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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File Number: 1-2500
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BALLY'S GRAND, INC.
(Exact name of registrant as specified in its charter)
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Delaware 13-0980760
(State or other jurisdiction of incorporation) (I.R.S. employer identification no.)
3645 Las Vegas Boulevard South, Las Vegas, 89109
Nevada
(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code: (702) 739-4111
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
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 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___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_
The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant as of February 28, 1997 was approximately $47
million, based on the closing price of the registrant's common stock as reported
by the NASDAQ National Market System at that date. For purposes of this
computation, affiliates of the registrant include the registrant's executive
officers and directors and Hilton Hotels Corporation (including its wholly owned
subsidiaries). As of February 28, 1997, 8,529,075 shares of the registrant's
common stock were outstanding.
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PART I
Except as otherwise stated, the information contained in this Annual Report
is as of December 31, 1996, the end of the registrant's last fiscal year.
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
The registrant, Bally's Grand, Inc. (the "Company"), is incorporated in
Delaware and was a wholly owned subsidiary of Bally Entertainment Corporation
("BEC"), an operator of casinos and casino hotel resorts formerly known as Bally
Manufacturing Corporation, until the consummation of the Company's plan of
reorganization on August 20, 1993. Through purchases in the open market and in
privately negotiated transactions subsequent to the consummation of the
Company's reorganization, BEC reacquired a majority equity interest in the
Company. On December 18, 1996, BEC was merged with and into Hilton Hotels
Corporation ("Hilton"), an owner and operator of full service hotels and
hotel-casinos, pursuant to a merger agreement dated June 6, 1996, as amended
(the "Merger"). Pursuant to the merger agreement between BEC and Hilton, Hilton
issued 54,692,087 shares of its common stock (including 1,457,195 shares issued
to the Company) and 14,832,300 shares of Hilton Preferred Redeemable Increased
Dividend Equity Securities, 8% PRIDES, Convertible Preferred Stock to BEC's
shareholders as consideration. As a result of the Merger, Hilton owned
approximately 84% (78% on a fully diluted basis) of the outstanding common stock
of the Company as of December 31, 1996.
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.
REORGANIZATION
On October 3, 1991 (the "Petition Date"), following the Company's failure to
make scheduled interest payments on its then outstanding public debt securities,
a group of holders of such debt filed an involuntary bankruptcy petition against
the Company under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). An order for relief was entered against the Company in its
bankruptcy case on November 27, 1991. From that date and through August 20,
1993, the date the Company emerged from bankruptcy (the "Effective Date"), the
Company operated its business and managed its properties as a
debtor-in-possession under the authority of the Bankruptcy Code. On July 31,
1992, the Company sold its casino hotel resort formerly known as "Bally's Reno"
to Hilton. On September 15, 1992, the Bankruptcy Court confirmed the Company's
plan of reorganization under chapter 11 of the Bankruptcy Code (the "Chapter 11
Plan") and on the Effective Date, the Company completed its reorganization
pursuant to the Chapter 11 Plan and emerged from bankruptcy.
Pursuant to the Chapter 11 Plan, on the Effective Date, the Company (i)
issued $252.5 million aggregate principal amount of 12% First Mortgage Notes due
2001 (the "Prior Notes") after giving effect to the August 20, 1993 redemption
of $25.0 million principal amount of such Prior Notes at par value plus accrued
and unpaid interest from October 1, 1992 through the redemption date, (ii)
issued 10.0 million shares of common stock, par value $.01 per share (the
"Common Stock"), (iii) issued warrants to purchase 752,688 shares of Common
Stock (the "Warrants"), and (iv) distributed $53.0 million of cash plus net
interest earned thereon while such funds were held as restricted funds to its
former public debtholders in exchange for the claims they held against the
Company. In addition, in accordance with the Chapter 11 Plan, effective August
20, 1993, BEC's equity interest in the Company was cancelled and the Company's
intercompany payable to BEC was extinguished. On August 20, 1993, BEC and its
affiliates ceased allocating management and administrative expenses to the
Company and in accordance with the Chapter 11 Plan, the Company, BEC and Bally's
Grand Management Co., Inc. (the "Manager"), a Nevada corporation and an indirect
wholly owned subsidiary of BEC (Hilton after the merger), entered into a
management agreement (the "Management Agreement"). Pursuant to the Management
Agreement, the Manager provides management services to the Company and
BEC/Hilton licenses the use of the "Bally"
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name and certain computer software to the Company for a $3.0 million annual
management fee. Also on the Effective Date, in accordance with the Chapter 11
Plan, the Company established the Bally's Grand, Inc. 1993 Incentive Stock Plan
pursuant to which 600,000 shares of Common Stock were made available for award
to its officers.
BALLY'S LAS VEGAS
Bally's Las Vegas is situated on an approximately 30-acre site at the
well-known intersection of Las Vegas Boulevard South and Flamingo Road. Bally's
Las Vegas is located at the center of the "Golden Mile" of the Las Vegas "Strip"
and is within walking distance of many of the other major casino hotels situated
there, which management believes enhances its visibility and provides it with an
advantage in attracting hotel guest and convention business. In addition,
separate subsidiaries of Bally's Grand, Inc. own approximately 14 acres of land
situated adjacent to Bally's Las Vegas on which a parking lot used by Bally's
Las Vegas is located and 5 acres of land situated in North Las Vegas, Nevada on
which supporting facilities used by Bally's Las Vegas are located.
Bally's Las Vegas currently encompasses approximately 3.2 million square
feet of space in two high-rise hotel towers connected by a low-rise structure
and has approximately 65,100 square feet of gaming space. Bally's Las Vegas
features 1,816 slot machines, 82 table games, several keno areas and a race and
sports book room. In order to promote slot machine play, Bally's Las Vegas
emphasizes the configuration and location of its slot machine areas. In
addition, Bally's Las Vegas offers a full selection of table games including
baccarat, blackjack, craps, roulette, pai gow poker, caribbean stud poker, let
it ride and a big-six wheel.
Bally's Las Vegas has 2,814 guest rooms (including 237 suites) and one of
the largest casino hotel convention facilities in Las Vegas with approximately
175,000 square feet of meeting space. The complex also includes two
entertainment showrooms with a combined seating capacity of 2,500, five
restaurants, a coffee shop, a snack bar, a premium players' slot lounge, another
lounge with a bar, two other bars, a state-of-the-art health spa, a swimming
pool and cabana area with food and beverage service, eight tennis courts and a
retail shopping mall.
Bally's Las Vegas conducted an extensive capital improvement program over
the last several years. During 1994, Bally's Las Vegas completed improvements to
its frontage area along the Strip, including the addition of moving walkways
that transport patrons to and from the main entrance through gardens and water
displays. In June 1995, Bally's Las Vegas and MGM Grand jointly opened a new
monorail system, connecting the two major "Four Corners" on the Strip through
their respective properties. Renovation of the 800 hotel rooms in Bally's Las
Vegas' south tower was completed in August 1995, complementing the 1993
renovation of the approximately 2,000 hotel rooms in the main tower. In
addition, Bally's Las Vegas relocated and expanded its race and sports book room
and completed a slot machine upgrade in 1995 and 1996, respectively.
Convention business is a major marketing focus for Bally's Las Vegas, as it
provides the resort with mid-week occupancy and generally higher than standard
mid-week rates. Management believes that Bally's Las Vegas' convention meeting
space and substantial convention amenities and services make it one of the most
desirable convention forums in Las Vegas.
In addition to its focus on convention business, Bally's Las Vegas markets
to two distinct groups of customers identified as "consistent wagerers" in the
middle to upper-middle tier of the gaming market. The first group consists of
individuals traveling to Las Vegas from southern California and the southwestern
states by automobile and, to a lesser extent, by airplane. These individuals are
primarily weekend-oriented and represent a significant portion of Bally's Las
Vegas' customers. The second group consists of primarily mid-week oriented
individuals who tend to take advantage of travel "packages" offered by tour and
travel agents. Bally's Las Vegas' operating strategy is designed to attract and
retain these customer groups by capitalizing on the quality of its facilities
and providing its guests with a full range of resort amenities and personalized
services, emphasizing its "Touch of Class" motto. Management believes that the
spacious configuration of Bally's Las Vegas' casino and the size of its standard
hotel rooms, which are
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among the largest offered on the Strip, contribute to its upscale image and help
to attract these targeted customers.
Bally's Las Vegas' operations are conducted 24 hours a day every day of the
year. Business is somewhat seasonal, usually declining in the summer and
mid-winter months. Bally's Las Vegas employs approximately 4,000 persons in the
operation of its business and has collective bargaining contracts with unions
covering approximately 2,400 of these employees.
COMPETITION
Bally's Las Vegas competes principally with other casino hotels located in
Las Vegas, including the Flamingo Hilton-Las Vegas and the Las Vegas Hilton,
both wholly owned subsidiaries of Hilton. Currently, there are approximately
thirty-five major casino hotels located on or near the Strip, approximately ten
major casino hotels located in the Las Vegas downtown area and several major
facilities located elsewhere in the Las Vegas area. As a result of new
construction projects and certain expansions by casino hotels located on or near
the Strip, gaming space and hotel room capacity in Las Vegas have increased
significantly over the last several years. For example, two casino hotel resorts
opened in mid-1996 and another opened in early 1997 adding a total of
approximately 270,000 square feet of gaming space and 6,500 guest rooms to the
Las Vegas strip. In addition, there have been several public announcements
concerning major casino hotel projects in Las Vegas (including the Paris
Casino-Resort which is planned to be developed by Hilton next to Bally's Las
Vegas), certain of which have commenced construction. Management believes that
the additional gaming space 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 conducted the
aforementioned capital improvement program.
Management believes that the primary competition for Bally's Las Vegas comes
from other large casino hotels located on or near the Strip which offer
amenities and marketing programs that appeal to consistent wagerers in the
middle and upper-middle tier of the gaming market. Management also believes that
patrons distinguish among casino hotels in Las Vegas based on a number of
factors including, but not limited to, the location and physical design of the
casino and hotel accommodations, the extent and quality of personalized service
offered to guests and casino customers, the price and quality of rooms and food
and beverages, the number and quality of its restaurants, convention and other
public facilities, promotional allowances, the entertainment offered, the
variety of table games and slot machines, table limits, casino credit granted to
customers and parking availability. Management believes that Bally's Las Vegas'
central location and reputation as a first-class facility help it to compete in
the Las Vegas market.
Bally's Las Vegas also competes for gaming customers, to a lesser extent,
with casino hotel operations located in the Laughlin and Reno-Lake Tahoe areas
of Nevada, Atlantic City, New Jersey and elsewhere and with other forms of
legalized gaming. Management believes that the legalization of casino gaming in
various jurisdictions over the last several years and the opening of gaming
facilities operated by Native Americans have not, to date, had a material
adverse impact on Bally's Las Vegas' operations. Proposals have been made for
significant land-based casinos in a number of other jurisdictions and several
large metropolitan areas. Management believes that the adoption of legislation
approving casino gaming and the opening of significant gaming establishments in
any jurisdiction near Nevada could have a material adverse effect on Bally's Las
Vegas' operations.
OTHER
In April 1995, the Company entered into several agreements relating to the
prospective acquisition of an 85% equity interest in Excelsior/Chehalis, L.P.,
which presently manages the Lucky Eagle Casino in Rochester, Washington. In
connection therewith, the Company deposited $3 million to collateralize certain
indebtedness of the partnership and applied for the required gaming licenses and
regulatory approvals. In August 1995, the Company received the necessary license
from the Washington State Gambling Commission, but the acquisition remains
contingent upon the receipt of a license from the National Indian Gaming
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Commission, which is pending. The Company continues to explore opportunities
related to the development and management of gaming facilities on other Native
American lands; however, no definitive agreements have been signed to date.
Successful opportunities are contingent upon, among other things, the Company
receiving the required gaming licenses and regulatory approvals.
In August 1996, the Company sold Paris Casino Corp. (an indirect 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 $57.5 million ($17.5 million in cash and 1,457,195
shares of BEC common stock which were converted into 1,457,195 shares of Hilton
common stock in the Merger). 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.
REGULATION AND LICENSING
NEVADA GAMING REGULATIONS
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"), and (ii) various local ordinances
and regulations. The Company's gaming operations are subject to the licensing
and regulatory control of the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada Board") and the
Clark County Liquor and Gaming Licensing Board (the "Clark County Board"). The
Nevada Commission, the Nevada Board and the Clark County Board are collectively
referred to herein as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures 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 controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping 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
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
The Company is registered by the Nevada Commission as a publicly traded
corporation (a "Registered Corporation") and has been found suitable to own the
capital stock of Grand Resorts, Inc. ("GRI"), the wholly owned subsidiary of the
Company which operates the Bally's Las Vegas casino. GRI is required to be
licensed by the Nevada Gaming Authorities. The gaming license held by GRI
requires the payment of fees and taxes and is not transferable. GRI is also
licensed as a manufacturer and distributor of gaming devices. Such
manufacturer's and distributor's licenses are not transferable and require the
annual payment of fees. Hilton is also a Registered Corporation and has been
found suitable to acquire control of the Company. Bally's Casino Holdings, Inc.
("Casino Holdings"), an indirect wholly owned subsidiary of Hilton upon the
Merger, has been found suitable to own the capital stock of the Manager and
Bally's CHLV, Inc. ("BCHLV"), which has been registered by the Nevada Commission
as an intermediary company and has been found suitable to own more than 10% of
the voting securities of the Company. The Manager is licensed by the Nevada
Commission as a manager for the Company and such license is also not
transferable. GRI and the Manager are each a corporate licensee (individually a
"Corporate Licensee" and collectively, the "Corporate Licensees") under the
terms of the Nevada Act. As Registered Corporations, the Company and Hilton are
required periodically to submit detailed financial and operating reports to the
Nevada Commission and furnish any other information which the Nevada Commission
may require. No person may become a stockholder of or receive any percentage of
profits from the Corporate Licensees
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without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company, Hilton, Casino Holdings, BCHLV and the Corporate
Licensees have obtained from the Nevada Gaming Authorities the various
registrations, approvals, findings of suitability, permits and licenses required
in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, Hilton,
Casino Holdings or the Corporate Licensees 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 Corporate
Licensees 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 the Company, Hilton or Casino Holdings
who are actively and directly involved in gaming activities of the Corporate
Licensees may be required to be licensed or found suitable 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 costs of investigation. Changes in
licensed 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 having a
relationship with the Company, Hilton, Casino Holdings or the Corporate
Licensees, the companies involved would have to sever all relationships with
such person. In addition, the Nevada Commission may require the Company, Hilton,
Casino Holdings or the Corporate Licensees to terminate the employment of any
person who refuses to file appropriate applications. Determinations of
suitability or of questions pertaining to licensing are not subject to judicial
review in Nevada.
The Company, Hilton, Casino Holdings and the Corporate Licensees are
required to submit detailed financial and operating reports to the Nevada
Commission. Substantially all material loans, leases, sales of securities and
similar financing transactions by the Corporate Licensees must be reported to or
approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by a Corporate
Licensee, the gaming licenses it holds could be limited, conditioned, suspended
or revoked, subject to compliance with certain statutory and regulatory
procedures. In addition, the Corporate Licensees, the Company, Hilton, Casino
Holdings 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
Bally's Las Vegas casino and, under certain circumstances, earnings generated
during the supervisors' appointment (except for reasonable rental value of the
casino) 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
Company's gaming operations.
Any beneficial holder of the Company's or Hilton's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and be subject to a suitability determination as a
beneficial holder of such voting securities 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 30 days after the Chairman of the Nevada Board
mails a 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 the Registered Corporation's voting
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securities may apply to the Nevada Commission for a waiver of such finding of
suitability if such institutional investor holds the voting securities for
investment purposes only. An institutional investor shall not be deemed to hold
voting securities for investment purposes unless the voting securities were
acquired and are held in the ordinary course of business as an institutional
investor and not for the purpose of causing, directly or indirectly, the
election of a majority of the members of the board of directors of the
Registered Corporation, any change in the Registered Corporation's or its gaming
affiliates' corporate charter, bylaws, management, policies or operations, 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 of its securities. 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 30 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 beyond such period
of time as may be prescribed by the Nevada Commission may be guilty of a
criminal offense. The Company, Hilton and Casino Holdings would be subject to
disciplinary action if, after they receive notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company, Hilton,
Casino Holdings or the Corporate Licensees, they: (i) pay that person any
dividend or interest upon the voting securities of the Company or Hilton, (ii)
allow that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person, (iii) pay remuneration in any
form to that person for services rendered or otherwise, or (iv) fail to pursue
all lawful efforts to require such unsuitable person to relinquish that person's
voting securities including, if necessary, the immediate purchase of said voting
securities for cash at fair market value. Additionally, the Clark County Board
has the authority to approve all persons owning or controlling the stock of any
corporation controlling a Corporate Licensee.
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 has reason to believe that such ownership would otherwise be
inconsistent with the declared policies of the State of Nevada. 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.
The Company, Hilton and Casino Holdings are 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. The Company, Hilton and Casino
Holdings are also required to render maximum assistance in determining the
identity of the beneficial owner. The Nevada Commission has the power to require
the stock certificates of the Company, Hilton and Casino Holdings to bear a
legend indicating that the securities are subject to the Nevada Act. Although
Casino Holdings is subject to such requirement, the Nevada Commission has not
imposed such requirement on the Company or Hilton to date.
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None of the Company, Hilton nor Casino Holdings may make a public offering
of its securities without the prior approval of the Nevada Commission if the
securities or 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. On September 20, 1996, Hilton received approval to
make public offerings for a period of one year, subject to certain conditions
(the "Shelf Approval"). On November 21, 1996, the Nevada Commission issued a
revised Shelf Approval effective for a period of ten months to include approvals
relating to Hilton's acquiring control of BEC. The Shelf Approval may be
rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board and must be renewed
annually or bi-annually, as applicable. The Shelf Approval also applies to any
affiliated company wholly owned by Hilton (an "Affiliate") which is a publicly
traded corporation or would thereby become a publicly traded corporation
pursuant to a public offering. The Shelf Approval also includes approval for the
Manager to guarantee any security issued by, or to hypothecate its assets to
secure the payment or performance of any obligations evidenced by securities
issued by, Hilton or an Affiliate pursuant to a public offering under the Shelf
Approval. The Shelf Approval 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 offered.
Any representation to the contrary is unlawful.
Changes in control of the Company or Hilton through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby that person obtains control, 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 the Nevada
Commission in a variety of stringent standards prior to assuming control of such
Registered 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 Corporate Licensees, and Registered Corporations that are affiliated
with those operations, 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 Licensees 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 the Registered Corporation's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
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 gaming
licensees that hold a manufacturer's or distributor's license, such as GRI, also
pay certain fees and taxes to the State of Nevada.
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Any person who is licensed, required to be 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 investigation by
the Nevada Board of such Licensees' participation in such foreign gaming. The
revolving fund is subject to increase or decrease at the discretion of the
Nevada Commission. Thereafter, Licensees are required to comply with certain
reporting requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operations, fail to
conduct the foreign gaming operations in accordance with the standards of
honesty and integrity required of Nevada gaming operations, engage in activities
that are harmful to the State of Nevada or its ability to collect gaming taxes
and fees, or employ a person in the foreign operation who has been denied a
license or finding of suitability in Nevada on the grounds of personal
unsuitability.
NEVADA LIQUOR REGULATIONS
The sale of alcoholic beverages at Bally's Las Vegas is subject to
licensing, control and regulation by the Clark County Board. All licenses are
revocable and are not transferable. 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 Company and the Corporate Licensees.
FEDERAL REGISTRATION
The Company is required to make annual filings with the Attorney General of
the United States in connection with the operation of slot machines. All
requisite filings for the present year have been made.
ITEM 3. LEGAL PROCEEDINGS
Two derivative actions purportedly brought on behalf of the Company against
its directors and BEC, one commenced in October 1995 and the other in September
1996, were consolidated under the caption IN RE: BALLY'S GRAND DERIVATIVE
LITIGATION in the Court of Chancery of the State of Delaware, in and for 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 Common Stock pursuant
to the Incentive Stock Plan, purchases of 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 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 Common Stock by the Company and BEC, and (v) costs
and expenses including reasonable attorneys' fees. A third derivative action
purportedly brought on behalf of the Company against 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, in and for 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 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
8
<PAGE>
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
Common Stock based upon material inside information. This action has been
consolidated with the original consolidated action under the caption IN RE:
BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION. The defendants believe the
complaints are without merit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the last annual meeting of stockholders of the Company (held on February
3, 1997), the stockholders considered and voted on the following item:
Six persons nominated by the Board of Directors for election as directors to
serve until the next annual meeting of stockholders of the Company or until
their successors have been duly elected and qualified, along with the voting
results which resulted in each nominee being elected as a director, were as
follows:
<TABLE>
<CAPTION>
VOTES VOTES
NOMINEE CAST FOR WITHHELD
- --------------------------------------------------------- ---------- ---------
<S> <C> <C>
Arthur M. Goldberg....................................... 7,618,945 732,853
Jay Burnham.............................................. 7,618,945 732,853
J. Kenneth Looloian...................................... 7,618,945 732,853
Darrell A. Luery......................................... 7,618,945 732,853
Jack L. McDonald......................................... 7,618,945 732,853
Nicholas H. Politan, Jr.................................. 7,618,945 732,853
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the NASDAQ National Market System under the
symbol BGLV. The high and low quarterly sales prices of the Common Stock for the
past two years as reported by the NASDAQ National Market System are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995:
High.................................. 12 7/8 18 5/8 17 3/4 17
Low................................... 9 3/4 11 7/8 14 3/4 13 3/8
1996:
High.................................. 20 48 46 41 1/8
Low................................... 16 20 34 1/8 27 1/2
</TABLE>
The number of holders of record of the Common Stock and the Warrants at
February 28, 1997 were 81 and 6, respectively.
The Company did not pay any cash dividends on its pre-reorganization common
stock and has not paid any dividends on the Common Stock to date. Any decision
in the future by the Company's Board of Directors to pay dividends on the Common
Stock will depend upon, among other things, the Company's earnings and the
amount of cash legally available at the time for the payment of dividends.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
POST-REORGANIZATION PRE-REORGANIZATION
------------------------------------ ---------------------------
YEARS ENDED FOUR MONTHS EIGHT MONTHS
DECEMBER 31, ENDED ENDED YEAR ENDED
---------------------- DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1994 1993 1993 1992
------ ------ ------ ------------ ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues.................................. $313.8 $283.5 $271.9 $87.8 $173.9 $320.2
Operating income.......................... 62.5 42.3 40.3 13.1 28.8 45.0
Gain on sales of
marketable securities................... .3 .5 11.8 -- -- --
Interest expense.......................... 33.5 32.7 32.5 10.2 .9 --
Charge in lieu of interest expense........ -- -- -- -- 21.1 8.3
Reorganization credits.................... -- -- -- -- 109.2 6.0
Income before extraordinary items and
cumulative effect on prior years of
change in accounting for income taxes... 23.0 6.4 12.7 1.9 67.8 27.7
Income per share before extraordinary
items and cumulative effect on prior
years of change in accounting for income
taxes................................... 2.58 .72 1.29 .18 -- --
At December 31:
Total assets............................ 577.2 518.1 520.3 521.7 -- 426.7
Debt excluding prepetition liabilities
subject to compromise................. 315.0 315.0 315.0 315.0 -- --
Prepetition liabilities subject to
compromise............................ -- -- -- -- -- 489.7
Stockholders' equity (deficit).......... 118.6 77.3 77.8 81.0 -- (140.0)
</TABLE>
- ------------------------
Notes:
1. On August 20, 1993, the Company completed its reorganization pursuant to the
Chapter 11 Plan and emerged from bankruptcy. On August 31, 1993, the Company
implemented the recommended accounting for entities emerging from bankruptcy
in accordance with the applicable accounting principles for "fresh-start
reporting" as set forth in the American Institute of Certified Public
Accountants Statement of Position 90-7 on Financial Reporting by Entities in
Reorganization under the Bankruptcy Code ("SOP 90-7"). Accordingly, the
Company's post-reorganization selected financial data are not comparable
with the pre-reorganization selected financial data.
2. On July 31, 1992, the Company sold its casino hotel resort formerly known as
"Bally's Reno" to Hilton. Revenues and operating income of Bally's Reno for
the seven months ended July 31, 1992 were $72.4 million and $4.8 million,
respectively.
3. The Company discontinued accruing interest on its debt obligations as of the
Petition Date (October 3, 1991). Contractual interest not accrued was $40.4
million and $59.3 million for the eight months ended August 31, 1993 and the
year ended December 31, 1992, respectively. On the Effective Date (August
20, 1993), the Company issued $252.5 million principal amount of the Prior
Notes and began accruing interest thereon.
4. Pursuant to the Chapter 11 Plan, effective October 1, 1992, the Company
began accruing a charge in lieu of interest expense on the Prior Notes that
were issued by the Company on the Effective Date.
5. On the Petition Date, the Company classified all of its prepetition
liabilities as prepetition liabilities subject to compromise.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues for the year ended December 31, 1996 were $313.8 million compared
to $283.5 million for 1995, an increase of $30.3 million (11%). Casino revenues
for 1996 were $156.5 million compared to $137.5 million for 1995, an increase of
$19.0 million (14%). Table game revenues increased $10.0 million (15%) due to an
increase in the hold percentage from 14.3% in 1995 to 15.5% in 1996 and a 7%
increase in the drop (amount wagered). Slot revenues increased $7.0 million
(11%) due to a 27% increase in slot handle (volume) offset, in part, by a
decline in the win percentage from 6.1% in 1995 to 5.3% in 1996. Management
believes the increases in slot handle and table drop were primarily attributable
to additional walk-in business resulting from the June 1995 opening of the
monorail system connecting Bally's Las Vegas and MGM Grand and increased
marketing and promotional efforts.The decline in slot win percentage is a result
of the aggressive competition for slot patrons in the Las Vegas market.
Management believes that the slot win percentage will continue to be subject to
competitive pressure and may decline further. Other casino revenues increased
$2.0 million (31%) due to additional revenues generated by the relocated and
expanded race and sports book room, which opened in September 1995. Rooms
revenue increased $4.7 million (8%) due principally to a higher average room
rate. Food and beverage revenues increased $2.4 million (6%) due primarily to
increased convention business, and other revenues increased $4.2 million (9%)
due, in part, to increased entertainment revenues.
Operating income for the year ended December 31, 1996 was $62.5 million
compared to $42.3 million for 1995, an increase of $20.2 million (48%) as the
aforementioned 11% increase in revenues was offset, in part, by a 4% increase in
operating expenses. Casino operating expenses increased $5.2 million (7%) due
principally to increased promotional, special event and marketing costs and to
increased gaming taxes associated with higher casino revenues. In addition,
depreciation and amortization expense increased $2.0 million (8%) as a result of
the aforementioned capital improvement program.
COMPARISON OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues for the year ended December 31, 1995 were $283.5 million compared
to $271.9 million for 1994, an increase of $11.6 million (4%). Casino revenues
for 1995 were $137.5 million compared to $134.6 million for 1994, an increase of
$2.9 million (2%). Slot revenues increased $6.3 million (11%) due to a 13%
increase in slot handle offset, in part, by a decline in the win percentage from
6.2% in 1994 to 6.1% in 1995. Management believes the increase in the slot
handle was primarily attributable to an increase in walk-in business resulting
from the operation of the automated walkway system and related improvements
throughout all of 1995 compared to six months in 1994, the addition of the
monorail system in June 1995 and increased marketing and promotional efforts.
Table game revenues decreased $3.2 million (5%) due to a decline in the hold
percentage from 16.0% in 1994 to 14.3% in 1995 offset, in part, by a 6% increase
in the drop. Rooms revenue increased $1.0 million (2%) due primarily to a higher
average room rate. Food and beverage revenues increased $3.9 million (10%) due
primarily to increased convention business, and other revenues increased $3.8
million (9%) due, in part, to the Company operating two retail gift shops in
1995 which were operated by a third party in 1994.
Operating income for the year ended December 31, 1995 was $42.3 million
compared to $40.3 million for 1994, an increase of $2.0 million (5%) as the
aforementioned 4% increase in revenues was offset, in part, by a 4% increase in
operating expenses. Depreciation and amortization expense increased $3.3 million
(16%) as a result of the aforementioned capital improvement program, and casino
operating expenses increased $3.3 million (4%) due principally to increased
promotional and special event costs. In addition, other operating expenses
increased $2.2 million (5%) due, in part, to the cost of operating the
11
<PAGE>
aforementioned gift shops in 1995, costs associated with the operation of the
automated walkway system and related improvements throughout all of 1995
compared to six months in 1994 and the Company's 50% share of costs for the
monorail system for seven months in 1995.
GAIN ON SALES OF MARKETABLE SECURITIES
During the years ended December 31, 1996, 1995 and 1994, the Company sold
certain marketable securities which resulted in pre-tax gains totalling $.3
million, $.5 million and $11.8 million, respectively.
INTEREST EXPENSE
Interest expense for the years ended December 31, 1996, 1995 and 1994
totaled $33.5 million, $32.7 million and $32.5 million, respectively, and
represents interest on the Company's 10 3/8% First Mortgage Notes due 2003 (the
"Notes") and amortization of related deferred finance costs, net of capitalized
interest.
INCOME TAXES
For 1996, the effective rate of the provision for income taxes differed from
the U.S. statutory tax rate (35%) due principally to deductible compensation
associated with options to purchase BEC common stock and the elimination of a
valuation allowance no longer required. For 1995, the effective rate of the
provision for income taxes differed from the U.S. statutory tax rate (35%) due
principally to certain non-deductible expenses. For 1994, the effective rate of
the provision for income taxes equalled the U.S. statutory tax rate (35%). A
reconciliation of the provision for income taxes with amounts determined by
applying the U.S. statutory tax rate to income before income taxes is included
in Notes to consolidated financial statements--Income taxes.
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 $24
million at Bally's Las Vegas during 1997 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
its public indebtedness is approximately $32.7 million per annum) and the
aforementioned capital expenditure requirements during 1997 out of existing cash
balances and cash flow from operations.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements reflect the Company's current views with
respect to future events and financial performance, and are subject to certain
risks and uncertainties which could cause actual results to differ materially
from historical results or those anticipated. The words "believe," "expect,"
"anticipate" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which are based on information available and speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
12
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of independent public accountants................................................................... 14
Consolidated balance sheets................................................................................ 15
Consolidated statements of income.......................................................................... 16
Consolidated statements of stockholders' equity............................................................ 17
Consolidated statements of cash flows...................................................................... 18
Notes to consolidated financial statements................................................................. 20
</TABLE>
13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Bally's Grand, Inc.:
We have audited the accompanying consolidated balance sheet of Bally's
Grand, Inc. and subsidiaries (the "Company") as of December 31, 1996 and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended. 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. The financial statements of Bally's
Grand, Inc. as of December 31, 1995 and for each of the two years in the period
ended December 31, 1995 were audited by other auditors whose report dated
February 7, 1996, expressed an unqualified opinion on those financial
statements.
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 provides 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 Bally's Grand, Inc. and
subsidiaries as of December 31, 1996, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 16, 1997
14
<PAGE>
BALLY'S GRAND, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents....................................................................... $ 115,893 $ 64,750
Marketable securities, at fair value (Hilton Hotels Corporation common stock in 1996)...... 38,069 1,781
Receivables--
Casino and hotel, less allowances of $4,947 and $5,862................................... 15,007 11,474
Other.................................................................................... 2,399 1,179
--------- ---------
17,406 12,653
Income taxes receivable from Bally Entertainment Corporation............................... -- 88
Inventories................................................................................ 2,895 3,506
Deferred income taxes...................................................................... 7,128 6,678
Other current assets....................................................................... 3,804 3,135
--------- ---------
Total current assets................................................................... 185,195 92,591
Property and equipment, at cost:
Land....................................................................................... 39,684 66,216
Buildings and improvements................................................................. 316,273 308,606
Furniture, fixtures and equipment.......................................................... 87,183 79,356
Construction in progress................................................................... 2,714 3,273
--------- ---------
445,854 457,451
Accumulated depreciation................................................................... 70,440 48,010
--------- ---------
Net property and equipment............................................................. 375,414 409,441
Other assets................................................................................. 16,628 16,055
--------- ---------
$ 577,237 $ 518,087
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................... $ 13,170 $ 13,613
Income taxes payable to Hilton Hotels Corporation.......................................... 8,832 --
Accrued liabilities--
Payroll and benefit-related.............................................................. 15,114 13,624
Unredeemed chips and race and sports book-related........................................ 5,610 4,081
Other.................................................................................... 10,395 8,875
--------- ---------
Total current liabilities.............................................................. 53,121 40,193
Long-term debt............................................................................... 315,000 315,000
Deferred income taxes........................................................................ 88,464 84,838
Other long-term liabilities.................................................................. 2,070 761
Stockholders' equity:
Preferred stock, $1.00 par value; 10,000,000 shares authorized; none issued................ -- --
Common stock, $.01 par value; 40,000,000 shares authorized; 10,646,285
and 10,600,000 shares issued............................................................. 106 106
Additional paid-in capital................................................................. 102,543 82,408
Retained earnings.......................................................................... 41,268 20,116
Common stock in treasury, 2,159,506 and 2,159,506 shares at cost........................... (25,335) (25,335)
--------- ---------
Total stockholders' equity............................................................. 118,582 77,295
--------- ---------
$ 577,237 $ 518,087
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
15
<PAGE>
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Casino................................................................... $ 156,512 $ 137,493 $ 134,612
Rooms.................................................................... 64,373 59,631 58,593
Food and beverage........................................................ 43,892 41,500 37,587
Other.................................................................... 49,053 44,889 41,132
---------- ---------- ----------
313,830 283,513 271,924
Costs and expenses:
Casino................................................................... 83,169 77,972 74,689
Rooms.................................................................... 19,419 18,593 19,760
Food and beverage........................................................ 38,423 37,981 36,714
Other operating expenses................................................. 50,197 49,548 47,352
Selling, general and administrative...................................... 33,707 32,720 32,034
Depreciation and amortization............................................ 26,438 24,419 21,106
---------- ---------- ----------
251,353 241,233 231,655
---------- ---------- ----------
Operating income........................................................... 62,477 42,280 40,269
Gain on sales of marketable securities..................................... 278 461 11,806
Interest expense........................................................... (33,507) (32,654) (32,508)
---------- ---------- ----------
Income before income taxes................................................. 29,248 10,087 19,567
Provision for income taxes................................................. (6,231) (3,702) (6,850)
---------- ---------- ----------
Net income................................................................. $ 23,017 $ 6,385 $ 12,717
---------- ---------- ----------
---------- ---------- ----------
Net income per common and common equivalent share.......................... $ 2.58 $ .72 $ 1.29
---------- ---------- ----------
---------- ---------- ----------
Average common and common equivalent shares outstanding.................... 8,906,707 8,824,105 9,892,439
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
16
<PAGE>
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK ADDITIONAL COMMON
--------------------- COMMON PAID-IN RETAINED STOCK IN UNEARNED
ISSUED TREASURY STOCK CAPITAL EARNINGS TREASURY COMPENSATION
---------- --------- ------ ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993............. 10,600,000 8,000 $106 $ 82,408 $ 1,079 $ (101) $(2,458)
Net income............................. -- -- -- -- 12,717 -- --
Change in unrealized gain/loss on
available-for-sale securities........ -- -- -- -- 120 -- --
Purchases of common stock.............. -- 1,439,681 -- -- -- (17,080) --
Forfeitures of common stock for
incentive stock plan, net of
issuances............................ -- 29,800 -- -- -- (427) 427
Amortization of unearned
compensation......................... -- -- -- -- -- -- 995
---------- --------- ------ ---------- -------- --------- ------------
Balance at December 31, 1994............. 10,600,000 1,477,481 106 82,408 13,916 (17,608) (1,036)
Net income............................. -- -- -- -- 6,385 -- --
Change in unrealized gain/loss on
available-for-sale securities........ -- -- -- -- (185) -- --
Purchases of common stock.............. -- 676,900 -- -- -- (7,663) --
Forfeiture of common stock for
incentive stock plan................. -- 5,125 -- -- -- (64) 64
Amortization of unearned
compensation......................... -- -- -- -- -- -- 972
---------- --------- ------ ---------- -------- --------- ------------
Balance at December 31, 1995............. 10,600,000 2,159,506 106 82,408 20,116 (25,335) --
Net income............................. -- -- -- -- 23,017 -- --
Excess of sales price over historical
basis of subsidiary sold to Bally
Entertainment Corporation............ -- -- -- 19,672 -- -- --
Change in unrealized gain/loss on
available-for-sale securities........ -- -- -- -- (1,865) -- --
Exercise of warrants................... 46,285 -- -- 463 -- -- --
---------- --------- ------ ---------- -------- --------- ------------
Balance at December 31, 1996............. 10,646,285 2,159,506 $106 $102,543 $41,268 $ (25,335) $ --
---------- --------- ------ ---------- -------- --------- ------------
---------- --------- ------ ---------- -------- --------- ------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31, 1993............. $ 81,034
Net income............................. 12,717
Change in unrealized gain/loss on
available-for-sale securities........ 120
Purchases of common stock.............. (17,080)
Forfeitures of common stock for
incentive stock plan, net of
issuances............................ --
Amortization of unearned
compensation......................... 995
-------------
Balance at December 31, 1994............. 77,786
Net income............................. 6,385
Change in unrealized gain/loss on
available-for-sale securities........ (185)
Purchases of common stock.............. (7,663)
Forfeiture of common stock for
incentive stock plan................. --
Amortization of unearned
compensation......................... 972
-------------
Balance at December 31, 1995............. 77,295
Net income............................. 23,017
Excess of sales price over historical
basis of subsidiary sold to Bally
Entertainment Corporation............ 19,672
Change in unrealized gain/loss on
available-for-sale securities........ (1,865)
Exercise of warrants................... 463
-------------
Balance at December 31, 1996............. $118,582
-------------
-------------
</TABLE>
See accompanying notes.
17
<PAGE>
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING:
Net income.................................................................. $ 23,017 $ 6,385 $ 12,717
Adjustments to reconcile to cash provided--
Depreciation and amortization............................................. 26,438 24,419 21,106
Amortization included in interest expense................................. 938 937 939
Provision for doubtful receivables........................................ 2,086 2,002 3,149
Deferred income taxes..................................................... 1,973 3,056 6,850
Gain on sales of marketable securities.................................... (278) (461) (11,806)
Change in operating assets and liabilities................................ (403) (1,292) (4,641)
Other, net................................................................ 27 (1,075) (286)
---------- ---------- ----------
Cash provided by operating activities................................... 53,798 33,971 28,028
INVESTING:
Proceeds from sale of subsidiary to Bally Entertainment Corporation......... 17,500 -- --
Purchases and construction of property and equipment........................ (20,160) (44,502) (34,896)
Increase (decrease) in construction-related liabilities..................... (1,184) 1,117 73
Purchases of marketable securities.......................................... -- (19,979) (16,352)
Net proceeds from sales of marketable securities............................ 2,209 19,549 27,168
Advance to nonconsolidated venture.......................................... -- (3,000) --
Other, net.................................................................. (253) 492 63
---------- ---------- ----------
Cash used in investing activities....................................... (1,888) (46,323) (23,944)
FINANCING:
Debt transactions--
Debt issuance costs....................................................... -- -- (434)
---------- ---------- ----------
Cash used in debt transactions.......................................... -- -- (434)
Equity transactions--
Purchases of common stock for treasury.................................... (1,230) (9,257) (14,256)
Proceeds from exercise of warrants........................................ 463 -- --
---------- ---------- ----------
Cash used in financing activities....................................... (767) (9,257) (14,690)
---------- ---------- ----------
Increase (decrease) in cash and equivalents................................... 51,143 (21,609) (10,606)
Cash and equivalents, beginning of year....................................... 64,750 86,359 96,965
---------- ---------- ----------
Cash and equivalents, end of year............................................. $ 115,893 $ 64,750 $ 86,359
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
18
<PAGE>
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <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.................................................... $ (5,978) $ (1,895) $ (4,393)
(Increase) decrease in income taxes receivable from Bally Entertainment
Corporation.............................................................. 88 (88) --
(Increase) decrease in inventories, other current assets and other
assets................................................................... (294) (758) 1,097
Increase (decrease) in accounts payable, payable to brokers, accrued
liabilities and other long-term liabilities.............................. 6,373 1,449 (1,345)
Decrease in income taxes payable to Hilton Hotels Corporation.............. (592) -- --
--------- --------- ---------
$ (403) $ (1,292) $ (4,641)
--------- --------- ---------
--------- --------- ---------
Operating activities include cash payments for interest, income taxes and
reorganization items as follows:
Interest paid.............................................................. $ 32,716 $ 32,682 $ 31,592
Interest capitalized....................................................... (139) (888) (1,112)
Income taxes paid (net of refunds)......................................... 4,762 734 --
Reorganization items--
Payments for prepetition liabilities, professional fees and other
expenses............................................................... 168 325 2,178
Investing and financing activities exclude the following non-cash transactions:
Bally Entertainment Corporation common stock (subsequently converted into
Hilton Hotels Corporation common stock) received upon sale of subsidiary
to Bally Entertainment Corporation....................................... $ 40,000 $ -- $ --
Purchases of marketable securities on margin (including unsettled purchases
in 1994)................................................................. -- 4,153 21,620
Sales of margined marketable securities (including unsettled sales in
1994).................................................................... -- 9,185 16,764
Unsettled treasury stock purchases......................................... -- 1,230 2,824
Forfeitures of common stock for incentive stock plan, net of issuances..... -- (64) (427)
</TABLE>
See accompanying notes.
19
<PAGE>
BALLY'S GRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Bally's Grand, Inc. (the "Company"), is incorporated in Delaware and was a
wholly owned subsidiary of Bally Entertainment Corporation ("BEC"), an operator
of casinos and casino hotel resorts formerly known as Bally Manufacturing
Corporation, until the consummation of the Company's plan of reorganization on
August 20, 1993. Through purchases in the open market and in privately
negotiated transactions subsequent to the consummation of the Company's
reorganization, BEC reacquired a majority equity interest in the Company. On
December 18, 1996, BEC was merged with and into Hilton Hotels Corporation
("Hilton"), an owner and operator of full service hotels and hotel-casinos,
pursuant to a merger agreement dated June 6, 1996, as amended (the "Merger").
Pursuant to the merger agreement between BEC and Hilton, Hilton issued
54,692,087 shares of its common stock (including 1,457,195 shares issued to the
Company) and 14,832,300 shares of Hilton Preferred Redeemable Increased Dividend
Equity Securities, 8% PRIDES, Convertible Preferred Stock to BEC's shareholders
as consideration. As a result of the Merger, Hilton owned approximately 84% (78%
on a fully diluted basis) of the outstanding common stock of the Company as of
December 31, 1996.
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.
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. Unless otherwise specified in the text, references
to the Company include the Company and its subsidiaries.
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. In addition,
certain reclassifications have been made to prior years' financial statements to
conform with the 1996 presentation.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities consist of 1,457,195 shares of Hilton common stock at
December 31, 1996, and common stock and debt securities of other publicly traded
companies at December 31, 1995. These securities are considered
available-for-sale securities and are carried at fair value with the change in
unrealized gains or losses generally reported net of tax, as a credit or charge
to retained earnings. A summary of available-for-sale securities held is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Cost............................................................................... $ 40,000 $ 1,881
Gross unrealized gains............................................................. -- 240
Gross unrealized losses............................................................ 1,931 340
</TABLE>
20
<PAGE>
BALLY'S GRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The cost of securities sold is determined on the specific identification
method. Gross realized gains and losses on available-for-sale securities is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Gross realized gains.................................................... $ 870 $ 851 $ 11,884
Gross realized losses................................................... 592 390 78
</TABLE>
INVENTORIES
Inventories of provisions and supplies are stated at the lower of cost
(first-in, first-out basis) or market, which approximates replacement cost.
PROPERTY AND EQUIPMENT
Depreciation is provided on the straight-line method over the estimated
economic lives of the related assets. Depreciation expense for the years ended
December 31, 1996, 1995 and 1994 was $26,438, $23,447 and $20,111, respectively.
DEFERRED FINANCE COSTS
Deferred finance costs are amortized over the terms of the related debt
using the bonds outstanding method. Included in "Other assets" at December 31,
1996 and 1995 were deferred finance costs of $6,566 and $7,504, respectively,
net of accumulated amortization of $2,814 and $1,876, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments approximates their
recorded book values at December 31, 1996 and 1995, except for the Company's
long-term debt, the fair market value of which based on quoted market prices was
approximately $352,000 and $322,000 at December 31, 1996 and 1995, respectively.
The fair values are not necessarily indicative of the amounts the Company could
realize in a current market exchange.
REVENUE RECOGNITION
Casino revenues consist of the net win from gaming activities, which is the
difference between gaming wins and losses. Revenues exclude the retail value of
complimentary food, beverages and hotel services furnished to customers, which
were $33,880, $30,775 and $27,755 for the years ended December 31, 1996, 1995
and 1994, respectively. The estimated costs of providing such complimentary
services, which are classified as casino expenses through interdepartment
allocations from the departments granting the services, were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Rooms.................................................................. $ 5,688 $ 5,535 $ 5,135
Food and beverage...................................................... 11,819 10,785 10,788
Other.................................................................. 1,605 1,743 1,776
--------- --------- ---------
$ 19,112 $ 18,063 $ 17,699
--------- --------- ---------
--------- --------- ---------
</TABLE>
21
<PAGE>
BALLY'S GRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
INCOME TAXES
For the period from January 1, 1994 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. For
the period from March 22, 1995 to December 18, 1996, taxable income or loss of
the Company is included in the consolidated federal income tax return of BEC.
For periods subsequent to December 18, 1996, taxable income or loss of the
Company is included in the consolidated federal income tax return of Hilton.
Under a tax sharing arrangement between BEC (Hilton after the Merger) 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/Hilton 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/Hilton for tax benefits are due at the time
BEC/Hilton files the applicable consolidated federal income tax return.
CASINO LICENSING
In 1986, the Nevada Gaming Commission granted a casino license to the
Company's subsidiary that operates the Bally's Las Vegas casino. A Nevada casino
license is not transferable and requires the periodic payment of fees.
WARRANTS
At December 31, 1996, warrants (the "Warrants") to purchase 706,403 shares
of Common Stock at an exercise price of $10.00 per share were outstanding. The
Warrants are exercisable anytime through August 2000. The number of shares
issuable upon the exercise of the Warrants and the exercise price are subject to
adjustment to protect the Warrants against dilution.
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 year. Common stock equivalents, which
represent the dilutive effect of the assumed exercise of the Warrants, increased
the weighted average number of shares outstanding by 465,384 and 224,745 shares
in 1996 and 1995, respectively. The assumed exercise of the Warrants was not
applicable in 1994.
LONG-TERM DEBT
The Company's $315,000 principal amount of 10 3/8% First Mortgage Notes due
2003 (the "Notes") are not subject to any sinking fund requirement, but may be
redeemed beginning December 1998, in whole or in part, with premiums ranging
from 5.19% in 1998 to zero in 2001 and thereafter. The Notes are secured by a
first priority lien on the fee interests in the approximately thirty-acre site
comprising Bally's Las Vegas and by a security interest in certain personal
property of the Company, which together had a net book value of approximately
$363,971 at December 31, 1996.
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"). In
connection therewith, Hilton purchased $312,219 principal amount of the Notes in
December 1996 at a premium of 12.4% (10.4% for the Tender Offer and 2% for the
Consent Solicitation). Because Hilton received consents for at least a majority
of the principal amount of the Notes,
22
<PAGE>
BALLY'S GRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
certain restrictive covenants and events of default and related provisions
contained in the indenture governing the Notes were eliminated.
INCOME TAXES
The provision for income taxes applicable to income before income taxes
consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current (all federal)...................................................... $ 4,258 $ 646 $ --
Deferred (all federal)..................................................... 1,973 3,056 6,850
--------- --------- ---------
$ 6,231 $ 3,702 $ 6,850
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial accounting
and income tax purposes. Significant components of the Company's deferred tax
assets and liabilities, along with their classification, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Expenses which are not currently deductible for tax
purposes:
Bad debts............................................... $ 1,732 $ -- $ 3,118 $ --
Other................................................... 5,618 -- 4,429 --
Depreciation and capitalized costs.......................... -- 81,943 -- 82,988
Tax loss carryforwards...................................... -- -- 4,158 --
Basis difference of land.................................... -- -- 1,140 --
Other....................................................... -- 6,743 -- 6,877
--------- ----------- --------- -----------
7,350 $ 88,686 12,845 $ 89,865
----------- -----------
----------- -----------
Valuation allowance (related to basis difference of land)... -- (1,140)
--------- ---------
$ 7,350 $ 11,705
--------- ---------
--------- ---------
Current..................................................... $ 7,128 $ -- $ 6,678 $ --
Long-term................................................... 222 88,686 5,027 89,865
--------- ----------- --------- -----------
$ 7,350 $ 88,686 $ 11,705 $ 89,865
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
23
<PAGE>
BALLY'S GRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
A reconciliation of the provision for income taxes with amounts determined
by applying the U.S. statutory tax rate to income before income taxes is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Provision at U.S. statutory rate (35%).................................... $ 10,237 $ 3,530 $ 6,848
Compensation for income tax purposes associated with options to purchase
BEC common stock........................................................ (2,658) -- --
Elimination of valuation allowance no longer required..................... (1,140) -- --
Other, net................................................................ (208) 172 2
--------- --------- ---------
Provision for income taxes................................................ $ 6,231 $ 3,702 $ 6,850
--------- --------- ---------
--------- --------- ---------
</TABLE>
TRANSACTIONS WITH BEC/HILTON
In August 1996, the Company sold Paris Casino Corp. (an indirect 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 were converted into 1,457,195 shares of Hilton common
stock in the Merger). 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 owned approximately 85% of the outstanding
common stock of the Company at that time, 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.
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 (Hilton
after the Merger), entered into a management agreement (the "Management
Agreement") whereby the Manager provides management services to the Company and
BEC/Hilton licenses the use of the "Bally" name and certain computer software to
the Company for a $3,000 annual management fee. The initial term of the
Management Agreement is ten years. In addition, certain of the Company's
insurance coverage was obtained by BEC pursuant to corporate-wide programs and
BEC charged the Company its proportionate share of the respective insurance
premiums, which totalled $918, $1,173 and $1,118 for the years ended December
31, 1996, 1995 and 1994, respectively.
Certain officers and key employees of the Company participated in the 1989
Incentive Plan of BEC, pursuant to which BEC granted these individuals options
(generally becoming exercisable in three equal annual installments commencing
one year after the date of grant) to purchase BEC common stock at a price equal
to the fair market value of the stock at the date of each grant. In connection
with the Merger, all options to purchase BEC common stock outstanding on
December 18, 1996 were settled for an amount in cash equal to $28.425 per share
less the exercise price per share. The "option settlement price" was determined
based on a formula set forth in the agreement governing the Merger which was
related to the consideration received by BEC stockholders for each share of BEC
common stock they owned prior to the
24
<PAGE>
BALLY'S GRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
Merger. No expense has been recorded by the Company for financial accounting
purposes in connection with this plan.
RETIREMENT PLANS
The Company made payments of $3,341, $3,182 and $3,152 for the years ended
December 31, 1996, 1995 and 1994, respectively, under the terms of various
collective bargaining agreements with unions to provide pension benefits for
covered employees.
The Company has defined contribution plans that provide retirement benefits
for eligible non-union employees. Eligible employees may elect to participate by
contributing a percentage of their pre-tax earnings to the plans. Employee
contributions to the savings plans, up to certain limits, are matched in various
percentages by the Company. The Company's contribution expense related to these
plans totalled $1,641, $1,510 and $1,550 for the years ended December 31, 1996,
1995 and 1994, respectively.
STOCK PLAN
The Company issued 600,000 shares of Common Stock in 1993 under an incentive
stock award plan for the benefit of its officers (the "Incentive Stock Plan"),
which is administered by the Manager. The Incentive Stock Plan provides for the
grant of stock awards to participants for no cash consideration. As part of its
administrative functions, the Manager determines, among other things, the
persons who are to receive stock awards, the number of shares to be awarded and
the terms and conditions applicable to the awards. Of the 600,000 shares issued,
300,000 shares were awarded through an outright grant and 300,000 shares were
awarded subject to certain restrictions and forfeiture if the participant's
employment with the Company terminated before the restrictions lapsed
(forfeitures occurred in 1995, 1994 and 1993). The restrictions applicable to
these 300,000 shares lapsed as to approximately one-third of the shares awarded
on each of December 31, 1993, 1994 and 1995, and the Company acquired 76,900 and
180,175 of these shares at their fair market value during 1995 and 1994,
respectively. The fair value of restricted shares awarded was recorded as
unearned compensation and amortized to expense over the period the restrictions
lapsed. Pursuant to the Incentive Stock Plan, forfeited shares are available to
be awarded again. As of December 31, 1996, there were 42,925 shares of Common
Stock available for award under the Incentive Stock Plan.
LITIGATION
Two derivative actions purportedly brought on behalf of the Company against
its directors and BEC, one commenced in October 1995 and the other in September
1996, were consolidated under the caption IN RE: BALLY'S GRAND DERIVATIVE
LITIGATION in the Court of Chancery of the State of Delaware, in and for 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 Common Stock pursuant
to the Incentive Stock Plan, purchases of 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 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
25
<PAGE>
BALLY'S GRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
for purchases of Common Stock by the Company and BEC, and (v) costs and expenses
including reasonable attorneys' fees. A third derivative action purportedly
brought on behalf of the Company against 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, in and for 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 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 Common Stock based upon
material inside information. This action has been consolidated with the original
consolidated action under the caption IN RE: BALLY'S GRAND, INC. SHAREHOLDERS
LITIGATION. The defendants believe the complaints are without merit and,
although the outcome of litigation is sometimes difficult to predict, management
believes the resolution of said complaints will not have a material adverse
effect on the consolidated financial condition or results of operations of the
Company.
The Company is involved in various other claims and lawsuits incidental to
its business, including claims arising from accidents at its casino. In the
opinion of management, the Company is adequately insured against such claims and
lawsuits, and any ultimate liability arising out of such claims and lawsuits
will not have a material adverse effect on the consolidated financial condition
or results of operations of the Company.
26
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In connection with the Merger, the Manager recommended the Company engage
Arthur Andersen LLP (Hilton's independent auditors) so as to provide uniformity
in certifying public accountants. On December 31, 1996, after review by the
Audit Committee of the Company, the Board of Directors of the Company
unanimously approved the engagement of Arthur Andersen LLP as its independent
auditors for the fiscal year ending December 31, 1996 to replace the firm of
Ernst & Young LLP, who were dismissed as auditors of the Company on that date.
The reports of Ernst & Young LLP on the Company's financial statements for
each of the two fiscal years ended December 31, 1995 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles. In connection with the
audits of the Company's financial statements for each of the two fiscal years
ended December 31, 1995 and in the subsequent interim period, there were no
disagreements with Ernst & Young LLP on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of Ernst & Young LLP, would have
caused Ernst & Young LLP to make reference to the matter in their report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to the persons who are
members of the Board of Directors or executive officers of the Company at
December 31, 1996. None of the directors or executive officers listed below is
related to any other such director or executive officer.
DIRECTORS OF THE REGISTRANT
Arthur M. Goldberg was elected Chairman of the Board of Directors of the
Company in August 1992 and has been its Chief Executive Officer since September
1992. Mr. Goldberg was President of the Company from August 1992 through May
1994. Mr. Goldberg has served as Chairman of the Board of Directors, President,
Chief Executive Officer and Secretary of the Manager since September 1992;
Chairman of the Board of Directors and Chief Executive Officer of BEC between
October 1990 and December 1996; President of BEC between January 1993 and
December 1996; and Chairman of the Board of Directors, President and Chief
Executive Officer of Casino Holdings since June 1993. In addition, Mr. Goldberg
serves as Executive Vice President, President-Gaming Division and a director of
Hilton; Chairman of the Board of Directors and Chief Executive Officer of GNOC,
CORP. and Bally's Park Place, Inc. (both of which are subsidiaries of Hilton);
Chairman of the Board of Directors of Bally Total Fitness Holding Corporation;
as well as Chairman of the Board of Directors, President and Chief Executive
Officer of Di Giorgio Corporation and a director of White Rose Foods, Inc. (food
distributors) since February 1990. Mr. Goldberg is also a director of First
Union Corporation (a financial services company) and Managing Partner of Arveron
Investments, L.P. (an investment partnership). Mr. Goldberg is 55 years of age.
Jay Burnham was elected a director of the Company in August 1993. Mr.
Burnham has been a Vice President of DDJ Capital Management, LLC (a diversified
investment management firm) since March 1996. From January 1995 until March
1996, Mr. Burnham served as an investment advisor with Libra Investments (a
diversified investment management firm). From June 1990 until he joined Libra
Investments, Mr. Burnham performed investment analyst management for Paul D.
Sonz Partners (a diversified investment management firm). Mr. Burnham is also a
director of Live Entertainment, Inc. (a distributor of motion pictures and home
videos). Mr. Burnham is 34 years of age.
27
<PAGE>
J. Kenneth Looloian was elected a director of the Company in October 1995.
Mr. Looloian is an Executive Vice President of Di Giorgio Corporation, a former
partner in Arveron Investments, L.P. and a former Executive Vice President of
International Controls Corporation. Mr. Looloian is also a director of Bally
Total Fitness Holding Corporation, Casino Holdings, Bally's Park Place, Inc. and
GNOC, CORP. Mr. Looloian is 74 years of age.
Darrell A. Luery was elected a director of the Company in October 1995. Mr.
Luery has been President of the Company since May 1994 and its Chief Operating
Officer since September 1992. Mr. Luery served as Senior Vice President of the
Company from August 1989 through May 1994. Mr. Luery has served as President and
Chief Operating Officer of Grand Resorts, Inc. since July 1990 and Senior Vice
President and Chief Operating Officer of Grand Reservation Services, Inc. since
July 1990. Mr. Luery is also a director of American Bank of Commerce. Mr. Luery
is 56 years of age.
Jack L. McDonald was elected a director of the Company in August 1993. Mr.
McDonald has served as a director of Amre, Inc. (a home improvements company)
since April 1992, a director of Triangle Pacific Inc. (a wood products company)
since June 1992, a director of U.S. Homes, Inc. (a home building company) since
June 1993 and a director of American Homestar Corporation (a mobile home
manufacturer) since October 1994. Mr. McDonald is 63 years of age.
Nicholas H. Politan, Jr. was elected a director of the Company in October
1995. Mr. Politan has been Chief Financial Officer of Kenetech Corp. (a
developer of energy systems) since April 1996. From April 1995 until March 1996,
Mr. Politan served as Vice President of Kenetech Energy Systems, Inc. and from
October 1992 until April 1995, Mr. Politan was Counsel for Kenetech Energy
Systems, Inc. From September 1986 until he joined Kenetech Energy Systems, Inc.,
Mr. Politan was an attorney with Heller, Ehrman, White and McAuliffe (a law
firm). Mr. Politan is a Vice President of Kenetech Windpower, Inc., a
wholly-owned subsidiary of Kenetech Corp. which filed for protection under
Chapter 11 of the United States Bankruptcy Code in May 1996. Mr. Politan is 35
years of age.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Arthur M. Goldberg and Darrell A. Luery,
executive officers who are also directors of the Company, is set forth above.
Certain information with respect to other executive officers of the Company at
December 31, 1996 is as follows:
David Arrajj was elected Vice President, General Counsel of the Company in
March 1995. From May 1988 to February 1995, Mr. Arrajj served as a Deputy
Attorney General with the New Jersey Division of Gaming Enforcement. Mr. Arrajj
is 49 years of age.
Jerry A. Blumenshine was elected Vice President and Chief Financial Officer
of the Company in September 1992 and served in that capacity until January 17,
1997, when Mr. Blumenshine's employment with the Company terminated. From August
1987 to September 1992, Mr. Blumenshine served as Vice President-Finance of the
Company. Mr. Blumenshine is 57 years of age.
William D. Harrold was elected Executive Vice President of the Company in
July 1995. From August 1992 to July 1995, Mr. Harrold served as Senior Vice
President-Marketing of the Company and from April 1990 to August 1992, he served
as its Vice President-Customer Development. Mr. Harrold is 52 years of age.
Lee S. Hillman was elected Vice President-Administration of the Company in
August 1993 and served in that capacity until February 3, 1997, when Mr.
Hillman's employment with the Company terminated. Mr. Hillman served as
Executive Vice President, Treasurer and Chief Financial Officer of the Manager
between September 1992 and January 1997; Chief Financial Officer and Treasurer
of BEC between November 1991 and December 1996; Executive Vice President of BEC
between August 1992 and December 1996; and Executive Vice President, Chief
Financial Officer and a director of Casino Holdings between June 1993 and
January 1997. In addition, Mr. Hillman is President, Chief Executive Officer and
a
28
<PAGE>
director of Bally Total Fitness Holding Corporation. From October 1989 to April
1991, Mr. Hillman served as a partner with the accounting firm of Ernst & Young
LLP. Mr. Hillman is 41 years of age.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company is required to identify any director or executive officer who
failed to file, on a timely basis, with the Securities and Exchange Commission
(the "Commission") a required report relating to ownership and changes in
ownership of the Company's equity securities. The Company believes that during
1996, the directors and executive officers of the Company complied with all such
filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for each of the years indicated, the
compensation paid by the Company to its Chief Executive Officer during 1996, the
four other most highly compensated executive officers of the Company as of
December 31, 1996 and the Company's former Senior Vice President-Hotel
Operations and Vice President-Human Resources (collectively, the "Named
Executive Officers"). During these years, the Named Executive Officers were
compensated in accordance with the plans and policies of the Company.
29
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- ---------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) (1) OPTIONS (#) (2) ($)
- ----------------------------------- --------- ----------- ----------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Arthur M. Goldberg(3) 1996 -- -- -- -- --
Chairman of the Board of 1995 -- -- -- -- --
Directors and Chief 1994 -- -- -- -- --
Executive Officer
Darrell A. Luery 1996 567,000 300,000 -- -- 76,513(4)
President and Chief 1995 558,000 283,500 -- 25,000 67,468
Operating Officer 1994 540,000 270,000 -- 75,000 39,351
William D. Harrold 1996 246,154 150,000 -- -- 42,699(5)
Executive Vice President 1995 217,885 103,500 -- 8,250 26,505
1994 186,250 75,000 -- 25,000 19,620
David Arrajj(6) 1996 128,173 73,000 -- -- 19,514(7)
Vice President, General 1995 108,173 23,000 79,936(8) -- 1,153
Counsel 1994 -- -- -- -- --
Jerry A. Blumenshine(9) 1996 140,000 56,000 -- -- 24,125(10)
Former Vice President and 1995 184,231 56,000 -- 7,500 26,082
Chief Financial Officer 1994 183,654 75,000 -- 25,000 22,909
Paul Contesse(11) 1996 238,846 -- -- -- 29,138(12)
Former Senior Vice 1995 198,077 80,000 -- 8,250 27,294
President--Hotel Operations 1994 187,115 75,000 -- 25,000 22,565
Robert A. Ostrovsky(13) 1996 225,986 -- -- -- 22,850(14)
Former Vice President-- 1995 175,000 60,000 -- 7,500 20,394
Human Resources 1994 160,000 75,000 -- 25,000 20,024
</TABLE>
- ------------------------
(1) Certain incidental personal benefits to executive officers of the Company
may result from expenses incurred by the Company in the interest of
attracting and retaining qualified personnel. These incidental personal
benefits made available to executive officers during 1996 are not described
herein because the incremental cost to the Company of such benefits is below
the Commission disclosure threshold.
(2) Such amounts represent the number of shares of BEC common stock underlying
options granted by BEC to each named executive officer.
(3) Mr. Goldberg was the Chairman of the Board of Directors, President and Chief
Executive Officer of BEC until December 18, 1996. For serving in such
capacities, Mr. Goldberg received from BEC in 1996, 1995 and 1994 aggregate
compensation of $18,698,463, $6,203,812 and $3,530,285, respectively. Mr.
Goldberg was also awarded non-qualified options to purchase 550,000 and
150,000 shares of BEC common stock during 1995 and 1994 respectively. Mr.
Goldberg became Executive Vice President, President-Gaming Division and a
director of Hilton effective December 19, 1996. For serving in such
capacities, Mr. Goldberg received from Hilton in 1996 aggregate compensation
of $23,077 and an award of non-qualified options to purchase 600,000 shares
of Hilton common stock. BEC and Hilton did not allocate the amount of any
compensation paid to Mr. Goldberg as being compensation paid to Mr. Goldberg
for services rendered to the Company. In connection with the services
provided to the Company by the Manager under the Management Agreement,
including the services of Mr. Goldberg,
30
<PAGE>
the Company pays the Manager an annual management fee of $3,000,000. See
"Certain Relationships and Related Transactions--Transactions with
BEC/Hilton and Affiliates".
(4) This total includes (i) $5,225 paid to the Company's 401(k) plan and (ii)
$71,288 matched by the Company for Mr. Luery's participation in the BEC
Management Retirement Savings Plan (the "Savings Plan"). See "Executive
Compensation--Retirement Savings Plans."
(5) This total includes (i) $5,225 paid to the Company's 401(k) plan and (ii)
$37,474 matched by the Company for Mr. Harrold's participation in the
Savings Plan.
(6) Mr. Arrajj's employment with the Company commenced on February 13, 1995.
(7) This total includes (i) $4,426 paid to the Company's 401(k) plan and (ii)
$15,088 matched by the Company for Mr. Arrajj's participation in the Savings
Plan.
(8) This total represents the amount paid by the Company for costs associated
with Mr. Arrajj's relocation to Las Vegas, Nevada.
(9) Mr. Blumenshine's employment with the Company terminated on January 17,
1997.
(10) This total includes (i) $5,225 paid to the Company's 401(k) plan and (ii)
$18,900 matched by the Company for Mr. Blumenshine's participation in the
Savings Plan.
(11) Mr. Contesse's employment with the Company terminated on June 3, 1996.
(12) This total includes (i) $5,225 paid to the Company's 401(k) plan and (ii)
$23,913 matched by the Company for Mr. Contesse's participation in the
Savings Plan.
(13) Mr. Ostrovsky's employment with the Company terminated on December 31,
1996.
(14) This total includes (i) $5,225 paid to the Company's 401(k) plan and (ii)
$17,625 matched by the Company for Mr. Ostrovsky's participation in the
Savings Plan.
31
<PAGE>
STOCK OPTION AND SAR GRANTS
There were no grants during 1996 of stock options or SARs by BEC or Hilton
to any of the Named Executive Officers other than to Arthur M. Goldberg. Mr.
Goldberg became Executive Vice President, President-Gaming Division and a
director of Hilton effective December 19, 1996. For serving in such capacities,
in December 1996 Hilton granted Mr. Goldberg options to purchase 600,000 shares
of Hilton common stock at an exercise price of $26.5625 per share, which options
expire on December 19, 2001. The aggregate potential realizable value of such
options at assumed annualized rates of stock price appreciation of 5% and 10%
for the option term is $20,340,000 and $25,668,000, respectively. The potential
realizable values represent future opportunity at December 31, 1996 and have not
been reduced to present value in 1996 dollars. These dollar amounts are the
result of calculations at assumed rates set by the Commission for illustration
purposes. These rates are not intended to be a forecast of Hilton's common stock
price and are not necessarily indicative of the values that may be realized by
Mr. Goldberg. The potential realizable values are based on arbitrarily assumed
annualized rates of stock price appreciation of 5% and 10% over the full 5 year
term of the options. For example, in order for Mr. Goldberg to realize the
potential values set forth using the stock price appreciation of 5% and 10%, the
price per share of Hilton's common stock would have to be approximately $33.90
and $42.78, respectively.
STOCK OPTION AND SAR EXERCISES
The following table sets forth certain information concerning exercises of
BEC/Hilton stock options and SARs during 1996 by each of the Named Executive
Officers and their stock options and SARs outstanding as of December 31, 1996.
AGGREGATED BEC/HILTON OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SHARES SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNEXERCISED IN-THE-MONEY
EXERCISE RECEIVED OPTIONS/SARS AT OPTIONS/SARS AT
NAME (#) ($) FISCAL YEAR-END(#) FISCAL YEAR-END($)
- ------------------------------------------ ----------- -------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
Arthur M. Goldberg(2)..................... -- -- -- --
Darrell A. Luery.......................... -- 3,007,500(3) -- --
William D. Harrold........................ -- 1,043,969(3) -- --
David Arrajj.............................. -- -- -- --
Jerry A. Blumenshine...................... 8,334 46,546(4) -- --
-- 953,688(3) -- --
Paul Contesse............................. 23,334 447,968(4) -- --
Robert A. Ostrovsky....................... 18,334 272,260(4) -- --
-- 578,207(3) -- --
</TABLE>
- ------------------------
(1) In connection with the Merger, all options to purchase BEC common stock and
SARs outstanding on December 18, 1996 were settled for an amount in cash
equal to $28.425 per share less the exercise price per share. The "option
settlement price" was determined based on a formula set forth in the
agreement governing the Merger which was related to the consideration
received by BEC stockholders for each share of BEC common stock they owned
prior to the Merger.
(2) In 1997, Mr. Goldberg is to receive $65,925,000 relating to the settlement
of his options to purchase BEC common stock and SARs outstanding on December
18, 1996 as described in (1) above. In addition, Mr. Goldberg had options to
purchase 600,000 shares of Hilton common stock at December 31, 1996, all of
which are exercisable. These option shares are valued at zero based on the
$26.25 closing price per share of Hilton common stock as of December 31,
1996 minus the exercise price.
32
<PAGE>
(3) Value based on the amount received relating to the settlement of his options
to purchase BEC common stock outstanding on December 18, 1996 as described
in (1) above.
(4) Value based on the closing price of BEC common stock as of the exercise date
minus the exercise
price.
COMPENSATION OF DIRECTORS
Each director who is not an officer of the Company receives $20,000 per
year, payable quarterly, as compensation for his service in such capacity and a
$500 fee for each meeting attended, including meetings of any committees.
Directors who are officers of the Company do not receive additional compensation
for service as directors. In addition, the Company made payments to the members
of the independent Special Committee of the Board of Directors constituted in
connection with the approval of the sale of certain property to BEC. See
"Certain Relationships and Related Transactions -- Transactions with BEC/Hilton
and Affiliates". The Chairman of the Special Committee, Mr. McDonald, received
$35,000. The other members of the Special Committee, Messrs. Politan and
Burnham, each received $15,000.
EMPLOYMENT ARRANGEMENTS
LUERY EMPLOYMENT AGREEMENT
The Company and Mr. Luery entered into an employment agreement dated June 5,
1995 for a term expiring April 30, 1998. The agreement provides for the payment
of an annual base salary, subject to periodic review by the Manager, plus
bonuses, payable at the discretion of the Manager. As of February 28, 1997, Mr.
Luery's annual base salary is $567,000. In the event that Mr. Luery voluntarily
terminates the agreement or his employment is terminated by the Company for
"cause", Mr. Luery will be subject to certain non-competition covenants for a
period of one year following the termination of his employment. In the event a
change in control of the Company occurs and Mr. Luery is asked to leave the
employ of the Company, or, absent cause, Mr. Luery elects to terminate his
employment because he has been constructively terminated, Mr. Luery will be
entitled to receive a lump sum payment equal to the full amount of his
then-current base salary for the remainder of the term of his agreement or
twenty-four (24) months, whichever is greater, and the greater of the average of
the bonuses, if any, paid to Mr. Luery for the three (3) previous years or the
bonus paid to Mr. Luery for the prior year, if any. If a change in control of
the Company occurred on February 28, 1997 and Mr. Luery were asked to leave the
employ of the Company or, absent cause, constructively terminated, he would be
entitled to a payment of approximately $1,434,000 under his agreement.
Additionally, if a change in control occurred on February 28, 1997, Mr. Luery
could elect, at his option, to terminate the employment agreement and receive a
lump sum of six (6) months salary or $283,500.
HARROLD EMPLOYMENT AGREEMENT
The Company and Mr. Harrold entered into an employment agreement dated July
10, 1995 for a term expiring June 30, 1998. The agreement provides for the
payment of an annual base salary, subject to periodic review by the Manager,
plus bonuses, payable at the discretion of the Manager. As of February 28, 1997,
Mr. Harrold's annual base salary is $260,000. In the event that Mr. Harrold
voluntarily terminates the agreement or his employment is terminated by the
Company for "cause", Mr. Harrold will be subject to certain non-competition
covenants for a period of one year following the termination of his employment.
In the event a change in control of the Company occurs and Mr. Harrold is asked
to leave the employ of the Company, or, absent cause, Mr. Harrold elects to
terminate his employment because he has been constructively terminated, Mr.
Harrold will be entitled to receive a lump sum payment equal to the full amount
of his then-current base salary for the remainder of the term of his agreement
or twenty-four (24) months, whichever is greater, and the greater of the average
of the bonuses, if any, paid to Mr. Harrold for the three (3) previous years or
the bonus paid to Mr. Harrold for the prior year, if any. If a
33
<PAGE>
change in control of the Company occurred on February 28, 1997 and Mr. Harrold
were asked to leave the employ of the Company or, absent cause, constructively
terminated, he would be entitled to payment of approximately $670,000 under his
agreement.
RETIREMENT SAVINGS PLANS
The Savings Plan, adopted by BEC on September 7, 1994, is a deferred
compensation plan designed to permit a select group of management or highly
compensated employees to enhance the security of themselves and their
beneficiaries following retirement or other termination of their employment. The
Savings Plan is intended to be an "employee pension benefit plan" under the
Employee Retirement Income Security Act of 1974, as amended, and is unfunded and
maintained by BEC (Hilton after the Merger). The Savings Plan is not intended to
be qualified under the Internal Revenue Code of 1986, as amended. The Board of
Directors of BEC, in its sole discretion, designated those members of management
or highly compensated employees who were eligible to participate in the Savings
Plan.
During 1996, the Company provided a matching contribution of 50% of the
first 15% of eligible compensation the participant deferred and 0% thereafter.
Matching contributions are credited to a participant's matching account and
become vested as follows: after one but less than two Years of Deferral they
become 33 1/3% vested, after two but less than three Years of Deferral they
become 66 2/3% vested, and after more than three Years of Deferral they become
fully vested. For this purpose, a "Year of Deferral" is credited with respect to
a matching contribution for each completed calendar year commencing after the
calendar year for which the matching contribution was made. A participant
generally may elect to receive his benefits under the Savings Plan in a lump sum
or in installments over a period of no more than ten years. For 1996, the
Company will contribute $298,232 to the accounts of participants in the Savings
Plan, of which $184,288 is allocated to the accounts of all executive officers
as a group. Named Executive Officers receiving allocations are as follows: Mr.
Luery $71,288, Mr. Harrold $37,474, Mr. Arrajj $15,088, Mr. Blumenshine $18,900,
Mr. Contesse $23,913 and Mr. Ostrovsky $17,625.
Effective January 1, 1997, the Company adopted the Executive Deferred
Compensation Plan ("Deferred Compensation Plan") which replaced the Savings
Plan. Under the Deferred Compensation Plan, employees may elect to defer
compensation which otherwise would have been paid to them. Executives eligible
to participate in the Deferred Compensation Plan may, based on their age, defer
25% to 100% of their compensation. Deferred Compensation Plan participants are
eligible to receive a matching contribution of 50% of the first 10% of the
executive's deferred compensation.
INCENTIVE STOCK PLAN
In accordance with the Chapter 11 Plan, on August 20, 1993, the Company
established the Bally's Grand, Inc. 1993 Incentive Stock Plan, pursuant to which
600,000 shares of its Common Stock were made available for award to its officers
actively involved in its management or operations (the "Incentive Stock Plan").
The Incentive Stock Plan generally provides for grants of stock awards to
participants for no cash consideration which may or may not be subject to
restrictions.
Pursuant to the Chapter 11 Plan and the Management Agreement, the Manager is
responsible for the administration of the Incentive Stock Plan and has
authority, in its sole discretion, to determine which officers of the Company
will participate in the Incentive Stock Plan, any individual or corporate
performance goals applicable to a participant, which participants will be
awarded shares, the date on which awards will be made, the number of shares to
be awarded, if any, and all other terms of the awards, which need not be the
same for all participants. Subject to the express provisions of the Incentive
Stock Plan, the Manager also has the authority, in its sole discretion, to
construe, amend and rescind the rules and regulations relating to the Incentive
Stock Plan, and to make all other determinations necessary or advisable for
administering the Incentive Stock Plan.
34
<PAGE>
Pursuant to the Incentive Stock Plan, forfeited shares are available to be
awarded again. As of February 28, 1997, 42,925 shares of Common Stock were
available for award under the Incentive Stock Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the ownership of the
Company's Common Stock and common stock of Hilton as of February 28, 1997 by (i)
each director and each Named Executive Officer, (ii) directors and executive
officers of the Company as a group, and (iii) beneficial owners known to the
Company of more than five percent of the outstanding shares of Common Stock.
Information concerning beneficial owners of more than five percent of the
outstanding shares of Hilton common stock was provided by Hilton.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF PERCENT OF BENEFICIAL OWNERSHIP OF PERCENT OF
NAME OF BENEFICIAL OWNER COMMON STOCK CLASS(1) HILTON COMMON STOCK CLASS(1)
- -------------------------------------- ------------------------ ------------- ------------------------ -----------
<S> <C> <C> <C> <C>
Arthur M. Goldberg(2)................. -- -- 2,904,738 1.2%
Jay Burnham........................... -- -- -- --
J. Kenneth Looloian................... -- -- 10,000 *
Darrell A. Luery...................... -- -- -- --
Jack L. McDonald...................... -- -- -- --
Nicholas H. Politan, Jr............... -- -- -- --
David Arrajj.......................... -- -- -- --
Jerry A. Blumenshine(3)............... -- -- -- --
Paul Contesse(3)...................... -- -- -- --
William D. Harrold.................... 266 * 100 *
Robert A. Ostrovsky(3)................ -- -- -- --
Directors and executive officers as a
group (12 persons).................. 266 * 2,914,838 1.2%
BEA Associates(4)..................... 619,899 7.3% -- --
Hilton Hotels Corporation(5).......... 7,153,238 83.9% -- --
Barron Hilton(6)(7)................... -- -- 46,955,756 18.8%
Conrad N. Hilton Fund(7).............. -- -- 16,498,736 6.6%
FMR Corp.(8).......................... -- -- 16,453,491 6.6%
The Prudential Insurance Company of
America(9).......................... -- -- 13,789,787 5.5%
</TABLE>
- ------------------------
* Less than 1%
(1) Calculated on the basis of applicable rules of the Commission, which require
for purposes of calculating beneficial ownership that presently exercisable
warrants or options to acquire shares of Common Stock and Hilton common
stock (which include options that become exercisable within 60 days) held by
the person for whom the calculation is made to be treated as outstanding
shares.
35
<PAGE>
(2) Includes options to acquire 600,000 shares of Hilton common stock which Mr.
Goldberg has the right to exercise.
(3) Employment of Mr. Blumenshine, Mr. Contesse and Mr. Ostrovsky by the Company
terminated on January 17, 1997, June 3, 1996 and December 31, 1996,
respectively. Based on records available to the Company, it believes they
own no shares of Common Stock and no shares of Hilton common stock.
(4) BEA Associates ("BEA") is a New York corporation with a business address of
153 East 53rd Street, One Citicorp Center, New York, New York 10022. BEA, an
investment advisor, owns 619,899 shares of Common Stock in discretionary
accounts which it manages. BEA has sole dispositive power with respect to
all 619,899 shares of Common Stock. Such information is derived from a
Schedule 13G dated February 11, 1997 which was prepared by BEA pursuant to
Commission requirements.
(5) Hilton is a Delaware corporation with a business address of 9336 Civic
Center Drive, Beverly Hills, California 90210. Such number includes shares
of Common Stock owned by Hilton indirectly through its wholly owned
subsidiaries.
(6) Includes 24,000,000 shares of Hilton common stock owned by the Charitable
Remainder Unitrust (the "Trust"), of which Barron Hilton is sole Trustee. As
Trustee, Mr. Hilton has the sole voting power with respect to, and is deemed
to be the beneficial owner of, the 24,000,000 shares. The Trust will
continue until the later of Mr. Hilton's death or May 8, 2009. By virtue of
the foregoing and the other shares beneficially owned by Mr. Hilton, Mr.
Hilton may be deemed to be in "control" of Hilton as such term is defined in
the rules and regulations promulgated by the Commission.
(7) Mr. Hilton is one of the eleven directors of the Conrad N. Hilton Fund (the
"Fund"). Mr. Hilton disclaims beneficial ownership of the 16,498,736 shares
of Hilton common stock owned by the Fund.
(8) FMR Corp. ("FMR") is a Massachusetts corporation with a business address of
82 Devonshire Street, Boston, Massachusetts 02109. Two wholly-owned
subsidiaries of FMR beneficially own an aggregate of 17,402,318 shares of
Hilton common stock and members of the family of Edward C. Johnson 3rd,
Chairman of FMR, may be deemed, under the Investment Company Act of 1940, as
amended, to form a controlling group with respect to FMR.
(9) The Prudential Insurance Company of America is a New Jersey corporation with
a business address of 751 Broad Street, Newark, New Jersey 07102.
36
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH BEC/HILTON AND AFFILIATES
In August 1996, the Company sold Paris Casino Corp. (an indirect 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 $57.5 million ($17.5 million in cash and 1,457,195
shares of BEC common stock which were converted into 1,457,195 shares of Hilton
common stock in the Merger). 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
consisting of Mr. McDonald, Mr. Politan and Mr. Burnham. The Special Committee
retained independent legal counsel and financial advisors in connection with the
evaluation and negotiation of the transaction.
Pursuant to the Management Agreement, the Manager provides certain
management and administrative services to the Company and BEC/Hilton licenses,
on a non-exclusive basis, the use of the "Bally" name and certain computer
software to the Company for an annual fee of $3,000,000 payable in monthly
installments. The initial term of the Management Agreement is ten years. The
Management Agreement will be automatically renewed from year to year unless
notice of intent not to renew is given at least six months prior to the
expiration of the initial term or any subsequent term or in the event that
Bally's Las Vegas is sold. Property, general liability and other insurance
coverage has been obtained by BEC for the Company. BEC paid insurance premiums
for itself and its subsidiaries (including the Company) and allocated these
premiums among those parties. In 1996, the Company paid approximately $918,000
to BEC for allocated insurance premiums. In addition, BEC leased an airplane
which was used for the business of BEC and its subsidiaries (including the
Company) and allocated the cost of the airplane based upon usage. In 1996, the
Company paid approximately $81,000 for allocated airplane usage costs.
Pursuant to the terms of the Management Agreement, Hilton (after the Merger)
has the right to nominate one of the six members of the Company's Board of
Directors and a member to any of the committees thereof, provided such nominee
is reasonably acceptable to the Company. The Company is required to submit the
name of Hilton's nominee to the Company's stockholders for election, subject to
the exercise of the fiduciary duties of the Company's Board of Directors. Hilton
has designated Mr. Goldberg as its nominee to serve on the Board of Directors of
the Company.
Under the terms of the Management Agreement, the Manager is responsible for
all personnel decisions of the Company and has the authority to determine
compensation and other benefits with the exception of new pension and profit
sharing plans. However, the Company's Board of Directors must approve any
employment contracts or other arrangements for employees of the Company which
involve more than $125,000 annual compensation, including salary and bonuses.
For the period from January 1, 1996 to December 18, 1996, taxable income or
loss of the Company is included in the consolidated federal income tax return of
BEC. For the periods subsequent to December 18, 1996, taxable income or loss of
the Company is included in the consolidated federal income tax return of Hilton.
Under a tax sharing arrangement between BEC (Hilton after the Merger) 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/Hilton 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/Hilton for tax benefits are due at the time
BEC/Hilton files the applicable consolidated federal income tax return.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of independent public accountants................................................................... 14
Consolidated balance sheets................................................................................ 15
Consolidated statements of income.......................................................................... 16
Consolidated statements of stockholders' equity............................................................ 17
Consolidated statements of cash flows...................................................................... 18
Notes to consolidated financial statements................................................................. 20
</TABLE>
(A) 2. INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Schedule II - Valuation and qualifying accounts............................................................ S-1
</TABLE>
All other schedules specified under Regulation S-X are omitted because they
are not applicable, not required under the instructions or all information
required is set forth in the Notes to consolidated financial statements.
(A) 3. INDEX TO EXHIBITS
<TABLE>
<S> <C>
*2.1 Fifth Amended Plan of Reorganization of the Company, dated September 11, 1992
(incorporated by reference to the Company's Form T-3 (File No. 22-22808) as filed
with the Commission on October 2, 1992).
*3.1(i) Restated Certificate of Incorporation of the Company, dated August 20, 1993
(incorporated by reference to the Company's Form S-1 (File No. 33-74330) as filed
with the SEC on April 13, 1994 (the "Initial Form S-1")).
*3.1(ii) By-laws of the Company (incorporated by reference to the Initial Form S-1).
*4.1 Indenture, dated as of December 15, 1993 (the "Indenture"), between the Company and
Continental Bank, National Association ("Continental"), as Trustee, with respect to
$315,000,000 principal amount of the Company's 10-3/8% First Mortgage Notes due 2003
(the "Notes") (incorporated by reference to the Initial Form S-1).
*4.2 Form of Note (incorporated by reference to the Initial Form S-1).
*4.3 Pledge Agreement, dated as of March 1, 1994, made by the Company in favor of
Continental, as Trustee under the Indenture, for the benefit of the holders of the
Notes (incorporated by reference to the Initial Form S-1).
*4.4 Security Agreement, dated as of December 27, 1993, made by the Company in favor of
Continental, as Trustee under the Indenture, for the benefit of the holders of the
Notes (incorporated by reference to the Initial Form S-1).
*4.5 Deed of Trust and Security Agreement with Assignment of Rents, dated as of December
27, 1993, made by the Company to Nevada Title Company ("Nevada Title"), as Trustee,
and Continental, as Secured Party and Beneficiary, for the benefit of the holders of
the Notes (incorporated by reference to the Initial Form S-1).
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
*4.6 Assignment of Leases and Rents, dated as of December 27, 1993, made by the Company
to Continental (incorporated by reference to the Initial Form S-1).
4.7 First Supplemental Indenture, dated as of December 19, 1996, to the Indenture
between the Company and First Bank National Association (formerly Continental), as
Trustee, with respect to the Tender Offer and Consent Solicitation.
*4.8 Warrant Agreement, dated as of August 20, 1993, between the Company and Midlantic
National Bank, as Warrant Agent (incorporated by reference to the Company's Form S-1
(File No. 33-78468) as filed with the SEC on May 13, 1994 (the "Second Form S-1")).
*10.1 Management Agreement, dated as of August 20, 1993, among the Company, the Manager
and BEC (incorporated by reference to the Initial Form S-1).
*10.2 Form of Exchange Agent Agreement dated April 1994 between the Company and
Continental relating to the Notes (incorporated by reference to the Initial Form
S-1).
*10.3 Bally's Grand, Inc. 1993 Incentive Stock Plan (incorporated by reference to the
Initial Form S-1).
*10.4 Employment Agreement, dated June 5, 1995, between the Company and Darrell A. Luery.
*10.5 Employment Agreement, dated July 10, 1995, between the Company and William D.
Harrold.
*10.6 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.
(incorporated by reference to the Company's Quarterly Report on Form 10-Q (File No.
1-2500) for the quarter ended September 30, 1996).
21.1 List of Subsidiaries of the Company (incorporated by reference to the Initial Form
S-1).
27 Financial Data Schedule (filed electronically only).
*99.1 Form of Indemnification Agreement, dated May 1994, between the Company and the
Selling Securityholders named herein (incorporated by reference to the Second Form
S-1).
</TABLE>
- ------------------------
* Incorporated herein by reference as indicated.
(B) REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
FINANCIAL
DATE OF REPORT ITEM STATEMENTS
- ------------------------- ------------- -------------------
<S> <C> <C>
October 31, 1996 #5 None
November 1, 1996 #5 None
November 6, 1996 #5 None
December 31, 1996 #5 and #7 None
</TABLE>
39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
BALLY'S GRAND, INC.
Dated: March 17, 1997 By: /s/ ARTHUR M. GOLDBERG
------------------------------------------
Arthur M. Goldberg
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. This Annual Report
may be signed in multiple identical counterparts all of which, taken together,
shall constitute a single document.
<TABLE>
<S> <C>
Dated: March 17, 1997 /s/ ARTHUR M. GOLDBERG
--------------------------------------------
Arthur M. Goldberg
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
Dated: March 17, 1997 /s/ DARRELL A. LUERY
--------------------------------------------
Darrell A. Luery
PRESIDENT, CHIEF OPERATING OFFICER AND
DIRECTOR
Dated: March 17, 1997 /s/ LEON FLINDERS
--------------------------------------------
Leon Flinders
CHIEF FINANCIAL OFFICER AND CONTROLLER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
Dated: March 17, 1997 /s/ JAY BURNHAM
--------------------------------------------
Jay Burnham
DIRECTOR
Dated: March 17, 1997 /s/ J. KENNETH LOOLOIAN
--------------------------------------------
J. Kenneth Looloian
DIRECTOR
Dated: March 17, 1997 /s/ JACK L. MCDONALD
--------------------------------------------
Jack L. McDonald
DIRECTOR
Dated: March 17, 1997 /s/ NICHOLAS H. POLITAN, JR.
--------------------------------------------
Nicholas H. Politan, Jr.
DIRECTOR
</TABLE>
40
<PAGE>
BALLY'S GRAND, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(ALL AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE ADDITIONS
AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS (A) YEAR
- ----------------------------------------------------------- ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996 --
Allowance--casino receivables............................ $ 5,542 $ 1,823 $ 2,794 $ 4,571
Allowance--hotel receivables............................. 320 263 207 376
----------- ----------- ------ ------
$ 5,862 $ 2,086 $ 3,001 $ 4,947
----------- ----------- ------ ------
----------- ----------- ------ ------
YEAR ENDED DECEMBER 31, 1995 --
Allowance--casino receivables............................ $ 3,623 $ 1,919 $ -- $ 5,542
Allowance--hotel receivables............................. 237 83 -- 320
----------- ----------- ------ ------
$ 3,860 $ 2,002 $ -- $ 5,862
----------- ----------- ------ ------
----------- ----------- ------ ------
YEAR ENDED DECEMBER 31, 1994 --
Allowance--casino receivables............................ $ 619 $ 3,004 $ -- $ 3,623
Allowance--hotel receivables............................. 92 145 -- 237
----------- ----------- ------ ------
$ 711 $ 3,149 $ -- $ 3,860
----------- ----------- ------ ------
----------- ----------- ------ ------
</TABLE>
- ------------------------
(a) Deductions for write-offs are net of recoveries.
S-1
<PAGE>
$315,000,000
10 3/8% First Mortgage Notes due 2003
of
Bally's Grand, Inc.
____________________
FIRST SUPPLEMENTAL INDENTURE
Dated as of December 19, 1996
To
INDENTURE
Dated as of December 15, 1993
____________________
FIRST BANK NATIONAL ASSOCIATION
Trustee
<PAGE>
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of December 19, 1996 (this
"Supplemental Indenture") to the Indenture (as defined below) is by and between
FIRST BANK NATIONAL ASSOCIATION (successor trustee to Bank of America Illinois,
formerly Continental Bank, National Association), as trustee (the "Trustee") and
BALLY'S GRAND, INC., a Delaware corporation (the "Company").
RECITALS
A. The Company, formerly an indirect subsidiary of Bally
Entertainment Corporation, a Delaware corporation ("Bally"), is a party to that
certain Indenture, dated as of December 15, 1993 (the "Indenture"), pursuant to
which the Company's 10 3/8% First Mortgage Notes due 2003 (hereinafter, the
"Securities") were originally issued.
B. Section 902 of the Indenture provides that, with the consent of
the holders of at least a majority in principal amount of the Outstanding
Securities (as defined in the Indenture), the Company and the Trustee may amend
the Indenture and the Securities as set forth below.
C. Pursuant to an Agreement and Plan of Merger, dated as of June 6,
1996, as amended, by and between Hilton Hotels Corporation, a Delaware
corporation ("Hilton"), and Bally, on December 18, 1996, Bally merged with and
into Hilton (the "Merger"), with Hilton being the surviving corporation in the
Merger and as a result thereof, the Company has become an indirect subsidiary of
Hilton.
D. In connection with the Merger, Hilton has offered to purchase any
and all of the Securities for cash, upon the terms and subject to the conditions
set forth in that certain Offer to Purchase and Consent Solicitation dated
October 25, 1996 and accompanying Letter of Transmittal and Consent
(collectively, the "Offer to Purchase").
E. Under the terms of the Offer to Purchase, holders that tender
Securities in accordance with the terms of the Offer to Purchase and who deliver
a duly executed Letter of Transmittal and Consent are deemed to consent to
certain amendments to the Indenture which would permanently delete or amend
certain of the covenants, events of default and other related provisions of the
Indenture (the "Proposed Amendments").
F. In accordance with the terms of the Indenture, holders of in
excess of a majority in principal amount of the Outstanding Securities have
tendered their Securities and consented to the Proposed Amendments to be
effected by this Supplemental Indenture.
G. The Company has authorized the execution and delivery of this
Supplemental Indenture and the Trustee has received an Opinion of Counsel
pursuant to Section 103 of the Indenture and an Officer's Certificate of the
Company pursuant to
2
<PAGE>
Section 103 of the Indenture, and therefore the Company and the Trustee are
authorized to execute and deliver this Supplemental Indenture.
H. All other conditions precedent and requirements necessary to make
this Supplemental Indenture when duly executed and delivered, a valid and
binding agreement, enforceable in accordance with its terms (subject to the
provisions of this Supplemental Indenture becoming operative as provided in
Section 2 below), have been performed and fulfilled.
NOW, THEREFORE, the parties hereto agree as follows (defined terms
used herein and not otherwise defined herein shall have the meanings ascribed to
them in the Indenture):
1. AMENDMENTS TO INDENTURE.
1.1 DELETIONS. Each of the following Sections of the Indenture are hereby
deleted in their entirety:
Section 1007 (Limitation on Indebtedness); Section 1008 (Limitation on
Restricted Payments); Section 1009 (Limitation on Transactions with
Affiliates); Section 1011 (Restriction on Preferred Stock of Subsidiaries);
Section 1012 (Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries); Section 1013 (Ownership of Casino Hotel; Other
Businesses); Section 1016 (Limitation on Issuance of Guaranties by
Subsidiaries); and Section 1018 (Limitation on Lease of Property as an
Entirety).
1.2 AMENDMENTS. The following Sections of the Indenture are hereby
amended as set forth below:
1.2.1 SECTION 501. EVENTS OF DEFAULT. Section 501 of the
Indenture is hereby amended by deleting subsections (d), (e), (j) and (k)
thereof, replacing the word "25%" with "a majority" and deleting the phrase "or
any Material Subsidiary" from the remaining subsections.
1.2.2 SECTION 502. ACCELERATION OF MATURITY; RESCISSION. Section
502 of the Indenture is hereby amended to replace the word "25%" with "a
majority."
1.2.3 SECTION 703. REPORTS BY COMPANY. Section 703 of the
Indenture is hereby amended to read in its entirety as follows:
"The Company shall:
(1) file with the Commission the annual reports, quarterly reports and
other documents required to be filed with the Commission pursuant to Sections 13
and 15 of the Exchange Act, the Company shall file with the Trustee within 15
days after it files them with the Commission copies of such reports and
documents;
3
<PAGE>
(2) file with the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations."
1.2.4 SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS. Section 801 of the Indenture is hereby amended by deleting subsections
(ii), (iii), (iv) and (vi) thereof and renumbering subsection (v) as subsection
(ii) thereof.
1.2.5 SECTION 1020. STATEMENT AS TO COMPLIANCE; NOTICE OF
DEFAULT; REPORTING REQUIREMENTS. Section 1020 of the Indenture is hereby
amended by restating subsection (a) thereof and amending subsections (b) and (c)
to read in its entirety as follows:
"(a) The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year ending after the date hereof, a brief certificate of its
principal executive officer, principal financial officer or principal accounting
officer stating whether, to such officer's knowledge, the Company and its
Subsidiaries are in compliance with all covenants and conditions to be complied
with by any of them under this Indenture. For purposes of this Section 1020,
such compliance shall be determined without regard to any period of grace or
requirement of notice under this Indenture.
(b) If a Default has occurred and is continuing, or if the Trustee, any
Holder or the trustee for or the holder of any other evidence of Indebtedness of
the Company or any Subsidiary (other than Indebtedness in the aggregate
principal amount of less than $100,000,000) gives any notice or takes any other
action with respect to a claimed default, the Company shall deliver to the
Trustee an Officers' Certificate specifying such Default, notice or other action
within five Business Days of its occurrence.
(c) The Company shall file with the Commission the annual reports,
quarterly reports and other documents required to be filed with the Commission
pursuant to Sections 13 and 15 of the Exchange Act; the Company shall file with
the Trustee within 15 days after it files them with the Commission copies of
such reports and documents."
1.2.6 SECTION 101 DEFINITIONS. All definitions set forth in
Section 101 of the Indenture that relate to defined terms used solely in
sections deleted hereby are deleted in their entirety.
2. CONFIRMATIONS; EFFECTIVENESS. As amended by this Supplemental Indenture,
the Indenture and the Notes are ratified and confirmed in all respects and the
Indenture as so amended shall be read, taken and construed as one and the same
instrument. The provisions of this Supplemental Indenture shall become
operative only upon the Acceptance Date, as defined in the Offer to Purchase.
This Supplemental Indenture may be executed in any number of counterparts, each
of which counterparts together shall constitute but one and the same instrument.
4
<PAGE>
3. TRUST INDENTURE ACT. If and to the extent that any provision of this
Supplemental Indenture limits, qualifies or conflicts with another provision
included in this Supplemental Indenture or in the Indenture, which is required
to be included in this Supplemental Indenture or the Indenture by any of the
provisions of Sections 310 to 318, inclusive, of the Trust Indenture Act of
1939, as amended (the "TIA"), such required provision of the TIA shall control.
4. EXCHANGED SECURITIES. Pursuant to Section 906 of the Indenture, all Notes
authenticated and delivered after the date hereof in exchange for or in lieu of
any Notes theretofore issued shall have imprinted or stamped thereon a legend in
substantially the following form:
"The Indenture has been amended pursuant to a
Supplemental Indenture dated as of December 19, 1996, copies
of which are available from the Company or the Trustee."
5. GOVERNING LAW. This Supplemental Indenture shall be deemed governed by,
and construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the laws of another jurisdiction would be required thereby.
6. RIGHTS OF TRUSTEE. Without limiting any other protections or rights
afforded the Trustee at law, by contract or otherwise, the Trustee will be
entitled to the full benefits afforded by Sections 602 and 603 of the Indenture
in connection with its execution and delivery of this Supplemental Indenture.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Supplemental
Indenture to be duly executed as of the date first written above.
BALLY'S GRAND, INC.,
a Delaware corporation
By: /s/ David Arrajj
-------------------------------------
Name: DAVID ARRAJJ
-----------------------------------
Title: Secretary
----------------------------------
6
<PAGE>
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
On December 19, 1996 , before me, Denise Barton , personally appeared
DAVID ARRAJJ , personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Denise Barton [SEAL]
- ----------------------------------
Notary Public in and for said
County and State
7
<PAGE>
FIRST BANK NATIONAL ASSOCIATION,
as Trustee
By: /s/ G.M. Carroll
-------------------------------------
Name: G. M. Carroll
-----------------------------------
Title: Vice President
----------------------------------
8
<PAGE>
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
On December 19, 1996 , before me, S. RHODEN , personally appeared
G. M. Carroll , personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ S. Rhoden [SEAL]
- ----------------------------------
Notary Public in and for said
County and State
9
<PAGE>
FIRST BANK NATIONAL ASSOCIATION,
as Trustee
By: /s/ G.M. Carroll
-------------------------------------
Name: G. M. Carroll
-----------------------------------
Title: Vice President
----------------------------------
8
<PAGE>
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
On December 19, 1996 , before me, S. RHODEN , personally appeared
G. M. Carroll , personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ S. Rhoden [SEAL]
- ----------------------------------
Notary Public in and for said
County and State
9
<PAGE>
EXHIBIT 21.1
BALLY'S GRAND, INC.
LIST OF SUBSIDIARIES
DECEMBER 31, 1996
NAME JURISDICTION OF INCORPORATION
- ---- -----------------------------
Grand Resorts, Inc. Nevada
Grand Resorts Sub I, Inc. Nevada
Grand Reservation Services, Inc. Nevada
Bally's International Marketing Corporation Nevada
Bally's Grand Property Sub I, Inc. Nevada
Bally's Casino Management, Inc. Nevada
Bally's Grand Property Sub II, Inc. Nevada
Bally's Grand Laundry Corporation Nevada
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT
OF INCOME AND STOCKHOLDERS' EQUITY FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 115,893
<SECURITIES> 38,069
<RECEIVABLES> 22,103
<ALLOWANCES> 4,947
<INVENTORY> 2,895
<CURRENT-ASSETS> 185,195
<PP&E> 445,854
<DEPRECIATION> 70,440
<TOTAL-ASSETS> 577,237
<CURRENT-LIABILITIES> 53,121
<BONDS> 315,000
0
0
<COMMON> 106
<OTHER-SE> 118,476
<TOTAL-LIABILITY-AND-EQUITY> 577,237
<SALES> 0
<TOTAL-REVENUES> 313,830
<CGS> 0
<TOTAL-COSTS> 189,122<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,086<F2>
<INTEREST-EXPENSE> 33,507
<INCOME-PRETAX> 29,248
<INCOME-TAX> 6,231
<INCOME-CONTINUING> 23,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,017
<EPS-PRIMARY> 2.58
<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 TWELVE MONTHS ENDED DECEMBER 31, 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 TWELVE MONTHS ENDED DECEMBER 31, 1996.
</FN>
</TABLE>
