<PAGE>
As filed with the Securities and Exchange Commission on February 10, 1998
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
BALLY'S GRAND, INC.
(Name of issuer)
BALLY'S GRAND, INC.
HILTON HOTELS CORPORATION
(Name of person(s) filing statement)
Common Stock, Par Value $0.01 per share CUSIP No. 05873J101
Warrants to Purchase Common Stock CUSIP No. 05873J119
(Title of Class of Securities) (CUSIP Number of Class of Securities)
--------------------
Bally's Grand, Inc. Hilton Hotels Corporation
David Arrajj Thomas E. Gallagher
Vice President and General Counsel Executive Vice President and
Bally's Grand, Inc. General Counsel
3645 Las Vegas Boulevard South Hilton Hotels Corporation
Las Vegas, Nevada 89109 9336 Civic Center Drive
(702) 739-4111 Beverly Hills, California 90210
(310) 278-4321
(Name, address and telephone number of person authorized to receive notices and
communications on behalf of person(s) filing statement)
COPIES TO:
Cynthia A. Rotell, Esq.
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
(213) 485-1234
This statement is filed in connection with (check the appropriate box):
a. [ ] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under
the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [X] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies. [ ]
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
<S> <C>
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Transaction Valuation (1) Amount of Filing Fee (2)
- --------------------------------------------------------------------------------
$43,541,139 $8,710
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</TABLE>
[ ] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing by
registration statement number, or the Form or Schedule and the date of
its filing.
Amount previously paid: _______________ Filing party:_____________________
Form or registration no.:______________ Date filed:_______________________
Instruction. Eight copies of this statement, including all exhibits,
should be filed with the Commission.
(1) The amount shown was estimated solely for purposes of calculating the
filing fee. The filing fee was determined based upon (a) 617,230
outstanding shares of Common Stock, par value $0.01 per share ("BGI
Common Stock"), of Bally's Grand, Inc. ("BGI") (excluding shares owned
by Hilton Hotels Corporation ("Hilton") and its affiliates) for a
consideration of $51.37 per share; and (b) 286,053.5 outstanding
Warrants to purchase shares of Common Stock ("BGI Warrants") (excluding
BGI Warrants owned by Hilton and its affiliates) for a consideration of
$41.37 per BGI Warrant.
(2) The amount of the filing fee, calculated in accordance with Rule 0-11 of
the Securities Exchange Act of 1934, as amended, equals 1/50th of one
percent of the Transaction Value.
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CROSS REFERENCE SHEET
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The name of the issuer is Bally's Grand, Inc. ("BGI") and its
principal executive office is located at 3645 Las Vegas
Boulevard South, Las Vegas, Nevada 89109.
(b)(c)(d) The classes of securities to which this Statement relates are
BGI's Common Stock, par value $0.01 per share ("Common Stock")
and BGI's Warrants to purchase shares of Common Stock. The
information set forth in "Market Price Information" and "Certain
Information Concerning BGI" in the Transaction Statement is
incorporated by reference herein.
(e) Not applicable.
(f) The information set forth in "Market Price Information" and
"Special Factors--Background of the Merger" in the Transaction
Statement is incorporated herein by reference. Except as
disclosed in the Transaction Statement, neither Hilton nor BGI
has made any purchases of Common Stock or Warrants since January
1, 1996.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d)
and (g) This Schedule 13e-3 is being filed by Bally's Grand, Inc.
("BGI"), the issuer of the Common Stock and the Warrants, and by
Hilton Hotels Corporation ("Hilton"). BGI is a subsidiary of
Hilton. The information set forth in "Certain Information
Concerning BGI" and "Certain Information Concerning Hilton and
Merger Sub" in the Transaction Statement is incorporated herein
by reference.
(e)and(f) During the last five years, none of BGI or Hilton or, to the
best of their knowledge, any of their respective executive
officers and directors, (i) have been convicted in a criminal
proceeding (excluding traffic violations or similar
misdemeanors), or (ii) was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a judgment,
decree or final order enjoining further violations of, or
prohibiting activities subject to, Federal or State securities
laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)-(b) The information set forth in "Special Factors--Background of the
Merger" and -- "Plans for BGI Following the Merger" and "Special
Factors--Interests of Certain Persons in Securities of BGI and
the Merger" in the Transaction Statement is incorporated herein
by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in "Special Factors--Background of the
Merger" and "The Merger--The Merger Agreement" in the
Transaction Statement is incorporated herein by reference.
(b) Not applicable.
2
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ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(b) Not applicable.
(c)-(e) The information set forth in "Special Factors--Plans for BGI
Following the Merger" in the Transaction Statement is
incorporated herein by reference.
(f) The information set forth in "Special Factors--Certain Effects
of the Merger" in the Transaction Statement is incorporated
herein by reference.
(g) Not applicable.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in "The Merger--Source and Amount of
Funds" in the Transaction Statement is incorporated herein by
reference.
(b) The information set forth in "The Merger--Fees and Expenses" in the
Transaction Statement is incorporated herein by reference.
(c) Not applicable.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)(c)
and (d) The information set forth in "Special Factors--Background of the
Merger;" "Special Factors--Purpose of and Reasons for the
Merger;" "Special Factors--Background of the Merger--Certain
Effects of the Merger," "The Merger--The Merger Agreement" and
"The Merger--Certain Federal Income Tax Consequences" in the
Transaction Statement is incorporated herein by reference.
(b) Not applicable.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)(b)(e) The Information set forth on the cover page of the Transaction
Statement, and "Special Factors--Determinations by the Board;
Fairness of the Merger" in the Transaction Statement is
incorporated herein by reference.
(c) The information set forth on the cover page of the Transaction
Statement and "Introduction" in the Transaction Statement is
incorporated by reference herein.
(d) The information set forth in "Special Factors--Determinations by
the Board; Fairness of the Merger" is incorporated herein by
reference.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth in "Special Factors--Determinations by
the Board; Fairness of the Merger" and "Special
Factors--Background of the Merger" in the Transaction Statement
is incorporated herein by reference.
3
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ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in "Special Factors--Interests of
Certain Persons in Securities of BGI and the Merger" in the
Transaction Statement is incorporated herein by reference.
(b) Not applicable.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The information set forth in "Special Factors--Background of the
Merger" and "The Merger--The Merger Agreement" in the Transaction
Statement is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATIONS OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION.
(a) Not applicable.
(b) The information set forth on the cover page and in "Special
Factors--Determinations by the Board; Fairness of the Merger" in
the Transaction Statement is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "Transaction Statement"; "Special
Factors--Background of the Merger"; and "The Merger--Appraisal
Rights of Common Stockholders" is incorporated herein by
reference.
(b)-(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in "Certain Information Concerning
BGI--Summary Financial Data of BGI" in the Transaction Statement
and the Audited Financial Statements included in BGI's Annual
Report on Form 10-K for its year ended December 31, 1996, a copy
of which is filed as Exhibit (d)(4) hereto, and included in
BGI's Form 10-Q for the nine month period ended September 30,
1997, a copy of which is filed as Exhibit (d)(5) hereto, are
incorporated herein by reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a)-(b) Not applicable.
ITEM 16. ADDITIONAL INFORMATION.
All of the information contained in the Transaction Statement is
incorporated by reference herein in its entirety.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Not applicable.
4
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(b) Opinions of Ladenburg Thalmann & Co. Inc., incorporated by
reference from Annex IV and Annex V to the Transaction Statement
filed as Exhibit (d)(1) hereto.
(c)(1) The Agreement and Plan of Merger among BGI, Hilton and CHLV
dated as of February 6, 1998, incorporated by reference from
Annex I to the Transaction Statement filed as Exhibit (d)(1)
hereto.
(c)(2) Memorandum of Understanding dated June 12, 1997.
(c)(3) Stipulation of Settlement dated August 7, 1997.
(c)(4) Final Order and Judgment dated October 9, 1997.
(d)(1) Transaction Statement.
(d)(2) Form of Letter of Transmittal, incorporated by reference from
Annex II to the Transaction Statement filed as Exhibit (d)(1)
hereto.
(d)(3) Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 to be included with the Letter of
Transmittal.
(d)(4) Annual Report on Form 10-K of BGI for the fiscal year ended
December 31, 1996.
(d)(5) Quarterly Report on Form 10-Q of BGI for the nine month period
ended September 30, 1997.
(d)(6) Proxy Statement for Annual Meeting of Stockholders Held
February 7, 1997.
(e)(1) Text of Section 262 of the Delaware General Corporation Law,
incorporated by reference from Annex III to the Transaction
Statement filed as Exhibit (d)(1) hereto.
(e)(2) The information set forth in "The Merger--Appraisal Rights of
Dissenting Stockholders" in the Transaction Statement is
incorporated herein by reference.
(f) Not applicable.
5
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SIGNATURES
After due inquiry and to the best of the undersigned's knowledge and
belief, the undersigned certifies that the information set forth in this
Statement is true, complete and correct.
Dated: February 10, 1998 BALLY'S GRAND, INC.
By: /s/ DAVID ARRAJJ
----------------------------------
Name: David Arrajj
Title: Vice President and General
Counsel
HILTON HOTELS CORPORATION
By: /s/ THOMAS E. GALLAGHER
----------------------------------
Name: Thomas E. Gallagher
Title: Executive Vice President
and General Counsel
6
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EXHIBIT INDEX
17(a) Not applicable.
17(b) Opinions of Ladenburg Thalmann & Co. Inc., incorporated by
reference from Annex IV and Annex V to the Transaction Statement
filed as Exhibit (d)(1) hereto.
17(c)(1) The Agreement and Plan of Merger among BGI, Hilton and CHLV dated as
of February 6, 1998, incorporated by reference from Annex I to the
Transaction Statement filed as Exhibit (d)(1) hereto.
17(c)(2) Memorandum of Understanding dated June 12, 1997.
17(c)(3) Stipulation of Settlement dated August 7, 1997.
17(c)(4) Final Order and Judgment dated October 9, 1997.
17(d)(1) Transaction Statement.
17(d)(2) Form of Letter of Transmittal, incorporated by reference from Annex
II to the Transaction Statement filed as Exhibit (d)(1) hereto.
17(d)(3) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 to be included with the Letter of Transmittal.
17(d)(4) Annual Report on Form 10-K of BGI for the fiscal year ended December
31, 1996.
17(d)(5) Quarterly Report on Form 10-Q of BGI for the nine month period ended
September 30, 1997.
17(d)(6) Proxy Statement for Annual Meeting of Stockholders Held February 7,
1997.
17(e)(1) Text of Section 262 of the Delaware General Corporation Law,
incorporated by reference from Annex III to the Transaction
Statement filed as Exhibit (d)(1) hereto.
17(e)(2) The information set forth in "The Merger--Appraisal Rights of
Dissenting Stockholders" in the Transaction Statement is
incorporated herein by reference.
17(f) Not applicable.
7
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
)
IN RE BALLY'S GRAND DERIVATIVE ) Consolidated Civil Actions
LITIGATION ) Nos. 14644 and 15325
)
MEMORANDUM OF UNDERSTANDING
1. The undersigned parties in the above captioned litigation
hereby agree in principle to settle this litigation, including all claims
alleged in all complaints filed in Civil Action Nos. 14644, 15197 and 15325,
and all claims that could have been asserted in these complaints or any
amendments to these complaints, and whether or not asserted in other pending
actions (the "Litigation").
2. The parties agree in principle to settle the Litigation by
means of
(a) a repurchase by Bally's Grand, Inc. ("Bally's Grand") of
388,561 shares of Bally's Grand common stock and 61,285 warrants to purchase
shares of Bally's Grand common stock held by Tower Investment Group, Inc.
("Tower") and 578,186 shares of Bally's Grand common stock and 41,413
warrants to purchase shares of Bally's Grand common stock held by Executive
Life of New York ("Executive Life") at a price of $52.75 per share in cash
for stock, and, for warrants, the difference between $52.75 per share in cash
less the exercise price of warrants, as soon as practicable but in no event
later than 14 days from the date
<PAGE>
of this Memorandum of Understanding, and
(b) a merger pursuant to which Hilton Hotels Corporation or a
Hilton subsidiary ("Hilton") will acquire all remaining shares of Bally's
Grand stock not already held by Hilton (including the remaining shares held
by Tower and Executive Life) in exchange for $52.75 in cash (less attorneys'
fees and expenses awarded by the Court pursuant to Paragraph 5(c) below) for
stock, and, for warrants, the difference between $52.75 per share in cash
(less attorneys' fees and expenses awarded by the Court pursuant to Paragraph
5(c) below) less the exercise price of warrants. Hilton will use reasonable
efforts to complete the merger as soon as practicable following the final
termination of the Litigation, although Hilton may, in its sole discretion,
complete the merger at any time prior to the termination of the Litigation.
(c) In the merger described in Paragraph 2(b) above, any
Bally's Grand shareholder other than Tower and Executive Life shall have the
right to seek appraisal under Delaware law. In any such appraisal
proceeding, the dissenting shareholder may assert, as an element of value,
his, her or its percentage share of the value of the derivative claims
asserted in the Litigation.
3. This Memorandum of Understanding, except the transaction
described in Paragraph 2(a) above, is subject to and conditioned upon the
drafting and execution of a written
2
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settlement agreement (the "Settlement Agreement") and final approval of the
Settlement Agreement by the Court. The Settlement Agreement shall contain
the usual and customary terms included in settlements of shareholder
derivative and class litigation, including, but not limited to:
a. A dismissal of the Litigation against all defendants with
prejudice and without costs to any party except as provided in Paragraphs
2(c) and 5 of this Memorandum of Understanding;
b. An exchange of releases;
c. A form of proposed notice and scheduling of hearing order;
d. A form of proposed notice of settlement to be sent to
Bally's Grand shareholders; and
e. A form of proposed final order.
4. If a Settlement Agreement is not completed by the parties
and/or if final Court approval of the Settlement Agreement substantially in
the form submitted to the Court is not obtained, this Memorandum of
Understanding shall be null and void and not be admissible for any purpose in
any proceeding in any Court or tribunal, and shall have no further force and
effect, except as provided for in this Paragraph. All proceedings in the
Litigation then will revert to their status as of 5:00 P.M. on May 7, 1997,
with the exception of matters decided in the Court's Memorandum Opinion dated
June 4, 1997. This Memorandum of Understand-
3
<PAGE>
ing is not intended to be and shall not be construed as an admission of
liability by any defendant in the Litigation. If for any reason the
repurchase provided for in Paragraph 2(a) is completed but the Settlement
Agreement is not completed by the parties and/or if final Court approval of
the Settlement Agreement substantially in the form submitted to the Court is
not obtained, Tower and Executive Life will release all claims, whether or
not asserted in the Litigation, that Tower and Executive Life have against
defendants and/or Bally's Grand with respect to all shares and warrants that
have been repurchased. In no event will any derivative claim be released
pursuant to this Paragraph.
5. (a) Counsel for Tower and Executive Life will be compensated
by Tower and Executive Life. Counsel for Tower and Executive Life will not
seek attorneys' fees and expenses from the Court except as provided for in
Paragraph 5(b).
(b) If the Court enters a final order substantially in the
form submitted to the Court with the Settlement Agreement, counsel for
plaintiffs Alan R. Kahn and David Shaev will seek attorneys' fees and
expenses, in an amount to be determined by the Court and not to exceed $1.25
million. Any attorneys' fees and expenses awarded by the Court may be shared
with Tower and Executive Life as partial reimbursement for their attorneys'
fees and expenses in the Litigation.
4
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(c) Any attorneys' fees and expenses awarded by the Court
pursuant to Paragraph 5(b) will be paid out of the merger consideration
provided for in Paragraph 2(b) above, and not in any other manner by any
defendant in the Litigation. If no objections are made to the settlement,
then payment will be made five business days following the Court's award of
attorneys' fees and expenses. If one or more objections are made to the
settlement, the payment will be made five business days following the later
of the following events: (i) the date upon which the time for the filing or
noticing of any appeal of the final order expires, and (ii) if there is an
appeal or appeals, the completion, in a manner that affirms and leaves in
place the final order, of all proceedings in the Delaware Supreme Court and
the United States Supreme Court arising out of the appeal or appeals
(including, but not limited to, the expiration of all deadlines for motions
for reconsideration or petitions for certiorari, all proceedings ordered on
remand, and all proceedings arising out of any subsequent appeal or appeals
following decisions on remand).
(d) Bally's Grand will bear the cost of the notice provided
for in Paragraph 3.
6. Defendants' counsel will advise the Court as promptly as
practicable that this Memorandum of Understanding has been entered into.
7. This Memorandum of Understanding is subject
5
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to the approval of the Board of Directors of Bally's Grand.
8. If for any reason the repurchase provided for in Paragraph
2(a) is not completed within the time period specified in Paragraph 2(a),
Tower and Executive Life may terminate this Memorandum of Understanding, and
render this Memorandum of Understanding null and void, as provided for in
Paragraph 4.
9. This Memorandum of Understanding shall be governed by the law
of the State of Delaware.
10. This Memorandum of Understanding may be modified only in a
writing signed by counsel for all of the parties.
11. This Memorandum of Understanding may be signed in counterparts.
[Signatures begin on following page]
6
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POTTER ANDERSON & CORROON RICHARDS, LAYTON & FINGER
/s/ ROBERT K. PAYSON /s/ JESSE A. FINKELSTEIN
- ----------------------------------- -----------------------------------
Robert K. Payson Jesse A. Finkelstein
Stephen C. Norman Raymond J. DiCamillo
350 Delaware Trust Building One Rodney Square
Post Office Box 951 P.O. Box 551
Wilmington, Delaware 19899 Wilmington, DE 19899
(302) 984-6000 (302) 651-7754
-and- -and-
Linda C. Goldstein Hugh Steven Wilson
HOWARD, DARBY & LEVIN LATHAM & WATKINS
1330 Avenue of the Americas 701 B Street, Suite 2100
New York, NY 10019 San Diego, CA 92101-8197
(212) 841-1000 (619) 236-1234
Attorneys for Plaintiffs Tower Everett C. Johnson, Jr.
Investment Group, Inc. and LATHAM & WATKINS
Executive Life of New York 1001 Pennsylvania Ave., N.W.
Suite 1300
BIGGS AND BATTAGLIA Washington, DC 20004-2505
(202) 637-2200
/s/ ROBERT D. GOLDBERG Attorneys for Defendant
- ----------------------------------- Hilton Hotels Corporation
Victor F. Battaglia, Sr.
Robert D. Goldberg ASHBY & GEDDES
1800 Mellon Bank Center
P.O. Box. 1489
Wilmington, DE 19899 /s/ RICHARD D. HEINS
(302) 655-9677 -----------------------------------
Stephen E. Jenkins
-and- Richard D. Heins
One Rodney Square
Sidney B. Silverman P.O. Box 1150
SILVERMAN HARNES & HARNES Wilmington, DE 19899
750 Lexington Avenue (302) 654-1888
New York, NY 10022
(212) 754-2333 -and-
Attorneys for Plaintiff Alan Dennis J. Block
R. Kahn Stephen A. Radin
WEIL, GOTSHAL & MANGES LLP
767 Fifth Avenue
New York, NY 10153
(212) 310-8000
7
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ROSENTHAL, MONHAIT, GROSS & Attorneys for Defendants
GODDESS, P.A. Bally Entertainment Corpora-
tion, Bally's Grand Management
/s/ JOSEPH A. ROSENTHAL Co. Inc., Bally Manufacturing
- ----------------------------------- Corporation, Arthur M.
Joseph A. Rosenthal Goldberg, J. Kenneth Looloian
Suite 1401, Mellon Bank Center and Darrell A. Luery
P.O. Box 1070
Wilmington, DE 19899 MORRIS, NICHOLS, ARSHT
(302) 656-4433 & TUNNELL
-and- /s/ A. GILCHRIST SPARKS, III
-----------------------------------
Robert I. Harwood A. Gilchrist Sparks, III
WECHSLER HARWOOD HALEBIAN Alan J. Stone
& FEFFER LLP 1201 N. Market Street
805 Third Avenue P.O. Box 1347
New York, NY 10022 Wilmington, DE 19899
(212) 935-7400 (302) 658-9200
Attorneys for Plaintiff David Attorneys for Defendants
Shaev Jay Burnham, Jack L. MacDonald
and Nicholas H. Politan, Jr.
SMITH KATZENSTEIN & FURLOW
/s/ BRETT D. FALLON
-----------------------------------
Brett D. Fallon
800 Delaware Avenue
P.O. Box 410
Wilmington, DE 19899
(302) 652-8400
Attorneys for Defendant
Bally's Grand, Inc.
Dated: June 12, 1997
8
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
)
IN RE BALLY'S GRAND DERIVATIVE ) Consolidated Civil Actions
LITIGATION ) Nos. 14644 and 15325
)
STIPULATION OF SETTLEMENT
IT IS HEREBY STIPULATED TO AND AGREED, by and among the undersigned
attorneys, that the above-captioned action (the "Litigation") shall be
settled, compromised and dismissed with prejudice, in the manner and upon the
terms and conditions stated below (the "Settlement," "Stipulation" or
"Stipulation of Settlement").
A. OVERVIEW OF LITIGATION. The plaintiffs in this Litigation are
shareholders of Bally's Grand, Inc. ("Bally's Grand"), who have asserted
derivative claims on behalf of Bally's Grand and direct claims on behalf of
themselves. From the time the Litigation was commenced on October 27, 1995
until shortly after the signing of a Memorandum of Understanding on June 12,
1997 pursuant to which the parties agreed in principle to settle the
Litigation, Bally Entertainment Corporation ("Bally Entertainment") owned
between 80.7 and 84.7 percent of the shares of common stock of Bally's Grand.
On March 25, 1993, before the acquisition of 15 percent of Bally Grand's
shares by Bally Entertainment, which at the time was known as Bally
Manufacturing Corpo-
<PAGE>
ration ("Bally Manufacturing"), the Bally's Grand board approved that
acquisition and exempted any business combination involving Bally's Grand and
Bally Entertainment or any affiliate of Bally's Entertainment from Section
203 of the Delaware General Corporation Law. On December 18, 1996, Hilton
Hotels Corporation ("Hilton") acquired Bally Entertainment in a stock for
stock merger.
B. THE KAHN ACTION. On October 27, 1995, plaintiff Alan R. Kahn
commenced Civil Action No. 14,644 as a one count derivative action on behalf
of Bally's Grand. Named as defendants were Arthur M. Goldberg (the Chairman
of the Board and Chief Executive Officer of Bally's Grand), Bally
Entertainment, Arveron Investments, L.P. and Bally's Grand. Plaintiff Kahn
alleged that defendants committed breaches of fiduciary duty, including the
duties of care and loyalty, and waste of corporate assets in connection with
the following conduct: (1) an August 20, 1993 management agreement entered
into by Bally's Grand, Bally Manufacturing (as noted above, Bally
Manufacturing is the prior name of Bally Entertainment) and Bally's Grand
Management Co., Inc., a wholly-owned subsidiary of Bally Entertainment
("Grand Management"), (2) Grand Management's designation since 1993 pursuant
to the August 20, 1993 management agreement of Bally's Grand stock option
recipients, (3) purchases of shares of Bally's Grand common stock by Bally's
Grand and Bally Entertainment since August 1993, and (4) a May 10, 1995
2
<PAGE>
consulting agreement entered into by Bally's Grand and Arveron Investments,
L.P.
On August 19, 1996, plaintiff Kahn filed a three count amended and
supplemental complaint. Plaintiff Kahn's amended and supplemental complaint
dropped Arveron Investments, L.P. as a defendant.
Count I asserted a new derivative claim on behalf of Bally's Grand,
alleging that an August 1996 sale by Bally's Grand to Bally Entertainment of
the stock of a Bally's Grand subsidiary that owned the land upon which a new
casino resort with a Paris theme is being built (the "Paris Transaction")
constituted a breach of fiduciary duty, including the duties of fair dealing,
care and loyalty, a taking of a corporate opportunity, and waste of corporate
assets.
Count II re-asserted the derivative claims in plaintiff Kahn's
original complaint. Count III, a non-derivative claim, asserted that the
August 20, 1993 management agreement constituted an improper delegation of
authority by Bally's Grand's directors to Bally Entertainment.
On September 11, 1996, plaintiff Kahn moved for leave to file a
second amended and supplemental complaint, asserting the same three counts
previously asserted in plaintiff Kahn's August 19, 1996 amended and
supplemental complaint, but alleging new facts and adding five new
defendants, Jay Burnham, J. Kenneth Looloian, Darrell A.
3
<PAGE>
Luery, Jack L. McDonald and Nicholas H. Politan, Jr., each of whom was a
Bally's Grand director at the time plaintiff Kahn's second amended and
supplemental complaint was filed. Defendants consented to the amendment, and
on September 18, 1996 plaintiff Kahn filed his second amended and
supplemental complaint.
C. THE SHAEV ACTION. On September 3, 1996, plaintiff David Shaev
commenced a second action, Civil Action No. 15,197. Named as defendants were
the same individuals and entities named as defendants in plaintiff Kahn's
second amended and supplemental complaint. Plaintiff Shaev's complaint
asserted a derivative claim on behalf of Bally's Grand, alleging that the
Paris Transaction was a breach of fiduciary duty and waste of corporate
assets.
D. CONSOLIDATION OF THE KAHN AND SHAEV ACTIONS. On October 9, 1996
this Court consolidated the Kahn action and the Shaev action under the
caption IN RE BALLY'S GRAND DERIVATIVE LITIGATION. On October 18, 1996
plaintiffs Kahn and Shaev designated plaintiff Kahn's second amended and
supplemental complaint as their consolidated complaint.
E. THE TOWER AND EXECUTIVE LIFE ACTION. On November 12, 1996,
plaintiffs Tower Investment Group, Inc. ("Tower") and Executive Life of New
York ("Executive Life") commenced a third action, Civil Action No. 15,325,
with an eight count complaint. Named as defendants were the defendants named
in plaintiff Kahn's second amended and supplemental complaint,
4
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plus Grand Management, Bally Manufacturing and Hilton.
Count I, a derivative claim on behalf of Bally's Grand, alleged
that the Paris Transaction constituted a breach of fiduciary duty, including
the duties of loyalty, candor and due care, by Bally Entertainment.
Count II, a derivative claim on behalf of Bally's Grand, alleged
that the Paris Transaction constituted a breach of fiduciary duty, including
the duties of loyalty, candor and due care, by Messrs. Burnham, Goldberg,
Looloian, Luery, McDonald and Politan.
Count III, a derivative claim on behalf of Bally's Grand, alleged
that the Paris Transaction constituted waste of corporate assets by Bally
Entertainment and Messrs. Burnham, Goldberg, Looloian, Luery, McDonald and
Politan.
Count IV, a derivative claim on behalf of Bally's Grand, alleged
that Hilton aided and abetted the alleged breaches of fiduciary duty and
waste of corporate assets by Bally Entertainment and Messrs. Burnham,
Goldberg, Looloian, Luery, McDonald and Politan.
Count V, a derivative claim on behalf of Bally's Grand, alleged
that actions by Bally Manufacturing and Grand Management, including the Paris
Transaction and alleged abuses of a Bally's Grand incentive stock plan,
constituted a fraud, willful misconduct or gross negligence by Bally
Manufacturing and Grand Management, and thus constituted a ground for the
termination of the August 20, 1993 management
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agreement entered into by Bally's Grand, Bally Manufacturing and Grand
Management.
Count VI, a derivative claim on behalf of Bally's Grand, alleged
that Bally Entertainment purchased shares of Bally's Grand stock while in
possession of material inside information (consisting of first quarter 1996
operating results), and that these purchases constituted a breach of
fiduciary obligations by Bally Entertainment and Messrs. Burnham, Goldberg,
Looloian, Luery, McDonald and Politan.
Count VII, a non-derivative claim against Bally Entertainment,
alleged that the Paris Transaction and threats by Bally Entertainment to
abuse its controlling interest in Bally's Grand, which allegedly coerced
minority shareholders into selling their shares of Bally's Grand common stock
for less than fair value, constituted a breach of Bally Entertainment's
fiduciary duties of loyalty and fair dealing.
Count VIII, a non-derivative claim against Bally Entertainment and
Messrs. Burnham, Goldberg, Looloian, Luery, McDonald and Politan, alleged
that the Paris Transaction was void because it violated Section 203 of the
Delaware General Corporation Law. According to plaintiffs, (1) the Paris
Transaction constituted a sale of more than 10 percent of the aggregate
market value of all of the assets of Bally's Grand on a consolidated basis
and/or the aggregate market value of all of Bally's Grand's outstanding
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stock, (2) Section 203 prohibits such sales to a holder of more than 15
percent of a corporation's stock unless the corporation's board approved the
transaction by which the shareholder became the holder of more than 15
percent of the corporation's stock, and (3) Bally's Grand has not disclosed
that its board approved the transaction by which Bally Entertainment became
the holder of 15 percent or more of Bally's Grand's stock.
F. CONSOLIDATION OF THE KAHN, SHAEV AND TOWER AND EXECUTIVE LIFE
ACTIONS. On January 3, 1997, pursuant to a stipulation signed by the parties,
this Court consolidated the Tower and Executive Life action with the Kahn and
Shaev actions previously consolidated under the caption IN RE BALLY'S GRAND
DERIVATIVE LITIGATION. The Court's January 3, 1997 consolidation order did
not require the filing or designation of a consolidated complaint. The
Litigation thus proceeded with two complaints: plaintiff Kahn's second
amended and consolidated complaint, which plaintiff Shaev had joined, and the
Tower and Executive Life complaint.
G. PROCEEDINGS PRIOR TO SETTLEMENT. On November 27, 1995, the
defendants named in plaintiff Kahn's complaint moved to dismiss plaintiff
Kahn's complaint, contending that plaintiff failed to make a pre-litigation
demand or plead facts demonstrating that demand is excused as futile.
Defendants also moved to dismiss plaintiff Kahn's complaint to the extent
that it challenged conduct that occurred
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before plaintiff became a shareholder of Bally's Grand in March 1995. This
motion to dismiss was mooted by the filing of plaintiff Kahn's amended and
consolidated complaint on August 19, 1996.
Also on August 19, 1996, plaintiff Kahn filed a motion seeking
expedited proceedings and a preliminary injunction enjoining consummation of
the Paris Transaction. On August 28, 1996, after learning that the Paris
Transaction already had closed, plaintiff amended his motion to seek
expedited proceedings and rescission of the Paris Transaction. On August 29,
1996, the Court orally denied plaintiff's motion for expedited proceedings.
On November 7, 1996, all defendants named in plaintiff Kahn's
second amended and supplemental complaint filed answers to Count I and
motions to dismiss Counts II and III. The motions to dismiss Count II were
based upon the same grounds as defendants' prior motion to dismiss plaintiff
Kahn's original complaint. The motion to dismiss Count III contended that
Count III failed to state a claim upon which relief could be granted because
as a matter of law Bally's Grand's directors had not improperly delegated
authority under the management agreement, and in any event, defendants
contended, any such claim was barred because the management agreement was
adopted pursuant to a reorganization plan ordered by the United States
Bankruptcy Court for the District of New Jersey.
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On June 4, 1997, this Court denied defendants' motions to dismiss
plaintiff Kahn's second amended and supplemental complaint, with leave to
renew the motions following supplemental briefing. With respect to Count II,
the Court held that the demand futility issue could not be decided based upon
the record before the Court, and ordered "the plaintiffs to plead, or the
parties otherwise to stipulate to, the relevant facts concerning the identity
and dates of service of Grand's board at the time of the alleged improper
transactions and the time this suit was filed." With respect to Count III,
the Court held that plaintiffs' improper delegation claim was sufficient
under Court of Chancery Rule 12(b)(6) to state a cause of action upon which
relief could be granted, but that further briefing was required with respect
to the effect of the bankruptcy court's order. The parties agreed to settle
the Litigation before a stipulation was submitted to the Court or
supplemental briefing was completed.
On June 11, 1997, defendants moved for reargument with respect to
the sufficiency of plaintiffs' improper delegation claim under Court of
Chancery Rule 12(b)(6). The motion for reargument is pending.
The parties also completed extensive document and interrogatory
discovery prior to their agreement to settle the Litigation. In connection
with this discovery, defendants served interrogatory responses identifying
over 40
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persons having knowledge or information concerning the transactions and
conduct underlying the Litigation. Approximately 30,000 pages of documents
were produced by the parties and ten third parties, including American
Appraisal Associates, Bank of America NT&SA, The Bank of New York, Chase
Securities Inc., DDJ Capital Management, Donaldson, Lufkin & Jenrette
Securities Corp., Goldman, Sachs & Co., J.P. Morgan & Co. Inc., Libra
Investments, Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc. At the time
the parties agreed to settle the Litigation, the parties were attempting to
narrow differences concerning additional document requests, but cross-motions
to compel further discovery by both sides seemed likely.
H. DEFENDANTS' ANSWERS AND AFFIRMATIVE DEFENSES. On November 7, 1996,
defendants answered Count I of plaintiff Kahn's second amended and
supplemental complaint, denying liability and asserting affirmative defenses,
including plaintiffs' alleged failure to state a claim upon which relief can
be granted, plaintiffs' alleged failure to make a pre-litigation demand
pursuant to Court of Chancery Rule 23.1, the business judgment rule, an
assertion that Bally's Grand shareholders have been treated fairly, an
assertion that plaintiffs have suffered no injury, irreparable or otherwise,
the equitable doctrines of waiver and estoppel, an assertion that plaintiffs
are not appropriate representatives to bring a derivative suit, plaintiffs'
alleged
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failure to satisfy the requirements for equitable relief, and, with respect
to Bally's Grand directors, Section 102(b)(7) of the Delaware General
Corporation Law and Article II, Section Seventh (E) of Bally's Grand's
Certificate of Incorporation.
On December 20, 1996, defendants answered the Tower Complaint,
denying liability and asserting affirmative defenses, including plaintiffs'
alleged failure to state a claim upon which relief can be granted,
plaintiffs' alleged failure to make a pre-litigation demand pursuant to Court
of Chancery Rule 23.1, the business judgment rule, an assertion that Bally's
Grand shareholders have been treated fairly, an assertion that plaintiffs
have suffered no injury, irreparable or otherwise, lack of standing, the
equitable doctrines of waiver, acquiescence, estoppel, laches and unclean
hands, an assertion that plaintiffs are not appropriate representatives to
bring a derivative suit, plaintiffs' alleged failure to satisfy the
requirements for equitable relief, and, with respect to Bally's Grand
directors, Section 102(b)(7) of the Delaware General Corporation Law and
Article II, Section Seventh (E) of Bally's Grand's Certificate of
Incorporation.
I. NEGOTIATION OF SETTLEMENT. Plaintiffs' and defendants' counsel
have engaged in extensive arm's-length negotiations concerning settlement,
including one meeting during which clients participated, and numerous
conferences among
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counsel. Those extensive negotiations resulted in an agreement in principle
to settle the Litigation embodied in a Memorandum of Understanding dated June
12, 1997, and this Stipulation and the Settlement embodied in this
Stipulation.
J. REPURCHASE OF TOWER AND EXECUTIVE LIFE SHARES. On June 19, 1997,
and pursuant to the Memorandum of Understanding, Bally's Grand repurchased
388,561 shares of Bally's Grand common stock and 61,285 warrants to purchase
shares of Bally's Grand common stock held by plaintiff Tower and 578,186
shares of Bally's Grand common stock and 41,413 warrants to purchase shares
of Bally's Grand common stock held by plaintiff Executive Life at a price of
$52.75 per share in cash for stock, and, for warrants, the difference between
$52.75 per share in cash less the exercise price of warrants.
In connection with this repurchase, Tower and Executive Life agreed
to release rights, demands, suits, matters and issues, whether known or
unknown, which have been, or could have been, or in the future might be
asserted in the Litigation or in any court or proceeding by Tower or
Executive Life, including without limitation any claims arising under federal
or state law relating to alleged fraud, breach of any duty, negligence,
violation of state or federal securities laws or any other alleged wrongdoing
or misconduct, which have arisen, could have arisen, arise now or at some
later time arise out of, or are related in any
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manner to the allegations, transactions, matters or occurrences,
representations or omissions, or any combination thereof, involved in, set
forth in, referred to in or related to the Litigation against any or all of
the Released Parties (defined below), but only with respect to all shares of
Bally's Grand common stock that were repurchased on June 19, 1997. In
connection with this repurchase, Tower and Executive Life did not agree to
release any claim by or on behalf of Bally's Grand, including any claim
asserted derivatively by any shareholder of Bally's Grand.
K. PLAINTIFFS' POSITION REGARDING SETTLEMENT. While plaintiffs
believe the claims they have asserted are meritorious, plaintiffs also
recognize the uncertainty and the risk of the outcome of any litigation, and
the difficulties and substantial expense and length of time necessary to
prosecute the Litigation through motions to dismiss (with respect to
plaintiffs Kahn's and Shaev's pleadings) discovery, discovery motions,
summary judgment motions, a trial, post-trial motions and appeals. Based
upon their consideration of all of these factors, plaintiffs wish to settle
this Litigation on the terms and conditions set forth in this Stipulation,
and deem this Settlement to be fair, reasonable and adequate and in the best
interests of plaintiffs, Bally's Grand and Bally's Grand shareholders.
L. DEFENDANTS' POSITION REGARDING SETTLEMENT. Defendants deny all
allegations of wrongdoing, fault, liability
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or damage to plaintiffs, Bally's Grand or Bally's Grand shareholders, and
believe that defendants acted properly at all times. Defendants believe the
Litigation has no merit, but recognize the uncertainty and the risk of the
outcome of any litigation, especially a complex shareholder derivative action
such as this Litigation, and the difficulties and substantial expense and
length of time necessary to defend the Litigation through motions to dismiss
(with respect to plaintiffs Kahn and Shaev's pleadings) discovery, discovery
motions, summary judgment motions, a possible trial, possible post-trial
motions and possible appeals. Based upon their consideration of all of these
factors, defendants wish to settle this Litigation on the terms and
conditions set forth in this Stipulation, and avoid the burden, inconvenience
and expense inherent in further lengthy and time-consuming proceedings in
this Litigation, and to put to rest finally and forever any and all claims
that were or could have been asserted in this Litigation or arising out of
the allegations set forth in the complaints, or that could have been asserted
in any amendment of the complaints, without in any way acknowledging any
wrongdoing, fault, liability or damage to plaintiffs, Bally's Grand or
Bally's Grand shareholders.
M. FAIRNESS OPINION. In connection with the consideration by Bally's
Grand of the Settlement embodied in this Stipulation, the Board of Directors
of Bally's Grand
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has obtained opinions from Bally's Grand's financial advisor, Ladenberg,
Thalman & Co., stating that (1) the price paid to Tower and Executive Life to
repurchase shares of Bally's Grand common stock and warrants to purchase
shares of Bally's Grand common stock held by Tower and Executive Life
described above is fair, from a financial point of view, to Bally's Grand and
its shareholders other than Tower and Executive Life, and (2) that the price
to be paid for the remaining shares of Bally's Grand common stock in the
merger provided for by the Settlement described below is fair, from a
financial point of view, to the shareholders of Bally's Grand other than
Hilton.
NOW, THEREFORE, FOR ALL OF THE ABOVE STATED AND OTHER REASONS, IT
HEREBY IS STIPULATED AND AGREED, subject to the approval of the Court
pursuant to Court of Chancery Rule 23.1, as follows:
THE SETTLEMENT
1. The parties agree to settle the Litigation by means of the
following:
a. Hilton or a Hilton subsidiary (referred to collectively
below as "Hilton") will acquire in a merger transaction all shares of Bally's
Grand common stock not already held by Hilton in exchange for $52.75 in cash
(less the pro rata percentage of the attorneys' fees and expenses awarded by
the Court pursuant to Paragraph 8). Warrants to purchase shares of Bally's
Grand common stock will be
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repurchased in exchange for the difference between $52.75 per warrant in cash
(less the pro rata percentage of the attorneys' fees and expenses awarded by
the Court pursuant to Paragraph 8 below) less the exercise price of warrants.
b. Hilton will use reasonable efforts to complete the merger
described in sub-paragraph (a) as soon as practicable following the Effective
Date of the Settlement. Hilton, in its sole discretion, may complete the
merger at any time prior to the Effective Date of the Settlement.
c. The Effective Date shall be three business days following
the later of the following events: (i) the date upon which the time for the
filing or noticing of any appeal of the final order expires, and (ii) if
there is an appeal or appeals, the completion, in a manner that affirms and
leaves in place the final order, of all proceedings in the Delaware Supreme
Court and the United States Supreme Court arising out of the appeal or
appeals (including, but not limited to, the expiration of all deadlines for
motions for reconsideration or petitions for certiorari, all proceedings
ordered on remand, and all proceedings arising out of any subsequent appeal
or appeals following decisions on remand).
d. In the merger described in sub-paragraph (a), holders of
shares of Bally's Grand common stock other than Tower and Executive Life, and
only holders of shares of
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Bally's Grand common stock other than Tower and Executive Life, shall have
the right to seek appraisal under Delaware law. In any such appraisal
proceeding, the dissenting shareholder may assert, as an element of value,
his, her or its pro rata percentage share of the value of the derivative
claims asserted in the Litigation.
RELEASE TERMS
2. Upon the Effective Date, the following parties will be
released pursuant to this Stipulation and the Settlement embodied in the
Stipulation (the "Released Parties"):
a. With respect to plaintiffs' derivative claims, defendants
Hilton Hotels Corporation, Bally Entertainment Corporation, Bally's Grand
Management Co., Inc., Bally Manufacturing Corporation, Jay Burnham, Arthur M.
Goldberg, J. Kenneth Looloian, Darrell A. Luery, Jack L. McDonald and
Nicholas H. Politan, Jr., and each of their respective predecessors,
successors, assigns, parents, subsidiaries, associates, heirs, executors,
administrators, affiliates and agents, including without limitation, each of
their respective present or former officers, directors, stockholders, agents,
employees, attorneys and representatives.
b. With respect to plaintiffs' non-derivative claims, all of
the persons and entities identified in sub-paragraph (a) above and Bally's
Grand and any and all of
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Bally's Grand's predecessors, successors, assigns, parents, subsidiaries,
associates, heirs, executors, administrators, affiliates and agents,
including without limitation, each of Bally's Grand's respective present or
former officers, directors, stockholders, agents, employees, attorneys and
representatives.
c. With respect to the release in Paragraph 3(c) below,
plaintiffs Kahn, Shaev, Tower and Executive Life and each of their respective
predecessors, successors, assigns, parents, subsidiaries, associates, heirs,
executors, administrators, rehabilitators, liquidators, receivers, affiliates
and agents, including without limitation, each of their respective present or
former officers, directors, stockholders, agents, employees, attorneys and
representatives.
3. Upon the Effective Date, the following claims will be released
pursuant to this Settlement (the "Released Claims"):
a. All claims, rights, demands, suits, matters and issues,
whether known or unknown, which have been, or could have been, or in the
future might be asserted in the Litigation or in any court or proceeding by
Bally's Grand or any direct or indirect subsidiary or parent of Bally's
Grand, including without limitation any claims arising under state or federal
law relating to alleged fraud, breach of any duty, negligence, violation of
state or
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federal securities laws or any other alleged wrongdoing or misconduct,
whether directly, derivatively, including derivatively by any shareholder of
Bally's Grand, or in any other capacity that have arisen, could have arisen,
arise now or at some later time arise out of, or are related in any manner to
the allegations, transactions, matters or occurrences, representations or
omissions, or any combination thereof, involved in, set forth in, referred to
in or related to the Litigation, including whether or in what manner any
allocation of attorneys' fees and reimbursement of expenses among plaintiffs
or counsel for plaintiffs is made.
b. All claims, rights, demands, suits, matters and issues,
whether known or unknown, belonging to plaintiffs Kahn, Shaev, Tower and
Executive Life, which have been, or could have been, or in the future might
be asserted in the Litigation or in any court or proceeding by plaintiffs
Kahn, Shaev, Tower and Executive Life, including without limitation any
claims arising under state or federal law relating to alleged fraud, breach
of any duty, negligence, violation of state or federal securities laws or any
other alleged wrongdoing or misconduct, whether directly, derivatively or in
any other capacity, which have arisen, could have arisen, arise now or at
some later time arise out of, or are related in any manner to the
allegations, transactions, matters or occurrences, representations or
omis-
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sions, or any combination thereof, involved in, set forth in, referred to in
or related to the Litigation, including whether or in what manner any
allocation of attorneys' fees and expenses among plaintiffs or counsel for
plaintiffs is made. No claim belonging to anyone other than plaintiffs Kahn,
Shaev, Tower and Executive Life will be released pursuant to this
sub-paragraph. The right of plaintiffs Kahn and Shaev to seek appraisal will
not be released pursuant to this sub-paragraph.
c. All claims, rights, demands, suits, matters and issues,
whether known or unknown, belonging to defendants Hilton Hotels Corporation,
Bally Entertainment Corporation, Bally's Grand, Inc., Bally's Grand
Management Co., Inc., Bally Manufacturing Corporation, Jay Burnham, Arthur M.
Goldberg, J. Kenneth Looloian, Darrell A. Luery, Jack L. McDonald and
Nicholas Politan, which have been, or could have been, or in the future might
be asserted in the Litigation or in any court or proceeding by Hilton Hotels
Corporation, Bally Entertainment Corporation, Bally's Grand, Inc., Bally's
Grand Management Co., Inc., Bally Manufacturing Corporation, Jay Burnham,
Arthur M. Goldberg, J. Kenneth Looloian, Darrell A. Luery, Jack L. McDonald
and Nicholas Politan, against plaintiffs Kahn, Shaev, Tower and Executive
Life, which have arisen, could have arisen, arise now or at some later time
arise out of, or are related in any manner to the institution, maintenance,
prosecution, assertion,
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handling or resolution of the Litigation.
d. For purposes of sub-paragraphs (b) and (c), references to
plaintiffs Kahn, Shaev, Tower and Executive Life and defendants Hilton Hotels
Corporation, Bally Entertainment Corporation, Bally's Grand, Inc., Bally's Grand
Management Co., Inc., Bally Manufacturing Corporation, Jay Burnham, Arthur M.
Goldberg, J. Kenneth Looloian, Darrell A. Luery, Jack L. McDonald and Nicholas
Politan include their predecessors, successors, assigns, parents, subsidiaries,
associates, heirs, executors, administrators, rehabilitators, liquidators,
receivers, affiliates and agents, including without limitation, each of their
respective present or former officers, directors, stockholders, agents,
employees, attorneys and representatives.
e. The Released Claims do not include any claims by any party
to this Stipulation to enforce the terms of this Stipulation.
4. Together, the Released Claims against the Released Parties are
referred to below as the "Settled Claims."
SUBMISSION OF SETTLEMENT TO COURT FOR REVIEW
5. As soon as is practicable following signing of this Stipulation,
the parties jointly shall apply to the Court for approval of the Settlement and
for entry of an Order substantially in the form attached as Exhibit A to this
Stipulation (the "Scheduling Order"):
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a. Setting a date for a settlement hearing (the "Settlement
Hearing") (i) to determine whether the Settlement should be approved as fair,
reasonable and adequate and in the best interests of Bally's Grand and the
holders of Bally's Grand common stock, (ii) to determine whether a Final Order
and Judgment should be entered dismissing the Litigation with prejudice in
substantially the form attached as Exhibit B to this Stipulation (the "Final
Order and Judgment"), and (iii) to rule upon an application by plaintiffs'
counsel for an award of attorneys' fees and reimbursement of expenses.
b. Providing that notice of the Settlement and the Settlement
Hearing shall be given to holders of record of shares of Bally's Grand common
stock as of two business days before the date of mailing (the "Record Date") by
mailing, on or before the date specified in the Scheduling Order, a notice
substantially in the form attached as Exhibit C to this Stipulation (the
"Shareholder Notice") by first class mail to last known addresses appearing on
reasonably available records to all holders of record as of the Record Date of
shares of Bally's Grand common stock.
c. Determining that the notice provided for above is the best
notice reasonably practicable under the circumstances and constitutes due and
sufficient notice of the Settlement and the Settlement Hearing to holders of
Bally's Grand common stock under Court of Chancery Rule
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23.1, the Constitution of the United States, the Constitution of the State of
Delaware and any other applicable law.
d. Providing that the Settlement Hearing may be continued or
adjourned by the Court without further notice to holders of shares of Bally's
Grand common stock.
e. Providing that unless good cause is shown, any holder of
shares of Bally's Grand common stock who objects to the Settlement and/or to
plaintiffs' request for attorneys' fees and reimbursement of expenses or who
otherwise wishes to be heard concerning any matter before the Court may appear
in person or by counsel at the Settlement Hearing and present evidence or
argument, if and only if, no later than ten (10) days prior to the Settlement
Hearing, such person files with the Register in Chancery (1) a written notice of
the person's intent to appear, including (i) the person's name, address and
telephone number, and (ii) a summary of the person's objections to or comments
upon the proposed settlement, plaintiffs' request for attorneys' fees and
reimbursement of expenses or any other matter before the Court, and (2) any
supporting papers, including all documents and writings that the person desires
the Court to consider. Copies of all papers filed with the Register in Chancery
must be mailed by first class mail to counsel for the parties no later than ten
(10) days prior to the Settlement Hearing, as directed in the Shareholder
Notice.
f. Providing that any person or entity who
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fails to object in the manner prescribed above shall be deemed to have
waived his, her or its right to object, and shall forever be barred from
raising such objection in this or any other action or proceeding.
g. Pending the Settlement Hearing, staying all proceedings in
the Litigation, other than proceedings necessary to carry out or enforce the
terms and conditions of this Stipulation.
h. Pending the Settlement Hearing, enjoining plaintiffs and all
other holders of shares of Bally's Grand common stock from commencing or
prosecuting any action asserting the Settled Claims.
i. Containing any additional provisions consistent with the
terms of the Settlement to which the parties consent.
6. Bally's Grand will pay the cost of the notice provided for in the
preceding paragraph.
FINAL ORDER AND JUDGMENT
7. If the Court approves the Settlement, then at or following the
Settlement Hearing the parties jointly will request that the Court enter a Final
Order and Judgment in substantially the form attached as Exhibit B to this
Stipulation:
a. Finally approving the Settlement as fair, reasonable,
adequate and in the best interests of Bally's Grand and the holders of Bally's
Grand common stock,
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and directing consummation of this Settlement pursuant to
its terms;
b. Dismissing the Litigation with prejudice and without costs
except as provided for in Paragraph 8;
c. Permanently enjoining plaintiffs and all other holders of
Bally's Grand common stock from the institution and prosecution, either directly
or indirectly, of any other action in this Court or any other court or
proceeding asserting any of the Settled Claims;
d. Ordering the releases provided for in Paragraph 3; and
e. Containing any additional provisions consistent with the
terms of the Settlement to which the parties consent.
ATTORNEYS' FEES AND REIMBURSEMENT OF EXPENSES
8. The parties have agreed to the following provisions concerning
attorneys' fees and reimbursement of expenses for plaintiffs and their counsel.
a. Counsel for Tower and Executive Life will be compensated by
Tower and Executive Life. Counsel for Tower and Executive Life will not seek
attorneys' fees and expenses from the Court except as provided for in sub-
paragraph (b).
b. If the Court enters a final order substantially in the form
submitted to the Court with the Settlement Agreement, counsel for plaintiffs
Kahn and Shaev
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will seek attorneys' fees and expenses, in an amount to be
determined by the Court and not to exceed $1.25 million. Defendants will not
oppose this application. Any attorneys' fees and expenses awarded by the Court
may be shared with Tower and Executive Life as partial reimbursement for
attorneys' fees and expenses incurred by Tower and Executive Life in the
Litigation.
c. Any attorneys' fees and expenses awarded by the Court to
counsel for Kahn and Shaev will be paid by Hilton or a Hilton subsidiary out of
the merger consideration provided for in Paragraph 1(a) above, and not in any
other manner by any defendant in the Litigation. The amount of attorneys' fees
and expenses awarded by the Court shall be allocated to all shares (including
shares that can be obtained by the conversion of warrants) on a pro rata
percentage basis, whether or not shareholders seek appraisal. With respect to
shares for which appraisal is not sought (and shares that can be obtained by the
conversion of warrants), the pro rata percentage amount allocated to those
shares shall be deducted from the amounts payable in the merger transaction
provided for in Paragraph 1(a) before any amount is paid to Bally's Grand
shareholders. With respect to shares for which appraisal is sought, the pro
rata percentage amount allocated to those shares shall be deducted from the
amount awarded in the appraisal proceeding. The pro rata percentage amount
allocated to shares for which
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appraisal is sought and shares for which appraisal is not sought will be the
same. Defendants bear no responsibility with respect to whether or in what
manner any allocation of attorneys' fees and expenses among plaintiffs or
counsel for plaintiffs is made.
d. If no objections are made to the Settlement or the request
for attorneys' fees and expenses by plaintiffs Kahn and Shaev, then payment will
be made five business days following the Court's award of attorneys' fees and
expenses. If one or more objections are made to the Settlement or plaintiffs'
request for attorneys' fees and reimbursement of expenses, the payment will be
made five business days following the later of the following events: (i) the
date upon which the time for the filing or noticing of any appeal of the Final
Order and Judgment and/or other order awarding attorneys' fees and expenses
expires, and (ii) if there is an appeal or appeals, the completion, in a manner
that affirms and leaves in place the Final Order and Judgment and/or other order
awarding attorneys' fees and expenses, of all proceedings in the Delaware
Supreme Court and the United States Supreme Court arising out of the appeal or
appeals (including, but not limited to, the expiration of all deadlines for
motions for reconsideration or petitions for certiorari, all proceedings ordered
on remand, and all proceedings arising out of any subsequent appeal or appeals
following decisions on remand).
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e. If no objections are made to the Settlement or the request
for attorneys' fees and expenses by plaintiff Kahn and Shaev and if attorneys'
fees and expenses are awarded by the Court and paid to counsel for plaintiffs
Kahn and Shaev pursuant to the first sentence of sub-paragraph (d) but there is
an appeal or appeals, the completion of which does not affirm and leave in place
the Final Order and Judgment and/or other order awarding attorneys' fees and
expenses, then, within five (5) business days of receiving notice from counsel
for Bally's Grand or Hilton, counsel for plaintiffs Kahn and Shaev shall refund
the amounts previously paid to them as attorneys' fees and reimbursement of
expenses, except for any amounts paid to Executive Life and Tower, pending a
further Order by this Court, and shall be jointly and severally liable for any
amounts not refunded to Bally's Grand or Hilton. Each such plaintiffs'
counsel's law firm, as a condition of receiving such fees and expenses, on
behalf of itself and each partner and/or shareholder of it, agrees that the law
firm and its partners and/or shareholders are subject to and hereby submit to
the jurisdiction of this Court for the purpose of enforcing this Paragraph.
Without limitation, each such law firm and its partners and/or shareholders
agree that this Court may, upon application of Bally's Grand or Hilton and on
notice to plaintiffs' counsel, summarily issue orders, including but not limited
to, judgments and attachment
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<PAGE>
orders, and may make appropriate findings against them or any of them if they
fail to repay amounts owed pursuant to this sub-paragraph when due.
f. If no objections are made to the Settlement or the request
for attorneys' fees and expenses by plaintiffs Kahn and Shaev, and if attorneys'
fees and expenses are awarded by the Court and are paid to counsel for
plaintiffs Kahn and Shaev pursuant to the first sentence of sub-paragraph (d),
the amount to be shared with Tower and Executive Life shall be deposited into a
separate interest-bearing attorneys' escrow account. Payment of the amount to
be shared with Tower and Executive Life, with applicable interest, shall be made
on the Effective Date of the Settlement. If one or more objections are made to
the Settlement or to the request for attorneys' fees and by plaintiffs Kahn and
Shaev, payment of the amount to be shared with Tower and Executive Life shall be
made immediately upon the receipt by counsel for plaintiffs Kahn and Shaev of
attorneys' fees and expenses awarded by the Court.
g. If payments required pursuant to sub-paragraphs (e) are not
made when due, interest, calculated at the statutory rate in Delaware from the
date the amount is due, plus reasonable attorneys' fees and expenses incurred by
Bally's Grand and/or Hilton in seeking to collect amounts due, will be assessed.
29
<PAGE>
THIS STIPULATION IS NOT AN ADMISSION
9. This Stipulation and the Settlement provided for in this
Stipulation, whether or not consummated, do not constitute and shall not be
construed, argued or deemed in any way to constitute:
a. An admission or a concession by defendants, Released
Parties or anyone else with respect to any of the Released Claims or anything
else, or be deemed evidence of any violation of any statute or law or of any
wrongdoing, fault, liability or damages caused by defendants, Released
Parties or anyone else with respect to the Released Claims or anything else;
b. An admission or a concession by plaintiffs or Bally's
Grand that the Released Claims lack merit or that the defenses that have been
or may be asserted by the defendants have merit; or
c. An admission or a concession by anyone that the
consideration provided for in this Stipulation represents the amount that
could be or would be recovered after further pre-trial, trial, post-trial
and/or appellate proceedings in this Litigation.
10. This Stipulation and the Settlement provided for in this
Stipulation shall not be offered or received in evidence or otherwise be
admissible for any purpose in any civil, criminal or administrative action,
arbitration or other proceeding, other than proceedings necessary to
30
<PAGE>
approve or enforce this Stipulation.
CONTINGENCIES
11. If this Stipulation is not approved by the Court substantially
in the form submitted to the Court, and/or if the Final Order and Judgment
attached as Exhibit B to this Stipulation is not approved by the Court
substantially in the form submitted to the Court, then this Stipulation shall
be null and void, and shall have no further force and effect. All
proceedings in the Litigation will revert to their status as of 5:00 P.M. on
May 7, 1997, with the exception of matters decided in the Court's Memorandum
Opinion dated June 4, 1997.
12. Notwithstanding the provisions of the preceding paragraph, and
whether or not this Stipulation and the Final Order and Judgment are approved
by the Court substantially in the form submitted to the Court, Tower and
Executive Life already have agreed to and will release rights, demands,
suits, matters and issues, whether known or unknown, which have been, or
could have been, or in the future might be asserted in the Litigation or in
any court or proceeding by Tower or Executive Life, including without
limitation any claims arising under federal or state law relating to alleged
fraud, breach of any duty, negligence, violation of state or federal
securities laws or any other alleged wrongdoing or misconduct, which have
arisen, could have arisen, arise now or at some later time arise out of,
31
<PAGE>
or are related in any manner to the allegations, transactions, matters or
occurrences, representations or omissions, or any combination thereof,
involved in, set forth in, referred to in or related to the Litigation
against any or all of the Released Parties, but only with respect to the
shares of Bally's Grand common stock that were repurchased on June 19, 1997.
No claim by or on behalf of Bally's Grand, including any claim asserted
derivatively by any shareholder of Bally's Grand, is released pursuant to
this Paragraph.
ADDITIONAL PROVISIONS
13. Upon the Effective Date defined in Paragraph 1(d), this
Litigation shall be deemed to have reached a conclusion as that term is used
in the Stipulation and Protective Orders dated November 15, 1996 and December
19, 1996. Pursuant to Paragraph 10 of those Stipulations and Protective
Orders, all copies of Confidential Materials, as the term is used in the
Stipulations and Protective Orders, shall be returned to the producing party
or destroyed within thirty (30) days after the Effective Date.
14. Except to the extent otherwise specified in this Stipulation,
notices required by this Stipulation shall be delivered either by hand,
facsimile or overnight mail to:
Robert K. Payson Jesse A. Finkelstein
Stephen C. Norman Raymond J. DiCamillo
POTTER ANDERSON & CORROON RICHARDS, LAYTON & FINGER
350 Delaware Trust Building One Rodney Square
Post Office Box 951 P.O. Box 551
32
<PAGE>
Wilmington, DE 19899 Wilmington, DE 19899
Attorneys for Plaintiffs Attorneys for Defendant
Tower Investment Group, Hilton Hotels Corporation
Inc. and Executive Life
of New York Stephen E. Jenkins
Richard D. Heins
Victor F. Battaglia, Sr. ASHBY & GEDDES
Robert D. Goldberg One Rodney Square
BIGGS AND BATTAGLIA P.O. Box 1150
1800 Mellon Bank Center Wilmington, DE 19899
P.O. Box. 1489
Wilmington, DE 19899 Attorneys for Defendants
Bally Entertainment
Attorneys for Plaintiff Corporation, Bally's Grand
Alan R. Kahn Management Co. Inc., Bally
Manufacturing Corporation,
Joseph A. Rosenthal Arthur M. Goldberg, J.
ROSENTHAL, MONHAIT, GROSS & Kenneth Looloian and
GODDESS, P.A. Darrell A. Luery
Suite 1401, Mellon Bank
Center A. Gilchrist Sparks, III
P.O. Box 1070 Alan J. Stone
Wilmington, DE 19899 MORRIS, NICHOLS, ARSHT &
TUNNELL
Attorneys for Plaintiff 1201 N. Market Street
David Shaev P.O. Box 1347
Wilmington, DE 19899
Attorneys for Defendants
Jay Burnham, Jack L.
MacDonald and Nicholas H.
Politan, Jr.
Brett D. Fallon
SMITH KATZENSTEIN & FURLOW
800 Delaware Avenue
P.O. Box 410
Wilmington, DE 19899
Attorneys for Defendant
Bally's Grand, Inc.
15. The waiver by any party of any breach of this Stipulation by
any other party shall not be deemed a waiver of any other prior or subsequent
breach of this Stipulation.
16. This Stipulation shall be governed by and interpreted according
to the substantive laws of the State
33
<PAGE>
of Delaware and without regard to its choice of law rules.
17. The undersigned counsel represent that they are duly
authorized by their respective clients to enter into this Stipulation, to
bind their respective clients as stated in this Stipulation, and to take all
appropriate action required or permitted to be taken pursuant to this
Stipulation to effectuate its terms.
18. This Stipulation and the accompanying exhibits constitute the
entire agreement and understanding between plaintiffs and defendants. No
representations, warranties or inducements have been made to any party
concerning this Stipulation and the accompanying exhibits, other than the
representations, warranties and covenants contained in this Stipulation and
the accompanying exhibits, and any agreement among counsel for plaintiffs
regarding allocation of attorneys' fees and expenses.
19. This Stipulation may be modified only in a writing signed by
counsel for all of the parties.
20. This Stipulation may be signed in counterparts.
[Signatures begin on following page]
34
<PAGE>
POTTER ANDERSON & CORROON RICHARDS, LAYTON & FINGER
/s/ ROBERT K. PAYSON /s/ JESSE A. FINKELSTEIN
- ---------------------------------- ----------------------------------
Robert K. Payson Jesse A. Finkelstein
Stephen C. Norman Raymond J. DiCamillo
350 Delaware Trust Building One Rodney Square
Post Office Box 951 P.O. Box 551
Wilmington, Delaware 19899 Wilmington, DE 19899
(302) 984-6000 (302) 651-7754
-and- -and-
Linda C. Goldstein Hugh Steven Wilson
HOWARD, DARBY & LEVIN LATHAM & WATKINS
1330 Avenue of the Americas 701 B Street, Suite 2100
New York, NY 10019 San Diego, CA 92101-8197
(212) 841-1000 (619) 236-1234
Attorneys for Plaintiffs Tower Everett C. Johnson, Jr.
Investment Group, Inc. and LATHAM & WATKINS
Executive Life of New York 1001 Pennsylvania Ave., N.W.
Suite 1300
BIGGS AND BATTAGLIA Washington, DC 20004-2505
(202) 637-2200
/s/ ROBERT D. GOLDBERG Attorneys for Defendant
- ---------------------------------- Hilton Hotels Corporation
Victor F. Battaglia, Sr.
Robert D. Goldberg ASHBY & GEDDES
1800 Mellon Bank Center
P.O. Box. 1489
Wilmington, DE 19899 /s/ RICHARD D. HEINS
(302) 655-9677 ----------------------------------
Stephen E. Jenkins
-and- Richard D. Heins
One Rodney Square
Sidney B. Silverman P.O. Box 1150
SILVERMAN HARNES & HARNES Wilmington, DE 19899
750 Lexington Avenue (302) 654-1888
New York, NY 10022
(212) 754-2333 -and-
Attorneys for Plaintiff Alan Dennis J. Block
R. Kahn Stephen A. Radin
WEIL, GOTSHAL & MANGES LLP
767 Fifth Avenue
New York, NY 10153
(212) 310-8000
35
<PAGE>
ROSENTHAL, MONHAIT, GROSS & Attorneys for Defendants
GODDESS, P.A. Bally Entertainment
Corporation, Bally's Grand
Management Co. Inc., Bally
/s/ JOSEPH A. ROSENTHAL Manufacturing Corporation,
- ---------------------------------- Arthur M. Goldberg, J. Kenneth
Joseph A. Rosenthal Looloian and Darrell A. Luery
Suite 1401, Mellon Bank Center
P.O. Box 1070 MORRIS, NICHOLS, ARSHT
Wilmington, DE 19899 & TUNNELL
(302) 656-4433
-and- /s/ ALAN J. STONE
----------------------------------
Robert I. Harwood A. Gilchrist Sparks, III
WECHSLER HARWOOD HALEBIAN Alan J. Stone
& FEFFER LLP 1201 N. Market Street
805 Third Avenue P.O. Box 1347
New York, NY 10022 Wilmington, DE 19899
(212) 935-7400 (302) 658-9200
Attorneys for Plaintiff David Attorneys for Defendants
Shaev Jay Burnham, Jack L. MacDonald
and Nicholas H. Politan, Jr.
SMITH KATZENSTEIN & FURLOW
/s/ BRETT D. FALLON
----------------------------------
Brett D. Fallon
800 Delaware Avenue
P.O. Box 410
Wilmington, DE 19899
(302) 652-8400
Attorneys for Defendant
Bally's Grand, Inc.
Dated: August 7, 1997
36
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
)
IN RE BALLY'S GRAND DERIVATIVE ) Consolidated Civil Actions
LITIGATION ) Nos. 14644 and 15325
)
FINAL ORDER AND JUDGMENT
The Stipulation of Settlement dated August 7, 1997 (the
"Stipulation") of the above-captioned action (the "Litigation"), a
shareholder derivative action on behalf of Bally's Grand, Inc. ("Bally's
Grand"), and the settlement of this action embodied in the Stipulation (the
"Settlement"), having been presented to the Court at a hearing on October 9,
1997 (the "Settlement Hearing"), held pursuant to this Court's Order dated
August 8, 1997 (the "Scheduling Order") and it appearing that due notice of
the Settlement Hearing was given in accordance with the Scheduling Order, the
respective parties having appeared by their attorneys of record, the Court
having heard and considered evidence in support of the proposed Settlement,
the attorneys for the respective parties having been heard, and an
opportunity to be heard having been given to all other persons requesting to
be heard in accordance with the Scheduling Order, the Court having determined
that due, adequate and sufficient notice has been given to Bally's Grand
shareholders, and the
<PAGE>
entire matter of the proposed Settlement having been heard and considered by
the Court;
IT HEREBY IS ORDERED, ADJUDGED AND DECREED as follows:
1. The Settlement is approved and confirmed as fair, reasonable,
adequate and in the best interests of Bally's Grand and the holders of
Bally's Grand common stock. The parties to the Settlement are directed to
consummate the Settlement (to the extent it is not already consummated) in
accordance with the terms and conditions in the Stipulation, including but
not limited to the following:
a. Hilton Hotels Corporation or a Hilton subsidiary
(referred to collectively below as "Hilton") will acquire in a merger
transaction all shares of Bally's Grand common stock not already held by
Hilton in exchange for $52.75 per share in cash (less the pro rata percentage
of the attorneys' fees and expenses awarded by the Court). Warrants to
purchase shares of Bally's Grand common stock will be repurchased in exchange
for the difference between $52.75 per warrant in cash (less the pro rata
percentage of the attorneys' fees and expenses awarded by the Court) less the
exercise price of warrants. Holders of shares of Bally's Grand common stock
other than Tower and Executive Life shall have the right to seek appraisal
under Delaware law. In any such appraisal proceeding, the dissenting
shareholder may assert, as an element of value, his, her or
2
<PAGE>
its percentage share of the value of the derivative claims asserted in the
Litigation.
b. Hilton will use reasonable efforts to complete the merger
as soon as practicable following the Effective Date of the Settlement.
Hilton may, in its sole discretion, complete the merger at any time prior to
the Effective Date of the Settlement.
c. The Effective Date is three business days following the
later of the following events: (i) the date upon which the time for the
filing or noticing of any appeal of the final order expires, and (ii) if
there is an appeal or appeals, the completion, in a manner that affirms and
leaves in place the final order, of all proceedings in the Delaware Supreme
Court and the United States Supreme Court arising out of the appeal or
appeals (including, but not limited to, the expiration of all deadlines for
motions for reconsideration or petitions for certiorari, all proceedings
ordered on remand, and all proceedings arising out of any subsequent appeal
or appeals following decisions on remand).
2. Upon the Effective Date, the following parties are released:
a. With respect to plaintiffs' derivative claims, defendants
Hilton Hotels Corporation, Bally Entertainment Corporation, Bally's Grand
Management Co., Inc., Bally Manufacturing Corporation, Jay Burnham, Arthur M.
3
<PAGE>
Goldberg, J. Kenneth Looloian, Darrell A. Luery, Jack L. McDonald and
Nicholas H. Politan, Jr., and each of their respective predecessors,
successors, assigns, parents, subsidiaries, associates, heirs, executors,
administrators, affiliates and agents, including without limitation, each of
their respective present or former officers, directors, stockholders, agents,
employees, attorneys and representatives.
b. With respect to plaintiffs' non-derivative claims, all of
the persons and entities identified in sub-paragraph (a) above and Bally's
Grand, Inc., and each of Bally's Grand's predecessors, successors, assigns,
parents, subsidiaries, associates, heirs, executors, administrators,
affiliates and agents, including without limitation, each of Bally's Grand's
respective present or former officers, directors, stockholders, agents,
employees, attorneys and representatives.
c. With respect to the release in Paragraph 3(c) below,
plaintiffs Kahn, Shaev, Tower and Executive Life and each of their respective
predecessors, successors, assigns, parents, subsidiaries, associates, heirs,
executors, administrators, rehabilitators, liquidators, receivers, affiliates
and agents, including without limitation, each of their respective present or
former officers, directors, stockholders, agents, employees, attorneys and
representatives.
4
<PAGE>
3. Upon the Effective Date, the following claims are released:
a. All claims, rights, demands, suits, matters and issues,
whether known or unknown, which have been, or could have been, or in the
future might be asserted in the Litigation or in any court or proceeding by
Bally's Grand or any direct or indirect subsidiary or parent of Bally's
Grand, including without limitation any claims arising under state or federal
law relating to alleged fraud, breach of any duty, negligence, violation of
state or federal securities laws or any other alleged wrongdoing or
misconduct, whether directly, derivatively, including derivatively by any
shareholder of Bally's Grand, or in any other capacity that have arisen,
could have arisen, arise now or at some later time arise out of, or are
related in any manner to the allegations, transactions, matters or
occurrences, representations or omissions, or any combination thereof,
involved in, set forth in, referred to in or related to the Litigation,
including whether or in what manner any allocation of attorneys' fees and
expenses among plaintiffs or counsel for plaintiffs is made.
b. All claims, rights, demands, suits, matters and issues,
whether known or unknown, belonging to plaintiffs Kahn, Shaev, Tower and
Executive Life, which have been, or could have been, or in the future might
be asserted in the Litigation or in any court or proceeding by plain-
5
<PAGE>
tiffs Kahn, Shaev, Tower and Executive Life, including without limitation any
claims arising under state or federal law relating to alleged fraud, breach
of any duty, negligence, violation of state or federal securities laws or any
other alleged wrongdoing or misconduct, whether directly, derivatively or in
any other capacity, which have arisen, could have arisen, arise now or at
some later time arise out of, or are related in any manner to the
allegations, transactions, matters or occurrences, representations or
omissions, or any combination thereof, involved in, set forth in, referred to
in or related to the Litigation, including whether or in what manner any
allocation of attorneys fees and expenses among plaintiffs or counsel for
plaintiffs is made. No claim belonging to anyone other than plaintiffs Kahn,
Shaev, Tower and Executive Life is released pursuant to this sub-paragraph.
The right of plaintiffs Kahn and Shaev to seek appraisal is not released
pursuant to this sub-paragraph.
c. All claims, rights, demands, suits, matters and issues,
whether known or unknown, belonging to defendants Hilton Hotels Corporation,
Bally Entertainment Corporation, Bally's Grand, Inc., Bally's Grand
Management Co., Inc., Bally Manufacturing Corporation, Jay Burnham, Arthur M.
Goldberg, J. Kenneth Looloian, Darrell A. Luery, Jack L. McDonald and
Nicholas Politan, which have been, or could have been, or in the future might
be asserted in the
6
<PAGE>
Litigation or in any court or proceeding by Hilton Hotels Corporation, Bally
Entertainment Corporation, Bally's Grand, Inc., Bally's Grand Management Co.,
Inc., Bally Manufacturing Corporation, Jay Burnham, Arthur M. Goldberg, J.
Kenneth Looloian, Darrell A. Luery, Jack L. McDonald and Nicholas Politan,
against plaintiffs Kahn, Shaev, Tower and Executive Life, which have arisen,
could have arisen, arise now or at some later time arise out of, or are
related in any manner to the institution, maintenance, prosecution,
assertion, handling or resolution of the Litigation.
d. For purposes of sub-paragraphs (b) and (c), references to
plaintiffs Kahn, Shaev, Tower and Executive Life and defendants Hilton Hotels
Corporation, Bally Entertainment Corporation, Bally's Grand, Inc., Bally's
Grand Management Co., Inc., Bally Manufacturing Corporation, Jay Burnham,
Arthur M. Goldberg, J. Kenneth Looloian, Darrell A. Luery, Jack L. McDonald
and Nicholas Politan include their predecessors, successors, assigns,
parents, subsidiaries, associates, heirs, executors, administrators,
rehabilitators, liquidators, receivers, affiliates and agents, including
without limitation, each of their respective present or former officers,
directors, stockholders, agents, employees, attorneys and representatives.
e. The Released Claims do not include any claims by any
party to enforce the terms of the parties' Settlement.
7
<PAGE>
f. Together, the Released Claims against the Released
Parties are referred to below as the "Settled Claims."
4. The Litigation is dismissed with prejudice, with all parties
to bear their own costs, except as provided for below.
5. This Judgment is final and conclusive with respect to the
Settled Claims, and binds Bally's Grand, anyone acting on behalf of Bally's
Grand, including Bally's Grand shareholders acting derivatively, and
plaintiffs.
6. Plaintiffs and all other Bally's Grand shareholders are
permanently enjoined from the institution and prosecution, either directly or
indirectly, of any other action in this Court or any other court or
proceeding asserting any of the Settled Claims.
7. This Order and Final Judgment shall not constitute any
evidence or admission by any party herein that any acts of wrongdoing have
been committed by any of the parties to the Litigation, and shall not be
deemed to create any inference that there is any liability for any acts
committed by any of the parties to the Litigation.
8. Counsel for plaintiffs Kahn and Shaev are awarded $1,250,000
in attorneys' fees and reimbursement of expenses, payable in accordance with
the terms of the parties' Stipulation.
8
<PAGE>
9. The Register in Chancery is directed to enter and docket this
Final Order and Judgment forthwith.
/s/
-------------------------------
Vice-Chancellor
Date: October 9, 1997
9
<PAGE>
Exhibit(d)(1)
TRANSACTION STATEMENT
BALLY'S GRAND, INC.
This Rule 13E-3 Transaction Statement (the "Transaction Statement") is
being sent on February __, 1998 to the holders of record of Common Stock, par
value $0.01 per share ("BGI Common Stock"), of Bally's Grand, Inc. ("BGI")
and to the holders of record of Warrants to purchase BGI Common Stock ("BGI
Warrants") as of February ___, 1998, in connection with the proposed
short-form statutory merger (the "Merger") of Bally's CHLV Inc. ("Merger
Sub"), an indirect, wholly owned subsidiary of Hilton Hotels Corporation
("Hilton"), with and into BGI. The Merger is to be consummated pursuant to
the terms of the Agreement and Plan of Merger (the "Merger Agreement"), dated
as of February 6, 1998, by and among BGI, Merger Sub and Hilton and in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL"). The Merger Agreement was entered into pursuant to the terms of a
court approved Settlement Agreement (as defined). See "Special
Factors--Background of the Merger--Settlement Agreement." Merger Sub is the
holder of over 90% of the issued and outstanding shares of BGI Common Stock,
and the Merger will be accomplished pursuant to the provisions of Section 253
of the DGCL. As a result, no action by the holders of BGI Common Stock or
BGI Warrants is required to approve or consummate the Merger and no such
approval is sought. No meeting of the stockholders of BGI will be held. The
Merger is expected to become effective on March 13, 1998.
Pursuant to the terms of the court approved Settlement Agreement and the
Merger Agreement, (i) each share of BGI Common Stock outstanding immediately
prior to the time at which the Merger is consummated (the "Effective Time"),
other than those held by BGI, Merger Sub, Hilton or a subsidiary of Hilton,
will, without any action on the part of any holder thereof, be automatically
converted into the right solely to receive cash in the amount of $51.37
(representing $52.75 per share less a pro-rata percentage of attorneys' fees
and expenses in the amount of $1.38 per share) without interest thereon (the
"Stock Price"), subject to the rights of holders thereof to seek an appraisal
of their shares and (ii) each BGI Warrant outstanding immediately prior to
the Effective Time, other than those held by BGI, Merger Sub, Hilton or a
subsidiary of Hilton, will, without any action on the part of the holder
thereof, be automatically converted into the right solely to receive cash in
the amount of $41.37 (representing $42.75 per BGI Warrant less a pro-rata
percentage of attorneys' fees and expenses in the amount of $1.38 per BGI
Warrant) (the "Warrant Price" and together with the Stock Price, the "Merger
Price"), without interest thereon. See "Special Factors--Background of the
Merger--Settlement Agreement" herein. In order to receive payment of the
Stock Price and/or Warrant Price after the Effective Time, a properly
completed Letter of Transmittal in the form enclosed herewith, together with
certificates representing shares (or fractions thereof) of BGI Common Stock
or BGI Warrants, must be delivered to The Bank of New York, as paying agent,
by mail, hand delivery, or overnight courier in the manner set forth in the
Letter of Transmittal.
BGI'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND
DETERMINED THAT THE MERGER IS FAIR TO HOLDERS OF BGI COMMON STOCK AND BGI
WARRANTS. SEE "SPECIAL FACTORS--DETERMINATIONS BY THE BOARD; FAIRNESS OF THE
MERGER."
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
<PAGE>
This Transaction Statement is accompanied by a notice of the
availability of appraisal rights pursuant to Section 262(d)(2) of the DGCL.
Under Section 262 of the DGCL, holders of BGI Common Stock who do not wish to
accept the Stock Price have the right, if properly perfected, to seek an
appraisal of the "fair value" of their shares (which could be less than or
greater than the Stock Price that would otherwise have been paid to such
holder pursuant to the Merger Agreement). Holders of BGI Warrants are not
entitled to appraisal rights under the DGCL. For a discussion of the rights
of holders of BGI Common Stock to seek such an appraisal, see "The
Merger--Appraisal Rights of Common Stockholders."
This Transaction Statement is also accompanied by BGI's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, its Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 1997 and its Proxy
Statement for the Annual Meeting of Shareholders held February 3, 1997.
These reports contain additional information regarding BGI and should be read
together with the information set forth herein. For a discussion of the
availability of additional reports and other information regarding BGI and
Hilton, see "Available Information."
NO PROXIES OR CONSENTS ARE BEING SOLICITED IN CONNECTION WITH THE MERGER
AND YOU ARE REQUESTED NOT TO SUBMIT A PROXY OR CONSENT.
The date of this Transaction Statement is February __, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SPECIAL FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . 1
Purpose of and Reasons for the Merger. . . . . . . . . . . . . . . . . . 3
Certain Effects of the Merger. . . . . . . . . . . . . . . . . . . . . . 3
Plans for BGI Following the Merger . . . . . . . . . . . . . . . . . . . 3
Determinations by the Board; Fairness of the Merger. . . . . . . . . . . 4
Interests of Certain Persons in Securities of BGI and the Merger . . . . 11
THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Certain Federal Income Tax Consequences. . . . . . . . . . . . . . . . . 14
Accounting Treatment of the Merger . . . . . . . . . . . . . . . . . . . 15
Surrender of Certificates; Payment to Holders. . . . . . . . . . . . . . 15
Appraisal Rights of Common Stockholders. . . . . . . . . . . . . . . . . 17
Source and Amount of Funds . . . . . . . . . . . . . . . . . . . . . . . 19
Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
MARKET PRICE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 21
CERTAIN INFORMATION CONCERNING BGI . . . . . . . . . . . . . . . . . . . . 21
BGI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Summary Financial Data of BGI. . . . . . . . . . . . . . . . . . . . . . 22
Directors of BGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Executive Officers Of BGI. . . . . . . . . . . . . . . . . . . . . . . . 23
CERTAIN INFORMATION CONCERNING HILTON AND MERGER SUB . . . . . . . . . . . 24
Hilton and Merger Sub. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Directors of Hilton. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Executive Officers of Hilton . . . . . . . . . . . . . . . . . . . . . . 26
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE. . . . . . . . . . . . . 27
</TABLE>
ANNEX I - Merger Agreement
ANNEX II - Letter of Transmittal
ANNEX III - Section 262 of the Delaware General Corporation Law
ANNEX IV - Opinion of Ladenburg Thalmann & Co. Inc. dated June 12, 1997
ANNEX V - Opinion of Ladenburg Thalmann & Co. Inc. dated February 6, 1998
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INTRODUCTION
This Rule 13E-3 Transaction Statement (the "Transaction Statement") is
being sent on February __, 1998 to the holders of record of Common Stock, par
value $0.01 per share ("BGI Common Stock"), of Bally's Grand, Inc. ("BGI")
and to the holders of record of Warrants to purchase BGI Common Stock ("BGI
Warrants") as of February ___, 1998, in connection with the proposed
short-form statutory merger (the "Merger") of Bally's CHLV Inc. ("Merger
Sub"), an indirect, wholly owned subsidiary of Hilton Hotels Corporation
("Hilton"), with and into BGI. The Merger is to be consummated pursuant to
the terms of the Agreement and Plan of Merger (the "Merger Agreement"), dated
as of February 6, 1998, by and among BGI, Merger Sub and Hilton and in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL"). The Merger Agreement was entered into pursuant to the terms of a
court approved Settlement Agreement (as defined). See "Special
Factors--Background of the Merger--Settlement Agreement." Merger Sub is the
holder of over 90% of the issued and outstanding shares of BGI Common Stock,
and the Merger will be accomplished pursuant to the terms of Section 253 of
the DGCL. As a result, no action by the holders of BGI Common Stock or BGI
Warrants is required to approve or consummate the Merger and no such approval
is sought. No meeting of the stockholders of BGI will be held. The Merger is
expected to become effective on March 13, 1998.
On December 18, 1996, Hilton acquired Bally Entertainment Corporation
("Bally") pursuant to a merger of Bally with and into Hilton (the
"Hilton/Bally Merger"). As a result, on such date BGI, formerly an indirect
subsidiary of Bally, became an indirect subsidiary of Hilton.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
SETTLEMENT AGREEMENT. On October 9, 1996, prior to the Hilton/Bally
Merger, two derivative actions purportedly brought on behalf of BGI by BGI
shareholders against its directors and Bally, 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 alleged
breaches of fiduciary duty and waste of corporate assets in connection with
certain actions including the sale by BGI to Bally of the capital stock of
Paris Casino Corp. (the "Paris Transaction"), alleged improper delegation of
duties by BGI's Board of Directors by virtue of a management agreement
between BGI and Bally (the "Management Agreement"), the designation pursuant
to the Management Agreement of recipients awarded BGI Common Stock pursuant
to the Incentive Stock Plan of BGI, purchases of BGI Common Stock by BGI and
Bally, and a consulting agreement entered into by BGI with Arveron
Investments L.P. in connection with BGI's investments in publicly-traded
securities and certain repurchases of BGI Common Stock. The plaintiff
shareholders sought, among other things: (i) rescission of the Paris
Transaction, (ii) a declaration that the Management Agreement was unlawful,
(iii) an accounting of damages to BGI and profits to defendants as a result
of the transactions complained of, (iv) an accounting for purchases of BGI
Common Stock by BGI and Bally, and (v) costs and expenses including
reasonable attorneys' fees. A third derivative action purportedly brought on
behalf of BGI against its directors, Bally, the manager under the Management
Agreement 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 alleged breach of fiduciary duty and waste of corporate assets by
BGI's directors and Bally in connection with the Paris Transaction, aiding
and abetting by Hilton of the breaches of fiduciary duty and waste by
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BGI's directors and Bally, fraud, willful misconduct or gross negligence by
Bally and the manager under the Management Agreement in connection with the
Management Agreement, breach of fiduciary duty by BGI's directors in
connection with purchases of BGI's Common Stock by Bally while in possession
of material inside information concerning BGI's earnings, breach of fiduciary
duty by Bally in connection with alleged threats to abuse its controlling
interest in BGI, and violation by BGI's directors and Bally of Section 203 of
the Delaware General Corporation Law in connection with the Paris
Transaction. The plaintiffs sought among other things: (i) rescission of
the Paris Transaction, (ii) termination of the Management Agreement, (iii)
appointment of a custodian to manage BGI's affairs, (iv) compensatory
damages, (v) an order enjoining Bally and Hilton from conveying the Paris
Casino-Resort, (vi) disgorgement by Bally and Hilton of the profits of the
Paris Casino-Resort, (vii) disgorgement by Arthur M. Goldberg the Chief
Executive of Bally of all payments, warrants and interests received in
connection with the Hilton/Bally Merger, and (viii) disgorgement by Bally of
profits earned from any transactions in shares of BGI Common Stock based upon
material inside information. This action was subsequently consolidated with
the original consolidated action in January 1997 under the caption IN RE:
BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION.
On December 18, 1996, the Hilton/Bally Merger was consummated and on
such date Hilton became the indirect owner of approximately 84.0% of the
outstanding shares of BGI Common Stock.
On June 12, 1997, BGI reached an agreement in principle to settle the IN
RE: BALLY'S GRAND INC. SHAREHOLDERS LITIGATION pursuant to a Memorandum of
Understanding dated June 12, 1997 (the "Memorandum") containing the terms to
be provided in the Settlement Agreement (as defined below). Pursuant to the
Memorandum, on June 24, 1997 BGI repurchased 966,747 shares of BGI Common
Stock and 102,698 BGI Warrants from certain plaintiffs (the "Institutional
Plaintiffs") at a price of $52.75 per share in cash for the BGI Common Stock
and $52.75 less the exercise price per BGI Warrant in cash for the BGI
Warrants. The Institutional Plaintiffs remained responsible for the payment
of their own attorneys' fees and expenses. As a result of such repurchases,
Hilton became the indirect owner of approximately 95% of the outstanding
shares of BGI Common Stock.
On August 7, 1997, the parties entered into a Stipulation of Settlement
(the "Settlement Agreement"). Pursuant to the terms of the Settlement
Agreement, a subsidiary of Hilton will merge into BGI and each remaining
outstanding share of BGI Common Stock not currently owned by Hilton or its
affiliates will be converted into the right to receive $52.75 (less the pro
rata percentage of the court-awarded attorneys' fees and expenses) per share
in cash, and the remaining outstanding BGI Warrants not currently owned by
Hilton or its affiliates will be converted into the right to receive the
difference between $52.75 (less the pro rata percentage of the court-awarded
attorneys' fees and expenses) and the exercise price per BGI Warrant in cash.
See Cover pages of this Transaction Statement. The Settlement Agreement
states that in connection with the Merger, holders of outstanding shares of
BGI Common Stock will have appraisal rights under the DGCL and provides that
in any such appraisal, the dissenting shareholder may assert, as an element
of value, such holder's pro rata percentage of the derivative claims asserted
in IN RE: BALLY'S GRAND INC. SHAREHOLDER LITIGATION. The Court ruled that
the attorneys' fees and expenses of the remaining plaintiffs in the case,
amounting to $1.25 million, would be allocated to all shares of BGI Common
Stock (including shares issuable upon conversion of BGI Warrants) on a pro
rata percentage basis, whether or not shareholders seek appraisal. The
Settlement Agreement provides that with respect to shares for which appraisal
is sought, the pro rata percentage amount allocated to those shares shall be
deducted from the amount awarded in any appraisal proceeding. See "The
Merger--Appraisal Rights of Common Stockholders."
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On October 9, 1997, the Court approved the Settlement Agreement and a
final order and judgment was entered (the "Final Order"). In the Final
Order, the court adjudged that the Settlement Agreement is fair, reasonable,
adequate and in the best interests of BGI and the holders of BGI Common Stock.
On October 28, 1997, a sole shareholder appealed the court approval of
the Settlement Agreement. On November 6, 1997, the Delaware Supreme Court
granted a motion for an expedited appeal. On November 17, 1997, the sole
shareholder voluntarily dismissed the appeal.
PURPOSE OF AND REASONS FOR THE MERGER
The purpose of the Merger is to comply with the Settlement Agreement and
the Final Order such that holders of BGI Common Stock and BGI Warrants will
receive cash for their securities.
CERTAIN EFFECTS OF THE MERGER
Following the Merger, an indirect, wholly-owned subsidiary of Hilton,
Bally's Casino Holdings, Inc., will own the entire equity interest of BGI.
As a result of the Merger, Hilton's indirect equity interest, which is
currently 92%, will be increased to 100% and Hilton will thus have a
corresponding increased interest in the net earnings and net book value of
BGI. See "Certain Information Concerning BGI--Summary Financial Data of
BGI." Upon the effectiveness of the Merger, the BGI Common Stock and the BGI
Warrants will cease to be outstanding and will be delisted from quotation on
the NASDAQ National Market System. Moreover, registration of the BGI Common
Stock and the BGI Warrants under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") will be terminated, whereupon BGI will no longer
file periodic reports with the Securities and Exchange Commission.
THE MERGER WILL BE EFFECTED UPON THE FILING OF A CERTIFICATE OF MERGER
WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE, WHICH IS EXPECTED TO
OCCUR ON OR ABOUT MARCH 13, 1998.
PLANS FOR BGI FOLLOWING THE MERGER
Following the Merger, BGI's cash management procedures will be
integrated with those of Hilton and its subsidiaries. In accordance
therewith, BGI will make daily transfers of cash to Hilton. Depending on the
cash needs of Hilton and its subsidiaries at year end, any receivables of BGI
from Hilton may be canceled and treated as dividends to Hilton. In addition,
it is anticipated that shares of Hilton Common Stock held by BGI will be
canceled and retired.
In connection with the Hilton/Bally Merger, Hilton made a cash tender
offer for BGI's 10-3/8% First Mortgage Notes due 2003 (the "BGI Notes").
Pursuant thereto, Hilton purchased approximately $312.6 million of BGI Notes.
Following the Merger, Hilton and BGI intend to cancel the BGI Notes held by
Hilton. Pursuant to the terms of the Indenture governing the BGI Notes, BGI
may be discharged from certain obligations and covenants in respect thereof
by depositing cash with the trustee under the Indenture sufficient to pay all
principal and interest on the BGI Notes on the dates such payments are due in
accordance with the terms of the BGI Notes (a "Defeasance"). BGI intends to
effect a Defeasance with respect to the remaining approximately $2.4 million
aggregate principal amount of BGI Notes to be outstanding following the
Merger.
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Pursuant to the terms of the Merger Agreement, the directors of Merger
Sub will be the directors of BGI. Arthur Goldberg is the sole director of
Merger Sub. See "The Merger--The Merger Agreement--Directors and Officers of
the Surviving Company."
DETERMINATIONS BY THE BOARD; FAIRNESS OF THE MERGER
BACKGROUND. At a meeting held on June 12, 1997, BGI's Board of
Directors unanimously determined (i) to approve the settlement of the
litigation in accordance with the terms contemplated by the Memorandum and
the Settlement Agreement and (ii) that the Merger is fair to holders of BGI
Common Stock and BGI Warrants. The Board of Directors of BGI is comprised of
five directors, three of whom are independent directors.
In reaching its conclusions with respect to the fairness of the Merger
to BGI shareholders, BGI's Board of Directors considered, among other
factors, the following:
(a) the presentation by, and the opinions of, the investment banking
firm of Ladenburg Thalmann & Co. Inc. ("Ladenburg") delivered to the BGI
Board of Directors at the June 12, 1997 meeting;
(b) the terms of the Memorandum and the proposed terms of the
Settlement Agreement which were negotiated on an arms-length basis with the
plaintiffs in the litigation and the fact that such plaintiffs owned in
excess of 50% of the outstanding shares of BGI Common Stock not owned by
Hilton or its affiliates;
(c) the price that BGI paid to repurchase shares of BGI Common Stock
from an unaffiliated third party in April 1997 (see "Market Price
Information" herein);
(d) the recent trading price of BGI Common Stock and the financial
condition, results of operations, prospects and businesses of BGI; and
(e) the current industry, economic and market conditions.
BGI's Board of Directors did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific
factors considered in reaching its determination that the Merger is fair to
holders of BGI Common Stock and BGI Warrants.
The Board of Directors did not retain any unaffiliated representative to
act solely on behalf of unaffiliated security holders for purposes of
negotiating the terms of the transaction or preparing a report concerning the
fairness of the transaction.
Hilton also believes that the Merger is fair to holders of BGI Common
Stock and BGI Warrants. In reaching its conclusion with respect to such
fairness, Hilton has adopted the analysis of BGI's Board of Directors
described above.
OPINIONS OF FINANCIAL ADVISOR. BGI retained Ladenburg to act as its
financial advisor with respect to the Merger based upon Ladenburg's
qualifications, experience and expertise. As part of its role as financial
advisor to BGI, Ladenburg was asked to render an opinion to the Board of
Directors of BGI as to the fairness of the transactions contemplated by the
proposed settlement of the litigation, from a financial point of view.
Ladenburg delivered an oral opinion to the BGI Board of Directors on June 12,
1997 to the effect that (1) the price to be paid to the Institutional
Plaintiffs to repurchase their shares of BGI Common Stock and BGI Warrants is
fair from a financial point of view, to BGI and its shareholders
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other than the Institutional Plaintiffs, and (2) the price to be paid for the
remaining shares of BGI Common Stock in the Merger is fair, from a financial
point of view, to the shareholders of BGI other than Hilton. In addition,
Ladenburg delivered its written opinion to the Board of Directors of BGI
dated as of June 12, 1997 (the "June 12 Opinion"), a copy of which is
attached as Annex IV to this Transaction Statement, to the effect that as of
such date the price to be paid to the Institutional Plaintiffs to repurchase
their shares of BGI Common Stock and BGI Warrants is fair, from a financial
point of view, to the shareholders of BGI. On February 6, 1998, Ladenburg
delivered its written opinion to the Board of Directors of BGI dated as of
February 6, 1998 (the "February 6 Opinion" and, together with the June 12
Opinion, the "Opinions"), a copy of which is attached as Annex V to this
Transaction Statement, to the effect that as of such date, the price to be
paid for the remaining shares of BGI Common Stock and BGI Warrants is fair,
from a financial point of view, to the shareholders of BGI. BGI's
shareholders are urged to read the Opinions in their entirety for assumptions
made and matters considered by Ladenburg.
INFORMATION AND MATERIALS CONSIDERED. In connection with rendering
its Opinions, Ladenburg reviewed such information as it deemed necessary
or appropriate for the purpose of rendering the Opinions. In connection
with the June 12 Opinion, Ladenburg reviewed information including, but
not limited to, the following: (i) the Memorandum; (ii) the Annual
Reports on Form 10-K for BGI for the three fiscal years ended December
31, 1994, December 31, 1995 and December 31, 1996; (iii) detailed
internal financial statements for BGI for the fiscal years ended
December 31, 1995 and December 31, 1996 and the quarter ended March 31,
1997; (iv) management's five-year projected financial statements for
BGI for the fiscal years ending December 31, 1997, December 31, 1998,
December 31, 1999; December 31, 2000 and December 31, 2001; (v) BGI's
common stock price and volume trading history; and (vi) publicly
available market information regarding the industry, BGI and its
competitors. In connection with the February 6 Opinion, Ladenburg
reviewed information including, but not limited to, the following: (i)
the Merger Agreement; (ii) the Annual Reports on Form 10-K for BGI for
the three fiscal years ended December 31, 1994, December 31, 1995 and
December 31, 1996; (iii) the Quarterly Report on Form 10-Q for the
Company for the nine months ended September 30, 1997; (iv) detailed
internal financial statements for BGI for the fiscal years ended
December 31, 1995, December 31, 1996 and December 31, 1997; (v)
management's five-year projected financial statements for BGI for the
fiscal years ending December 31, 1998, December 31, 1999, December 31,
2000, December 31, 2001 and December 31, 2002; (vi) BGI's common stock
price and volume trading history; and (vii) publicly available market
information regarding the industry, BGI and its competitors. In
addition, Ladenburg met with members of senior management of BGI at its
offices in Las Vegas, Nevada to discuss the historical and prospective
industry environment and operating results for BGI.
In rendering its Opinions, Ladenburg assumed and relied upon the
accuracy, completeness and fairness, without assuming any responsibility
for the independent verification of, all financial and other information
that was available to it from public sources, that was provided to
Ladenburg by BGI, or that was otherwise reviewed by Ladenburg. With
respect to financial projections supplied to Ladenburg, Ladenburg assumed
that they were reasonably prepared based on BGI's then current estimate of
results, and Ladenburg has relied upon such projections and made no
independent verification of the bases, assumptions, calculations or other
information contained therein. Ladenburg has not made or been provided
with an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of BGI, and Ladenburg does not assume any
responsibility for verifying any of the information reviewed. Ladenburg
was not authorized to, and did not, solicit third party indications of
interest in acquiring all or part of BGI, and Ladenburg was not asked to
consider, and its Opinions do not
5
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address, the consideration BGI might receive from a third-party
purchaser, the relative merits of the settlement or the Merger as
compared to any alternative business strategies that might exist for BGI
or the effect of any other transaction in which BGI might engage. The
Opinions are necessarily based upon information available to Ladenburg,
and financial, stock market and other conditions and circumstances
existing and disclosed to Ladenburg, as of the date of each Opinion.
THE FULL TEXT OF THE WRITTEN OPINIONS, WHICH SET FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS OF THE REVIEWS UNDERTAKEN,
ATTACHED HERETO AS ANNEX IV AND ANNEX V, ARE INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF BGI COMMON STOCK AND WARRANTS ARE URGED TO READ THE
OPINIONS CAREFULLY IN THEIR ENTIRETY. LADENBURG'S OPINIONS ARE DIRECTED
ONLY TO THE FAIRNESS TO THE HOLDERS OF BGI COMMON STOCK AND BGI WARRANTS OF
THE MERGER PRICE FROM A FINANCIAL POINT OF VIEW AND DO NOT ADDRESS ANY
OTHER ASPECT OF THE TRANSACTIONS. THE SUMMARY OF THE OPINIONS SET FORTH IN
THIS TRANSACTION STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE OPINIONS.
OVERVIEW OF ANALYSES. Ladenburg used both quantitative and
qualitative assessments to evaluate BGI. Ladenburg's determination that
the Merger Price is fair, from a financial point of view, to the holders of
BGI Common Stock and BGI Warrants is based on all the quantitative and
qualitative analyses described herein.
Ladenburg conducted a number of valuation analyses of consideration
values to be received in the settlement and the Merger and determined a
range of per share equity values for BGI. The analyses used to determine
per share equity values for BGI included a historical market price
analysis, a market multiples analysis, an acquisition multiples analysis, a
discounted cash flow analysis and a takeover premium analysis. Ladenburg
used the median per share equity value from each analysis to develop a
range of values for BGI. Ladenburg compared the Merger Price to the range
of derived equity values for BGI.
QUALITATIVE CONSIDERATIONS. In addition to the quantitative analyses
discussed below, Ladenburg considered a number of qualitative factors
related to BGI. Ladenburg did not apply weightings to any of these
qualitative analyses. Among the qualitative factors relating to BGI,
Ladenburg noted: (i) BGI's position with only one logical buyer (Hilton)
served to limit the potential upside in an exit scenario; (ii) BGI's lack
of growth potential through projects outside its existing property; (iii)
BGI's single property position results in concentrated risk; (iv) the
increasing competition on the Las Vegas strip (the "Strip"); (v) the Paris
project may impact BGI; (vi) BGI's dependence on convention business; and
(vii) BGI's lack of a marquee attraction which will pose a challenge in the
future given the trend towards themed properties on the Strip.
QUANTITATIVE ANALYSES. Ladenburg evaluated BGI, through various
methods described below, to derive implied aggregate equity values and
implied per share equity values for 100% of the value of BGI.
(a) HISTORICAL AND PROJECTED FINANCIAL PERFORMANCE. In connection
with the June 12 Opinion, Ladenburg reviewed BGI's historical financial
performance for each of the three fiscal years in the three-year period
ended December 31, 1996 and the three months ended March 31,
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1996 and March 31, 1997, and its projected performance as developed by
management based on assumptions management believed were reasonable for
the next five years.
In connection with the February 6 Opinion, Ladenburg reviewed BGI's
historical financial performance for each of the three fiscal years in the
three-year period ended December 31, 1996 and the nine months ended
September 30, 1996 and September 30, 1997, and its projected performance as
developed by management based on assumptions management believed were
reasonable for the next five years.
(b) HISTORICAL MARKET PRICE ANALYSIS. In connection with the June 12
Opinion, Ladenburg examined the closing market prices of BGI's common stock
over the 90-day trading period prior to June 11, 1997 during which time the
closing market price ranged from $31.75 to $40.63 and had an average high
and low trading price of $36.28 and $35.52, respectively, and a closing
price of $39.00 on June 10, 1997, two days prior to the date of the June 12
Opinion.
In connection with the February 6 Opinion, Ladenburg examined the
closing market prices of BGI's common stock over the 90-day trading period
prior to February 6, 1998 during which time the closing market price ranged
from $50.00 to $51.38 and had an average high and low trading price of
$50.90 and $50.77, respectively, and a closing price of $50.75 on February
4, 1998, two days prior to the date of the February 6 Opinion.
(c) MARKET MULTIPLES ANALYSIS. Ladenburg conducted a market
multiples analysis for BGI which determined the implied public market value
based on the multiples of comparable public companies. Ladenburg derived
results based upon the multiples of the following group of public companies
which Ladenburg believes are comparable to BGI: Boyd Gaming Corporation,
MGM Grand, Inc., Primadonna Resorts, Inc., Rio Hotel & Casino, Inc.,
Riviera Holdings Corporation and Station Casinos, Inc. (the "Comparable
Companies").
For all the Comparable Companies, Ladenburg derived the following
median common stock trading multiples for the Comparable Companies: (i)
revenues; (ii) earnings before interest, taxes, depreciation and
amortization ("EBITDA"); (iii) earnings before interest and taxes ("EBIT");
(iv) net income; (v) projected net income; and (vi) book value. Revenue,
EBITDA and EBIT multiples are based on total enterprise value divided by
each financial measure, respectively. Total enterprise value is defined as
the market value of common stock, plus total debt, less cash and cash
equivalents. The net income, projected net income and book value multiples
are derived by dividing the market value of the common stock in aggregate,
or per share stock price as appropriate, by net income, projected net
income and book value.
The implied equity valuations for BGI based on revenue, EBITDA and
EBIT were calculated by multiplying BGI's revenue, EBITDA and EBIT by
the median revenue, EBITDA and EBIT multiples, respectively, for the
Comparable Companies, then subtracting debt outstanding and adding
cash and cash equivalents. To arrive at equity valuations based on
net income, projected net income and book value, Ladenburg multiplied
BGI's net income, projected net income and book value by the median net
income, projected net income and book value multiples, respectively,
for the Comparable Companies. This range of implied equity values was
divided by the total number of BGI's shares outstanding, assuming the
exercise of all BGI Warrants with an exercise price of $10.00 using the
treasury stock method, to derive a range of implied equity values per
share.
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In connection with the June 12 Opinion, Ladenburg calculated the
median market multiples for the Comparable Companies as follows: (1) 2.2x
as a multiple of revenues; (ii) 7.9x as a multiple of EBITDA; (iii) 10.9x
as a multiple of EBIT; (iv) 15.9x as a multiple of net income; (v) 13.3x as
a multiple of projected net income for year one; (vi) 11.6x as a multiple
of projected net income for year two; and (vii) 1.8x as a multiple of book
value. The results of this analysis indicated a range of per share equity
values of $25.57 to $62.34, the median of which was $41.99 per share.
In connection with the February 6 Opinion, Ladenburg calculated the
median market multiples for the Comparable Companies as follows: (1) 2.2x
as a multiple of revenues; (ii) 7.5x as a multiple of EBITDA; (iii) 11.0x
as a multiple of EBIT; (iv) 17.7x as a multiple of net income; (v) 15.9x as
a multiple of projected net income for year one; (vi) 15.5x as a multiple
of projected net income for year two; and (vii) 2.1x as a multiple of book
value. The results of this analysis indicated a range of per share equity
values of $23.30 to $66.26, the median of which was $54.94 per share.
(d) ACQUISITION MULTIPLES ANALYSIS. Ladenburg conducted an
acquisition multiples analysis which was similar to the market multiples
analysis but instead relied upon multiples from comparable merger and
acquisition transactions. For purposes of this analysis, the purchase
price was equal to the amount paid for the target's equity and the
transaction value was equal to the purchase price, plus the target's
outstanding interest-bearing debt, less cash and cash equivalents.
In connection with the June 12 Opinion, Ladenburg compared
multiples from merger and acquisition transactions of the following
target and acquiring companies, respectively: the pending acquisition
of Riviera Holdings Corporation by entities controlled by Allen
Paulson, the acquisition of Griffin Gaming & Entertainment, Inc. by Sun
International Resorts Ltd., the acquisition of Bally by Hilton, the
acquisition of Par-A-Dice Gaming Corporation by Boyd Gaming
Corporation, the acquisition of Boomtown, Inc. by Hollywood Park, Inc.,
the acquisition of certain gaming interests owned by Edward J.
DeBartolo Corporation by Casino America, Inc., the acquisition of the
Sahara Hotel & Casino by Bill Bennett, the acquisition of the Hacienda
Resort Hotel & Casino by Circus Circus Enterprises, the acquisition of
Gold Strike Resorts, Inc. by Circus Circus Enterprises and the
acquisition of Caesar's World, Inc. by ITT Corporation. Ladenburg
determined that the following transactions represented a core group of
transactions most comparable to BGI: the pending acquisition of Riviera
Holdings Corporation by entities controlled by Allen Paulson, the
acquisition of Griffin Gaming & Entertainment, Inc. by Sun
International Resorts Ltd., the acquisition of Bally by Hilton, the
acquisition of Par-A-Dice Gaming Corporation by Boyd Gaming
Corporation, the acquisition of Boomtown, Inc. by Hollywood Park, Inc.,
the acquisition of Gold Strike Resorts, Inc. by Circus Circus Enterprises
and the acquisition of Caesar's World, Inc. by ITT Corporation.
The median multiples for the selected transactions were as follows:
(I) 1.7x as a multiple of revenues; (ii) 7.0x as a multiple of EBITDA;
(iii) 10.7x as a multiple of EBIT; (iv) 23.8x as a multiple of net income;
(v) 18.0x as a multiple of projected net income for year one; and (vi) 3.7x
as a multiple of book value. The range of implied equity values derived
from the acquisition multiples analysis was divided by the number of shares
of BGI's common stock outstanding, assuming the exercise of all BGI
Warrants with an exercise price of $10.00 using the treasury stock method,
to derive implied equity value per share. In connection with the June 12
Opinion,
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the range of implied equity values per share of BGI's common stock was
$41.35 to $62.89, the median of which was $52.88.
In connection with the February 6 Opinion, Ladenburg compared
multiples from merger and acquisition transactions of the following
target and acquiring companies, respectively: the pending acquisition
of Harveys Casino Resorts by Colony Capital Inc., the pending
acquisition of Station Casinos, Inc. by Crescent Real Estate, the
pending acquisition of Showboat, Inc. by Harrah's Entertainment, Inc.,
the pending acquisition of ITT Corporation by Starwood Hotels & Resorts,
the pending acquisition of Colorado Gaming & Entertainment Co. by
Ladbroke Group, PLC, the pending acquisition of Riviera Holdings
Corporation by entities controlled by Allen Paulson, the acquisition of
Griffin Gaming & Entertainment, Inc. by Sun International Hotels Ltd.,
the acquisition of Bally by Hilton, the acquisition of Par-A-Dice Gaming
Corporation by Boyd Gaming Corporation, the acquisition of Boomtown,
Inc. by Hollywood Park, Inc., the acquisition of certain gaming
interests owned by Edward J. DeBartolo Corporation by Casino America,
Inc., the acquisition of the Sahara Hotel & Casino by Bill Bennett, the
acquisition of the Hacienda Resort Hotel & Casino by Circus Circus
Enterprises, the acquisition of Gold Strike Resorts, Inc. by Circus
Circus Enterprises and the acquisition of Caesar's World, Inc. by ITT
Corporation. Ladenburg determined that the following transactions
represented a core group of transactions most comparable to BGI: the
pending acquisition of Harveys Casino Resorts by Colony Capital Inc.,
the pending acquisition of Station Casinos, Inc. by Crescent Real
Estate, the pending acquisition of Showboat, Inc. by Harrah's
Entertainment, Inc., the pending acquisition of Riviera Holdings
Corporation by entities controlled by Allen Paulson, the acquisition of
Griffin Gaming & Entertainment, Inc. by Sun International Hotels Ltd.,
the acquisition of Bally by Hilton, the acquisition of Par-A-Dice Gaming
Corporation by Boyd Gaming Corporation, the acquisition of Boomtown,
Inc. by Hollywood Park, Inc., the acquisition of Gold Strike Resorts,
Inc. by Circus Circus Enterprises and the acquisition of Caesar's World,
Inc. by ITT Corporation.
The median multiples for the selected transactions were as follows:
(1) 1.7x as a multiple of revenues; (ii) 7.4 as a multiple of EBITDA; (iii)
12.0x as a multiple of EBIT; (iv) 21.3x as a multiple of net income; (v)
18.0x as a multiple of projected net income for year one; and (vi) 2.8x as
a multiple of book value. The range of implied equity values derived from
the acquisition multiples analysis was divided by the number of shares of
BGI's common stock outstanding, assuming the exercise of all BGI Warrants
with an exercise price of $10.00 using the treasury stock method, to derive
implied equity value per share. In connection with the February 6 Opinion,
the range of implied equity values per share of BGI's common stock was
$30.59 to $72.98, the median of which was $57.30.
(e) DISCOUNTED CASH FLOW ANALYSIS. Ladenburg conducted a
discounted cash flow analysis which derived implied equity values based
on the present value of future net cash flows, less current total debt,
plus current total cash and cash equivalents. The cash flows were
discounted using a range of discount rates based upon a representative
range of weighted average costs of capital in the industry. For
purposes of this analysis, annual free cash flow equals de-levered net
income, plus depreciation and amortization, less capital expenditures,
less the change in working capital. In the exit year, free cash flow
also included proceeds from the sale of the business, which is
typically assumed only for valuation purposes as a more representative
"terminal value" than using cash flows in perpetuity. The terminal
value was determined by applying a range of exit multiples based on the
median EBITDA multiple of the Comparable Companies.
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In connection with the June 12 Opinion, Ladenburg applied discount
rates of 12.1% to 14.1% and exit multiples of 7.4x to 8.4x. The equity
value was divided by the number of shares of BGI's common stock
outstanding, assuming the exercise of all BGI Warrants with an exercise
price of $10.00 using the treasury stock method, to derive implied equity
value per share. The equity value per share ranged from $48.70 to $61.68,
the median of which was $54.95.
In connection with the February 6 Opinion, Ladenburg applied discount
rates of 12.1% to 14.1% and exit multiples of 7.0x to 8.0x. The equity
value was divided by the number of shares of BGI's common stock
outstanding, assuming the exercise of all BGI Warrants with an exercise
price of $10.00 using the treasury stock method, to derive implied equity
value per share. The equity value per share ranged from $41.76 to $54.86,
the median of which was $48.07.
(f) TAKEOVER PREMIUM ANALYSIS. Ladenburg conducted a takeover premium
analysis which derived an implied per share stock price based on the market
value premium typically given to a public company upon the announcement of
a takeover of that company. In connection with the June 12 Opinion,
Ladenburg looked at 100% completed acquisitions of a public company from
June 10, 1996 to June 10, 1997. In connection with the February 6 Opinion,
Ladenburg looked at 100% completed acquisitions of a public company from
February 4, 1997 to February 4, 1998. Ladenburg compared the takeover
stock price of the target company to the target company stock price one day
and one week prior to the original announcement date. Ladenburg derived a
mean and median takeover price premium one day and one week prior to the
takeover announcement. Ladenburg then applied the mean and median
percentage premiums to BGI's stock price one day and one week prior to the
announcement of the Transaction on June 11, 1997 to derive a mean and
median implied share price, for the one day and one week periods,
respectively.
In connection with the June 12 Opinion, the mean implied share price
for the one day and one week time periods was $50.14 and $51.50,
respectively. The median implied share price for the one day and one week
time periods was $46.02 and $48.88, respectively. The resulting median of
these four per share values indicated a per share stock price of $49.51.
In connection with the February 6 Opinion, the mean implied share
price for the one day and one week time periods was $49.60 and $54.55,
respectively. The median implied share price for the one day and one week
time periods was $47.37 and $52.24, respectively. The resulting median of
these four per share values indicated a per share stock price of $50.92.
COMPARISON OF THE CONSIDERATION TO THE VALUES OF BGI. Ladenburg
concluded that the Merger Price is fair, from a financial point of view, to
the shareholders (which includes the BGI Warrant holders) of BGI, based on
among other things, the fact that the Merger Price falls within the range
of values for BGI.
LIMITATIONS OF ANALYSES. Although each of the analyses employed by
Ladenburg in rendering its Opinions is summarized above, the above summary
does not purport to be a complete description of Ladenburg's analyses and
contains those aspects of Ladenburg's analyses deemed most relevant. In
its analyses, Ladenburg made numerous assumptions with respect to industry
performance, general business, economic, market and financial conditions
and other matters, based on, among other things, information provided to
(and relied upon by) Ladenburg by BGI, many of which are beyond the control
of BGI. Any estimates contained in Ladenburg's analyses are not
necessarily indicative of actual values, which may be significantly more or
less favorable than as set forth therein. Additionally, estimates of the
value of businesses
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do not purport to be appraisals or necessarily to reflect the prices at
which businesses actually may be sold. Because such estimates are
inherently subject to uncertainty since the assumptions upon which such
estimates are based may not materialize, none of BGI, Ladenburg nor any
other person assumes responsibility for the accuracy of such estimates.
Ladenburg's analysis does not reflect, among other things, changes since
the date of each Opinion for BGI's business or prospects, changes in
general business and economic conditions or any other transaction or
event that has occurred or that may occur and that was not anticipated
at the time such materials were prepared.
Ladenburg is an internationally recognized investment banking firm
which, as part of its investment banking business, is continually engaged
in the valuation of businesses and their securities in connection with
mergers and acquisitions, merchant banking, leveraged buyouts, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate,
corporate and other purposes.
Ladenburg was engaged to render the Opinions and Ladenburg will
receive an aggregate fee in connection therewith of $200,000. In addition,
BGI agreed to reimburse Ladenburg for its reasonable, out-of-pocket
expenses. BGI also agreed, in a separate letter agreement, to indemnify
Ladenburg, its affiliates and each of their respective directors, officers,
agents, consultants and employees and each person, if any, controlling
Ladenburg or any of its affiliates against certain liabilities, including
liabilities under federal securities laws. In the ordinary course of its
business Ladenburg may trade the securities of BGI and Hilton for its own
account and for the account of its customers, and may at any time hold a
long or short position in such securities.
During the past two years, Ladenburg has performed financial services
for Bally Total Fitness Holding Corporation ("Bally Total Fitness").
Arthur Goldberg, a director and the President of BGI, is a director and
Chairman of the Board of Bally Total Fitness. Ladenburg received customary
compensation in connection with its role as one of the underwriters of
seven million shares of common stock of Bally Total Fitness and received
warrants to purchase 250,000 shares of Bally Total Fitness common stock for
$10 per share as compensation for a $7.5 million bridge loan to Bally Total
Fitness. In addition, Ladenburg also received customary compensation in
connection with its role as one of the placement agents of a private
placement of $225 million aggregate principal amount of senior subordinated
notes for Bally Total Fitness.
Copies of the Opinions are attached hereto as Annex IV and Annex V. The
Opinions will also be made available for inspection and copying at the principal
executive offices of BGI during regular business hours by any interested
security holder or its representative who has been so designated in writing.
INTERESTS OF CERTAIN PERSONS IN SECURITIES OF BGI AND THE MERGER
As of February 6, 1998, Hilton's wholly-owned subsidiaries held
7,153,238 shares (or approximately 92% of the outstanding shares) of the
outstanding BGI Common Stock. Such shares of BGI Common Stock held by
Hilton's affiliates will be canceled in the Merger and no consideration will
be paid therefor. See "The Merger--Conversion of Securities in the Merger."
Since the consummation of the Hilton/Bally Merger, Hilton has continuously
indirectly owned in excess of 84% of the outstanding BGI Common Stock and
currently indirectly owns approximately 92% of the outstanding shares of BGI
Common Stock. For a
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discussion of certain transactions between BGI and its affiliates, see the
information on pages 12 to 14 in the definitive Proxy Statement for BGI's
Annual Meeting of Stockholders held February 3, 1997 under the caption
"Certain Transactions with Affiliates and Management" incorporated by
reference herein, a copy of which is included herewith.
BGI is a member of the Hilton Reservations Worldwide system which
provides Bally's Las Vegas with room reservation bookings. For this service,
BGI pays a fee of $5.80 per domestic reservation and $11.75 per international
reservation and a monthly flat fee of $8.00 multiplied by the 2914 hotel
rooms at Bally's Las Vegas.
To the knowledge of Hilton and BGI, there are no contracts,
arrangements, understandings or relationships in connection with the Merger
with respect to the shares of BGI Common Stock or BGI Warrants other than the
Merger Agreement, the Memorandum, the Settlement Agreement, the Final Order
and the agreement with The Bank of New York to serve as paying agent.
To the knowledge of Hilton and BGI, after reasonable inquiry, as of
February 6, 1998, no executive officer, director or affiliate of BGI or of
Hilton or any of their affiliates (except as set forth above) owns any shares
of BGI Common Stock or BGI Warrants except for William D. Harrold, Executive
Vice President of BGI, who owns 266 shares of BGI Common Stock.
THE MERGER
THE MERGER AGREEMENT
The following discussion is a summary of the material provisions of the
Merger Agreement. This summary and all other discussions of the terms of the
Merger and the Merger Agreement included elsewhere in this Transaction
Statement are qualified in their entirety by reference to the Merger
Agreement, a copy of which is attached hereto as Annex I and incorporated by
reference herein.
THE MERGER. Pursuant to the Merger Agreement, at the Effective Time
Merger Sub will be merged with and into BGI in accordance with the applicable
provisions of the DGCL, with BGI as the surviving corporation (as such, the
"Surviving Company"), and the separate corporate existence of Merger Sub will
thereupon cease. The Merger will have the effects specified in the DGCL.
EFFECTIVE TIME. The Merger Agreement provides that, as soon as
practicable, BGI and Merger Sub will cause the Certificate of Merger to be
filed with the Secretary of State of the State of Delaware in accordance with
Section 253 of the DGCL. Upon completion of such filing, the Merger will
become effective in accordance with the DGCL.
CONVERSION OF SECURITIES IN THE MERGER. The Merger Agreement provides
that, at the Effective Time (i) each share of BGI Common Stock and each BGI
Warrant outstanding immediately prior to the Effective Time, held by BGI,
Merger Sub, Hilton or any subsidiary of Hilton will be canceled and
extinguished; (ii) each other share of BGI Common Stock issued and
outstanding immediately prior to the Effective Time (other than any shares of
BGI Common Stock held by a holder who demands and perfects rights of
appraisal in accordance with the applicable provisions of the DGCL) will, by
virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive the Stock Price, without
interest, and will cease to be outstanding, (iii) each other BGI Warrant
issued and outstanding immediately prior to the Effective Time will, by
virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive the Warrant Price, without
interest, from Hilton and will cease to be outstanding, and (iv) each share
of common stock, par value $0.01 per share, of Merger Sub issued and
outstanding immediately prior to the Effective Time will, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into one share of common stock, par value $0.01 per share, of the Surviving
Company. As a result of the Merger, each holder of a certificate
representing BGI Common Stock that has not perfected his or her appraisal
rights under the DGCL will cease to have any rights with respect thereto,
except the right to receive the Stock Price upon
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surrender of such certificate as described below under the caption "--
Surrender of Certificates; Payment to Holders." Following consummation of
the Merger, BGI will be an indirect, wholly-owned subsidiary of Hilton.
CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING COMPANY. The
Merger Agreement provides that the Certificate of Incorporation and By-Laws
of BGI immediately prior to the Effective Time will be the Certificate of
Incorporation and By-Laws of the Surviving Company after the Effective Time.
DIRECTORS AND OFFICERS OF THE SURVIVING COMPANY. The Merger Agreement
provides that the members of the Board of Directors of Merger Sub immediately
prior to the Effective Time will be the members of the Board of Directors of
the Surviving Company after the Effective Time, until their successors have
been duly elected or appointed and qualified or until their earlier death,
resignation, or removal in accordance with the Certificate of Incorporation
and the By-Laws of the Surviving Company, and the officers of BGI immediately
prior to the Effective Time will be officers of the Surviving Company after
the Effective Time, until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal
in accordance with the Certificate of Incorporation and the By-Laws of the
Surviving Company.
PAYMENT FOR SHARES OF BGI COMMON STOCK AND BGI WARRANTS. Promptly after
the Effective Time, Hilton will make available to the Paying Agent (as
defined below) funds in the amount sufficient to effect the delivery of the
aggregate Stock Price and Warrant Price payable to the holders of BGI Common
Stock and BGI Warrants, respectively.
CLOSING OF STOCK TRANSFER RECORDS. No transfers of shares of BGI Common
Stock or BGI Warrants will be made on the stock transfer books of BGI after
the close of business on the day prior to the date of the Effective Time.
CONDITIONS. The obligation of each party to the Merger Agreement to
effect the Merger is subject to the satisfaction or waiver, prior to the
Effective Time, of the following: (i) no statute or rule or injunction shall
prevent the Merger and (ii) all governmental approvals required to consummate
the Merger have been received.
TERMINATION. Subject to the requirements of the Settlement Agreement,
the Merger Agreement may be terminated at any time prior to the Effective
Time by mutual agreement of BGI and Hilton or by BGI or Hilton if the
conditions become incapable of fulfillment (other than as a result of any
breach by a party seeking to terminate the Merger Agreement) and shall not
have been waived in accordance with the terms of the Merger Agreement.
REGULATORY APPROVALS
Other than (i) approvals of and filings made with certain gaming
regulators which have been obtained or made and (ii) the Final Order, no
federal or state regulatory approvals are required to be obtained, nor any
regulatory requirements complied with, by any party to the Merger Agreement,
except for the requirements of the DGCL in connection with consummation of
the Merger and the requirements of federal securities law.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material United States federal
income tax consequences of the Merger to persons who are holders of record of
BGI Common Stock (including the consequences of the receipt by stockholders
of any cash amounts pursuant to the exercise of appraisal rights) or holders
of record of BGI Warrants. None of BGI, Merger Sub, and Hilton intends to
seek a ruling from the Internal Revenue Service (the "Service") with respect
to any of these tax consequences. This summary is for general information
only and deals only with holders who hold shares of BGI Common Stock or BGI
Warrants (and, with respect to holders of BGI Warrants, who would hold the
BGI Common Stock issuable on exercise of such BGI Warrants) as capital assets
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). The tax treatment of a holder of BGI Common Stock or
BGI Warrants will vary depending upon his or her particular situation, and
this summary does not purport to deal with all aspects of taxation that may
be relevant to holders of BGI Common Stock or BGI Warrants in light of such
holders' particular investment or tax circumstances, or to certain types of
holders subject to special treatment under the federal income tax laws,
including, without limitation, life insurance companies, certain financial
institutions, broker-dealers, stockholders holding BGI Common Stock or BGI
Warrants as part of a conversion transaction, as part of a hedge or hedging
transaction, or as a position in a straddle for tax purposes, tax-exempt
organizations, or foreign corporations, foreign partnerships and persons who
are not citizens or residents of the United States. In addition, this
discussion may not apply to holders of BGI Common Stock or BGI Warrants with
respect to shares of BGI Common Stock or BGI Warrants received by such
holders pursuant to the exercise of employee stock options or otherwise as
compensation. There can be no assurance that future changes in applicable
law or administration and judicial interpretations thereof, any of which
could have a retroactive effect, will not adversely affect the tax
consequences discussed herein or that there will not be differences of
opinion as to the interpretation of applicable law. In addition, the summary
below does not consider the effect of any foreign, state, local or other tax
laws that may be applicable to holders of BGI Common Stock or BGI Warrants.
ACCORDINGLY, EACH HOLDER OF BGI COMMON STOCK OR BGI WARRANTS IS URGED TO
CONSULT SUCH HOLDER'S OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES
OF THE MERGER TO SUCH HOLDER, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
CONSEQUENCES TO HOLDERS OF BGI COMMON STOCK. The conversion of BGI
Common Stock into the right to receive the Stock Price pursuant to the Merger
(including any cash amounts received by stockholders pursuant to the exercise
of appraisal rights) will be a taxable transaction for federal income tax
purposes. In general, for federal income tax purposes, a holder of BGI Common
Stock will recognize gain or loss equal to the difference between such
holder's adjusted tax basis in the BGI Common Stock converted in the Merger
and the amount of cash received therefor. Gain or loss must be determined
separately for each block of BGI Common Stock (I.E., BGI Common Stock
acquired at the same cost in a single transaction) converted to cash in the
Merger. Such gain or loss generally will be capital gain or loss and will be
long-term gain or loss if, on the date of the Merger, holders of BGI Common
Stock have held their shares for more than one year. Long-term capital gain
recognized by certain non-corporate holders of BGI Common Stock is subject to
federal income tax at preferential capital gains rates, and such gain
recognized with respect to an asset with a holding period of more than 18
months is subject to federal income tax at further reduced capital gains
rates.
CONSEQUENCES TO HOLDERS OF BGI WARRANTS. The conversion of BGI Warrants
into the right to receive the Warrant Price pursuant to the Merger will be a
taxable transaction for federal income tax
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purposes. In general, for federal income tax purposes, a holder of BGI
Warrants will recognize gain or loss equal to the difference between such
holder's adjusted tax basis in the BGI Warrants converted in the Merger
(generally, the amount, if any, of cash and the fair market value of other
property paid in exchange for such BGI Warrants at the time such BGI Warrants
were acquired by the holder thereof) and the amount of cash received
therefor. Gain or loss must be determined separately for each block of BGI
Warrants (I.E., BGI Warrants acquired at the same cost in a single
transaction) converted to cash in the Merger. Such gain or loss generally
will be capital gain or loss and will be long-term gain or loss if, on the
date of the Merger, holders of BGI Warrants had held their shares for more
than one year. Long-term capital gain recognized by certain non-corporate
holders of BGI Warrants is subject to federal income tax at preferential
capital gains rates, and such gain recognized with respect to an asset with a
holding period of more than 18 months is subject to federal income tax at
further reduced capital gains rates.
BACKUP WITHHOLDING. Payments in connection with the Merger may be
subject to "backup withholding" at a 31% rate. Backup withholding generally
applies if the stockholder (i) fails to furnish such stockholder's social
security number or other taxpayer identification number ("TIN"), (ii)
furnishes an incorrect TIN, (iii) fails properly to report interest or
dividends, or (iv) under certain circumstances, fails to provide a certified
statement, signed under penalties of perjury, that the TIN provided is such
stockholder's correct number and that such stockholder is not subject to
backup withholding. Backup withholding is not an additional tax but merely
an advance payment, which may be refunded to the extent it results in an
overpayment of tax. Certain persons generally are exempt from backup
withholding, including corporations and financial institutions. Certain
penalties apply for failure to furnish correct information and for failure to
include the reportable payments in income. Each holder of BGI Common Stock
or BGI Warrants should consult with such holder's own tax advisor as to such
holder's qualifications for exemption from backup withholding and the
procedure for obtaining such exemption.
ACCOUNTING TREATMENT OF THE MERGER
Because (i) BGI and Merger Sub are under the common control of Hilton,
(ii) Merger Sub has no assets other than its shares of BGI Common Stock and
(iii) the aggregate Merger Price will be paid by Hilton, the effects of the
Merger on BGI's financial condition and results of operations will be
insignificant.
SURRENDER OF CERTIFICATES; PAYMENT TO HOLDERS
PAYING AGENT. The Bank of New York has been designated as the paying
agent (the "Paying Agent") to process the surrender of certificates
("Certificates") representing shares (or fractions thereof) of BGI Common
Stock or BGI Warrants and to make payments of the Stock Price and/or the
Warrant Price as provided in the Merger Agreement.
PROCEDURES TO SURRENDER CERTIFICATES. In order to receive payment of
the Stock and/or the Warrant Price after the Effective Time, holders of
Certificates must complete the enclosed Letter of Transmittal (or a facsimile
thereof) and must present a properly completed and duly executed Letter of
Transmittal, any required signature guarantees, such Certificates and any
other required documents to the Paying Agent as follows:
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By Mail: By Hand or Overnight Courier:
The Bank of New York The Bank of New York
Tender and Exchange Department Tender and Exchange Department
P.O. Box 11248 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, NY 10286-1248 New York, NY 10286
A return envelope addressed to the Paying Agent is enclosed for your
convenience. THE METHOD OF DELIVERY OF CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE HOLDER. IF CERTIFICATES AND SUCH
OTHER DOCUMENTS ARE SENT BY MAIL, IT IS RECOMMENDED THAT THEY BE SENT BY
CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, PROPERLY INSURED. If
the Merger Agreement is terminated without the Merger being consummated, the
Paying Agent will promptly return all Certificates.
Holders of Certificates should carefully read and follow the
instructions set forth in the Letter of Transmittal. As provided in the
Letter of Transmittal, if a check is to be issued in a name different from
that in which the surrendered Certificates are registered, (i) such
Certificates must be endorsed by the registered owner(s), or accompanied by
an instrument of assignment executed by the registered owner(s), with the
signatures guaranteed by a financial institution that is a member in good
standing of a signature guarantee program within the meaning of Rule 17Ad-15
under the Exchange Act, and (ii) the person requesting such issuance in such
different name must pay to the Paying Agent any transfer or other taxes
required by reason of such issuance in such different name.
Promptly after the Effective Time, Hilton will make available to the
Paying Agent the funds in the amount sufficient to effect the delivery of the
aggregate Merger Price payable to the holders of BGI Common Stock and BGI
Warrants.
SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued
in the name of a person other than the signer of the Letter of Transmittal or
if a check is to be sent to someone other than the signer of the Letter of
Transmittal or to an address other than that shown on the Letter of
Transmittal, the appropriate boxes on the Letter of Transmittal should be
completed.
DETERMINATION OF VALIDITY. All questions as to the validity, form and
eligibility for payment of any surrendered shares of BGI Common Stock or BGI
Warrants pursuant to any of the procedures described above will be determined
in the sole discretion of BGI, whose determination will be final and binding.
MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. If any Certificate
has been mutilated, lost, stolen or destroyed, a holder may contact the
Paying Agent at telephone number (212) 507-9357 or (800) 507-9357 for further
instructions as to obtaining the documents which must be delivered in order
to complete the delivery, surrender or deposit of shares of BGI Common Stock
or BGI Warrants.
REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance or additional copies of this Transaction Statement or the Letter
of Transmittal may be directed to the Paying Agent.
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APPRAISAL RIGHTS OF COMMON STOCKHOLDERS
Pursuant to Section 262 of the DGCL ("Section 262"), any holder of BGI
Common Stock who does not wish to accept the consideration to be paid
pursuant to the Merger Agreement may elect to have the fair value of such
stockholder's shares of BGI Common Stock (exclusive of any element of value
arising from the accomplishment or expectation of the Merger) judicially
determined and paid to such stockholder in cash, together with a fair rate of
interest, if any, provided that such stockholder complies with the provisions
of Section 262. There can be no assurance, however, that if a stockholder
properly perfects his or her appraisal rights under the DGCL, he or she would
receive more or less than the price to be paid in the Merger. The following
summary of the provisions of Section 262 is not intended to be a complete
statement of such provisions and is qualified in its entirety by the full
text of Section 262, which is provided in its entirety as Annex III to this
Transaction Statement. In addition, the Settlement Agreement contains certain
provisions relating to any appraisal proceeding with respect to BGI Common
Stock. See "Special Factors--Background of the Merger--Settlement
Agreement." All references in Section 262 and in this summary to a
"stockholder" are to the record holder of the shares of BGI Common Stock as
to which appraisal rights are asserted. If you wish to exercise appraisal
rights but are not a record holder of BGI Common Stock beneficially owned by
you for which appraisal is sought, you must make arrangements to have the
record holder of such shares act for you in seeking appraisal.
This Transaction Statement constitutes notice of appraisal rights to
holders of BGI Common Stock. Any stockholder who wishes to exercise such
appraisal rights or who wishes to preserve the right to do so should review
carefully Annex III to this Transaction Statement. Failure to comply with
the procedures specified in Section 262 timely and properly will result in
the loss of appraisal rights. Moreover, because of the complexity of the
procedures for exercising the right to seek appraisal of the BGI Common
Stock, BGI believes that stockholders who consider exercising such rights
should seek the advice of counsel.
Any holder of BGI Common Stock wishing to exercise the right to demand
appraisal under Section 262 of the DGCL must satisfy each of the following
conditions:
(i) Such stockholder must deliver to BGI a written demand for
appraisal of such stockholder's shares within 20 days after the date of
mailing of this notice of appraisal rights, which demand will be sufficient
if it reasonably informs BGI of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such holder's
shares; and
(ii) Such stockholder must continuously hold such shares from the date
of making the demand through the Effective Time. Accordingly, a
stockholder who is the record holder of shares of BGI Common Stock on the
date the written demand for appraisal is made but who thereafter transfers
such shares prior to the Effective Time will lose any right to appraisal in
respect of such shares.
A stockholder who elects to exercise appraisal rights should mail or
deliver a written demand with respect to the Merger in which such stockholder
desires to demand appraisal to: David Arrajj, Vice President and General
Counsel, Bally's Grand, Inc., 3645 Las Vegas Boulevard South, Las Vegas,
Nevada 89109. Written demand for appraisal pursuant to Section 262 must be
received by BGI no later than March __, 1998, which is the 20th day after the
date of mailing of this notice.
Prior to, or within ten days after the Effective Time, BGI must send
notice of the Effective Time to its stockholders. If such notice is sent
more than 20 days after the sending of this notice, such second
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notice will be sent only to those stockholders who have demanded appraisal
for their shares of BGI Common Stock.
FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH IN SECTION 262
OF THE DGCL WILL RESULT IN THE LOSS OF A STOCKHOLDER'S STATUTORY APPRAISAL
RIGHTS. CONSEQUENTLY, ANY HOLDER OF BGI COMMON STOCK WISHING TO EXERCISE
APPRAISAL RIGHTS IS URGED TO CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO
EXERCISE SUCH RIGHTS.
Any written demand for appraisal must be made by or for a holder of
record of BGI Common Stock. Accordingly, any such demand should be executed
by or for such holder of record, fully and correctly, as such holder's name
appears on the Certificate(s). If shares (or fractions thereof) of BGI
Common Stock are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the appraisal demand should be
made in such capacity. If shares (or fractions thereof) of BGI Common Stock
are owned of record by more than one person, as in a joint tenancy or tenancy
in common, the appraisal demand should be executed by or for all joint
owners. An authorized agent, including one of two or more joint owners, may
execute the demand for appraisal for a holder of record. However, the agent
must identify the record owner or owners and must expressly disclose the fact
that in executing the demand the agent is acting as agent for the record
owners.
A record owner, such as a broker, who holds shares (or fractions
thereof) of BGI Common Stock as nominee of others may exercise the right of
appraisal with respect to all or a portion of the BGI Common Stock held as
nominee. In such case, the written demand for appraisal should state the
number of shares of BGI Common Stock covered by such demand. Where no number
of shares of BGI Common Stock is expressly stated, the demand will be
presumed to cover all of the BGI Common Stock standing in the name of such
record owner.
Within 120 days after the Effective Time, the Surviving Company or any
holder of BGI Common Stock who has complied with the provisions of Section
262 of the DGCL may file a petition in the Delaware Court of Chancery
demanding a determination of the value of the BGI Common Stock of all
stockholders who have complied with such provisions. However, because BGI
has no obligation to file such a petition and does not currently intend to do
so, any stockholder that desires that such a petition be filed is advised to
do so on a timely basis. If neither BGI nor any stockholder files a petition
for appraisal within 120 days after the Effective Time, all appraisal rights
will cease, and stockholders will be entitled only to receive the Stock Price
without interest thereon, in exchange for their BGI Common Stock. Any holder
of BGI Common Stock may withdraw his or her demand for appraisal at any time
within 60 days after the Effective Time (or thereafter with the written
consent of BGI) and receive, pursuant to the terms of the Merger, the Stock
Price in cash, without interest, for each share of BGI Common Stock owned by
such holder. Notwithstanding the foregoing, no appraisal proceeding in the
Delaware Court of Chancery will be dismissed as to any stockholder without
the approval of the Court, and such approval may be conditioned upon such
terms as the Court deems just.
Within 120 days after the Effective Time, any holder of BGI Common Stock
who has complied with the foregoing provisions may also deliver to BGI a
written request for a statement listing the aggregate number of shares (or
fractions thereof) of BGI Common Stock with respect to which demands for
appraisal have been received and the aggregate number of holders thereof.
Such a statement will be mailed to the stockholder within 10 days after the
written request for it is received by BGI or within 10 days after the
expiration of the period for delivery of demands for appraisal, whichever is
later.
18
<PAGE>
Upon the filing of any petition by a holder of BGI Common Stock
demanding appraisal, service of a copy thereof will be made upon BGI which
will, within 20 days after such service, file in the office of the Register
in Chancery in which the petition was filed a duly verified list containing
the names and addresses of all stockholders who have demanded payment for
their BGI Common Stock and with whom agreements as to the value of their BGI
Common Stock have not been reached by BGI. If a petition is filed by BGI,
the petition will be accompanied by such a duly verified list. The Register
in Chancery, if so ordered by the Court, will give notice of the time and
place fixed for the hearing of such petition by registered or certified mail
to BGI and to the stockholders shown on the list at the addresses therein
stated, and such notice will also be given by publishing a notice at least
one week from the day of the hearing in a newspaper of general circulation
published in the City of Wilmington, Delaware, or such publication as the
Court deems advisable. The forms of the notices by mail and by publication
will be approved by the Court, and the costs thereof will be borne by BGI.
After determining the stockholders entitled to an appraisal under
Section 262 of the DGCL, the Court will appraise the BGI Common Stock owned
by such stockholders, determining the "fair value" thereof exclusive of any
element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any. The Court will direct
the payment of the appraised value of the BGI Common Stock, together with
interest, if any, by BGI to the stockholders entitled thereto upon surrender
to BGI of the Certificates. The costs of the appraisal proceeding may be
determined by the Court and taxed upon the parties as the Court deems
equitable in the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including without limitation
reasonable attorneys' fees and the fees and expenses of experts, to be
charged pro rata against the value of all of the shares (or fractions
thereof) of BGI Common Stock entitled to an appraisal. See also "Special
Factors--Background of the Merger--Settlement Agreement."
After the Effective Time, no stockholder who has demanded his or her
appraisal rights as set forth above will be entitled to vote such
stockholder's BGI Common Stock for any purpose or to receive payment of
dividends or other distributions on such stockholder's BGI Common Stock.
SOURCE AND AMOUNT OF FUNDS
All amounts required to pay the aggregate Merger Price payable to the
holders of BGI Common Stock and BGI Warrants pursuant to the Merger will be
provided by Hilton, which will fund such amounts from existing cash balances.
The maximum amount of funds to be required to pay the Merger Price is
estimated at approximately $43,541,139
FEES AND EXPENSES
Hilton has retained The Bank of New York to act as the Paying Agent in
connection with the Merger. The Paying Agent will receive reasonable and
customary compensation for its services, will be reimbursed for certain
reasonable out-of-pocket expenses, and will be indemnified against certain
liabilities and expenses in connection therewith.
Expenses estimated to be incurred in connection with the Merger are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate Merger Price . . . . . . . . . . . . . . . . . . . . . $43,541,139
Legal fees and expenses. . . . . . . . . . . . . . . . . . . . . 50,000
Other professional fees and expenses . . . . . . . . . . . . . . 225,000
Printing, mailing and distribution expenses. . . . . . . . . . . 15,000
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Paying Agent fees and expenses . . . . . . . . . . . . . . . . . 25,000
SEC filing fees. . . . . . . . . . . . . . . . . . . . . . . . . 8,710
Miscellaneous fees and expenses. . . . . . . . . . . . . . . . . 10,000
------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $43,874,849
</TABLE>
All costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by Hilton. Brokers,
dealers, commercial banks, and trust companies will be reimbursed by Hilton
for customary mailing expenses incurred by them in forwarding materials to
their customers.
20
<PAGE>
MARKET PRICE INFORMATION
The BGI Common Stock and the BGI Warrants are listed for quotation through
the NASDAQ National Market System ("Nasdaq") under the symbols "BGLV" and
"BGLV.W," respectively. The table below sets forth, for the calendar quarters
indicated, the quarterly high and low bid quotations for the BGI Common Stock
and the BGI Warrants for the past two fiscal years and the current quarterly
period, as reported by Nasdaq.
<TABLE>
<CAPTION>
BGI COMMON STOCK BGI WARRANTS
---------------- ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
FISCAL 1996
First Quarter $20.00 $16.00 $10 3/8 $ 6 1/2
Second Quarter 48.00 20.00 35 3/8 10 1/2
Third Quarter 46.00 34 1/8 37 26 1/8
Fourth Quarter 41 1/8 27 1/2 27 3/4 18
FISCAL 1997
First Quarter $39.00 $31.00 $28 1/2 $22 5/8
Second Quarter 52 3/4 33.00 42 3/4 23
Third Quarter 51 1/4 49 3/4 40 3/4 37 1/8
Fourth Quarter 51 1/2 50.00 41 1/16 40 1/8
FISCAL 1998
First Quarter (through
February 6, 1998) $51 3/8 $50.00 $41 1/8 $39 7/8
</TABLE>
As of the close of business on February 6, 1998, there were 75 holders
of record of the BGI Common Stock and 60 holders of record of the BGI
Warrants. No dividends have been paid to date on the BGI Common Stock.
Dividends are payable at the discretion of the Board of Directors.
On April 8, 1997, in a privately negotiated transaction with an
unaffiliated third party, BGI repurchased 1,228 shares of BGI Common Stock at
a price of $36 per share and 65,985 Warrants at a price of $26.25 per Warrant.
CERTAIN INFORMATION CONCERNING BGI
BGI
BGI, a corporation organized and existing under the laws of the State of
Delaware, owns and operates the casino hotel resort in Las Vegas, Nevada
known as "Bally's Grand Las Vegas." BGI's principal executive offices are
located at 3645 Las Vegas Boulevard South, Las Vegas, Nevada 89109, and its
telephone number is (702) 739-4111.
BGI's certificate of incorporation provides that BGI's authorized
capital stock consists of 40,000,000 shares of BGI Common Stock and
10,000,000 shares of Preferred Stock. As of February 6, 1998, there were
7,770,468 shares of Common Stock outstanding and BGI Warrants to purchase
286,053.4874 shares of BGI Common Stock and no shares of Preferred Stock were
outstanding.
For additional information concerning BGI, see "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE."
21
<PAGE>
SUMMARY FINANCIAL DATA OF BGI
The following table presents certain summary historical financial data
of BGI for the periods indicated. Such financial data is derived from the
more detailed financial statements set forth in BGI's Annual Report on Form
10-K for the year ended December 31, 1996 and its Quarterly Report on Form
10-Q for the nine month period ended September 30, 1997 (collectively, the
"Reports"), which Reports are incorporated by reference herein. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE." A copy of each such
Report is being delivered together with this Transaction Statement. The
summary financial data should be read in conjunction with such financial
statements, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" set forth in the
Reports.
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
(amounts in millions, except per share amounts)
DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Statement of Income Data:
Revenues. . . . . . . . . . . $283.5 $313.8 $230.5 $232.6
Operating income. . . . . . . 42.3 62.5 43.7 46.8
Interest Expense. . . . . . . 32.7 33.5 25.2 25.2
Net income. . . . . . . . . . 6.4 23.0 15.4 17.2
Average number of common
shares . . . . . . . . . . . 8.8 8.9 8.9 8.8
Net income per common
and common equivalent
share. . . . . . . . . . . . $ .72 $ 2.58 $ 1.73 $ 1.96
Balance Sheet Data:
Total assets. . . . . . . . . $518.1 $577.2 $573.2 $548.3
Working capital . . . . . . . 52.4 131.0 120.8 110.6
Total liabilities . . . . . . 440.8 458.6 460.3 461.0
Total stockholders' equity. . 77.3 118.6 112.9 87.3
Book value per share. . . . . 9.16 13.97 13.38 11.48
Other
Ratio of earnings to fixed
charges. . . . . . . . . . . 1.3 1.9 1.9 2.1
</TABLE>
DIRECTORS OF BGI
Arthur M. Goldberg was elected Chairman of the Board of Directors of BGI
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
and was re-elected as President in June 1997. 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 Bally between October 1990 and
December 1996; President of Bally 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).
22
<PAGE>
Jay Burnham was elected a director of BGI 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) and New Millenium Homes, LLC, a California home builder.
J. Kenneth Looloian was elected a director of BGI 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.,
GNOC, CORP and Continucare Corporation, a Florida provider of outpatient
services.
Jack L. McDonald was elected a director of BGI in August 1993. Mr.
McDonald has served as 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, a director of American Homestar Corporation (a
mobile home manufacturer) since October 1994, and a director of New Millenium
Homes, LLC, a California home builder.
Nicholas H. Politan, Jr. was elected a director of BGI 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.
EXECUTIVE OFFICERS OF BGI
Information with respect to Arthur M. Goldberg, an executive officer who
is also a director of BGI, is set forth above.
David Arrajj was elected Vice President, General Counsel of BGI 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.
William D. Harrold was elected Executive Vice President of BGI in July
1995 and was elected President of Las Vegas Hilton Corporation in May 1997.
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.
Paul Pusateri was elected Executive Vice President-Hotel Operations of
BGI in June, 1997. From August 1996 to the present, Mr. Pusateri has served
as Executive Vice President of Paris Casino Corp. From January 1993 to July
1996, Mr. Pusateri was the General Manager of the Four Seasons Beverly Hills
Hotel.
23
<PAGE>
David B. Zerfing was elected Senior Vice President, Finance and
Administration, and Chief Financial Officer of BGI in January 1998. From
September 1997 to January 1998 he was Vice President of Finance Western
Region, of Hilton Gaming Corporation. From July 1996 to September 1997, Mr.
Zerfing was the Assistant General Manager/Vice President of Finance for
Bally's Saloon and Gambling Hall in Robinsville, Mississippi. From April
1993 to July 1996, Mr. Zerfing was employed by President Casino - Missouri,
Inc. as Director of Finance/Chief Financial Officer and Assistant General
Manager.
CERTAIN INFORMATION CONCERNING HILTON AND
MERGER SUB
HILTON AND MERGER SUB
Hilton, a Delaware corporation, is a leading owner and operator of
full-service hotels and gaming properties located in gateway cities, urban
and suburban centers and resort areas throughout the United States and in
selected international cities.
Effective December 18, 1996, Hilton completed the merger of Bally with
and into Hilton. As a result, BGI, formerly an indirect subsidiary of Bally,
became an indirect wholly-owned subsidiary of Hilton.
Merger Sub, a Delaware corporation, is an indirect wholly-owned
subsidiary of Hilton. Merger Sub does not have any assets or conduct any
business other than its ownership, as of February 6, 1998, of approximately
92% of the outstanding BGI Common Stock. Upon consummation of the Merger,
all of the outstanding capital stock of BGI will be owned by Bally's Casino
Holdings, Inc., a Delaware corporation and indirect, wholly-owned subsidiary
of Hilton
Hilton's and Merger Sub's principal executive offices are located at
9336 Civic Center Drive, Beverly Hills, California 90210, and their telephone
number is (310) 278-4321.
For additional information concerning Hilton and its subsidiaries, see
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
DIRECTORS OF HILTON
The following table sets forth certain information with respect to the
directors of Hilton:
Name, Principal Occupation
and Other Directorships
- --------------------------
Stephen F. Bollenbach Chief Financial Officer, The Trump Organization,
until March 1992, Chief Financial Officer, Marriott
Corporation, until October 1993, President and Chief
Executive Officer, Host Marriott Corporation, until
April 1995, Senior Executive Vice President and
Chief Financial Officer, The Walt Disney Co., until
February 1996 and, thereafter, President and Chief
Executive Officer, Hilton Hotels Corporation. He is
a director of America West Airlines, Inc., Kmart
Corporation and Ladbroke Group PLC.
A. Steven Crown General Partner, Henry Crown and Company, a holding
company which includes diversified manufacturing
operations, marine
24
<PAGE>
operations and real estate ventures.
Peter M. George Vice Chairman and Joint Managing Director, Ladbroke
Group PLC until January 1994 and, thereafter Vice
Chairman and Group Chief Executive, Ladbroke Group
PLC. Mr. George is a citizen of the United Kingdom.
Arthur M. Goldberg (See "Certain Information Concerning BGI--Directors
of BGI")
Eric M. Hilton Senior Vice President-Real Estate Development,
International, Hilton Hotels Corporation, until May
1992, Executive Vice President-International
Operations, Hilton Hotels Corporation from May 1992
until May 1993 and, thereafter, Vice Chairman of the
Board, Hilton Hotels Corporation. Mr. Hilton
resigned as an officer of the Company in March 1997.
Dieter H. Huckestein Senior Vice President-Hawaii/California/Arizona
Region, Hilton Hotels Corporation, until May 1994
and, thereafter, Executive Vice President, Hilton
Hotels Corporation and President-Hotel Operations.
Mr. Huckestein is a citizen of Germany.
Robert L. Johnson Chairman and Chief Executive Officer of Black
Entertainment Television, a cable programming
service, and Chairman, President and Chief Executive
Officer of BET Holdings, Inc., a diversified media
holding company, since August 1991, and Chairman and
Chief Executive Officer of District Cablevision,
cable operator in the District of Columbia.
Donald R. Knab Chairman and Chief Executive Officer, BPT
Properties, L.P., a commercial real estate
development company, until January 1992 and, until
December 1992, Senior Consultant thereto and, since
January 1988, President, Donald R. Knab Associates,
Inc., an investment advisory firm, and, since
October 1994, Vice Chairman, Deansbank Investments,
Inc. property investments.
Benjamin V. Lambert Chairman and Chief Executive Officer, Eastdil Realty
Company L.L.C., real estate investment bankers.
Donna F. Tuttle Chairman and Chief Executive Officer, Ayer Tuttle,
the western division of NW Ayer Incorporated, an
international advertising firm from 1989 to 1992 and
from 1989 to 1995, President, Donna F. Tuttle, Inc.,
a travel and tourism consulting and public relations
firm, and, since 1992, President, Korn Tuttle
Capital Group, a financial consulting and
investments firm. She is a director of Phoenix Duff
& Phelps, Inc., a financial services firm.
Sam D. Young, Jr. Chairman, Trans West Enterprises, Inc., an
investment company, and director, Texas Commerce
Bank-El Paso.
25
<PAGE>
EXECUTIVE OFFICERS OF HILTON
The following table sets forth certain information with respect to the
executive officers of Hilton. Information with respect to executive officers
Stephen Bollenbach, Eric Hilton, Arthur Goldberg and Dieter Huckestein is set
forth above.
Name Position and Offices with Hilton
- ---- --------------------------------
Barron Hilton Chairman of the Board, and previously served as
Chief Executive Officer until February 1996, and
President until February 1993.
Matthew J. Hart Executive Vice President and Chief Financial Officer
since May 1996. Prior to joining Hilton, Mr. Hart
served as Senior Vice President and Treasurer of The
Walt Disney Company since October 1995, Executive
Vice President and Chief Financial Officer of Host
Marriott Corporation from October 1992 until October
1995, and Senior Vice President and Treasurer of
Marriott Corporation until October 1992.
Thomas E. Gallagher Executive Vice President and General Counsel since
July, 1997. Prior to joining Hilton, Mr. Gallagher
served as President and Chief Executive Officer of
The Griffin Group, Inc., April 1992-June 1997.
During 1995 and 1996, he also served as President
and Chief Executive Officer of Griffin Gaming &
Entertainment, Inc. (formerly Resorts International,
Inc.). From 1977 to 1992 he was a partner in the
law firm of Gibson, Dunn & Crutcher.
AVAILABLE INFORMATION
Hilton and BGI have collectively filed with the Securities and Exchange
Commission (the "Commission") a Schedule 13E-3 (which, together with any
amendments thereto, is collectively referred to as the "Schedule 13E-3"),
under the Exchange Act with respect to the Merger. This Transaction
Statement does not contain all the information set forth in the Schedule
13E-3 and the exhibits thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Each of BGI and
Hilton currently is subject to the information and reporting requirements of
the Exchange Act and, in accordance therewith, files periodic reports, proxy
statements, and other information with the Commission.
The Schedule 13E-3 and the exhibits thereto will be made available for
inspection and copying at the principal executive offices of BGI during
regular business hours by any interested holder of BGI Common Stock or BGI
Warrants or by his or her representative who has been so designated in
writing.
The Schedule 13E-3 and the exhibits thereto, as well as such reports,
proxy statements, and other information may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549; 7 World Trade Center, Suite 1300,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such reports, proxy statements, and
other information also can be obtained by mail from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
26
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents which have been filed by BGI with the Commission
are hereby incorporated by reference in this Transaction Statement: The
Annual Report on Form 10-K dated December 31, 1996, the Quarterly Report on
Form 10-Q dated September 30, 1997 and the definitive Proxy Statement for
BGI's Annual Meeting of Stockholders held February 7, 1997 (the "Proxy
Statement"). The following documents which have been filed by Hilton with
the Commission are hereby incorporated by reference in this Transaction
Statement: The Annual Report on Form 10-K dated December 31, 1996, the
Quarterly Report on Form 10-Q dated September 30, 1997 and the Proxy
Statement.
All documents and reports filed by either Hilton or BGI pursuant to
Section 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this
Transaction Statement and prior to the Effective Time are deemed to be
incorporated by reference in this Transaction Statement and to be a part
hereof from the dates of filing of such documents or reports. Any statement
contained in a document incorporated or deemed to be incorporated by
reference herein is deemed to be modified or superseded for purposes of this
Transaction Statement to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded will not be deemed, except as so
modified or superseded, to constitute a part of this Transaction Statement.
This Transaction Statement incorporates by reference documents which are
not delivered herewith. These documents, other than exhibits to such
documents, are available, without charge, to any person, including any
beneficial owner of BGI Common Stock or BGI Warrants to whom this Transaction
Statement is delivered, on written or oral request to David Arrajj at Bally's
Grand, Inc., 3645 Las Vegas Boulevard South, Las Vegas, Nevada 89109,
telephone (702) 739-6278.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS TRANSACTION STATEMENT IN
CONNECTION WITH THE MERGER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HILTON,
MERGER SUB, BGI OR ANY OTHER PERSON.
27
<PAGE>
ANNEX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
among
HILTON HOTELS CORPORATION
BALLY'S CHLV INC.
and
BALLY'S GRAND, INC.
Dated as of February 6, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Section Page
------- ----
ARTICLE I
DEFINITIONS
<S> <C>
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3 Other Definitional Provisions. . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
THE MERGER
2.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Effects of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Certificate of Incorporation and
By-laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.6 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS
3.1 Effect on Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Approval of Gaming Commissions;
Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligation
to Effect the Merger. . . . . . . . . . . . . . . . . . . . . . . . 10
i
<PAGE>
ARTICLE VI
TERMINATION AND AMENDMENT
6.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.3 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.4 Extension; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VII
GENERAL PROVISIONS
7.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.2 Headings; References . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.4 Parties in Interest; Assignment. . . . . . . . . . . . . . . . . . . . . 13
7.5 Severability; Enforcement. . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 6, 1998, among
HILTON HOTELS CORPORATION, a Delaware corporation ("Hilton"), BALLY'S CHLV
INC., a Delaware Corporation ("Parent"), and BALLY'S GRAND, INC., a Delaware
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company is a party to that certain Memorandum of
Understanding (the "Memorandum"), dated June 12, 1997, and Stipulation of
Settlement, dated August 7, 1997 (the "Stipulation of Settlement"), with
respect to the settlement of In Re Bally's Grand Derivative Litigation,
Consolidated Civil Actions Nos. 14044 and 15325 in the Court of Chancery of
the State of Delaware in and for New Castle County, which Stipulation of
Settlement was approved by such court and a final order and judgment was
entered on October 9, 1997 (the "Final Order") pursuant to which the Company
and Parent have agreed to cause the Merger (as hereinafter defined) subject
to the terms and conditions set forth therein and herein;
WHEREAS, Hilton indirectly owns all of the outstanding voting stock
of Parent and Parent directly owns more than 90% of the outstanding voting
stock of the Company;
WHEREAS, upon the terms and subject to the conditions set forth in
this Agreement, Parent will merge with and into the Company (the "Merger")
pursuant to Section 253 of the Delaware General Corporation Law, with the
Company continuing as the surviving corporation (the "Surviving Corporation");
WHEREAS, the respective Boards of Directors of Parent and the
Company have approved this Agreement and the transactions contemplated hereby;
<PAGE>
WHEREAS, Parent and the Company desire to make certain agreements
in connection with the Merger and also to prescribe certain conditions to the
Merger.
NOW, THEREFORE, in consideration of the foregoing and the
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or
required by law to close.
"CERTIFICATE OF MERGER" shall have the meaning set forth in Section
2.2.
"CERTIFICATES" shall have the meaning set forth in Section 3.2(b).
"CODE" shall have the meaning set forth in Section 3.2(d).
"COMPANY COMMON STOCK" shall have the meaning set forth in Section
3.1(c).
"COMPANY SECURITIES" shall mean the Company Common Stock and the
Company Warrants.
"COMPANY WARRANTS" shall mean the warrants of the Company issued
pursuant to the Warrant Agreement, dated as of August 20, 1993, between the
Company and Midlantic National Bank, as Warrant Agent, to purchase an aggregate
of 706,403 shares of Company Common Stock at $10.00 per share.
"DGCL" shall mean the Delaware General Corporation Law.
"DISSENTING SHARES" shall have the meaning set forth in Section 3.4.
"EFFECTIVE TIME" shall have the meaning set forth in Section 2.2.
2
<PAGE>
"GAMING COMMISSION" shall mean, collectively, the Nevada State
Control Board and the Nevada Gaming Commission.
"GAMING LAWS" shall mean any Federal, state, local or foreign
statute, ordinance, rule, regulation, policy, permit, consent, approval,
license, judgment, order, decree, injunction or other authorization governing
or relating to the casino and gaming and racetrack activities and operations
of the Company or Parent, as applicable, including the Nevada Gaming Control
Act and the rules and regulations promulgated thereunder, and the Clark
County, Nevada Code and the rules and regulations promulgated thereunder.
"GOVERNMENTAL AUTHORITY" shall mean any foreign, Federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality.
"MEMORANDUM" shall have the meaning set forth in the first recital
of this Agreement.
"MERGER" shall have the meaning set forth in the second recital to
this Agreement.
"MERGER CONSIDERATION" shall have the meaning set forth in Section
3.1(c).
"PAYMENT AGENT" shall have the meaning set forth in Section 3.2.
"PAYMENT FUND" shall have the meaning set forth in Section 3.2.
"PERSON" shall mean an individual, corporation, partnership, trust
or unincorporated organization or a government or any agency or political
subdivision thereof.
"SUBSIDIARY" shall mean, with respect to any Person, (i) each
corporation, partnership, joint venture, limited liability company or other
legal entity of which such Person owns, either directly or indirectly, 50% or
more of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or
similar governing body of such corporation, partnership, joint venture or
other legal entity and (ii) each partnership or limited liability company in
which such Person or another Subsidiary of such Person is the
3
<PAGE>
general partner, managing partner or other otherwise controls.
"SURVIVING CORPORATION" shall have the meaning set forth in the
third recital of this Agreement.
1.2 OTHER TERMS. Other terms may be defined elsewhere in the text
of this Agreement and, unless otherwise indicated, shall have such meaning
throughout this Agreement.
1.3 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof,"
"herein," and "hereunder" and words of similar import, when used in this
Agreement, shall refer to this Agreement as a whole and not to any particular
provision of this Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States dollars.
ARTICLE II
THE MERGER
2.1 MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the DGCL, Parent shall be merged
with and into the Company at the Effective Time. Following the Merger, the
separate corporate existence of Parent shall cease and the Company shall
continue as the Surviving Corporation and shall succeed to and assume all the
rights and obligations of Parent in accordance with the DGCL.
2.2 EFFECTIVE TIME. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 6.1, on the first business day following the date on
which the last of the conditions set forth in Article V is fulfilled or
waived, or as soon as practicable thereafter, the parties hereto shall cause
the Merger to be consummated by filing a certificate of merger (the
"Certificate of Merger") executed in accordance with the relevant provisions
of the DGCL with the Secretary of State of the State of
4
<PAGE>
Delaware. The Merger shall become effective at such time as the Certificate
of Merger is so duly filed, or at such time thereafter as is provided in the
Certificate of Merger (the "Effective Time").
2.3 EFFECTS OF THE MERGER. The Merger shall have the effects as
set forth in Section 259 of the DGCL.
2.4 CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation after the Effective Time, until
duly amended in accordance with its terms and the DGCL.
(b) The By-laws of the Company, as in effect immediately prior to
the Effective Time, shall be the By-laws of the Surviving Corporation, until
thereafter amended as provided therein, by Applicable Law or the Certificate
of Incorporation of the Surviving Corporation.
2.5 DIRECTORS. The directors of Parent immediately prior to the
Effective Time shall be the directors of the Surviving Corporation, until the
earlier of their resignations or removal or until their respective successors
are duly elected and qualified, as the case may be.
2.6 OFFICERS. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS
3.1 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Company Securities or the holder of any shares of the capital stock of Parent:
(a) CAPITAL STOCK OF PARENT. Each share of common stock of Parent
issued and outstanding immediately
5
<PAGE>
prior to the Effective Time shall be converted into and exchanged for one
share of common stock of the Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK. Each
share of Company Common Stock and each Company Warrant that is directly owned
by the Company and each share of Company Common Stock and each Company
Warrant that is directly owned by Hilton, Parent or any subsidiary of Hilton
shall be canceled and retired and shall cease to exist and no consideration
shall be delivered or deliverable in exchange therefor.
(c) CONVERSION OF COMPANY COMMON STOCK. Each share of Common
Stock, par value $.01 per share ("Company Common Stock"), of the Company,
issued and outstanding immediately prior to the Effective Time (excluding
shares cancelled in accordance with Section 3.1(b) and other than Dissenting
Shares (as defined in Section 3.4)) shall be converted into the right to
receive an amount in cash equal to (i) $52.75 minus (ii) the quotient of
$1,250,000, representing the attorneys' fees and expenses awarded by the
Court under the Final Order divided by the sum of the aggregate number of
shares of Company Common Stock outstanding at the Effective Time and the
aggregate number of shares of Company Common Stock subject to the Company
Warrants outstanding at the Effective Time (the "Merger Consideration").
(d) CONVERSION OF COMPANY WARRANTS. Each Company Warrant to
purchase shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time shall be converted into the right to receive an
amount in cash equal to (i) the product of (A) the Merger Consideration
multiplied by (B) the number of shares of Company Common Stock for which such
Company Warrant is exercisable minus (ii) the aggregate exercise price of
such Company Warrant.
(e) NO LIABILITY. None of Hilton, Parent or the Company shall be
liable to any holder of shares of Company Securities for cash which has been
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
6
<PAGE>
3.2 EXCHANGE OF CERTIFICATES.
(a) Prior to the Effective Time, Hilton shall designate the Bank of
New York to act as Paying Agent in connection with the Merger (the "Paying
Agent") for purposes of effecting the exchange of the Merger Consideration
for certificates which, prior to the Effective Time, represented Company
Securities and which are entitled to receive the Merger Consideration
pursuant to Section 3.1. Promptly after the Effective Time, Hilton will
provide the Paying Agent in trust for the benefit of the holders of Company
Securities with immediately available funds ("Payment Fund") in an aggregate
amount equal to the aggregate Merger Consideration to be paid to the holders
of Company Securities pursuant to Section 3.1. The Payment Fund shall be
invested in deposit reserves by the Paying Agent, as directed by Hilton, to
provide for the payment of principal and interest.
(b) Prior to the Effective Time, the Company shall cause to be
mailed to each record holder of an outstanding certificate or certificates of
Company Common Stock or Company Warrants (the "Certificates"), a form of
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates for payment therefor. Upon
surrender to the Paying Agent of a Certificate, together with such letter of
transmittal duly executed, and any other required documents, following the
Merger the holder of such Certificate shall receive promptly in exchange
therefor the Merger Consideration for each Company Common Stock or Company
Warrant formerly evidenced thereby, and such Certificate shall forthwith be
cancelled. No interest will be paid or accrued on the cash payable upon the
surrender of the Certificates. If payment is to be made to a person other
than the person in whose name the surrendered Certificate is registered, it
shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such payment shall pay any transfer or other taxes required
by reason of the payment to a person other than the registered holder of the
Certificate surrendered or establish to the satisfaction of Hilton that such
tax has been paid or is not applicable. One Hundred Eighty (180)
7
<PAGE>
days after the Effective Time, Hilton shall be entitled to require the Paying
Agent to deliver to it any cash (including any interest received with respect
thereto) which it has made available to the Paying Agent and which has not
been disbursed to holders of Certificates, and thereafter such holders shall
be entitled to look to the Surviving Corporation (subject to abandoned
property, escheat or other similar laws) only as general unsecured creditors
thereof with respect to the cash payable upon due surrender of their
Certificates. Hilton shall pay all charges and expenses, including those of
the Paying Agent, in connection with the distribution of the Merger
Consideration for Company Common Stock and Company Warrants. From and after
the Effective Time, until surrendered in accordance with the provisions of
this Section 3.2(b), each Certificate (other than Certificates which
represented Company Common Stock or Company Warrants held by the Company,
Hilton, Parent or any direct or indirect wholly-owned Subsidiary of the
Company, Hilton or Parent and other than Dissenting Shares) shall represent
for all purposes only the right to receive consideration equal to the Merger
Consideration multiplied by the number of shares of Company Common Stock (or
for which the Company Warrant is exercisable) evidenced by such Certificate,
without any interest thereon. From and after the Effective Time, holders of
Certificates shall have no right to vote or to receive any dividends or other
distributions with respect to any Company Common Stock which were theretofore
represented by such Certificates, other than any dividends or other
distributions payable to holders of record as of a date prior to the
Effective Time, and shall have no other rights other than as provided herein
or by applicable law.
(c) From and after the Effective Time, there shall be no transfers
on the stock transfer books of the Surviving Corporation of the Company
Common Stock or Company Warrants which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented
to the Paying Agent or the Surviving Corporation, they shall be cancelled and
exchanged for the Merger Consideration in accordance with the procedures set
forth in this Article III.
(d) The Paying Agent shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to this Agreement to any holder
of Company Common Stock or Company Warrants such amounts as the Paying Agent
is required to deduct and withhold with respect to the
8
<PAGE>
making of such payment under the Internal Revenue Code of 1986, as amended
(the "Code"). To the extent that amounts are so withheld by the Paying
Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Certificates in respect of
which such deduction and withholding was made by the Paying Agent.
(e) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, the Paying Agent
will issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration deliverable in respect thereof as determined in
accordance with this Article III, PROVIDED that the person to whom the Merger
Consideration is paid shall, as a condition precedent to the payment thereof,
give the Surviving Corporation a bond in such sum as it may direct or
otherwise indemnify the Surviving Corporation in a manner satisfactory to it
against any claim that may be made against the Surviving Corporation with
respect to the Certificate claimed to have been lost stolen or destroyed.
3.3 DISSENTERS' RIGHTS. Notwithstanding anything in this Agreement
to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and held by a holder who has
delivered a written demand for appraisal of such shares in accordance with
Section 262 of the DGCL ("Dissenting Shares"), shall not be converted into
the right to receive the Merger Consideration, as provided in Section 2.1
hereof, unless and until such holder fails to perfect or effectively
withdraws or otherwise loses his right to appraisal and payment under the
DGCL. If, after the Effective Time, any such holder fails to perfect or
effectively withdraws or otherwise loses his right to appraisal, such
Dissenting Shares shall thereupon be treated as if they had been converted as
of the Effective Time into the right to receive the Merger Consideration,
without interest or dividends thereon. The Company shall give Hilton prompt
notice of any demands received by the Company for appraisal of shares of
Company Common Stock, and, prior to the Effective Time, Parent shall have the
right to participate in all negotiations and proceedings with respect to such
demands. Prior to the Effective Time, the Company shall not, except with the
prior written consent of Hilton, make any payment with respect to, or settle
or offer to settle, any such demands.
9
<PAGE>
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 APPROVAL OF GAMING COMMISSIONS; REGULATORY MATTERS. Hilton and
Parent shall as promptly as practicable, file or submit those filings and
other submissions under applicable Gaming Laws in connection with the Merger,
this Agreement and the transactions contemplated hereby, and to respond as
promptly as practicable to inquiries received from state or local gaming
authorities and to appear before such authorities as promptly as practicable
in order to obtain as soon as practicable those approvals and consents
required or necessary in connection with the Merger, this Agreement or the
transactions contemplated hereby. In addition, Hilton shall, and shall cause
its Subsidiaries to (and shall use its reasonable efforts to cause its
affiliates other than its Subsidiaries to), if it is necessary to obtain any
regulatory approval for the Merger, disassociate themselves from any person
or persons deemed, or reasonably likely to be deemed, unacceptable by any
Gaming Commission and, in the case of any such person who is a nominee to
serve as a director of Hilton or any of its Subsidiaries, Hilton shall, and
shall cause its relevant Subsidiary or Subsidiaries to replace any such
director nominee with a suitable nominee. Hilton shall keep the Company
apprised of the status of any communications with, and any inquiries or
requests for additional information from, the Gaming Commissions and shall
comply promptly with any such inquiry or request.
ARTICLE V
CONDITIONS PRECEDENT
5.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of each party to effect the Merger shall be subject
to the satisfaction or waiver on or prior to the Effective Time of the
following condition:
(a) EXECUTION AND FINAL JUDICIAL APPROVAL OF SETTLEMENT AGREEMENT.
The parties to the Memorandum shall have obtained final judicial approval of
the Stipulation of Settlement.
10
<PAGE>
(b) NO INJUNCTIONS OR RESTRAINTS. No statute, rule, regulation,
decree, preliminary or permanent injunction, temporary restraining order
or other order of any nature of any court or Governmental Authority shall
be in effect that restrains, prevents or materially changes the
transactions contemplated hereby; PROVIDED, HOWEVER, that in the case of
a decree, injunction or other order, the party invoking this condition
shall have used reasonable efforts to prevent the entry of any such
injunction or other order and to appeal as promptly as possible any
decree, injunction or other order.
(c) GOVERNMENT APPROVALS. Hilton and Parent shall have received all
requisite government approvals required to consummate the Merger,
including those required under applicable Gaming Laws.
ARTICLE VI
TERMINATION AND AMENDMENT
6.1 TERMINATION. Subject to the requirements of the Stipulation of
Settlement, this Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time:
(a) by mutual written consent of the Company, on the one hand,
and Hilton, on the other hand, or by mutual action of their respective
boards of directors; or
(b) by either the Company or Hilton if any of the conditions set
forth in Article 5 shall have become incapable of fulfillment (other than
as a result of any breach by the party seeking to terminate the Agreement)
and shall not have been waived in accordance with the terms of this
Agreement.
6.2 EFFECT OF TERMINATION. In the event of termination by the
Company or Hilton pursuant to Section 6.1, written notice thereof shall
promptly be given to the other party and, except as otherwise provided
herein, the transactions contemplated by this Agreement shall be terminated
and become void and have no effect. Nothing in this Section 6.2 shall be
deemed to release any party from
11
<PAGE>
any liability for any willful and material breach by such party of the terms
and provisions of this Agreement.
6.3 AMENDMENT. This Agreement may be amended, modified or
supplemented only by written agreement of Hilton, Parent and the Company at
any time prior to the Effective Time with respect to any of the terms
contained herein.
6.4 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective boards
of directors, may, to the extent legally allowed: (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto; and (ii) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party. The failure of any party hereto to assert
any of its rights hereunder shall not constitute a waiver of such rights.
ARTICLE VII
GENERAL PROVISIONS
7.1 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter
contained herein, supersedes and cancels all prior agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or
written, respecting such subject matter. There are no restrictions,
promises, representations or warranties, agreements or undertakings of any
party hereto with respect to the transactions contemplated by this Agreement
other than those set forth herein or made hereunder.
7.2 HEADINGS; REFERENCES. The article, section and paragraph
headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
All references herein to "Articles", "Sections" or "Exhibits" shall be deemed
to be references to Articles or Sections hereof or Exhibits hereto unless
otherwise indicated.
12
<PAGE>
7.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and each counterpart shall be deemed to be an original, but all
of which shall constitute one and the same original.
7.4 PARTIES IN INTEREST; ASSIGNMENT. Neither this Agreement nor
any of the rights, interest or obligations hereunder shall be assigned by any
of the parties hereto without the prior written consent of the other parties.
Subject to the preceding sentence this agreement shall inure to the benefit
of and be binding upon the Company, Hilton and Parent and shall inure to the
sole benefit of the Company, Hilton and Parent and their respective
successors and permitted assigns.
7.5 SEVERABILITY; ENFORCEMENT. The invalidity of any portion hereof
shall not affect the validity, force or effect of the remaining portions
hereof. If it is ever held that any restriction hereunder is too broad to
permit enforcement of such restriction to its fullest extent, each party
agrees that a court of competent jurisdiction may enforce such restriction to
the maximum extent permitted by law, and each party hereby consents and
agrees that such scope may be judicially modified accordingly in any
proceeding brought to enforce such restriction.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
HILTON HOTELS CORPORATION
By: /s/ SCOTT LA PORTA
-----------------------------------------
Name: Scott La Porta
Title: Senior Vice President and Treasurer
BALLY'S CHLV INC.
By: /s/ MATTHEW HART
------------------------------------------
Name: Matthew Hart
Title:
BALLY'S GRAND INC.
By: /s/ DAVID ARRAJJ
-------------------------------------------
Name: David Arrajj
Title: Vice President and General Counsel
14
<PAGE>
ANNEX II
LETTER OF TRANSMITTAL
For the Surrender of Certificates
Representing Common Stock and Warrants
BALLY'S GRAND, INC.
in connection with the merger of
BALLY'S CHLV INC. with and into
BALLY'S GRAND, INC.
______________________
THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL
SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
BELOW WILL NOT CONSTITUTE A VALID DELIVERY
THE BANK OF NEW YORK
<TABLE>
<CAPTION>
BY MAIL: FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT COURIER:
(FOR ELIGIBLE INSTITUTIONS ONLY)
TENDER & EXCHANGE TENDER & EXCHANGE DEPARTMENT
P.O. BOX 11248 (212) 815-6213 101 BARCLAY STREET
CHURCH STREET STATION RECEIVE AND DELIVER WINDOW
NEW YORK, NEW YORK 10286-1248 NEW YORK, NEW YORK 10286
FOR INFORMATION TELEPHONE:
(800) 507-9357
DESCRIPTION OF SHARES OF COMMON STOCK SURRENDERED
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) STOCK CERTIFICATE(S) BEING SURRENDERED
APPEAR(S) ON CERTIFICATE(S) OR, IF ALREADY (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
FILLED IN, PLEASE CORRECT ANY ERRORS) ---------------------------------------------
Total Number of
Certificate Shares Represented by
Number(s) Certificate(s)
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
Total Shares
- -------------------------------------------------------------------------------------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF WARRANTS SURRENDERED
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) WARRANTS BEING SURRENDERED
APPEAR(S) ON CERTIFICATE(S) OR, IF ALREADY (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
FILLED IN, PLEASE CORRECT ANY ERRORS) ---------------------------------------------
Total Number of
Shares of
Common Stock
Represented Current
Dates(s) by Exercise
of Issue Warrant(s)* Price
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
Total
Shares
- -------------------------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW
</TABLE>
* Please indicate the number of shares as they appear on the Warrant
Certificate.
<PAGE>
PLEASE READ AND FOLLOW CAREFULLY THE ACCOMPANYING INSTRUCTIONS
(Send this Letter of Transmittal and Stock Certificates and/or Warrant
Certificates to the Paying Agent at the address set forth on the first page
of this Letter of Transmittal)
Ladies and Gentlemen:
The undersigned has been advised that the merger (the "Merger") of
Bally's CHLV Inc. (the "Parent"), an indirect wholly owned subsidiary of
Hilton Hotels Corporation ("Hilton"), with and into Bally's Grand, Inc. (the
"Company" or the "Surviving Corporation") is anticipated to become effective
on March __, 1998 (the "Effective Time") in accordance with the terms of an
Agreement and Plan of Merger (the "Merger Agreement"), dated as of February
6, 1998, by and among the Company, the Parent and Hilton.
With respect to shares (the "Shares") of Common Stock, par value
$.01 per share, of the Company (the "Common Stock") held by the undersigned
at the Effective Time, the undersigned hereby surrenders the above-described
certificates representing such Shares accompanied by this executed Letter of
Transmittal and any other documents required by this Letter of Transmittal,
and in exchange therefor, you are hereby requested to deliver to the
undersigned as soon as practicable following such surrender, a check in an
amount equal to the product obtained by multiplying (A) the number of Shares
evidenced by such certificate or certificates by (B) $51.37.
With respect to Warrants to purchase shares of Common Stock (the
"Warrants") held by the undersigned at the Effective Time, the undersigned
hereby surrenders the above-described certificates representing such Warrants
accompanied by this executed Letter of Transmittal and any other documents
required by this Letter of Transmittal, and in cancellation and settlement of
such Warrants, you are hereby requested to deliver to the undersigned as soon
as practicable following such surrender, a check in an amount equal to the
excess of (x) the product obtained by multiplying (A) the number of shares of
Common Stock issuable upon the exercise of the Warrants held by the
undersigned at the Effective Time by (B) $51.37, over (y) the aggregate
exercise price of all Warrants held by the undersigned at the Effective Time.
The name and address of the registered owner(s) of Shares, should
be printed, if they are not already printed, under "Description of Shares of
Common Stock Surrendered," as they appear on the certificate(s) representing
Shares surrendered hereby. The name and address of the registered owners of
Warrants should be printed, if they are not already printed, under
"Description of Warrants Surrendered," as they appear on the certificate(s)
representing Warrants surrendered hereby. The certificate(s), the date(s) of
issue, the exercise price(s), the number of Shares and/or the number of
shares of Common Stock represented by Warrants that the undersigned wishes to
surrender should be indicated in the appropriate boxes. The undersigned
will, upon request, execute any additional documents deemed reasonably
necessary or desirable to complete the transmittal of the Shares and/or
Warrants surrendered hereby. The undersigned hereby represents and warrants
that (a) the undersigned has full power and authority to surrender the Shares
and/or Warrants being transmitted herewith as described above for payment as
provided herein and that, when the consideration payable to the undersigned
is paid in accordance with the Merger Agreement and as set forth above,
neither Hilton nor the Surviving Corporation will be subject to any adverse
claim in respect of such Shares and/or Warrants, (b) the undersigned has good
title to the Shares and/or Warrants being transmitted herewith, free and
clear of all liens, claims and encumbrances, and (c) the undersigned has read
and agrees to all terms and conditions set forth herein.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned and shall not be
affected by, and shall survive the death or incapacity of, the undersigned.
Delivery of the enclosed certificate(s) shall be effected, and risk
of loss and title shall pass, only upon proper delivery thereof to you at the
address given above. Surrender of a certificate or certificates representing
Shares or Warrants is irrevocable.
Unless otherwise indicated under "Special Payment Instructions",
please issue the check(s) for the consideration described above in the name
of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions", please mail the check(s) for such amounts to the
address appearing under "Description of Shares of Common Stock Surrendered"
and/or Description of Warrants Surrendered."
<PAGE>
INSTRUCTIONS
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATE(S); SIGNATURE
GUARANTEES. Certificates for all surrendered Shares and/or Warrants, as well
as a properly completed and duly executed Letter of Transmittal and any other
documents required by this Letter of Transmittal, must be received by the
Paying Agent at the address set forth in this Letter of Transmittal in order
for the appropriate person to receive the consideration set forth in the
Letter of Transmittal.
Notwithstanding any other provision hereof, the consideration set forth
in the Letter of Transmittal shall in all cases be paid only after receipt by
the Paying Agent of certificate(s) for such Shares and/or Warrants
surrendered hereby, a properly completed and duly executed Letter of
Transmittal and all other required documents.
If this Letter of Transmittal is signed by the registered holder of the
Shares and/or Warrants surrendered hereby, the signature must correspond with
the name written on the face of the certificate(s) or on the agreement(s)
without any change whatsoever. If certificate(s) are registered in the name
of a person other than the signer of this Letter of Transmittal, the
certificate(s) must be duly endorsed, or accompanied by stock power(s) signed
by the registered holder(s), with the signature(s) on the endorsement(s) or
stock power(s) guaranteed thereon and on this Letter of Transmittal as
provided below. If the surrendered certificate(s) are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If this Letter of Transmittal is executed by an officer on behalf of a
corporation or by an executor, administrator, trustee, guardian, attorney,
agent or other person acting in a fiduciary or representative capacity, the
person signing must forward with the Letter of Transmittal such person's full
title in such capacity and appropriate evidence of authority to act in such
capacity (including court orders and corporate resolutions where necessary),
as well as evidence of the authority of the person signing to surrender the
Shares and/or Warrants. Questions regarding such evidence of authority may
be referred to the Paying Agent.
IF SHARES AND/OR WARRANTS ARE SURRENDERED BY A REGISTERED HOLDER WHO HAS
COMPLETED THE BOX ENTITLED "SPECIAL DELIVERY INSTRUCTIONS," SIGNATURES ON
THIS LETTER OF TRANSMITTAL MUST BE GUARANTEED BY A FINANCIAL INSTITUTION
(INCLUDING MOST BANKS, SAVINGS AND LOAN ASSOCIATIONS AND BROKERAGE HOUSES)
THAT IS A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM,
THE NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE PROGRAM OR THE STOCK
EXCHANGES MEDALLION PROGRAM (EACH, AN "ELIGIBLE INSTITUTION"). NO SIGNATURE
GUARANTEE IS REQUIRED, HOWEVER, IF THIS LETTER OF TRANSMITTAL IS SIGNED BY
THE REGISTERED HOLDER(S) OF THE SHARES AND/OR WARRANTS SURRENDERED HEREWITH
AND PAYMENT IS TO BE MADE DIRECTLY TO SUCH REGISTERED HOLDER(S) BY CHECK OR
WIRE TRANSFER.
2. METHOD OF DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATE(S). The
method of delivery of this Letter of Transmittal, the certificate(s), and any
other required documents is at the option and risk of the stockholder or
warrantholder, but the delivery will be deemed made only when actually
received by the Paying Agent. It is suggested that you use overnight courier
mail or properly insured registered mail with return receipt requested. A
return envelope for mailing is enclosed.
3. NO CONDITIONAL SURRENDER. No alternative, conditional, irregular or
contingent surrender of Shares and/or Warrants or transmittal of this Letter
of Transmittal will be accepted. Partial surrender of certificates will not
be permitted.
4. MULTIPLE REGISTRATIONS. If a stockholder's Shares or a
warrantholder's Warrants are registered differently on several certificates,
it will be necessary for such stockholder and/or warrantholder to complete,
sign and submit as many separate Letters of Transmittal as there are
different registrations for such stockholder's Shares and/or such
warrantholder's Warrants.
5. INADEQUATE SPACE. If the space provided in this Letter of
Transmittal is inadequate, the certificate numbers, the dates of issue, the
exercise prices, number of Shares, and/or the number of shares of Common
Stock represented by Warrants should be listed on a separate schedule to be
affixed hereto.
6. WAIVER OF APPRAISAL RIGHTS. The holder hereby waives any appraisal
rights pursuant to Section 262 of the Delaware General Corporation Law with
respect to the Shares held by such holder. All Shares represented by
certificates delivered to the Paying Agent will be deemed to have been
surrendered.
7. 31% BACKUP WITHHOLDING. In order to avoid "backup withholding" of
Federal income tax on any payment received upon the surrender of Shares or
Warrants, a U.S. stockholder or warrantholder must, unless an exemption
applies, provide such stockholder's or warrantholder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 on this Letter of
Transmittal and certify, under penalties of perjury, that such number is
correct. If the correct TIN is not provided, a $50 penalty may be imposed on
the stockholder or warrantholder by the Internal Revenue Service and the
consideration paid for the Shares or Warrants may be subject to backup
withholding of 31%.
<PAGE>
If backup withholding applies, 31% of any payment paid to the
stockholder or warrantholder or other payee will be withheld. Backup
withholding is not an additional tax. Rather, the tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld,
provided that the required information is given to the Internal Revenue
Service. If withholding results in an overpayment of taxes, a refund may be
obtained by the stockholder, warrantholder, or payee from the Internal
Revenue Service.
The TIN that is to be provided on the Substitute Form W-9 is that of the
registered holder(s) of the Shares or Warrants or of the last transferee
appearing on the transfers attached to, or endorsed on, the Shares or
Warrants. The TIN for an individual is such individual's social security
number. If the Shares or Warrants are in more than one name or are not in
the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
The box in Part 3 of the Substitute Form W-9 may be checked if the
tendering stockholder or warrantholder has not been issued a TIN and has
applied for a TIN or intends to apply for a TIN in the near future. If the
box in Part 3 is checked, the stockholder, warrantholder or other payee must
also complete the Certificate of Awaiting Taxpayer Identification Number
below the Substitute Form W-9 in this Letter of Transmittal in order to avoid
having backup withholding. Notwithstanding that the box in Part 3 is checked
and the Certificate of Awaiting Taxpayer Identification Number is completed,
31% on all payments made prior to the time a properly certified TIN is
provided will be withheld. However, such amounts will be refunded to such
stockholder or warrantholder if a TIN is provided within 60 days.
Certain stockholders and warrantholders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, the stockholder or warrantholder must submit
a Form W-8, signed under penalties of perjury, attesting to that individual's
exempt status. A Form W-8 with instructions is attached. If a completed
Form W-8 from a non-U.S. stockholder or warrantholder is not received, 31% on
all payments made will be withheld.
8. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate
representing Shares or Warrants has been lost, destroyed or stolen, the
stockholder and/or warrantholder should promptly notify the Surviving
Corporation by checking the box immediately following special payment and
special delivery instructions and indicating the number of Shares and/or
Warrants lost. The stockholder and/or warrantholder will then be instructed
as to the steps that must be taken in order to replace the certificate and/or
agreement. This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificates
and/or agreements have been followed.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for
assistance may be directed to, or additional copies of this Letter of
Transmittal may be obtained from the Surviving Corporation at the mailing
address set forth on the first page of this Letter of Transmittal.
DELIVERY OF THE CERTIFICATE(S) SHALL BE EFFECTED, AND RISK OF LOSS AND TITLE
SHALL PASS, ONLY UPON PROPER DELIVERY THEREOF TO THE SURVIVING CORPORATION,
AS SET FORTH IN THE INSTRUCTIONS PROVIDED IN THIS LETTER OF TRANSMITTAL
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTION 1)
To be completed ONLY if the undersigned is entitled to receive in excess of
$250,000 and desires payment by wire transfer.
Pay the Consideration by Wire Transfer to:
Name of Bank: __________________________________
Address of Bank: _______________________________
ABA Number: ____________________________________
Account Number: ________________________________
Name on Account: _______________________________
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 1)
To be completed ONLY if a check is to be sent to someone other than the
undersigned or to an address other than that shown under "Description of
Shares of Common Stock Surrendered," and/or "Description of Warrants
Surrendered" above.
Issue check to:
Name: ___________________________________________
(Please Print)
Address: ________________________________________
_________________________________________________
(Zip Code)
/ / CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING THE SHARES AND/OR
WARRANTS BEING SURRENDERED HAVE BEEN LOST OR DESTROYED AND SEE
INSTRUCTION 8.
Number of Shares represented by the lost or destroyed certificate: ________
Number of Warrants represented by the lost or destroyed certificate: ______
<PAGE>
SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 ON FOLLOWING PAGE)
----------------------------------------------------------------
----------------------------------------------------------------
(Signature(s) of Stockholder(s))
(Must be signed by the registered holder(s) exactly as name(s)
appear(s) on stock or warrant certificate(s) or on a security
position listing or by person(s) authorized to become registered
holder(s) by certificates and documents transmitted herewith or by
a duly authorized representative of any such person. If signature
is by an officer on behalf of a corporation or by an executor,
administrator, trustee, guardian, attorney, agent or other person
acting in a fiduciary or representative capacity, please provide the
following information. (See Instruction 1.)).
Dated: ___________________________________________________________
Name(s): __________________________________________________________
___________________________________________________________________
(Please Print)
Capacity (Full Title) _____________________________________________
Address ___________________________________________________________
___________________________________________________________________
(Include Zip Code)
Daytime Area Code and Telephone No. _______________________________
Employer Identification or
Social Security No. _______________________________________________
GUARANTEE OF SIGNATURES
(If Required -- See Instruction 1)
Authorized Signature ______________________________________________
Name ______________________________________________________________
(Please Print)
Name of Firm ______________________________________________________
Address ____________________________________________________________
(Include Zip Code)
Daytime Area Code and Telephone No. _______________________________
Dated: ____________________________________________________________
<PAGE>
SUBSTITUTE FORM W-9
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER ("TIN")
PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY
SIGNING AND DATING BELOW:
Social Security Number or
Employer Identification Number
______________________________
PART 2--CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup withholding as a result of
a failure to report all interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have
been notified by the IRS that you are currently subject to backup
withholding because of underreporting interest or dividends on your tax
return. However, if after being notified by the IRS that you were subject
to backup withholding you received another notification from the IRS that
you are no longer subject to backup withholding, do not cross out such item
(2).
SIGNATURE ________________________
DATE _____________________________
PART 3
Awaiting TIN / /
- -------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU. PLEASE REVIEW
INSTRUCTION 7 ABOVE AND THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered
an application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all reportable payments made to me will be withheld,
but that such amounts will be refunded to me if I then provide a taxpayer
identification number within 60 days.
______________________________________ ___________________________
Signature Date
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYOR --
Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by one
hyphen: i.e. 00-0000000. The table below will help determine the number to give
the payor.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE
SOCIAL SECURITY
NUMBER OF --
- --------------------------------------------------------------------------------
<S> <C> <C>
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of the account or,
account) if combined funds, the first
individual on the account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4a. The usual revocable savings trust The grantor-trustee(1)
account (grantor is also trustee)
b. So-called trust account that is not The actual owner(1)
a legal or valid trust under State
Law
5. Sole proprietorship account The owner(3)
<CAPTION>
- --------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
IDENTIFICATION
NUMBER OF --
- --------------------------------------------------------------------------------
<S> <C> <C>
6. Sole proprietorship account The owner(3)
7. A valid trust, estate, or pension The legal entity (Do not furnish the
trust identifying number of the personal
representative or trustee unless the
legal entity itself is not
designated in the account title)(4)
8. Corporate account The corporation
9. Association, club, religious, The organization
charitable, educational or other
tax-exempt organization
10. Partnership account The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district or
prison) that receives agricultural
program payments
</TABLE>
- ------------------------------------------------
- ------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner.
(4) List first and circle the name of the valid trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER (TIN) ON SUBSTITUTE FORM W-9
(SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE)
Page 2
NAME
If you are an individual, generally provide the name shown on your social
security card. However, if you have changed your last name, for instance, due to
marriage, without informing the Social Security Administration of the name
change, please enter your first name and both the last name shown on your social
security card and your new last name.
SOLE PROPRIETOR
You must enter your individual name. (Enter either your SSN or EIN in Part
1.) You may also enter your business name or "doing business as" name on the
business line. Enter your name as shown on your social security card and
business name as it was used to apply for your EIN on Form SS-4.
OBTAINING A NUMBER
If you don't have a taxpayer identification number ("TIN"), apply for one
immediately. To apply, obtain Form SS-5, Application for a Social Security
Number Card, or Form SS-4, Application for Employer Identification Number, at
the local office of the Social Security Administration or the Internal Revenue
Service (the "IRS").
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding and for
which no information reporting is required. For interest and dividends, all
listed payees are exempt except item (9). For broker transactions, payees listed
in (1) through (13), and a person registered under the Investment Advisors Act
of 1940 who regularly acts as a broker are exempt. Payments subject to reporting
under sections 6041 and 6041A are generally exempt from backup withholding only
if made to payees described in items (1) through (7), except that a corporation
that provides medical and health care services or bills and collects payments
for such services is not exempt from backup withholding or information
reporting.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an individual
retirement plan ("IRA"), or a custodial account under section 403(b)(7).
(3) The United States or any agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
(9) A futures commission merchant registered with the Commodity Futures Trading
Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the Investment
Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc. Nominee List.
(15) An trust exempt from tax under Section 664 or described in section 4947.
Payments of dividends generally not subject to backup withholding also
include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals.
NOTE: YOU MAY BE SUBJECT TO BACKUP WITHHOLDING IF THIS INTEREST IS $600 OR
MORE AND IS PAID IN THE COURSE OF THE PAYOR'S TRADE OR BUSINESS AND YOU HAVE NOT
PROVIDED YOUR CORRECT TIN TO THE PAYOR.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject
to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044,
6045, 6049, 6050A, and 6050N, and the regulations under those sections.
PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct TIN
to persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, or contributions you made to an
IRA. The IRS uses the numbers for identification purposes and to help verify the
accuracy of your tax return. You must provide your TIN whether or not you are
qualified to file a tax return. Payors must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
TIN to a payor. Certain penalties may also apply.
PENALTIES
(1) FAILURE TO FURNISH TIN. -- If you fail to furnish your correct TIN to a
payor, you are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION
CONTACT YOUR TAX CONSULTANT OR THE IRS
<PAGE>
ANNEX III
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of
a member of a nonstock corporation; and the words "depository receipt" mean a
receipt or other instrument issued by a depository representing an interest
in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsections (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an
III-1
<PAGE>
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the merger or consolidation and that appraisal rights are available for
any or all of the shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
III-2
<PAGE>
rights. Such notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify the stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated herein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall
be entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
III-3
<PAGE>
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation pursuant
to subsection (f) of this section and who has submitted his certificates of
stock to the Register in Chancery, if such is required, may participate fully
in all proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as
the Court may direct. Payment shall be so made to each such stockholder, in
the case of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this
State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the
stock (except dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the merger or
consolidation); provided, however, that if no petition for an appraisal shall
be filed within the time provided in subsection (e) of this section, or if
such stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of his demand for an appraisal and an acceptance
III-4
<PAGE>
of the merger or consolidation, either within 60 days after the effective
date of the merger or consolidation as provided in subsection (e) of this
section or thereafter with the written approval of the corporation, then the
right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be
dismissed as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
III-5
<PAGE>
ANNEX IV
June 12, 1997
The Board of Directors
Bally's Grand, Inc.
3645 Las Vegas Boulevard
Las Vegas, NV 89109
Gentlemen:
You have engaged us pursuant to the engagement letter, dated as of June
11, 1997, between Bally's Grand, Inc. ("Bally's Grand" or the "Company") and
Ladenburg Thalmann & Co. Inc. ("Ladenburg"). Specifically, you have requested
our opinion as to whether or not the consideration to be paid in connection
with the purchase of common shares (and warrants to purchase common shares)
from certain shareholders of the Company for cash consideration of $52.75 per
share (and for the warrants the difference between $52.75 per share and the
warrant exercise price) (the "Transaction"), pursuant to the Memorandum of
Understanding (the "Repurchase Agreement") attached hereto as Exhibit A, is
fair, from a financial point of view, to the shareholders of the Company.
The Repurchase Agreement provides that at the closing of the
Transaction, the Company will repurchase 388,561 shares of Bally's Grand
common stock and 61,285 warrants to purchase shares of Bally's Grand common
stock held by Tower Investment Group, Inc. (Tower") and 578,186 shares of
Bally's Grand common stock and 41,413 warrants to purchase shares of Bally's
Grand common stock held by Executive Life of New York ("Executive Life") at a
price of $52.75 per share in cash for stock, and, for warrants, the
difference between $52.75 per share in cash less the exercise price of
warrants.
In connection with rendering this opinion, we have reviewed such
information as we have deemed necessary or appropriate for the purpose of
stating the opinions expressed herein, including but not limited to the
following: (i) the Repurchase Agreement; (ii) the Annual Reports on Form 10-K
for Bally's Grand for the three fiscal years ended December 31, 1994,
December 31, 1995 and December 31, 1996; (iii) detailed internal financial
statements for Bally's Grand for the fiscal years ended December 31, 1995 and
December 31, 1996 and the first quarter ended March 31, 1997; (iv)
management's five-year projected financial statements for Bally's Grand; (v)
Bally's Grand's common stock price and volume trading history; and (vi)
publicly available information regarding the industry, Bally's Grand, Inc.
and its competitors. In addition, we met with members of senior management
of Bally's Grand at its offices in Las Vegas, Nevada to discuss the
historical and prospective industry environment and operating results for
Bally's Grand.
In rendering our opinion, we have assumed and relied upon the accuracy,
completeness and fairness, without assuming any responsibility for the
independent verification of, all financial and other information that was
available to us from public sources, that was provided to us by Bally's
Grand, or that was otherwise reviewed by us. With respect to financial
projections
<PAGE>
supplied to us, we assume that they have been reasonably prepared based on
the Company's then current estimate of results, and we have relied upon such
projections and made no independent verification of the bases, assumptions,
calculations or other information contained therein. We have not made or
been provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Bally's Grand, and we do not assume
any responsibility for verifying any of the information reviewed by us. Our
opinion is necessarily based upon information available to us, and financial,
stock market and other conditions and circumstances existing and disclosed to
us, as of the date hereof.
In conducting our investigation and analyses and in arriving at our
opinion expressed herein, we have taken into account such accepted financial
and investment banking procedures and considerations as we have deemed
relevant, including: (i) historical revenues, operating earnings, net income
and capitalization of the Company and certain other publicly held companies in
businesses we believe to be comparable to the Company's; (ii) the current
financial and market position and results of operations of the Company; and
(iii) the general condition of the securities market.
Ladenburg, as part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate or
other purposes. Ladenburg has been retained by the Board of Directors of
Bally's Grand to provide this opinion and has received fees and indemnification
against certain liabilities for the services rendered pursuant to this
engagement. Ladenburg has not provided investment banking or financial
advisory services to Bally's Grand in the past.
In the ordinary course of business, we actively trade securities for our
own account and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in the debt or equity securities of the
Company.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Consideration to be paid in
the Transaction is fair, from a financial point of view, to the shareholders of
the Company.
Very truly yours,
LADENBURG THALMANN & CO. INC.
<PAGE>
ANNEX V
February 6, 1998
The Board of Directors
Bally's Grand, Inc.
3645 Las Vegas Boulevard
Las Vegas, NV 89109
Gentlemen:
You have engaged us pursuant to the engagement letter, dated as of June
11, 1997, as supplemented by the letter dated February 5, 1998, between Bally's
Grand, Inc. ("Bally's Grand" or the "Company") and Ladenburg Thalmann & Co.
Inc. ("Ladenburg"). Specifically, you have requested our opinion as to whether
or not the consideration to be received in connection with the sale of all
remaining common shares (and warrants to purchase common shares) of the Company
not already held by Hilton Hotels Corporation ("Hilton") to Hilton for cash
consideration of $52.75 per share, less attorney's fees and other expenses (and
for the warrants the difference between $52.75 per share and the warrant
exercise price, less attorney's fees and other expenses) (the "Transaction"),
pursuant to the draft Merger Agreement dated as of February 6, 1998 (the
"Merger Agreement"), is fair, from a financial point of view, to the
shareholders (and warrant holders) of the Company.
The Merger Agreement provides that at the closing of the Transaction,
Hilton will acquire all remaining shares of Bally's Grand common stock not
already held by Hilton in exchange for $52.75 per share in cash (less
attorney's fees and expenses awarded by the Court) for stock, and, for
warrants, the difference between $52.75 per share in cash (less attorney's fees
and expenses awarded by the Court) less the exercise price of warrants.
In connection with rendering this opinion, we have reviewed such
information as we have deemed necessary or appropriate for the purpose of
stating the opinions expressed herein, including but not limited to the
following: (i) the Merger Agreement; (ii) the Annual Reports on Form 10-K for
Bally's Grand for the three fiscal years ended December 31, 1994, December 31,
1995 and December 31, 1996; (iii) the Quarterly Report on Form 10-Q for the
Company for the nine months ended September 30, 1997; (iv) detailed internal
financial statements for Bally's Grand for the fiscal years ended December 31,
1995, December 31, 1996 and December 31, 1997; (v) management's five-year
projected financial statements for Bally's Grand; (vi) Bally's Grand's common
stock price and volume trading history; and (vi) publicly available information
regarding the industry, Bally's Grand, Inc. and its competitors. In addition,
we met with members of senior management of Bally's Grand at its offices in
Las Vegas, Nevada to discuss the historical and prospective industry
environment and operating results for Bally's Grand.
<PAGE>
The Board of Directors
Bally's Grand, Inc.
February 6, 1998
Page 2
In rendering our opinion, we have assumed and relied upon the accuracy,
completeness and fairness, without assuming any responsibility for the
independent verification of, all financial and other information that was
available to us from public sources, that was provided to us by Bally's Grand,
or that was otherwise reviewed by us. With respect to financial projections
supplied to us, we assume that they have been reasonably prepared based on the
Company's then current estimate of results, and we have relied upon such
projections and made no independent verification of the bases, assumptions,
calculations or other information contained therein. We have not made or been
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Bally's Grand, and we do not assume
any responsibility for verifying any of the information reviewed by us. Our
opinion is necessarily based upon information available to us, and financial,
stock market and other conditions and circumstances existing and disclosed to
us, as of the date hereof.
In conducting our investigation and analyses and in arriving at our
opinion expressed herein, we have taken into account such accepted financial
and investment banking procedures and considerations as we have deemed
relevant, including: (i) historical revenues, operating earnings, net income
and capitalization of the Company and certain other publicly held companies in
businesses we believe to be comparable to the Company's; (ii) the current
financial and market position and results of operations of the Company; and
(iii) the general condition of the securities market.
Ladenburg, as part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate or
other purposes. Ladenburg has been retained by the Board of Directors of
Bally's Grand to provide this opinion and has received fees and indemnification
against certain liabilities for the services rendered pursuant to this
engagement. Ladenburg has not provided investment banking or financial
advisory services to Bally's Grand in the past.
In the ordinary course of business, we actively trade securities for our
own account and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in the debt or equity securities of the
Company and Hilton.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Consideration to be
received in the Transaction is fair, from a financial point of view, to the
shareholders (which includes the warrant holders) of the Company.
Very truly yours,
LADENBURG THALMANN & CO. INC.
<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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
------------------------
BALLY'S GRAND, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
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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<PAGE>
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"
1
<PAGE>
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
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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
5
<PAGE>
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.
6
<PAGE>
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.
7
<PAGE>
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>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- --------------------
Commission file number 1-2500
BALLY'S GRAND, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-0980760
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
3645 LAS VEGAS BOULEVARD SOUTH, LAS VEGAS, NEVADA 89109
(Address of principal executive offices) (Zip code)
(702) 739-4111
(Registrant's telephone number, including area code)
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 twelve 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of October 31, 1997 -- Common Stock, $.01 par value --
7,668,568 shares.
<PAGE>
PART I FINANCIAL INFORMATION
Company or group of companies for which report is filed:
BALLY'S GRAND, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
- --------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C>
Revenue Casino $ 33.3 37.3 118.5 116.2
Rooms 15.0 14.8 48.9 48.3
Food and beverage 10.4 10.4 32.8 33.5
Other 12.7 10.2 32.4 32.5
----------------------------------------------------- --------------------
71.4 72.7 232.6 230.5
- --------------------------------------------------------------- --------------------
Expenses Casino 19.6 18.8 63.0 59.8
Rooms 4.8 4.9 14.4 14.7
Food and beverage 9.0 9.4 28.1 29.0
Other expenses 26.8 28.5 80.3 83.3
----------------------------------------------------- --------------------
60.2 61.6 185.8 186.8
- --------------------------------------------------------------- --------------------
Operating income 11.2 11.1 46.8 43.7
Interest and dividend income 1.4 2.0 4.9 4.0
Interest expense (8.4) (8.4) (25.2) (25.2)
- --------------------------------------------------------------- --------------------
Income before income taxes 4.2 4.7 26.5 22.5
Provision for income taxes 1.5 .8 9.3 7.1
- --------------------------------------------------------------- --------------------
Net income $ 2.7 3.9 17.2 15.4
- --------------------------------------------------------------- --------------------
- --------------------------------------------------------------- --------------------
Net income per share $ .34 .44 1.96 1.73
- --------------------------------------------------------------- --------------------
- --------------------------------------------------------------- --------------------
Average number
of shares 7,934,380 9,006,915 8,799,405 8,925,539
- --------------------------------------------------------------- ----------------------
- --------------------------------------------------------------- ----------------------
</TABLE>
1
<PAGE>
BALLY'S GRAND, INC.
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Current assets
Cash and equivalents $ 92.5 115.9
Marketable securities, at fair value
(Hilton Hotels Corporation common stock) 49.1 38.1
Receivables, less allowances of $4.6
and $4.9, respectively 12.6 17.4
Inventories 2.0 1.8
Deferred income taxes 6.4 7.1
Other current assets 4.8 3.8
------------------------------------------------------------------------
Total current assets 167.4 184.1
Property and equipment, net 367.6 376.5
Other assets 13.3 16.6
------------------------------------------------------------------------
Total assets $ 548.3 577.2
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Liabilities and Current liabilities
stockholders'
equity Accounts payable $ 10.3 13.2
Income taxes payable 8.5 8.8
Accrued liabilities 38.0 31.1
------------------------------------------------------------------------
Total current liabilities 56.8 53.1
Long-term debt 315.0 315.0
Deferred income taxes and other liabilities 89.2 90.5
Stockholders' equity 87.3 118.6
------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 548.3 577.2
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating
activities Net income $ 17.2 15.4
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 19.7 20.0
Amortization of debt issue costs .7 .7
Change in working capital components:
Receivables 4.5 (4.2)
Other current assets 4.8 (.3)
Accounts payable and accrued liabilities 1.9 9.9
Income taxes payable (.3) 3.7
Change in deferred income taxes (2.4) (1.4)
Other (1.0) (.8)
-----------------------------------------------------------------------
Net cash provided by operating activities 45.1 43.0
- ------------------------------------------------------------------------------------
Investing
activities Proceeds from sale of subsidiary to BEC - 17.5
Capital expenditures (10.8) (13.6)
Increase (decrease) in construction-related
liabilities 1.1 (2.1)
Other, net (2.6) 1.7
-----------------------------------------------------------------------
Net cash (used in) provided by investing
activities (12.3) 3.5
- ------------------------------------------------------------------------------------
Financing
activities Purchases of common stock for treasury (57.1) (1.2)
Proceeds from exercise of warrants .9 -
-----------------------------------------------------------------------
Net cash used in financing activities (56.2) (1.2)
- ------------------------------------------------------------------------------------
(Decrease) increase in cash and equivalents (23.4) 45.3
Cash and equivalents at beginning of year 115.9 64.7
- ------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 92.5 110.0
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
SUPPLEMENTAL CASH FLOW INFORMATION: (in millions) 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the period for the following:
Interest, net of amounts capitalized 16.3 16.3
Income taxes 12.0 4.9
</TABLE>
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Bally's Grand, Inc., a Delaware corporation (the Company) and its
subsidiaries. The Company owns and operates the casino hotel resort in Las
Vegas, Nevada known as "Bally's Las Vegas." The Company operates in one
industry segment and all significant revenues arise from its casino and
supporting hotel operations. Unless otherwise specified in the text,
references to the Company include the Company and its subsidiaries. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
Effective December 18, 1996, Hilton Hotels Corporation (HHC) completed the
merger of Bally Entertainment Corporation (BEC) with and into HHC pursuant to
an agreement dated June 6, 1996 (the Merger). As a result, a wholly owned
subsidiary of BEC which owned shares of the Company's common stock became a
wholly owned subsidiary of HHC. As of September 30, 1997, this wholly owned
subsidiary of HHC owned approximately 95% (89% on a fully diluted basis) of
the outstanding common stock of the Company.
All adjustments have been recorded which are, in the opinion of management,
necessary for a fair presentation of the consolidated balance sheet of the
Company at September 30, 1997, its consolidated statements of income for the
three and nine months ended September 30, 1997 and 1996 and its consolidated
statement of cash flows for the nine months ended September 30, 1997 and
1996. All such adjustments were of a normal recurring nature.
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, which have no effect on net income, have
been made to prior years' financial statements to conform with the 1997
presentation.
NOTE 2: SEASONAL FACTORS
The Company's operations are somewhat seasonal and, therefore, the results of
operations for the three and nine months ended September 30, 1997 and 1996
are not necessarily indicative of the results of operations for the full year.
NOTE 3: EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents outstanding
during each period. Common stock equivalents, which represent the dilutive
effect of the assumed exercise of outstanding warrants, increased the
weighted average number of shares outstanding by 333,451 shares and 565,536
shares for the three months ended September 30, 1997 and 1996, respectively,
and by 304,676 shares and 484,635 shares for the nine months ended September
30, 1997 and 1996, respectively. The sum of net income per share for the
three quarters differs from the net income per share for the nine-month periods
due to the required method of computing weighted average number of shares
in the respective periods.
NOTE 4: INCOME TAXES
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 periods subsequent to December 18, 1996, taxable income or loss
of the Company is included in the consolidated Federal income tax return of
HHC. Under a tax sharing arrangement between BEC, and now HHC, and the
Company, income taxes
4
<PAGE>
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 or HHC 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 or HHC for tax benefits are due at the time BEC
or HHC files the applicable consolidated Federal income tax return.
NOTE 5: LONG-TERM DEBT
In October 1996, HHC announced an offer to purchase for cash (the Tender
Offer) any and all of the Company's 10 3/8% First Mortgage Notes due 2003 (the
Notes) and a solicitation of consents to proposed amendments to the indenture
for the Notes (the Consent Solicitation). In connection therewith, HHC
purchased $312,219,000 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 HHC received consents for at least a majority of the
principal amount of the Notes, certain restrictive covenants and events of
default and related provisions contained in the indenture governing the Notes
were eliminated.
NOTE 6: TRANSACTIONS WITH BEC/HHC
In August 1993, the Company, BEC and Bally's Grand Management Co., Inc.
(BGM), a Nevada corporation and, at that time, a wholly owned subsidiary of
BEC, entered into a management agreement (the Management Agreement) whereby
BGM provides management services to the Company and BEC licensed, and now HHC
licenses, the use of the "Bally" name and certain computer software to the
Company for a $3 million annual management fee. Pursuant to the Management
Agreement, management fees for each of the three and nine month periods ended
September 30, 1997 and 1996 were $750,000 and $2,250,000, respectively. In
addition, certain of the Company's insurance coverages were obtained by BEC
(and are currently obtained by HHC) pursuant to corporate-wide programs. In
these circumstances, BEC or HHC charged the Company its proportionate share
of the respective insurance premiums.
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 approximately $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 HHC 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
$10,593,000) was accounted for as an increase to stockholders' equity.
NOTE 7: LITIGATION
On June 13, 1997, the Company announced that it had reached an agreement to
settle the IN RE: BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION presently
pending in the Delaware Court of Chancery. Prior to the settlement, HHC
indirectly owned approximately 84% of the common stock of the Company. Under
the terms of the settlement, the Company has repurchased 966,747 shares of
its common stock and 102,698 warrants to purchase shares of its common stock
from certain plaintiffs at a price of $52.75 per share in cash for the common
stock and $52.75 less the exercise price per warrant in cash for the
warrants.
On October 9, 1997, HHC received court approval of the settlement agreement.
On October 28, 1997, a sole shareholder appealed the court approval of the
settlement agreement. On November 7, 1997, the
5
<PAGE>
Delaware Supreme Court granted HHC's motion for an expedited appeal. Upon
final resolution of the appeal, the Company would be merged with a subsidiary
of HHC, and the remaining 408,862 outstanding shares of the Company's common
stock not currently owned by HHC would be converted into the right to receive
$52.75 (less certain attorneys' fees) per share in cash, and the 491,784
outstanding warrants to purchase the Company's common stock not currently
owned by HHC would be converted into the right to receive the difference
between $52.75 (less certain attorneys' fees) and the exercise price per
warrant in cash.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL SPENDING
The Company has no scheduled principal payments on its long-term debt until
2003. Management plans to make capital expenditures totaling 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 during 1997 it will be able to satisfy
its debt service requirements (interest on its public indebtedness is
approximately $32.7 million per annum) and the aforementioned capital
expenditures out of existing cash balances and cash flow from operations.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues for the three months ended September 30, 1997 were $71.4 million
compared to $72.7 million for the 1996 quarter, a decrease of $1.3 million
(2%). Casino revenues for the 1997 quarter were $33.3 million compared to
$37.3 million for 1996, a decrease of $4.0 million (11%). Table game
revenues decreased $1.6 million (10%) due to a $3.6 million decrease in
volume and a slightly lower hold percentage. Slot revenues decreased $1.6
million (9%) primarily attributable to a decrease in the win percentage.
Rooms and food and beverage revenues remained consistent between periods.
Management believes that the additional casino and hotel room capacity
resulting from the opening of new casino-hotels may have a short-term
negative impact on the Company, but that over the long term the Company
benefits from the increase in the number of visitors to Las Vegas that these
new properties attract. To enhance its competitiveness in the Las Vegas
market, Bally's Las Vegas has completed an extensive capital improvement
program over the last three years including, among others, improvements to
its frontage area along the Strip, a monorail system, the renovation of all
of its hotel rooms, a new race and sports book room and a slot machine
upgrade.
7
<PAGE>
Operating income for the three months ended September 30, 1997 was $11.2
million compared to $11.1 million for the 1996 quarter, an increase of $.1
million (1%).
Interest and dividend income was $1.4 million for the 1997 third quarter
versus $2.0 million in the prior year quarter, a decrease of $.6 million
(30%) which resulted from lower average cash balances. Interest expense, net
of capitalized interest, was $8.4 million for both three-month periods ended
September 30, 1997 and 1996.
The provision for income taxes in the 1997 quarter totaled $1.5 million, a
$.7 million increase over the prior year. The 1996 period benefited from the
elimination of a valuation allowance no longer required.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues for the nine months ended September 30, 1997 were $232.6 million
compared to $230.5 million for the 1996 period, an increase of $2.1 million
(1%). Casino revenues for the 1997 period were $118.5 million compared to
$116.2 million for 1996, an increase of $2.3 million (2%). Slot revenues
increased $2.9 million (5%) primarily attributable to an increase of 11% in
the slot handle (volume). Table game revenues increased $1.6 million (3%)
due to an increase in the hold percentage from 15.1% in the 1996 period to
16.2% in 1997. Other casino revenues decreased $2.2 million due to a decrease
in the sports book hold percentage. Rooms and food and beverage revenues
remained consistent between periods.
Operating income for the nine months ended September 30, 1997 was $46.8
million compared to $43.7 million for the 1996 period, an increase of $3.1
million (7%).
Interest and dividend income was $4.9 million for the 1997 nine-month period
versus $4.0 million in the prior year, an increase of $.9 million (23%) which
resulted from higher average cash balances. Interest expense, net of
capitalized interest, was $25.2 million for both nine-month periods ended
September 30, 1997 and 1996.
8
<PAGE>
ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share." This
statement establishes standards for computing and presenting earnings per
share. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997 and earlier application is not permitted. The
Company's adoption of SFAS No. 128 is not expected to have a material impact
on its earnings per share presentation.
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. Although the
Company believes the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance
that its expectations will be attained. 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.
9
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, 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, have been consolidated under
the caption IN RE: BALLY'S GRAND DERIVATIVE LITIGATION in the Court of
Chancery of the State of Delaware, New Castle County. BEC merged with and
into HHC on December 18, 1996. A third derivative action purportedly
brought on behalf of the Company against its directors, BEC, Bally's Grand
Management Co., Inc., a wholly-owned subsidiary of BEC, and HHC was
commenced in November 1996 under the caption TOWER INVESTMENT GROUP, INC.,
ET AL. V. BALLY'S GRAND, INC., ET AL. in the Court of Chancery of the State
of Delaware, New Castle County. This action was consolidated with the IN
RE: BALLY'S GRAND DERIVATIVE LITIGATION action under the caption IN RE:
BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION.
On June 13, 1997, the Company announced that it had reached an agreement to
settle the IN RE: BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION. Prior to
the settlement, HHC indirectly owned approximately 84% of the common stock
of the Company. Under the terms of the settlement, the Company has
repurchased 966,747 shares of its common stock and 102,698 warrants to
purchase shares of its common stock from certain plaintiffs at a price of
$52.75 per share in cash for the common stock and $52.75 less the exercise
price per warrant in cash for the warrants.
On October 9, 1997, HHC received court approval of the settlement
agreement. On October 28, 1997, a sole shareholder appealed the court
approval of the settlement agreement. On November 7, 1997, the Delaware
Supreme Court granted HHC's motion for an expedited appeal. Upon final
resolution of the appeal, the Company would be merged with a subsidiary of
HHC, and the remaining 408,862 outstanding shares of the Company's common
stock not currently owned by HHC would be converted into the right to
receive $52.75 (less certain attorneys' fees) per share in cash, and the
491,784 outstanding warrants to purchase the Company's common stock not
currently owned by HHC would be converted into the right to receive the
difference between $52.75 (less certain attorneys' fees) and the exercise
price per warrant in cash.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27. Financial data schedule for the nine-month period ended September
30, 1997.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BALLY'S GRAND, INC.
(Registrant)
Date: November 14, 1997 /s/ LEON H. FLINDERS
---------------------------------
Leon H. Flinders
Chief Financial Officer and
Controller
11
<PAGE>
BALLY'S GRAND, INC.
3645 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89109
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 3, 1997
To Our Stockholders:
The Annual Meeting of Stockholders of Bally's Grand, Inc. (the
"Company") will be held at Bally's Las Vegas, 3645 Las Vegas Boulevard South,
Las Vegas, Nevada 89109, on February 3, 1997 at 9:00 a.m. (local time) to
consider and act upon the following matters which are more fully described in
the accompanying Proxy Statement:
1. The election of six directors to the Company's Board of Directors;
and
2. Such other business as may properly come before the meeting or any
adjournment thereof.
Stockholders of record as of the close of business on December 12, 1996
will be entitled to notice of and to vote at the meeting and any adjournment
thereof. The transfer books will not be closed.
The Board of Directors of the Company desires to have the maximum
representation at the meeting and respectfully requests that you date,
execute and mail promptly the enclosed proxy card in the enclosed
postage-paid envelope.
By Order of the Board of Directors,
DAVID ARRAJJ, SECRETARY
Las Vegas, Nevada
January 10, 1997
<PAGE>
BALLY'S GRAND, INC.
3645 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89109
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 3, 1997
To Our Stockholders:
This Proxy Statement is furnished to stockholders of Bally's Grand, Inc.
(the "Company") for use at the Annual Meeting of Stockholders to be held at
9:00 a.m. (local time) on February 3, 1997 (the "Annual Meeting"), at Bally's
Las Vegas, Skyview Three, Twenty Sixth Floor, Main Tower, 3645 Las Vegas
Boulevard South, Las Vegas, Nevada 89109 or at any postponements or
adjournments thereof for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders. The approximate date on which this Proxy
Statement and the enclosed proxy card are first being sent to stockholders is
January 10, 1997.
The enclosed Proxy Statement and proxy is solicited on behalf of the
Board of Directors of the Company. Any stockholder giving a proxy has the
right to revoke it at any time prior to its exercise, either by delivering
notice in writing to the Secretary of the Company or by appearing and voting
in person at the Annual Meeting. Unless a contrary choice is indicated, all
duly executed proxies received by the Company will be voted:
1. For the election of the nominees for director; and
2. In the discretion of the proxy holder with respect to such other
business as may properly come before the meeting or any adjournment
thereof.
At the Annual Meeting, the results of stockholder voting will be tabulated
by an inspector of elections appointed for the Annual Meeting.
VOTING SECURITIES
Stockholders of record as of the close of business on December 12, 1996
(the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting and any adjournments or postponements thereof. On that date there
were outstanding 8,441,590 shares of common stock, par value $0.01 per share
("Common Stock"). Each share of Common Stock is entitled to one vote on all
matters to come before the Annual Meeting. Shares of Common Stock cannot be
voted at the Annual Meeting unless the holder is present in person or
represented by proxy. The presence, in person or by proxy, of a majority of
stockholders is necessary to constitute a quorum at the Annual Meeting of
Stockholders. The affirmative vote of holders of a majority of the shares of
Common Stock represented in person or by proxy at the Annual Meeting is
required to elect directors. Hilton Hotels Corporation ("Hilton"), as the
successor to Bally Entertainment Corporation ("BEC"), is the beneficial owner
of a majority of the issued and outstanding shares of Common Stock and has
indicated that it intends to cause its shares to be voted for the election of
the nominees for the Board of Directors.
CHANGE IN CONTROL
On December 18, 1996, BEC was merged with and into Hilton 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 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, directly and indirectly, approximately 85% of the issued and
outstanding shares of Common Stock as of December 18, 1996.
<PAGE>
ELECTION OF DIRECTORS
At the Annual Meeting, six directors are to be elected to serve until
the next annual meeting of stockholders of the Company or until their
successors have been duly elected and qualified. Set forth below are the
names of, and certain information with respect to, the persons nominated by
the Board of Directors for election as directors. It is intended that all
duly executed proxies in the accompanying form will be voted for the election
of such nominees (or such substitute nominees as provided below), unless such
authorization has been withheld.
Authority granted to the persons named in the proxy to vote for nominees
is limited to the six nominees proposed by the Board of Directors and named
below, and proxies cannot be voted for a greater number of persons than the
number of nominees named. The Board of Directors is not aware that any of the
nominees will be unavailable for service at the date of the meeting. If, for
any reason, any of the nominees shall become unavailable for election, an
event which is not presently anticipated, discretionary authority may be
exercised by the persons named in the proxy to vote for substitute nominees
proposed by the Board of Directors.
Information with respect to the nominees for election to the Board of
Directors, furnished in part by each such person, is as follows:
NAME, AGE AND POSITION WITH THE
COMPANY OTHER THAN DIRECTOR OCCUPATION AND OTHER INFORMATION
- -------------------------------- -------------------------------------------
Arthur M. Goldberg, 54 Mr. Goldberg was elected Chairman of the
Chairman of the Board of Board of Directors of the Company in August
Directors and Chief Executive 1992 and has been its Chief Executive
Officer Officer since September 1992. Mr. Goldberg
was President of the Company from August
1992 through May 1994. Hilton, as
successor to BEC, designated Mr. Goldberg
as its nominee for the Board of Directors
of the Company pursuant to its right under
the management agreement dated August 20,
1993 (the "Management Agreement") among
the Company, BEC and Bally's Grand
Management Co., Inc., a Nevada corporation
(the "Manager") to nominate one member of
the Company's Board of Directors, which
nomination is submitted to stockholders
for election. Mr. Goldberg has served as
Chairman of the Board of Directors,
President, Chief Executive Officer and
Secretary of the Manager since September
1992; served as 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 Bally's Casino
Holdings, Inc. (an indirect wholly-owned
subsidiary of Hilton) 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 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).
2
<PAGE>
NAME, AGE AND POSITION WITH THE
COMPANY OTHER THAN DIRECTOR OCCUPATION AND OTHER INFORMATION
- -------------------------------- -------------------------------------------
Jay Burnham, 34 Mr. 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, 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).
J. Kenneth Looloian, 74 Mr. 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, Bally's Casino Holdings,
Inc., Bally's Park Place, Inc. and GNOC,
Corp.
Darrell A. Luery, 56 Mr. Luery was elected a director of the
President and Company in October 1995. Mr. Luery has been
Chief Operating President of the Company since May 1994 and
its Chief Operating Officer since
September 1992. Officer 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.
Jack L. McDonald, 63 Mr. 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.
Nicholas H. Politan, Jr., 35 Mr. Politan 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.
3
<PAGE>
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth information regarding the ownership of
the Company's Common Stock and common stock of Hilton on December 18, 1996 by
(i) beneficial owners known to the Company of more than five percent of the
outstanding shares of Common Stock; (ii) each director, nominee to the Board
of Directors and each Named Executive Officer (defined below); and (iii)
directors and executive officers of the Company as a group. Information
concerning beneficial holders of more than five percent of the outstanding
shares of Hilton common stock was supplied by Hilton.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
AMOUNT AND NATURE OF OWNERSHIP OF
NAME OF BENEFICIAL OWNERSHIP PERCENT OF HILTON PERCENT OF
BENEFICIAL OWNER OF COMMON STOCK CLASS (1) COMMON STOCK CLASS (1)
- --------------------------------------- -------------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Arthur M. Goldberg(2) 2,904,738 1.2%
Jerry A. Blumenshine
Jay Burnham
William D. Harrold 266 * 100 *
J. Kenneth Looloian 10,000 *
Darrell A. Luery
Jack L. McDonald
Nicholas H. Politan, Jr.
Directors and executive officers
as a group (11 persons) (3) 266 * 2,914,838 1.2%
BEA Associates (4) 619,899 7.3%
Hilton Hotels Corporation (5) 7,153,238 84.7%
Barron Hilton (6)(7) 46,954,756 18.9%
Conrad N. Hilton Fund(7) 16,498,736 6.6%
FMR Corp. (8) 24,351,348 9.8%
</TABLE>
- ---------------
* Less than 1%
(1) Calculated on the basis of applicable rules of the Securities and
Exchange Commission (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 be treated as outstanding
shares.
(2) Includes options to acquire 600,000 shares of Hilton common stock which
Mr. Goldberg has the right to exercise.
(3) Mr. Contesse's employment with the Company terminated on June 3, 1996.
Based on records available to the Company, it believes he owns no shares
of Common Stock and owns 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 January 15, 1996 which was prepared by
BEA pursuant to Commission regulations.
(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 Mr. 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 nine 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. The amount of
Hilton common stock beneficially owned by FMR is reported on the basis of
two Schedule 13Gs filed with the Commission under the Securities Exchange
Act of 1934, as amended, which are dated May 9, 1996 with respect to
shares of Hilton common stock and December 9, 1996 with respect to shares
of BEC common stock held prior to the Merger. As reported in such
Schedule 13Gs, wholly-owned subsidiaries of FMR beneficially own an
aggregate of 24,318,148 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.
4
<PAGE>
INFORMATION RELATING TO THE BOARD OF DIRECTORS
AND CERTAIN COMMITTEES OF THE BOARD
The Board of Directors held two (2) meetings during 1995. Each incumbent
director attended at least 75% of the aggregate number of meetings of the
Board of Directors and all committees on which he served during 1995.
The Board of Directors has an Audit Committee and a Compensation
Committee. The general functions of such committees, the identity of each
committee member and the number of committee meetings held by each committee
during 1995, are set forth below.
AUDIT COMMITTEE
The current members of the Audit Committee are Mr. Looloian and Mr.
Politan. The general functions of the Audit Committee include reviewing the
selection of the independent auditors with the Manager, evaluating the
performance of the independent auditors and their fees for services,
reviewing the scope of the annual audit with the independent auditors and the
results of the audit with senior management of the Company and the
independent auditors, and consulting with the Manager, senior management of
the Company, internal auditors and the independent auditors as to the systems
of internal accounting controls. The Audit Committee held two (2) meetings
during 1995.
COMPENSATION COMMITTEE
The current members of the Compensation Committee are Mr. McDonald and
Mr. Burnham. The general functions of the Compensation Committee include
reviewing the compensation arrangements for senior management of the Company
and oversight of management development to ensure continuity of senior
management. Under the terms of the Management Agreement, the Manager is
responsible for all personnel decisions of the Company and has 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. The Compensation Committee held one (1) meeting during
1995.
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 Transactions with Affiliates and Management". The
Chairman of the Special Committee, Mr. McDonald, received $35,000. The other
members of the Special Committee, Messrs. Politan and Burnham, each received
$15,000.
5
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Company to
its Chief Executive Officer and the four other most highly compensated
executive officers of the Company at the end of 1995 (the "Named Executive
Officers") for services rendered in all capacities to the Company during the
years indicated.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- -----------------------------
OTHER ANNUAL SECURITIES RESTRICTED ALL OTHER
COMPENSATION UNDERLYING STOCK AWARDS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) (1) OPTIONS (#)(2) ($) ($)
- --------------------------- ---- ---------- --------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Arthur M. Goldberg (3) 1995
Chairman of the Board of 1994
Directors and Chief 1993 3,535,000(3)
Executive Officer
Darrell A. Luery 1995 558,000 283,500 25,000 67,468(4)
President and 1994 540,000 270,000 75,000 39,351
Chief Operating Officer 1993 493,269 210,000 30,000 921,625 4,947
Jerry A. Blumenshine 1995 184,231 56,000 7,500 26,082(5)
Vice President and Chief 1994 183,654 75,000 25,000 22,909
Financial Officer 1993 172,019 60,000 10,000 391,375 82,386
Paul Contesse (6) 1995 198,077 80,000 8,250 27,294(7)
Senior Vice President -- 1994 187,115 75,000 25,000 22,565
Hotel Operations 1993 172,596 50,000 10,000 391,375 3,673
William D. Harrold 1995 217,885 103,500 8,250 26,505(8)
Executive Vice President 1994 186,250 75,000 25,000 19,620
1993 167,308 50,000 10,000 391,375 4,672
</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 1995 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. For serving in such capacities, Mr. Goldberg
received from BEC in 1995, 1994 and 1993 aggregate compensation of
$6,203,812, $3,530,285 and $3,486,997, respectively. Mr. Goldberg was also
awarded non-qualified options to purchase 550,000 shares, 150,000 shares and
450,000 shares of BEC common stock during 1995, 1994 and 1993, respectively.
BEC 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, the Company pays the Manager an annual management fee of
$3,000,000. See "Certain Transactions with Affiliates and Management." On
August 20, 1993, Mr. Goldberg received an award of 280,000 shares of Common
Stock pursuant to the Company's Incentive Stock Plan (as hereinafter
defined). As of such date, the Common Stock had a fair market value of
$12.625 per share. On December 13, 1993, Mr. Goldberg sold the shares to a
wholly-owned subsidiary of BEC.
(4) This total includes (i) $5,082 paid to the Company's 401(k) plan and (ii)
$62,386 matched by the Company for Mr. Luery's participation in the Bally
Entertainment Corporation Management Retirement Savings Plan (the "Savings
Plan"). See "Compensation of Executive Officers -- Retirement Savings Plan."
(5) This total includes (i) $5,082 paid to the Company's 401(k) plan and (ii)
$21,000 matched by the Company for Mr. Blumenshine's participation in the
Savings Plan.
(6) Mr. Contesse's employment with the Company terminated effective June 3,
1996.
(7) This total includes (i) $5,082 paid to the Company's 401(k) plan and (ii)
$22,212 matched by the Company for Mr. Contesse's participation in the
Savings Plan.
(8) This total includes (i) $5,082 paid to the Company's 401(k) plan and (ii)
$21,423 matched by the Company for Mr. Harrold's participation in the
Savings Plan.
6
<PAGE>
STOCK OPTION AND SAR GRANTS
The following table sets forth certain information concerning grants by
BEC of options to purchase BEC common stock made during 1995 to each of the
Named Executive Officers pursuant to the 1989 Incentive Plan of BEC (the
"Incentive Plan"). In connection with the Merger, all options to purchase BEC
common stock were settled for an amount in cash equal to $28.425 per share
less the exercise price per share. The "option settlement price" was
determined based on a formula set forth in the agreement governing the Merger
which was related to the consideration received by BEC stockholders for each
share of BEC common stock they owned prior to the Merger.
<TABLE>
<CAPTION>
BEC OPTION/SAR (1) GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EMPLOYEES EXERCISE TERM(2)
OPTIONS OF THE COMPANY IN PRICE EXPIRATION ------------------------
NAME GRANTED(#)(3) FISCAL YEAR ($/SH.)(3) DATE 5%($) 10%($)
- ------------------------ ------------- -------------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Arthur M. Goldberg(4).... -- -- -- -- -- --
Darrel A. Luery.......... 25,000 25.2% 11.05 12/12/05 173,732 440,271
Jerry A. Blumenshine..... 7,500 7.6% 11.05 12/12/05 52,150 132,081
Paul Contesse............ 8,250 8.3% 11.05 12/12/05 57,332 145,290
William D. Harrold....... 8,250 8.3% 11.05 12/12/05 57,332 145,290
</TABLE>
- ---------------
(1) There were no SARs granted in 1995 to any of the executive officers named in
this table. In addition, the Incentive Plan was amended in 1995 to eliminate
BEC's ability to issue SARs.
(2) The potential realizable values represented future opportunity at December
31, 1995 and have not been reduced to present value in 1995 dollars. The
dollar amounts included in these columns are the result of calculations at
assumed rates set by the Commission for illustration purposes. The potential
realizable values are based on arbitrarily assumed annualized rates of stock
price appreciation of 5% and 10% over the full 10-year term of the options
and do not reflect the results of the Merger. For example, in order for the
individuals named above who received options with an exercise price of
$11.05 per share to have realized the potential values set forth in the 5%
and 10% columns in the table above, the price per share of BEC's common
stock would have had to be approximately $18.00 and $28.66, respectively.
(3) Pursuant to the terms of BEC's stock option plans, BEC's Compensation and
Stock Option Committee made an adjustment to the exercise price of all
outstanding options in connection with the distribution of the shares of
Bally Total Fitness Holding Corporation to BEC's stockholders in January
1996. The adjustment was equal to one quarter of the average closing price
for the shares of Bally Total Fitness Holding Corporation for the first 20
days of trading, reflecting the distribution of one quarter of a share of
Bally Total Fitness Holding Corporation for each share of BEC common stock.
This adjustment resulted in a reduction of all exercise prices by $1.20 per
share.
(4) Mr. Goldberg was the Chairman of the Board of Directors, President and Chief
Executive Officer of BEC. For serving in such capacities, during 1995 BEC
granted Mr. Goldberg options to purchase 500,000 shares of BEC common stock
at an exercise price of $6.30 per share, which options expire on January 19,
2005, and 50,000 shares of BEC common stock at an exercise price of $11.05
per share, which options expire on December 12, 2005. The aggregate
potential realizable value of such options at assumed annualized rates of
stock price appreciation of 5% and 10% for the option term would be
$2,328,482 and $5,900,832, respectively.
7
<PAGE>
STOCK OPTION AND SAR EXERCISES
The following table sets forth certain information concerning exercises
of BEC stock options and SARs during 1995 by each of the Named Executive
Officers and their stock options and SARs outstanding as of December 31,
1995. As described previously, all options to purchase BEC common stock were
settled in connection with the Merger for an amount in cash equal to $28.425
per share less the exercise price per share.
AGGREGATED BEC OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(3)
SHARES VALUE --------------------- ---------------------
ACQUIRED ON RECEIVED EXERCISABLE(E)/ EXERCISABLE(E)/
NAME EXERCISE(#) ($)(2) UNEXERCISABLE(U) UNEXERCISABLE(U)
- ---------------------- ------------ --------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Arthur M. Goldberg(4)...
Darrell A. Luery........ None -- 55,001(E) 436,008(E)
84,999(U) 551,992(U)
Jerry A. Blumenshine(5). 3,000 23,850 25,335(E) 130,241(E)
27,499(U) 181,534(U)
Paul Contesse........... None -- 20,001(E) 164,216(E)
28,249(U) 183,747(U)
William D. Harrold...... None -- 20,001(E) 164,216(E)
28,249(U) 183,747(U)
</TABLE>
- ---------------
(1) Pursuant to the terms of BEC's stock option plans, BEC's Compensation and
Stock Option Committee made an adjustment to the exercise price of all
outstanding options in connection with the distribution of the shares of
Bally Total Fitness Holding Corporation to BEC's stockholders in January
1996. The adjustment was equal to one quarter of the average closing price
for the shares of Bally Total Fitness Holding Corporation for the first 20
days of trading, reflecting the distribution of one quarter of a share of
Bally Total Fitness Holding Corporation for each share of BEC common stock.
This adjustment resulted in a reduction of all exercise prices by $1.20 per
share.
(2) Value based on the closing price of BEC common stock as of May 12, 1995
(the exercise date) minus the exercise price.
(3) Value based on the closing price of BEC common stock as of December 31, 1995
($14.00) minus the exercise or base price and does not reflect the results
of the Merger.
(4) Mr. Goldberg had 2,650,000 unexercised shares under option at December 31,
1995 of which 1,850,001 were exercisable and 799,999 were unexercisable. The
1,850,001 exercisable option shares and 799,999 unexercisable option shares
are valued at $22,020,008 and $5,678,742, respectively, based on the $14.00
closing price per share of BEC common stock as of December 31, 1995, minus
the exercise or base price and does not reflect the results of the Merger.
Those options included an award to purchase 500,000 shares of BEC common
stock that could have been deemed stock appreciation rights at Mr.
Goldberg's election.
(5) Such options included an award to purchase 8,334 shares of BEC common stock
that could have been deemed stock appreciation rights at Mr. Blumenshine's
election.
EMPLOYMENT ARRANGEMENTS
MR. LUERY
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 December 1, 1996,
8
<PAGE>
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 December 1, 1996
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 December 1, 1996 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.
MR. BLUMENSHINE
The Company and Mr. Blumenshine entered into an employment agreement
dated December 1, 1992, that was subsequently amended on August 26, 1993, for
a term expiring December 31, 1995. As of December 1, 1996, Mr. Blumenshine's
annual base salary is $140,000.
MR. HARROLD
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
December 1, 1996, 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 for 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 change in control of the Company
occurred on December 1, 1996 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 PLAN
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. 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, designates those members of
management or highly compensated employees who are eligible to participate in
the Savings Plan.
During the first half of 1995, the Company provided a matching
contribution as follows: 100% of the first 10% of eligible compensation the
participant defers, 50% of the second 10% of eligible compensation the
participant defers and 0% thereafter. Effective July 1, 1995, the Savings
Plan was amended so that the Company provides a matching contribution of 50%
of the first 15% of eligible compensation the participant defers 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
9
<PAGE>
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. As soon as possible (but not later than
five business days) after a change in control of BEC, as defined in the
Savings Plan, all of the participants' accounts will become 100% vested.
For 1995, the Company contributed cash of $258,113 to the accounts of
participants in the Savings Plan, of which $142,333 was allocated to the
accounts of all executive officers as a group. Amounts allocated to each of
the Named Executive Officers are as follows: Mr. Luery $62,386, Mr.
Blumenshine $21,000, Mr. Contesse $22,212 and Mr. Harrold $21,423.
INCENTIVE STOCK AWARDS
In accordance with the Company's Chapter 11 Plan of Reorganization, 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
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.
The following table sets forth certain information with respect to
awards granted under the Incentive Stock Plan to each of the Named Executive
Officers:
NUMBER OF SHARES OF
COMMON STOCK
NAME AWARDED (ALL IN 1993)
---- -------------------
Arthur M. Goldberg.............................. 280,000
Darrell A. Luery................................ 73,000
Jerry A. Blumenshine............................ 31,000
Paul Contesse................................... 31,000
William D. Harrold.............................. 31,000
The Company, the Manager and each participant in the Incentive Stock
Plan entered into individual stock award agreements which set forth the
specific terms and conditions applicable to such participant's stock award.
The stock award agreement entered into with Mr. Goldberg provided that the
shares awarded to him were not subject to restrictions. During 1993, Mr.
Goldberg sold the 280,000 shares of Common Stock awarded to him to a wholly
owned subsidiary of BEC. The stock award agreements entered into with the
four other persons listed above contained substantially identical terms.
These stock award agreements provided for a grant of shares of Common Stock
subject to certain restrictions and subject to forfeiture if the
participant's employment with the Company was terminated before the
restrictions lapsed. The restrictions applicable to the shares awarded
automatically lapsed as to approximately one-third of the number of shares
awarded on each of December 31, 1993, 1994 and 1995. On January 12, 1994,
December 31, 1994 and December 29, 1995, the Company purchased from
participants in the Incentive Stock Plan 98,150 shares, 82,025 shares and
10
<PAGE>
76,900 shares, respectively, of Common Stock at prices of $12.625 per share,
$11.00 per share and $16.00 per share, respectively. Such shares are held by
the Company as treasury stock.
As of December 18, 1996, 42,925 shares of Common Stock were available
for future award pursuant to the Incentive Stock Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Burnham and Mr. McDonald were members of the Compensation Committee
during 1995. Neither Mr. Burnham nor Mr. McDonald have interlocking
relationships with third parties which might be considered conflicts of
interest based on their membership of the Company's Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
In connection with the Management Agreement, the role of the Board of
Directors includes the approval of compensation determinations made by the
Manager which involves more than $125,000 (including salary and bonus). The
Manager and the Board of Directors each believe that the growth of the Las
Vegas casino market has made the recruitment and retention of top casino
executives highly competitive. Consequently, the Manager and the Board of
Directors believe that the payment of significant base salaries to key
personnel is very important to the Company's ability to retain these
employees.
In reviewing the bonuses approved by the Manager, the Board of Directors
considered the Company's prime strategic goals and the qualitative factors
which contributed to their achievement. The Company's prime strategic goal
was, and is, to maximize shareholder value by generating increased operating
income on a consistent and sustainable basis. This goal was largely
accomplished in 1995 (during a period when neither the Manager nor the Board
of Directors expected to increase market share) by the Company establishing a
competitive uniqueness geared toward those segments of the market the Company
believes it is best equipped to handle and that are most profitable. The
Company's positioning was achieved through changes to operations which were
implemented by senior management. In that regard, the qualitative factors
that the Manager and the Board of Directors recognized were managerial
vision, decision-making acumen, effectiveness, teamwork and the results
obtained by senior management.
11
<PAGE>
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
FROM AUGUST 1, 1994 TO DECEMBER 31, 1995*
BALLY'S GRAND, INC., S&P 500 INDEX AND
DOW JONES CASINO INDUSTRY GROUP INDEX
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) BALLY'S GRAND DJ CASINO S&P 500
- -------------------------- ------------ -------- -------
8/1/94 100 100 100
12/31/94 97 109 101
12/31/95 142 144 139
- -------------
* Assumes $100 invested on August 1, 1994 in Bally's Grand, Inc. Common Stock,
the S&P 500 Index and the Dow Jones Casino Industry Group Index. Bally's
Grand, Inc. Common Stock was first listed for trading on August 1, 1994. Total
return assumes reinvestment of dividends.
CERTAIN TRANSACTIONS WITH AFFILIATES AND MANAGEMENT
Pursuant to the Management Agreement, the Manager provides certain
management and administrative services to the Company and BEC 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, its subsidiaries and the Company and allocated these
premiums among those parties. In 1995, the Company paid approximately
$1,173,000 to BEC for allocated insurance premiums. In addition, BEC leased
an airplane which was used for the business of BEC, its subsidiaries and the
Company and allocated the cost of the airplane based upon usage. In 1995, the
Company paid approximately $121,000 for allocated airplane usage costs.
Pursuant to the terms of the Management Agreement, Hilton 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.
12
<PAGE>
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.
Beginning on March 21, 1995, when BEC's ownership percentage of
outstanding Common Stock reached 80%, taxable income or loss of the Company
has been included in the consolidated federal income tax return of BEC. Under
a tax sharing arrangement between the Company and BEC, income taxes are
allocated to the Company based on amounts the Company would pay or receive if
it filed a separate consolidated federal income tax return. Payments to BEC
for tax liabilities are due at such time and in such amounts as payments
would be required to be made to the Internal Revenue Service. Payments from
BEC for tax benefits are due at the time BEC files the applicable
consolidated federal income tax return.
On December 29, 1995, the Company purchased 76,900 shares of Common
Stock for $16.00 per share from participants in the Incentive Stock Plan,
which included purchases from the Named Executive Officers as follows: 24,300
shares from Mr. Luery, 10,300 shares from Mr. Blumenshine, 10,300 shares from
Mr. Contesse, and 10,300 shares from Mr. Harrold. See "Compensation of
Executive Officers -- Incentive Stock Awards."
On May 10, 1995, the Company made a payment of $250,000 to Arveron
Investments L.P., of which Mr. Goldberg is Managing Partner, as compensation
for consulting services provided in connection with the Company's investments
in publicly-traded securities and certain repurchases of Common Stock.
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 $57,500,000 ($17,500,000 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.
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AUDITORS
The Company's independent auditors for 1995 were Ernst & Young LLP. 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. Neither representatives of Ernst & Young LLP or Arthur Andersen
LLP will be present at the meeting.
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 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.
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OTHER BUSINESS
Management knows of no other business to be presented for action at the
meeting. If other matters properly come before the meeting or any adjournment
thereof, the persons named as proxies will vote upon them in accordance with
their best judgment.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company is required to identify any director, officer, beneficial
owner of more than ten percent of Common Stock or any other person subject to
Section 16 of the Exchange Act that failed to file on a timely basis, as
disclosed in their forms, reports required by Section 16(a) of the Exchange
Act. Based on a review of forms submitted to the Company, the Company
believes all forms were timely filed.
EXPENSE OF SOLICITATION
The cost of this solicitation will be borne by the Company. In addition
to the use of the mail, proxy solicitation may be made by telephone,
telegraph and personal interviews by regular employees of the Company.
STOCKHOLDER PROPOSALS FOR THE 1997 ANNUAL MEETING
The 1997 Annual Meeting of Stockholders is expected to be held in
October of 1997. Accordingly, the date by which stockholder proposals for
inclusion in the proxy materials relating to the next Annual Meeting of
Stockholders must be received by the Company at its principal executive
offices, Attention David Arrajj, Secretary, Bally's Grand, Inc., 3645 Las
Vegas Boulevard South, Las Vegas, Nevada 89109, is June 30, 1997.
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K for 1995, which
contains the consolidated financial statements of the Company, was previously
sent to stockholders. The Company will provide to any stockholder as of the
record date, who so requests in writing, copies of its Annual Report on Form
10-K, and, if specifically requested, the exhibits thereto. Requests for such
copies should be directed to David Arrajj, Secretary, Bally's Grand, Inc.,
3645 Las Vegas Boulevard South, Las Vegas, Nevada 89109.
By Order of the Board of Directors,
DAVID ARRAJJ, SECRETARY
Las Vegas, Nevada
January 10, 1997
PLEASE DATE AND SIGN YOUR
PROXY CARD AND RETURN IT PROMPTLY
USING THE ENCLOSED RETURN ENVELOPE.
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