
EXHIBIT 10
STOCK PURCHASE AGREEMENT
by and among
BALLY ENTERTAINMENT CORPORATION,
BALLY'S GRAND, INC.
and
BALLY'S GRAND PROPERTY SUB I, INC.
Dated August 22, 1996
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made as of August 22,
1996 by and among Bally Entertainment Corporation, a Delaware corporation
("Buyer"), Bally's Grand, Inc., a Delaware corporation ("BGI"), and Bally's
Grand Property Sub I, Inc., a Nevada corporation ("Seller").
Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, all of the issued and outstanding shares of capital stock (the "Shares")
of Paris Casino Corp., a Nevada corporation ("Subsidiary"), for the
consideration and on the terms set forth in this Agreement.
Accordingly, in consideration of the foregoing and the mutual covenants
and undertakings contained herein, the parties hereby agree as follows:
1. SALE AND TRANSFER OF SHARES; CLOSING.
1.1 SHARES. Subject to the terms and conditions of this Agreement, at
the Closing, Seller shall sell to Buyer, and Buyer shall purchase from Seller,
the Shares.
1.2 PURCHASE PRICE.
(a) Subject to adjustment or substitution as provided below, the purchase
price (the "Purchase Price") for the Shares will be $57,500,000. The Purchase
Price will be payable to Seller at Closing as follows: (i) $17,500,000 payable
by wire transfer (in accordance with wire transfer instructions delivered by
Seller to Buyer at or prior to Closing) of immediately available funds and (ii)
that number of shares of common stock of Buyer ("Buyer Shares") equal to $40
million divided by the Effective Time Value (which the parties agree constitutes
1,457,195 Buyer Shares).
(b) If, subsequent to Closing and at any time prior to the consummation of
the repurchase of Buyer Shares from Seller as set forth in Section 1.2(d)
hereof, the H Merger is terminated for any reason and Seller has not sold all of
the Buyer Shares prior to the announcement of such termination (any unsold Buyer
Shares as of the Determination Date being referred to herein as the "Unsold
Shares"), Buyer shall pay to Seller an amount equal to the difference, if any,
of (i) the product of the Effective Time Value and the number of the Unsold
Shares and (ii) the product of the average trading price (the "Termination
Average Price") of Buyer Shares on The New York Stock Exchange for the twenty
(20) trading days commencing after the date of public announcement of the
termination of the H Merger (the close of trading on such 20th trading day being
the "Determination Date") and the number of Unsold Shares (such difference, if
any, of (i) and (ii) being the "Owed Amount"). The Owed Amount shall be paid in
cash to Seller by wire transfer of immediately available funds within two (2)
days of the Determination Date. Notwithstanding the foregoing, in the event that
Buyer's repurchase obligation set forth in Section 1.2(d) hereof occurs any time
prior to payment of the Owed Amount, Buyer shall have no obligation to pay
Seller the Owed Amount.
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(c) Seller agrees to provide written notice to Buyer (each such notice, a
"Sales Notice") on each business day during the Unregistered Period (as defined
below) that Seller intended to sell some or all of the unregistered Buyer Shares
(the "Intended Sale Date"). Each Sales Notice shall state (i) the number of
unregistered Buyer Shares Seller intended to sell on the Intended Sale Date,
(ii) the price at which Seller has been advised by a specialist on the New York
Stock Exchange (the "Specialist") in the common stock of Buyer that such a
number of Buyer Shares could be sold as of the Intended Sale Date (the
"Hypothetical Sale Price") and (iii) a covenant by Seller stating that Seller
shall sell such number of Buyer Shares as is set forth on such Sales Notice as
soon as practicable following receipt of notice delivered by Buyer to Seller as
to the registration of such Buyer Shares pursuant to Section 8 below (each such
date of sale of such Buyer Shares being an "Actual Sales Date," the gross sales
price paid to Seller on such Actual Sale Date being an "Actual Sales Price," and
the date of disposition of all Buyer Shares set forth on each Sales Notice
delivered to Buyer being the "Final Actual Sale Date"). Such Sales Notice shall
include, or promptly be followed by, a written confirmation of the Specialist as
to the Hypothetical Sale Price. Seller further agrees to provide prompt written
notice to Buyer as of the Final Actual Sale Date, of the number of shares sold
and the Actual Sales Price received as of each Actual Sales Date. In the event
that (A) such Buyer Shares as set forth on any Sales Notice are not registered
and freely transferrable on the applicable Intended Sale Date during the period
commencing on the Closing Date and ending on the earlier to occur of (i) the
Repurchase Date or (ii) the Effective Merger Date (such period referred to
herein as the "Unregistered Period"); and (B) Seller has substantially complied
with the requirements with respect to the delivery of Sales Notices as set forth
herein, then, within five (5) days of the Final Actual Sales Date, Buyer shall
pay to Seller the difference, if any, in immediately available funds between (x)
the product of the weighted average of the Hypothetical Sales Prices and the
total number of Buyer Shares sold by Seller on each Actual Sales Date and (y)
the product of the weighted average of the Actual Sales Prices and the total
number of Buyer Shares sold by Seller on each Actual Sales Date.
(d) In the event that (i) Buyer fails to register the Buyer Shares
pursuant to Section 8 below within sixty (60) days subsequent to the Closing
Date (the "Repurchase Date"), and (ii) the Effective Merger Date has not
occurred prior to the consummation of the repurchase of Buyer Shares as set
forth in this Section 1.2(d), Buyer shall repurchase from Seller, no later than
five (5) days subsequent to the Repurchase Date and Seller shall sell to Buyer,
the Buyer Shares held by Seller as of the close of trading on the Repurchase
Date. The purchase price for the repurchased Buyer Shares shall be the product
of the Effective Time Value and the number of Buyer Shares held by Seller as of
the close of trading on the Repurchase Date, less the Owed Amount actually paid
to Seller, if any, payable by wire transfer of immediately available funds.
(e) Buyer shall pay, in addition to the Purchase Price, the following
consideration: (i) upon demand in cash payable to Seller by wire transfer of
immediately available funds, the Development Costs; (ii) upon demand in cash
payable to Seller by wire transfer of immediately available funds, any sales,
stamp, transfer, recording or other like fees or taxes (the "Other Costs")
incurred by Seller and Subsidiary in connection with the purchase and sale of
the Shares and the transfer by Seller to Subsidiary of the Assets; and (iii)
upon demand in cash by wire transfer of immediately available funds any other
out-of-pocket costs and expenses (including attorney's fees and other advisory
fees) incurred in connection with the Contemplated
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Transactions (exclusive of attorney's fee and other advisory fees incurred in
connection with the preparation and execution of the Letter of Intent dated
August 14, 1996 and this Agreement) upto an aggregate of $1,000,000 (this
payment obligation shall be in addition to any indemnification obligation Buyer
may have to Seller pursuant to Section 9 hereof).
1.3 CLOSING. The purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Buyer, 8700 West Bryn Mawr Avenue,
Chicago, Illinois 60631, at 3:00 p.m. (local time) on Thursday, August 22, 1996
(the "Closing Date").
1.4 CLOSING DELIVERIES. At the Closing:
(a) Seller shall deliver to Buyer ("Seller's Closing Documents"):
(i) certificate or certificates representing the Shares, duly
endorsed (or accompanied by duly executed stock powers) for transfer to
Buyer;
(ii) a certified copy of resolutions unanimously adopted by the
Special Committee of Seller's Board of Directors established in connection
with the Contemplated Transactions (the "Special Committee") authorizing
execution and consummation of the Contemplated Transactions; and
(iii) the Shared Facilities Agreement, executed by Seller.
(b) Buyer shall deliver to Seller ("Buyer's Closing Documents"):
(i) a certificate representing the Buyer's Shares;
(ii) a certified copy of resolutions adopted by the Executive
Committee to Buyer's Board of Directors authorizing execution of this
Agreement; and
(iii) the Shared Facilities Agreement, executed by Buyer.
(c) Seller shall deliver to the Special Committee an Irrevocable Proxy in
the form attached hereto as Exhibit B, executed by Seller.
2. SELLER'S CONDITIONS PRECEDENT.
Prior to the Closing Date, the Special Committee shall have received: (i)
an opinion of the Investment Banker, confirming the oral opinion previously
received by the Special Committee that the Purchase Price is fair to BGI, from a
financial point of view; and (ii) a definitive appraisal of the Land from the
Appraiser, such definitive appraisal not materially differing from the
preliminary appraisal previously provided to the Special Committee by Appraiser.
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3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and BGI hereby represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING. Subsidiary is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Nevada, with full corporate power and authority to conduct its business as it is
now being conducted, to own, hold under lease, or otherwise possess or use the
properties and assets that it purports to own, hold under lease, or otherwise
possess or use, and to perform all its obligations under the contracts to which
it is a party or by which it is bound. Subsidiary is qualified to do business as
a foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which such qualification is required by virtue of the
nature of the activities conducted by it and where a failure to so qualify would
have a material adverse effect on Subsidiary.
3.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation of
Seller and BGI, enforceable against each of Seller and BGI in accordance with
its terms. Seller and BGI each has the absolute and unrestricted right, power,
authority and capacity to execute and deliver this Agreement and to perform its
obligations under this Agreement.
(b) Neither the execution and delivery of this Agreement and Seller's
Closing Documents nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly contravene, conflict with, or result
in (with or without notice or lapse of time) a violation or breach of (A) any
provision of the Organizational Documents of Seller or Subsidiary, (B) any
resolution adopted or ratified by the board of directors of Seller or
Subsidiary, (C) any Legal Requirement or any Order to which BGI, Seller or
Subsidiary, or any of the assets owned or used by Seller or Subsidiary, may be
subject, (D) any Contract to which BGI, Seller or Subsidiary is a party or by
which BGI, Seller or Subsidiary may be bound, or (E) result in (with or without
notice of lapse of time) the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by Subsidiary.
3.3 CAPITALIZATION. The authorized equity securities of Subsidiary
consists of 25,000 shares of common stock, no par value, of which 100 shares are
issued and outstanding and constitute the Shares. There are no Contracts
executed by the Seller or Subsidiary relating to the issuance, sale, or transfer
of any equity securities or other securities (whether or not convertible) of
Subsidiary, including options, warrants, puts, or calls. None of the outstanding
equity securities or other securities of Subsidiary was issued, redeemed or
repurchased in violation of the Securities Act or any securities or "blue sky"
Legal Requirements. All of the outstanding equity securities of Subsidiary have
been duly authorized and validly issued and are fully paid and nonassessable.
Subsidiary has not owned, does not own, and has no Contract to acquire, any
equity securities or other securities of any Person or any direct or indirect
equity or ownership interest in any other business.
3.4 TITLE. Seller is and on the Closing Date will be the sole record
and beneficial owner and holder of the Shares, free and clear of all
Encumbrances. Upon consummation
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of the Contemplated Transactions, Buyer will be vested with good title to the
Shares free and clear of all Encumbrances. No legend or other reference to any
purported Encumbrance appears upon any certificate representing equity
securities of Subsidiary owned by Seller.
3.5 ASSETS OF SUBSIDIARY. The assets of Subsidiary (the "Assets")
consist solely of (i) the real property and improvements located at 3655 and
3665 Las Vegas Boulevard South consisting of 23.62 acres (the "Land"); (ii) all
predevelopment plans, studies, drawings, models, licenses and regulatory
approvals (and all associated contract rights) (collectively, the "Development
Documents") relating to the Paris Hotel and Casino to be developed on the Land;
(iii) certain existing month to month leases relating to the land and
improvements thereon; and (iv) the Employment Agreement. The Assets are free and
clear of any Encumbrances in favor of BGI or Seller. The liabilities of
Subsidiary consist solely of the Employment Agreement, the leases referred to in
clause (iii) above and the Development Documents.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller as follows:
4.1 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Buyer has the
absolute and unrestricted right, power and authority to execute and deliver this
Agreement and Buyer's Closing Documents and to perform its obligations under
this Agreement.
(b) Neither the execution and delivery of this Agreement and Buyer's
Closing Documents nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly contravene, conflict with, or result
in (with or without notice or lapse of time) a violation or breach of (A) any
provision of the Organizational Documents of Buyer (B) any resolution adopted or
ratified by the board of directors of Buyer, (C) any Legal Requirement or Order
to which Buyer may be subject, or (D) any Contract to which Buyer is a party or
by which Buyer may be bound.
4.2 INVESTMENT INTENT. Buyer is acquiring the Shares for its own account
and not with a view to their distribution within the meaning of Section 2.11 of
the Securities Act. Buyer is an "accredited investor" as such term is defined in
Rule 501(a) promulgated pursuant to the Securities Act.
4.3 ISSUANCE OF BUYER SHARES. Upon consummation of the Contemplated
Transactions, all of the Buyer Shares will be duly authorized and validly
issued, fully paid and non-assessable and Seller will be vested with good title
to the Buyer Shares, free and clear of all Encumbrances.
4.4 HILTON SHARES. At the Effective Merger Date, such Hilton Shares
received by Seller in exchange for Buyer Shares shall be registered under the
Securities Act and shall be freely transferable.
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4.5 FAIRNESS OPINION. Buyer has received opinions from two nationally
recognized investment banking firms that the H Merger is fair to Purchaser's
stockholders from a financial point of view.
5. CONDITION OF FACILITIES. Seller makes no representations or warranties
relating to the condition of the Facilities. Buyer acknowledges and agrees that
it will acquire the Facilities pursuant to this Agreement solely upon its
investigations of the Facilities and that Buyer is acquiring the Facilities "AS
IS" and "WITH ALL FAULTS", based upon the condition of the Facilities as of the
Closing Date.
6. SURVIVAL.
All representations and warranties in this Agreement will survive the
Closing until the second anniversary of the date of this Agreement.
7. COVENANTS OF BGI AND SELLER.
(a) BGI hereby covenants to Buyer that: (i) it will not take any action to
cause an amendment to any provision of Seller's Certificate of Incorporation
relating to the Independent Committee; (ii) it will vote (the "Voting
Requirement") in accordance with any recommendation of the Independent Committee
with respect to any sale, pledge, assignment or other transfer (collectively, a
"Transfer") of the Buyer Shares or any other action relating to the Buyer
Shares; (iii) in order to secure its obligations set forth in this Section 7(a),
it will execute the Irrevocable Proxy in the form attached hereto as Exhibit B,
consistent with the Voting Requirement, in favor of a designee of the
Independent Committee; (iv) it will not Transfer its ownership interest in
Seller, whether by merger, sale or otherwise; and (v) it will not merge with or
into Seller. For purposes of this Section 7(a), Buyer Shares shall be deemed to
include any capital stock of Hilton received by Seller in consideration for the
Buyer Shares in connection with the H Merger.
(b) BGI and Seller covenant to use their best efforts to satisfy all of
their Conditions Precedent to this Agreement.
8. COVENANTS OF BUYER.
(a) Buyer covenants that it will use all reasonable efforts to amend
Buyer's "shelf" registration statement under the Securities Act (Securities and
Exchange Commission Registration Statement No. 33-4325) to register the Buyer
Shares for resale as soon as practicable following the Closing Date and to keep
such amended "shelf" registration statement effective by Buyer until the earlier
to occur of (i) the effective date of conversion of the Buyer Shares into shares
of common stock ($2.50 par value (split adjusted)) of Hilton or (ii) two years
from the date of issuance of such Buyer Shares. Buyer shall give Seller prompt
written notice of the satisfaction of the covenant to register the Buyer Shares
as set forth in this Section 8. Buyer further covenants that the Hilton Shares
received by Seller in exchange for Buyer Shares shall be registered under the
Securities Act and shall be freely transferable.
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(b) Immediately subsequent to Closing, each of Buyer and Subsidiary shall
execute and deliver an Assignment and Assumption Agreement relating to the
Employment Agreement pursuant to which Buyer will assume the Employment
Agreement.
9. INDEMNIFICATION
(a) INDEMNIFICATION BY BUYER. Buyer agrees to indemnify and hold
harmless Seller, its directors, officers, employees, advisors and agents, to the
extent permitted by law, from and against any and all losses, claims, damages,
expenses (including, without limitation, reasonable costs of investigation and
fees, disbursements and other charges of counsel) or other liabilities resulting
from or arising out of or based upon any untrue, or alleged untrue, statement of
a material fact contained in such registration statement prepared pursuant to
Section 8 hereof (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same are caused by or contained in any information furnished in
writing to Buyer by Seller expressly for use therein; and provided, further,
that the Buyer shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, if such untrue statement or omission is
corrected in all material respects in an amendment or supplement to such
registration statement and the Seller thereafter fails to deliver the
registration statement as so amended or supplemented prior to or concurrently
with the sale of Buyer Shares to the Person asserting such loss, claim, damage,
liability or expense after the Buyer had furnished Seller with a sufficient
number of copies of the same.
(b) INDEMNIFICATION BY SELLER. In connection with the registration
statement prepared pursuant to Section 8 hereof in which Seller shall furnish to
Buyer in writing such information with respect to Seller as Buyer may reasonably
request or as may be required by law for use in connection with any registration
statement or prospectus to be used in connection with such registration and
Seller agrees to indemnify and hold harmless Buyer, any underwriter retained by
Buyer and their respective directors, officers, employees to the same extent as
the foregoing indemnity from Buyer to Seller (subject to the proviso to this
sentence and applicable law), but only with respect to any such information
furnished in writing by Seller expressly for use therein; provided, however,
that the liability of Seller under this Section 8(b) shall be limited to the
amount of the net proceeds received by Seller in the offering giving rise to
such liability.
(c) CONDUCT OF INDEMNIFICATION. Any Person entitled to indemnification
hereunder (the "Indemnified Party") agrees to give prompt written notice to the
indemnifying party (the "Indemnifying Party") after the receipt by the
Indemnified Party of any written notice of the commencement of any action, suit,
proceeding or investigation or threat thereof made in writing for which the
Indemnified Party intends to claim indemnification or contribution pursuant to
this Agreement; provided, however, the failure so to notify the Indemnifying
Party shall not relieve the Indemnifying Party of any liability that it may have
to the Indemnified Party hereunder. If notice of commencement of any such action
is given to the Indemnifying Party as above provided, the Indemnifying Party
shall be entitled to participate in and, to the extent it may wish, jointly with
any other Indemnifying Party similarly notified, to assume the defense
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of such action at its own expense, with counsel chosen by it and satisfactory to
such Indemnified Party. The Indemnified Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the Indemnified Party unless (i) the
Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party fails to
assume the defense of such action with counsel satisfactory to the Indemnified
Party in its reasonable judgment, (iii) the named parties to any such action
(including any impleaded parties) have been advised by such counsel that either
(A) representation of such Indemnified Party and the Indemnifying Party by the
same counsel would be inappropriate under applicable standards of professional
conduct or (B) there may be one or more legal defenses available to it which are
different from or additional to those available to the Indemnifying Party. In
either of such cases the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of such Indemnified Party. No Indemnifying
Party shall be liable for any settlement entered into without its written
consent, which consent shall not be unreasonably withheld. The rights accorded
to any Indemnified Party hereunder shall be in addition to any rights that such
Indemnified Party may have at common law, by separate agreement or otherwise.
(d) CONTRIBUTION. If the indemnification provided for in Section 9(a)
from the Indemnifying Party is unavailable to an Indemnified Party in respect of
any losses, claims, damages, expenses or other liabilities referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages, expenses or other liabilities in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions which resulted in
such losses, claims, damages, expenses or other liabilities, as well as any
other relevant equitable considerations. The relative faults of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, was made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the Indemnifying Party's and
Indemnified Party's relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable by a
party as a result of the losses, claims, damages, expenses or other liabilities
referred to above shall be deemed to include, subject to the limitations set
forth in Sections 8(a), 8(b) and 8(c), any legal or other fees, charges or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
10. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. EACH OF THE PARTIES HERETO
HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN
THE STATE OF DELAWARE AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS
BETWEEN OR AMONGST ANY OF THE PARTIES HERETO ARISING OUT OF OR RELATING TO THIS
AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. EACH OF THE PARTIES HERETO ACCEPTS
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY,
THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY, IN EACH CASE ONLY IN CONNECTION WITH
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ACTIONS OR PROCEEDINGS BETWEEN OR AMONGST ANY OF THE PARTIES HERETO ARISING OUT
OF OR RELATING TO THIS AGREEMENT. EACH OF THE PARTIES HERETO HEREBY DESIGNATES
AND APPOINTS THE PERSONS SPECIFIED BELOW AND SUCH OTHER PERSONS LOCATED IN THE
STATE OF DELAWARE AS MAY HEREINAFTER BE SELECTED BY SUCH PARTIES, WHICH PERSONS
SHALL IRREVOCABLY AGREE IN WRITING TO SERVE AS AGENT TO RECEIVE ON SUCH PARTY'S
BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH
SERVICE BEING HEREBY ACKNOWLEDGED BY EACH OF THE PARTIES TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE
MAILED BY REGISTERED MAIL TO THE PARTIES AS PROVIDED HEREIN, EXCEPT THAT UNLESS
OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT
AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY THE
PARTIES REFUSES TO ACCEPT SERVICE, THEN EACH OF THEM HEREBY AGREES THAT SERVICE
UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF ANY OTHER PARTY HERETO TO SERVE PROCESS ON ANOTHER PARTY HERETO IN
ANY OTHER MANNER PERMITTED BY LAW.
AGENT OF BUYER: CT CORPORATION SYSTEM
1209 Orange Street
Wilmington, Delaware 19801
AGENT OF SELLER: CT CORPORATION SYSTEM
1209 Orange Street
Wilmington, Delaware 19801
AGENT OF BGI: CT CORPORATION SYSTEM
1209 Orange Street
Wilmington, Delaware 19801
11. DEFINITIONS.
10.1 DEFINITIONS. For purposes of this Agreement, the following terms
have the meanings specified:
"APPRAISER" -- American Appraisal Associates.
"CONTEMPLATED TRANSACTIONS" -- all of the transactions contemplated
by this Agreement, including:
(i) the sale of the Shares by Seller to Buyer;
(ii) the execution, delivery, and performance of Seller's
Closing Documents and Buyer's Closing Documents; and
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(iii) the performance by Buyer and Sellers of their respective
covenants and obligations under this Agreement.
"CONTRACT" -- any written agreement, contract, obligation, promise,
or undertaking (whether written or oral and whether express or implied)
that is legally binding.
"DEVELOPMENT COSTS" -- all costs incurred by Seller or BGI prior to
the Closing Date (i) in acquiring the Development Documents and otherwise
developing the PH&C concept and (ii) associated with the hiring of Manager
including all salary and benefits, such costs equal to approximately
$2,000,000.
"EFFECTIVE TIME VALUE" -- the average closing price for a Buyer
Share as reported on the New York Stock Exchange (as reported in The Wall
Street Journal, Midwest Edition) for the five (5) trading days prior to
the disclosure of the transactions contemplated by this Agreement in the
periodic reports filed by Buyer and BGI, respectively, under the Exchange
Act.
"EFFECTIVE MERGER DATE" -- the date of conversion of the Purchaser
Shares to common stock of Hilton pursuant to, and in accordance with, the
terms of the H Merger.
"EMPLOYMENT AGREEMENT" -- the employment agreement by and between
Paul Pusateri and BGI and dated July 3, 1996.
"ENCUMBRANCE" -- any claim, lien, pledge, charge, security interest,
equitable interest, option, right of first refusal or preemptive right,
condition, or other restriction of any kind, including any restriction on
use, voting (in the case of any security), transfer, receipt of income, or
exercise of any other attribute of ownership.
"EXCHANGE ACT" -- the Securities and Exchange Act of 1934, as
amended.
"FACILITIES" -- any real property, leaseholds, or other real
property interests currently owned or operated by Subsidiary.
"GOVERNMENTAL BODY" -- any:
(i) nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
(ii) federal, state, local, municipal, foreign, or other
government;
(iii) governmental authority of any nature (including any
governmental agency, branch, department, official, or other entity
and any court or other tribunal); or
(iv) multi-national organization or body.
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"HILTON" -- Hilton Hotels Corporation, a Delaware corporation.
"H MERGER" -- the merger of Purchaser with and into Hilton or a
subsidiary of Hilton pursuant to which shares of Hilton are exchanged for
shares of Buyer.
"INDEPENDENT COMMITTEE" -- the Stock Committee of Seller established
pursuant to Section 6.B. of Seller's Articles of Incorporation.
"INVESTMENT BANKER" -- Chase Securities, Inc.
"LEGAL REQUIREMENT" -- any federal, state, local, municipal,
foreign, or other constitution, ordinance, regulation, statute, treaty, or
other law adopted, enacted, implemented, or promulgated by or under the
authority of any Governmental Body or by the eligible voters of any
jurisdiction, and any agreement, approval, consent, injunction, judgment,
license, order, or permit by or with any Governmental Body which Seller,
Subsidiary or Buyer is a party or by which Seller, Subsidiary or Buyer is
bound.
"ORDER" -- any award, injunction, judgment, order, ruling, subpoena,
or verdict or other decision entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Body or by any
arbitrator, specifically against Seller, Subsidiary or Buyer, as
applicable.
"ORGANIZATIONAL DOCUMENTS" -- (i) the articles or certificate of
incorporation and the bylaws of a corporation; (ii) any amendment to any
of the foregoing.
"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, or other entity
or Governmental Body.
"SECURITIES ACT" -- the Securities Act of 1933, 15 U.S.C. section
77a et seq., as amended, or any successor law.
"SHARED FACILITIES AGREEMENT" -- the Agreement by and between Buyer
and Seller as set forth hereto in the form of Exhibit A.
12. GENERAL PROVISIONS.
12.1 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given (a) when delivered by hand; (b) when sent by telecopier, provided that a
copy is mailed by U.S. certified mail, return receipt requested; (c) three (3)
days after sent by Certified U.S. Mail, return receipt requested; or (d) one day
after deposit with a nationally recognized overnight delivery service, in each
case to the appropriate addresses and telecopier numbers set forth below (or to
such other addresses and telecopier numbers as a party may designate by notice
to the other parties):
-11-
<PAGE>
BGI:
Bally's Grand, Inc.
3645 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attention: David Arrajj
Telecopy No.: (702) 739-4804
with a copy to:
Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
Attention: Alan J. Stone
Telecopy No.: (302) 658-3989
Seller:
Bally's Grand Property Sub I, Inc.
3645 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attention: David Arrajj
Telecopy No.: (702) 739-4804
with a copy to:
Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
Attention: Alan J. Stone
Telecopy No.: (302) 658-3989
Buyer:
Bally Entertainment Corporation
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
Attention: James S. Montana
Telecopy No.: (312) 399-0661
-12-
<PAGE>
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: Michael Wm. Zavis
Telecopy No.: (312) 902-1061
12.2 FURTHER ASSURANCES. To the extent consistent with the terms of this
Agreement, the parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of the
Contemplated Transactions.
12.3 WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. The
provisions of Section 7(a) hereof may not be waived.
12.4 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior oral or written agreements between the parties with respect to its subject
matter (including the letter of intent between Buyer and Seller dated June 18,
1996) and constitutes (along with the documents referred to in this Agreement) a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. This Agreement may not be amended
except by a written agreement executed by all of the parties hereto.
12.5 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties except that Buyer may assign any of its rights under this
Agreement to any subsidiary of Buyer. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement any legal or equitable right, remedy,
or claim under or with respect to this Agreement or any provision of this
Agreement.
12.6 SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
-13-
<PAGE>
12.7 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Sections" refer to the corresponding
Sections of this Agreement. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
12.8 GOVERNING LAW. This Agreement will be governed by and construed
under the laws of the State of Delaware without regard to conflicts of laws
principles.
12.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
12.10 NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction will be applied against any party.
IN WITNESS WHEREOF, the parties have executed this Stock Purchase
Agreement as of the date first written above.
BUYER: BGI:
BALLY ENTERTAINMENT CORPORATION BALLY'S GRAND, INC.
By: /s/ Lee S. Hillman By: /s/ Jack L. McDonald
Its: Executive V.P., C.F.O. & Treasurer Its: Authorized Representative
SELLER:
BALLY'S GRAND PROPERTY SUB I, INC.
By: /s/ David Arrajj
Its: Secretary
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 AND THE
CONSOLIDATED STATEMENT OF INCOME AND STOCKHOLDERS' EQUITY FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 110,062
<SECURITIES> 41,635
<RECEIVABLES> 21,431
<ALLOWANCES> 6,389
<INVENTORY> 3,021
<CURRENT-ASSETS> 181,095
<PP&E> 439,596
<DEPRECIATION> 64,333
<TOTAL-ASSETS> 573,198
<CURRENT-LIABILITIES> 60,261
<BONDS> 315,000
0
0
<COMMON> 106
<OTHER-SE> 112,812
<TOTAL-LIABILITY-AND-EQUITY> 573,198
<SALES> 0
<TOTAL-REVENUES> 233,701
<CGS> 0
<TOTAL-COSTS> 140,242 <F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 663 <F2>
<INTEREST-EXPENSE> 25,178
<INCOME-PRETAX> 22,569
<INCOME-TAX> 7,158
<INCOME-CONTINUING> 15,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,411
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 0
<FN>
<F1>THIS AMOUNT IS THE SUM OF CASINO, ROOMS, FOOD AND BEVERAGE, AND OTHER
OPERATING EXPENSES UNDER COSTS AND EXPENSES IN THE CONSOLIDATED STATEMENT
OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, LESS THE PROVISION
FOR DOUBTFUL RECEIVABLES INCLUDED THEREIN.
<F2>THIS AMOUNT IS INCLUDED IN CASINO AND ROOMS UNDER COSTS AND EXPENSES
IN THE CONSOLIDATED STATEMENT INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996.
</FN>
</TABLE>
