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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
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 1-8570
CIRCUS CIRCUS ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
NEVADA 88-0121916
State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
3950 LAS VEGAS BOULEVARD SOUTH, LAS 89119
VEGAS, NEVADA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (702)632-6700
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
Common Stock, $.01 2/3 Par Value New York Stock Exchange and Pacific Exchange
Common Stock Purchase Rights New York Stock Exchange and Pacific Exchange
</TABLE>
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 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 voting stock of the Registrant held by
persons other than the Registrant's directors and executive officers as of April
19, 1999 (based upon the last reported sale price on the New York Stock Exchange
on such date) was $1,622,116,907.
The number of shares of Registrant's Common Stock, $.01 2/3 par value,
outstanding at April 19, 1999: 90,258,088.
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DOCUMENTS INCORPORATED BY REFERENCE
PART II--Portions of the Registrant's Annual Report to Stockholders for the
year ended January 31, 1999 are incorporated by reference into Items 7 through
8, inclusive.
PART III--Portions of the Registrant's definitive proxy statement in
connection with the annual meeting of stockholders to be held on June 17, 1999,
are incorporated by reference into Items 10 through 13, inclusive.
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PART I
ITEM 1. BUSINESS.
GENERAL
Circus Circus Enterprises, Inc. (the "Company"), which was incorporated in
1974, currently owns and operates, through wholly owned subsidiaries, ten
hotel-casino properties in Nevada with over 22,000 guest rooms. These properties
include (i) four hotel/casinos in Las Vegas (Mandalay Bay (which opened March 2,
1999), Luxor, Excalibur and Circus Circus-Las Vegas), (ii) the Circus Circus
Hotel and Casino in Reno, (iii) the Colorado Belle Hotel and Casino and the
Edgewater Hotel and Casino which are located on the Colorado River in Laughlin,
(iv) Gold Strike Hotel and Gambling Hall and the Nevada Landing Hotel & Casino
in Jean, and (v) Railroad Pass Hotel and Casino in Henderson. The Company also
owns and operates a dockside casino situated on a 24-acre site in Tunica County,
Mississippi, which includes a 1,066 room hotel tower placed in service during
late 1997 and early 1998. It also owns and operates Slots-A-Fun, a casino on the
Las Vegas Strip. It currently operates the Silver City, another small casino on
the Las Vegas Strip, under a lease which expires in October 1999. For additional
information concerning the properties owned and operated by the Company, see
"Description of the Company's Hotels and Casinos" in this Item 1.
The Company, through wholly owned subsidiaries, is a 50% participant in (i)
a joint venture (the "Las Vegas Joint Venture") which owns and operates Monte
Carlo, a hotel-casino on the Las Vegas Strip, (ii) a joint venture (the "Elgin
Joint Venture") which owns and operates the Grand Victoria, a riverboat casino,
and a related land-based entertainment complex located in Elgin, Illinois, and
(iii) a joint venture (the "Reno Joint Venture") which owns and operates Silver
Legacy, a hotel-casino located in downtown Reno that is situated between (and
connected by enclosed climate-controlled skyways to) Circus Circus-Reno and
another hotel-casino owned and operated by an affiliate of the other participant
in the Reno Joint Venture. For additional information concerning the properties
with which the Company is involved through the aforementioned joint ventures,
see "Joint Venture Participation" in this Item 1.
For information concerning the Company's current expansion activities,
including its participation in a joint venture which has been selected to
develop one of three casinos permitted to be developed in Detroit, Michigan (the
"Detroit Joint Venture"), see "Current Expansion Activities" in this Item 1.
Unless the context otherwise indicates, all references to the Company are to
Circus Circus Enterprises, Inc. and its subsidiaries.
DESCRIPTION OF THE COMPANY'S HOTELS AND CASINOS
Set forth below is certain information concerning the properties that are
owned and operated by the Company. Such properties are more fully described
following the table.
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COMPANY OPERATED PROPERTIES(1)
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<CAPTION>
CASINO
HOTEL SQUARE GAMING PARKING
LOCATION/PROPERTY ROOMS FOOTAGE SLOTS(2) TABLES(3) SPACES
- ------------------------------------------------------------- ----------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Las Vegas, Nevada
Mandalay Bay............................................... 3,700(4) 135,000 2,398 124 7,011
Luxor...................................................... 4,404 120,000 2,034 105 3,200
Excalibur.................................................. 4,008 110,000 2,420 80 4,000
Circus Circus.............................................. 3,744 109,000 2,258 77 4,700
Silver City................................................ -- 18,200 434 20 350
Slots-A-Fun................................................ -- 16,700 532 27 --
Reno, Nevada
Circus Circus.............................................. 1,572 60,000 1,809 71 3,000
Laughlin, Nevada
Colorado Belle............................................. 1,226 64,000 1,241 41 1,700
Edgewater.................................................. 1,450 44,000 1,299 40 2,300
Jean, Nevada
Gold Strike................................................ 812 37,000 1,030 23 2,100
Nevada Landing............................................. 303 36,000 1,035 23 1,400
Henderson, Nevada
Railroad Pass.............................................. 120 21,000 393 10 600
Tunica County, Mississippi
Gold Strike................................................ 1,066 48,000 1,348 46 1,400
</TABLE>
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(1) The information with respect to each property other than Mandalay Bay is as
of January 31, 1999. Mandalay Bay opened March 2, 1999 and the information
with respect to that property is as of that date.
(2) Includes slot machines and other coin-operated devices.
(3) Generally includes blackjack ("21"), craps, baccarat, pai gow poker,
Caribbean stud poker, wheel of fortune and roulette. With the exception of
Slots-A-Fun, Silver City, both the Jean properties and Railroad Pass, each
property offers poker. With the exception of Mandalay Bay, Silver City,
Slotsp-A-Fun and Gold Strike-Tunica, each property also offers keno, and,
with the exception of Slots-A-Fun, Silver City, the two Gold Strike
properties and Railroad Pass, each property offers a race and/or sports
book.
(4) Includes the 424-room Four Seasons at Mandalay Bay, which is owned by the
Company and managed by Four Seasons.
LAS VEGAS, NEVADA
The Company's three largest resorts, Mandalay Bay, Luxor and Excalibur are
part of the Company's development of over 230 acres of land it owns at the south
end of the Las Vegas Strip which runs from Tropicana Avenue south approximately
one mile to Russell Road (the "Masterplan Site"). An elevated monorail system,
which was completed and placed in service in April 1999, provides a quick
convenient means of travel between the three resorts. Mandalay Bay and Luxor are
connected by a climate-controlled skyway while a climate-controlled skyway with
moving walkways also connects Luxor and Excalibur. For information concerning
additional development of the Masterplan Site, see "Current Expansion
Activities" in this Item 1.
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MANDALAY BAY. Mandalay Bay, which opened on March 2, 1999, is a 43-story,
hotel-casino resort which has approximately 3,700 rooms (including the 424-room
Four Seasons at Mandalay Bay). The resort is situated on approximately 60 acres
just south of Luxor. Mandalay Bay's attractions include an 11-acre tropical
lagoon featuring a sand-and-surf beach and a three-quarter-mile lazy river ride.
Inside, Mandalay Bay offers 13 restaurants that include Charlie Palmer's
Aureole, Wolfgang Puck's Trattoria Del Lupo, China Grill, rumjungle and Red
Square. The resort also features a House of Blues nightclub and restaurant,
including its signature Foundation Room sited on Mandalay Bay's rooftop and 100
"music-themed" hotel rooms in Mandalay Bay's tower. Additional features include
a 125,000-square-foot convention facility and a 30,000-square-foot spa. The
property offers multiple entertainment venues that include a 1,700-seat showroom
featuring the Tony Award-winning musical "Chicago", the rumjungle nightclub and
a 12,000-seat special events arena that will feature big-name entertainment and
sporting events.
At Mandalay Bay, a Four Seasons Hotel operates 424 rooms, providing Las
Vegas visitors with a luxury "five-star" hospitality experience. This hotel,
which is owned by the Company and managed by Four Seasons Regent Hotels and
Resorts, represents the first step pursuant to the Company's cooperative effort
with Four Seasons to identify strategic opportunities for development of hotel
and casino properties worldwide.
LUXOR. Luxor is an Egyptian-themed hotel and casino complex situated on the
Masterplan Site, between Mandalay Bay and Excalibur. This resort features a
30-story pyramid and two 22-story hotel towers. Luxor also offers 20,000 square
feet of convention space, a multi-purpose showroom and a nightclub. Situated on
a 64-acre site, Luxor features food and entertainment venues on three different
levels beneath a soaring hotel atrium. The pyramid's hotel rooms can be reached
from the four corners of the building by state-of-the-art "inclinators" which
travel at a 39-degree angle. Above the pyramid's casino, the property offers a
special format motion base ride and an IMAX 2D/3D theater. Luxor's other public
areas include a buffet with a seating capacity of approximately 800, seven
restaurants including three gourmet restaurants, as well as a snack bar, a food
court featuring national fast food franchises, several cocktail lounges and a
variety of specialty shops.
EXCALIBUR. Excalibur is a castle-themed hotel and casino complex situated
on a 53-acre site immediately to the north of Luxor. Excalibur offers its guests
more than 400,000 square feet of public entertainment area, including the
casino. Excalibur's other public areas include a Renaissance faire, a medieval
village, an amphitheater with seating capacity of nearly 1,000 where nightly
mock jousting tournaments and costume drama are presented, two dynamic motion
theaters, various artisans' booths and medieval games of skill. In addition,
Excalibur has a buffet with a seating capacity of approximately 1,300, seven
themed restaurants, as well as several snack bars, cocktail lounges and a
variety of specialty shops.
CIRCUS CIRCUS-LAS VEGAS. Circus Circus-Las Vegas, the Company's original
property, is a circus-themed hotel and casino complex situated on approximately
69 acres on the north end of the Las Vegas Strip. From a "Big Top" above the
casino, Circus Circus-Las Vegas offers its guests a variety of circus acts
performed daily, free of charge. A mezzanine area overlooking the casino has a
circus midway with carnival-style games and an arcade that offers a variety of
amusements and electronic games. Three specialty restaurants, a buffet with a
seating capacity of approximately 1,200, two coffee shops, three fast food snack
bars, several cocktail bars and a variety of gift shops and specialty shops are
also available to the guests at Circus Circus-Las Vegas. The Adventuredome,
covering approximately five acres, offers theme park entertainment that includes
a high-speed, double-loop, double-corkscrew roller coaster, a coursing river
flume ride on white-water rapids, an IMAX motion base ride, several rides and
attractions designed for preschool age children, themed carnival-style midway
games, a state-of-the-art arcade, a 65-foot waterfall, animated life-size
dinosaurs, food kiosks and souvenir shops, all in a climate-controlled setting
under a giant space-frame dome. Circus Circus-Las Vegas also offers
accommodations for approximately 384 recreational vehicles at the property's
Circusland RV Park.
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RENO, NEVADA
CIRCUS CIRCUS-RENO. Circus Circus-Reno is a circus-themed hotel and casino
complex situated in downtown Reno, Nevada. From a "Big Top" above the casino,
Circus Circus-Reno offers its guests a variety of circus acts performed daily
free of charge. A mezzanine area has a circus midway with carnival-style games
and an arcade that offers a variety of amusements and electronic games. The
facilities at Circus Circus-Reno also include two specialty restaurants, a
buffet with a seating capacity of approximately 450, a coffee shop, a
deli/bakery, a fast food snack bar, cocktail lounges, a gift shop and specialty
shops. For information concerning the Company's participation in a joint venture
which owns and operates Silver Legacy, a casino, hotel and entertainment complex
which is connected to Circus Circus-Reno by an enclosed skywalk, see "Joint
Venture Participation--Reno Joint Venture" in this Item 1.
LAUGHLIN, NEVADA
COLORADO BELLE. The Colorado Belle Hotel and Casino is situated on a
22-acre site on the bank of the Colorado River (with 1,080 feet of river
frontage) in Laughlin, Nevada, approximately 90 miles south of Las Vegas. The
Colorado Belle, which features a 600-foot replica of a Mississippi riverboat,
includes among its facilities a 350-seat buffet, a coffee shop, three specialty
restaurants, a microbrewery, fast food snack bars, and cocktail lounges as well
as a gift shop and other specialty shops.
EDGEWATER. The Edgewater Hotel and Casino is situated on a 16-acre site
adjacent to the Colorado Belle in Laughlin, Nevada with approximately 1,640 feet
of frontage on the Colorado River. The Edgewater's facilities include a
specialty restaurant, a coffee shop, a buffet with a seating capacity of 735, a
snack bar and cocktail lounges.
JEAN, NEVADA
GOLD STRIKE. Gold Strike Hotel & Gambling Hall is an "old west" themed
hotel-casino located on approximately 51 acres of land on the east side of I-15,
the primary thoroughfare between Las Vegas and southern California. The property
includes, among other amenities, several restaurants, a gift shop, an arcade, a
swimming pool and spa and a banquet center equipped to serve 260 people. The
casino has a stage bar with regularly scheduled live entertainment and a casino
bar.
NEVADA LANDING. Nevada Landing Hotel & Casino is a turn-of-the-century
riverboat themed hotel-casino located on approximately 55 acres of land across
I-15 from Gold Strike. The property includes a 72-seat Chinese restaurant, a
full-service coffee shop, a buffet, a snack bar, a gift shop, a swimming pool
and spa and a 300-guest banquet facility.
HENDERSON, NEVADA
RAILROAD PASS. Railroad Pass Hotel & Casino is situated on approximately 56
acres along US-93, the direct route between Las Vegas and Phoenix, Arizona. The
property includes, among other amenities, two bars, two full-service
restaurants, a buffet, gift shop, swimming pool and a 194-guest banquet
facility. In contrast with the Company's other Nevada properties, Railroad Pass
caters to local residents, particularly from Henderson, who often prefer the
informal, friendly atmosphere and easy access of Railroad Pass over the casinos
on the Las Vegas Strip.
TUNICA COUNTY, MISSISSIPPI
GOLD STRIKE-TUNICA. Gold Strike Casino Resort is a dockside casino situated
on a 24-acre site along the Mississippi River in Tunica County, Mississippi,
approximately three miles west of Mississippi State Highway 61 (a major
north/south highway connecting Memphis, Tennessee with Tunica County) and
approximately 20 miles south of Memphis. The property includes a 1,066-room,
31-story hotel tower which was completed and placed in service during late 1997
and early 1998. The facilities at Gold Strike-Tunica
6
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also include an 800-seat showroom, a coffee shop, a specialty restaurant, a
500-seat buffet, a snack bar and several cocktail lounges.
Gold Strike-Tunica is part of a three-casino development covering
approximately 72 acres. The other two casinos are owned and operated by
unaffiliated third parties. The Company also owns an undivided one-half interest
in an additional 388 acres of land which may be used for future development.
MARKETING
The Company has historically followed a marketing and operating philosophy
which has emphasized high-volume business by providing moderately priced hotel
rooms, food and beverage and alternative entertainment in combination with the
gaming activity. While the Company will continue to employ this philosophy,
Mandalay Bay, and to a lesser extent Luxor, cater to high-level casino customers
and conventions.
Mandalay Bay, which opened on March 2, 1999, offers a level of entertainment
and hotel accommodations which is designed to attract a higher income customer
than the Company has historically targeted. Designed with a South Seas theme,
Mandalay Bay offers its guests an expanded dining and entertainment menu.
Internationally renowned restaurants provide guests a wide variety of dining
options, while the entertainment options include an 11-acre lagoon with a
surfing beach and a lazy river ride, House of Blues, rumjungle, a showroom
featuring the Tony Award-winning musical "Chicago" and a special events arena
which will feature big name entertainment and sporting events. In addition,
Mandalay Bay's 125,000-square foot convention facility marks the Company's entry
into competition for the convention segment of customers.
Luxor contributed 24% of the Company's revenues in the year ended January
31, 1999 (and 23% and 17%, respectively, in the years ended January 31, 1998 and
1997). This property offers a level of entertainment and hotel accommodations
which is designed to attract the higher income segment of the middle-income
strata of customers. Designed with an Egyptian theme, Luxor's 30-story pyramid
offers its guests a tri-level entertainment area. An expansion program completed
at the Luxor in 1997 added 1,950 new hotel rooms, a new spa, 20,000 square feet
of convention space, a new multi-purpose showroom and a nightclub.
Excalibur, which contributed 19% of the Company's revenues in the year ended
January 31, 1999 (and 21% and 23%, respectively, in the years ended January 31,
1998 and 1997), attracts customers by offering quality rooms, food and
entertainment at moderate prices. By way of entertainment, the medieval castle-
themed Excalibur offers a medieval village, an amphitheater where mock
tournaments and costume drama are presented, dynamic motion theaters, various
artisans' booths and medieval games of skill.
Circus Circus-Las Vegas and Circus Circus-Reno, which together contributed
24% of the Company's revenues in the year ended January 31, 1999 (and 25% and
24%, respectively, in the years ended January 31, 1998 and 1997), have popular
buffets, attractive because of their variety, quality and low price. From a "Big
Top" above the casino, both properties offer a variety of circus acts performed
free of charge to the public on a daily basis. A mezzanine area overlooking each
casino has a circus midway with carnival-style games and an arcade that offers a
variety of amusements and electronic games. The Adventuredome offers additional
theme park attractions at Circus Circus-Las Vegas.
The Colorado Belle and Edgewater together contributed 11% of the Company's
revenues in the year ended January 31, 1999 (and 12% in each of the years ended
January 31, 1998 and 1997). These properties offer quality rooms, food and
entertainment at moderate prices. The Colorado Belle offers a classic
Mississippi riverboat theme, complete with a 60-foot paddle wheel. The
Edgewater's southwestern motif provides a relaxing atmosphere to enjoy the
property's casino and other facilities. Connected by a scenic walkway, the two
resorts form an inviting shoreline along the Colorado River.
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Gold Strike and Nevada Landing together contributed 5% of the Company's
revenues in the year ended January 31, 1999 (6% in each of the years ended
January 31, 1998 and 1997). The two properties are located on opposite sides of
I-15, the primary thoroughfare between Las Vegas and southern California,
approximately 25 miles south of Las Vegas and 12 miles north of the
California/Nevada border. The properties are conveniently located at the only
highway interchange within 12 miles in either direction and are strategically
positioned to attract visitors from the large number of people traveling to and
from Las Vegas.
Gold Strike-Tunica, the Company's first wholly owned casino outside of
Nevada, contributed 7% of the Company's revenues in the year ended January 31,
1999 (and 4% in each of the years ended January 31, 1998 and 1997). The
facility, a dockside casino, is part of an integrated three casino development
that provides patrons with the opportunity to visit any of the three casinos
without driving, a unique experience in the Tunica market. In the first quarter
of 1998 the Company completed and opened a 31-story hotel tower, with 1,066
rooms, at this property, which previously had no hotel rooms. The original
Circus-themed casino and other facilities were also remodeled and rethemed into
a more elegant resort.
The Company maintains stringent cost controls which historically have been
exemplified by a general policy of offering minimal credit for gaming customers
at the Company's properties. During fiscal 1998, Luxor began to extend credit to
gaming customers on a selective basis in an effort to appeal to a broader
segment of the gaming market. This policy has also been extended to the
Company's operations at Mandalay Bay. As a result, while our other properties
continue to offer minimal credit, credit play now represents a more significant
portion of the volume of table games play at Luxor and Mandalay Bay.
The Company maintains strict controls over the issuance of credit and
aggressively pursues collection of customer debts. These collection efforts are
similar to those used by most large corporations, including the mailing of
statements and delinquency notices, personal and other contacts, the use of
outside collection agencies and civil litigation. Nevada gaming debts evidenced
by written credit instruments are enforceable under the laws of Nevada. All
other states are required to enforce a judgment on a gaming debt entered in
Nevada pursuant to the Full Faith and Credit Clause of the United States
Constitution. Gaming debts are not legally enforceable in some foreign
countries, but the United States assets of foreign debtors may be reached to
satisfy judgments entered in the United States. While the portion of the
Company's accounts receivable that is owed by foreigners is not currently
material, to the extent the Company holds obligations of foreign debtors, the
collectibility of such debts may be affected by a number of factors, including
changes in currency exchange rates and economic conditions in the customers'
home countries.
The Company's current operations at each of its casinos are conducted 24
hours a day, every day of the year. The Company does not consider its business
to be highly seasonal, although its operating income is typically somewhat lower
in the fourth quarter. Management emphasizes courteous and prompt service to its
customers and aspires to a high standard of excellence in all of its operations.
The Company maintains an active media advertising program through radio,
television, billboards and printed publications primarily in Nevada, California
and Arizona for its Nevada properties and in the Memphis area for its Gold
Strike property in Tunica. In addition, the Company advertises on and allows
patrons to make room reservations via the Internet. The Company also offers
complimentary hotel accommodations, meals and drinks to selected customers.
OPERATIONS
The primary source of revenues to the Company is its casinos, although the
hotels, restaurants, bars, shops, midway games and other entertainment
attractions and other services are an important adjunct to the casinos.
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The following table sets forth the contribution to net revenues on a dollar
and percentage basis of the Company's major activities for each of the three
most recent fiscal years.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:(1)
Casino(2)............................. $ 709,909 48.0% $ 632,122 46.7% $ 655,902 49.2%
Rooms(3).............................. 355,635 24.0% 330,644 24.4% 294,241 22.0%
Food and beverage(3).................. 246,622 16.7% 215,584 15.9% 210,384 15.8%
Other(3).............................. 170,701 11.5% 142,407 10.5% 146,554 11.0%
Earnings of unconsolidated
affiliates.......................... 83,967 5.7% 98,977 7.3% 86,646 6.5%
--------- --------- --------- --------- --------- ---------
$1,566,834 105.9% $1,419,734 104.8% $1,393,727 104.5%
Less:
Complimentary allowances(3)........... 87,054 5.9% 65,247 4.8% 59,477 4.5%
--------- --------- --------- --------- --------- ---------
Net revenues............................ $1,479,780 100.0% $1,354,487 100.0% $1,334,250 100.0%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
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(1) Includes operations of Hacienda to December 1, 1996.
(2) Casino revenues are the net difference between the sums received as winnings
and the sums paid as losses.
(3) Rooms, Food and beverage and Other include the retail value of services
which are provided to casino customers and others on a complimentary basis.
Such amounts are then deducted as complimentary allowances to arrive at net
revenue.
In connection with its gaming activities, the Company follows a policy of
stringent controls and cross checks on the recording of all receipts and
disbursements. The audit and cash controls developed and utilized by the Company
include the following: locked cash boxes, independent counters, checkers and
observers to perform the daily cash and coin counts, floor observation of the
gaming areas, closed-circuit television observation of certain areas, computer
tabulation of receipts and disbursements for each of the Company's slot
machines, tables and other games, and the rapid analysis and resolution of
discrepancies or deviations from normal performance.
JOINT VENTURE PARTICIPATION
The Company is a 50% participant in three joint ventures. They include (i)
the Las Vegas Joint Venture, which owns and operates Monte Carlo, a hotel-casino
resort on the Las Vegas Strip; (ii) the Elgin Joint Venture, which owns and
operates Grand Victoria, a riverboat casino and land-based entertainment complex
in Elgin, Illinois; and (iii) the Reno Joint Venture, which owns and operates
Silver Legacy, a hotel-casino in Reno, Nevada. The Company is also a 45%
participant in a joint venture formed for the purpose of constructing, owning
and operating a hotel-casino in Detroit, Michigan (the "Detroit Joint Venture"),
subject to the receipt of all necessary gaming approvals and satisfaction of
other conditions. See "Current Expansion Activity--Detroit, Michigan" in this
Item 1.
The following table sets forth certain information as of January 31, 1999,
concerning the properties of the joint ventures in which the Company is a 50%
participant, each of which is more fully described following the table.
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JOINT VENTURE PROPERTIES
<TABLE>
<CAPTION>
CASINO
HOTEL SQUARE GAMING PARKING
LOCATION/PROPERTY ROOMS FOOTAGE SLOTS(1) TABLES(2) SPACES
- ----------------------------------------------------------------- ----------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Las Vegas, Nevada
Monte Carlo.................................................... 3,002 90,000 2,087 95 4,000
Elgin, Illinois
Grand Victoria................................................. -- 36,000 977 58 2,000
Reno, Nevada
Silver Legacy.................................................. 1,711 85,000 2,276 81 1,800
</TABLE>
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(1) Includes slot machines and other coin-operated devices.
(2) Generally includes, blackjack ("21"), craps, pai gow poker, Caribbean stud
poker, wheel of fortune and roulette. Monte Carlo also offers poker, keno
and a race and sports book.
LAS VEGAS JOINT VENTURE (50% PARTICIPATION)
The Company, through a wholly owned entity, is a 50% participant with an
affiliate of Mirage Resorts, Incorporated ("Mirage") in the Las Vegas Joint
Venture, a Nevada general partnership, which owns and operates Monte Carlo, a
hotel-casino resort situated on approximately 46 acres with approximately 600
feet of frontage on the Las Vegas Strip. Monte Carlo is situated between
Bellagio, a 3,000-room luxury resort which opened in October 1998 and is
connected to Monte Carlo by a monorail, and New York-New York, a 2,000-room
hotel-casino resort which opened in January 1997. Monte Carlo's casino reflects
a palatial style reminiscent of the BELLE EPOQUE, the French Victorian
architecture of the late 19th century. Amenities at Monte Carlo include three
specialty restaurants, a buffet, a coffee shop, a food court, a microbrewery
featuring live entertainment and approximately 15,000 square feet of meeting and
banquet space. A 1,200-seat replica of a plush vaudeville theater, including a
balcony and proscenium arch, features an elaborately staged show of illusions
with the world-renowned magician, Lance Burton.
As of January 31, 1999, the assets of the Las Vegas Joint Venture were
subject to encumbrances securing the repayment of indebtedness in the aggregate
principal amount of $91.2 million.
ELGIN JOINT VENTURE (50% PARTICIPATION)
The Company, through a wholly owned entity, is a 50% participant with an
affiliate of Hyatt Development Corporation in the Elgin Joint Venture, an
Illinois general partnership which owns and operates the Grand Victoria. The
Grand Victoria is a Victorian themed riverboat casino and land-based
entertainment complex in Elgin, Illinois, a suburb approximately 40 miles
northwest of downtown Chicago. The Grand Victoria offers a Las Vegas-style
gaming experience. The two-story vessel is 420 feet in length and 110 feet in
width, and provides a maximum 80,000 square feet of gaming space, approximately
36,000 square feet of which was being used at January 31, 1999. The vessel has a
capacity of 1,736 passengers and operates on a fixed cruising schedule
consisting of eight cruises each Sunday through Thursday and nine cruises each
Friday and Saturday. The dimensions of the specially designed riverboat allow
the Grand Victoria to maximize the gaming positions permitted under existing
Illinois gaming regulations. This feature also allows the Grand Victoria to
significantly increase the number of on-board gaming positions and to adapt the
vessel to provide for dockside gaming in the event of liberalized gaming
regulations in the State of Illinois. An adjacent dockside complex on
approximately 12 acres of land overlooking the Fox River contains an
approximately 83,000-square-foot pavilion with two movie theaters, an
approximately 400-seat buffet, a 76-seat fine dining restaurant, a VIP lounge
and a gift shop, in addition to ticketing and registration services for the
riverboat. The Grand Victoria is strategically located in Elgin among the
residential suburbs of Chicago, with nearby freeway access and direct train
service from downtown
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Chicago. The Grand Victoria is located approximately 20 miles and 40 miles,
respectively, from its nearest competitors in Aurora, Illinois and Joliet,
Illinois, and holds one of only ten riverboat gaming licenses currently granted
state-wide.
After the Elgin Joint Venture's recovery of its $112 million initial
investment in the Grand Victoria (which occurred in June 1996), it became
obligated to contribute 20% of its net operating income (as defined) to various
local educational, environmental and economic projects benefitting the City of
Elgin and Kane County, Illinois.
The pavilion and parking lot are located on land leased by the Elgin Joint
Venture from the City of Elgin for an initial period of ten years, subject to
certain renewal and purchase options granted to the Elgin Joint Venture. Under
the lease, the Elgin Joint Venture's annual rent is equal to the greater of the
base rent ($110,000 per year) or 3% of its net operating income. The Elgin Joint
Venture may offset certain capital expenditures against this rental obligation.
Further, rent is deductible from net operating income (as defined) for purposes
of calculating the 20% contribution obligation described above. Until October
1999, the Elgin Joint Venture is also obligated to make certain payments to the
City of Elgin to help defray law enforcement costs.
Under its agreements with the City of Elgin, the Elgin Joint Venture also
was granted an option to purchase an additional nine acres of land contiguous to
the existing site. For information concerning certain regulatory requirements
applicable to the ownership and operation of the Elgin Joint Venture's gaming
facilities, see "Regulation and Licensing--Illinois" in this Item 1.
As of January 31, 1999, the assets of the Elgin Joint Venture were not
subject to any encumbrances securing the repayment of indebtedness.
RENO JOINT VENTURE (50% PARTICIPATION)
The Company, through a wholly owned subsidiary, is a 50% participant with
Eldorado Limited Liability Company ("Eldorado Limited") in the Reno Joint
Venture, a general partnership which owns and operates Silver Legacy, a
hotel-casino and entertainment complex situated on two city blocks in downtown
Reno, Nevada. The casino and entertainment complex is located between Circus
Circus-Reno and Eldorado Hotel & Casino (the "Eldorado"), which is owned and
operated by an affiliate of Eldorado Limited. Silver Legacy's casino and
entertainment complex is connected at the mezzanine level with Circus
Circus-Reno and the Eldorado by enclosed climate-controlled skyways above the
streets between the respective properties. The property's exterior is themed to
evoke images of Reno during the period from the 1880's through the 1930's. At
the main pedestrian entrances to the casino (located on all four sides of the
complex), patrons enter by passing store fronts reminiscent of
turn-of-the-century Reno.
Silver Legacy's attractions include a 120-foot tall mining rig, situated
over a replica of a silver mine, which extends up from the center of the casino
floor into a 180-foot diameter dome structure. The property offers five
restaurants and several bars to its patrons. The Silver Legacy's other amenities
include a 25,000-square-foot special events center, custom retail shops, a
health spa and an outdoor pool and sun deck.
As of January 31, 1999, the assets of the Reno Joint Venture, including
Silver Legacy, were subject to encumbrances securing the repayment of
indebtedness in the principal amount of $198.5 million.
CURRENT EXPANSION ACTIVITIES
Consistent with past practice and the longstanding policy of making
substantial investments in its gaming business at regular intervals, the Company
continues to actively pursue new projects, either by development or acquisition.
New investments may involve the expansion of existing facilities or the
development of new properties. Projects may be undertaken in Nevada, where all
but one of the Company's wholly owned operating properties are currently
located, or in other jurisdictions within the
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United States or abroad where gaming has been legalized. The Company's new
investments may be in properties wholly owned and operated by the Company, or
may be in properties developed, owned and/or operated through joint ventures
involving the Company and one or more other parties.
DETROIT, MICHIGAN
The Detroit Joint Venture, in which the Company owns a 45% interest, has
been selected to develop one of three casinos permitted to be developed in
Detroit, Michigan. A development agreement for this project was approved by the
Detroit city council on April 9, 1998. The ability of the Detroit Joint Venture
to proceed with the proposed project is contingent upon the receipt of all
necessary gaming approvals and satisfaction of other customary conditions. It is
presently contemplated that the project will involve an investment of
approximately $600 million, of which the Company expects to contribute $120
million in equity, with the balance being provided through project-specific
financing. The development agreement provides that the Company will guarantee
completion of the project and will enter into a keep-well guarantee with the
city, pursuant to which the Company could be required to contribute additional
funds, if and as needed, to continue operation of the project for a period of
two years. If the project is completed and opened, it will be managed by the
Company which will receive a management fee from the Detroit Joint Venture.
The Detroit Joint Venture has commenced construction of a temporary casino
facility in downtown Detroit. The facility will contain approximately 75,000
square feet of gaming space, including approximately 2,600 slot machines and 130
table games, five restaurants and a 3,000-space parking facility. Construction
is expected to be completed in September 1999.
The estimated cost of the temporary facility, including the land and
capitalized interest, is approximately $140 million. The Detroit Joint Venture
expects shortly to complete a $150 million credit facility secured by the assets
associated with the Detroit temporary casino. The Company will guarantee the
credit facility, subject to the release of the guaranty if certain performance
criteria are achieved.
The joint venture's ability to open and operate the temporary casino
facility (and its ability to construct, open and operate a permanent facility)
is contingent upon the receipt of all necessary gaming approvals and
satisfaction of other customary conditions. See "Regulation and
Licensing--Michigan" in this Item 1.
In LAC VIEUX DESERT BAND OF LAKE SUPERIOR CHIPPEWA INDIANS V. THE MICHIGAN
GAMING CONTROL BOARD ET AL., the Lac Vieux Band of Lake Superior Chippewa
Indians has sought to challenge the validity of the Act and the City of
Detroit's Casino Development Competitive Selection Process ordinance. On October
31, 1997, the United States District Court for the Western District of Michigan
issued an opinion holding that the Lac Vieux Band lacked standing to challenge
the Act and the Detroit ordinance on First Amendment and Equal Protection
grounds. In a decision issued on April 12, 1999, the United States Court of
Appeals for the Sixth Circuit affirmed the District Court's determination that
the Lac Vieux Band lacked standing to challenge the Act. However, the Sixth
Circuit reversed the District Court's determination that (1) the Lac Vieux Band
lacked standing to challenge the Detroit ordinance. (2) the First Amendment is
not implicated in the Detroit ordinance and (3) a rational basis review rather
than a strict scrutiny review should be applied in determining the merits of the
Lac Vieux Equal Protection claim regarding the Detroit ordinance. The Sixth
Circuit remanded the case to the District Court for further proceedings
consistent with the Sixth Circuit's decision. No assurance can be given
regarding the timing and outcome of further proceedings in this litigation. If
the District Court determines that the Detroit ordinance is defective and that
determination is upheld, this may have an impact upon the validity of the
Development Agreement entered into between Detroit Entertainment, L.L.C. and the
City of Detroit which, in turn, could delay, preclude or otherwise adversely
impact the issuance of a certificate of suitability and a casino license to
Detroit Entertainment, L.L.C.
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MISSISSIPPI GULF COAST
The Company has announced that it plans to develop a hotel-casino resort on
the Mississippi Gulf Coast at the north end of the Bay of St. Louis, near the
DeLisle exit on Interstate 10, provided it receives all of the requisite
approvals. It is currently anticipated that the resort will include
approximately 1,500 hotel rooms and involve an investment by the Company of
approximately $225 million. The Company has received all necessary approvals to
commence development. However, these approvals have been challenged in federal
court, and the Company anticipates it will not commence the design and
construction of this resort until there is a satisfactory resolution of all
legal actions. As presently contemplated, the Company will own 90% of the
resort, with a partner contributing the land in exchange for the remaining 10%
interest.
CONSTRUCTION RISKS
Any major construction project the Company, or any joint venture in which
the Company owns an interest, may undertake will involve many risks, including
potential shortages of materials and labor, work stoppages, labor disputes,
weather interference, unforeseen engineering, environmental or geological
problems and unanticipated cost increases, any of which could give rise to
delays or cost overruns. Construction, equipment or staffing requirements or
problems or difficulties in obtaining any of the requisite licenses, permits,
allocations or authorizations from regulatory authorities could increase the
cost or delay the construction or opening of the facilities or otherwise affect
the planned design and features. It is possible that any budget and construction
plans developed for a project may be changed for competitive or other reasons.
In addition, construction of the Detroit Joint Venture's proposed project is
dependent on the acquisition of the proposed permanent site and the satisfactory
resolution of the Lac Vieux litigation described under "Current Expansion
Activities--Detroit, Michigan" in this Item 1 . Accordingly, there can be no
assurance as to the commencement or successful completion of any projects
undertaken by the Company or any of the joint ventures in which the Company is a
participant, including the one contemplated by the Detroit Joint Venture.
COMPETITION
Recognizing that middle class vacationers come to the Company's properties
to enjoy both gaming and other activities, the Company seeks to appeal to this
value-oriented market and satisfy the group's diverse entertainment demands by
offering exciting entertainment opportunities at reasonable prices. The Company
seeks to achieve this objective by offering gaming combined with dramatic
entertainment concepts and reasonably priced rooms, reasonably priced food and
beverage and prompt, courteous service at its entertainment "megastores." As the
Company broadens the market segments it seeks to serve with the addition of the
up scale Mandalay Bay, the competitive objective remains the same--to provide
memorable entertainment experiences at attractive values.
The Company's largest concentration of properties is in Las Vegas where the
Company opened Mandalay Bay--its newest hotel-casino resort--on March 2, 1999.
As of March 31, 1999, the Company was the largest hotel-casino operator in Las
Vegas in terms of total square footage of casino space and number of hotel
rooms. The Company's Las Vegas casino and hotel operations, which are conducted
from facilities located along the Las Vegas Strip, currently compete with
approximately 29 major hotel-casinos and a number of smaller casinos located on
or near the Las Vegas Strip. Such operations also compete with casinos located
in downtown Las Vegas, approximately 11 of which offer hotel, restaurant and
entertainment facilities, and several major hotel-casinos located elsewhere in
the Las Vegas area. The Company's Las Vegas properties also compete, to a lesser
extent, with casino and hotel facilities in other parts of Nevada, including
Laughlin, Reno and along I-15 (the principal means of access to Las Vegas from
southern California by car) near the California-Nevada state line.
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The casino and hotel capacity continues to increase in the Las Vegas market.
In October 1998, the 3,000-room Bellagio opened, followed by the March 1999
opening of the 3,700-room Mandalay Bay. Three other major hotel-casinos with a
total of approximately 8,500 rooms are under construction in Las Vegas, two of
which are expected to open in 1999 and the third of which is expected to open in
2000. The impact on the Company of these additions to the hotel and casino
capacity in Las Vegas cannot be determined at this time. While the Company's Las
Vegas operations, on a consolidated basis, had previously benefitted from growth
of hotel and casino capacity in the Las Vegas market when the Company was a
significant contributor to the new capacity, its addition of 1,000 rooms at
Circus Circus-Las Vegas and an additional 1,950 at Luxor in 1997 contributed to
a growth in hotel capacity in the Las Vegas market that outpaced market growth
in fiscal 1998, putting downward pressure on room and occupancy rates in Las
Vegas in fiscal 1998 and early fiscal 1999. The impact on the Company's
operations of the added hotel and casino capacity recently completed or under
construction in Las Vegas will depend, to a significant extent, on the ability
of the new properties, including Mandalay Bay, to significantly increase, on a
sustained basis, the flow of visitors to the Las Vegas market.
Circus Circus-Reno competes with approximately 13 major casinos (the
majority of which offer hotel rooms), including Silver Legacy, a 1,711-room
hotel-casino complex which is 50% owned by a wholly owned subsidiary of the
Company. Circus Circus-Reno and Silver Legacy also compete with numerous other
smaller casinos in the greater Reno area and, to a lesser extent, with casino
and hotel facilities at Lake Tahoe and in other parts of Nevada. Silver Legacy,
which is situated between Circus Circus-Reno and the Eldorado, is connected to
each of these properties at the mezzanine level by enclosed climate-controlled
skyways above the streets between the respective properties, thus facilitating
the flow of customers within the three properties.
In Laughlin, the Colorado Belle and the Edgewater, which together accounted
for approximately 24% of the rooms in Laughlin as of January 31, 1999, compete
with eight other Laughlin casinos. They also compete with the hotel-casinos in
Las Vegas and those situated on I-15 (the principal highway between Las Vegas
and Los Angeles) near the California-Nevada state line, as well as a growing
number of Native American casinos in Laughlin's regional market. The Colorado
Belle and the Edgewater, which also compete with each other, maintained a
combined occupancy level in fiscal 1999 of approximately 84%. Because the two
properties are situated on adjoining sites, the Company believes that each
property benefits from walk-in business attributable to the registered guests
and casino customers at the other property. The Company believes the significant
expansion of hotel and casino capacity in Las Vegas in recent years and the
growth of unregulated Native American casinos in Laughlin's central Arizona and
southern California feeder markets have had a negative impact on Laughlin area
properties, including the Colorado Belle and the Edgewater, by drawing visitors
from the Laughlin market. However, during fiscal 1999, revenues and operating
income both increased at the Colorado Belle and the Edgewater.
The Company's Jean, Nevada properties, Gold Strike and Nevada Landing, are
located on I-15, the primary thoroughfare between Las Vegas and southern
California, approximately 25 miles south of Las Vegas and 12 miles north of the
California-Nevada state line, and are dependent for their customers almost
entirely on the large number of people traveling between Las Vegas and southern
California. As such, these properties compete with the large concentration of
hotel, casino and other entertainment options available in Las Vegas as well as
three hotel-casinos clustered at the California-Nevada state line.
The Company believes that it receives the major portion of its Las Vegas
business from southern California and to a lesser degree from the remainder of
the southwestern United States. The major portion of its Reno business is
derived from northern California and to a lesser degree from the northwestern
United States. Laughlin's business is derived principally from Arizona and
southern California.
Gold Strike-Tunica competes with eight other casinos in Tunica County,
including a hotel-casino which opened in 1996 at Buck Lake, directly north of
the Gold Strike, and which is situated closer to Memphis than any of the other
facilities currently in operation in Tunica County. In response to the increased
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competition in the Tunica market, the Company completed an expansion program at
Gold Strike-Tunica with the opening of a new 31-story, 1,066 room hotel tower in
late 1997 and early 1998. The existing facilities, which previously included no
hotel rooms, were also completely rethemed into a more elegant resort under the
Gold Strike name. The completion of the hotel tower gives Gold Strike-Tunica the
largest room base in the Tunica market.
There is no limit on the number of licenses that may be granted within
Mississippi or within any county in Mississippi. The Company believes that Gold
Strike-Tunica's principal market is the area within 100 miles of Tunica County.
This area includes Memphis, Tennessee, Little Rock, Arkansas and northern
Mississippi. Tunica County is currently the closest legalized gaming
jurisdiction to Memphis. Because Gold Strike-Tunica is heavily dependent upon
the patronage of Memphis residents and upon tourists and other out-of-state
gaming customers coming to Tunica from Memphis, the opening of gaming casinos at
locations closer to Memphis can have a material adverse effect on Gold
Strike-Tunica's operations. De Soto County, the northwestern-most county in
Mississippi and the nearest to Memphis, by local referendum in November 1996,
voted (as it had in November 1992) against authorizing gaming activities in the
county. However, De Soto County could at any time after October 2004 again vote
on the question of allowing gaming activities in the county. In addition, the
authorization of gaming activities in Arkansas or Tennessee (which currently has
a constitutional restriction on gaming activities) could have a material adverse
effect on the Company's Tunica County operations.
Gaming has expanded dramatically in the United States in recent years. This
growth has been reflected in various forms including riverboats, dockside gaming
facilities, Native American gaming ventures, land-based casinos, state-sponsored
lotteries, off-track wagering and card parlors. Since 1990, when there were
casinos in only three states (excluding casinos on Native American lands),
gaming has spread to a number of additional states and still other states are
currently considering, or may in the future consider, the legalization of casino
gaming in specific geographic areas within their jurisdictions. Casino gaming is
currently conducted by numerous Native American tribes throughout the United
States and other Native American tribes are either in the process of
establishing or are considering the establishment of gaming at additional
locations, including sites in California and Arizona. The competitive impact on
Nevada gaming establishments, in general, and the Company's operations, in
particular, from the continued growth of gaming in jurisdictions outside of
Nevada cannot be determined at this time. The Company believes that the
expansion of casino gaming in areas close to Nevada, such as California and
Arizona, could have an adverse impact on the Company's operations and, depending
on the nature, location and extent of such operations, such impact could be
material.
In November 1998, the California electorate approved Proposition 5, an
initiative to provide a model compact between the State of California and its
Native American tribes, setting terms and conditions for gambling on tribal
lands. Video gaming devices and a variety of class three card games are
currently operated on a number of California reservations without a State
compact as required by federal law. If implemented, Proposition 5 would give all
California Native American tribes the right to operate an unlimited number of
certain kinds of gaming machines and conduct other forms of casino wagering on
California reservations. In December 1998, the California Supreme Court enjoined
implementation of Proposition 5 pending the resolution of legal challenges to
Proposition 5 which are currently before the Court. However, in December 1998,
the United States Court of Appeals in San Francisco declined to enforce a
federal District Court injunction shutting down the gaming operations conducted
on a number California reservations pending a resolution of the lawsuit
challenging Proposition 5. Legal challenges to Proposition 5 may delay or
prevent its implementation. However, if implemented, Proposition 5 may
negatively affect the Company. The Company is unable at this time to determine
the outcome of the litigation relating to Proposition 5 or to assess the impact
on the Company's operations or those of the Nevada joint ventures in which the
Company is a participant if Proposition 5 is eventually implemented.
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REGULATION AND LICENSING
NEVADA
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
various local licensing and regulatory authorities, including the Clark County
Liquor and Gaming Licensing Board, the City of Reno and the City of Henderson
(collectively, the "Local Authorities"). The Nevada Commission, the Nevada Board
and the Local Authorities are collectively referred to 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. Changes in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
The Company's direct and indirect subsidiaries that conduct gaming
operations or have an ownership interest in an entity that conducts gaming
operations are required to be licensed by the Nevada Gaming Authorities. The
Company is registered by the Nevada Commission as a publicly traded corporation
(a "Registered Corporation") and has been found suitable to own the stock of
Circus Circus Casinos, Inc., Slots-A-Fun, Inc., Edgewater Hotel Corporation,
Colorado Belle Corp., New Castle Corp., Ramparts, Inc. and Mandalay Corp., each
of which is a corporate gaming licensee under the terms of the Nevada Act
(individually, a "Corporate Licensee" and collectively with the additional
corporate subsidiaries referenced herein below, the "Corporate Licensees") that
has been licensed to conduct nonrestricted gaming operations at its respective
gaming establishment. The Company has also been found suitable to own the stock
of M.S.E. Investments, Incorporated ("M.S.E."), Last Chance Investments, Inc.
("LCI"), Goldstrike Investments, Inc. ("GII"), Diamond Gold, Inc. ("DGI"), Oasis
Development Company, Inc. ("Oasis") and Galleon, Inc. ("Galleon"), each of which
is a Corporate Licensee that has been licensed as a general partner of one or
more Nevada general partnerships that have been licensed to conduct
nonrestricted or restricted gaming operations at their respective gaming
establishments. M.S.E., LCI and GII are each licensed as general partners of
Railroad Pass Investment Group, a Nevada general partnership ("Railroad Pass"),
Jean Development Company, a Nevada general partnership ("Jean Development"),
Jean Development West, a Nevada general partnership ("Jean West"), Gold Strike
Fuel Company, a Nevada general partnership ("GSFC") and Jean Fuel Company West,
a Nevada general partnership ("Jean Fuel") and Gold Strike L.V., a Nevada
general partnership ("GSLV"); DGI is licensed as a general partner of GSLV and
Jean West; Oasis is licensed as a general partner of GSFC and Jean Fuel; and
Galleon is licensed as a 50% general partner of Circus and Eldorado Joint
Venture, a Nevada general partnership ("CEJV") which operates the Silver Legacy
and GSLV is licensed as a 50% general partner of Victoria Partners, a Nevada
general partnership ("Victoria Partners") which operates Monte Carlo (all such
general partnerships individually, a "Partnership Licensee" and collectively,
the "Partnership Licensees"). Railroad Pass, Jean Development, Jean West, CEJV
and Victoria Partners have each been licensed to conduct nonrestricted gaming
operations at their respective gaming establishments and Jean Fuel and GSFC have
each been licensed to conduct restricted gaming operations consisting of 15 or
fewer slot machines at their respective gaming establishments.
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The gaming licenses held by the Corporate Licensees and the Partnership
Licensees (each individually, a "Gaming Subsidiary" and collectively, the
"Gaming Subsidiaries") to conduct nonrestricted gaming operations require the
payment of periodic fees and taxes and are not transferable. As a Registered
Corporation, the Company is required periodically to submit detailed financial
and operating reports to the Nevada Commission and furnish any other information
which the Nevada Commission may require. No person may become a stockholder or
partner of, or receive any percentage of profits from the Gaming Subsidiaries
without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company and the Gaming Subsidiaries 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 or the
Gaming Subsidiaries in order to determine whether such individual is suitable or
should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of the Gaming Subsidiaries must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers, directors
and key employees of the Company who are actively and directly involved in
gaming activities of the Gaming Subsidiaries 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 the costs of the 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 or a Gaming Subsidiary, the companies involved
would have to sever all relationships with such person. In addition, the Nevada
Commission may require the Company and the Gaming Subsidiaries 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 and the Gaming Subsidiaries 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 Company and the Gaming Subsidiaries must be reported to or approved by
the Nevada Commission.
If it were determined that the Nevada Act was violated by a Gaming
Subsidiary, the gaming licenses it holds could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Gaming Subsidiaries, the Company 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
Company's gaming properties and, under certain circumstances, earnings generated
during the supervisor's 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 voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
state of Nevada. The applicant
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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 beneficial ownership of more
than five percent of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a Registered Corporation's voting securities apply to
the Nevada Commission for a finding of suitability within thirty days after the
Chairman of the Nevada Board mails the written notice requiring such filing.
Under certain circumstances, an "institutional investor", as defined in the
Nevada Act, which acquires more than 10%, but not more than 15%, of the
Registered Corporation's voting securities may apply to the Nevada Commission
for a waiver of such finding of suitability if such institutional investor holds
the voting securities for investment purposes only. An institutional investor
shall not be deemed to hold voting securities for investment purposes unless the
voting securities were acquired and are held in the ordinary course of business
as an institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Company, any change in the Company's corporate charter, bylaws,
management, policies or operations of the Registered Corporation, or any of its
gaming affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Registered Corporation's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 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 Company's voting securities
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. The Company is subject to disciplinary action if,
after it receives notice that a person is unsuitable to be a stockholder or to
have any other relationship with the Company or the Gaming Subsidiaries, the
Company: (i) pays that person any dividend or interest upon voting securities of
the Company; (ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person; (iii) pays
remuneration in any form to that person for services rendered or otherwise; or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities including, if necessary, the immediate purchase
of said voting securities for cash at fair market value. Additionally, the Clark
County Liquor and Gaming Licensing Board has the authority to approve all
persons owning or controlling the stock of any corporation controlling a gaming
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 holder's acquisition of such
debt security would otherwise be inconsistent with the declared policy 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.
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The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on the Company.
The Company may not 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
January 28, 1999, the Nevada Commission granted the Company prior approval to
make public offerings for a period of two years, subject to certain conditions
(the "Shelf Approval"). The Shelf Approval also applies to any affiliated
company wholly owned by the Company (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 Corporate
Licensees to guarantee any security issued by, or to hypothecate their assets to
secure the payment or performance of any obligations issued by, the Company or
an Affiliate in a public offering under the Shelf Registration. However, 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. 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 through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he 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 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 Nevada gaming 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 gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company 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 Company'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 Gaming Subsidiaries' 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
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percentage of the gross revenues received; (ii) the number of gaming devices
operated; or (iii) the number of gaming tables operated. A casino entertainment
tax is also paid by nonrestricted casino operations where entertainment is
furnished in connection with the serving or selling of food or refreshments or
the selling of merchandise. Nevada licensees that hold a license as an operator
of a slot route, or a manufacturer's or distributor's license, also pay certain
fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively, the
"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 their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. 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 operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities or
enter into associations that are harmful to the state of Nevada or its ability
to collect gaming taxes and fees, or employ, contract with or associate with a
person in the foreign operation who has been denied a license or finding of
suitability in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages at the gaming establishments operated by the
Gaming Subsidiaries is subject to licensing, control and regulation by the
applicable Local Authorities. All licenses are revocable and are not
transferable. The Local Authorities 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 affect upon the operations
of the licensed gaming establishments.
MISSISSIPPI
The Company conducts its Mississippi gaming operations through a Mississippi
subsidiary, Circus Circus Mississippi, Inc. ("CCMI"). The ownership and
operation of casino gaming facilities in Mississippi are subject to extensive
state and local regulation. In order to open and operate Gold Strike-Tunica
(formerly Circus Circus-Tunica), the Company was required to register under the
Mississippi Gaming Control Act (the "Mississippi Act") and its Mississippi
gaming operations are subject to the licensing and regulatory control of the
Mississippi Gaming Commission (the "Mississippi Commission") and various local
and county regulatory agencies. Effective October 29, 1991, the Mississippi
Commission adopted regulations in furtherance of the Mississippi Act (the
"regulations"). Changes in the Mississippi Act, the regulations and/or
interpretations of the Mississippi Act and the regulations by the Mississippi
Commission could have a material adverse effect on gaming operations conducted
by the Company in Mississippi.
The Company is required to submit detailed financial, operating and other
reports to the Mississippi Commission. Substantially all loans, leases, sales of
securities and similar financing transactions entered into by CCMI must be
reported to or approved by the Mississippi Commission. CCMI also is required to
periodically submit detailed financial and operating reports to the Mississippi
Commission and the Mississippi State Tax Commission and to furnish any other
information required thereby.
Each of the directors, officers and key employees of the Company who are
actively and directly engaged in the administration or supervision of gaming in
Mississippi, or who have any other significant direct or indirect involvement
with the gaming activities of the Company in Mississippi, must be found suitable
therefor, and may be required to be licensed, by the Mississippi Commission. The
finding of suitability is comparable to licensing, and both require submission
of detailed personal financial information followed by a thorough investigation.
In addition, any individual who is found to have a material relationship to, or
material involvement with, the Company may be required to be investigated in
order to be found suitable or to be licensed as a business associate of the
Company. Key employees, controlling
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persons or others who exercise significant influence upon the management or
affairs of the Company may also be deemed to have such a relationship or
involvement. There can be no assurance that a person who is subject to a finding
of suitability will be found suitable by the Mississippi Commission. An
application for licensing may be denied for any cause deemed reasonable by the
Mississippi Commission. The findings of suitability of directors, officers and
key employees must be renewed every two years. Changes in licensed positions
must be reported to the Mississippi Commission. In addition to its authority to
deny an application for a license, the Mississippi Commission has jurisdiction
to disapprove a change in corporate position. If the Mississippi Commission were
to find a director, officer or key employee unsuitable for licensing or
unsuitable to continue having a relationship with the Company, the Company would
have to suspend, dismiss and sever all relationships with such person in order
to continue to have any involvement in gaming in Mississippi. The Company would
have similar obligations with regard to any person who should refuse to file
appropriate applications. Each gaming employee at a Mississippi gaming facility
must obtain from the Mississippi Commission a work permit which may be revoked
upon the occurrence of certain specified events.
Mississippi statutes and regulations give the Mississippi Commission the
discretion to require a suitability finding with respect to anyone who acquires
any security of the Company, regardless of the percentage of ownership. The
current policy of the Mississippi Commission is to require anyone acquiring five
percent or more of any voting securities of a public or private company to be
found suitable. If the owner of voting securities who is required to be found
suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation which the Company may
reimburse. The Mississippi Commission has selected those persons it feels were
required to be investigated and found suitable and has granted the findings of
suitability. However, other persons, for the reasons set forth above, may be
required to be found suitable. The Mississippi Commission may at any time
dissolve, suspend, condition, limit or restrict a license or approval to own
equity interests in the Company for any cause deemed reasonable by the
Mississippi Commission.
Any owner of voting securities found unsuitable and who holds, directly or
indirectly, any beneficial ownership of equity interests in the Company beyond
such period of time as may be prescribed by the Mississippi Commission may be
guilty of a misdemeanor. Any person who fails or refuses to apply for a finding
of suitability or a license within 30 days after being ordered to do so by the
Mississippi Commission may be found unsuitable. The Company will be subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be an owner of or to have any other relationship with it, the Company: (i) pays
the unsuitable person any dividends or interest upon any securities of the
gaming subsidiary or any payments or distribution of any kind whatsoever; (ii)
recognizes the exercise, directly or indirectly, of any voting rights in its
securities by the unsuitable person; or (iii) pays the unsuitable person any
remuneration in any form for services rendered or otherwise, except in certain
limited and specific circumstances. In addition, if the Mississippi Commission
finds any owner of voting securities unsuitable, such owner must immediately
surrender all securities to the Company, and the Company must refund any money
or other thing of value that may have been invested in the Company or made use
of by the Company.
The Company is required to maintain current equity ownership ledgers in the
State of Mississippi which may be examined by the Mississippi Commission at any
time. The Company obtained a waiver of this ledger requirement from the
Mississippi Commission at its licensing hearing, however, the waiver may be
revoked, modified or suspended at any time by the Mississippi Commission in its
discretion. 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 Mississippi Commission. A failure to make such disclosure may be grounds
for finding the record holder unsuitable. The Company also is required to render
maximum assistance in determining the identity of such a beneficial owner.
The Mississippi Act requires that certificates representing equity
securities of the Company bear a legend to the general effect that the
securities are subject to the Mississippi Act and regulations of the
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Mississippi Commission. The Company obtained a waiver of this legend requirement
from the Mississippi Commission, however, this waiver may be revoked, modified
or suspended by the Mississippi Commission in its discretion at any time. The
Mississippi Commission, through the power to regulate licenses, has the power to
impose additional restrictions on the Company and on the holders of the
Company's securities at any time.
The Company may not make a public offering of its securities without the
prior approval of the Mississippi Commission if the securities or proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Mississippi, or to retire or extend obligations incurred for such
purposes. On January 21, 1999, the Mississippi Commission granted the Company
prior approval to make public offerings for a period of two years, subject to
certain conditions (the "Shelf Approval"). The Shelf Approval also applies to
any affiliated company wholly owned by the Company (an "Affiliate") which is a
publicly traded corporation or would thereby become a publicly traded
corporation pursuant to a public offering. However, the Shelf Approval may be
rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Executive Director of the Mississippi Commission
and must be renewed every two years. The Shelf Approval does not constitute a
finding, recommendation or approval by the Mississippi Commission as to the
accuracy or adequacy of the prospectus or the investment merits of the
securities offered. Any representation to the contrary is unlawful.
The regulations provide that a change in control of the Company may not
occur without the prior approval of the Mississippi Commission.
As long as CCMI is licensed to conduct gaming in Mississippi, the Company
may not engage in gaming activities in Mississippi while also conducting gaming
operations outside of Mississippi without approval of the Mississippi
Commission. The Mississippi Commission has approved the Company's gaming
activities in the following jurisdictions; Nevada, Indiana, Louisiana, Illinois,
New Jersey, Michigan and Ontario, Canada.
CCMI received its Mississippi gaming license on August 18, 1994 and renewals
on July 18, 1996 and July 16, 1998. The gaming license is not transferable and
must be renewed every two years. The Mississippi Commission in 1994 enacted an
infrastructure development regulation which requires that a Mississippi casino
invest 25% of its casino costs in infrastructure facilities. Infrastructure
facilities are defined in the regulation to include a hotel with at least 250
rooms, theme park, golf course and other similar facilities. With the opening of
its resort hotel and other amenities in Tunica, CCMI has met the infrastructure
requirements. On January 21, 1999, the Mississippi Commission amended this
regulation to increase the minimum level of infrastructure investment from 25%
to 100% of the casino cost; however, the 100% infrastructure investment
amendment applies only to new casino developments and existing casino
developments that are not operating at the time of their acquisition or
purchase, and would therefore not apply to CCMI.
Substantial fines for each violation of gaming laws or regulations may be
levied against the Company in Mississippi. A violation under any gaming license
held by the Company may be deemed a violation of its Mississippi license.
Suspension or revocation of any of the Company's gaming licenses or of the
approval of the Company would have a material adverse effect upon any business
conducted by the Company in Mississippi.
License fees and taxes, computed in various ways depending on the type of
gaming involved, are payable to the State of Mississippi and to the county and
cities in which the Company conducts operations in Mississippi. Depending upon
the particular fee or tax involved, these fees and taxes are payable either
weekly or annually and are based upon: (i) the gross gaming revenues received by
the casino operation; (ii) the number of slot machines operated by the casino;
and (iii) the number of gaming tables operated by the casino. The legal age for
gaming in Mississippi is 21.
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ILLINOIS
The Company is subject to the jurisdiction of the Illinois gaming
authorities as a result of its acquisition of the Grand Victoria riverboat
casino and gaming complex based in Elgin, Illinois.
In 1990, the Riverboat Gambling Act (the "Illinois Act") was enacted by the
State of Illinois. The Illinois Act authorizes the five-member Illinois Gaming
Board (the "Illinois Board") to issue up to ten owners licenses on navigable
streams within or forming a boundary of the State of Illinois except for Lake
Michigan and any waterway in Cook County, which includes Chicago. The Illinois
Act strictly regulates the facilities, persons, associations and practices
related to gaming operations pursuant to the police powers of the State of
Illinois, including comprehensive law enforcement supervision. The Illinois Act
grants the Illinois Board specific powers and duties, and all other powers
necessary and proper to fully and effectively execute the Illinois Act for the
purpose of administering, regulating and enforcing the system of riverboat
gaming. The Illinois Board's jurisdiction extends to every person, association,
corporation, partnership and trust involved in riverboat gaming operations in
the State of Illinois.
The Illinois Act requires the owner of a riverboat gaming operation to hold
an owner's license issued by the Illinois Board. Each owner's license permits
the holder to own up to two riverboats, however, gaming participants are limited
to 1,200 for any owner's license. The number of gaming participants will be
determined by the number of gaming positions available and such positions will
be counted as follows: positions for games utilizing electronic gaming devices
will be determined as 90% of the total number of devices available for play;
craps tables will be counted as having ten gaming positions; and games utilizing
live gaming devices, except for craps, will be counted as having five gaming
positions. A licensed owner who holds greater than 10% interest on one riverboat
operation, may hold up to 10% of a second riverboat gaming operation in
Illinois.
The Illinois Act restricts the granting of certain of the ten owners'
licenses by location. Four are for operators docking at sites on the Mississippi
River, one is for an operator docking at a site on the Illinois River south of
Marshall County and one is for an operator docking at a site on the Des Plaines
River in Will County. The remaining four owner's licenses are not restricted as
to location. In addition to the ten owner's licenses which may be authorized
under the Illinois Act, the Illinois Board may issue special event licenses
allowing persons who are not otherwise licensed to conduct riverboat gaming to
conduct such gaming on a specified date or series of dates. Riverboat gaming
under such a license may take place on a riverboat not normally used for
riverboat gaming.
The gaming license issued to the Grand Victoria riverboat casino in October
1994, was valid for an initial period of three years and now must be renewed
annually. Most recently, its license was renewed in October 1998. An owner
licensee is eligible for renewal upon payment of the applicable fee and a
determination by the Illinois Board that the licensee continues to meet all of
the requirements of the Illinois Act and Illinois Board rules. An ownership
interest in an owner's license, or in a business entity other than a publicly
held business entity which holds an owner's license, may not be (i) transferred
or (ii) pledged as collateral without the approval of the Illinois Board. The
Illinois Board also requires that employees of a riverboat gaming operation and
vendors of gaming supplies and equipment be licensed.
The Illinois Act does not limit the maximum bet or per patron loss.
Owner-licensees, however, may set any maximum or minimum limits on wagering
under the Illinois Act. No person under the age of 21 is permitted to wager.
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An admission tax is imposed on the owner of a riverboat operation at a rate
of $2 per person admitted. Additionally, a wagering tax is imposed on the
adjusted gross receipts, as defined in the Illinois Act, of a riverboat
operation. As of January 1, 1998, the wagering tax is as follows: 15% of
adjusted gross receipts up to and including $25,000,000; 20% of adjusted gross
receipts in excess of $25,000,000 but not exceeding $50,000,000; 25% of adjusted
gross receipts in excess of $50,000,000 but not exceeding $75,000,000; 30% of
adjusted gross receipts in excess of $75,000,000 but not exceeding $100,000,000;
and 35% of adjusted gross receipts in excess of $100,000,000. The owner-licensee
is required to wire the wagering tax payment to the Illinois Board daily.
Under the Illinois Act, there is a four-hour maximum period during which
gaming may be conducted during a gaming excursion. Gaming is deemed to commence
when the first passenger boards a riverboat for an excursion and may continue
while other passengers are boarding for a period not to exceed 30 minutes. A
gaming excursion is deemed to have started upon the commencement of gaming.
Gaming may continue for a period not to exceed 30 minutes after the gangplank or
its equivalent is lowered. During this 30-minute period of egress, new
passengers may not board a riverboat. Special event extended cruises may be
authorized by the Illinois Board.
If a riverboat captain reasonably determines that either it is unsafe to
transport passengers on the waterway due to inclement weather or the riverboat
has been rendered temporarily inoperable by unforeseeable mechanical or
structural difficulties or river icing, the riverboat shall either not leave the
dock or immediately return to it. If a riverboat captain reasonably determines
for reasons of safety that although seaworthy, the riverboat should not leave
the dock or should return immediately thereto, due to either of the above
conditions, a gaming excursion may commence or continue while the gangplank or
its equivalent is raised and remains raised, in which event the riverboat is not
considered docked. If, due to either of the above conditions, a gaming excursion
must commence or continue with the gangplank or its equivalent raised, and the
riverboat does not leave the dock, ingress is prohibited until the completion of
the excursion.
After consultation with the U.S. Army Corps of Engineers, the Illinois Board
may establish binding emergency orders upon the concurrence of a majority of the
Board regarding the navigability of rivers in the event of extreme weather
conditions, acts of God or their extreme circumstances.
The Illinois Board is authorized to conduct investigations into the conduct
of gaming as it may deem necessary and proper and into alleged violations of the
Illinois Act and the Illinois Board's rules. Employees and agents of the
Illinois Gaming Board have access to and may inspect any facilities relating to
the riverboat gaming operations at all times.
A holder of any license is subject to imposition of fines, suspension or
revocation of such license, or other action for any act or failure to act by
himself or his agents or employees, that is injurious to the public health,
safety, morals, good order and general welfare of the people of the State of
Illinois, or that would discredit or tend to discredit the Illinois gaming
industry or the State of Illinois. Any riverboat operations not conducted in
compliance with the Illinois Act may constitute an illegal gaming place and
consequently may be subject to criminal penalties, which penalties include
possible seizure, confiscation and destruction of illegal gaming devices and
seizure and sale of riverboats and dock facilities to pay any unsatisfied
judgment that may be recovered and any unsatisfied fine that may be levied. The
Illinois Act also provides for civil penalties, equal to the amount of gross
receipts derived from wagering on the gaming, whether unauthorized or
authorized, conducted on the day of any violation. The Illinois Board may revoke
or suspend licenses, as the Illinois Board may see fit and in compliance with
applicable laws of the State of Illinois regarding administrative procedures and
may suspend an owner's license, without notice or hearing, upon a determination
that the safety or health of patrons or employees is jeopardized by continuing a
riverboat's operation. The suspension may remain in effect until the Illinois
Board determines that the cause for suspension has been abated and it may revoke
the owner's license upon a determination that the owner has not made
satisfactory progress toward abating the hazard.
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The Illinois Board requires that a "Key Person" of an owner licensee submit
a Personal Disclosure or Business Entity Form and be investigated and approved
by the Illinois Board. The Illinois Board shall certify for each applicant for
or holder of an owner's license each position, individual or Business Entity
that is to be approved by the Board and maintain suitability as a Key Person.
With respect to an applicant for or the holder of an owner's license, Key Person
shall include: any Business Entity and any individual with an ownership interest
or voting rights of more than 5% in the licensee or applicant, and the trustee
of any trust holding such ownership interest or voting rights; the directors of
the licensee or applicant and its chief executive officer, president and chief
operating officer, or their functional equivalents; and all other individuals or
Business Entities that, upon review of the applicant's or licensees Table of
Organization, Ownership and Control the Board determines hold a position or a
level of ownership, control or influence that is material to the regulatory
concerns and obligations of the Illinois Board for the specified licensee or
applicant.
In order to assist the Illinois Board in its determination of Key Persons,
applicants for or holders of an owner's license shall provide to the Illinois
Board a Table of Organization, Ownership and Control. The Table of Organization,
Ownership and Control shall identify in sufficient detail the hierarchy of
individuals and Business Entities that, through direct or indirect means, manage
own or control the interests and assets of the applicant or licensee holder. If
a Business Entity identified in the Table of Organization, Ownership and Control
is a percentage of ownership interest of each individual or Business Entity with
ownership of more than 5% of the voting shares of the entity, to the extent such
information is known or contained in 13D or 13G Securities and Exchange
Commission filings; to the extent known, the names and percentage of interest of
ownership of persons who are relatives of one another and who together (as
individuals or through trusts) exercise control over or own more than 10%
percent of the voting shares of the entity; and any trust holding a more than 5%
ownership or voting interest in the company, to the extent such information is
known or contained in 13D or 13G Securities and Exchange Commission filings. The
Table of Organization may be disclosed under the Freedom of Information Act.
Each owner licensee shall provide a means for the economic disassociation of
a Key Person in the event such economic disassociation is required by an order
of the Illinois Board. Based upon findings from an investigation into the
character, reputation, experience, associations, business probity and financial
integrity of a Key Person, the Illinois Board may enter an order upon the
licensee to require the economic disassociation of such Key Person.
Furthermore, each applicant for an owner's license or owner licensee must
disclose the identity of every person, association, trust or corporation having
a greater than 1% direct or indirect pecuniary interest in an owner licensee or
in the riverboat gaming operation with respect to which the license is sought.
The Illinois Board may also require an applicant or owner licensee to disclose
any other principal or investor and require the investigation and approval of
such individuals.
The Illinois Board (unless the investor qualifies as an Institutional
Investor) requires a Personal Disclosure Form from any person or entity who or
which, individually or in association with others, acquires directly or
indirectly, beneficial ownership of more than 5% of any class of voting
securities or nonvoting securities convertible into voting securities of a
publicly traded corporation which holds an ownership interest in the holder of
an owner's license. If the Illinois Board denies an application for such a
transfer and if no hearing is requested, the applicant for the transfer of
ownership must promptly divest those shares in the publicly traded parent
corporation. The holder of an owner's license would not be able to distribute
profits to a publicly traded parent corporation until such shares have been
divested. If a hearing is requested, the shares need not be divested and profits
may be distributed to a publicly-held parent corporation pending the issuance of
a final order from the Illinois Board.
An Institutional Investor that individually or jointly with others,
cumulatively acquires, directly or indirectly, 5% or more of any class of voting
securities of a publicly-traded licensee or a licensee's publicly-traded parent
corporation shall, within no less than ten days after acquiring such securities,
notify the
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Administrator of the Illinois Board of such ownership and shall provide any
additional information as may be required. If an Institutional Investor (as
specified above) acquires 10% or more of any class of voting securities of a
publicly-traded licensee or a licensee's publicly-traded parent corporation, it
shall file an Institutional Investor Disclosure Form within 45 days after
acquiring such level of ownership interest. The licensee shall notify the
Administrator as soon as possible after it becomes aware that it or its parent
is involved in an ownership acquisition by an Institutional Investor subject to
this Section. Notwithstanding the foregoing, the Institutional Investor's
obligation under this Section shall be independent of the licensee's obligation
to notify the Administrator.
In addition to Institutional Investor Disclosure Forms, certain other forms
may be required to be submitted to the Illinois Board. An owner-licensee must
submit a Marketing Agent Form to the Illinois Board for each Marketing Agent
with whom it intends to do business. A Marketing Agent is a person or entity,
other that a junketeer or an employee of a riverboat gaming operation, who is
compensated by the riverboat gaming operation in excess of $100 per patron per
trip for identifying and recruiting patrons. Key Persons of owner-licensees must
submit Trust Identification Forms for trusts, excluding land trusts, for which
they are a grantor, trustee or beneficiary each time such a trust relationship
is established, amended or terminated.
The Illinois Board may waive any licensing requirement or procedure provided
by rule if it determines that such waiver is in the best interests of the public
and the gaming industry. Also, the Illinois Board may, from time to time, amend
or change its rules.
Uncertainty exists regarding the Illinois gambling regulatory environment
due to limited experience in interpreting the Illinois Act.
From time to time, various proposals have been introduced in the Illinois
legislature that, if enacted, would affect the taxation, regulation, operation
or other aspects of the gaming industry or the Company. Some of this
legislation, if enacted, could adversely affect the gaming industry or the
Company. No assurance can be given whether such or similar legislation will be
enacted.
Applicants for and holders of an owner's license are required to obtain
formal approval from the Illinois Board for changes in the following areas: (i)
Key Persons; (ii) type of entity; (iii) equity and debt capitalization of the
entity; (iv) investors and/or debt holders; (v) source of funds; (vi)
applicant's economic development plan; (vii) riverboat capacity or significant
design change; (viii) gaming positions, (ix) anticipated economic impact; or (x)
agreements, oral or written, relating to the acquisition or disposition of
property (real or personal) of a value greater than $1 million.
A holder of an owner's license is allowed to make distributions to its
stockholders only to the extent that such distribution would not impair the
financial viability of the gaming operation. Factors to be considered by the
licensee will include but not be limited to the following: (i) cash flow, casino
cash and working capital requirements; (ii) debt service requirements
obligations and covenants associated with financial instruments; (iii)
requirements for repairs and maintenance and capital improvements; and (iv)
employment or economic development requirements of the Act; and (v) a licensee's
financial projections.
MICHIGAN
The Company is subject to the jurisdiction of the Michigan gaming
authorities as a result of a Company subsidiary, Circus Circus Michigan, Inc.,
having an ownership interest in Detroit Entertainment, L.L.C., which has
executed a Development Agreement with the City of Detroit for the construction
and operation of a casino within the City of Detroit, and has filed an
application for a Michigan casino license with the Michigan Gaming Control
Board.
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In 1996, the Michigan Gaming Control and Revenue Act was adopted by public
initiative. In 1997, a substantive modification to the Michigan Act was enacted
(herein, as modified, the "Michigan Act"). The Michigan Act does not license or
regulate Native American casino gaming in Michigan.
The Michigan Act establishes a five-member Michigan Gaming Control Board
(the "Michigan Board") and authorizes the Michigan Board to issue up to three
casino licenses in any Michigan city which has a population of at least 800,000
at the time the casino license is issued and which is located within 100 miles
of any other state or country in which gaming was permitted on December 5, 1996,
provided the local legislative body of the city has enacted an ordinance
approving casino gaming which is consistent with the Michigan Act and rule
promulgated pursuant to the Michigan Act. At the present time, the City of
Detroit is the only Michigan city which meets the qualification requirements.
The Michigan Act strictly regulates the facilities, persons, associations
and practices related to the to the casino gaming operations and the buildings,
facilities and rooms functionally or physically connected to the casino gaming
operations, including any bar, restaurant, hotel, cocktail lounge, retail
establishment or arena and any other facility located in the city which is under
the control of the casino licensee or an affiliated company (collectively, under
the Michigan Act, a "Casino Enterprise") pursuant to the police powers of the
State of Michigan, including comprehensive law enforcement supervision.
The Michigan Act grants the Michigan Board specific powers and duties, and
all other powers necessary and proper to fully and effectively execute the
Michigan Act for the purpose of administering, regulating and enforcing the
system of casino gaming in Michigan. The Michigan Board's jurisdiction extends
to every person, association, corporation, partnership, trust and other business
entity involved in casino gaming operations governed by the Michigan Act in the
State of Michigan.
The Michigan Act requires as a condition precedent to the issuance of a
casino license that the applicant for a casino license enter into a development
agreement (a "Development Agreement") with the city in which the casino is
located. The limited liability company in which the Company has an ownership
interest, Detroit Entertainment, L.L.C., has entered into a Development
Agreement with the City of Detroit and, therefore, this condition precedent has
been met.
Under the Michigan Act, in order to operate a casino in a qualified city the
casino applicant must obtain a casino license from the Michigan Board. A
licensed owner who holds greater than a 10% interest in one casino operation
licensed under the Michigan Act is prohibited from owning more than a 10%
ownership in any other casino license issued under the Michigan Act.
The Michigan Act authorizes the Michigan Board to adopt rules consistent
with the Michigan Act and in compliance with rule making procedures established
by the laws of the State of Michigan. The Michigan Board has adopted rules in
accordance with the Michigan Act.
The Michigan Act defines "control" of a casino license applicant or a casino
licensee as having a greater than 15% direct or indirect pecuniary interest in
the casino license applicant or casino licensee. For purposes of the Michigan
Act, the Company has control of Detroit Entertainment, L.L.C. by virtue of the
Company subsidiary's forty five percent ownership interest in Detroit
Entertainment, L.L.C.
The Michigan Act and Michigan Board rules require that certain owners and
"Key Persons" of a casino license applicant and a casino licensee meet the
qualification and approval standards set forth in the Michigan Act and the
Michigan Board rules. These owners and Key Persons are required to timely file
qualification information in the form of a Personal Disclosure Form or a
Business Disclosure Form with the Michigan Board and be approved by the Michigan
Board.
Each person, other than a shareholder of a publicly traded company, who
directly or indirectly beneficially owns 1% or more of the casino license
applicant or casino licensee must submit the qualification information to the
Michigan Board. Each shareholder who directly or indirectly beneficially owns
more than 5% of a publicly traded company which owns 1% or more of a Michigan
casino license
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applicant or casino licensee must submit qualification information to the
Michigan Board. Under the Michigan Act and the Michigan Board rules, an
"Institutional Investor" which has invested in the equity or debt securities of
a publicly traded company which owns 1% or more of the casino license applicant
or casino licensee may, under certain conditions discussed below, obtain a
waiver from meeting the qualification and approval standards established by the
Michigan Act and the Michigan Board rules.
Each Key Person of the casino license applicant or casino licensee must
submit qualification information to the Michigan Board. The Michigan Board rules
provide that a "Key Person" includes any person who (1) is an officer, director,
trustee, partner or proprietor of the casino license applicant or casino
licensee, (2) holds a combined direct, indirect or attributed debt or equity
interest of more than 5% in a casino license applicant or casino licensee, (3)
holds a combined direct, indirect or attributed interest of more than 5% in a
person who has a controlling interest in a casino license applicant or a casino
licensee, (4) is a managerial employee or an affiliate or holding company with
control of the casino licensee applicant or casino licensee or an affiliate or
holding company with control of the casino license applicant or casino licensee
and who performs the function of principal executive officer, principal
operating officer, principal accounting officer or equivalent thereof, or (5) is
a managerial employee of the casino license applicant or casino licensee or an
affiliate or holding company with control thereof who will perform or performs
the function of gaming operations manager or will exercise or exercises
management, supervisory or policy making authority over the proposed or existing
gaming operation or Casino Enterprise in Michigan and who is not otherwise
subject to occupational licensing under the Michigan Act.
The Michigan Board is currently taking the position that an Institutional
Investor which individually or in association with others, acquires, directly or
indirectly, beneficial ownership of more than 5% of a person that has applied
for or holds a casino license or the holding company or intermediary of a casino
license applicant or casino licensee shall notify the Michigan Board of the
acquisition within ten business days after the Institutional Investor acquires
the interest or files form 13-D or 13-G with the Securities and Exchange
Commission, or both, and shall provide additional information, and may be
subject to a finding of suitability as required by the Michigan Board. Under the
Michigan Board rules, the Company is a holding company of Detroit Entertainment,
L.L.C., which is a casino license applicant under the Michigan Act and the
Michigan Board rules.
The Michigan Board is currently taking the position that any Institutional
Investor which owns or acquires, directly or indirectly, beneficial ownership of
more than a 5% interest but not more than a 10% interest in a person that has
applied for or holds a casino license or the holding company or intermediary of
a casino license applicant or casino licensee may obtain from the Michigan Board
a waiver of the eligibility and suitability requirements of the Michigan Act and
the Michigan Board rules if the securities were purchased for investment
purposes only and not for the purpose of influencing or affecting the affairs of
the issuer, the casino licensee or its affiliates. In order to obtain the
waiver, the Institutional Investor must complete and file with the Michigan
Board a Michigan Institutional Investor Waiver Application (less than 10%
interest), which requires certain Institutional Investor identification
information and a certification concerning investment intent.
An Institutional Investor which owns or acquires, directly or indirectly,
beneficial ownership of more than a 10% interest but not more than 15% interest
in a person that has applied for or holds a casino license or the holding
company or intermediary of a casino license applicant or casino licensee may
also apply to the Michigan Board for a waiver of the eligibility and suitability
requirements of the Michigan Act and the Michigan Board rules. The Michigan
Board rules require that an Institutional Investor within these ownership
parameters which is seeking a waiver disclose in the waiver application certain
specific information concerning the Institutional Investor which will assist the
Michigan Board in determining whether to grant the waiver request.
An Institutional Investor which owns or acquires, directly or indirectly,
beneficial ownership of more than 15% of a casino license applicant or casino
licensee is required to file qualification information with
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the Michigan Gaming Control Board within 45 days after acquiring the interest
and meet the qualification and approval standards of the Michigan Act and the
Michigan Board.
An Institutional Investor which owns or acquires beneficial ownership of (1)
10% or more of debt securities of a casino licensee's affiliate or affiliated
company which are related in any way to the financing of the casino licensee or
(2) more than 50% of any issue of the outstanding debt of the casino licensee's
affiliate or affiliated company may be required to file qualification
information and meet the qualification and approval standards of the Michigan
Act and the Michigan Board. An Institutional Investor which owns or acquires
beneficial ownership of more than 5% but under 10% of debt securities of a
casino licensee's affiliate or affiliated company which are related in any way
to the financing of the casino licensee may be granted a waiver of the
eligibility and suitability standards of the Michigan Act and the Michigan Board
rules if (1) the debt securities do not represent more than 20% of the
outstanding debt of the casino licensee's affiliate or affiliated company or (2)
the debt securities represent not more than 50% of any issue of the outstanding
debt of the casino licensee's affiliate or affiliated company and (3) the debt
securities are those of a publicly traded corporation and were purchased for
investment purposed only. For purposes of the Michigan Act the Company is an
affiliate of Detroit Entertainment, L.L.C.
The Michigan Board has the authority to require additional owners who have a
direct or indirect ownership interest in a casino license applicant or a casino
licensee to meet the qualification and approval standards set forth in the
Michigan Act and the Michigan Board rules notwithstanding the fact that they do
not meet the ownership thresholds currently described in the Michigan Act and
the Michigan Board rules when the Michigan Board determines that it is in the
best interests of the casino regulatory process to do so.
If a shareholder who is required to submit qualification information to the
Michigan Board is not approved by the Michigan Board, then the shareholder must
promptly divest all ownership interest in the shares. If a person who seeks to
acquire shares is a person who is required to submit qualification information
to the Michigan Board and the person is not approved by the Michigan Board, then
the person may not acquire the shares and must divest all interest in the
shares. If a Key Person who is required to submit qualification information to
the Michigan Board is not approved by the Michigan Board, then the Key Person
must promptly cease all involvement in the Michigan Casino Enterprise.
In addition to and separate and apart from complying with qualification and
approval standards established by the Michigan Act and the Michigan Board rules,
Michigan law requires that any person who holds a "Casino Interest" must file a
registration form with the Michigan Secretary of State not later than 5 days
after obtaining the interest. A person holding a Casino Interest includes (1) a
person who holds at least a 1% interest in a casino licensee or a Casino
Enterprise, (2) A person who is a partner, officer or key or managerial employee
of the casino licensee or Casino Enterprise, (3) a person who is an officer of
the person who holds at least a 1% interest in the casino licensee or Casino
Enterprise and (4) the spouse or children of a person described in (1) through
(3) above. For purpose of this registration requirement, a "Person" includes an
individual, limited liability company, proprietorship, firm, partnership, joint
venture, syndicate, business trust, labor organization, company, corporation,
association, committee, governmental entity or other legal entity. A person who
fails to register with the Michigan Secretary of State in compliance with
Michigan law will be assessed a late filing fee of not more than $300. In
addition, the person is subject to being charged with a misdemeanor and a fine
of not more than $1,000.
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Under the Michigan Act, an applicant for a casino license is, if approved,
first issued a certificate of suitability which is valid while the holder is
making satisfactory progress toward meeting the conditions of the certificate of
suitability. In the event that the Michigan Board determines that the holder of
the certificate of suitability is not, in the judgment of the Michigan Board,
making satisfactory progress toward meeting the conditions of the certificate of
suitability, the Michigan Board will reconvene the public investigative hearing
for the purpose of considering the applicant's compliance with the condition of
its certificate of suitability. The Michigan Board may thereafter take whatever
action it deems necessary to assure compliance with the certificate of
suitability or may cancel and withdraw the certificate of suitability.
Under the Michigan Act, the Michigan Board will issue a casino license to
the applicant upon completion of construction of the casino in accordance with
the certificate of suitability and upon satisfactory completion of a final
operational inspection performed by the Michigan Board.
Under the Act, there is no distinction between a temporary casino and a
permanent casino. Under the Development Agreement entered into with the City of
Detroit, Detroit Entertainment, L.L.C. is permitted to first construct and open
a temporary casino, which must then be replaced with a permanent casino to be
constructed in accordance with the provisions of the Development Agreement.
Detroit Entertainment, L.L.C. is currently in the process of renovating the
Wonder Bread Bakery facility in Detroit to serve as a temporary casino once
Detroit Entertainment, L.L.C. has received its casino license from the Michigan
Board, while the permanent casino site is being obtained by the City of Detroit
and made available for construction of the Detroit Entertainment, L.L.C.
permanent casino. No assurance can be given regarding if or when Detroit
Entertainment, L.L.C. will receive its casino license and be able to open the
temporary casino. The permanent casino will be constructed in accordance with
the Development Agreement once the permanent casino site has been acquired in
accordance with procedures being developed by the City of Detroit and is
prepared for construction activity. No assurance can be given regarding when the
permanent casino site will be available and ready for construction of the
permanent casino or when construction of the permanent casino will be completed
and the permanent casino opened.
A casino license is renewable annually. The casino license is renewable upon
payment of the application fees and a determination by the Michigan Board that
the casino licensee continues to meet all of the requirements of the Michigan
Act and the Michigan Board rules.
Under the Michigan Act and the Michigan Board rules, the transfer of a
direct or indirect beneficial ownership interest of more than 1% in a casino
license applicant or a casino licensee is regulated by and subject to the
approval of the Michigan Board. There are certain exceptions and higher
ownership thresholds in the case of ownership interests acquired in a publicly
traded corporation which has an ownership interest in a casino license applicant
or a casino licensee and ownership interests acquired by an Institutional
Investor when the ownership interests meet the exceptions established by the
Michigan Act and/or the Michigan Board rules.
The Michigan Act and the Michigan Board rules also require that certain
employees of the casino license applicant and casino licensee and certain
employees of owners of the casino license applicant and casino licensee be
licensed by the Michigan Board. In addition, the Michigan Act and the Michigan
Board rules require that vendors of gaming related goods and services and
vendors of certain nongaming goods and services used by the Casino Enterprise
either register with the Michigan Board as a vendor or be licensed as a supplier
by the Michigan Board.
The Michigan Act and the Michigan Board rules do not limit the maximum bet
or per person loss. Casino licensees, however, may set any maximum or minimum
limits on wagering under the Michigan Act and Michigan Board rules. No person
under the age of twenty one is permitted to wager. The casino operation may be
operated twenty four hours a day, seven days a week.
Under the Michigan Act, casino licensees are subject to five forms of gaming
taxes and fees: (1) a nonrefundable application fee of $50,000, (2) a $25,000
license fee which is payable annually, (3) a
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wagering tax equal to 18% of adjusted gross receipts, (4) a municipal services
fee in an amount equal to the greater of 1.25% of adjusted gross receipts or
$4,000,000 and (5) an annual payment of all regulatory and enforcement costs,
including compulsive gaming programs, casino related programs and activities,
casino related legal services provided by the Michigan Attorney General and
casino related expenses of the Michigan State Police up to a combined total
annual maximum of $25,000,000 in the first year of casino operations for all
casinos licensed under the Michigan Act, adjusted annually by the Detroit
Consumer Price Index, with no casino licensee being assessed more than 1/3 of
the total annual assessment, with these funds being placed into a services fee
fund. The service fee fund is prohibited from exceeding $65,000,000. If the
service fee fund exceeds $65,00,000, then the excess amount must be credited
towards the annual payments the casinos are required to make to the services fee
fund. These gaming taxes and fees are in addition to the taxes, fees and
assessments customarily paid by business entities doing business in the State of
Michigan and the City of Detroit.
The Michigan Board, the Michigan Attorney General and the Michigan State
Police are authorized to conduct such investigations into the conduct of gaming
as they may deem necessary and proper, including investigations of alleged
violations of the Michigan Act and the Michigan Board rules. Employees of the
Michigan Board and the Michigan Attorney General staff and Michigan State Police
staff assigned to the Board have access to and may inspect any facilities
relating to the Casino Enterprise operations at any time. Under the Michigan
Board rules, the Michigan Board will have dedicated rooms on site at the casino
and Michigan Board staff at the casino on a twenty four hour per day, seven days
a week basis.
Applicants for and holders of a casino license and their affiliates and
holding companies are required to obtain formal approval from the Michigan Board
for changes in the following areas: (1) Key Persons, (2) type of entity, (3)
equity and debt capitalization of the entity, (4) investors and/or debt holders
exceeding certain minimum percentage levels, (5) source of funds and (6) related
party transactions exceeding $250,000 in a twelve month period.
A holder of a Michigan gaming license is subject to the imposition of fines,
suspension or revocation of the casino license, or other action for any act or
failure to act by the licensee or the licensee's agents or employees that is in
violation of the Michigan Act or the Michigan Board rules. Any casino operation
not conducted in compliance with the Michigan Act and the Michigan Board rules
may constitute an illegal gaming operation and consequently may be subject to
civil and criminal penalties, which penalties include the possibility of
seizure, confiscation and destruction of gaming devices and seizure and sale of
casino operations. The Michigan Act also provides for civil penalties against
casino licensees of up to $10,000 or the amount of daily gross receipts derived
from wagering on gaming on the day of the violation, whichever is greater. The
Michigan Board may revoke, suspend, restrict or place conditions on licenses and
certificates of suitability, as the Michigan Board may see fit and in compliance
with the Michigan Act and applicable laws of the State of Michigan regarding
administrative procedures, and may suspend a casino operator's license, without
notice or hearing, upon a determination that the safety or health of patrons or
employees would be threatened by the continued operation of the casino or that
the action is necessary for the immediate preservation of the integrity of
casino gaming, public peace, health, safety, morals, good order, or general
welfare.
The Michigan Board may waive any licensing requirement or procedure provided
by rule and not required by the Michigan Act if it determines that such waiver
is in the best interests of the public and the gaming industry. Also, the
Michigan Board may, from time to time, amend or change its rules provided the
amendment is made in compliance with applicable Michigan law.
The Michigan Act prohibits casino licensees and related persons from making
contributions to a candidate and certain political committees during (1) any
period during which the casino licensee is being considered by the Michigan
Board or the city in which the licensee seeks to operate the casino, (2) the
term during which the licensee holds a license, (3) three years following the
expiration or termination of the licensee's license and (4) the period beginning
after the effective date of the Michigan Act or the
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period beginning one year prior to applying for a license, whichever period is
shorter. The Michigan Act also prohibits casino and any person who has an
interest in a casino licensee and the spouse, parent, child or spouse of a child
from either making a contribution indirectly to a candidate or a committee
through a legal entity that is established, directed or controlled by that
licensee, person or related party. A person is considered to have an interest in
a casino licensee if (1) the person holds at least a 1% interest in the licensee
or Casino Enterprise, (2) the person is an officer or managerial employee of the
licensee or Casino Enterprise, (3) the person is an officer of the person who
holds at least a 1% interest in the licensee or Casino Enterprise or (4) the
person is an independent committee of the licensee or Casino Enterprise.
The Michigan Act and the Michigan Board rules establish extensive
requirements and procedures relating to operation of casino games, ownership
records, reporting of transactions, handling of money, extending credit,
accounting and editing, internal control systems and compliance reporting.
The development agreement which has been entered into between Detroit
Entertainment, L.L.C. and the City of Detroit has numerous terms and conditions
relating to the construction and operation of a casino in the City of Detroit,
including goals for the use of Detroit based or minority businesses and the
hiring of Detroit residents. Detroit Entertainment, L.L.C. has agreed to exert
its reasonable best efforts to comply with vendor use and hiring goals. Failure
to comply with the terms of the development agreement could adversely effect the
granting of a certificate of suitability or a casino license to or the continued
casino licensure of Detroit Entertainment, L.L.C.
Uncertainty exists regarding the Michigan gaming regulatory environment due
to the limited experience in interpreting the Michigan Act and the Michigan
Board rules. The Michigan Act and the Michigan Board rules are evolving pursuant
to an ongoing regulatory, legislative and judicial process and, therefore, are
subject to and in all probability will change with the maturation of casino
gaming regulated by the Michigan Act.
Various regulatory ordinance proposals have been discussed by the Detroit
City Council concerning regulation of casinos in the City of Detroit. Some of
this legislation, if enacted, could adversely affect the gaming industry or the
Company. No assurance can be given whether such or similar city ordinances will
be enacted.
From time to time, various proposals have been introduced in the Michigan
legislature that, if enacted, would affect the taxation, regulation, operation
or other aspects of the gaming industry or the Company. Some of this
legislation, if enacted, could adversely affect the gaming industry or the
Company. No assurance can be given whether such or similar legislation will be
enacted.
OTHER JURISDICTIONS
As a result of the Company's efforts to expand its gaming operations, the
Company and/or joint ventures in which the Company is a participant may become
subject to comprehensive gaming and other regulations in additional
jurisdictions. Such regulations may be similar to, and could be more restrictive
than, those currently applicable to the Company, its officers, directors or
employees or persons associated with the Company.
NATIONAL GAMBLING COMMISSION
A National Gambling Impact Study Commission (the "National Commission") has
been established by the United States Congress to conduct a comprehensive legal
and factual study of the social and economic impact of gaming in the United
States. The National Commission is required by the enabling legislation to issue
a report containing its findings and conclusions, together with recommendations
of the National Commission for legislation and administrative actions, within
two years after the date on which it held its first meeting, which occurred on
June 20, 1997. Any recommendations which may be made by the National Commission
could result in the enactment of new laws and/or the adoption of new regulations
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which could adversely impact the gaming industry in general and the Company in
particular. The Company is unable at this time to determine what
recommendations, if any, the National Commission will make, or the ultimate
disposition of any recommendations the National Commission may make.
EMPLOYEES AND LABOR RELATIONS
At March 31, 1999, the Company employed approximately 27,000 persons.
Approximately 37% of the Company's employees at January 31, 1999 were employed
pursuant to the terms of collective bargaining agreements. The contract with one
union expired on March 31, 1999. A new contract is currently being negotiated
and the Company does not anticipate any difficulties in renewing its agreement.
The Company currently has contracts with all of its other major unions with
remaining terms ranging from one to four years. The Company considers its labor
relations to be satisfactory. A work stoppage has not been experienced at a
Company-owned property since an industry-wide strike in 1975.
Certain states in which gaming recently has been legalized have established
community commitment and similar laws or requirements which require that a
specified percentage of employees of gaming ventures be residents of the
community or state in which the gaming venture is located or meet certain other
criteria. These laws could affect the ability of the Company to attract and
retain qualified employees for gaming operations conducted by the Company or
joint ventures in which it participates outside Nevada.
FACTORS THAT MAY AFFECT OUR FUTURE RESULTS
(Cautionary Statements Under the Private Securities Litigation Reform Act of
1995)
Certain information included in this Report and other materials filed or to
be filed by the Company with the Securities and Exchange Commission (as well as
information included in oral statements or other written statements made or to
be made by the Company) contains or may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
can be identified by the fact that they do not relate strictly to historical or
current facts. They contain words such as "anticipate," "estimate," "expect,"
"project," "intend," "plan," "believe," "may," "could," "might" and other words
or phrases of similar meaning in connection with any discussion of future
operating or financial performance. Such statements include information relating
to current construction activities, plans for future expansion and other
business development activities as well as other capital spending, financing
sources and the effects of regulation (including gaming and tax regulation) and
competition. From time to time, oral or written forward-looking statements are
also included in the Company's periodic reports on Forms 10-Q and 8-K, press
releases and other materials released to the public.
Any or all of the forward-looking statements in this Report, in the
Company's Annual Report to Stockholders for fiscal 1999 and in any other public
statements the Company makes may turn out to be wrong. This can occur as a
result of inaccurate assumptions or as a consequence of known or unknown risks
and uncertainties. Many factors discussed in this Report, such as government
regulation and the competitive environment, will be important in determining the
Company's future performance. Consequently, actual results may differ materially
from those that might be anticipated from forward-looking statements.
The Company undertakes no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
However, any further disclosures made on related subjects in the Company's
subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. The
following discussion of risks, uncertainties and possible inaccurate assumptions
relevant to the Company's business includes factors the Company believes could
cause its actual results to differ materially from expected and historical
results. Other factors beyond those listed below could also adversely affect the
Company. This discussion is provided as permitted by the Private Securities
Litigation Reform Act of 1995.
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- As described under "Competition," in this Item 1, the Company and the
joint ventures in which it is a participant operate in a very competitive
environment, particularly in Las Vegas. The growth in the number of hotel
rooms in Las Vegas, which will increase sharply in 1999, and the spread of
legalized gaming in other states and countries, have negatively affected
the Company's operating results and may continue to do so.
- As discussed under "Regulation and Licensing" in this Item 1, the gaming
operations of the Company and the joint ventures in which it is a
participant are highly regulated by governmental authorities in Nevada,
Mississippi and Illinois. The Detroit Joint Venture and the Company will
also be subject to regulation by the authorities in Michigan if the
Detroit Joint Venture successfully completes and opens a casino in
Detroit, Michigan. This regulation may or may not be similar to that in
Nevada, Mississippi and Illinois. The Company may also be subject to
regulation in other jurisdictions where gaming may be conducted in the
future.
- Changes in applicable laws or regulations could have a significant effect
on the operations of the Company and the gaming joint ventures in which it
participates. As a result of federal legislation passed in 1996, the
National Gambling Impact Study Commission has been conducting a two-year
study of the gaming industry in the United States and is expected to
report its findings and recommendations to Congress in June 1999. It is
possible that this report may result in additional regulation and taxation
of the gaming industry.
- The Company's operations and those of the joint ventures in which it is a
participant are affected by changes in local and national general economic
and market conditions in the locations where operations are conducted and
where customers live. The Company and its joint ventures' Nevada
properties are affected by the economic conditions in California and
Mandalay Bay may be susceptible to the effects of economic conditions in
the Far East.
- The interstate highway between Las Vegas and Southern California, where a
large number of the Company's customers reside, has experienced long
traffic delays during peak periods. These factors may affect the number of
customers who visit our facilities in Southern Nevada.
- Plans for future construction can be affected by a number of factors,
including time delays in obtaining necessary governmental permits and
approvals and legal challenges. Changes may be made in the scope of a
project, budgets and schedules for competitive, aesthetic or other
reasons, and these changes may also result from circumstances beyond the
Company's control. These circumstances include weather interference,
shortages of materials and labor, work stoppages, labor disputes,
unforeseen engineering, environmental or geological problems and
unanticipated cost increases. Any of these circumstances could give rise
to delays in the completion of any project undertaken by the Company or
any of its joint ventures or cost overruns.
- The gaming industry represents a significant source of tax revenues to the
state, county and local jurisdictions in which gaming is conducted. From
time to time, various state and federal legislators and officials have
proposed changes in tax laws, or in the administration of the laws,
affecting the gaming industry. Proposals in recent years that have not
been enacted included a federal gaming tax and increases in state or local
taxes.
- The Company believes that its recorded tax balances are adequate. However,
it is not possible to determine with certainty the likelihood of possible
changes in the tax laws or their administration. These changes, if
adopted, could have a material negative effect on the operating results of
the Company and the joint ventures in which it participates.
- The Company's debt has increased in the past several years, primarily due
to the construction of Mandalay Bay, the hotel tower at Gold Strike-Tunica
and the expansion projects at Luxor and Circus Circus-Las Vegas. The
interest rate on a large portion of the Company's long-term debt is
subject to fluctuation based on changes in short-term interest rates and
the ratings which national
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rating agencies assign to its outstanding debt securities. Interest
expense could increase as a result of these factors.
- Claims have been brought against the Company in various legal proceedings,
and additional legal and tax claims arise from time to time. It is
possible that the Company's cash flows and results of operations could be
affected from time to time by the resolution of one or more of these
contingencies. The Company believes that the ultimate disposition of
current matters will not have a material impact on its financial condition
or results of operations. See the further discussion under "Legal
Proceedings" in Item 3 of this Form 10-K.
- There is intense competition to attract and retain management and key
employees in the gaming industry. The Company's business could be
adversely affected in the event of its inability to recruit or retain key
personnel.
- Litigation is currently pending in the United States District Court for
the Western District of Michigan which challenges the city ordinance
pursuant to which the Detroit Joint Venture was selected to develop one of
three casinos permitted to be developed in Detroit, Michigan. See "Current
Expansion Activities--Detroit, Michigan" in this Item 1. Depending on the
eventual outcome of this litigation, the Detroit Joint Venture's ability
to complete, open and/or operate a Detroit casino could be delayed,
precluded or otherwise adversely impacted.
- As described under "Year 2000 Readiness Disclosure" in Item 7 of this Form
10-K, the Company is working to address the Year 2000 issue. If the
Company should fail to identify or correct problems in its critical
systems, or if it is affected by disruptions in airline service or other
economic disruptions affecting its customers, operations could be
impacted.
- While the Company from time to time communicates with securities analysts,
it is against Company policy to disclose to them any material non-public
information or other confidential business information. Therefore, it
should not be assumed that the Company agrees with any statement or report
issued by any analyst, irrespective of the content of the statement or
report. Furthermore, the Company has a policy against publicly issuing
financial forecasts or projections or confirming forecasts or projections
issued by others. Hence, to the extent that reports issued by securities
analysts contain any projections, forecasts or opinions, those reports are
not the Company's responsibility.
ITEM 2. PROPERTIES.
MANDALAY BAY. The Company owns approximately 60 acres of land, with
approximately 1,300 feet of frontage, on the Las Vegas Strip and Mandalay Bay is
situated on the site. For additional information concerning Mandalay Bay, see
"Description of the Company's Hotels and Casinos--Las Vegas, Nevada-- Mandalay
Bay" in Item 1 of this Report.
LUXOR AND EXCALIBUR. The Company owns a 117-acre parcel on the southwest
corner of the intersection of the Las Vegas Strip and Tropicana Avenue, with
approximately 2,400 feet of frontage on the Las Vegas Strip, that includes,
Excalibur, which is situated on the northern portion of the parcel at the
intersection of the Las Vegas Strip and Tropicana Avenue, and Luxor, which is
situated on such site to the south of Excalibur. For additional information
concerning Luxor and Excalibur, see "Description of the Company's Hotels and
Casinos--Las Vegas, Nevada--Luxor" and--Excalibur" in Item 1 of this Report.
CIRCUS CIRCUS-LAS VEGAS. The Company owns approximately 69 acres of land
with 375 feet of frontage on the Las Vegas Strip and Circus Circus-Las Vegas
which is situated on the site. For additional information concerning Circus
Circus-Las Vegas, see "Description of the Company's Hotels and Casinos-- Las
Vegas, Nevada--Circus Circus-Las Vegas" in Item 1 of this Report.
35
<PAGE>
CIRCUS CIRCUS-RENO. Circus Circus-Reno is situated on a three-block area in
downtown Reno, of which approximately 90% is owned by the Company and the
remainder is held under three separate leases, two of which expire in 2032 and
2033, respectively. The Company owns the remaining interest in the parcel
subject to the third lease pursuant to which the Company is obligated to pay
rent for the lifetime of the landlord. For additional information concerning
Circus Circus-Reno, see "Description of the Company's Hotels and Casinos--Reno,
Nevada--Circus Circus-Reno" in Item 1 of this Report.
COLORADO BELLE. The Company owns approximately 22 acres on the bank of the
Colorado River in Laughlin, Nevada and the Colorado Belle, which is situated on
the site. For additional information concerning the Colorado Belle Hotel and
Casino, see "Description of the Company's Hotels and Casinos--Laughlin,
Nevada--Colorado Belle" in Item 1 of this Report.
EDGEWATER. Adjacent to the site of the Colorado Belle, the Company owns
approximately 16 acres on the bank of the Colorado River in Laughlin, Nevada,
and the Edgewater Hotel and Casino, which is situated on the site. For
additional information concerning the Edgewater Hotel and Casino, see
"Description of the Company's Hotels and Casinos--Laughlin, Nevada--Edgewater"
in Item 1 of this Report.
GOLD STRIKE. The Company owns approximately 51 acres and the Gold Strike
Hotel & Gambling Hall, which is situated on the site, located on the east side
of I-15 in Jean, Nevada, approximately 12 miles from the California/Nevada
border and 25 miles from Las Vegas. For additional information concerning Gold
Strike, see "Description of the Company's Hotels and Casinos--Jean, Nevada--Gold
Strike" in Item 1 of this Report.
NEVADA LANDING. The Company owns approximately 55 acres and the Nevada
Landing Hotel & Casino, which is situated on the site, located on the west side
of I-15 in Jean, Nevada. For additional information concerning Nevada Landing,
see "Description of the Company's Hotels and Casinos--Jean, Nevada--Nevada
Landing" in Item 1 of this Report.
RAILROAD PASS. The Company owns approximately 56 acres and the Railroad
Pass Hotel & Casino, which is situated on the site, located on US-93 in
Henderson, Nevada. For additional information concerning Railroad Pass, see
"Description of the Company's Hotels and Casino--Henderson, Nevada-- Railroad
Pass" in Item 1 of this Report.
GOLD STRIKE-TUNICA. The Company owns approximately 24 acres in Tunica
County, Mississippi and Gold Strike-Tunica, which is situated on the site. The
Company also owns an undivided 50% interest in an additional 388-acre site which
is owned jointly with another unaffiliated gaming company. For additional
information concerning Gold Strike-Tunica, see "Description of the Company's
Hotels and Casinos-- Tunica County, Mississippi--Gold Strike-Tunica" in Item 1
of this Report.
OTHER REAL PROPERTY
Slots-A-Fun is situated on a 30,000-square-foot parcel owned by the Company
and has approximately 100 feet of frontage on the Las Vegas Strip.
The Company operates the Silver City Casino in Las Vegas under a lease which
expires in October 1999. The Company currently pays a base rent of $129,982 per
month. The base rent is subject to annual increases, calculated by using a
specified index with a cap based on a specified percentage of annual revenues.
Under the terms of the lease, the landlord or the landlord's assignee is
entitled to participate in the profits to the extent by which 50% of defined
exceeds the adjusted base rent. There was no profit participation rent due for
the years ended January 31, 1996, 1997 or 1998. The Company does not plan to
renew this lease and will thus cease operations at that property.
36
<PAGE>
The Company owns approximately 60 acres of unimproved land located
immediately south of Mandalay Bay and approximately 15 acres of land on the Las
Vegas Strip across from Luxor, which from time to time is utilized as a parking
lot for employees at Luxor and Excalibur.
The Company owns 60 acres of land in Jean, Nevada to the north of Gold
Strike and approximately 89 acres of land in Sloan, Nevada off of I-15. Sloan is
located between Jean and Las Vegas.
The Company also owns or leases, or has options and/or agreements to
purchase or lease, certain other improved and unimproved properties which are
not deemed to be material to the Company.
As of January 31, 1999, the aforementioned properties owned by the Company
were not subject to any encumbrances securing the repayment of indebtedness.
JOINT VENTURE INTERESTS. The Company, either directly or through wholly
owned subsidiaries, owns (i) a 50% interest in the Las Vegas Joint Venture,
which owns and operates Monte Carlo, a hotel-casino complex on the Las Vegas
Strip; (ii) a 50% interest in the Elgin Joint Venture, which owns and operates
the Grand Victoria, a riverboat casino and land-based entertainment complex in
Elgin, Illinois; and (iii) a 50% interest in the Reno Joint Venture, which owns
and operates Silver Legacy, a hotel-casino in Reno, Nevada. Reference is made to
the information appearing under the caption "Joint Venture Participations" in
Item 1 of this Report concerning the properties owned and operated by the
aforementioned joint venture entities, which information is hereby incorporated
in this Item 2 by this reference.
ITEM 3. LEGAL PROCEEDINGS.
On April 26, 1994, a lawsuit requesting class certification was filed by
William H. Poulos in the United States District Court for the Middle District of
Florida against 41 manufacturers, distributors and casino operators of video
poker and electronic slot machines, including the Company. On May 10, 1994, a
lawsuit requesting class certification alleging substantially identical claims
was filed by William Ahearn in the same court against 48 defendants, including
the Company. The two lawsuits were consolidated into a single action and
transferred to the United States District Court for the District of Nevada (the
"Court"). On September 26, 1995, a lawsuit requesting class certification
alleging substantially identical claims was filed by Larry Schreier in the Court
against 45 defendants, including the Company. On February 14, 1997, the three
plaintiffs filed a consolidated amended complaint in the Court. The consolidated
complaint alleges that the defendants have engaged in a course of fraudulent and
misleading conduct intended to induce persons to play video poker and electronic
slot machines based on a false belief concerning how the gaming machines
operate, as well as the extent to which there is an opportunity to win. The
complaint alleges violations of the Racketeer Influenced and Corrupt
Organizations Act, as well as claims of common law fraud, unjust enrichment and
negligent misrepresentation, and seeks unspecified compensatory and punitive
damages. In December 1997, the Court issued formal opinions granting in part and
denying in part defendants' motions to dismiss. In so doing, the Court ordered
plaintiffs to file an amended complaint which was filed in January 1998. The
defendants filed an answer to the amended complaint in February 1998. In March
1998, the plaintiffs moved to certify the action as a class action. The
defendants opposed that motion. All proceedings in the case have been stayed
pending the Court's ruling on the motion for class certification. A ruling on
that motion is expected within the next few months. The Company denies the
allegations contained in the amended complaint and continues to vigorously
defend all claims and allegations contained in the consolidated action.
The Company is a defendant in various other pending law-suits. In
management's opinion, the ultimate outcome of such law suits will not have a
material adverse effect on the results of operations or the financial position
of the Company.
37
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year ended January 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK. The Company's Common Stock is listed on the
New York Stock Exchange and on the Pacific Exchange and traded under the symbol
CIR. The following table sets forth, for the fiscal quarters shown, the low and
high sale prices for the Common Stock on the New York Stock Exchange Composite
Tape.
<TABLE>
<CAPTION>
FISCAL 1999 LOW HIGH
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter.................................................................................. $ 17.56 $ 26.50
Second Quarter................................................................................. $ 13.63 $ 19.25
Third Quarter.................................................................................. $ 7.13 $ 13.94
Fourth Quarter................................................................................. $ 10.75 $ 14.13
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998 LOW HIGH
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter.................................................................................. $ 23.50 $ 36.50
Second Quarter................................................................................. $ 21.06 $ 29.25
Third Quarter.................................................................................. $ 21.00 $ 26.69
Fourth Quarter................................................................................. $ 20.00 $ 26.19
</TABLE>
On April 19, 1999 there were 4,074 holders of record of the Common Stock of
the Company.
DIVIDEND POLICY. The Company does not currently pay a cash dividend, nor is
one contemplated in the foreseeable future. The Company believes that currently
its stockholders are best served by a policy of reinvestment in new high-return
projects. The Company has a policy of periodic share repurchase, as cash flows,
borrowing capacity and market conditions warrant.
On December 10, 1998, the Company repriced the outstanding options to
purchase its Common Stock, then held by full time employees, which had exercise
prices of $15 or higher. The repricing involved the exchange of options to
purchase an aggregate of 3.9 million shares for new options to purchase an
aggregate of 2.6 million shares. The new options have terms identical to the
repriced options, with the following exceptions: (i) the exercise price was
reduced to $11.25 (representing the market value of the Common Stock on the date
of the repricing); (ii) the new options may not be exercised prior to June 10,
1999; and (iii) the new options which were exchanged for options with exercise
prices in excess of $20 were conditioned on the surrender to the Company of
options to purchase three shares for every two shares covered by the new option,
unless the exercise price of the repriced option was in excess of $30, in which
case the new options were conditioned on the surrender of options to purchase
two shares for every share covered by the new option.
The new options were offered exclusively to existing holders of options to
purchase the Company's Common Stock and no commission or other remuneration was
paid or given directly or indirectly for soliciting the exchange. The exchange
was made in reliance on the exemption in Section 3(a)(9) of the Securities Act
of 1933 (the "1933 Act"). The Common Stock which may be purchased upon exercise
of the options are the subject of effective registration statements under the
1933 Act.
38
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS(1):
Revenues(2)........................ $1,479,780 $1,354,487 $1,334,250 $1,299,596 $1,170,182
Income from operations............. 242,779 236,500 222.169 251,373 256,007
Pretax income...................... 140,815 147,922 163,863 205,759 214,490
Net income......................... 85,198 89,908 100,733 128,898 136,286
Basic earnings per share........... $ .90 $ .95 $ .99 $ 1.33 $ 1.59
Diluted earnings per share......... $ .90 $ .94 $ .97 $ 1.30 $ 1.58
BALANCE SHEET DATA:
Total assets....................... $3,869,707 $3,263,548 $2,729,111 $2,213,503 $1,512,548
Long-term debt..................... 2,259,149 1,788,818 1,405,897 715,214 632,652
Stockholders' equity............... 1,157,628 1,123,749 971,791 1,226,812 686,124
</TABLE>
- ------------------------
(1) Gold Strike, Nevada Landing and Railroad Pass were acquired on June 1, 1995.
The Hacienda was acquired on September 1, 1995 and closed on December 1,
1996. Gold Strike-Tunica opened in August 1994, Luxor opened in October
1993.
(2) Revenues are net of complimentary allowances.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated herein by reference are pages 25 through 37 of the Company's
Annual Report to Stockholders for the fiscal year ended January 31, 1999 (the
"1999 Annual Report"), which pages are included as part of Exhibit 13 to this
Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The information in the 1999 Annual Report beginning immediately following
the caption "Market Risk and Derivative Financial Instruments" on page 35
thereof to, but not including, the caption "Year 2000 Readiness Disclosure" on
page 36 thereof is incorporated herein by reference, which information is
included as part of Exhibit 13 to this Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated herein by reference are pages 38 through 55 of the 1999 Annual
Report, which pages are included as part of Exhibit 13 to this Report.
39
<PAGE>
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1999
-----------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue.................................. $ 356,962 $ 384,661 $ 382,449 $ 355,708 $1,479,780
Income from operations................... 61,059 66,105 64,257 51,358 242,779
Income before income tax................. 35,794 40,043 39,289 25,689 140,815
Net income............................... 21,607 25,285 23,716 14,590 85,198
Basic earnings per share................. $ .23 $ .27 $ .25 $ .16 $ .90
Diluted earnings per share............... $ .23 $ .27 $ .25 $ .16 $ .90
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1998
-----------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue.................................. $ 344,098 $ 343,292 $ 341,852 $ 325,245 $1,354,487
Income from operations................... 82,638 62,747 59,650 31,465 236,500
Income before income tax................. 59,367 38,876 43,061 6,618 147,922
Net income............................... 37,489 24,488 27,223 708 89,908
Basic earnings per share................. $ .40 $ .26 $ .29 $ .01 $ .95
Diluted earnings per share............... $ .39 $ .26 $ .29 $ .01 $ .94
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
40
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information beginning immediately following the caption "Election of
Directors" to, but not including, the caption "Management Remuneration" in the
Company's Proxy Statement, to be filed with the Securities and Exchange
Commission within 120 days after the close of the Company's fiscal year ended
January 31, 1999 and forwarded to stockholders prior to the Company's 1999
Annual Meeting of Stockholders (the "1999 Proxy Statement"), is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information in the 1999 Proxy Statement beginning immediately following
the caption "Management Remuneration" to, but not including, the caption "Report
of the Board of Directors and the Compensation Committee on Executive
Compensation", is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information in the 1999 Proxy Statement beginning immediately following
the caption "Security Ownership of Certain Beneficial Owners and Management" to,
but not including, the caption "Election of Directors", is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information in the 1999 Proxy Statement beginning immediately following
the caption "Compensation Committee Interlocks and Insider Participation" to,
but not including, the caption "Comparative Stock Price Performance Graph" and
the additional information in the 1999 Proxy Statement beginning immediately
following the caption "Certain Transactions" to, but not including, the caption
"Proposal to Amend the Restated Articles of Incorporation to Change the
Company's Name" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1)Consolidated Financial Statements:
<TABLE>
<CAPTION>
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES PAGE
- ----------------------------------------------------------------------------------------------------------- -----
<S> <C>
Consolidated Balance Sheets as of January 31, 1999 and 1998................................................ 38*
Consolidated Statements of Income for the three years ended January 31, 1999............................... 39*
Consolidated Statements of Cash Flows for the three years ended January 31, 1999........................... 40*
Consolidated Statements of Stockholders' Equity for the three years ended January 31, 1999................. 41*
Notes to Consolidated Financial Statements................................................................. 42*
Report of Independent Public Accountants................................................................... 55*
</TABLE>
(a)(2)Supplemental Financial Statement Schedules:
None.
- ------------------------
* Refers to page of the Annual Report to Stockholders for the year ended
January 31, 1999, the incorporated portions of which are included as Exhibit
13 to this Report.
41
<PAGE>
(a)(3)Exhibits:
The following exhibits are filed as a part of this Report or incorporated
herein by reference:
<TABLE>
<S> <C>
3(i)(a). Restated Articles of Incorporation of the Company as of July 15, 1988 and
Certificate of Amendment thereto, dated June 29, 1989. (Incorporated by
reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1991.)
3(i)(b). Certificate of Division of Shares into Smaller Denominations, dated June 20,
1991. (Incorporated by reference to Exhibit 3(b) to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31, 1992.)
3(i)(c). Certificate of Division of Shares into Smaller Denominations, dated June 22,
1993. (Incorporated by reference to Exhibit 3(i) to the Company's Current Report
on Form 8-K dated July 21, 1993.)
3(ii). Restated Bylaws of the Company dated April 30, 1999.
4(a). Rights Agreement dated as of July 14, 1994, between the Company and First
Chicago Trust Company of New York. (Incorporated by reference to Exhibit 4 to
the Company's Current Report on Form 8-K dated August 15, 1994.)
4(b). Amendment to Rights Agreement effective as of April 16, 1996, between the
Company and First Chicago Trust Company of New York. (Incorporated by reference
to Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended July 31, 1996.)
4(c). Amended and Restated $2.0 Billion Loan Agreement, dated as of May 23, 1997, by
and among the Company, the Banks named therein and Bank of America National
Trust and Savings Association, as administrative agent for the Banks, and the
related Subsidiary Guarantee dated May 23, 1997, of the Company's subsidiaries
named therein. (Incorporated by reference to Exhibit 4(a) to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended April 30, 1997.)
4(d). Amendment No. 1 to Amended and Restated $2.0 Billion Loan Agreement, by and
among the Company, the Banks named therein and Bank of America National Trust
and Savings Association, as administrative agent for the Banks. (Incorporated by
reference to Exhibit 4(a) to the Company's Quarterly Report for the quarterly
period ended October 31, 1997.)
4(e). Amendment No. 2 to the $2.0 Billion Loan Agreement, by and among the Company,
the Banks named therein and Bank of America National Trust and Savings
Association, as administrative agent for the Banks. (Incorporated by reference
to Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended April 30, 1998.)
4(f). Rate Swap Master Agreement, dated as of October 24, 1986, and Rate Swap
Supplements One through Four. (Incorporated by reference to Exhibit 4(j) to the
Company's Current Report on Form 8-K dated December 29, 1986.)
4(g). Interest Rate Swap Agreement, dated as of October 20, 1989, by and between the
Company and Salomon Brothers Holding Company Inc. (Incorporated by reference to
Exhibit 4(q) to the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1990.)
4(h). Interest Rate Cap Agreement, dated October 20, 1997, between the Company and
Morgan Guaranty Trust Company of New York. (Incorporated by reference to Exhibit
4(f) to the Company's Quarterly Report for the quarterly period ended October
31, 1997.)
</TABLE>
42
<PAGE>
<TABLE>
<S> <C>
4(i). Interest Rate Cap Agreement, dated January 13, 1998, between the Company and
Morgan Guaranty Trust Company of New York. (Incorporated by reference to Exhibit
4(h) to the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998.)
4(j). Grid Promissory Note, dated October 17, 1997, between the Company and Lyon Short
Term Funding Corp. (Incorporated by reference to Exhibit 4(g) to the Company's
Quarterly Report for the quarterly period ended October 31, 1997.)
4(k). Commercial Paper Dealer Agreement, dated October 9, 1997, between the Company
and Merrill Lynch Money Markets Inc. (Incorporated by reference to Exhibit 4(b)
to the Company's Quarterly Report for the quarterly period ended October 31,
1997.)
4(l). Commercial Paper Dealer Agreement, dated October 9, 1997, between the Company
and BancAmerica Robertson Stephens. (Incorporated by reference to Exhibit 4(c)
to the Company's Quarterly Report for the quarterly period ended October 31,
1997.)
4(m). Commercial Paper Dealer Agreement, dated October 9, 1997, between the Company
and Credit Suisse First Boston Corporation. (Incorporated by reference to
Exhibit 4(d) to the Company's Quarterly Report for the quarterly period ended
October 31, 1997.)
4(n). Issuing and Paying Agency Agreement, dated October 9, 1997, between the Company
and The Chase Manhattan Bank. (Incorporated by reference to Exhibit 4(e) to the
Company's Quarterly Report for the quarterly period ended October 31, 1997.)
4(o). Indenture by and between the Company and First Interstate Bank of Nevada, N.A.,
as Trustee with respect to the Company's 6 3/4% Senior Subordinated Notes due
2003 and its 7 5/8% Senior Subordinated Debentures due 2013. (Incorporated by
reference to Exhibit 4(a) to the Company's Current Report on Form 8-K dated July
21, 1993.)
4(p). Indenture, dated February 1, 1996, by and between the Company and First
Interstate Bank of Nevada, N.A., as Trustee. (Incorporated by reference to
Exhibit 4(b) to the Company's Current Report on Form 8-K dated January 29,
1996.)
4(q). Supplemental Indenture, dated February 1, 1996, by and between the Company and
First Interstate Bank of Nevada, N.A., as Trustee, with respect to the Company's
6.45% Senior Notes due February 1, 2006. (Incorporated by reference to Exhibit
4(c) to the Company's Current Report on Form 8-K dated January 29, 1996.)
4(r). 6.45% Senior Notes due February 1, 2006 in the principal amount of $200,000,000.
(Incorporated by reference to Exhibit 4(d) to the Company's Current Report on
Form 8-K dated January 29, 1996.)
4(s). Supplemental Indenture, dated as of November 15, 1996, to an indenture dated
February 1, 1996, by and between the Company and Wells Fargo Bank (Colorado),
N.A., as Trustee, with respect to the Company's 6.70% Senior Notes due November
15, 2096. (Incorporated by reference to Exhibit 4(c) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended October 31, 1996.)
4(t). 6.70% Senior Notes due February 15, 2096 in the principal amount of
$150,000,000. (Incorporated by reference to Exhibit 4(d) to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1996.)
4(u). Indenture, dated November 15, 1996, by and between the Company and Wells Fargo
Bank (Colorado), N.A., as Trustee. (Incorporated by reference to Exhibit 4(e) to
the Company's Quarterly Report on Form 10-Q for the quarterly period ended
October 31, 1996.)
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
4(v). Supplemental Indenture, dated as of November 15, 1996, to an indenture dated
November 15, 1996, by and between the Company and Wells Fargo Bank (Colorado),
N.A., as Trustee, with respect to the Company's 7.0% Senior Notes due November
15, 2036. (Incorporated by reference to Exhibit 4(f) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended October 31, 1996.)
4(w). 7.0% Senior Notes due February 15, 2036, in the principal amount of
$150,000,000. (Incorporated by reference to Exhibit 4(g) to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1996.)
4(x). Instrument of Joinder, dated May 31, 1998, by Mandalay Corp., pursuant to the
Subsidiary Guaranty dated as of May 23, 1997, with respect to the Amended and
Restated $2.0 Billion Loan Agreement, in favor of Bank of America National Trust
and Savings Association, as administrative agent for the Banks. (Incorporated by
reference to Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended July 31, 1998.)
4(y). Indenture dated November 20, 1998, by and between the Company and The Bank of
New York, as Trustee. (Incorporated by reference to Exhibit 4(a) to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended October
31, 1998.)
4(z). Supplemental Indenture, dated November 20, 1998, by and between the Company and
The Bank of New York, as Trustee, with respect to the Company's 9 1/4% Senior
Subordinated Notes due December 1, 2005. (Incorporated by reference to Exhibit
4(b) to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended October 31, 1998.)
4(aa). 9 1/4% Senior Subordinated Notes due December 1, 2005 in the principal amount of
$275,000,000. (Incorporated by reference to Exhibit 4(c) to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1998.)
10(a). * 1983 Nonqualified Stock Option Plan of the Company. (Incorporated by reference
to Exhibit 10(d) to the Company's Registration Statement (No. 2-85794) on Form
S-1.)
10(b). * 1983 Incentive Stock Option Plan of the Company. (Incorporated by reference to
Exhibit 10(e) to the Company's Registration Statement (No. 2-85794) on Form
S-1.)
10(c). * Amendment to Circus Circus Enterprises, Inc. 1983 Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 4(a) to the Company's Registration
Statement (No. 2-91950) on Form S-8.)
10(d). * Amended and Restated 1989 Stock Option Plan of the Company. (Incorporated by
reference to Exhibit 10 to the Post Effective Amendment No. 4 to the Company's
Registration Statement (No. 33-39215) on Form S-8.)
10(e). * Amended and Restated 1991 Stock Incentive Plan of the Company. (Incorporated by
reference to Exhibit 10 to the Post Effective Amendment No. 3 to the Company's
Registration Statement (No. 33-56420) on Form S-8.)
10(f). * Amended and Restated 1993 Stock Option Plan of the Company. (Incorporated by
reference to Exhibit 10 to the Post Effective Amendment No. 2 to the Company's
Registration Statement (No. 33-53303) on Form S-8.)
10(g). * 1995 Special Stock Option Plan and Forms of Nonqualified Stock Option
Certificate and Agreement. (Incorporated by reference to Exhibit 10(gg) to the
Company's Annual Report on Form 10-K for the fiscal year ended January 31,
1995.)
10(h). * 1998 Stock Option Plan. (Incorporated by reference to Exhibit 4(g) to the
Company's Registration Statement (No. 333-51073) on Form S-8.)
10(i). 1999 Non-employee Directors Stock Option Plan.
</TABLE>
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10(j). * Circus Circus Enterprises, Inc. Executive Compensation Insurance Plan.
(Incorporated by reference to Exhibit 10(i) to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1992.)
10(k). Lease, dated November 1, 1957, by and between Bethel Palma and others, as
lessor, and the Company's predecessor in interest, as lessee; Amendment of
Lease, dated May 6, 1983. (Incorporated by reference to Exhibit 10(g) to the
Company's Registration Statement (No. 2-85794) on Form S-1.)
10(l). Grant, Bargain and Sale Deed to the Company pursuant to the Lease dated November
1, 1957. (Incorporated by reference to Exhibit 10(h) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1984.)
10(m). Lease, dated August 3, 1977, by and between B&D Properties, Inc., as lessor, and
the Company, as lessee; Amendment of Lease, dated May 6, 1983. (Incorporated by
reference to Exhibit 10(h) to the Company's Registration Statement (No. 2-85794)
on Form S-1.)
10(n). Tenth Amendment and Restatement of the Circus Circus Employees' Profit Sharing
and Investment Plan. (Incorporated by reference to Exhibit 4(e) to Post
Effective Amendment No. 7 to the Company's Registration Statement (No. 33-18278)
on Form S-8.)
10(o). Fifth Amendment and Restatement to Circus Circus Employees' Profit Sharing and
Investment Trust. (Incorporated by reference to Exhibit 4(h) to Post Effective
Amendment No. 7 to the Company's Registration Statement (No. 33-18278) on Form
S-8.)
10(p). Group Annuity Contract No. GA70867 between Philadelphia Life (formerly Bankers
Life Company) and Trustees of Circus Circus Employees' Profit Sharing and
Investment Plan. (Incorporated by reference to Exhibit 4(c) to the Company's
Registration Statement (No. 33-1459) on Form S-8.)
10(q). Lease, dated as of November 1, 1981, between Novus Property Company, as
landlord, and the Company, as tenant. (Incorporated by reference to Exhibit 4(h)
to the Company's Registration Statement (No. 2-85794) on Form S-1.)
10(r). First Addendum and First Amendment, each dated as of June 15, 1983, to Lease
dated as of November 1, 1981. (Incorporated by reference to Exhibit 4(i) to the
Company's Annual Report on Form 10-K for the year ended January 31, 1984.)
10(s). Second Amendment, dated as of April 1, 1984, to Lease dated as of November l,
1981. (Incorporated by reference to Exhibit 10(o) to the Company's Registration
Statement (No. 33-4475) on Form S-1.)
10(t). Lease by and between Robert Lewis Uccelli, guardian, as lessor, and Nevada
Greens, a limited partnership, William N. Pennington, as trustee, and William G.
Bennett, as trustee, and related Assignment of Lease. (Incorporated by reference
to Exhibit 10(p) to the Company's Registration Statement (No. 33-4475) on Form
S-1.)
10(u). Agreement of Purchase, dated March 15, 1985, by and between Denio Brothers
Trucking Company, as seller, and the Company, as buyer, and related lease by and
between Denio Brothers Trucking Co., as lessor, and Nevada Greens, a limited
partnership, William N. Pennington, as trustee, and William G. Bennett, as
trustee, and related Assignment of Lease. (Incorporated by reference to Exhibit
10(q) to the Company's Registration Statement (No. 33-4475) on Form S-1.)
10(v). Agreement of Joint Venture, dated as of March 1, 1994, by and among Eldorado
Limited Liability Company, Galleon, Inc., and the Company. (Incorporated by
reference to Exhibit 10(y) to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1994.)
</TABLE>
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10(w). Amended and Restated Credit Agreement, dated November 25, 1997, by and among
Circus and Eldorado Joint Venture, the Banks named therein and Bank of America
National Trust and Savings Association as Administrative Agent, and the related
Note, Amended and Restated Make-Well Agreement and Amended and Restated Deed of
Trust. (Incorporated by reference to Exhibit 4(h) to the Company's Quarterly
Report for the quarterly period ended October 31, 1997.)
10(x). Agreement and Plan of Merger, dated March 19, 1995, by and among the Company and
M.S.E. Investments, Incorporated, Last Chance Investments, Incorporated, Gold
Strike Investments, Incorporated, Diamond Gold, Inc., Gold Strike Aviation,
Incorporated, Gold Strike Finance Company, Inc., Oasis Development Company,
Inc., Michael S. Ensign, William A. Richardson, David R. Belding, Peter A. Simon
II and Robert J. Verchota. (Incorporated by reference to Exhibit 10(ee) to the
Company's Annual Report on Form 10-K for the fiscal year ended January 31,
1995.)
10(y). First Amendment to Agreement and Plan of Merger, dated May 30, 1995, by and
among the Company and M.S.E. Investments, Incorporated, Last Chance Investments,
Incorporated, Goldstrike Investments, Incorporated, Diamond Gold, Inc., Gold
Strike Aviation, Incorporated, Goldstrike Finance Company, Inc., Oasis
Development Company, Inc., Michael S. Ensign, William A. Richardson, David R.
Belding, Peter A. Simon II and Robert J. Verchota. (Incorporated by reference to
Exhibit 99.2 of the Schedule 13D of Michael S. Ensign relating to the Company's
Common Stock, filed on June 12, 1995.)
10(z). Exchange Agreement, dated March 19, 1995, by and among the Company and New Way,
Inc., a wholly owned subsidiary of the Company, Glenn W. Schaeffer, Gregg H.
Solomon, Antonio C. Alamo, Anthony Korfman and William Ensign. (Incorporated by
reference to Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995.)
10(aa). First Amendment to Exchange Agreement, dated May 30, 1995, by and among the
Company and New Way, Inc., a wholly owned subsidiary of the Registrant, Glenn W.
Schaeffer, Gregg H. Solomon, Antonio C. Alamo, Anthony Korfman and William
Ensign. (Incorporated by reference to Exhibit 10(d) to the Company's Current
Report on Form 8-K dated June 1, 1995.)
10(bb). Registration Rights Agreement, dated as of June 1, 1995, by and among the
Company and Michael S. Ensign, William A. Richardson, David R. Belding, Peter A.
Simon II, Glenn W. Schaeffer, Gregg H. Solomon, Antonio C. Alamo, Anthony
Korfman, William Ensign and Robert J. Verchota. (Incorporated by reference to
Exhibit 99.5 of the Schedule 13D of Michael S. Ensign, relating to the Company's
Common Stock, filed on June 12, 1995.)
10(cc). Standstill Agreement, dated as of June 1, 1995, by and among the Company and
Michael S. Ensign, William A. Richardson, David R. Belding, Peter A. Simon II
and Glenn W. Schaeffer. (Incorporated by reference to Exhibit 99.4 of the
Schedule 13D of Michael S. Ensign, relating to the Company's Common Stock, filed
on June 12, 1995.)
10(dd). Amendment No. 1 to Standstill Agreement, effective April 16, 1996, by and among
the Company and Michael S. Ensign, William A. Richardson, David R. Belding,
Peter A. Simon II and Glenn W. Schaeffer. (Incorporated by reference to Exhibit
99.7 of Amendment No. 2 to the Schedule 13D of Michael S. Ensign, relating to
the Company's Common Stock, filed on September 5, 1996.)
10(ee). * Executive Officer Annual Bonus Plan. (Incorporated by reference to Exhibit
10(hh) to the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1995.)
</TABLE>
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10(ff). * Amendment and Restatement of Employment Agreement dated November 1, 1997, by and
between the Company and Clyde Turner. (Incorporated by reference to Exhibit
10(ee) to the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998.)
10(gg). * Agreement and Release dated January 17, 1998, by and between the Company and
Clyde Turner. (Incorporated by reference to Exhibit 10(ff) to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1998.)
10(hh).* Amendment and Restatement of Employment Agreement dated November 1, 1997, by and
between the Company and Michael S. Ensign. (Incorporated by reference to Exhibit
10(gg) to the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998.)
10(ii).* Amendment and Restatement of Employment Agreement dated November 1, 1997, by and
between the Company and Glenn W. Schaeffer. (Incorporated by reference to
Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998.)
10(jj).* Amendment and Restatement of Employment Agreement dated November 1, 1997, by and
between the Company and William A. Richardson. (Incorporated by reference to
Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998.)
10(kk).* Amendment and Restatement of Employment Agreement dated November 1, 1997, by and
between the Company and Antonio C. Alamo. (Incorporated by reference to Exhibit
10(kk) to the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998.)
10(ll).* Amendment and Restatement of Employment Agreement dated November 1, 1997, by and
between the Company and Gregg H. Solomon. (Incorporated by reference to Exhibit
10(ll) to the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998.)
10(mm). Joint Venture Agreement, dated as of December 18, 1992, between Nevada Landing
Partnership and RBG, L.P. (Incorporated by reference to Exhibit 10(g) to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended July 31,
1995.)
10(nn). Amendment dated July 15, 1993 to the Joint Venture Agreement between Nevada
Landing Partnership and RBG, L.P. (Incorporated by reference to Exhibit 10(h) to
the Company's Quarterly Report on Form 10-Q for the quarterly period ended July
31, 1995.)
10(oo). Amendment dated October 6, 1994 to the Joint Venture Agreement between Nevada
Landing Partnership and RBG, L.P. (Incorporated by reference to Exhibit 10(i) to
the Company's Quarterly Report on Form 10-Q for the quarterly period ended July
31, 1995.)
10(pp). Amendment dated June 1, 1995 to the Joint Venture Agreement between Nevada
Landing Partnership and RBG, J.P. (Incorporated by reference to Exhibit 10(j) to
the Company's Quarterly Report on Form 10-Q for the quarterly period ended July
31, 1995.)
10(qq). Amendment dated February 28, 1996 to the Joint Venture Agreement between Nevada
Landing Partnership and RBG, L.P. (Incorporated by reference to Exhibit 10(ww)
to the Company's Annual Report on Form 10-K for the fiscal year ended January
31, 1996.)
</TABLE>
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10(rr). Reducing Revolving Loan Agreement, dated as of December 21, 1994, among Victoria
Partners, each bank party thereto, The Long-Term Credit Bank of Japan, Ltd., Los
Angeles Agency, and Societe Generale, as Co-agents, and Bank of America National
Trust and Savings Association, as Administrative Agent (without Schedules or
Exhibits) (the "Victoria Partners Loan Agreement"). (Incorporated by reference
to Exhibit 99.2 to Amendment No. 1 on Form 8-K/A to the Current Report on Form
8-K dated December 9, 1994 of Mirage Resorts, Incorporated. Commission File No.
1-6697.) (Incorporated by reference to Exhibit 10(ww) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996.)
10(ss). Amendment No. 1 to the Victoria Partners Loan Agreement, dated as of January 31,
1995. (Incorporated by reference to Exhibit 10(uu) to the Annual Report on Form
10-K for the year ended December 31, 1994 of Mirage Resorts, Incorporated.
Commission File No. 1-6697.)
10(tt). Amendment No. 2 to the Victoria Partners Loan Agreement, dated as of June 30,
1995. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1995 of Mirage Resorts,
Incorporated. Commission File No. 1-6697.)
10(uu). Amendment No. 3 to the Victoria Partners Loan Agreement, dated as of July 28,
1995. (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1995 of Mirage Resorts,
Incorporated. Commission File No. 1-6697.)
10(vv). Amendment No. 4 to the Victoria Partners Loan Agreement, dated as of October 16,
1995. (Incorporated by reference to Exhibit 10(a) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended October 31, 1995.)
10(ww). Amendment No. 5 to the Victoria Partners Loan Agreement dated as of August 1,
1996. (Incorporated by reference to Exhibit 10(a) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended July 31, 1996.)
10(xx). Amendment No.6 to the Victoria Partners Loan Agreement, dated as of April 12,
1997. (Incorporated by reference to Exhibit 10(ccc) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1997.)
10(yy). Joint Venture Agreement, dated as of December 9, 1994, between MRGS Corp. and
Gold Strike L.V. (without Exhibit) (the "Victoria Partners Venture Agreement").
(Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K
dated December 9, 1994 of Mirage Resorts, Incorporated. Commission File No.
1-6697.)
10(zz). Amendment No. 1 to the Victoria Partners Venture Agreement dated as of April 17,
1995. (Incorporated by reference to Exhibit 10(c) to the Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1995 of Mirage Resorts,
Incorporated. Commission File No. 1-6697.)
10(aaa). Amendment No. 2 to the Victoria Partners Venture Agreement dated as of September
25, 1995. (Incorporated by reference to Exhibit 10.4 to the Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1995 of Mirage Resorts,
Incorporated. Commission File No. 1-6697.)
10(bbb). Amendment No. 3 to the Victoria Partners Venture Agreement dated as of February
28, 1996. (Incorporated by reference to Exhibit 10(fff) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996.)
</TABLE>
48
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10(ccc). Amendment No. 4 to the Victoria Partners Venture Agreement dated as of May 29,
1996. (Incorporated by reference to Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended April 30, 1996.)
10(ddd). Consulting Agreement, dated June 1, 1995, between Circus Circus Casinos, Inc. (a
subsidiary of the Company) and Lakeview Company. (Incorporated by reference to
Exhibit 10(ggg) to the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1996.)
10(eee). Letter agreement between the Company and Atwater Casino Group, L.L.C., and
related Executive Summary. (Incorporated by reference to Exhibit 10(a) to the
Company's Amendment on Form 10-Q/A dated August 1, 1997.)
10(fff). Operating Agreement, dated October 7, 1997, by and between Circus Circus
Michigan, Inc. and Atwater Casino Group, L.L.C. (Incorporated by reference to
Exhibit 10(a) to the Company's Quarterly Report for the quarterly period ended
October 31, 1997.)
10(ggg). Amended and Restated Development Agreement, dated as of April 9, 1998, by and
among Detroit Entertainment, L.L.C., the City of Detroit and the Economic
Development Corporation of the City of Detroit for the City of Detroit Casino
Development Project. (Incorporated by reference to Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended July 31,
1998.)
10(hhh). First Amendment to the Amended and Restated Development Agreement, dated as of
April 9, 1998, by and among Detroit Entertainments, L.L.C., the City of Detroit
and the Economic Development Corporation of the City of Detroit for the City of
Detroit Casino Development Project. (Incorporated by reference to Exhibit 10(b)
to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
July 31, 1998.)
10(iii). Hotel Pre-opening Services Agreement, dated as of January 1, 1997, by and among
the Company and Four Seasons Hotels Limited. (Incorporated by reference to
Exhibit 10(kkk) to the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998.)
10(jjj). Hotel Management Agreement, dated as of March 10, 1998, by and among the
Company, Mandalay Corp. and Four Seasons Hotel Limited. (Incorporated by
reference to Exhibit 10(lll) to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998.)
10(kkk). Hotel License Agreement, dated as of March 10, 1998, by and among Mandalay Corp.
and Four Seasons Hotel Limited. (Incorporated by reference to Exhibit 10(mmm) to
the Company's Annual Report on Form 10-K for the fiscal year ended January 31,
1998.)
10(lll). Lease Intended As Security, dated October 30, 1998, among Circus Circus Leasing,
Inc., as lessee; the Company, as guarantor; First Security Bank, National
Association, as Trustee, the Banks named therein and Bank of America National
Trust and Savings Association, as administrative agent for the Banks.
(Incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1998.)
10(mmm). Guaranty, dated October 30, 1998, by the Company in favor of First Security
Bank, National Association, as Trustee, and the Banks named therein.
(Incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1998.)
10(nnn).* Circus Circus Enterprises, Inc. Supplemental Executive Retirement Plan.
(Incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1998.)
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13. Portions of the Annual Report to Stockholders for the Year Ended January 31,
1999 specifically incorporated by reference as part of this Report.
21. Subsidiaries of the Company.
23. Consent of Arthur Andersen LLP.
27. Financial Data Schedule for the year ended January 31, 1999 as required under
EDGAR.
</TABLE>
- ------------------------
* This exhibit is a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Report.
Certain instruments with respect to long-term debt have not been filed
hereunder or incorporated by reference herein where the total amount of such
debt thereunder does not exceed 10% of the consolidated total assets of the
Company. Copies of such instruments will be furnished to the Securities and
Exchange Commission upon request.
(b) During the fourth quarter of the fiscal year ended January 31, 1999, the
Company filed no Current Report on Form 8-K.
(c) The exhibits required by Item 601 of Regulation S-K filed as part of
this Report or incorporated herein by reference are listed in Item 14(a)(3)
above, and the exhibits filed herewith are listed on the Index to Exhibits which
accompanies this Report.
(d) See Item 14(a)(2) of this Report.
50
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
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<S> <C> <C>
CIRCUS CIRCUS ENTERPRISES, INC.
Dated: April 30, 1999 By: /s/ MICHAEL S. ENSIGN
------------------------------------
Michael S. Ensign,
CHAIRMAN OF THE BOARD
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board,
/s/ MICHAEL S. ENSIGN Chief Executive Officer
- ------------------------------ and Chief Operating April 30, 1999
Michael S. Ensign Officer (Principal
Executive Officer)
/s/ WILLIAM A. RICHARDSON
- ------------------------------ Vice Chairman of the Board April 30, 1999
William A. Richardson
President, Chief Financial
/s/ GLENN SCHAEFFER Officer, Treasurer and
- ------------------------------ Director (Principal April 30, 1999
Glenn Schaeffer Financial Officer)
Vice President and Chief
/s/ LES MARTIN Accounting Officer
- ------------------------------ (Principal Accounting April 30, 1999
Les Martin Officer)
/s/ WILLIAM E. BANNEN
- ------------------------------ Director April 30, 1999
William E. Bannen
/s/ ARTHUR H. BILGER
- ------------------------------ Director April 30, 1999
Arthur H. Bilger
/s/ ROSE MCKINNEY-JAMES
- ------------------------------ Director April 30, 1999
Rose McKinney-James
/s/ MICHAEL D. MCKEE
- ------------------------------ Director April 30, 1999
Michael D. McKee
/s/ DONNA B. MORE
- ------------------------------ Director April 30, 1999
Donna B. More
</TABLE>
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INDEX TO EXHIBITS
FORM 10-K
FISCAL YEAR ENDED
JANUARY 31, 1999
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<C> <S>
3(ii) Restated Bylaws of the Company dated April 30, 1999.
10(i). 1999 Non-employee Directors Stock Option Plan.
13. Portions of the Annual Report to Stockholders for the Year Ended January 31, 1999 specifically
incorporated by reference as part of this Report.
21. Subsidiaries of the Company.
23. Consent of Arthur Andersen LLP.
27. Financial Data Schedule for the year ended January 31, 1999 as required under EDGAR.
</TABLE>
52
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EXHIBIT 3(ii)
AMENDED AND RESTATED BY-LAWS OF
CIRCUS CIRCUS ENTERPRISES, INC.
(A Nevada Corporation)
Effective as of April 30, 1999
ARTICLE I
Offices
SECTION 1.1. PRINCIPAL OFFICE. The principal office of the corporation
in the State of Nevada is 3950 Las Vegas Boulevard South, Las Vegas, Clark
County, Nevada 89119.
SECTION 1.2. OTHER OFFICES. The corporation may also have offices at
such other places both within and without the State of Nevada as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
Meetings of Stockholders
SECTION 2.1. PLACE OF MEETING. All meetings of stockholders shall be
held at such place, either within or without the State of Nevada, as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting.
SECTION 2.2. ANNUAL MEETINGS. The annual meeting of stockholders shall
be held at such date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting.
SECTION 2.3. VOTING LIST. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice, or if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
1
<PAGE>
SECTION 2.4. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation of the corporation, as amended (the "Articles of
Incorporation"), may be called by the Chairman of the Board, the President or by
the Board of Directors or by written order of a majority of the directors and
shall be called by the Chairman of the Board, the President or the Secretary at
the request in writing of stockholders owning a majority in amount of the entire
capital stock of the corporation issued and outstanding and entitled to vote.
Such request shall state the purposes of the proposed meeting. The officers or
directors shall fix the time and any place, either within or without the State
of Nevada, as the place for holding such meeting.
SECTION 2.5. NOTICE OF MEETING. Written notice of the annual and each
special meeting of stockholders, stating the date, time, place and purpose or
purposes thereof, shall be given to each stockholder entitled to vote thereat,
not less than 10 nor more than 60 days before the meeting. The President, a
Vice President, the Secretary, an assistant Secretary or any other person
designated by the Board of Directors shall sign and deliver such written notice.
The written certificate of the individual signing a notice of meeting, setting
forth the substance of the notice or having a copy thereof attached, the date
the notice was mailed or personally delivered to the stockholders and the
addresses to which the notice was mailed, shall be prima facie evidence of the
manner and fact of giving such notice.
SECTION 2.6. QUORUM. A majority of the voting power, which includes the
voting power that is present in person or by proxy, regardless of whether the
proxy has authority to vote on all matters, shall constitute a quorum at any
meeting of stockholders for the transaction of business except when stockholders
are required to vote by class, in which event a majority of the VOTING POWER of
the appropriate class which includes the voting power of such class that is
present in person or by proxy, regardless of whether the proxy has authority to
vote on all matters, shall be present, and except as otherwise provided by
statute or by the Articles of Incorporation. Notwithstanding any other
provision of the Articles of Incorporation or these by-laws, the holders of a
majority of the voting power present in person or by proxy, regardless of
whether the proxy has authority to vote on all matters, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. If the adjournment
is for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
SECTION 2.7. VOTING. When a quorum is present at any meeting of the
stockholders, action by the stockholders on a matter other than the election of
directors shall be approved if the number of votes cast in favor of the action
exceeds the number of votes cast in opposition to the action, unless the
question is one upon which, by express provision of the statutes, of the
Articles of Incorporation or of these by-laws, a different vote is required, in
which case such express provision shall govern and control the decision of such
question. Every stockholder having the right
2
<PAGE>
to vote shall be entitled to vote in person, or by proxy appointed by an
instrument in writing subscribed by such stockholder, and filed with the
Secretary of the corporation before, or at the time of, the meeting.
Provided, however, no such proxy shall be valid after the expiration of six
months from the date of its execution, unless coupled with an interest, or
unless the person executing it specifies therein the length of time for which
it is to continue in force, which in no case shall exceed seven years from
the date of its execution. If such instrument shall designate two or more
persons to act as proxies, unless such instrument shall provide the contrary,
a majority of such persons present at any meeting at which their powers
thereunder are to be exercised shall have and may exercise all the powers of
voting or giving consents thereby conferred, or if only one be present, then
such powers may be exercised by that one; or, if an even number attend and a
majority do not agree on any particular issue, each proxy so attending shall
be entitled to exercise such powers in respect of the same portion of the
shares as he is of the proxies representing such shares. Unless required by
statute or determined by the Chairman of the meeting to be advisable, the
vote on any question need not be by written ballot.
SECTION 2.8. CONSENT OF STOCKHOLDERS. Whenever the vote of stockholders
at a meeting thereof is required or permitted to be taken for or in connection
with any corporate action by any provision of the statutes, the meeting and vote
of stockholders may be dispensed with if all the stockholders who would have
been entitled to vote upon the action if such meeting were held shall consent in
writing to such corporate action being taken; or if the Articles of
Incorporation authorize the action to be taken with the written consent of the
holders of less than all the stock who would have been entitled to vote upon the
action if a meeting were held, then on the written consent of the stockholders
having not less than such percentage of the number of votes as may be authorized
in the Articles of Incorporation; provided that in no case shall the written
consent be by the holders of stock having less than the minimum percentage of
the vote required by statutes for the proposed corporate action, and provided
that prompt notice must be given to all stockholders of the taking of corporate
action without a meeting and less than unanimous written consent.
SECTION 2.9. VOTING OF STOCK OF CERTAIN HOLDERS. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the by-laws of such corporation may prescribe, or in the
absence of such provision, as the Board of Directors of such corporation may
determine. Shares standing in the name of a deceased person may be voted by the
executor or administrator of such deceased person, either in person or by proxy.
Shares standing in the name of a guardian, conservator or trustee may be voted
by such fiduciary, either in person or by proxy, but no such fiduciary shall be
entitled to vote shares held in such fiduciary capacity without a transfer of
such shares into the name of such fiduciary. Shares standing in the name of a
receiver may be voted by such receiver. A stockholder whose shares are pledged
shall be entitled to vote such shares, unless in the transfer by the pledgor on
the books of the corporation, he has expressly empowered the pledgee to vote
thereon, in which case only the pledgee, or his proxy, may represent the stock
and vote thereon.
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SECTION 2.10. TREASURY STOCK. The corporation shall not vote, directly or
indirectly, shares of its own stock owned by it; and such shares shall not be
counted in determining the total number of outstanding shares.
SECTION 2.11. FIXING RECORD DATE. The Board of Directors may fix in
advance a date, not exceeding 60 nor less than 10 days preceding the date of any
meeting of stockholders, or the date for payment of any dividend or
distribution, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, or a
date in connection with obtaining a consent, as a record date for the
determination of the stockholders entitled to notice of, and to vote at any such
meeting and any adjournment thereof, or entitled to receive payment of any such
dividend or distribution, or to receive any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock, or to give such consent, and in such case such stockholders and
only such stockholders as shall be stockholders of record on the date so fixed
shall be entitled to such notice of and to vote at any such meeting and any
adjournment thereof, or to receive payment of such dividend or distribution, or
to receive such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the corporation after any such record date fixed as aforesaid.
ARTICLE III
Board of Directors
SECTION 3.1. POWERS. The business and affairs of the corporation shall
be managed by its Board of Directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.
SECTION 3.2 NUMBER, ELECTION AND TERM. The directors shall be
elected at the annual meeting of stockholders, except as provided in Section
3.3, and each director elected shall hold office until his successor shall be
elected and shall qualify. The total number of directors, which shall be
established from time to time by resolution of the Board of Directors, shall not
be fewer than six (6) nor more than eleven (11). Directors need not be
residents of Nevada or stockholders of the corporation. Commencing with the
election of directors at the annual meeting of stockholders in 1991, the
directors shall be classified with respect to the time for which they shall hold
their offices by dividing them into three classes, to be known as Class I, Class
II and Class III. At the annual meeting of the stockholders in 1991, directors
of Class I shall be elected for terms of one (1) year, directors of Class II
shall be elected for terms of two (2) years, and directors of Class III shall be
elected for terms of three (3) years. At each annual meeting of stockholders
after 1991, successors to the directors of the Class whose term of office
expires in that year shall be elected to hold office until the third succeeding
annual meeting of stockholders, so that the term of office of only one Class of
directors shall expire in each year. The number of directors in each Class,
which shall be such that at least one-fourth in number of the directors are
elected annually, shall be
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established from time to time by resolution of the Board of Directors and
shall be increased or decreased by resolution of the Board of Directors, as
may be appropriate whenever the total number of directors is increased or
decreased.
SECTION 3.3. VACANCIES, ADDITIONAL DIRECTORS AND REMOVAL FROM OFFICE. If
any vacancy occurs in the Board of Directors caused by death, resignation,
retirement, disqualification or removal from office of any director, or
otherwise, or if any new directorship is created by an increase in the
authorized number of directors, a majority of the directors then in office,
though less than a quorum, or a sole remaining director, may choose a successor
director or a director to fill the newly created directorship, as the case may
be; and a director so chosen shall hold office until the next annual meeting of
stockholders at which the directors of the Class in which such director serves
are to be elected and until his successor shall be duly elected and shall
qualify, unless such director is sooner displaced. Any director may be removed
either for or without cause at any special meeting of stockholders duly called
and held for such purpose.
SECTION 3.4. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held each year, without other notice than this by-law, at the
place of, and immediately following, the annual meeting of stockholders; and
other regular meetings of the Board of Directors shall be held during each year,
at such time and place as the Board of Directors may from time to time provide
by resolution, either within or without the State of Nevada, without other
notice than such resolution.
SECTION 3.5. SPECIAL MEETINGS. A special meeting of the Board of
Directors may be called by the Chairman of the Board or by the President and
shall be called by the Secretary on the written request of any two directors.
The Chairman of the Board or President so calling, or the directors so
requesting, any such meeting shall fix the time and any place, either within or
without the State of Nevada, as the place for holding such meeting.
SECTION 3.6. NOTICE OF SPECIAL MEETINGS. Written notice of special
meetings of the Board of Directors shall be given to each director at least 48
hours prior to the time of such meeting. Any director may waive notice of any
meeting. The attendance of a director at any meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting solely for
the purpose of objecting to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting, except that notice
shall be given of any proposed amendment to the by-laws if it is to be adopted
at any special meeting or with respect to any other matter where notice is
required by statute.
SECTION 3.7. QUORUM. A majority of the Board of Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute, by the Articles of
Incorporation or by these by-laws. If a quorum shall not be present at any
meeting of the Board of
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Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 3.8. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Articles of Incorporation or these by-laws, any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof
as provided in Article IV of these by-laws, may be taken without a meeting, if a
written consent thereto is signed by all members of the Board or of such
committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board or committee.
SECTION 3.9. MEETING BY TELEPHONE. Any action required or permitted to
be taken by the Board of Directors or any committee thereof may be taken by
means of a meeting by conference telephone network or similar communications
method so long as all persons participating in the meeting can hear each other.
Any person participating in such meeting shall be deemed to be present in person
at such meeting.
SECTION 3.10. COMPENSATION. Except as otherwise provided in this Section
3 .10, directors, as such, shall not be entitled to any compensation for their
services unless voted by the stockholders; but by resolution of the Board of
Directors, there may be allowed (a) to "outside" directors, as that term is
defined in Section 4.2 of these by-laws, a stated salary and/or a fixed sum for
each regular or special meeting of the Board of Directors or any meeting of a
committee of directors attended, and (b) to all directors, expenses of
attendance, if any, for each regular or special meeting of the Board of
Directors or any meeting of a committee of directors attended. No provision of
these by-laws shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
Committees of Directors
SECTION 4.1. EXECUTIVE COMMITTEE. The Executive Committee of the Board
of Directors (the "Executive Committee") shall consist of not less than two
directors to be designated by the Board of Directors annually at its first
regular meeting held pursuant to Section 3.4 of these by-laws after the annual
meeting of stockholders or as soon thereafter as conveniently possible. None of
the members of the Executive Committee need be officers of the corporation. The
Executive Committee shall have and may exercise all of the powers of the Board
of Directors during the period between meetings of the Board of Directors except
as reserved to the Board of Directors or as delegated by these by-laws or by the
Board of Directors to another standing or special committee or as may be
prohibited by law and, except further, that the Executive Committee shall not
have the power to elect officers of the corporation.
SECTION 4.2. AUDIT COMMITTEE. The Audit Committee of the Board of
Directors (the "Audit Committee") shall consist solely of directors, one or
more, each of whom shall be an
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"outside" director of the corporation, to be designated annually by the Board
of Directors at its first regular meeting held pursuant to Section 3.4 of
these by-laws after the annual meeting of stockholders or as soon thereafter
as conveniently possible. The term "outside" director, as used in this
Section 4.2, shall mean a director of the corporation who is independent of
management, not an officer, employee, consultant, agent or affiliate (except
as a director) of the corporation and who is free of any relationship that,
in the opinion of the Board of Directors, would interfere with the designated
director's exercise of independent judgment as a member of the Audit
Committee. The Audit Committee shall have and may exercise all of the powers
of the Board of Directors during the period between meetings of the Board of
Directors, except as may be prohibited by law, with respect to (i) the
selection and recommendation for employment by the corporation, subject to
approval by the Board of Directors and the stockholders, of a firm of
certified public accountants whose duty it shall be to audit the books and
accounts of the corporation and its subsidiaries for the fiscal year in which
they are appointed and who shall report to the Audit Committee, provided,
that in selecting and recommending for employment any firm of certified
public accountants, the Audit Committee shall make a thorough investigation
to insure the "independence" of such accountants as defined in the applicable
rules and regulations of the Securities and Exchange Commission; (ii)
instructing the certified public accountants to expand the scope and extent
of the annual audits of the corporation into areas of any concern to the
Audit Committee, which may be beyond that necessary for the certified public
accountants to report on the financial statements of the corporation, and, at
its discretion, directing other special investigations to insure the
objectivity of the financial reporting of the corporation; (iii) reviewing
the reports submitted by the certified public accountants, conferring with
the auditors and reporting thereon to the Board of Directors with such
recommendations as the Audit Committee may deem appropriate; (iv) meeting
with the corporation's principal accounting and financial officers, the
certified public accountants and auditors, and other officers or department
managers of the corporation as the Audit Committee shall deem necessary in
order to determine the adequacy of the corporation's accounting principles
and financial and operating policies, controls and practices, its public
financial reporting policies and practices, and the results of the
corporation's annual audit; (v) conducting inquiries into any of the
foregoing, the underlying and related facts, including such matters as the
conduct of the personnel of the corporation, the integrity of the records of
the corporation, the adequacy of the procedures and the legal and financial
consequences of such facts; and (vi) retaining and deploying such
professional assistance, including outside counsel and auditors and any
others, as the Audit Committee shall deem necessary or appropriate, in
connection with the exercise of its powers on such terms as the Audit
Committee shall deem necessary or appropriate to protect the interests of the
stockholders of the corporation.
SECTION 4.3. OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more additional
special or standing committees other than the Executive Committee and Audit
Committee, each such additional committee to consist of one or more of the
directors of the corporation. Each such committee shall have and may exercise
such of the powers of the Board of Directors in the management of the business
and affairs of the corporation as may be provided in such resolution, except as
delegated by these by-laws or by the Board of Directors to another standing or
special committee or as may be prohibited by law.
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SECTION 4.4. COMMITTEE OPERATIONS. A majority of a committee shall
constitute a quorum for the transaction of any committee business. Such
committee or committees shall have such name or names and such limitations of
authority as provided in these by-laws or as may be determined from time to time
by resolution adopted by the Board of Directors. The corporation shall pay all
expenses of committee operations. The Board of Directors may designate one or
more appropriate directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of any members of such committee or committees,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another appropriate member of the Board of Directors to act at the meeting in
the place of any absent or disqualified member.
SECTION 4.5. MINUTES. Each committee of directors shall keep regular
minutes of its proceedings and report the same to the Board of Directors when
required. The Secretary or any Assistant Secretary of the corporation shall (i)
serve as the Secretary of the Executive Committee, the Audit Committee and any
other special or standing committee of the Board of Directors of the
corporation, (ii) keep regular minutes of standing or special committee
proceedings, (iii) make available to the Board of Directors, as required, copies
of all resolutions adopted or minutes or reports of other actions recommended or
taken by any such standing or special committee and (iv) otherwise as requested
keep the members of the Board of Directors apprised of the actions taken by such
standing or special committees, except that the chairman of any committee of
directors shall have the authority to designate an individual other than the
Secretary or an Assistant Secretary of the corporation to keep and deliver to
the Secretary the minutes of any meeting of the committees.
SECTION 4.6. COMPENSATION. Members of special or standing committees who
are "outside" directors, as that term is defined elsewhere in this Article, may
be allowed compensation for serving as a member of any such committee and all
members may be compensated for expenses of attending committee meetings, if the
stockholders or Board of Directors shall so determine in accordance with Section
3.10.
ARTICLE V
Notice
SECTION 5.1. METHODS OF GIVING NOTICE. Whenever under the provisions of
the statutes, the Articles of Incorporation or these by-laws, notice is required
to be given to any director, member of any committee or stockholder, such notice
shall be in writing and delivered personally or mailed, postage prepaid, to such
director, member or stockholder; provided that in the case of a director or a
member of any committee such notice may be given orally, by telephone, by
telegram or by facsimile. If mailed, notice to a director, member of a
committee or stockholder shall be deemed to be given when deposited in the
United States mail, in a sealed envelope, with first class postage thereon
prepaid, addressed, in the case of a stockholder, to the stockholder at the
stockholder's address as it appears on the records of the corporation or, in the
case of a director or
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a member of a committee, to such person at his business address. If sent by
telegraph, notice to a director or member of a committee shall be deemed to
be given when the telegram, so addressed, is delivered to the telegraph
company. If sent by facsimile, notice to a director or member of a committee
shall be deemed to be given when the transmission from the transmitting
facsimile machine has been completed.
SECTION 5.2. WRITTEN WAIVER. Whenever any notice is required to be given
under the provisions of the statutes, the Articles of Incorporation or these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE VI
Officers
SECTION 6.1. OFFICERS. The executive officers of the corporation shall
be the Chairman of the Board, Vice Chairman of the Board, President, Secretary
and Treasurer. The Board of Directors shall elect and, when applicable, appoint
all the executive officers of the corporation. The Board of Directors and the
Chairman of the Board may appoint such other officers and agents, including but
not limited to one or more Vice Presidents (any one or more of which may be
designated Executive Vice President or Senior Vice President), Assistant Vice
Presidents, Assistant Secretaries and Assistant Treasurers, as they deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as prescribed by the Board of Directors or
Chairman of the Board. Any two or more offices may be held by the same person.
No officer shall execute, acknowledge, verify or countersign any instrument on
behalf of the corporation in more than one capacity, if such instrument is
required by law, by these by-laws or by any act of the corporation to be
executed, acknowledged, verified or countersigned by two or more officers. The
Chairman of the Board and the Vice Chairman of the Board shall be elected from
among the directors. With the foregoing exception, none of the other officers
need be a director, and none of the officers need be a stockholder of the
corporation.
SECTION 6.2. ELECTION AND TERM OF OFFICE. The executive officers of the
corporation shall be elected annually by the Board of Directors at its first
regular meeting held after the annual meeting of stockholders or as soon
thereafter as conveniently possible. Each executive officer shall hold office
until his successor shall have been chosen and shall have qualified or until his
death or the effective date of his resignation or removal, or until he shall
cease to be a director in the case of the Chairman of the Board or the Vice
Chairman of the Board.
SECTION 6.3. REMOVAL AND RESIGNATION. Any executive officer or other
officer or agent appointed by the Board of Directors may be removed, either with
or without cause, by the affirmative vote of a majority of the Board of
Directors whenever, in its judgment, the best interests of the corporation shall
be served thereby, but such removal shall be without prejudice to the
contractual rights, if any, of the person so removed. Any other officer or
agent may be removed,
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either with or without cause, in the sole discretion of the Chairman of the
Board. Any executive officer or other officer or agent may resign at any
time by giving written notice to the corporation. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein, and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 6.4. VACANCIES. Any vacancy occurring in any executive office of
the corporation by death, resignation, removal or otherwise, may be filled by
the Board of Directors for the unexpired portion of the term.
SECTION 6.5. SALARIES. The salaries of all executive officers of the
corporation shall be fixed by the Board of Directors or pursuant to the
direction of the Board of Directors; and no executive officer shall be prevented
from receiving such salary by reason of his also being a director. Compensation
of officers and agents not appointed by the Board of Directors shall be
established by the Chairman of the Board and President, but subject to review by
the Board of Directors.
SECTION 6.6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the Board of Directors and of the stockholders of the
corporation. In the Chairman's absence, such duties shall be attended to by the
Vice Chairman of the Board. The Chairman of the Board shall hold the position
of chief executive officer of the corporation and shall perform such duties as
usually pertain to the position of chief executive officer and such duties as
may be prescribed by the Board of Directors or the Executive Committee. The
Chairman of the Board shall formulate and submit to the Board of Directors or
the Executive Committee matters of general policy for the corporation and shall
perform such other duties as usually appertain to the office or as may be
prescribed by the Board of Directors. He shall have the power to appoint and
remove subordinate officers, agents and employees, except those elected or
appointed by the Board of Directors. He may sign with the President or any
other officer of the corporation thereunto authorized by the Board of Directors
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors, and any deeds, bonds,
mortgages, contracts, checks, notes, drafts or other instruments which the Board
of Directors or the Executive Committee has authorized to be executed, except in
cases where the signing and execution thereof has been expressly delegated or
reserved by these by-laws or by the Board of Directors or the Executive
Committee to some other officer or agent of the corporation, or shall be
required by law to be otherwise executed.
SECTION 6.7 VICE CHAIRMAN OF THE BOARD. In the absence of the
Chairman of the Board, or in the event of his inability or refusal to act, the
Vice Chairman of the Board shall perform the duties and exercise the powers of
the Chairman of the Board. The Vice Chairman of the Board may sign with the
President or any other officer of the corporation thereunto authorized by the
Board of Directors, certificates for shares of capital stock of the corporation,
the issuance of which shall have been authorized by resolution of the Board of
Directors. The Vice Chairman of the Board shall perform such other duties as
from time to time may be assigned to him by the Chairman of the Board, the Board
of Directors or the Executive Committee.
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SECTION 6.8. PRESIDENT. The President, subject to the control of the
Board of Directors, the Executive Committee, and the Chairman of the Board,
shall in general supervise and control the business and affairs of the
corporation. He shall have the power to appoint and remove subordinate
officers, agents and employees, except those elected or appointed by the Board
of Directors or the Chairman of the Board. The President shall keep the Board
of Directors, the Executive Committee and the Chairman of the Board fully
informed as they or any of them shall request and shall consult them concerning
the business of the corporation. He may sign with the Chairman of the Board,
the Vice Chairman of the Board, or any other officer of the corporation
thereunto authorized by the Board of Directors, certificates for shares of
capital stock of the corporation, the issuance of which shall have been
authorized by resolution of the Board of Directors, and any deeds, bonds,
mortgages, contracts, checks, notes, drafts or other instruments which the Board
of Directors or the Executive Committee has authorized to be executed, except in
cases where the signing and execution thereof has been expressly delegated by
these by-laws or by the Board of Directors or the Executive Committee to some
other officer or agent of the corporation, or shall be required by law to be
otherwise executed. In general he shall perform all other duties normally
incident to the office of the President, except any duties expressly delegated
to other persons by these by-laws, the Board of Directors, or the Executive
Committee, or assigned to the Vice Chairman of the Board by the Chairman of the
Board, and such other duties as may be prescribed by the stockholders, the
Chairman of the Board, the Board of Directors or the Executive Committee, from
time to time.
SECTION 6.9. VICE PRESIDENTS. In the absence of the President, or in the
event of his inability or refusal to act, the Executive Vice President (or in
the event there shall be no Vice President or more than one Vice President
designated Executive Vice President, any Vice President designated by the Board)
shall perform the duties and exercise the powers of the President. Any Vice
President authorized by resolution of the Board of Directors to do so, may sign
with any other officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of capital stock of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors. The Vice Presidents shall perform such other duties as from time to
time may be assigned to them by the Chairman of the Board, the President, the
Board of Directors or the Executive Committee.
SECTION 6.10. SECRETARY. The Secretary shall (a) keep the minutes of the
meetings of the stockholders, the Board of Directors and committees of
directors, except that a chairman of any committee of directors shall have the
authority to designate another individual, who may or may not be an Assistant
Secretary, to keep the minutes of any meeting of such committee,in which case
the minutes of such meeting shall be delivered to the Secretary as custodian of
the corporate records of the corporation; (b) see that all notices are duly
given in accordance with the provisions of these by-laws and as required by law;
(c) be custodian of the corporate records and of the seal of the corporation,
and see that the seal of the corporation or a facsimile thereof is affixed to
all certificates for shares prior to the issuance thereof and to all documents,
the execution of which on behalf of the corporation under its seal is duly
authorized in accordance with the provisions of these by-laws; (d) keep or cause
to be kept a register of the post office address of each stockholder which shall
be
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furnished by such stockholder; (e) have general charge of the stock transfer
books of the corporation; and (f) in general, perform all duties normally
incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the Chairman of the Board, the President, the
Board of Directors or the Executive Committee.
SECTION 6.11. TREASURER. The Treasurer shall (a) have charge and custody
of and be responsible for all funds and securities of the corporation; receive
and give receipts for moneys due and payable to the corporation from any source
whatsoever and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Section 7.3 of these by-laws; (b) prepare, or cause to be
prepared, for submission at each regular meeting of the Board of Directors, at
each annual meeting of stockholders, and at such other times as may be required
by the Board of Directors, the Chairman of the Board, the President or the
Executive Committee, a statement of financial condition of the corporation in
such detail as may be required; and (c) in general, perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Chairman of the Board, the President, the Board of
Directors or the Executive Committee. If required by the Board of Directors or
the Executive Committee, the Treasurer shall give a bond for the faithful
discharge of his duties in such sums and with such surety or sureties as the
Board of Directors or the Executive Committee shall determine.
SECTION 6.12. ASSISTANT SECRETARY OR TREASURER. The Assistant Secretaries
and Assistant Treasurers shall, in general, perform such duties as shall be
assigned to them by the Secretary or the Treasurer, respectively, or by the
Chairman of the Board, the President, the Board of Directors or the Executive
Committee. The Assistant Secretaries or Assistant Treasurers shall, in the
absence of the Secretary or Treasurer, respectively, perform all functions and
duties which such absent officers may delegate, but such delegation shall not
relieve the absent officer from the responsibilities and liabilities of his
office. The Assistant Treasurers shall respectively, if required by the Board
of Directors or the Executive Committee, give bonds for the faithful discharge
of their duties in such sums and with such sureties as the Board of Directors or
the Executive Committee shall determine.
ARTICLE VII
Contracts, Checks and Deposits
SECTION 7.1. CONTRACTS. Subject to the provisions of Section 6.1., the
Board of Directors or the Executive Committee may authorize any officer,
officers, agent or agents, to enter into any contract or execute and deliver an
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 7.2. CHECKS, ETC. All checks, demands, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation,
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shall be signed by such officer or officers or such agent or agents of the
corporation, and in such manner, as shall be determined by the Board of
Directors or the Executive Committee.
SECTION 7.3. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the Chairman of the
Board, the President or the Treasurer may be empowered by the Board of Directors
or the Executive Committee to select or as the Board of Directors or the
Executive Committee may select.
ARTICLE VIII
Certificate of Stock
SECTION 8.1. ISSUANCE. Each stockholder of this corporation shall be
entitled to a certificate or certificates showing the number of shares of stock
registered in his name on the books of the corporation. The certificates shall
be in such form as may be determined by the Board of Directors or the Executive
Committee, shall be issued in numerical order and shall be entered in the books
of the corporation as they are issued. They shall exhibit the holder's name and
the number of shares and shall be signed by the Chairman of the Board and the
President or such other officers as may from time to time be authorized by
resolution of the Board of Directors. Any of or all the signatures on the
certificate may be a facsimile . The seal of the corporation shall be
impressed, by original or by facsimile, printed or engraved, on all such
certificates. In case any officer who has signed or whose facsimile signature
has been placed upon any such certificate shall have ceased to be such officer
before such certificate is issued, such certificate may nevertheless be issued
by the corporation with the same effect as if such officer had not ceased to be
such officer at the date of its issue. If the corporation shall be authorized
to issue more than one class of stock or more than one series of any class, the
designation, preferences and relative, participating, option or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and rights shall be set forth in
full or summarized on the face or back of the certificate which the corporation
shall issue to represent such class of stock; provided that except as otherwise
provided by statute, in lieu of the foregoing requirements there may be set
forth on the face or back of the certificate which the corporation shall issue
to represent such class or series of stock, a statement that the corporation
will furnish to each stockholder who so requests the designations, preferences
and relative, participating, option or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and rights. All certificates surrendered to the corporation
for transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
canceled, except that in the case of a lost, stolen, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and with such
indemnity, if any, to the corporation as the Board of Directors may prescribe.
In addition to the above, all certificates evidencing shares of the
corporation's stock or other securities issued by the corporation shall contain
such legend or legends as may from time to time be required by the Nevada
Revised Statutes and/or the Nevada Gaming
13
<PAGE>
Commission Regulations then in effect, or such other federal, state or local
laws or regulations then in effect.
SECTION 8.2. LOST CERTIFICATES. The Board of Directors may direct that a
new certificate or certificates be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate or certificates alleged to have been lost,
stolen or destroyed, or both.
SECTION 8.3. TRANSFERS. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the corporation by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney and filed with the Secretary of the
corporation or the transfer agent.
SECTION 8.4. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by laws of the State of Nevada.
ARTICLE IX
Dividends
SECTION 9.1. DECLARATION. Dividends upon the capital stock of the
corporation, subject to the provisions of the Articles of Incorporation, if any,
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property or in shares of
capital stock, subject to the provisions of the Articles of Incorporation.
SECTION 9.2. RESERVE. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interests
14
<PAGE>
of the corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE X
Indemnification
SECTION 10.1. THIRD PARTY ACTIONS. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 10.2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court shall
deem proper.
SECTION 10.3. SUCCESSFUL DEFENSE. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections
10.1 and 10.2, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
15
<PAGE>
SECTION 10.4. DETERMINATION OF CONDUCT. Any indemnification under Section
10.1 or 10.2 (unless ordered by a court) shall be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in Sections 10.1 and
10.2. Such determination shall be made (1) by the Board of Directors or the
Executive Committee by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such quorum is
not obtainable or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
SECTION 10.5. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in
defending a civil or criminal action, suit or proceeding shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the corporation as authorized in this Article X.
SECTION 10.6. INDEMNITY NOT EXCLUSIVE. The indemnification provided
hereunder shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any other by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 10.7. THE CORPORATION. For purposes of this Article X, references
to "the corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under and subject to the provisions
of this Article X (including, without limitation the provisions of Section 10.4)
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued.
SECTION 10.8. INSURANCE INDEMNIFICATION. The corporation shall have the
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this Article X.
16
<PAGE>
ARTICLE XI
Miscellaneous
SECTION 11.1. SEAL. The corporate seal shall have inscribed thereon the
name of the corporation, and the words "Corporate Seal, Nevada". The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced.
SECTION 11.2. BOOKS. The books of the corporation may be kept within or
without the State of Nevada (subject to any provisions contained in the
statutes) at such place or places as may be designated from time to time by the
Board of Directors or the Executive Committee.
SECTION 11.3. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XII
Amendment
These by-laws may be altered, amended or repealed at any regular meeting of
the Board of Directors without prior notice, or at any special meeting of the
Board of Directors if notice of such alteration, amendment or repeal be
contained in the notice of such special meeting.
17
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EXHIBIT 10(i)
CIRCUS CIRCUS ENTERPRISES, INC.
1999 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
(Adopted by the Board of Directors on February 12, 1999)
1. PURPOSE OF THE PLAN
The purpose of this 1999 Non-Employee Directors Stock Option Plan (the
"Plan") is to enable Circus Circus Enterprises, Inc. (the "Company") to
provide stock options (in addition to the options awarded pursuant to the
Company's 1991 Stock Incentive Plan) to those individuals, other than
employees of the Company or its subsidiaries, who are serving as members of
the Company's Board of Directors (the "Board") as additional compensation for
their services as non-employee directors of the Company, and to motivate such
persons to continue to serve as non-employee directors of the Company.
2. GENERAL PROVISIONS
2.1 Definitions As used in the Plan:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, including any
and all amendments thereto.
(c) "Committee" means a committee consisting of two (2) or more
members of the Board who are also officers of the Company designated by the
Board from time to time to serve as members of the Committee. The initial
members of the Committee shall be Michael S. Ensign and Glenn W. Schaeffer.
In addition, the term "Committee" also includes the Board with respect to any
actions taken by the Board with respect to Stock Options granted under the
Plan.
(d) "Common Stock" means the Company s Common Stock, $.01-2/3 par
value.
(e) "Fair Market Value" means, with respect to a specific date,
the last reported sale price of the Common Stock on the NYSE Composite Tape
on the date such Fair Market Value is being determined, and, in the absence
of any sale on such day, the Fair Market Value as determined in good faith
by the Committee on the basis of such quotations and other considerations as
the Committee deems appropriate.
(f) "NYSE" means the New York Stock Exchange.
<PAGE>
(g) "Participant" means a person to whom a Stock Option has been
granted under the Plan.
(h) "Stock Option" means a stock option granted under the Plan.
2.2 Administration of the Plan
(a) Except as provided in Section 2.2(d), the Plan shall be
administered by the Committee. The Committee shall select one of its members
as Chairman, and shall hold meetings at such times and places as it may
determine.
(b) The Committee shall have the full power, subject to and within
the limits of the Plan, to:
(i) interpret and administer the Plan, and Stock Options
granted under it;
(ii) make and interpret rules and regulations for the
administration of the Plan and to make changes in and revoke such rules and
regulations (and in the exercise of this power, shall generally determine
all questions of policy and expediency that may arise and may correct any
defect, omission, or inconsistency in the Plan or any agreement evidencing
the grant of any Stock Option in a manner and to the extent it shall deem
necessary to make the Plan fully effective); and
(iii) generally, exercise such powers and perform such acts in
connection with the Plan as are deemed necessary or expedient to promote the
best interests of the Company. The interpretation and construction by the
Committee of any provisions of the Plan or of any Stock Option shall be
final, binding and conclusive.
(c) The Committee may act only by a majority of its members then
in office; however, the Committee may authorize any one (1) or more of its
members or any officer of the Company to execute and deliver documents on
behalf of the Committee.
(d) The Board shall have exclusive authority under the Plan and in
accordance with its terms to:
(i) determine those persons to whom Stock Options shall be
granted and the number of Stock Options to be granted to any person; and
(ii) determine the terms of Stock Options granted under the
Plan, consistent with the provisions of the Plan.
(e) No member of the Committee or the Board shall be liable for
any action taken or omitted to be taken or for any determination made by
him or her in good faith with respect to the Plan, and the Company shall
indemnify and hold harmless each member of the
2
<PAGE>
Committee and the Board against any cost or expense (including counsel fees)
or liability (including any sum paid in settlement of a claim with the
approval of the Board of Directors) arising out of any act or omission in
connection with the administration or interpretation of the Plan, unless
arising out of such person s own fraud or bad faith.
2.3 Effective Date
The Plan shall become effective upon its adoption by the Board of
Directors, and Stock Options may be granted upon such adoption and from time
to time thereafter during the period the Plan remains in effect.
2.4 Duration
The Plan shall remain in effect for a period of ten (10) years
following its adoption by the Board of Directors or until sooner terminated
by the Board of Directors.
2.5 Shares Subject to the Plan
Subject to adjustment in accordance with Section 4.1, the maximum
number of shares of Common Stock which may be issued pursuant to Stock
Options granted under the Plan shall be [100,000]. The Stock Options shall
be subject to adjustment in accordance with Section 4.1, as appropriate. The
shares to be issued upon exercise of Stock Options shall be authorized and
issued shares of Common Stock purchased or acquired by the Company for any
purpose and held by the Company as treasury shares. If a Stock Option or
portion thereof shall expire or is terminated, canceled or surrendered for
any reason without being exercised in full, the unpurchased shares of Common
Stock which were subject to such Stock Option or portion thereof shall be
available for future grants of Stock Options under the Plan.
2.6 Amendments
The Plan may be suspended, terminated or reinstated, in whole or in
part, at any time by the Board. The Board may, from time to time, make such
amendments to the Plan as it may deem advisable. Except as otherwise provided
herein, termination or amendment of the Plan shall not, without the consent
of a Participant, affect such Participant s rights under any Stock Option
previously granted to such Participant.
2.7 Participants and Grants
Stock Options may be granted to any member of the Board who is not
an employee of the Company or any subsidiary of the Company. The Board may
grant Stock Options to purchase such number of shares of Common Stock
(subject to the limitations of Section 2.5) as the Board may, in its sole
discretion, determine; provided, however, the grant of any Stock Option under
the Plan shall be made solely for the purpose of compensating the
3
<PAGE>
Participant for services rendered in his or her capacity as a member of the
Board (including service on one or more committees of the Board). In
granting Stock Options under the Plan, the Board, on an individual basis, may
vary the number of Stock Options as between Participants and may grant Stock
Options to a Participant in such amounts as the Board may determine in its
sole discretion.
3. STOCK OPTIONS
3.1 General
All Stock Options granted under the Plan shall be evidenced by
written agreements executed by the Company and the Participant to whom
granted, which agreement shall state the number of shares of Common Stock
which may be purchased upon the exercise thereof and shall contain such
investment representations and other terms and conditions as the Committee
may from time to time determine. The Stock Options which may be granted under
the Plan are not intended to qualify as incentive stock options under Section
422 of the Code.
3.2 Price
Subject to the provisions of Section 4.1, the purchase price per
share of Common Stock subject to a Stock Option shall, in no case, be less
than one hundred percent (100%) of the Fair Market Value of a share of Common
Stock on the date the Stock Option is granted.
3.3 Period
The duration or term of each Stock Option granted under the Plan
shall be for such period as the Committee shall determine but in no event
more than ten (10) years from the date of grant thereof,
3.4 Exercise
Subject to Section 4.4, Stock Options may be exercisable at such
other time or times as the Board shall specify when granting the Stock
Option, provided, however, that no Stock Option granted pursuant to the Plan
shall be exercisable during the first six (6) months following its date of
grant. Once exercisable, a Stock Option shall be exercisable, in whole or in
part, by delivery of a written notice of exercise to the Secretary of the
Company at the principal office of the Company specifying the number of
shares of Common Stock as to which the Stock Option is then being exercised
together with payment of the full purchase price for the shares being
purchased upon such exercise. Until the shares of Common Stock as to which a
Stock Option is exercised are issued, the Participant shall have none of the
rights of a shareholder of the Company with respect to such shares.
4
<PAGE>
3.5 Payment
The purchase price for shares of Common Stock as to which a Stock
Option has been exercised and any amount required to be withheld, as
contemplated by Section 4.3, may be paid:
(a) In United States dollars in cash, or by check, bank draft or
money order payable in United States dollars to the order of the Company; or
(b) By the delivery by the Participant to the Company of whole
shares of Common Stock having an aggregate Fair Market Value on the date of
payment equal to the aggregate of the purchase price of Common Stock as to
which the Stock Option is then being exercised or by the withholding of
whole shares of Common Stock having such Fair Market Value upon the
exercise of such Stock Option; or
(c) By a combination of both (a) and (b) above.
The Committee may, in its discretion, impose limitations,
conditions and prohibitions on the use by a Participant of shares of Common
Stock to pay the purchase price payable by such Participant upon the exercise
of a Stock Option.
3.6 Termination of Service
(a) In general, if a Participant's service as a member of the
Board terminates, each Stock Option held by such Participant at the date of
such termination (which has not previously lapsed or terminated) shall,
unless otherwise specified in the written agreement evidencing such Stock
Option, continue to be exercisable by such Participant (but only to the
extent exercisable at the time of such termination) for a period of three
months after such termination, unless the Stock Option expires earlier by its
terms.
(b) Notwithstanding the general provisions of Section 3.6(a), if a
Participant's service as a member of the Board shall terminate as a result of
such Participant's death or total disability, each Stock Option held by such
Participant at the date of such termination (which has not previously lapsed
or terminated) shall immediately become fully exercisable as to the total
number of shares of Common Stock subject thereto (whether or not exercisable
to that extent at the time of such termination) and shall remain so
exercisable by such Participant (or, following the death of the Participant,
by the executor or administrator of the Participant's estate or by the
person or persons to whom the deceased Participant's rights thereunder shall
have passed by will or by the laws of descent or distribution) for a period
of twelve 12 months after such termination unless such Stock Option expires
earlier by its terms. For purposes of the foregoing sentence, total
disability shall mean permanent mental or physical disability as determined
by the Committee.
5
<PAGE>
(c) Notwithstanding anything else contained in this Section 3.6 to
the contrary, effective as of the date the Committee determines that a
Participant has engaged in any act of disloyalty or dishonesty with respect
to the Company, has made any disclosure of confidential information or trade
secrets of the Company (other than as has been consented to by the Board or
as may be required pursuant to any law or by action of any governmental
agency), has become unable to continue as member of the Board under any law
or governmental regulation, including any Nevada gaming law or regulation, or
has engaged in any acts that constitute a breach of the Participant's
fiduciary duties arising from his or her status as a member of the Board, any
Stock Options then held by such Participant shall immediately terminate and
become void. The Committee may, pending its investigation into any
circumstances that could reasonably lead to the applicability of this Section
3.6(c), suspend the Participant's rights to exercise any Stock Options,
notwithstanding the Participant's rights to exercise such Stock Options under
any other provisions of the Plan or of the agreement specifying the terms of
a Stock Option.
4. MISCELLANEOUS PROVISIONS
4.1 Adjustments Upon Changes in Capitalization
In the event of changes to the outstanding shares of Common Stock
of the Company through reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend, stock
consolidation or otherwise, or in the event of a sale of all or substantially
all of the assets of the Company, an appropriate and proportionate adjustment
shall be made in the number and kind of shares as to which Stock Options may
be granted. A corresponding adjustment changing the number or kind of shares
and/or the purchase price per share of unexercised Stock Options or portions
thereof which shall have been granted prior to any such change shall likewise
be made. Notwithstanding the foregoing, in the case of a reorganization,
merger or consolidation, or sale of all or substantially all of the assets of
the Company, in lieu of adjustments as aforesaid, the Committee may in is
discretion accelerate the date after which a Stock Option may or may not be
exercised and/or the stated expiration date thereof. Adjustments or changes
under this Section shall be made by the Committee, whose determination as to
what adjustments or changes shall be made, and the extent thereof, shall be
final, binding and conclusive.
4.2 Non-Transferability
No Stock Option shall be transferable except by will or the laws of
descent and distribution, nor shall any Stock Option be exercisable during
the Participant s lifetime by any person other than the Participant or his
guardian or legal representative.
6
<PAGE>
4.3 Withholding
The Company's obligations under this Plan shall be subject to
applicable federal, state and local tax withholding requirements. Federal,
state and local withholding tax due at the time of a grant or upon the
exercise of any Stock Option may, in the discretion of the Committee, be paid
in shares of Common Stock already owned by the Participant or through the
withholding of shares otherwise issuable to such Participant, upon such terms
and conditions as the Committee shall determine. If the Participant shall
fail to pay, or make arrangements satisfactory to the Committee for the
payment, to the Company of all such federal, state and local taxes required
to be withheld by the Company, then the Company shall, to the extent
permitted by law, have the right to deduct from any payment of any kind
otherwise due to such Participant an amount equal to any federal, state or
local taxes of any kind required to be withheld by the Company.
4.4 Compliance with Law and Approval of Regulatory Bodies
No Stock Option shall be exercisable and no shares will be
delivered under the Plan except in compliance with all applicable federal and
state laws and regulations including, without limitation, compliance with all
federal and state securities laws and withholding tax requirements and with
the rules of the NYSE and of all other domestic stock exchanges on which the
Common Stock may be listed. Any share certificate issued to evidence shares
for which a Stock Option is exercised may bear legends and statements the
Committee shall deem advisable to assure compliance with federal and state
laws and regulations. No Stock Option shall be exercisable and no shares will
be delivered under the Plan, until the Company has obtained consent or
approval from regulatory bodies, federal or state, having jurisdiction over
such matters as the Committee may deem advisable. In the case of the exercise
of a Stock Option by a person or estate acquiring the right to exercise the
Stock Option as a result of the death of the Participant, the Committee may
require reasonable evidence as to the ownership of the Stock Option and may
require consents and releases of taxing authorities that it may deem
advisable.
4.5 No Right to Continued Service on Board
Neither the adoption of the Plan nor its operation, nor any
document describing or referring to the Plan, or any part thereof, nor the
granting of any Stock Options hereunder, shall confer upon any Participant
under the Plan any right to continue as a member of the Board, or in any
other relationship, or shall in any way affect the right and power of the
Company to terminate the Company's relationship with a Participant at any
time with or without assigning a reason therefor, to the same extent as might
have been done if the Plan had not been adopted.
7
<PAGE>
4.6 Abandonment of Options
A Participant may at any time abandon a Stock Option prior to its
expiration date. The abandonment shall be evidenced in writing, in such form
as the Committee may from time to time prescribe. A Participant shall have no
further rights with respect to any Stock Option so abandoned.
4.7 Severability
If any of the terms or provisions of the Plan conflict with the
requirements of law, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with such requirements of law.
4.8 Interpretation of the Plan
Headings are given to the Sections of the Plan solely as a
convenience to facilitate reference, such headings, numbering and
paragraphing shall not in any case be deemed in any way material or relevant
to the construction of the Plan or any provision hereof. The use of the
masculine gender shall also include within its meaning the feminine. The use
of the singular shall also include within its meaning the plural and vice
versa.
4.9 Use of Proceeds
Funds received by the Company upon the exercise of Stock Options
shall be used for the general corporate purposes of the Company.
4.10 Construction of Plan
The place of administration of the Plan shall be in the State of
Nevada, and the validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and rights relating to
the Plan, shall be determined solely in accordance with the laws of the State
of Nevada.
8
<PAGE>
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL POLICY
A key part of the Company's financial policy is a focus on free cash flow,
which represents true economic profit. Free cash flow is the cash remaining
after all expenses, including ordinary (or maintenance) reinvestment in the
business. Strong free cash flow provides the Company with financial
flexibility and the opportunity to pursue a range of options, including
sizeable reinvestment in the business, accelerated repayment of indebtedness
or cash distributions to shareholders, such as share repurchases. Strong free
cash flow also ensures ready access to capital markets at comparatively low
rates. Circus has always been an extraordinary cash generator, producing more
than $1.1 billion in free cash flow over the past five years. For fiscal
1999, our free cash flow on a per share basis was $2.34, almost 2 1/2 times
higher than our earnings per share (prior to nonrecurring items).
<TABLE>
<CAPTION>
FREE CASH FLOW ANALYSIS
Year ended January 31,
(in thousands) 1999 1998 1997 1996 1995
- ----------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income from operations* $249,279 $247,152 $276,092 $301,753 $259,019
Add noncash expenses
Depreciation and
amortization 142,141 129,729 103,717 98,380 82,753
Joint venture depreciation 24,490 24,357 18,785 6,712 --
Other (65) (65) (65) (65) (65)
-------- -------- -------- -------- --------
Cash generated from
operations before income tax 415,845 401,173 398,529 406,780 341,707
Cash income taxes (18,770) (37,395) (48,043) (55,995) (52,500)
Interest, dividends and
other income 5,852 15,820 11,941 11,539 1,217
Proceeds from disposal of assets 5,788 8,160 3,056 1,353 415
-------- -------- -------- -------- --------
Cash available for repayment
of debt and reinvestment 408,715 387,758 365,483 363,677 290,839
Scheduled principal and
interest payments (131,468) (99,831) (63,356) (58,018) (45,935)
Joint venture scheduled principal
and interest payments (16,087) (25,417) (22,261) (7,076) --
Ordinary capital expenditures (40,035) (50,979) (50,117) (31,936) (29,856)
-------- -------- -------- -------- --------
Free cash flow $221,125 $211,531 $229,749 $266,647 $215,048
======== ======== ======== ======== ========
</TABLE>
* Before nonrecurring items.
25
<PAGE>
Furthermore, the Company estimates that its annual maintenance capital
spending will be in the range of $40-$60 million over the next three years,
well below its estimated annual depreciation expense of approximately $180
million. This difference alone, before the impact of positive operating
results, translates to as much as $1.00 per share in free cash flow.
Graph
Description: Depicts Circus Circus' free cash flow per share for the fiscal
years ended January 31, 1999 and 1998 and an estimate for fiscal 2000.
Free Cash Flow
Per Share
--------------
1998 $2.23
1999 $2.34
2000(e) $3.08
The Company estimates that its cost of capital, blended for the amounts of
debt and equity used to finance the business, is approximately 9%. Achieving
rates of return on invested capital that trend above this cost is the
Company's primary goal when it evaluates new projects or reinvests in its
existing resorts. Traditionally, the Company has employed leverage as a
technique for lowering its overall cost of capital and raising returns to
shareholders (since debt is considerably cheaper than equity). While the
Company's financial flexibility remains intact, it intends, over the next
three years, to reduce leverage and increase cash flow coverage of total debt
service, which should restore the strong credit ratings of its recent past.
Currently, the Company has no significant mandatory principal repayments for
three years and expects to refinance any then-maturing debt beyond those
dates.
ROIC Graph
Description: Depicts Circus Circus' five-year average return on invested
capital (ROIC) of 12% compared to our weighted average cost of capital of 9%.
The difference between ROIC and our cost of capital is the value creation to
our shareholders.
EBITDA
Companies frequently refer to operating cash flow, or EBITDA, as a benchmark
of earning power. The following table shows the amounts of EBITDA (earnings
before interest, taxes, depreciation and amortization) for the Company's
wholly owned properties and its joint venture properties.
26
<PAGE>
EBITDA by property (in millions):
<TABLE>
<CAPTION>
Year ended January 31,
----------------------
1999 1998
------- -------
<S> <C> <C>
Luxor $ 97.6 $ 89.4
Excalibur 74.2 80.0
Circus Circus-Las Vegas/Slots-A-Fun/Silver City 55.9 51.8
Colorado Belle/Edgewater 29.1 26.8
Gold Strike-Tunica 26.0 9.0
Circus Circus-Reno 24.3 18.9
Gold Strike/Nevada Landing/Railroad Pass 19.2 17.2
Monte Carlo* 83.5 90.4
Grand Victoria* 76.9 96.8
Silver Legacy* 47.1 49.6
</TABLE>
(*) Amounts represent 100% of this joint venture property, of which the Company
is a 50% owner.
FISCAL 1999 COMPARED WITH FISCAL 1998
RESULTS OF OPERATIONS
For the year ended January 31, 1999, the Company reported net income of $85.2
million, or $.90 per share, compared to $89.9 million, or $.95 per share, in
the prior year. During fiscal 1999, the Company recorded a charge to
corporate expense of $6.5 million for political campaign costs associated
with Proposition 5 in California, while in the prior year, the Company
recognized approximately $8.0 million in costs associated with the
resignation of its chairman and $3.4 million in preopening expenses related
to a new 1,100-room hotel at its remodeled Gold Strike Casino Resort in
Tunica County, Mississippi. Also during fiscal 1998, the Company recognized a
$6.0 million gain on the sale of a company airplane. Excluding the effect of
these nonrecurring items, earnings per share for fiscal 1999 were $.94 versus
$1.01 in the prior year. The decrease reflects higher net interest expense
due to higher average borrowings, as well as lower interest income due to a
$35.1 million note receivable from Silver Legacy which was redeemed in the
prior year.
REVENUES
Revenues for fiscal 1999 increased $125.3 million, or 9%, from the prior
year. All of the Company's wholly owned properties posted increases in
revenues, with the exception of Excalibur, whose revenues declined less than
one percent. The primary contributors to the increase were Gold
Strike-Tunica, Luxor and Circus Circus-Las Vegas. At Gold Strike-Tunica, the
completion of an 1,100-room hotel tower in the first quarter contributed to a
$63.1 million, or 133%, revenue increase at that property. Luxor achieved a
revenue increase of $45.2 million, or 15%; the property benefitted from a new
national advertising campaign, an increase in the amount of high-budget play
in the casino and the opening of a new 1,200-seat showroom in the third
quarter of the prior year. Revenues at Circus Circus-Las Vegas rose $14.1
million, or 6%, driven by increased contributions from the hotel department
(rooms were being remodeled in the prior year) and the food and beverage
department (due to selective price increases).
The above revenue increases were partially offset by reduced -- contributions
from the Company's joint venture properties. The Company's share of the
operating income of joint ventures -- which is recorded as revenue under
Earnings of Unconsolidated Affiliates -- declined $15.0 million from fiscal
1998. The decline was due primarily to Grand Victoria, a 50%-owned riverboat
casino in Elgin, Illinois. A January 1998 hike in the maximum tax rate on
casino revenues in Illinois to 35% from 20% was responsible for the $10.3
million, or 23%, decrease in Grand Victoria's contribution.
27
<PAGE>
Casino revenues increased $77.8 million, or 12%, during fiscal 1999. For the
reasons mentioned above, Gold Strike-Tunica, with a 106% increase, and Luxor,
with a 16% increase, were the primary drivers of the overall growth in casino
revenues. Meanwhile, hotel revenues rose $25.0 million, or 8%, due to the
addition of the 1,100-room tower at Gold Strike-Tunica and to higher room and
occupancy rates at Luxor. Revenues in the Company's other revenue centers
(principally food, beverage, amusements, retail and entertainment) rose $59.3
million, or 17%, due to a combination of increased business and selective
price increases, particularly for food and beverage.
INCOME FROM OPERATIONS (excluding nonrecurring items)
Income from operations for fiscal 1999 increased $2.1 million, or 1%, from
the prior year. The Company's composite operating margin was 16.8%, compared
to 18.2% in fiscal 1998. Income from operations for the first quarter
decreased $21.6 million from the prior year; then, over the next three
quarters, it rose $23.7 million, as the Company started to reap the benefits
of its larger capacity, product advertising and player marketing efforts. A
discussion of operating results by market follows.
Las Vegas
Overall, results at our Las Vegas properties were even with those for the
prior year. Increases at Luxor and Circus Circus-Las Vegas, which occurred
largely in the second half of the year, were offset by declines at Excalibur
and Monte Carlo.
At Luxor, operating income increased $5.8 million, or 12%, mainly because of
the aforementioned national advertising campaign and an increase in the
amount of high-budget play in the casino. Operating income at Circus
Circus-Las Vegas grew by $3.1 million, or 12%, due to higher contributions
from the hotel department and the food department. In the hotel department,
remodeling work carried out in fiscal 1998 led to a 6% increase in the number
of rooms available in fiscal 1999. In the food department, prices were
increased selectively without impacting the number of customers served.
While Luxor and Circus Circus-Las Vegas were able to achieve higher operating
income in the extremely competitive Las Vegas market, Excalibur and Monte
Carlo were unable to sustain the levels of the prior year. Operating income
at Excalibur decreased $6.6 million, or 10%, while the Company's contribution
from the 50%-owned Monte Carlo decreased $3.6 million, or 10%. Both
properties incurred higher marketing and promotional expenses while revenues
hovered near the prior year's levels.
Reno
In Reno, Circus Circus posted a $1.8 million, or 18%, increase in operating
income over the prior year. Contributing to this strong year-to-year
comparison was the fact that in fiscal 1998, the casino underwent remodeling
during the middle of the year and business was affected by severe weather in
the latter part of the year. Meanwhile, the Company's share of operating
income from Silver Legacy declined by $0.9 million, or 4%, in fiscal 1999.
Although the Company owns 50% of Silver Legacy, it currently receives
approximately two-thirds of Silver Legacy's operating income as a priority
return on its investment. The 4% decrease recorded by Circus occurred even
though this priority allocation was in effect for all of fiscal 1999 versus
nine months in fiscal 1998. Based upon current projections, the Company
anticipates that this priority return will continue approximately two years
beyond fiscal 1999, but will gradually decrease from the current two-thirds
allocation to a 50% allocation.
28
<PAGE>
Laughlin
The Company's two properties in Laughlin -- Colorado Belle and Edgewater
- --reported a combined increase in operating income of $1.6 million, or 9%,
from the prior year. While the region continues to suffer from difficult
competitive challenges, particularly the unregulated Native American casinos
in Laughlin's prime central Arizona and southern California feeder markets,
the two properties posted their first increase in operating income on a
year-to-year basis since fiscal 1993. This improvement stemmed from a
combination of casino marketing efforts and reduced costs.
Other Markets
At Gold Strike, in Tunica County, Mississippi, operating income more than
quadrupled during fiscal 1999, to $12.1 million. The addition of an
1,100-room hotel tower and a complete remodeling of the property into a
resort, which were completed in early 1998, drove the increase in operating
income.
As mentioned above, the results at the 50%-owned Grand Victoria were
negatively affected by a substantial increase in the tax rate on casino
revenues in Illinois.
Results for fiscal 1999 at the Company's other, smaller properties exceeded
those for the prior year.
The lease for the Silver City Casino, which the Company operates in Las
Vegas, expires at the end of October 1999. The Company does not plan to renew
this lease and will thus cease operations at that property. Silver City
generated a slight loss from operations in fiscal 1999.
DEPRECIATION AND AMORTIZATION
In fiscal 1999, depreciation and amortization expense rose $12.4 million, to
$142.1 million. This increase derived primarily from the new hotel tower at
Gold Strike-Tunica, and from a full year's depreciation on the improvements
at Circus Circus-Reno. For fiscal 2000, Circus estimates that its
depreciation expense will be approximately $180 million, the increase
reflecting the addition of Mandalay Bay.
Depreciation expense by property (in millions):
<TABLE>
<CAPTION>
Year ended January 31,
----------------------
1999 1998
------- -------
<S> <C> <C>
Luxor $ 41.8 $ 39.5
Excalibur 15.0 14.1
Circus Circus-Las Vegas 23.4 22.7
Colorado Belle/Edgewater 9.5 8.7
Gold Strike-Tunica 14.0 6.2
Circus Circus-Reno 12.0 8.5
Other 26.4 30.0
------- -------
$ 142.1 $ 129.7
======= =======
</TABLE>
29
<PAGE>
INTEREST EXPENSE
In fiscal 1999, interest incurred (excluding joint venture interest expense
and before capitalized interest) rose $30.2 million to $141.1 million. The
year saw higher average debt outstanding ($2.0 billion versus $1.6 billion in
fiscal 1998) mainly related to the construction of Mandalay Bay. The increase
in interest incurred was partially offset by higher capitalized interest
($45.5 million versus $22.0 million in fiscal 1998), also largely associated
with the construction of Mandalay Bay.
The Company recorded interest expense related to joint venture projects of
approximately $12.3 million in fiscal 1999 versus $15.6 million in fiscal
1998. These amounts represent the Company's 50% share of Silver Legacy's and
Monte Carlo's interest expense.
TAXES
The Company's effective tax rates for the years ended January 31, 1999 and
1998 were 39.5% and 39.2%. These rates reflect the federal statutory rate of
35% plus the effect of various nondeductible expenses, primarily the
amortization of goodwill associated with the June 1995 Gold Strike
acquisition. For fiscal 2000, the Company estimates its effective tax rate
will be approximately 39%.
FISCAL 1998 COMPARED WITH FISCAL 1997
RESULTS OF OPERATIONS
Excluding nonrecurring items and preopening expenses, earnings per share for
fiscal 1998 were $1.01 compared to $1.33 in the previous year. During fiscal
1998, the Company recognized approximately $8.0 million in costs associated
with the resignation of its chairman and $3.4 million of preopening expenses
related to a new 1,100-room hotel at its remodeled Gold Strike-Tunica. The
Company also recognized a $6.0 million gain on the sale of a company
airplane. During fiscal 1997, the Company took one-time asset write-offs
totaling $48.3 million that were related to construction and remodeling at
Luxor and Circus Circus-Las Vegas. In addition, it recognized $5.6 million in
preopening expenses for Monte Carlo.
The decline in earnings in fiscal 1998 was due primarily to two factors. The
first was lower operating income at Excalibur, which faced significant new
competition from New York-New York, Monte Carlo and the expanded Luxor. The
second factor was higher interest expense arising from borrowings in the
prior year for the expansion projects at Luxor and Circus Circus-Las Vegas.
REVENUES
Revenues for fiscal 1998 increased $20.2 million, or 2%, from fiscal 1997.
This increase was attributable primarily to Luxor, whose revenues grew 34% on
the strength of 1,950 new rooms.
Circus Circus-Las Vegas posted an increase in revenues of 5% due to 1,000 new
rooms, which opened late in fiscal 1997. Contributing to the positive fiscal
1998 comparisons for both Luxor and Circus Circus-Las Vegas was the fact that
in the prior year those properties' operations were significantly disrupted
by construction. The Company also benefitted from a full year's contribution
from Monte Carlo, which was open only seven months in the prior year.
Meanwhile, the Company's 50% interest in Silver Legacy contributed $20.7
million to the Company's revenues in fiscal 1998 versus $12.0 million in
fiscal 1997. Effective May 1, 1997, the Company began receiving a priority
return on its investment in Silver Legacy representing approximately
two-thirds of the joint venture's operating income.
30
<PAGE>
The above increases were offset by the closure of the Hacienda Hotel and
Casino in December 1996, which produced $41.6 million in revenues in fiscal
1997, and by lower results at Excalibur, whose revenues decreased $23.4
million, or 8%, from their record level of the prior year.
INCOME FROM OPERATIONS (excluding nonrecurring items)
Income from operations for fiscal 1998 decreased $28.9 million, or 10%, from
fiscal 1997. The principal factor behind this decline was depreciation
expense, which was $26.0 million higher in fiscal 1998 due to the expansion
projects at Luxor and Circus Circus-Las Vegas that were completed in fiscal
1997. Operating income was also negatively affected by lower results at
Excalibur, closure of the Hacienda and sale of the Company's interest in
Windsor Casino Limited, which in fiscal 1997 had contributed $9.5 million of
operating income to the Company's results.
DEPRECIATION AND AMORTIZATION
In fiscal 1998, depreciation and amortization expense rose $26.0 million, to
$129.7 million. This increase stemmed primarily from a full year's
depreciation on the expansion and remodeling projects at Luxor and Circus
Circus-Las Vegas.
INTEREST EXPENSE
In fiscal 1998, interest incurred (excluding joint venture interest expense
and before capitalized interest) rose $40.2 million to $110.9 million. This
increase was due primarily to higher average debt outstanding ($1.6 billion
versus $865 million in fiscal 1997) related to the completed expansion
projects at Luxor and Circus Circus-Las Vegas; a share repurchase in fiscal
1997; the completed expansion at Gold Strike-Tunica; and the ongoing
construction of Mandalay Bay. The increase was partially offset by higher
capitalized interest ($22.0 million versus $16.0 million in fiscal 1997)
related primarily to the Gold Strike-Tunica and Mandalay Bay projects.
The Company also recorded interest expense related to joint venture projects
of approximately $15.6 million in both fiscal 1998 and fiscal 1997. This
represents the Company's 50% share of Silver Legacy's and Monte Carlo's
interest expense.
FINANCIAL POSITION AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $81.4 million at January 31,
1999, reflecting normal daily operating requirements. The Company's pretax
cash flow from operations (before nonrecurring items) was $415.8 million in
fiscal 1999 compared to $401.2 million in fiscal 1998 and $398.5 million in
fiscal 1997. Pretax cash flow from operations is defined as the Company's
income from operations (before nonrecurring items) plus noncash operating
expenses (primarily depreciation and amortization). See "Free Cash Flow
Analysis" on page 25.
The Company used its fiscal 1999 cash flow (in combination with borrowings)
primarily to fund the construction of Mandalay Bay and other core components
of Masterplan Mile (a convention center, arena, monorail and aquarium
exhibit); the renovation of hotel rooms at Excalibur; the completion of the
hotel tower at Gold Strike-Tunica; the repurchase of 4.5 million shares of
its common stock; and other miscellaneous construction projects. During
fiscal 1998, the Company used its cash flow (in combination with borrowings)
to fund the construction of Mandalay Bay, the construction of the new hotel
tower at Gold Strike- Tunica, and other miscellaneous construction projects.
31
<PAGE>
CAPITAL SPENDING
Capital expenditures in fiscal 1999 were $671.5 million compared with $663.3
million in fiscal 1998 and $585.8 million in fiscal 1997. The majority of
capital expenditures in fiscal 1999 related to the construction of Mandalay
Bay ($431.8 million), the construction of the other core components of
Masterplan Mile ($92.0 million), the renovation of the hotel rooms at
Excalibur ($12.3 million) and the completion of construction and remodeling
at Gold Strike-Tunica ($18.8 million).
The majority of the capital expenditures in fiscal 1998 related to
construction at Mandalay Bay ($264.9 million), the construction and
remodeling at Gold Strike-Tunica ($119.8 million), completion of the
remaining elements of the Luxor expansion ($116.5 million), remodeling of the
tower rooms and completion of the expansion at Circus Circus-Las Vegas ($35.2
million), remodeling of the casino at Circus Circus-Reno ($25.6 million),
various renovation projects at Excalibur ($25.1 million), and the addition of
a microbrewery and other improvements at the Colorado Belle ($9.8 million).
LONG-TERM DEBT
In May 1997, the Company amended its unsecured credit facility with its bank
group, increasing the size of the facility from $1.5 billion to $2.0 billion
at more favorable terms and pricing (see Note 3 of Notes to Consolidated
Financial Statements). In order to allow for increased borrowing capacity
during the construction of Mandalay Bay, the credit facility was further
amended in May 1998 to provide a more liberal test for total indebtedness
during such period and a new leverage test for senior debt. The Company also
has a commercial paper program, pursuant to which it may utilize up to $1
billion of its borrowing capacity under the credit facility to issue
commercial paper. As of January 31, 1999, the Company had aggregate
borrowings of $1.1 billion outstanding under the credit facility and an
additional $50 million outstanding under its corporate debt program.
On October 30, 1998, the Company entered into an operating lease with a group
of financial institutions (the "Lease Facility") pursuant to which it may
lease up to $200 million of equipment. The lease term consists of an interim
term commencing on the delivery date and ending June 30, 1999, plus a base
term of two years. On January 28, 1999, the Company leased $100 million of
equipment at Mandalay Bay pursuant to the Lease Facility and permanently
reduced the commitment under its bank credit facility by the amount of the
lease financing, thus reducing the commitment under the credit facility to
$1.9 billion at January 31, 1999. An additional $75 million was drawn under
the Lease Facility in April 1999, thus further reducing the commitment under
the bank credit facility to $1.825 billion.
In August 1998, the Company filed a shelf registration statement relating to
$550 million of securities that may be issued from time to time in the form
of additional debt securities of the Company. Securities may also be issued
in the form of preferred securities of Delaware business trusts formed for
the purpose of issuing their trust securities and investing the proceeds in
debt securities of the Company.
In November 1998, pursuant to the shelf registration statement, the Company
issued $275 million principal amount of 9 1/4% Senior Subordinated Notes due
December 1, 2005. Proceeds from this offering were used to repay outstanding
borrowings under the credit facility.
32
<PAGE>
JOINT VENTURES
In July 1995, Silver Legacy, a 50/50 joint venture with the Eldorado
Hotel/Casino, opened in downtown Reno, Nevada. As a condition of the joint
venture's $230 million bank credit agreement, the Company is obligated under
a make-well agreement to make additional contributions to the joint venture
as may be necessary to maintain a minimum coverage ratio (as defined).
NEW PROJECTS
On March 2, 1999, the Company opened Mandalay Bay, a 43-story, hotel/casino
resort in Las Vegas, Nevada. The resort includes approximately 3,700 rooms and
135,000 square feet of gaming space and is situated on approximately 60 acres of
land just south of Luxor. Mandalay Bay's attractions include an 11-acre tropical
lagoon featuring a sand-and-surf beach, a three-quarter-mile lazy river ride, a
30,000-square-foot spa and other entertainment attractions. Inside, Mandalay Bay
offers internationally renowned restaurants; a House of Blues nightclub and
restaurant, including its signature Foundation Room sited on Mandalay Bay's
rooftop; and 100 "music-themed" hotel rooms in Mandalay Bay's tower.
Four Seasons operates approximately 400 rooms at Mandalay Bay, providing Las
Vegas visitors with a luxury "five-star" hospitality experience. The Four
Seasons Hotel, which is owned by the Company and managed by Four Seasons,
represents the first step in the Company's cooperative effort with Four
Seasons to identify strategic opportunities for development of hotel and
casino properties worldwide. The total cost of Mandalay Bay, including the
Four Seasons Hotel and including leased equipment, but excluding land,
capitalized interest and preopening expenses, was approximately $900 million;
as of January 31, 1999, $784.8 million of this cost had been incurred.
During construction, Mandalay Bay's hotel tower experienced settling in
excess of the level contemplated in the building's original design. The
settling was greater in some portions of the structure than others. The
Company retained geotechnical, structural engineering and foundation
consultants who evaluated the situation and recommended remedial measures,
which have been completed. These remedial measures will be evaluated over a
period of time to determine if any further measures will be required.
Mandalay Bay is the latest phase of the Company's development of more than
230 acres of land it owns at the south end of the Las Vegas Strip. This
parcel of land runs from Tropicana Avenue south approximately one mile to
Russell Road ("Masterplan Mile"). As part of its development plan for
Masterplan Mile, the Company has completed construction of a
125,000-square-foot convention facility, which opened March 12, and a
12,000-seat arena, which opened April 10. These properties, which represent
core components of Masterplan Mile, will be cross-marketed to guests at the
Company's existing and future hotel/casinos within Masterplan Mile. The total
estimated cost of the convention facility and arena, excluding land,
capitalized interest and preopening expenses, was approximately $115 million;
as of January 31, 1999, $73.9 million in costs had been incurred for these
facilities.
The Company has also completed construction of a monorail system, which links
the Company's resorts on Masterplan Mile. Furthermore, the Company is planning a
Sea of Predators aquarium exhibit, which is expected to open early in the year
2000. The cost of these additional Masterplan Mile core components, excluding
land, capitalized interest and preopening expenses, is estimated at
approximately $75 million, of which $19.9 million had been incurred as of
January 31, 1999. The Company may add other core components to its development
plan for Masterplan Mile in the future.
33
<PAGE>
The Company has formed a joint venture with the Detroit-based Atwater Casino
Group to build, own and operate a hotel/casino in Detroit, Michigan. The Company
will own a 45% equity interest in the proposed project and receive a management
fee. The joint venture is one of three groups which negotiated development
agreements with the city. These agreements were approved by the city council on
April 9, 1998. The joint venture's ability to proceed with the proposed project
is contingent upon the receipt of all necessary gaming approvals and
satisfaction of other conditions. The joint venture is planning a $600 million
project. The Company is expected to contribute 20% of this amount in the form of
equity, and will seek project-specific financing for the balance. The
development agreement provides that the Company will guarantee completion of the
project and will enter into a keep-well guarantee with the city, pursuant to
which the Company could be required to contribute additional funds, if and as
needed, to continue operation of the project for a period of two years.
The Detroit joint venture has commenced construction of a temporary casino
property in downtown Detroit. The property will contain approximately 75,000
square feet of gaming space, including approximately 2,600 slot machines and 130
table games, plus 5 restaurants and a 3,000-space parking facility. Construction
is expected to be completed in September 1999. The cost of the temporary casino,
including land and capitalized interest, is approximately $140 million. The
joint venture will shortly complete a $150 million credit facility secured by
the assets associated with the Detroit temporary casino. The Company will
guaranty the credit facility subject to the release of the guaranty if certain
performance measures are reached. The joint venture's ability to proceed with
the temporary casino facility is contingent upon the receipt of all necessary
gaming approvals and satisfaction of other customary conditions.
The City of Detroit's Casino Development Competitive Selection Process ordinance
has been challenged in a lawsuit brought by the Lac Vieux Band of Lake Superior
Chippewa Indians. No assurance can be given regarding the timing and outcome of
proceedings in this litigation. If the court determines that the Detroit
ordinance is defective and that determination is upheld, this may have an impact
upon the validity of the development agreement entered into between the joint
venture and the City of Detroit which, in turn, could have an impact on the
issuance of a certificate of suitability and a casino license to the joint
venture.
The Company has announced that it plans to develop a hotel/casino resort on
the Mississippi Gulf Coast at the north end of the Bay of St. Louis, near the
DeLisle exit on Interstate 10. It is currently anticipated that the resort
will include approximately 1,500 rooms and will involve an investment of
approximately $225 million. The Company has received all necessary approvals
to commence development. However, these approvals have been challenged in
federal court, and the Company anticipates that the design and construction
of this project will begin only after satisfactory resolution of all legal
actions. Present plans call for Circus to own 90% of the resort, with a
partner contributing land (up to 500 acres) in exchange for the remaining 10%
interest.
Although the Company had previously entered into an agreement with Mirage
Resorts to participate in the development of a site located in the Marina
District of Atlantic City, New Jersey, the agreement was subject to litigation,
which was subsequently settled. The Company has no current plans for development
in Atlantic City.
LIQUIDITY
The Company believes that -- through the combination of its operating cash
flows, credit facility and ability to raise additional funds through debt or
equity markets -- it has sufficient capital resources to meet all of its
existing cash obligations, fund its capital commitments on the projects under
way and strategically repurchase shares of the Company's common stock. As of
January 31, 1999, under its most restrictive loan covenant, the Company could
issue additional debt of approximately $43 million.
34
<PAGE>
The calculation of additional debt capacity is based on either the most
recent quarter times four, or a rolling four-quarter total, whichever is
better. With the opening of Mandalay Bay on March 2, 1999, the Company
anticipates that its capacity to incur additional debt will increase as of
April 30, 1999.
MARKET RISK AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to market risk in the form of fluctuations in interest
rates and their potential impact upon the Company's variable-rate debt. The
Company manages this market risk by utilizing derivative financial instruments
in accordance with established policies and procedures. The Company evaluates
its exposure to market risk by monitoring interest rates in the marketplace. The
Company does not utilize derivative financial instruments for trading purposes.
There have been no material quantitative changes in market risk exposure, or how
such risks are managed, in the current fiscal year when compared to the prior
fiscal year.
The Company's derivative financial instruments consist exclusively of interest
rate swap agreements. Interest differentials resulting from these agreements are
recorded on an accrual basis as an adjustment to interest expense. Interest rate
swaps related to debt are matched either with specific fixed-rate debt
obligations or with levels of variable-rate borrowings.
To manage its exposure to counterparty credit risk in interest rate swaps, the
Company enters into agreements with highly rated institutions that can be
expected to fully perform under the terms of such agreements. Frequently, these
institutions are also members of the bank group providing the Company's credit
facility, which management believes further minimizes the risk of
nonperformance.
The following table provides information about the Company's financial
instruments (both interest rate swaps and debt obligations) that are sensitive
to changes in interest rates. For debt obligations, the table presents principal
cash flows and related weighted-average interest rates by expected maturity
dates. For interest rate swaps, the table presents notional amounts and
weighted-average interest rates by contractual maturity dates. Notional amounts
are used to calculate the contractual cash flows to be exchanged under the
contract. Weighted-average variable rates are based on implied forward rates in
the yield curve. Implied forward rates should not be considered a predictor of
actual future interest rates.
<TABLE>
<CAPTION>
Year ending January 31,
----------------------------------------------------
(in millions) 2000 2001 2002 2003 2004 Thereafter Total
-------- -------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term debt (including current portion)
Fixed rate $ 3.5 $ 0.5 $ 0.3 $ 0.3 $ 150.2 $ 927.8 $1,082.6
Average interest
rate 5.3% 5.6% 6.7% 6.7% 6.8% 7.6% 7.5%
Variable rate -- -- -- $1,180.0 -- -- $1,180.0
Average interest
rate -- -- -- 6.0% -- -- 6.0%
Interest rate swaps
Pay fixed $ 25.0 -- -- -- -- $ 150.0 $ 175.0
Average payable
rate 8.1% -- -- -- -- 5.9% 6.2%
Average receivable
rate 5.6% -- -- -- -- 6.8% 6.6%
Pay floating -- -- $ 30.0 -- -- -- $ 30.0
Average payable
rate -- -- 5.9% -- -- -- 5.9%
Average receivable
rate -- -- 8.2% -- -- -- 8.2%
</TABLE>
35
<PAGE>
YEAR 2000 READINESS DISCLOSURE
BACKGROUND
In the past, many computer software programs were written using two digits
rather than four to define the applicable year. As a result, information
technology ("IT"), such as date-sensitive computer software, as well as non-IT
systems (such as equipment containing microcontrollers or other embedded
technology) may recognize a date using "00" as the year 1900 rather than the
year 2000. This is generally referred to as the Year 2000 issue. If the year is
recognized incorrectly, the potential exists for computer system failures or
miscalculations by computer programs, which could disrupt operations.
RISK FACTORS
Date-sensitive IT and non-IT systems and equipment are utilized throughout the
Company's wholly owned properties and its joint venture properties.
Consequently, the Company is exposed to the risk that Year 2000 problems could
disrupt operations at the affected properties and have a material adverse impact
upon the Company's operating results.
The Company is also exposed to the risk of possible failure of IT and non-IT
systems external to the Company's operations ("external risk factors"). These
external risk factors arise from the fact that the Company's operations, like
those of most businesses, are dependent upon numerous other private and public
entities. While such risk factors are not the responsibility of the Company and
their remediation is beyond the Company's control, we are attempting to monitor
these risks and form contingency plans as warranted. As a result of the external
risk factors, the Company may be materially and adversely impacted even if its
own IT and non-IT systems and equipment are Year 2000-compliant. The most
significant of these factors are as follows:
- -One or more of the Company's suppliers or its joint ventures' suppliers could
experience Year 2000 problems that impact their ability to provide goods and
services. The Company believes that such a disruption would have a limited
impact due to the availability of alternative suppliers.
- -One or more of the Company's utility providers (of electric, natural gas,
water, sewer, garbage collection and similar services) could experience Year
2000 problems that impact their ability to provide their services. Furthermore,
the Company could be adversely impacted if utility services were significantly
disrupted in any of its key customer markets (e.g., southern California), as
this could alter the customary flow of visitors from the affected market.
- -Airline service to and from the principal markets in which the Company operates
could be disrupted by Year 2000 problems, which would limit the ability of
potential customers to visit our properties.
- -The possible disruption of banking services due to Year 2000 problems could
impair the Company's daily financial transactions, including the deposit of
monies and processing of checks. Furthermore, credit card processing and
customers' access to cash via automated teller machines could also be disrupted.
The Company is developing contingency plans to address the identified risks.
However, given the nature of many of the external risk factors, the Company does
not believe viable alternatives would be available. For example, the Company
cannot develop a meaningful contingency plan to address a disruption in airline
service. Consequently, the occurrence of any of the aforementioned disruptions
could, depending upon their severity and duration, have a material adverse
impact on operating results.
36
<PAGE>
APPROACH
The Company has established a task force to coordinate its response to the Year
2000. This task force, which reports to the Audit Committee of the Board of
Directors, includes the Company's Chief Accounting Officer, the Chief Internal
Auditor, the Director of Information Services, as well as support staff.
Previously, the Company engaged an outside consultant who helped establish a
program for dealing with the Year 2000 issue. The Company is now implementing
this program at its wholly owned properties and at its joint venture properties.
The program consists of the following phases:
Phase 1 Compile an inventory of IT and non-IT systems that may be
sensitive to the Year 2000 problem.
Phase 2 Identify which of these systems are critical, and
prioritize them; identify third parties with whom the
Company does significant business (e.g., vendors) and
inquire as to the state of their Year 2000 readiness.
Phase 3 Analyze critical systems to determine which ones
are not Year 2000-compliant, and evaluate the costs to
repair or replace them.
Phase 4 Repair or replace noncompliant systems; test those
systems for which information about Year 2000 compliance
has not been received or for which information has been
received but not confirmed.
STATUS
Phases 1 and 2 are substantially complete, though the Company has not received
all responses from significant third parties about their Year 2000 readiness.
Phases 3 and 4 are ongoing and will continue through the first half of calendar
1999. It is the Company's goal to have this project substantially completed by
mid-1999. Based upon the analysis conducted to date, the Company believes that
all of the critical systems at its wholly owned and joint venture properties are
currently compliant or will be compliant by mid-1999. To date, the most
significant Year 2000 requirement that has been identified is the need to
replace older personal computers whose systems are not Year 2000 compatible.
COSTS
The Company currently estimates that the total cost to the Company of making
its systems and those of its joint venture properties Year 2000 compliant
will be in the range of $5 to $10 million, of which approximately $3.6
million had been incurred as of January 31, 1999. Most of this cost relates
to the acquisition of new computer hardware to replace noncompliant personal
computers and the purchase of new software to replace noncompliant software.
These costs are being capitalized and the equipment and software depreciated
over their expected useful lives. To the extent existing hardware or software
is replaced, the Company will recognize a loss currently for the
undepreciated balance. This loss is included in the above cost estimate.
Furthermore, all costs related to software modification, as well as all costs
associated with the Company's administration of its Year 2000 project, are
being expensed as incurred and are likewise included in the cost estimate
above.
37
<PAGE>
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31,
----------------------------
1999 1998
----------- -----------
(in thousands, except share data)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 81,389 $ 58,631
Accounts receivable 26,136 21,714
Income tax receivable -- 11,926
Inventories 24,270 22,440
Prepaid expenses 21,451 20,281
Deferred income tax 8,032 7,871
----------- -----------
Total current assets 161,278 142,863
----------- -----------
Property, equipment and leasehold interests,
at cost, net 3,000,822 2,466,848
----------- -----------
Other assets
Excess of purchase price over fair
market value of net assets acquired, net 367,076 375,375
Notes receivable 10,895 1,075
Investments in unconsolidated affiliates 271,707 255,392
Deferred charges and other assets 57,929 21,995
----------- -----------
Total other assets 707,607 653,837
----------- -----------
Total assets $3,869,707 $3,263,548
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 3,481 $ 3,071
Accounts and contracts payable
Trade 23,745 22,103
Construction 75,030 40,670
Accrued liabilities
Salaries, wages and vacations 40,006 36,107
Progressive jackpots 8,889 7,511
Advance room deposits 8,195 6,217
Interest payable 27,767 17,828
Other 44,460 33,451
----------- -----------
Total current liabilities 231,573 166,958
----------- -----------
Long-term debt 2,259,149 1,788,818
----------- -----------
Other liabilities
Deferred income tax 200,376 175,934
Other long-term liabilities 20,981 8,089
----------- -----------
Total other liabilities 221,357 184,023
----------- -----------
Total liabilities 2,712,079 2,139,799
----------- -----------
Commitments and contingent liabilities ----------- -----------
Stockholders' equity
Common stock $.01-2/3 par value
Authorized -- 450,000,000 shares
Issued -- 113,622,508 and 113,609,008 shares 1,894 1,893
Preferred stock $.01 par value
Authorized -- 75,000,000 shares -- --
Additional paid-in capital 558,935 558,658
Retained earnings 1,159,469 1,074,271
Treasury stock (22,959,425 and 18,496,125
shares), at cost (562,670) (511,073)
----------- -----------
Total stockholders' equity 1,157,628 1,123,749
----------- -----------
Total liabilities and stockholders' equity $3,869,707 $3,263,548
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
38
<PAGE>
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended January 31,
(in thousands, except share data)
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues
Casino $ 709,909 $ 632,122 $ 655,902
Rooms 355,635 330,644 294,241
Food and beverage 246,622 215,584 210,384
Other 170,701 142,407 146,554
Earnings of unconsolidated affiliates 83,967 98,977 86,646
-------- --------- ---------
1,566,834 1,419,734 1,393,727
Less-complimentary allowances (87,054) (65,247) (59,477)
--------- --------- ---------
1,479,780 1,354,487 1,334,250
--------- --------- ---------
Costs and expenses
Casino 367,449 316,902 302,096
Rooms 128,622 122,934 116,508
Food and beverage 207,663 199,955 200,722
Other operating expenses 102,910 90,187 90,601
General and administrative 264,092 232,536 227,348
Depreciation and amortization 133,801 117,474 95,414
Preopening expense -- 3,447 --
Abandonment losses -- -- 48,309
--------- --------- ---------
1,204,537 1,083,435 1,080,998
--------- --------- ---------
Operating profit before
corporate expense 275,243 271,052 253,252
Corporate expense 32,464 34,552 31,083
--------- --------- ---------
Income from operations 242,779 236,500 222,169
--------- --------- ---------
Other income (expense)
Interest, dividends and
other income 2,730 9,779 5,077
Interest income and guarantee fees
from unconsolidated affiliate 3,122 6,041 6,865
Interest expense (95,541) (88,847) (54,681)
Interest expense from unconsolidated
affiliates (12,275) (15,551) (15,567)
--------- --------- ---------
(101,964) (88,578) (58,306)
--------- --------- ---------
Income before provision for income tax 140,815 147,922 163,863
Provision for income tax 55,617 58,014 63,130
--------- --------- ---------
Net income $ 85,198 $ 89,908 $100,733
========= ========= =========
Basic earnings per share $0.90 $0.95 $0.99
========= ========= =========
Diluted earnings per share $0.90 $0.94 $0.97
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
39
<PAGE>
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended January 31,
--------- --------- ---------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Increase (decrease) in cash
and cash equivalents (in thousands)
Cash flows from operating activities
Net income $ 85,198 $ 89,908 $ 100,733
--------- --------- ---------
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 142,141 129,729 103,717
Increase in deferred income tax 24,281 24,005 3,234
Increase in interest payable 9,939 8,824 5,835
(Gain) loss on sale of fixed assets (1,641) (6,519) 47,301
(Increase) decrease in other current
assets 4,504 (2,605) (17,742)
Increase in other current liabilities 19,906 6,148 7,741
Increase in other noncurrent assets (35,817) (785) (3,406)
Decrease in other noncurrent
liabilities (65) (65) (65)
Unconsolidated affiliates' earnings
in excess of distributions (10,863) (33,330) (21,984)
--------- --------- ---------
Total adjustments 152,385 125,402 124,631
--------- --------- ---------
Net cash provided by operating
activities 237,583 215,310 225,364
--------- --------- ---------
Cash flows from investing activities
Capital expenditures (671,547) (663,270) (585,835)
Increase in construction payables 34,360 19,526 21,144
Increase in investments in unconsolidated
affiliates (5,865) (8,353) (19,204)
(Increase) decrease in notes receivable (9,820) 35,368 (8,934)
Proceeds from sale of equipment and other
assets 5,788 8,160 3,056
Other -- -- (1,270)
--------- --------- ---------
Net cash used in investing activities (647,084) (608,569) (591,043)
--------- --------- ---------
Cash flows from financing activities
Proceeds from issuance of senior notes
and debentures 275,000 -- 499,066
Net effect on cash of issuances and
payments of debt with initial maturities
of three months or less 502,528 474,355 43,850
Issuance of debt with initial maturities
in excess of three months 337,334 201,843 292,533
Principal payments of debt with initial
maturities in excess of three months (644,241) (290,712) (145,392)
Exercise of stock options and warrants 310 7,889 28,400
Purchase of stock warrants -- (2,000) --
Purchase of subsidiary preferred stock -- -- (1,346)
Purchases of treasury stock (51,634) (1,300) (341,837)
Other 12,962 (7,701) (2,783)
--------- --------- ---------
Net cash provided by financing activities 432,259 382,374 372,491
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 22,758 (10,885) 6,812
Cash and cash equivalents at beginning
of year 58,631 69,516 62,704
--------- --------- ---------
Cash and cash equivalents at end of year $ 81,389 $ 58,631 $ 69,516
========= ========= =========
Supplemental cash flow disclosures
Cash paid during the year for
Interest (net of amount capitalized) $ 82,879 $ 77,426 $ 46,498
Income tax $ 18,770 $ 37,395 $ 48,043
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
40
<PAGE>
CIRCUS CIRCUS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Issued Additional Total
------------------- Paid-in Retained Treasury Stockholders'
Shares Amount Capital Earnings Stock Equity
-------- -------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
Balance, January 31, 1996 112,795 $ 1,880 $ 527,205 $ 883,630 $ (185,903) $ 1,226,812
Net income -- -- -- 100,733 -- 100,733
Exercise of stock options and warrants 13 -- 14,005 -- 14,395 28,400
Treasury stock acquired (10,096 shares),
at cost -- -- -- -- (341,837) (341,837)
Purchase of subsidiary preferred stock -- -- (447) -- -- (447)
Sale/purchase of puts and calls -- -- (44,950) -- -- (44,950)
Amortization of deferred compensation -- -- 3,080 -- -- 3,080
-------- -------- ---------- ---------- ----------- -----------
Balance, January 31, 1997 112,808 1,880 498,893 984,363 (513,345) 971,791
Net income -- -- -- 89,908 -- 89,908
Exercise of stock options 46 -- 4,317 -- 3,572 7,889
Treasury stock acquired (38 shares),
at cost -- -- -- -- (1,300) (1,300)
Conversion of subsidiary preferred stock 755 13 17,618 -- -- 17,631
Sale/purchase of puts and calls -- -- 35,536 -- -- 35,536
Amortization of deferred compensation -- -- 4,294 -- -- 4,294
Purchase of warrants -- -- (2,000) -- -- (2,000)
-------- -------- ---------- ---------- ----------- -----------
Balance, January 31, 1998 113,609 1,893 558,658 1,074,271 (511,073) 1,123,749
Net income -- -- -- 85,198 -- 85,198
Exercise of stock options 14 1 272 -- 37 310
Treasury stock acquired (4,466 shares),
at cost -- -- -- -- (51,634) (51,634)
Other -- -- 5 -- -- 5
-------- -------- ---------- ---------- ----------- -----------
Balance, January 31, 1999 113,623 $ 1,894 $ 558,935 $ 1,159,4 $ (562,670) $ 1,157,628
======== ======= ========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
Circus Circus Enterprises, Inc. (the "Company") was incorporated February 27,
1974. The Company owns and operates hotel and casino facilities in Las Vegas,
Reno, Laughlin, Jean and Henderson, Nevada and in Tunica County, Mississippi.
It is also an investor in several unconsolidated affiliates, with operations
that include a riverboat casino in Elgin, Illinois, a hotel/casino in Reno,
Nevada and a hotel/casino on the Las Vegas Strip. (See Note 10 - Investments
in Unconsolidated Affiliates.)
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Material intercompany accounts and
transactions have been eliminated. Investments in 50% or less owned
affiliated companies are accounted for under the equity method.
On June 1, 1995, the Company completed its acquisition of Gold Strike
Resorts, in which it acquired two hotel/casino facilities in Jean, Nevada,
one in Henderson, Nevada, a 50% interest in a joint venture which owns Grand
Victoria, a riverboat casino and land- based entertainment complex in Elgin,
Illinois, and a 50% interest in a joint venture which owns the Monte Carlo, a
major hotel/ casino on the Las Vegas Strip. On February 1, 1983, the Company
purchased the Edgewater Hotel and Casino in Laughlin, Nevada and on November
l, 1979, the Company purchased the Slots-A-Fun Casino in Las Vegas. The
excess of the purchase price over the fair market value of the net assets
acquired amounted to $394.5 million for the purchase of Gold Strike Resorts,
$9.7 million for the purchase of the Edgewater and $4.2 million for the
purchase of Slots-A-Fun, and each is being amortized over a period of 40
years.
CAPITALIZED INTEREST
The Company capitalizes interest costs associated with debt incurred in
connection with major construction projects. When debt is not specifically
identified as being incurred in connection with a construction project, the
Company capitalizes interest on amounts expended on the project at the
Company's average cost of borrowed money. The amounts capitalized during the
years ended January 31, 1999, 1998 and 1997, were $45.5 million, $22.0
million and $16.0 million, respectively.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out and the average cost methods.
CASH EQUIVALENTS
At January 31, 1999 and 1998, cash equivalents (consisting principally of
money market funds and instruments with initial maturities of three months or
less) had a cost approximately equal to market value.
INTEREST RATE SWAPS
The Company, from time to time, uses interest rate swaps and similar
financial instruments to assist in managing interest incurred on its
long-term debt. The difference between amounts received and amounts paid
under such agreements, as well as any costs or fees, is recorded as a
reduction of, or addition to, interest expense as incurred over the life of
the swap or similar financial instrument.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property, equipment and leasehold interests
are provided using the straight-line method over the following estimated
useful lives:
<TABLE>
- ------------------------------------------------------------------------------
<S> <C>
Buildings and improvements 15-45 years
Equipment, furniture and fixtures 3-15 years
Leasehold interests and improvements 5-16 years
- -------------------------------------------------------------------------------
</TABLE>
Accumulated amortization of the excess of the purchase price over the
fair market value of the net assets of businesses acquired was $41.3 million
and $31.1 million, as of January 31, 1999 and 1998, respectively.
42
<PAGE>
REVENUES AND EXPENSES
Revenues include the retail value of rooms, food and beverage furnished
gratuitously to customers. Such amounts are then deducted as complimentary
allowances. The costs of such rooms, food and beverage were included as
casino expenses as follows: $58.7 million, $45.9 million and $37.9 million
for the fiscal years ended January 31, 1999, 1998 and 1997, respectively. For
the three years, approximately 80%-90% of such costs were for food and
beverage with the balance for rooms. Casino revenues are the net difference
between the sums received as winnings and the sums paid as losses.
RECLASSIFICATIONS
The financial statements for prior years reflect certain reclassifications,
which have no effect on net income, to conform with classifications adopted
in the current year.
PREOPENING EXPENSES
Preopening expenses consist principally of direct incremental personnel costs
and advertising and marketing expenses. These costs are capitalized prior to
the opening of the specific project and are charged to expense at the
commencement of operations. For the year ended January 31, 1998, preopening
expenses amounted to $3.4 million related to the opening of a hotel tower at
Gold Strike Casino Resort in Tunica County, Mississippi.
In accordance with a recent accounting pronouncement, preopening expenses
incurred prior to January 31, 1999 ($33.8 million), on projects opening after
that date, will be reflected as a cumulative effect of a change in accounting
principle in the first quarter ending April 30, 1999. Preopening expenses
incurred after January 31, 1999 on those projects will be expensed as
incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and affect the
disclosure of contingent assets and liabilities at the date of the financial
statements. These estimates and assumptions also affect the reported amounts
of revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Note 2. Property, Equipment and Leasehold Interests
Property, equipment and leasehold interests consist of the following:
<TABLE>
<CAPTION>
January 31, (in thousands) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Land and land leases $ 362,661 $ 343,556
Buildings and improvements 1,851,511 1,798,417
Equipment, furniture and fixtures 653,058 618,011
Leasehold interests and improvements 11,192 10,803
- ------------------------------------------------------------------------------
2,878,422 2,770,787
Less - accumulated depreciation
and amortization (733,967) (624,205)
- ------------------------------------------------------------------------------
2,144,455 2,146,582
Construction in progress 856,367 320,266
- ------------------------------------------------------------------------------
$3,000,822 $2,466,848
========== ==========
</TABLE>
43
<PAGE>
Note 3. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 31, (in thousands) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Amounts due under bank credit agreements
at floating interest rates, weighted
average of 6.0% $ 1,130,000 $ --
Amounts due under corporate debt program
at floating interest rates, weighted
average of 5.7% and 5.8% 50,000 981,310
9-1/4% Senior Subordinated Notes due 2005 275,000 --
6.45% Senior Notes due 2006 (net of
unamortized discount of $308 and $352) 199,692 199,648
7-5/8% Senior Subordinated Debentures
due 2013 150,000 150,000
6-3/4% Senior Subordinated Notes due 2003
(net of unamortized discount of $71
and $87) 149,929 149,913
7.0% Debentures due 2036 (net of
unamortized discount of $133 and $146) 149,867 149,854
6.70% Debentures due 2096 (net of
unamortized discount of $231 and $279) 149,769 149,721
Other notes 8,373 11,443
---------- ----------
2,262,630 1,791,889
Less - current portion (3,481) (3,071)
----------- -----------
$2,259,149 $1,788,818
=========== ===========
</TABLE>
The Company has established a corporate debt program whereby it can
issue commercial paper or similar forms of short-term debt. Although the debt
instruments issued under this program are short term in tenor, they are
classified as long-term debt because (i) they are backed by long-term debt
facilities (see below) and (ii) it is management's intention to continue to
replace such borrowings on a rolling basis as various instruments come due
and to have such borrowings outstanding for longer than one year. To the
extent that the Company incurs debt under this program, it maintains an
equivalent amount of credit available under its bank credit facility,
discussed more fully below.
In May 1997, the Company renegotiated its $1.5 billion unsecured credit
facility, dated January 29, 1996. This agreement was replaced by a new $2
billion unsecured credit facility which matures on July 31, 2002 (the
"Facility"). See Note 4 - Leasing Arrangements, for reductions in the
availability under the credit facility due to certain operating lease
transactions. The maturity date may be extended for an unlimited number of
one-year periods with the consent of the bank group. The Facility contains
financial covenants regarding senior and total debt and new venture capital
expenditures and investments. The Facility is for general corporate purposes.
The Company incurs commitment fees (currently 17.5 basis points) on the
unused portion of the Facility. As of January 31, 1999, the Company had $1.1
billion of borrowings under the Facility. At such date, the Company also had
$50 million issued under the corporate debt program thus reducing, by that
amount, the credit available under the Facility for purposes other than
repayment of such indebtedness. The fair value of the debt issued under the
Facility and the corporate debt program approximates the carrying amount of
the debt due to the short-term maturities of the individual components of the
debt.
In November 1998, the Company issued $275 million principal amount of
9-1/4% Senior Subordinated Notes due December 2005 (the "9-1/4% Notes"), with
interest payable each June and December. The 9-1/4% Notes are redeemable at
the option of the Company, in whole, at 100% of the principal amount plus a
make-whole premium at any time prior to December 1, 2002. The 9-1/4% Notes
are also redeemable at the option of the Company, in whole or in part,
beginning December 1, 2002 at prices declining annually to 100% on or after
December 1, 2004. The Company may also use the net proceeds of a public
offering of equity securities to redeem up to 35% of the 9-1/4% Notes prior
to December 1, 2001. The 9-1/4% Notes are not subject to any sinking fund
requirements. The net proceeds from this offering were used to repay
borrowings under the Company's credit facility. As of January 31, 1999, the
estimated fair value of the 9-1/4% Notes was $277.1 million, based on their
trading price.
44
<PAGE>
In November 1996, the Company issued $150 million principal amount of
7.0% Debentures due November 2036 (the "7.0% Debentures"). The 7.0%
Debentures may be redeemed at the option of the holder in November 2008.
Also, in November 1996, the Company issued $150 million principal amount of
6.70% Debentures due November 2096 (the "6.70% Debentures"). The 6.70%
Debentures may be redeemed at the option of the holder in November 2003. Both
the 7.0% Debentures, which were discounted to $149.8 million, and the 6.70%
Debentures, which were discounted to $149.7 million, have interest payable
each May and November, are not redeemable by the Company prior to maturity
and are not subject to any sinking fund requirements. The net proceeds from
these offerings were used primarily to repay borrowings under the Company's
corporate debt program. As of January 31, 1999, the estimated fair value of
the 7.0% Debentures was $139.9 million and the estimated fair value of the
6.70% Debentures was $143.4 million, based on their trading prices.
In February 1996, the Company issued $200 million principal amount of
6.45% Senior Notes due February 1, 2006 (the "6.45% Notes"), with interest
payable each February and August. The 6.45% Notes, which were discounted to
$199.6 million, are not redeemable prior to maturity and are not subject to
any sinking fund requirements. The net proceeds from this offering were used
primarily to repay borrowings under the Company's corporate debt program. As
of January 31, 1999, the estimated fair value of the 6.45% Notes was $184.5
million, based on their trading price.
In July 1993, the Company issued $150 million principal amount of 6-3/4%
Senior Subordinated Notes (the "6-3/4% Notes") due July 2003 and $150 million
principal amount of 7-5/8% Senior Subordinated Debentures (the "7-5/8%
Debentures") due July 2013, with interest payable each July and January. The
6-3/4% Notes, which were discounted to $149.8 million, and the 7-5/8%
Debentures are not redeemable prior to maturity and are not subject to any
sinking fund requirements. The net proceeds from these offerings were used
primarily to repay borrowings under the Company's corporate debt program. As
of January 31, 1999, the estimated fair value of the 6-3/4% Notes was $142.1
million and the estimated fair value of the 7-5/8% Debentures was $133.5
million, based on their trading prices.
The Company has a policy aimed at managing interest rate risk associated
with its current and anticipated future borrowings. This policy enables the
Company to use any combination of interest rate swaps, futures, options, caps
and similar instruments. To the extent the Company employs such financial
instruments pursuant to this policy, they are accounted for as hedging
instruments. In order to qualify for hedge accounting, the underlying hedged
item must expose the Company to risks associated with market fluctuations and
the financial instrument used must be designated as a hedge and must reduce
the Company's exposure to market fluctuation throughout the hedge period. If
these criteria are not met, a change in the market value of the financial
instrument is recognized as a gain or loss in the period of change.
Otherwise, gains and losses are not recognized except to the extent that the
financial instrument is disposed of prior to maturity. Net interest paid or
received pursuant to the financial instrument is included as interest expense
in the period.
The Company has entered into various interest rate swaps, principally
with its bank group, to manage interest expense, which is subject to
fluctuation due to the variable-rate nature of the debt under the Company's
corporate debt program. The Company has interest rate swap agreements under
which it pays a fixed interest rate (weighted average of approximately 6.2%)
and receives a variable interest rate (weighted average of approximately 5.3%
at January 31, 1999) on $175 million notional amount of "initial" swaps, and
pays a variable interest rate of approximately 5.6% at January 31, 1999, and
receives a fixed interest rate of approximately 8.2% on $30 million notional
amount of a "reversing" swap. The net effect of all such swaps resulted in
additional interest expense due to an interest rate differential which, at
January 31, 1999, was approximately 0.4% on the total notional amount of the
swaps. Two of the initial swaps with a combined notional amount of $150
million provide that the swaps will terminate two business days after any
date on which three-month LIBOR is set at or above 9.0% on or after October
15, 2000 for $100 million notional amount and on or after January 15, 2001
for $50 million notional amount. These swaps otherwise terminate in fiscal
2008. The remaining initial swap of $25 million terminates in fiscal 2000,
while the reversing swap expires in fiscal 2002.
45
<PAGE>
The Company is exposed to credit loss in the event of nonperformance by
the other parties to the interest rate swap agreements. However, the Company
considers the risk of nonperformance by the counterparties to be minimal
because the parties to the swaps and the reverse swap are predominantly
members of the Company's bank group. If the Company had terminated all swaps
as of January 31, 1999, it would have had to pay a net amount of
approximately $8.8 million based on quoted market values from the various
financial institutions holding the swaps.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 - Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). This statement establishes
accounting and reporting standards for derivative financial instruments. The
provisions of SFAS 133 require that a company recognize derivatives as either
assets or liabilities on its balance sheet and that the instrument be valued
at its fair value. The statement also defines the criteria and conditions
which govern the recognition of subsequent changes in the fair value of the
instrument as either balance sheet or income statement events. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. The Company does
not expect the adoption of this pronouncement to materially impact its
results of operations or financial position.
As of January 31, 1999, under the Company's most restrictive loan
covenants, the Company was restricted as to the purchase of its own capital
stock in excess of approximately $495 million and was restricted from issuing
additional debt in excess of approximately $43 million.
Required annual principal payments as of January 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year ending January 31, (in thousands)
----------------------------------------------------------------
<S> <C>
2000 $ 3,481
2001 488
2002 262
2003 1,180,274
2004 150,216
Thereafter 927,909
----------------------------------------------------------------
$2,262,630
==========
</TABLE>
Note 4. Leasing Arrangements
On October 30, 1998, the Company entered into an operating lease agreement
with a group of financial institutions (the "Lease Facility") pursuant to
which it may lease up to $200 million of equipment. The lease term consists
of an interim term commencing on the delivery date and ending June 30, 1999,
plus a base term of two years. On January 28, 1999, the Company leased $100
million of equipment at Mandalay Bay pursuant to the Lease Facility. The
lease payment is variable in nature. Based upon the current lease rate, the
quarterly lease payment during the interim term is approximately $1.5
million, while the quarterly lease payment during the base term is
approximately $4.6 million.
The Company permanently reduced the commitment under its bank credit
facility by the amount of the lease financing, thus reducing the commitment
under the credit facility to $1.9 billion at January 31, 1999.
Effective November 1, 1981, the Company entered into an 18-year lease
for the premises on which the Silver City Casino in Las Vegas operates. This
lease is accounted for as an operating lease. The current monthly base rent
of $129,982 is subject to annual increases, calculated using a specified
index with a cap based on a specified percentage of annual revenues. The
lease also provides for profit participation. The profit participation is the
amount by which 50% of defined net income exceeds the adjusted base rent.
There was no profit participation rent due for the three years ended January
31, 1999. The lease terminates October 31, 1999.
46
<PAGE>
The Company also leases various storage facilities and equipment and has
various air space under operating leases expiring individually through 2032.
A portion of the Circus Circus facility in Reno is built on leased land with
various operating leases expiring through 2033. The following is a schedule
of future minimum rental payments required as of January 31, 1999 under those
operating leases that have lease terms in excess of one year:
<TABLE>
<CAPTION>
Year ending January 31, (in thousands)
----------------------------------------------------------------
<S> <C>
2000 $16,284
2001 20,120
2002 9,053
2003 1,321
2004 1,014
Thereafter 6,732
----------------------------------------------------------------
$54,524
=======
</TABLE>
Rent expense for all leases accounted for as operating leases was as follows:
<TABLE>
<CAPTION>
Year ended January 31,
(in thousands) 1999 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C>
Operating rent expense $3,454 $3,211 $3,869
====== ====== ======
</TABLE>
Note 5. Income Tax
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year ended January 31,
(in thousands) 1999 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $34,810 $36,980 $52,695
State 510 491 670
------- ------- -------
35,320 37,471 53,365
------- ------- -------
Deferred
Federal 20,297 20,543 5,838
Foreign - - 3,927
------- ------- -------
20,297 20,543 9,765
------- ------- -------
Total $55,617 $58,014 $63,130
======= ======= =======
</TABLE>
The Company has recognized a tax benefit of $38,000, $0.9 million and
$8.0 million related to the exercise of stock options and warrants for the
fiscal years ended January 31, 1999, 1998 and 1997, respectively. Such
amounts reduce the current portion of taxes payable.
47
<PAGE>
The cumulative balance of the deferred tax liability is due
predominantly to temporary book/tax depreciation differences. The components
of deferred income tax expense are as follows:
<TABLE>
<CAPTION>
Year ended January 31,
(in thousands) 1999 1998 1997
----------------------------------------------------------------
<S> <C> <C> <C>
Additional depreciation
resulting from the use of
accelerated methods for tax
purposes and the straight-line
method for financial statement
purposes $11,811 $14,089 $7,493
Effect of writing off preopening
expenses for financial statement
purposes and amortizing over five
years for tax purposes 1,062 1,281 1,253
Difference between book and
tax basis of assets written off 497 327 (8,341)
Difference between book and tax
basis of investments in uncon-
solidated affiliates 3,392 5,730 4,028
Foreign tax credits -- -- 5,075
Outstanding chips and tokens 1,501 (150) 1,083
Capitalized interest 2,993 1,432 --
Other, net (959) (2,166) (826)
------- ------- -------
$20,297 $20,543 $ 9,765
======= ======= =======
</TABLE>
The reconciliation of the difference between the federal statutory tax
rate and the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
Year ended January 31, 1999 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
Nondeductible goodwill 2.5 2.4 2.2
Nondeductible political contributions 2.0 .3 .5
Nondeductible compensation -- 2.2 --
Other, net -- (.7) .8
---- ---- ----
Effective tax rate 39.5% 39.2% 38.5%
==== ==== ====
</TABLE>
The income tax effects of temporary differences between financial and
income tax reporting that gave rise to deferred income tax assets and
liabilities at January 31, 1999 and 1998, under the provisions of Statement
of Financial Accounting Standards No. 109, are as follows:
<TABLE>
<CAPTION>
Year ended January 31,
(in thousands) 1999 1998
----------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities
Property and equipment $176,592 $152,069
Investments in unconsolidated
affiliates 18,697 19,766
Other 13,205 12,632
-------- --------
Gross deferred tax liabilities 208,494 184,467
-------- --------
Deferred tax assets
Accrued vacation 5,045 5,107
Outstanding chips and tokens 558 2,060
Preopening expense, net of amortization 520 838
Other 10,027 8,399
-------- --------
Gross deferred tax assets 16,150 16,404
-------- --------
Net deferred tax liabilities $192,344 $168,063
======== ========
</TABLE>
48
<PAGE>
Note 6. Employee Retirement Plans
Approximately 37% of the Company's employees are covered by union-sponsored,
collectively bargained, multi-employer, defined benefit pension plans. The
Company contributed $10.2 million, $9.9 million and $9.3 million during the
years ended January 31, 1999, 1998 and 1997, respectively, for such plans. These
contributions are determined in accordance with the provisions of negotiated
labor contracts and generally are based on the number of hours worked.
The Company also has a profit sharing and investment plan covering primarily
nonunion employees who are at least 21 years of age and have at least one year
of service. The plan is a voluntary defined contribution plan and is subject to
the provisions of the Employee Retirement Income Security Act of 1974. The plan
allows for investments in the Company's common stock as one of the investment
alternatives. The Company's contributions to this plan are determined based on
employees' years of service and matching of employees' contributions, and were
approximately $4.5 million, $4.2 million and $4.0 million in the years ended
January 31, 1999, 1998 and 1997. Contributions are funded with cash.
On June 18, 1998, the Company adopted a Supplemental Executive Retirement
Plan ("SERP"). The SERP is a defined benefit plan pursuant to which the Company
will pay supplemental pension benefits to certain key employees based upon the
employees' years of service, compensation and SERP tier. As of January 31, 1999,
no employees were enrolled in the SERP, and no benefits were accrued or funded.
While the plan does not require formal funding, it is intended that the SERP
will be funded through life insurance contracts on the key employees.
Note 7. Stock Options
The Company has various stock option plans for executive, managerial and
supervisory personnel as well as the Company's outside directors and
consultants. The plans permit grants of options, performance shares and
restricted stock awards relating to the Company's common stock. The stock
options are generally exercisable in one or more installments beginning not less
than six months after the grant date.
Summarized information for stock option plans is as follows:
<TABLE>
<CAPTION>
Year ended January 31,
-----------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------- ----- -------- ----- -------- -----
Outstanding at
beginning of year... 5,143,505 $23.94 7,183,560 $25.43 8,129,015 $23.88
Granted.............. 3,188,335 12.51 575,000 23.52 365,000 33.48
Exercised............ (16,500) 13.29 (341,005) 20.75 (1,188,105) 17.24
Canceled.............(4,418,666) 23.80 (2,274,050) 29.01 (122,350) 26.13
--------- --------- ---------
Outstanding at end
of year............ 3,896,674 $14.78 5,143,505 $23.94 7,183,560 $25.43
========= ========= =========
Options exercisable
at end of year..... 1,324,005 $21.21 3,340,498 $22.54 3,459,067 $23.52
Options available for
grant at end of
year............... 3,949,231 2,026,900 2,327,850
</TABLE>
49
<PAGE>
The following table summarizes information about stock options outstanding at
January 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options
------------------- --------
Exercisable
- -----------
Weighted
Average Weighted
Weighted
Range of Remaining Average
Average
Exercise Number Contractual Exercise Number
Prices Outstanding Life (yrs) Price Exercisable Price
- ---------------- ------------ ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$11.25 to $11.25 2,506,669 6.78 $11.25 - $ -
11.75 to 17.48 51,505 7.31 16.20 11,505 11.75
21.25 to 21.25 1,290,000 4.60 21.25 1,290,000 21.25
23.08 to 25.88 48,500 8.15 23.57 22,500 23.89
--------- ---------
3,896,674 6.08 $14.78 1,324,005 $21.21
========= =========
</TABLE>
In December 1998, replacement options to purchase an aggregate of
approximately 2.6 million shares of the Company's common stock were awarded
at an exercise price of $11.25 per share, subject to the surrender for
cancellation of 3.9 million options with an average exercise price of
$24.29.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123-Accounting for
Stock-Based Compensation ("SFAS 123"). SFAS 123 is effective for fiscal
years beginning after December 15, 1995 and provides, among other things,
that companies may elect to account for employee stock options using a fair
value method or continue to apply the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 ("APB 25").
Under SFAS 123, all employee stock option grants are considered
compensatory. Compensation cost is measured at the date of grant based on
the estimated fair value of the options determined using an option pricing
model. The model takes into account the stock price at the grant date, the
exercise price, the expected life of the option, the volatility of the
stock, expected dividends on the stock and the risk-free interest rate over
the expected life of the option. Under APB 25, generally only stock options
that have intrinsic value at the date of grant are considered compensatory.
Intrinsic value represents the excess, if any, of the market price of the
stock at the grant date over the exercise price of the options. Under both
methods, compensation cost is charged to earnings over the period the
options become exercisable.
The Company has elected to continue to account for employee stock
options under APB 25. Accordingly, no compensation cost has been
recognized.
The following table discloses the Company's pro forma net income and
net income per share assuming compensation cost for employee stock options
had been determined consistent with SFAS 123. The table also discloses the
weighted average assumptions used in estimating the fair value of each
option grant on the date of grant using the Black-Scholes option pricing
model, and the estimated weighted average fair value of the options
granted. The model assumes no expected future dividend payments on the
Company's common stock.
50
<PAGE>
<TABLE>
<CAPTION>
Year ended January 31,
----------------------
(dollars in thousands, except share data) 1999 1998
-------- --------
<S> <C> <C>
Net income -
As reported............................. $ 85,198 $ 89,908
Pro forma............................... 79,722 82,334
Net income per share (basic) -
As reported............................. $ 0.90 $ 0.95
Pro forma............................... 0.84 0.87
Net income per share (diluted) -
As reported............................. $ 0.90 $ 0.94
Pro forma............................... 0.84 0.86
Weighted average assumptions -
Expected stock price volatility......... 43.6% 37.7%
Risk-free interest rate................. 5.0% 5.7%
Expected option lives (years)........... 2.1 3.5
Estimated fair value of options granted. $ 3.50 $ 8.06
</TABLE>
Because the accounting method prescribed by SFAS 123 has not been applied
to options granted prior to January 1, 1995, the compensation cost reflected in
the pro forma amounts shown above may not be representative of that to be
expected in future years.
Note 8. Stock Related Matters
On July 14, 1994, the Company declared a dividend of one common stock purchase
right (the "Rights") for each share of common stock outstanding at the close of
business on August 15, 1994. Each Right entitles the holder to purchase from the
Company one share of common stock at an exercise price of $125, subject to
certain antidilution adjustments. The Rights become exercisable ten days after
the earlier of an announcement that an individual or group has acquired 15% or
more of the Company's outstanding common stock or the announcement of
commencement of a tender offer for 15% or more of the Company's common stock.
In the event the Rights become exercisable, each Right (except the Rights
beneficially owned by the acquiring individual or group, which become void)
would entitle the holder to purchase, for the exercise price, a number of shares
of the Company's common stock having an aggregate current market value equal to
two times the exercise price. The Rights expire August 15, 2004, and may be
redeemed by the Company at a price of $.01 per Right any time prior to their
expiration or the acquisition of 15% or more of the Company's common stock. The
Rights should not interfere with any merger or other business combination
approved by the Company's Board of Directors and are intended to cause
substantial dilution to a person or group that attempts to acquire control of
the Company on terms not approved by the Board of Directors.
During the year ended January 31, 1999, the Company repurchased 4.5 million
shares of its common stock at a cost of $51.6 million. In fiscal 1998, the
Company repurchased 38,486 shares of its common stock at a cost of $1.3 million.
During the year ended January 31, 1998, the Company elected to settle, for
cash, outstanding put options on 2.0 million shares of its common stock and call
options on 600,000 shares of common stock. The net cost to the Company was $9.4
million. The put and call options were entered into as a complement to the
Company's overall share repurchase program.
In connection with the acquisition of Gold Strike Resorts, New Way, Inc., a
wholly owned subsidiary of the Company, issued 1,069,926 shares of $10.00
Cumulative Preferred Stock. Of the preferred shares issued, 866,640 were issued
to another wholly owned subsidiary of the Company. During the year ended January
31, 1997, the Company purchased 9,864 shares of the preferred stock for $1.3
million. The price paid by the Company was based on the trading price of the
Company's common stock prior to the transaction. On February 26, 1997, New Way,
Inc. merged into another subsidiary of the Company and, therefore, the remaining
preferred stock was converted into 754,666 shares of common stock.
51
<PAGE>
The Company is authorized to issue up to 75 million shares of $.01 par
value preferred stock in one or more series having such respective terms, rights
and preferences as are designated by the Board of Directors. No preferred stock
has yet been issued.
Note 9. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 - Earnings Per Share ("SFAS 128"). SFAS
128 is effective for periods ending after December 15, 1997 and replaces
earnings per share as previously reported with "basic", or undiluted earnings
per share, and "diluted" earnings per share. Basic earnings per share is
computed by dividing net income by the weighted average number of common shares
outstanding during the period, while diluted earnings per share reflects the
additional dilution for all potentially dilutive securities, such as stock
options.
The Company adopted the provisions of SFAS 128 for its fiscal year ended
January 31, 1998, and all previously reported earnings per share amounts have
been restated. The table below reconciles weighted average shares outstanding
used to calculate basic earnings per share with the weighted average shares
outstanding used to calculate diluted earnings per share. There were no
reconciling items for net income.
<TABLE>
<CAPTION>
Year ended January 31,
----------------------
(in thousands, except per share data) 1999 1998 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
Net income $85,198 $89,908 $100,733
======= ======= ========
Weighted average shares out-
standing used in computation
of basic earnings per share 94,601 94,943 101,896
Stock options 70 309 1,405
Subsidiary preferred stock - - 783
------- ------- --------
Weighted average shares out-
standing used in computation
of diluted earnings per share 94,671 95,252 104,084
======= ======= ========
Basic earnings per share $0.90 $0.95 $0.99
======= ======= ========
Diluted earnings per share $0.90 $0.94 $0.97
======= ======= ========
</TABLE>
Note 10. Investments in Unconsolidated Affiliates
The Company has investments in unconsolidated affiliates that are accounted for
under the equity method. Under the equity method, original investments are
recorded at cost and adjusted by the Company's share of earnings, losses and
distributions of these companies. The investment balance also includes interest
capitalized during construction. Investments in unconsolidated affiliates
consist of the following:
<TABLE>
<CAPTION>
January 31, (in thousands) 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Circus and Eldorado Joint Venture (50%)
(Silver Legacy, Reno, Nevada) $ 74,871 $ 64,407
Elgin Riverboat Resort (50%)
(Grand Victoria, Elgin, Illinois) 42,461 44,759
Victoria Partners (50%)
(Monte Carlo, Las Vegas, Nevada) 141,658 139,958
Detroit Entertainment (45%)
(Proposed Hotel/Casino, Detroit, Michigan) 12,717 6,268
-------- --------
$271,707 $255,392
======== ========
</TABLE>
52
<PAGE>
The Company's unconsolidated affiliates operate with fiscal years ending on
December 31. Summarized balance sheet information of the unconsolidated
affiliates as of December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Current assets $ 81,539 $ 85,437
Property and other assets, net 747,790 763,479
Current liabilities 74,177 76,496
Long-term debt and other liabilities 283,006 329,275
Equity 472,146 443,145
</TABLE>
Summarized results of operations of the unconsolidated affiliates for the
years ended December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Revenues $676,268 $661,884
Expenses 518,169 473,357
Operating income 158,099 188,527
Net income 134,405 157,872
</TABLE>
Note 11. Abandonment Losses
During fiscal 1997, the Company wrote off $48.3 million of various assets.
These write-offs included the special-effects films at Luxor ($12.0 million)
which were replaced by IMAX special-format filmed attractions, structural
elements being demolished as part of Luxor's remodeling ($12.1 million) and
fixtures and equipment at Circus Circus-Las Vegas, Excalibur and Gold
Strike-Tunica being replaced in the course of upgrading and expanding those
properties ($16.0 million). The Company also wrote off $8.2 million of costs
associated with the demolition of a people mover at Circus Circus-Las Vegas
and the removal of the Nile River at Luxor.
Note 12. Commitments and Contingent Liabilities
In July 1995, Silver Legacy, a 50/50 joint venture with the Eldorado
Hotel/Casino, opened in downtown Reno, Nevada. As a condition to the joint
venture's $230 million bank credit agreement Circus is obligated under a
make-well agreement to make additional contributions to the joint venture as
may be necessary to maintain a minimum coverage ratio (as defined).
The Company's latest resort, Mandalay Bay, is a 43-story, hotel/casino
resort in Las Vegas, Nevada that includes approximately 3,700 rooms and
135,000 square feet of gaming space and is situated on approximately 60 acres
of land just south of Luxor. Mandalay Bay's attractions include an 11-acre
tropical lagoon featuring a sand-and-surf beach, a three-quarter-mile lazy
river ride, a 30,000-square-foot spa and other entertainment attractions.
Inside, Mandalay Bay offers internationally renowned restaurants; a House of
Blues nightclub and restaurant, including its signature Foundation Room sited
on Mandalay Bay's rooftop; and 100 "music-themed" hotel rooms in Mandalay
Bay's tower.
Four Seasons operates approximately 400 rooms at Mandalay Bay, providing
Las Vegas visitors with a luxury "five star" hospitality experience. The Four
Seasons Hotel, which is owned by the Company and managed by Four Seasons,
represents the first step pursuant to the Company's cooperative effort with
Four Seasons to identify strategic opportunities for development of hotel and
casino properties worldwide. The total cost of Mandalay Bay, including the
Four Seasons Hotel and including leased equipment, but excluding land,
capitalized interest and preopening expenses, was approximately $900 million;
as of January 31, 1999, $784.8 million of these costs had been incurred.
During construction, Mandalay Bay's hotel tower experienced settling in
excess of the level contemplated in the building's original design. The
settling was greater in some portions of the structure than others. The
Company retained geotechnical, structural engineering and foundation
consultants who evaluated the situation and recommended remedial measures,
which have been completed. These remedial measures will be evaluated over a
period of time to determine if any further measures will be required.
53
<PAGE>
Mandalay Bay is the latest phase of the Company's development of more
than 230 acres of land it owns at the south end of the Las Vegas Strip. This
parcel of land runs from Tropicana Avenue south approximately one mile to
Russell Road ("Masterplan Mile"). As part of its development plan for
Masterplan Mile, the Company has completed construction of a
125,000-square-foot convention facility, which opened March 12, and a
12,000-seat arena, which opened April 10. These properties, which represent
core components of Masterplan Mile, will be cross-marketed to guests at the
Company's existing and future hotel-casinos within Masterplan Mile. The total
estimated cost of the convention facility and arena, excluding land,
capitalized interest and preopening expenses, is approximately $115 million
and as of January 31, 1999, $73.9 million in costs had been incurred for
these facilities.
The Company is nearing completion of a monorail system which will link
the Company's resorts on Masterplan Mile. Furthermore, the Company is
planning a "Sea of Predators" aquarium exhibit, which will likewise represent
a core component of Masterplan Mile. The Sea of Predators exhibit is expected
to open in early 2000. The cost of these additional Masterplan Mile core
components, excluding land, capitalized interest and preopening expenses, is
estimated at approximately $75 million, of which $19.9 million had been
incurred as of January 31, 1999. The Company may add other core components to
its development plan for Masterplan Mile in the future.
The Company has funded the above projects from internal cash flows,
project-specific financing or its credit facility, and anticipates that
future funding for such projects will be from these sources.
The Company is a defendant in various pending litigation. In
management's opinion, the ultimate outcome of such litigation will not have a
material effect on the results of operations or the financial position of the
Company.
54
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Circus Circus
Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Circus Circus
Enterprises, Inc. (a Nevada corporation) and subsidiaries as of January 31,
1999 and 1998 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended January 31, 1999. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Circus Circus Enterprises,
Inc. and subsidiaries as of January 31, 1999 and 1998 and the results of
their operations and their cash flows for each of the three years in the
period ended January 31, 1999, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 22, 1999
Management's Report on Financial Statements
The Company is responsible for preparing the consolidated financial
statements and related information appearing in this report. Management
believes that the financial statements present fairly its financial position,
results of operations and cash flows in conformity with generally accepted
accounting principles. In preparing its financial statements, the Company is
required to include amounts based on estimates and judgments which management
believes are reasonable under the circumstances.
The Company maintains accounting and other control systems designed to
provide reasonable assurance that financial records are reliable for purposes
of preparing financial statements and that assets are properly accounted for
and safeguarded. Compliance with these systems and controls is reviewed
through a program of audits by an internal audit staff.
The Board of Directors fulfills its responsibility for the Company's
financial statements through its audit committee, which is composed solely of
directors who are not Company officers or employees. The audit committee
meets from time to time with the independent public accountants, management
and the internal auditors. The independent public accountants have direct
access to the audit committee, with or without the presence of management
representatives.
55
<PAGE>
EXHIBIT 21
Subsidiaries of the Company
Set forth below is information concerning the Company's (CCEI) subsidiaries and
their respective ownership.
<TABLE>
<CAPTION>
Jurisdiction Percentage
Name and Form of Ownership
- -------------------------------------------------------------------------------
<S> <C> <C>
Circus Circus Casinos, Inc.(1) Nevada corporation 100% CCEI
Slots-A-Fun, Inc.(2) Nevada corporation 100% CCEI
Edgewater Hotel Corporation(3) Nevada corporation 100% CCEI
Colorado Belle Corp.(4) Nevada corporation 100% CCEI
New Castle Corp.(5) Nevada corporation 100% CCEI
Ramparts, Inc.(6) Nevada corporation 100% CCEI
Circus Circus Mississippi, Inc.(7) Mississippi corporation 100% CCEI
Pinkless, Inc. Nevada corporation 100% CCEI
Mandalay Corp. (8) Nevada corporation 100% CCEI
Circus Circus Development Corp. Nevada corporation 100% CCEI
Ramparts International ("RI") Nevada corporation 100% CCEI
Galleon, Inc.("GI") Nevada corporation 100% CCEI
M.S.E. Investments,
Incorporated ("MSE") Nevada corporation 100% CCEI
Last Chance Investments,
Incorporated ("LCI") Nevada corporation 100% CCEI
Goldstrike Investments,
Incorporated ("GSI") Nevada corporation 100% CCEI
Diamond Gold, Inc. ("DGI") Nevada corporation 100% CCEI
Oasis Development Company,
Inc. ("ODC") Nevada corporation 100% CCEI
Goldstrike Finance Company, Inc. Nevada corporation 100% CCEI
Railroad Pass Investment Group
("RPIG")(9) Nevada partnership 70% MSE
20% LCI
10% GSI
Jean Development Company
("JDC")(10) Nevada partnership 40% MSE
40% LCI
20% GSI
Jean Development West ("JDW")(11) Nevada partnership 40% MSE
40% LCI
12% GSI
8% DGI
Nevada Landing Partnership ("NLP") Illinois partnership 40% MSE
40% LSI
5% GSI
15% DGI
Gold Strike L.V. ("GSLV") Nevada partnership 52% MSE
39% LCI
6.5% GSI
2.5% DGI
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Jean Development North ("JDN") Nevada partnership 47.5% MSE
38.5% LCI
5% GSI
9% DGI
Lakeview Gaming Partnerships
Joint Venture Nevada partnership 25% RPIG
25% JDC
25% JDN
25% JDW
Goldstrike Resorts, Inc. Nevada corporation 100% CCEI
Gold Strike Fuel Company Nevada partnership 16 2/3% MSE
16 2/3% LCI
16 2/3% GSI
50% ODC
Jean Fuel Company West Nevada partnership 40% MSE
40% LCI
12% GSI
8% ODC
Goldstrike Aviation, Incorporated Nevada corporation 100% CCEI
Circus Circus Louisiana, Inc.
("CCLI") Louisiana corporation 100% CCEI
Circus Circus Michigan, Inc.("CCM") Michigan corporation 100% CCEI
Circus Australia Casino, Inc. Nevada corporation 100% CCEI
Circus Circus New Jersey, Inc. New Jersey corporation 100% CCEI
Pine Hills Development II ("PHDII") Mississippi partnership 58% MSE
32% LCI
7.5% GSI
2.5% DGI
Scentsational, Inc. Nevada corporation 100% CCEI
Other Interests:
Darling Casino Limited Australian public
company limited
by shares 50% CCEI
Circus and Eldorado Joint Venture Nevada partnership 50% GI
Detroit Entertainment, L.L.C. Michigan limited
liability company 45% CCM
Victoria Partners Nevada partnership 50% GSLV
Elgin Riverboat Resort Illinois partnership 50% NLP
Pine Hills Development Mississippi partnership 90% PHDII
Circus Circus Leasing, Inc. Nevada corporation 78.7% CCEI
New Dirt, Inc. Nevada corporation 100% CCEI
Ramparts International PTE Ltd. Singapore corporation 100% RI
Time Share Operating Co. Nevada corporation 100% CCEI
</TABLE>
<PAGE>
- ------------
(1) Doing business as Circus Circus Hotel & Casino-Las Vegas,
Circus Circus Hotel & Casino-Reno and Silver City Casino.
(2) Doing business as Slots-A-Fun Casino.
(3) Doing business as Edgewater Hotel & Casino.
(4) Doing business as Colorado Belle Hotel & Casino.
(5) Doing business as Excalibur Hotel & Casino.
(6) Doing business as Luxor Hotel & Casino.
(7) Doing business as Gold Strike Casino Resort.
(8) Doing business as Mandalay Bay Resort & Casino
(9) Doing business as Railroad Pass Hotel & Casino.
(10) Doing business as Gold Strike Hotel and Gambling Hall.
(11) Doing business as Nevada Landing Hotel & Casino.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 22, 1999 included (or incorporated by reference) in
Circus Circus Enterprises, Inc.'s Annual Report on Form 10-K for the year ended
January 31, 1999 into the Company's previously filed Form S-8 Registration
Statements File Nos. 2-91950, 2-93578, 33-18278, 33-29014, 33-39215, 33-56420,
33-53303 and 333-51073 and to the Company's previously filed Form S-3
Registration Statement File No. 333-60975.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
April 29, 1999
53
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<PAGE>
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<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 81,389
<SECURITIES> 0
<RECEIVABLES> 26,136
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<INVENTORY> 24,270
<CURRENT-ASSETS> 161,278
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