<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 2000
REGISTRATION NO. 333-44216
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
MANDALAY RESORT GROUP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEVADA 7011 88-0121916
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
3950 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89119
(702) 632-6700
(Address, including zip code, telephone number, including area code, of
registrant's principal executive offices)
--------------------------
YVETTE E. LANDAU
VICE PRESIDENT AND GENERAL COUNSEL
3950 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89119
(702) 632-6700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES OF ALL COMMUNICATIONS TO:
HOWELL J. REEVES
Wolf, Block, Schorr and Solis-Cohen LLP
1650 Arch Street, 22nd Floor
Philadelphia, Pennsylvania 19103
(215) 977-2000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration number for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier, effective registration
statement for the same offering. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 29, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL OR OFFER THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
[LOGO]
MANDALAY RESORT GROUP
OFFER TO EXCHANGE
ITS 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OF ITS OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
------------------
THE EXCHANGE NOTES
- The terms of the notes Mandalay Resort Group is issuing will be
substantially identical to the outstanding notes that we issued on
July 24, 2000, except for the elimination of some transfer restrictions,
registration rights and liquidated damages provisions relating to the
outstanding notes.
- Interest on the notes will accrue at the rate of 10 1/4% per year, payable
semi-annually on each February 1 and August 1, beginning February 1, 2001,
and the notes will mature on August 1, 2007.
- The notes will be unsecured and will rank equally with our other senior
subordinated debt and junior to our senior debt. The notes will
effectively rank junior to all liabilities of our subsidiaries.
- We may redeem the notes at any time prior to their maturity at the
redemption prices described more fully in this prospectus.
MATERIAL TERMS OF THE EXCHANGE OFFER
- The exchange offer expires at 5:00 p.m., New York City time, on
, 2000, unless extended.
- Our completion of the exchange offer is subject to customary conditions,
which we may waive.
- Upon our completion of the exchange offer, all outstanding notes that are
validly tendered and not withdrawn will be exchanged for an equal
principal amount of notes that are registered under the Securities Act of
1933.
- Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- The exchange of registered notes for outstanding notes will not be a
taxable exchange for U.S. Federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
FOR A DISCUSSION OF FACTORS THAT YOU SHOULD CONSIDER BEFORE PARTICIPATING IN
THIS EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE NEVADA GAMING
COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD, THE MISSISSIPPI GAMING
COMMISSION, THE MICHIGAN GAMING CONTROL BOARD, THE ILLINOIS GAMING BOARD, NOR
ANY STATE SECURITIES COMMISSION OR OTHER GAMING AUTHORITY, HAS PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR THE INVESTMENT MERITS OF THE NOTES
OFFERED HEREBY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE>
WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. YOU MUST NOT RELY UPON ANY
INFORMATION OR REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AS IF WE HAD AUTHORIZED IT. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES, NOR DOES THIS PROSPECTUS
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
------------------------
TABLE OF CONTENTS
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PAGE
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<S> <C>
Documents Incorporated by Reference......................... ii
Available Information....................................... ii
Market Data................................................. iii
Summary..................................................... 1
Risk Factors................................................ 12
Forward-Looking Statements.................................. 20
Use of Proceeds............................................. 21
Capitalization.............................................. 22
Selected Financial Information.............................. 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business and Properties..................................... 36
Regulation and Licensing.................................... 47
Description of Other Indebtedness........................... 72
The Exchange Offer.......................................... 74
Description of the Exchange Notes........................... 86
Material Federal Income Tax Consequences of the Exchange.... 103
Plan of Distribution........................................ 104
Legal Matters............................................... 105
Experts..................................................... 105
Index to Financial Statements............................... F-1
</TABLE>
i
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The Securities and Exchange Commission (the "Commission") allows us to
"incorporate by reference" the information we file with it, which means that we
can disclose important information to you by referring to those documents. The
information incorporated by reference is an important part of this prospectus.
Any statement contained in the documents filed with the Commission prior to the
date of this prospectus will be deemed to be modified or superseded for purposes
of this prospectus to the extent that a statement contained in this prospectus
modifies or supersedes the statement. Information that we file later with the
Commission will automatically update the information incorporated by reference
and the information in this prospectus.
We incorporate by reference the following documents we have filed with the
Commission:
1. Annual Report on Form 10-K for the year ended January 31, 2000;
2. Quarterly Report on Form 10-Q for the fiscal quarter ended April 30,
2000;
3. Current Reports on Form 8-K dated July 19, 2000 and August 9, 2000; and
4. All documents filed by us with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this prospectus and before termination of the offering.
You may request a free copy of any of the documents incorporated by
reference in this prospectus, other than exhibits, unless they are specifically
incorporated by reference, by writing or telephoning us at the following
address:
Investor Relations
Mandalay Resort Group
3950 Las Vegas Boulevard South
Las Vegas, Nevada 89119
Attention: Les Martin
(702) 632-6700
TO OBTAIN TIMELY DELIVERY OF DOCUMENTS INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, YOU MUST REQUEST THE INFORMATION NO LATER THAN FIVE BUSINESS DAYS
PRIOR TO THE EXPIRATION OF THE EXCHANGE OFFER. THE EXCHANGE OFFER WILL EXPIRE ON
, 2000, UNLESS EXTENDED.
You should rely only on the information incorporated by reference or
provided in this prospectus and any supplement. We have not authorized anyone
else to provide you with different information. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the respective dates on the front of these documents.
AVAILABLE INFORMATION
This prospectus is part of a registration statement on Form S-4 that we have
filed with the Commission under the Securities Act. This prospectus does not
contain all of the information set forth in the registration statement. For
further information about us and the notes, you should refer to the registration
statement. This prospectus summarizes material provisions of contracts and other
documents to which we refer you. Since this prospectus may not contain all of
the information that you may find important, you should review the full text of
these documents. We have filed these documents as exhibits to our registration
statement.
We are subject to the informational reporting requirements of the Securities
Exchange Act of 1934, as amended, and file reports, proxy and information
statements and other information with the Commission. You may read and copy any
reports, proxy and information statements and other information we file at the
public reference facilities of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, as well as at the following Regional
Offices: 7 World
ii
<PAGE>
Trade Center, 14th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You may obtain copies of such material from
the Commission by mail at prescribed rates. You should direct requests to the
Commission's Public Reference Section, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Commission's Public Reference Section by calling the Commission
at 1-800-SEC-0330. In addition, the Commission maintains a website
(http://www.sec.gov) that contains the reports, proxy statements and other
information filed by us. Our common stock is listed on the New York Stock
Exchange and the Pacific Exchange. You may inspect information filed by us at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005 and at the offices of the Pacific Exchange, 301 Pine Street, San
Francisco, California 94104. In addition, for so long as any of the notes remain
outstanding, we have agreed to make available to any prospective purchaser of
the notes or beneficial owner of the notes in connection with any sale thereof
the information required by Rule 144A(d)(4) under the Securities Act.
MARKET DATA
Market data used throughout this prospectus including information relating
to our relative position in the casino and gaming industry is based on our good
faith estimates, which estimates we based upon our review of internal surveys,
independent industry publications and other publicly available information.
Although we believe these sources are reliable, we have not independently
verified the information and cannot guarantee its accuracy and completeness.
iii
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND
MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD
READ THIS ENTIRE PROSPECTUS, INCLUDING THE FINANCIAL DATA AND RELATED NOTES AND
THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS, BEFORE MAKING AN
INVESTMENT DECISION. THE TERMS "WE," "OUR," AND "US," AS USED IN THIS
PROSPECTUS, REFER TO MANDALAY RESORT GROUP AND ITS SUBSIDIARIES AS A COMBINED
ENTITY, EXCEPT WHERE IT IS CLEAR THAT THE TERMS MEAN ONLY MANDALAY RESORT GROUP.
WHEN WE USE THE TERM "MANDALAY," IT REFERS ONLY TO MANDALAY RESORT GROUP. THE
TERM "OLD NOTES" REFERS TO OUR OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE
2007 THAT WE ISSUED ON JULY 24, 2000 AND THAT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT. THE TERM "EXCHANGE NOTES" REFERS TO THE 10 1/4% SENIOR
SUBORDINATED NOTES DUE 2007 OFFERED PURSUANT TO THIS PROSPECTUS. THE TERM
"NOTES" REFERS TO THE OLD NOTES AND THE EXCHANGE NOTES COLLECTIVELY.
MANDALAY RESORT GROUP
OVERVIEW
We are one of the largest hotel-casino operators in the United States in
terms of guest rooms and casino square footage. We have the largest scaled
hotel-casino resort development in Las Vegas, the world's largest gaming market.
This "masterplan mile" consists of three interconnected megaresorts on 230
acres, including our newest property, Mandalay Bay. We operate 16 properties
with more than 27,000 guest rooms and more than one million square feet of
casino space in Nevada, Mississippi, Illinois and Michigan. Of these properties,
12 are wholly owned and have more than 22,400 guest rooms and more than 800,000
square feet of casino space. In addition, we own a 50% interest in three joint
venture casino properties with approximately 4,700 guest rooms and more than
200,000 square feet of casino space and a 53.5% interest in a fourth joint
venture casino with approximately 75,000 square feet of casino space.
We have provided below information as of April 30, 2000 about our properties
that we wholly own and operate, except as otherwise indicated.
<TABLE>
<CAPTION>
APPROXIMATE
GUEST CASINO SQUARE GAMING PARKING
LOCATION/PROPERTY ROOMS FOOTAGE SLOTS(1) TABLES(2) SPACES
----------------- -------- ------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
LAS VEGAS, NEVADA
Mandalay Bay(3)........................ 3,700 135,000 2,276 130 7,000
Luxor.................................. 4,404 120,000 2,013 105 3,200
Excalibur.............................. 4,008 110,000 2,471 80 4,000
Circus Circus.......................... 3,744 109,000 2,210 79 4,700
Monte Carlo (50% Owned)................ 3,002 90,000 2,056 71 4,000
Slots-A-Fun............................ -- 16,700 526 27 --
RENO, NEVADA
Circus Circus.......................... 1,572 60,000 1,639 72 3,000
Silver Legacy (50% Owned).............. 1,711 85,000 2,240 79 1,800
LAUGHLIN, NEVADA
Colorado Belle......................... 1,226 64,000 1,289 41 1,700
Edgewater.............................. 1,450 44,000 1,261 37 2,300
JEAN, NEVADA
Gold Strike............................ 812 37,000 1,020 20 2,100
Nevada Landing......................... 303 36,000 1,020 21 1,400
HENDERSON, NEVADA
Railroad Pass.......................... 120 21,000 374 9 600
TUNICA COUNTY, MISSISSIPPI
Gold Strike............................ 1,066 48,000 1,488 50 1,400
DETROIT, MICHIGAN
MotorCity (53.5% Owned)(4)............. -- 75,000 2,600 136 3,450
ELGIN, ILLINOIS
Grand Victoria (50% Owned)............. -- 36,000 994 53 2,000
------ --------- ------ ----- ------
Total................................ 27,118 1,086,700 25,477 1,010 42,650
====== ========= ====== ===== ======
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FOOTNOTES ON FOLLOWING PAGE
1
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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. Mandalay Bay also offers baccarat.
(3) This property, which opened March 2, 1999, includes a Four Seasons Hotel
with 424 guest rooms that we own and Four Seasons Hotels Limited manages.
(4) This property, which opened December 14, 1999, is being operated pending the
construction of a permanent hotel-casino facility which, as currently
planned, will have approximately 800 guest rooms, a 100,000-square-foot
casino and 4,100 parking spaces.
NEW PROPERTIES
Mandalay Bay, our newest megaresort, opened on March 2, 1999. The 43-story
South Seas themed hotel-casino resort is located on approximately 60 acres on
the Las Vegas Strip, adjacent to our Luxor and Excalibur properties. Within
Mandalay Bay is a Four Seasons Hotel with 424 guest rooms that provides visitors
with the only luxury "five-diamond" hospitality experience in Las Vegas. The
Four Seasons brand name has allowed us to successfully target premium customers
who are willing to spend more money for a total resort experience. Mandalay
Bay's attractions include an 11-acre tropical lagoon featuring a sand-and-surf
beach and a three-quarter-mile lazy river ride. The property also features 13
restaurants as well as a House of Blues nightclub and restaurant, including its
signature Foundation Room on the resort's top floor. Additional amenities
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, the rumjungle nightclub and a 12,000-seat special events arena that
features additional entertainment and sporting events.
Mandalay Bay is the centerpiece of our 230-acre development that we refer to
as our masterplan mile. Mandalay Bay and our other masterplan mile resorts,
Luxor and Excalibur, function as a cluster of interconnected entertainment
destinations with more than 12,000 guest rooms and more than 360,000 square feet
of casino space that have no similarly scaled competition in the United States.
Our masterplan mile, with its approximately one mile of frontage on the Las
Vegas Strip, is a "Strip within the Strip" that offers our guests three
distinctively themed hotel-casinos, complemented by an array of restaurants,
shops and entertainment venues catering to a broad spectrum of Las Vegas
visitors. Mandalay Bay, Luxor and Excalibur are connected by a monorail system
as well as a climate-controlled skyway system. On June 20, 2000 we opened the
Shark Reef at Mandalay Bay, an aquarium exhibit featuring sharks and rare
aquatic predators. We are cross-marketing the aquarium to guests at all of the
hotel-casinos within our masterplan mile.
On December 14, 1999, along with our joint venture partner, Atwater Casino
Group, we opened MotorCity Casino, a temporary casino facility in Detroit,
Michigan, which is being operated pending the construction of a permanent
hotel-casino. We currently plan to build a $600 million hotel-casino that will
have approximately 800 hotel rooms, a 100,000-square-foot casino, eight
restaurants and a 4,100-space parking facility. We are committed to contribute
20% of the development costs in the form of equity and we plan to fund the
balance through project-specific debt financing. We chose to participate in this
project due to Detroit's strong demographics and limited competition and to
further diversify our cash flow stream.
STRATEGY
Our objective is to continue being a leader in resort entertainment, with
casino gaming as our core strength. Consistent with this objective, we are
pursuing the following strategies:
BEING A LEADER IN EACH OF OUR MARKETS. We intend to continue being a
leading owner and operator of destination resort properties in major gaming
markets within the U.S. Our properties are located in Las Vegas, Reno and
Laughlin, Nevada; Tunica County, Mississippi; Elgin, Illinois (approximately 40
miles northwest of Chicago); and Detroit, Michigan. We have a proven record of
building successful megaresorts, including Mandalay Bay, Luxor, Excalibur and
Monte Carlo on the Las Vegas Strip. We are planning to develop a hotel-casino
resort on the Mississippi Gulf Coast which we
2
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believe represents a significant growth opportunity. We expect to continue to
focus our future development projects on high growth gaming markets such as
those in which we are currently operating or pursuing expansion opportunities.
OWNING AND OPERATING "MUST SEE" DESTINATIONS. Within each of our existing
and target markets, our goal is to own and operate gaming resorts that are
viewed by tourists as "must see" properties. In pursuing this strategy, we seek
to develop properties that are distinctively themed and provide customers with a
memorable vacation experience that includes resort hotel and casino facilities,
premier entertainment events and critically acclaimed dining venues, such as
Charlie Palmer's Aureole, Wolfgang Puck's Trattoria Del Lupo, China Grill,
rumjungle, Red Square and Border Grill at Mandalay Bay. We believe that our
hotel-casino resort properties are among the leaders in their respective
markets.
FURTHER DEVELOPING OUR MASTERPLAN MILE. We currently control the largest
casino development parcel in Las Vegas, our masterplan mile, that includes 230
acres of land, of which approximately 60 acres are still available for
development, and approximately one mile of frontage on the Las Vegas Strip.
Mandalay Bay is the centerpiece of this "Strip within the Strip" of
interconnected entertainment destinations and is connected to our integrated
convention facilities and 12,000-seat arena, as well as our two other masterplan
mile resorts, Luxor and Excalibur. Together, these three resorts include more
than 12,000 guest rooms and more than 360,000 square feet of casino space. The
long-term plan for completion of our masterplan mile presently includes as many
as two additional resorts and additional entertainment facilities. We believe
the masterplan mile represents a unique gaming resort complex that has no
comparably scaled equivalent in the United States.
TARGETING MULTIPLE SEGMENTS OF CUSTOMERS. We target a broad range of
customers by providing a quality resort experience at an attractive value. We
have an array of properties that target all segments of the market. With the
opening of Mandalay Bay, we increased our commitment to providing additional
amenities for our upscale clientele and expanded our target market to include
premium clientele. Our masterplan mile development enables us to attract and
service all segments of the market in Las Vegas, the world's largest resort
destination for entertainment.
MAXIMIZING CUSTOMER SATISFACTION THROUGH STRATEGIC ALLIANCES. We create
"must see" destinations within our resorts, in part, by entering into strategic
alliances with premier partners. For example, we own, and Four Seasons Hotels
Limited operates, a Four Seasons Hotel within Mandalay Bay. We believe this
arrangement enhances Mandalay Bay's appeal by providing the option of a
"five-diamond" hotel experience. This arrangement is the first step of a broader
effort to identify strategic opportunities for the development of hotel and
casino properties worldwide. In addition, we are a partner with HOB
Entertainment, Inc. in the ownership of the House of Blues nightclub and
restaurant, including its signature Foundation Room on the top floor of Mandalay
Bay and in March 2000 we opened a production of the off-Broadway show Blue Man
Group ("Live at Luxor") under a shared profit agreement. We believe such
alliances help us provide high-quality, distinctively-themed entertainment as a
part of the total resort experience offered by Mandalay.
UTILIZING TECHNOLOGY TO ENHANCE PROFITABILITY. We have invested and will
continue to invest in technology and tools that help us better market to and
understand our customers. Technology allows for the most efficient pricing
models, yield management systems and targeted marketing. Through our customized
yield management systems, we are able to adjust the room rates at our properties
to achieve an optimal balance between the highest average daily room rate and
occupancy levels. We also sell rooms directly to consumers on the Internet,
where we believe that we have emerged as an early leader, and will aggressively
seek to grow this component of our distribution model. By utilizing our database
of customer information we are able to better understand our customers' spending
habits and can extend this platform, for example, through strategic marketing
alliances with e-commerce companies. This data mining helps us devise strategies
to keep our customers at our hotel-casino resorts, and thus capture "leakage" of
customer spending at competitor properties, and to maximize
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customer spending per room. Targeted marketing lets us maximize the impact of
our advertising through a much more focused marketing campaign.
EXECUTIVE OFFICES
Our executive offices are located at 3950 Las Vegas Boulevard South, Las
Vegas, Nevada 89119. Our telephone number is (702) 632-6700.
RECENT DEVELOPMENTS
On August 24, 2000, we reported our results for the second quarter ended
July 31, 2000. For the quarter, we reported net income of $38.1 million, or $.48
per diluted share, compared with $23.6 million, or $.26 per diluted share, in
the same quarter last year. During this year's second quarter, we recorded
preopening expenses of $1.6 million associated with our popular Shark Reef at
Mandalay Bay, which debuted in June. Results for the prior year quarter
reflected preopening expenses of $4.3 million related primarily to MotorCity
Casino in Detroit.
For the second quarter, we produced operating cash flow (defined as income
from operations plus depreciation and amortization of consolidated entities less
minority interest) of $165.8 million (net of rent expense of $9.9 million and
preopening expenses of $1.6 million, and before including our share of
depreciation of unconsolidated affiliates of $5.6 million). Operating cash flow
for the second quarter of the prior year was $127.7 million (net of rent expense
of $3.6 million and preopening expenses of $4.3 million, and before including
our share of depreciation of unconsolidated affiliates of $5.9 million).
Our major resorts in Las Vegas turned in positive comparisons in the second
quarter against results from the same quarter a year ago. Mandalay Bay generated
$19.4 million in operating cash flow for the second quarter (net of rent expense
of $9.9 million and preopening expenses of $1.6 million). In the prior year's
second quarter, Mandalay Bay generated $15.0 million in operating cash flow (net
of rent expense of $3.6 million).
Meanwhile, Luxor posted $30.1 million in operating cash flow for the second
quarter versus $26.8 million for the same quarter a year ago. Excalibur produced
$25.8 million in operating cash flow against $20.1 million, and Circus
Circus-Las Vegas delivered $21.1 million against $18.3 million in the second
quarter last year. At Monte Carlo (50% owned by Mandalay), operating cash flow
rose to $23.5 million versus $20.4 million last year. Operating results at all
of these properties benefitted from sharply increased visitor traffic to the Las
Vegas Strip, and together these properties saw average rates per available room
climb by $13 in the second quarter versus the prior year. This trend in room
rates, which began earlier in the year, has continued in August. In the first
quarter, our average rate per available room rose by $9 on the Las Vegas Strip.
In Reno, we generated a total of $18.6 million in operating cash flow in the
second quarter (including our share of Silver Legacy's operating cash flow)
against $17.1 million in the like quarter last year, and in Laughlin, our two
properties posted $7.9 million in operating cash flow compared with
$7.6 million.
Following the trend of recent quarters, we experienced a significant upturn
in operating cash flow at our gaming vessel, Grand Victoria, in Elgin, Illinois,
which conducted dockside operations in the second quarter this year compared
with cruising operations during much of the prior year quarter. Grand Victoria
(50% owned by Mandalay) achieved $30.8 million in operating cash flow against
$23.2 million in the quarter last year. In Mississippi, the Gold Strike in
Tunica posted $10.3 million compared to $9.6 million in the second quarter last
year. For its part, MotorCity Casino (53.5% owned by Mandalay) turned in
$22.8 million in operating cash flow. This property began operations in
December 1999.
Our discussion of operating cash flow should not be considered as an
alternative to any measure of performance promulgated under generally accepted
accounting principles, such as income from operations, nor should you consider
it to be an indicator of our overall financial performance. We have discussed
operating cash flow because we believe it provides a more complete analysis of
results from operations.
4
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SUMMARY OF THE EXCHANGE OFFER
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<S> <C>
The Exchange Offer........................ We are offering to exchange $1,000 principal amount of
our exchange notes for each $1,000 principal amount of
old notes. As of the date of this prospectus,
$500 million in aggregate principal amount of old notes
are outstanding.
We have registered the exchange notes under the
Securities Act and they are substantially identical to
the old notes, except for the elimination of some
transfer restrictions, registration rights and
liquidated damages provisions relating to the old notes.
Accrued Interest on the Exchange Notes and
the Old Notes........................... Interest on the exchange notes will accrue from the last
interest payment date on which interest was paid on the
old notes or, if no interest was paid on the old notes,
from the date of issuance of the old notes, which was on
July 24, 2000. Holders whose old notes are accepted for
exchange will be deemed to have waived the right to
receive any interest accrued on the old notes.
No Minimum Condition...................... We are not conditioning the exchange offer on the tender
of any minimum principal amount of old notes.
Expiration Date........................... The exchange offer will expire at 5:00 p.m., New York
City time, on 2000, unless we decide to
extend the exchange offer.
Withdrawal Rights......................... You may withdraw your tender at any time prior to
5:00 p.m., New York City time, on the expiration date.
Conditions to the Exchange Offer.......... The exchange offer is subject to customary conditions,
which we may waive. We currently anticipate that each of
the conditions will be satisfied and that we will not
need to waive any conditions. We reserve the right to
terminate or amend the exchange offer at any time before
the expiration date if any such condition occurs. For
additional information, see "The Exchange Offer--Certain
Conditions to the Exchange Offer."
Procedures for Tendering Old Notes........ If you are a holder of old notes who wishes to accept
the exchange offer, you must:
- complete, sign and date the accompanying letter of
transmittal, or a facsimile of the letter of
transmittal, and mail or otherwise deliver the letter
of transmittal, together with your old notes, to the
exchange agent at the address set forth under "The
Exchange Offer--Exchange Agent;" or
</TABLE>
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<TABLE>
<S> <C>
- arrange for The Depository Trust Company to transmit
certain required information, including an agent's
message forming part of a book-entry transfer in
which you agree to be bound by the terms of the
letter of transmittal, to the exchange agent in
connection with a book-entry transfer.
By tendering your old notes in either manner, you will
be representing among other things, that:
- the exchange notes you receive pursuant to the
exchange offer are being acquired in the ordinary course
of your business;
- you are not participating, do not intend to
participate, and have no arrangement or understanding
with any person to participate, in the distribution
of the exchange notes issued to you in the exchange
offer; and
- you are not an "affiliate" of ours.
Special Procedures for Beneficial
Owners.................................. If you beneficially own old notes registered in the name
of a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender your old notes in
the exchange offer, you should contact the registered
holder promptly and instruct it to tender on your
behalf. If you wish to tender on your own behalf, you
must, prior to completing and executing the letter of
transmittal and delivering your old notes, either
arrange to have your old notes registered in your name
or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership
may take considerable time.
Guaranteed Delivery Procedures............ If you wish to tender your old notes and time will not
permit your required documents to reach the exchange
agent by the expiration date, or the procedures for
book-entry transfer cannot be completed on time, you may
tender your old notes according to the guaranteed
delivery procedures described in "The Exchange
Offer--Procedures for Tendering Old Notes."
Acceptance of Old Notes and Delivery of
Exchange Notes.......................... We will accept for exchange all old notes which are
properly tendered in the exchange offer prior to
5:00 p.m., New York City time, on the expiration date.
The exchange notes issued in the exchange offer will be
delivered promptly following the expiration date. For
additional information, see "The Exchange
Offer--Acceptance of Old Notes for Exchange; Delivery of
Exchange Notes."
Use of Proceeds........................... We will not receive any proceeds from the issuance of
exchange notes in the exchange offer. We will pay for
our expenses incident to the exchange offer.
</TABLE>
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<TABLE>
<S> <C>
Federal Income Tax Consequences........... The exchange of exchange notes for old notes in the
exchange offer will not be a taxable event for federal
income tax purposes. For additional information, see
"Material Federal Income Tax Consequences of the
Exchange."
Effect on Holders of Old Notes............ As a result of this exchange offer, we will have
fulfilled a covenant contained in the registration
rights agreement dated as of July 24, 2000 among
Mandalay Resort Group and Merrill Lynch, Pierce,
Fenner & Smith Incorporated and each of the other
initial purchasers named in the agreement and,
accordingly, there will be no increase in the interest
rate on the old notes. If you do not tender your old
notes in the exchange offer:
- you will continue to hold the old notes and will be
entitled to all the rights and limitations applicable to
the old notes under the indenture governing the
notes, except for any rights under the registration
rights agreement that terminate as a result of the
completion of the exchange offer; and
- you will not have any further registration or
exchange rights and your old notes will continue to be
subject to restrictions on transfer. Accordingly, the
trading market for untendered old notes could be
adversely affected.
Exchange Agent............................ The Bank of New York is serving as exchange agent in
connection with the exchange offer.
</TABLE>
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SUMMARY OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
Issuer.................................... Mandalay Resort Group.
Total Amount of Exchange Notes Offered.... Up to $500 million in principal amount of 10 1/4% senior
subordinated notes due 2007.
Maturity.................................. August 1, 2007.
Interest.................................. 10 1/4% per year.
Interest Payment Dates.................... February 1 and August 1, beginning February 1, 2001.
Optional Redemption....................... We will not have the right to redeem the exchange notes
prior to their maturity, except as described below.
Prior to maturity, Mandalay may redeem the exchange
notes in whole but not in part at a redemption price
equal to 100% of the principal amount of the exchange
notes plus a make-whole premium described in the
"Description of the Exchange Notes" section under the
subheading "Redemption--Optional Redemption."
Optional redemption upon public equity
offerings............................... On or prior to August 1, 2003, Mandalay may, at its
option, use the net proceeds of a Public Equity Offering
(as defined in this prospectus) to redeem up to 35% of
the originally issued aggregate principal amount of the
notes, at a redemption price in cash equal to 110.25% of
the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption;
PROVIDED that not less $325 million in aggregate
principal amount of notes is outstanding following this
redemption. Notice of any redemption under these
circumstances must be giving not later than 60 days
after the consummation of the Public Equity Offering.
Ranking................................... The exchange notes will be unsecured senior subordinated
obligations and will rank junior to our senior debt. The
exchange notes will rank equally with our other senior
subordinated indebtedness and will rank senior to our
subordinated indebtedness. The exchange notes will
effectively rank junior to all indebtedness and other
liabilities of our subsidiaries. Because the exchange
notes are subordinated, in the event of bankruptcy,
liquidation or dissolution and acceleration of, or
payment default on, senior indebtedness, holders of the
exchange notes will not receive any payment until
holders of senior indebtedness receive payment in full.
</TABLE>
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<TABLE>
<S> <C>
As of April 30, 2000, after giving effect to the
offering of the old notes and our use of the net
proceeds, and after giving further effect to our
issuance on August 16, 2000 of $200 million principal
amount of our 9 1/2% senior notes due 2008 and our use
of the net proceeds, we would have had approximately
$1.8 billion of senior debt (including $150 million of
debt incurred with our Detroit joint venture) and our
subsidiaries would have had outstanding approximately
$456.8 million of indebtedness and other liabilities,
excluding any indebtedness included in our senior debt.
Change of Control......................... If a change of control event occurs, each holder of
exchange notes may require Mandalay to repurchase all or
a portion of its exchange notes at a purchase price
equal to 101% of the principal amount of the exchange
notes, plus accrued interest.
Certain covenants......................... The indenture governing the exchange notes will, among
other things, limit our and our subsidiaries' ability
to:
- enter into sale and lease-back transactions;
- incur liens on our assets to secure debt;
- merge or consolidate with another company; and
- transfer our assets substantially as an entirety.
These covenants are subject to a number of important
qualifications and exceptions which are described in the
"Description of the Exchange Notes" section under the
heading "Additional Covenants of Mandalay" in this
prospectus.
Use of proceeds........................... We will not receive any cash proceeds from the exchange
offer.
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of the factors you should carefully
consider before deciding to invest in the notes, including factors affecting
forward-looking statements.
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SUMMARY FINANCIAL INFORMATION
We have derived the following summary consolidated financial information for
each of the five fiscal years ended January 31 from audited Consolidated
Financial Statements included in Mandalay's Annual Reports on Form 10-K for the
fiscal years ended January 31, 1996 through 2000. Our summary consolidated
financial information presented in the table below as of and for the three
months ended April 30, 1999 and 2000 is unaudited. However, in management's
opinion, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for these periods have been
included. The results of operations for the three months ended April 30, 2000
may not be indicative of the results of operations for the full year. The table
should be read together with the other information appearing in this prospectus,
including "Management's Discussion and Analysis of Financial Condition and
Results of Operations," the Consolidated Financial Statements and accompanying
notes for the fiscal year ended January 31, 2000 and the Condensed Consolidated
Financial Statements and accompanying notes for the three months ended
April 30, 2000.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30,
FISCAL YEAR ENDED JANUARY 31, (UNAUDITED)
-------------------------------------------------------------- ------------------------
1996 1997 1998 1999 2000 1999 2000
---------- ---------- ---------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Net revenues (2)...................... $1,299,596 $1,334,250 $1,354,487 $1,479,780 $2,050,898 $ 471,259 $ 639,616
Income from operations................ 251,373 222,169 236,500 242,779 273,736 62,499 130,915
Pretax income......................... 205,759 163,863 147,922 140,815 103,116 27,427 78,245
Net income (loss)..................... 128,898 100,733 89,908 85,198 42,163 (4,855) 48,858
OTHER DATA:
EBITDA (3)............................ $ 400,133 $ 379,809 $ 376,881 $ 391,420 $ 506,604 $ 139,371 $ 185,483
Capital expenditures.................. $ 221,684 $ 585,835 $ 663,270 $ 671,547 $ 352,133 $ 213,547 $ 32,640
Rooms (4)............................. 17,739 22,407 23,418 27,118 27,118 27,118 27,118
Casino square footage (4)............. 892,900 894,700 894,700 1,030,700 1,086,700 1,030,700 1,086,700
Number of slot machines (4)........... 23,477 22,254 21,520 23,571 25,580 23,467 25,477
Number of table games (4)............. 837 814 785 921 1,014 907 1,010
Ratio of earnings to fixed charges
(5)................................. 3.85x 2.68x 1.99x 1.62x 1.47x 1.44x 2.23x
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 30, 2000
(UNAUDITED)
-------------------------
AS
ACTUAL ADJUSTED (6)
---------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 142,578 $ 142,578
Total assets................................................ 4,349,929 4,365,929
Long-term debt.............................................. 2,803,705 2,819,705
Stockholders' equity........................................ 1,046,113 1,046,113
</TABLE>
------------------------
(1) Gold Strike, Nevada Landing and Railroad Pass were acquired on June 1, 1995.
Hacienda was acquired on September 1, 1995 and closed on December 1, 1996.
Mandalay Bay opened on March 2, 1999 and MotorCity Casino opened on December
14, 1999.
(2) Net of complimentary allowances.
(3) EBITDA consists of operating income plus depreciation and amortization,
preopening expense, abandonment losses and other nonrecurring items.
Corporate expense also contains depreciation which has been added back in
the calculation. EBITDA is a measure commonly used by the financial
community but is not prepared in accordance with United States generally
accepted accounting principles and should not be considered as a measurement
of net cash flows from operating activities.
FOOTNOTES CONTINUED ON FOLLOWING PAGE
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(4) These items include 100% of Mandalay's joint venture properties. Mandalay
acquired its 50% interest in Grand Victoria, a then-operating riverboat
casino in Elgin, Illinois, on June 1, 1995. Joint ventures in which Mandalay
owns 50% interests opened Silver Legacy in Reno, Nevada on July 28, 1995 and
Monte Carlo in Las Vegas, Nevada, on June 21, 1996. A joint venture in which
Mandalay owns a 53.5% interest opened MotorCity Casino, a temporary casino
in Detroit, Michigan, on December 14, 1999. The information as of January
31, 1999 includes figures for Mandalay Bay, which opened March 2, 1999.
Silver City, a small casino on the Las Vegas Strip, was operated under a
lease which expired October 31, 1999.
(5) The ratio of earnings to fixed charges has been computed by dividing net
income before fixed charges and income taxes, adjusted to exclude
capitalized interest and equity in undistributed earnings of
less-than-50%-owned ventures. Fixed charges consist of interest, whether
expensed or capitalized, amortization of debt discount and issuance costs,
Mandalay's proportionate share of the interest cost of 50%-owned ventures,
and the estimated interest component of rental expense.
(6) Gives effect to the July 2000 issuance of the old notes and the use of
proceeds therefrom and the August 2000 issuance of $200 million principal
amount of 9 1/2% senior notes due 2008 and the use of the proceeds
therefrom. See "Capitalization."
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN ADDITION TO THE OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT IN THESE
NOTES.
THE RIGHT TO RECEIVE PAYMENTS ON THE NOTES WILL BE JUNIOR TO SOME OF OUR
EXISTING AND POSSIBLY ALL OF OUR FUTURE BORROWINGS.
The notes rank behind all of our existing and future senior debt, including
the debt incurred under our revolving credit facility. As of April 30, 2000,
after giving effect to the issuance of the old notes and our use of the net
proceeds, and after giving further effect to our issuance on August 16, 2000 of
$200 million principal amount of our 9 1/2% senior notes due 2008 and our use of
the net proceeds, we would have had outstanding approximately $1.8 billion of
senior debt (including $150 million of debt incurred with our Detroit joint
venture), and approximately $884 million available for borrowing as additional
senior debt under our revolving credit facility. In addition, the notes
effectively rank junior to all existing and future liabilities of our
subsidiaries, which totaled approximately $456.8 million at April 30, 2000,
excluding any indebtedness included in senior debt. The indenture governing the
notes does not limit our ability to incur substantial additional senior debt,
including borrowings under our revolving credit facility, or limit the ability
of our subsidiaries to incur additional indebtedness. If we file for bankruptcy,
liquidate or dissolve, our assets would be available to pay obligations on the
notes only after we pay all of our senior debt. We may not have sufficient
assets remaining to make any payments on the notes. In addition, if we default
on our senior debt, we may be prohibited, under the terms of the notes, from
making any payments on the notes. The term "senior debt," as it applies to the
notes, is defined in "Description of the Exchange Notes--Certain Definitions."
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We have a significant amount of indebtedness. At April 30, 2000, we had
total consolidated indebtedness of approximately $2.8 billion and stockholders'
equity of approximately $1.0 billion. In addition, Mandalay is and may become a
party to various keep-well agreements relating to existing and future joint
ventures in which we have or may have an interest. These agreements may require
us to make additional cash contributions.
The notes will not restrict our ability to borrow substantial additional
funds in the future nor do they provide holders any protection should we be
involved in transactions that increase our leverage. If we add new indebtedness
to our anticipated debt levels following the issuance of the notes, it could
increase the related risks that we face.
Our high level of indebtedness could have important consequences to you,
such as:
- limiting our ability to obtain additional financing to fund our growth
strategy, working capital, capital expenditures, debt service,
acquisitions or other obligations, including our obligations with respect
to the notes;
- limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a significant portion of these funds to
make principal and interest payments on our indebtedness;
- increasing our interest expenses if there is a rise in interest rates,
because a significant portion of our borrowings is and will continue to be
under our credit facility and, as such, is of short-term duration
(typically 1 to 90 days) that requires ongoing refunding at then current
rates of interest;
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- causing our failure to comply with the financial and restrictive covenants
contained in the agreements and indentures governing our indebtedness
which could cause a default under our other debt or the notes and which,
if not cured or waived, could have a material adverse effect on us;
- limiting our ability to compete with others who are not as highly
leveraged, including our ability to explore business opportunities; and
- limiting our ability to react to changing market conditions, changes in
our industry and economic downturns.
If we do not generate sufficient cash from our operations to make scheduled
payments on the notes or to meet our other obligations and/or our joint venture
obligations, we will need to take one or more actions including the refinancing
of our debt, obtaining additional financing, selling assets, obtaining
additional equity capital, or reducing or delaying capital expenditures. We
cannot assure you that our business will generate cash flow or that we will be
able to obtain funding sufficient to satisfy our debt service requirements.
On May 18, 2000, Mandalay's board of directors authorized a new stock
repurchase program permitting the repurchase of up to 15% of the then issued and
outstanding shares of Mandalay's common stock, pursuant to which approximately
1.6 million shares had been purchased through August 28, 2000 at a cost of
approximately $34.7 million. If Mandalay incurs additional indebtedness to
repurchase shares of its common stock, it would increase its leverage.
OUR DEBT AGREEMENTS IMPOSE RESTRICTIONS ON OUR OPERATIONS.
Our revolving credit facility imposes operating and financial restrictions
on us. These restrictions include, among other things, limitations on our
ability to:
- incur additional debt;
- create liens or other encumbrances;
- pay dividends or make other restricted payments;
- make investments, loans or other guarantees;
- sell or otherwise dispose of a portion of our assets; or
- merge or consolidate with another entity.
Our revolving credit facility contains a financial covenant that requires us
to not exceed a total indebtedness ratio. Our ability to borrow funds for any
purpose will depend on our satisfying this test.
If we fail to comply with the financial covenant or other restrictions
contained in our revolving credit facility or any future financing agreements,
an event of default could occur. An event of default could result in the
acceleration of some or all of our debt. We would not have, and are not certain
we would be able to obtain, sufficient funds to repay our indebtedness if it is
accelerated, including our payments on the notes.
MANDALAY IS A HOLDING COMPANY AND DEPENDS ON THE BUSINESS OF ITS SUBSIDIARIES TO
SATISFY ITS OBLIGATIONS UNDER THE NOTES.
Mandalay is a holding company and its assets consist primarily of
investments in its subsidiaries. Our subsidiaries conduct substantially all of
our consolidated operations and own substantially all of
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our consolidated assets. Consequently, Mandalay's cash flow and its ability to
meet its debt service obligations depend on:
- the cash flow of its subsidiaries; and
- the payment of funds by the subsidiaries to Mandalay in the form of loans,
dividends or otherwise.
Mandalay's subsidiaries are not obligated to make funds available to it for
payment on the notes or otherwise. In addition, the ability of Mandalay's
subsidiaries to make any payments to it will depend on:
- their earnings;
- the terms of their indebtedness;
- business and tax considerations; and
- legal and regulatory restrictions.
These payments may not be adequate to pay interest and principal on the
notes when due. In addition, the ability of Mandalay's subsidiaries to make
payments to it depends on applicable law and debt instruments to which they or
we are or become parties, which may include requirements to maintain minimum
levels of working capital and other assets.
Because Mandalay is a holding company, the notes will effectively rank
junior to all existing and future liabilities of its subsidiaries, including
trade payables. If there is a bankruptcy, liquidation or dissolution of a
subsidiary, the subsidiary may not have sufficient assets remaining to make any
payments to Mandalay as a shareholder or otherwise after the payment of its
liabilities so that Mandalay can meet its obligations as the holding company,
including its obligations to you under the notes. As of April 30, 2000, our
subsidiaries had total liabilities of approximately $456.8 million, excluding
any indebtedness included in senior debt. The indenture governing the notes will
not limit the ability of our subsidiaries to incur substantial additional debt.
AS A NOTEHOLDER, YOU MAY BE REQUIRED TO COMPLY WITH LICENSING, QUALIFICATION OR
OTHER REQUIREMENTS UNDER GAMING LAWS OR DISPOSE OF YOUR SECURITIES.
The gaming authority of any jurisdiction in which we currently or in the
future conduct or propose to conduct gaming, either through our subsidiaries or
a joint venture, may require that a noteholder be licensed, qualified or found
suitable, or comply with any other requirement under applicable gaming laws. If
you purchase or otherwise accept an interest in the notes, by the terms of the
indenture, you will agree to comply with all of these requirements, including
your agreement to apply for a license, qualification or a finding of
suitability, or comply with any other requirement, within the required time
period, as provided by the relevant gaming authority. If you fail to apply to
be, or fail to become, licensed or qualified, or are found unsuitable or fail to
comply with any other requirement of a gaming authority, then we will have the
right, at our option, to:
- require you to sell your notes or beneficial interest in the notes within
30 days after you receive notice of our election, or any earlier date that
the relevant gaming authority may request or prescribe; or
- redeem your notes (possibly within less than 30 days following the notice
of redemption if requested or prescribed by the gaming authority) at a
price equal to the lesser of:
- your cost;
- 100% of the principal amount of the notes, plus accrued and unpaid
interest, if any, to the redemption date or the date of any failure to
comply, whichever is earlier; and
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- any other amount required by applicable law or by order of any gaming
authority.
We will notify the indenture trustee in writing of any redemption as soon as
practicable. We will not be responsible for any costs or expenses you may incur
in connection with your application for a license, qualification or a finding of
suitability, or your compliance with any other requirement of a gaming
authority. The indenture will also provide that as soon as a gaming authority
requires you to sell your notes, you will, to the extent required by applicable
gaming laws, have no further right:
- to exercise, directly or indirectly, any right conferred by the notes; or
- to receive from us any interest, dividends or any other distributions or
payments, or any remuneration in any form, relating to the notes, except
the redemption price we refer to above.
See "Description of the Exchange Notes--Mandatory Disposition Pursuant to Gaming
Laws."
WE ARE SUBJECT TO EXTENSIVE STATE AND LOCAL REGULATION, AND LICENSING AND GAMING
AUTHORITIES HAVE SIGNIFICANT CONTROL OVER OUR OPERATIONS WHICH COULD HAVE AN
ADVERSE EFFECT ON OUR BUSINESS.
The ownership and operation of casino gaming facilities are subject to
extensive state and local regulation. We currently conduct licensed gaming
operations in Illinois, Michigan, Mississippi and Nevada through wholly owned
subsidiaries and/or joint ventures. We are required by each of these states as
well as the applicable local authorities in these states to hold various
licenses and registrations, findings of suitability, permits and approvals to
engage in gaming operations and meet requirements of suitability. The gaming
authorities in each state where we conduct business may deny, limit, condition,
suspend or revoke a gaming license, registration or finding of suitability.
These gaming authorities also control approval of ownership interests in gaming
operations. These gaming authorities may deny, limit, or suspend our gaming
licenses, registrations, findings of suitability or the approval of any of our
ownership interests in any of the licensed gaming operations conducted in these
states for any cause they may deem reasonable.
If we violate gaming laws or regulations that are applicable to us or any
joint venture in which we participate, we may have to pay substantial fines or
forfeit assets. If any of our gaming licenses are denied, suspended, revoked or
not renewed this could have a material adverse effect on our business.
To date, we and the joint ventures in which we participate have obtained all
gaming licenses necessary for the operation of our existing gaming activities.
However, gaming licenses and related approvals are privileges under Illinois,
Michigan, Mississippi and Nevada law, and we cannot be sure that any new gaming
license or related approvals that may be required in the future will be granted,
or that our existing gaming licenses or related approvals will not be revoked,
suspended, limited or not renewed.
The Nevada Gaming Commission may, in its discretion, require the holder of
any securities that we issue to file applications, be investigated, and be found
suitable to own our securities if it has reason to believe that the security
ownership would be inconsistent with the declared policies of the State of
Nevada. If the Nevada Gaming Commission determines that a person is unsuitable
to own our securities, then, under the Nevada Gaming Control Act and the
regulations promulgated under this Act, we can be sanctioned, including the loss
of our approvals, if without the prior approval of the Nevada Gaming Commission,
we:
- pay to the unsuitable person any dividend, interest or any distribution
whatsoever;
- recognize any voting right by the unsuitable person in connection with the
securities;
- pay the unsuitable person remuneration in any form; or
- make any payment to the unsuitable person including any principal,
redemption, conversion, exchange, liquidation or similar payment.
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Similar to Nevada, the Illinois Gaming Board, the Michigan Gaming Control
Board and the Mississippi Gaming Commission have jurisdiction over the holders
and beneficial owners of securities that we issue and may also require their
investigation and approval. An applicant must pay all costs of investigation
incurred by a gaming authority in conducting an investigation relating to the
applicant.
In Nevada as well as Illinois, Michigan and Mississippi, we may not make a
public offering of our securities without prior approval of the applicable
gaming authorities if we intend to use the securities or proceeds from the
offering to:
- construct, acquire or finance gaming properties in these states; or
- retire or extend obligations incurred for these purposes or for similar
transactions.
The Nevada Gaming Commission has granted to us prior approval to make public
offerings of our securities through January 25, 2001, subject to some
conditions. This approval also applies to any affiliated company that we wholly
own which is a publicly traded corporation or would become a publicly traded
corporation after a public offering. This approval also permits our registered
and licensed subsidiaries to guarantee any security, and to pledge their assets
to secure the payment or performance of any obligation evidenced by a security,
issued by us or our wholly owned public affiliates in a public offering under
the approval. However, this approval may be rescinded for good cause without
prior notice upon the issuance of an interlocutory stop order by the Chairman of
the Nevada State Gaming Control Board and must be renewed biennially. The
approval does not constitute a finding, recommendation or approval by the Nevada
Gaming Commission or the Nevada State Gaming Control Board as to the accuracy or
adequacy of this prospectus or the investment merits of the securities that we
are offering. Any statement indicating otherwise is unlawful. We have received a
similar approval from the Mississippi Gaming Commission which is effective until
February 17, 2002. The exchange offer will qualify as a public offering and will
be made in accordance with the Nevada approval and the Mississippi approval,
each as currently in effect or as may be renewed in the discretion of the
applicable gaming authority.
This is only a summary of the regulatory requirements applicable to us and
our security holders. For additional information, see the discussion under the
caption "Regulation and Licensing."
GAMING REFERENDA HAVE BEEN VOTED ON OR ARE BEING PROPOSED IN CALIFORNIA AND
MISSISSIPPI AND ADOPTION OF THESE REFERENDA COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR BUSINESS.
Voters in California approved Proposition 5, which was proposed by
California Indian tribes in the November 3, 1998 election. This referendum
sought to legalize gaming operations that numerous tribes operated in
contravention of California and Federal law, which could lead to the expansion
of gaming operations by California Indian tribes and could have a material
adverse effect on our Nevada operations. A legal action was filed in the
California Supreme Court challenging the validity of Proposition 5 under the
California constitution. On December 2, 1998, the California Supreme Court
issued an order staying implementation of Proposition 5. On August 23, 1999, the
California Supreme Court issued its decision on Proposition 5, concluding that
Proposition 5 is invalid because it violates a state constitutional ban on
Nevada-style casino gambling. Subsequently, nearly 60 Indian tribes and
California's Governor signed tribal-state agreements that would legalize
casino-style gambling in California for Indian tribes. The agreements were
contingent on a constitutional amendment that would give tribes the right to
offer slot machines and a range of house-banked card games. On September 10,
1999, California lawmakers approved the constitutional amendment along with a
separate measure ratifying the tribal-state agreements. On March 7, 2000
California voters approved the constitutional amendment.
In Mississippi, where we currently own and operate one hotel-casino and plan
to build another, two requests were filed with the Secretary of State in 1998 to
place on the November 1999 state-wide
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ballot a voter initiative to ban gaming in the state. The local circuit court
found the wording of both initiatives invalid. The sponsor appealed the local
circuit court's decision on one of the initiatives to the Mississippi Supreme
Court, which affirmed the ruling that the initiative's wording was invalid.
Therefore, neither initiative was included on the November 1999 ballot. Since
Mississippi is a voter initiative state, it is possible that the gaming ban
initiative could be re-worded and meet the requirements to be included in the
ballot of a later state-wide election. A third request for a nearly identical
initiative was filed with the Secretary of State in 1999. The local circuit
court again found the wording of the initiative invalid. The sponsor has
appealed that decision to the Mississippi Supreme Court, where the matter is
pending. If the sponsor prevails in court and is able to collect the requisite
number of signatures, the third request could cause a voter initiative to ban
gaming in the state to be placed on the November 2002 or a subsequent state-wide
ballot. An affirmative vote representing both a majority of the votes cast with
respect to the initiative and at least 40% of the voters casting votes on any
matter in the election is required to pass any Mississippi initiative. If any
initiative is submitted to the voters of Mississippi for their consideration, no
assurance can be given regarding the outcome of the vote or the impact of the
vote on our current or proposed gaming operations in this state.
WE FACE SUBSTANTIAL COMPETITION IN THE HOTEL AND CASINO INDUSTRY.
The hotel and casino industry is very competitive. Our hotel-casino
operations in Las Vegas, which are conducted primarily from properties located
along the Las Vegas Strip, currently compete with numerous other major
hotel-casinos and a number of smaller casinos located on or near the Las Vegas
Strip. Our Las Vegas operations also compete with casinos located in downtown
Las Vegas, in Las Vegas' suburban areas and, to a lesser extent, with casino and
hotel properties in other parts of Nevada, including Laughlin, Reno and along
I-15 (the principal highway between Las Vegas and southern California) near the
California-Nevada state line. Las Vegas casinos, including our own, also compete
with Native American casinos in southern California (the principal source of
business for Las Vegas casinos including our own) and central Arizona and, to a
lesser extent, with casinos in other parts of the country.
Casino and guest room capacity has increased significantly in the Las Vegas
market. During the period from October 1998 through September 1999, four major
hotel-casino resorts, including our own Mandalay Bay, opened on the Las Vegas
Strip. As a result of these openings, the number of guest rooms increased by
approximately 12,500, including the 3,700 at Mandalay Bay. While our Las Vegas
operations had previously benefitted from growth in hotel and casino capacity in
the Las Vegas market when we were a significant contributor to the new capacity,
the addition of 1,000 guest rooms at Circus Circus-Las Vegas and an additional
1,950 guest rooms at Luxor in 1997 did not initially contribute to visitor
growth. The impact on our operations of the added hotel and casino capacity
recently completed, including a fifth hotel-casino which opened August 18, 2000,
and any additional capacity subsequently opened in Las Vegas, will depend on the
ability of the new properties, including Mandalay Bay, to produce a significant
and sustained increase in the flow of visitors to the Las Vegas market.
Circus Circus-Reno competes with approximately 11 other major casinos (the
majority of which offer hotel rooms), including Silver Legacy, a hotel-casino
complex with 1,711 guest rooms, which is 50% owned by one of our wholly owned
subsidiaries. Circus Circus-Reno and Silver Legacy also compete with numerous
other smaller casinos in the greater Reno area and, to a lesser extent, with
casinos and hotels in Lake Tahoe and other parts of Nevada.
In Laughlin, the Colorado Belle and the Edgewater, which together accounted
for approximately 25% of the rooms in Laughlin as of April 30, 2000, compete
with eight other Laughlin casinos. They also compete with the hotel-casinos in
Las Vegas and those on I-15 (the principal highway between Las Vegas and
southern California) near the California-Nevada state line, as well as a growing
number of Native American casinos in Laughlin's regional market. The expansion
of hotel and casino capacity in Las Vegas in recent years and the growth of
Native American casinos in central Arizona and southern
17
<PAGE>
California have had a negative impact on Laughlin area properties, including the
Colorado Belle and the Edgewater, by drawing visitors from the Laughlin market.
This has, in turn, resulted in increased competition among Laughlin properties
for a reduced number of visitors which contributes to generally lower revenues
and profit margins at Laughlin properties, including the Colorado Belle and the
Edgewater.
Our Jean, Nevada properties, Gold Strike and Nevada Landing, are located on
I-15 (the principal highway between Las Vegas and southern California),
approximately 25 miles south of Las Vegas and 12 miles north of the
California-Nevada border. These properties attract their customers almost
entirely from the large number of people traveling between Las Vegas and
southern California. Accordingly, these properties compete with the large
concentration of hotel, casino and other entertainment options available in Las
Vegas as well as three hotel-casinos located at the California-Nevada border.
The growth of Native American casinos in southern California has also drawn
visitors from the Jean, Nevada market.
Gold Strike-Tunica competes with other casinos in Tunica County,
Mississippi, including a hotel-casino which is closer to Memphis, the largest
city in Tunica County's principal market, than any of the other facilities
currently in operation in Tunica County. Gold Strike-Tunica's hotel tower, which
has 1,066 guest rooms, was completed in early 1998 and provides this property
with the second largest number of guest rooms in the Tunica County market.
Grand Victoria is a 50% owned riverboat casino and land-based entertainment
complex in Elgin, Illinois, a suburb approximately 40 miles northwest of
downtown Chicago. Grand Victoria is one of nine licensed gaming riverboats
currently operating in Illinois and is located approximately 20 miles and 40
miles, respectively, from its nearest competitors in Aurora, Illinois and
Joliet, Illinois. Recently passed legislation in Illinois would allow a casino
in Rosemont, approximately 16 miles from Grand Victoria. This legislation is
being challenged in court.
Gaming has expanded dramatically in the United States in recent years. Forms
of gaming include:
- riverboats;
- dockside gaming facilities;
- Native American gaming ventures;
- land-based casinos;
- state-sponsored lotteries;
- off-track wagering;
- Internet gaming; 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.
In addition, other states are currently considering, or may in the future
consider, legalizing casino gaming in specific geographic areas within their
states. Many Native American tribes conduct casino gaming throughout the United
States. Other Native American tribes are either in the process of establishing
or are considering establishing gaming at additional locations, including sites
in California and Arizona. The competitive impact on Nevada gaming
establishments, in general, and our operations, in particular, from the
continued growth of gaming in jurisdictions outside Nevada cannot be determined
at this time. We believe that the expansion of casino gaming in markets close to
Nevada, such as California and Arizona, and the expansion of the types of gaming
permitted in California under the amendment to the California constitution
approved on March 7, 2000, could have an adverse impact on our operations and,
18
<PAGE>
depending on the nature, location and extent of those operations outside of
Nevada, the impact could be material.
WE MAY NOT BE ABLE TO PURCHASE YOUR NOTES UPON A CHANGE OF CONTROL.
Upon the occurrence of specified "change of control" events, Mandalay will
be required to offer to purchase each holder's notes at a price of 101% of their
principal amount plus accrued and unpaid interest. We may not have sufficient
financial resources to purchase all of the notes that holders tender to us upon
a change of control offer. The occurrence of a change of control could also
constitute a default under our credit facilities and/or any of our future credit
facilities. Our bank lenders may also have the right to prohibit any such
purchase or redemption, in which event Mandalay would be in default on the
notes. For further discussion, see "Description of the Exchange Notes--Change of
Control."
AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THESE NOTES.
We are offering the exchange notes to the holders of the old notes. The old
notes were sold in July 2000 to a small number of institutional investors and
are eligible for trading in the Private Offerings, Resale and Trading through
Automatic Linkages (PORTAL) Market. To the extent that old notes are tendered
and accepted in the exchange offer, the trading market for untendered and
tendered but unaccepted old notes will be adversely affected. We cannot assure
you that this market will provide liquidity for you if you want to sell your old
notes.
We do not intend to apply for a listing of the exchange notes on a
securities exchange or on any automated dealer quotation system. The exchange
notes are new securities for which there is currently no market. We cannot
assure you as to the liquidity of markets that may develop for the exchange
notes, your ability to sell the exchange notes or the price at which you would
be able to sell the exchange notes. If such markets were to exist, the exchange
notes could trade at prices that may be lower than their principal amount or
purchase price depending on many factors, including prevailing interest rates
and the markets for similar securities. The initial purchasers of the old notes
have advised us that they currently intend to make a market with respect to the
exchange notes. However, they are not obligated to do so, and any market making
activities may be discontinued at any time without notice. In addition, such
market making activity may be limited during the pendency of the exchange offer.
The liquidity of, and trading market for, the exchange notes also may be
adversely affected by changes in the market for high yield securities and by
changes in our financial performance or prospects or in the prospects for
companies in our industry generally.
As a result, you cannot be sure that an active trading market will develop
for the exchange notes.
CERTAIN CONSTRUCTION RISKS MAY ARISE DURING THE BUILDING OF ANY NEW PROPERTIES.
Any major construction project we, or any joint venture in which we own an
interest, may undertake will involve many risks. These risks include 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 can 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 can increase the cost or delay the
construction or opening of the facility or otherwise affect the project's
planned design and features. It is possible that we may change budget and
construction plans we have developed for a project for competitive or other
reasons.
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<PAGE>
In addition to all of the risks referred to in the preceding paragraph, the
Detroit joint venture's construction of its planned permanent facility is
dependent on the acquisition of the proposed permanent site and the satisfactory
resolution of the litigation described under "Business and
Properties--Litigation." Accordingly, there can be no assurance as to the
commencement or successful completion of any project we or any joint venture in
which we are a participant may undertake, including the Detroit joint venture's
planned hotel-casino.
THE NATIONAL GAMBLING IMPACT STUDY COMMISSION'S RECOMMENDATIONS MAY ADVERSELY
AFFECT THE GAMING INDUSTRY AND OUR OPERATIONS.
On April 28, 1999, the National Gambling Impact Study Commission established
by the United States Congress to conduct a comprehensive study of the social and
economic impact of gaming in the United States voted to recommend that the
expansion of gambling be curtailed. In June 1999, the National Commission issued
a final report of its findings and conclusions, together with recommendations
for legislative and administrative actions. Below are highlights of some of
those recommendations:
- Legal gaming should be restricted to those at least 21 years of age;
- Betting on college and amateur sports should be banned;
- The introduction of casino-style gambling at pari-mutual racing facilities
for the primary purpose of saving the pari-mutual facility financially
should be prohibited;
- Internet gaming should be banned within the United States;
- The types of gaming activities allowed by Indian tribes within a given
state should not be inconsistent with the gaming activities allowed to
other persons in that state; and
- State, local and tribal governments should recognize that casino gaming
provides economic development, particularly for economically depressed
areas. The National Commission differentiated casino gaming from
stand-alone slot machines (e.g., in convenience stores), Internet gaming
and lotteries which the commission stated do not provide the same economic
development.
Any additional regulation of the gaming industry which may result from the
National Commission's report may have an adverse effect on the gaming industry,
including us.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus include forward-looking statements. We have based these
forward-looking statements on our current expectations about future events.
These forward-looking statements include statements with respect to our beliefs,
plans, objectives, goals, expectations, anticipations, intentions, financial
condition, results of operations, future performance and business, including:
- statements relating to our business strategy;
- our current and future development plans; and
- statements that include the words "may," "could," "should," "would,"
"believe," "expect," "anticipate," "estimate," "intend," "plan" or similar
expressions.
These forward-looking statements are subject to risks, uncertainties, and
assumptions about us and our operations that are subject to change based on
various important factors, some of which are beyond our control. The following
factors, among others, could cause our financial performance to
20
<PAGE>
differ materially from the goals, plans, objectives, intentions and expectations
expressed in such forward-looking statements:
- our development and construction activities and those of the joint
ventures in which we participate;
- competition;
- our dependence on existing management;
- leverage and debt service (including sensitivity to fluctuations in
interest rates and ratings which national rating agencies assign to our
outstanding debt securities);
- domestic and global economic, credit and capital market conditions;
- changes in federal or state tax laws or the administration of these laws;
- changes in gaming laws or regulations (including the legalization or
expansion of gaming in certain jurisdictions);
- applications for licenses and approvals under applicable laws and
regulations (including gaming laws and regulations);
- regulatory or judicial proceedings; and
- certain risks described under the heading "Risk Factors."
If one or more of the assumptions underlying our forward-looking statements
proves incorrect, then our actual results, performance or achievements in 2000
and beyond could differ materially from those expressed in, or implied by, the
forward-looking statements contained or incorporated by reference in this
prospectus. Therefore, we caution you not to place undue reliance on our
forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether written or oral, whether as a result of new information,
changed assumptions, the occurrence of unanticipated events, changes in future
operating results over time or otherwise. All forward-looking statements
attributable to us are expressly qualified by these cautionary statements.
USE OF PROCEEDS
We will not receive any proceeds from the exchange of the exchange notes for
the old notes pursuant to the exchange offer.
We used the aggregate net proceeds from the offering of the old notes, which
were approximately $488.3 million after deducting fees and expenses associated
with the offering, to repay a portion of the outstanding debt under our
revolving credit facility.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at April 30, 2000:
- on a historical basis; and
- as adjusted after giving effect to
- the offering of the old notes and the application of the net proceeds
of approximately $488.3 million; and
- our issuance on August 16, 2000 of our 9 1/2% senior notes due 2008 and
the application of the net proceeds of approximately $195.8 million.
You should read this information together with the information in the "Use
of Proceeds" section and the audited consolidated financial statements and
related notes for the fiscal year ended January 31, 2000 and the unaudited
condensed consolidated financial statements and related notes for the three
months ended April 30, 2000 appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
APRIL 30, 2000
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS................................... $ 142,578 $ 142,578
========== ==========
CURRENT PORTION OF LONG-TERM DEBT........................... $ 25,271 $ 25,271
---------- ----------
LONG-TERM DEBT:
Credit facility (1)....................................... 1,550,000 866,000
Corporate debt program (2)................................ 50,000 50,000
Joint venture credit facility (3)......................... 125,000 125,000
6.45% senior notes due 2006............................... 199,747 199,747
9 1/2% senior notes due 2008.............................. -- 200,000
7.00% debentures due 2036................................. 149,884 149,884
6.70% debentures due 2096................................. 149,829 149,829
6 3/4% senior subordinated notes due 2003................. 149,949 149,949
9 1/4% senior subordinated notes due 2005................. 275,000 275,000
10 1/4% senior subordinated notes due 2007................ -- 500,000
7 5/8% senior subordinated debentures 2013................ 150,000 150,000
Other notes............................................... 4,296 4,296
---------- ----------
Total long-term debt, net of current portion.............. 2,803,705 2,819,705
---------- ----------
TOTAL STOCKHOLDERS' EQUITY............................ 1,046,113 1,046,113
---------- ----------
TOTAL CAPITALIZATION................................ $3,875,089 $3,891,089
========== ==========
</TABLE>
------------------------
(1) Our current credit facility provides us with a $1.8 billion revolving credit
line. We are currently in the process of securing a second credit facility
for an estimated $140 million to improve our borrowing flexibility. This
additional credit facility is expected to close in September 2000. Our
ability to borrow under the current credit facility is, and our ability to
borrow under the new credit facility will be, subject to our compliance with
the covenants in the current credit facility. See "Description of Other
Indebtedness."
(2) We have a corporate debt program whereby we can issue commercial paper or
similar forms of short-term debt. See Note 3 of "Notes to the Consolidated
Financial Statements" included in this prospectus.
(3) MotorCity Casino is a 53.5%-owned joint venture. For financial reporting
purposes, MotorCity Casino's credit facility is reflected as an obligation
of Mandalay, which has guaranteed the indebtedness incurred under the
facility. See Note 3 of "Notes to the Consolidated Financial Statements"
included in this prospectus.
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<PAGE>
SELECTED FINANCIAL INFORMATION
Our summary consolidated financial information presented in the table below
for each of the five fiscal years ended January 31, and the balance sheet data
as of the end of each year, has been derived from audited consolidated financial
statements included in our annual reports on Form 10-K. Our summary consolidated
financial information presented in the table below as of and for the three
months ended April 30, 1999 and 2000 is unaudited. However, in management's
opinion, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for these periods have been
included. The results of operations for the three months ended April 30, 2000
may not be indicative of the results of operations for the full year. The table
should be read together with the consolidated financial statements and related
notes for the fiscal year ended January 31, 2000 and the condensed consolidated
financial statements and related notes for the three months ended April 30, 2000
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30,
FISCAL YEAR ENDED JANUARY 31, (UNAUDITED)
-------------------------------------------------------------- -----------------------
1996 1997 1998 1999 2000 1999 2000
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Revenues
Casino............................... $ 664,772 $ 655,902 $ 632,122 $ 709,909 $ 951,492 $ 216,815 $ 314,659
Rooms................................ 278,807 294,241 330,644 355,635 534,132 130,610 159,930
Food and beverage.................... 201,385 210,384 215,584 246,622 346,647 81,355 105,502
Other................................ 158,534 146,554 142,407 170,701 251,509 50,953 69,748
Earnings of unconsolidated
affiliates......................... 45,485 86,646 98,977 83,967 98,627 21,994 29,649
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,348,983 1,393,727 1,419,734 1,566,834 2,182,407 501,727 679,488
Less-complimentary allowances.......... (49,387) (59,477) (65,247) (87,054) (131,509) (30,468) (39,872)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net revenues......................... 1,299,596 1,334,250 1,354,487 1,479,780 2,050,898 471,259 639,616
---------- ---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses
Casino............................... 275,680 302,096 316,902 367,449 510,794 110,519 162,145
Rooms................................ 110,362 116,508 122,934 128,622 189,419 41,965 50,644
Food and beverage.................... 188,712 200,722 199,955 207,663 276,261 64,134 76,781
Other operating expenses............. 92,631 90,601 99,460 113,864 179,907 34,599 50,031
General and administrative........... 215,083 227,348 223,263 253,138 339,455 73,308 99,681
Depreciation and amortization........ 93,938 95,414 117,474 133,801 169,226 41,090 51,577
Operating lease rent................. -- -- -- -- 25,994 2,415 9,680
Preopening expenses.................. -- -- 3,447 -- 49,134 33,610 255
Abandonment losses................... 45,148 48,309 -- -- 5,433 -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses before
corporate expense................ 1,021,554 1,080,998 1,083,435 1,204,537 1,745,623 401,640 500,794
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating profit before corporate
expense.............................. 278,042 253,252 271,052 275,243 305,275 69,619 138,822
Corporate expense...................... 26,669 31,083 34,552 32,464 31,539 7,120 7,907
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations................. 251,373 222,169 236,500 242,779 273,736 62,499 130,915
Interest expense....................... (51,537) (54,681) (88,847) (95,541) (165,670) (33,507) (49,487)
Interest expense from unconsolidated
affiliates........................... (5,616) (15,567) (15,551) (12,275) (11,085) (2,802) (2,705)
Other income........................... 11,539 11,942 15,820 5,852 6,427 1,237 3,113
Minority interest...................... -- -- -- -- (292) -- (3,591)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before provision for income
tax.................................. 205,759 163,863 147,922 140,815 103,116 27,427 78,245
Provision for income tax............... 76,861 63,130 58,014 55,617 38,959 10,288 29,387
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
change in accounting principle....... 128,898 100,733 89,908 85,198 64,157 17,139 48,858
Cumulative effect of change in
accounting principle for preopening
expenses, net of tax benefit of
$11,843.............................. -- -- -- -- (21,994) (21,994) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............................. $ 128,898 $ 100,733 $ 89,908 $ 85,198 $ 42,163 $ (4,855) $ 48,858
========== ========== ========== ========== ========== ========== ==========
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30,
FISCAL YEAR ENDED JANUARY 31, (UNAUDITED)
-------------------------------------------------------------- -----------------------
1996 1997 1998 1999 2000 1999 2000
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (2)............................. $ 400,133 $ 379,809 $ 376,881 $ 391,420 $ 506,604 $ 139,371 $ 185,483
Capital expenditures................... $ 221,684 $ 585,835 $ 663,270 $ 671,547 $ 352,133 $ 213,547 $ 32,640
Rooms (3).............................. 17,739 22,407 23,418 27,118 27,118 27,118 27,118
Casino square footage (3).............. 892,900 894,700 894,700 1,030,700 1,086,700 1,030,700 1,086,700
Number of slot machines (3)............ 23,477 22,254 21,520 23,571 25,580 23,467 25,477
Number of table games (3).............. 837 814 785 921 1,014 907 1,010
Ratio of earnings to fixed charges
(4).................................. 3.85x 2.68x 1.99x 1.62x 1.47x 1.44x 2.23x
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 62,704 $ 69,516 $ 58,631 $ 81,389 $ 116,617 $ 90,558 $ 142,578
Property, equipment and leasehold
interests............................ 1,474,684 1,920,032 2,466,848 3,000,822 3,335,071 3,173,544 3,316,521
Total assets........................... 2,213,503 2,729,111 3,263,548 3,869,707 4,329,476 4,068,983 4,349,929
Long-term debt......................... 715,214 1,405,897 1,788,818 2,259,149 2,691,292 2,463,836 2,803,705
Total stockholders' equity............. 1,226,812 971,791 1,123,749 1,157,628 1,187,780 1,145,650 1,046,113
</TABLE>
------------------------
(1) Gold Strike, Nevada Landing and Railroad Pass were acquired on June 1, 1995.
Hacienda was acquired on September 1, 1995 and closed on December 1, 1996.
Mandalay Bay opened on March 2, 1999 and MotorCity Casino opened on
December 14, 1999.
(2) EBITDA consists of operating income plus depreciation and amortization,
preopening expense, abandonment losses and other nonrecurring items.
Corporate expense also contains depreciation which has been added back in
the calculation. EBITDA is a measure commonly used by the financial
community but is not prepared in accordance with United States generally
accepted accounting principles and should not be considered as a measurement
of net cash flows from operating activities.
(3) These items include 100% of Mandalay's joint venture properties. Mandalay
acquired its 50% interest in Grand Victoria, a then-operating riverboat
casino in Elgin, Illinois, on June 1, 1995. Joint ventures in which Mandalay
owns 50% interests opened Silver Legacy in Reno, Nevada on July 28, 1995 and
Monte Carlo in Las Vegas, Nevada, on June 21, 1996. A joint venture in which
Mandalay owns a 53.5% interest opened MotorCity Casino, a temporary casino
in Detroit, Michigan, on December 14, 1999. The information as of
January 31, 1999 includes figures for Mandalay Bay, which opened March 2,
1999. Silver City, a small casino on the Las Vegas Strip, was operated under
a lease which expired October 31, 1999.
(4) The ratio of earnings to fixed charges has been computed by dividing net
income before fixed charges and income taxes, adjusted to exclude
capitalized interest and equity in undistributed earnings of
less-than-50%-owned ventures. Fixed charges consist of interest, whether
expensed or capitalized, amortization of debt discount and issuance costs,
Mandalay's proportionate share of the interest cost of 50%-owned ventures,
and the estimated interest component of rental expense.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH THE FINANCIAL
STATEMENTS, INCLUDING THE RELATED NOTES, THE OTHER FINANCIAL INFORMATION IN THIS
PROSPECTUS, AND THE DISCUSSION CONCERNING THE RISKS ASSOCIATED WITH AN
INVESTMENT IN THE NOTES INCLUDED IN THE "RISK FACTORS" SECTION.
THREE MONTHS ENDED APRIL 30, 2000 COMPARED WITH THE THREE MONTHS ENDED
APRIL 30, 1999
RESULTS OF OPERATIONS
We reported net income of $48.9 million, or $.58 per share, for the quarter
ended April 30, 2000, versus a net loss of $4.9 million, or $.05 per share, for
the same quarter last year. The prior year loss included the write-off of $67.4
million of preopening expenses related primarily to Mandalay Bay (which opened
March 2, 1999) and MotorCity Casino (a 53.5%-owned joint venture which opened
December 14, 1999 in Detroit, Michigan). Excluding these preopening expenses,
earnings per share in last year's first quarter were $.43. The increase in
earnings in the first quarter was due primarily to strong operating results at
all of our major properties, most notably our south Las Vegas Strip properties
and Grand Victoria in Elgin, Illinois. The contribution from the recently opened
MotorCity Casino was also a factor.
The preopening expenses discussed above were reflected in two categories.
Those expenses incurred prior to January 31, 1999 were treated as a cumulative
effect of a change in accounting principle and those incurred subsequent to
January 31, 1999 were expensed as incurred.
REVENUES
Revenues increased $168.4 million, or 36%, in the three months ended
April 30, 2000 compared to the prior year. All of our major wholly owned and
joint venture properties generated higher revenues during the quarter. The
overall increase was attributable primarily to MotorCity Casino, which produced
$78.5 million in revenue in its first full quarter of operations, and to
Mandalay Bay, which generated $137.8 million in revenues in the quarter compared
with $80.5 million in the prior year quarter when it was open only 59 days.
Other significant contributors were Luxor (up $9.2 million, or 10%) and
Excalibur (up $5.3 million, or 7%).
We record our share of the operating income of our unconsolidated joint
ventures (Grand Victoria, Monte Carlo and Silver Legacy) as revenue under
"Earnings of Unconsolidated Affiliates." Results of MotorCity Casino are
consolidated for financial reporting purposes.
INCOME FROM OPERATIONS (EXCLUDING NONRECURRING ITEMS)
For the three months ended April 30, 2000, income from operations rose $35.1
million, or 36%, from the prior year. The composite operating margin was 20.5%
versus 20.4% in the prior year quarter. A discussion of operating results by
market follows.
LAS VEGAS
Our Las Vegas properties posted an overall increase in operating income of
$12.3 million, or 17%. Luxor was the largest contributor to this increase, with
operating income rising $6.4 million, or 32%. Excalibur was also a significant
contributor, producing an increase of $4.9 million, or 25%. Moreover, operating
income at Circus Circus-Las Vegas rose 8%, while Monte Carlo's contribution to
operating income rose 7%. Operating income at Mandalay Bay declined slightly
despite the property being open an additional month in this year's first
quarter. Operating lease rent for that property, which increased $7.3 million
from the prior year, was the principal factor in this decline.
25
<PAGE>
The strong year-over-year increases in operating income at our Las Vegas
properties were driven by an uptrend in the number of visitors to the Las Vegas
Strip. This was evidenced by an average $8 increase in revenue per available
room (REVPAR) at our wholly owned properties, led by Mandalay Bay, whose average
room rate increased 17% to $155, and Luxor, whose average room rate topped $102
(up 8%). For its part, Monte Carlo's REVPAR increased $10. Furthermore, casino
revenues at our wholly owned Las Vegas properties increased approximately 8% on
a same-store basis (adjusting for the additional month of operations at Mandalay
Bay in the current year).
RENO
In Reno, our combined operating income (Circus Circus-Reno plus our 50%
interest in Silver Legacy) rose $3.4 million, or 68%, versus the year ago
quarter. Both properties posted significant REVPAR increases, while casino
revenues rose 10% at Circus Circus-Reno and 20% at Silver Legacy. Reno hosts
national bowling tournaments two out of every three years, and this year the
city is hosting the women's national tournament.
LAUGHLIN
Our two Laughlin properties, Colorado Belle and Edgewater, posted a combined
increase in operating income of $.9 million, or 10%. This market has been on a
general uptrend over the past two years, as visitor counts to Laughlin have
increased. Like our Las Vegas operations, these properties experienced increases
in both REVPAR and casino revenues.
OTHER MARKETS
Our newest property, MotorCity Casino in Detroit, Michigan, delivered $11.0
million in operating income in its first full quarter of operations. See
"--Financial Position and Capital Resources" for additional details regarding
our Detroit operation.
In Tunica County, Mississippi, operating income at Gold Strike rose $1.7
million, or 30%, from the prior year. Casino revenues grew 9%, as this property
continued to increase its market share.
The contribution to operating income from Grand Victoria (a 50%-owned
riverboat casino in Elgin, Illinois) increased $6.5 million, or 83%, as the
advent of dockside gaming in June 1999 contributed to significant volume
increases.
INTEREST EXPENSE
For the three months ended April 30, 2000, interest expense (excluding
unconsolidated joint venture interest expense and before capitalized interest)
rose $10.0 million to $51.2 million. The increase was due primarily to higher
average borrowings (approximately $2.8 billion in the current quarter against
approximately $2.4 billion last year) related to the purchase of approximately
11.9 million shares of our common stock during this year's first quarter and
$150 million in borrowings associated with MotorCity Casino, which is
consolidated for financial reporting purposes. Capitalized interest was $1.7
million for the quarter ended April 30, 2000 versus $7.7 million in the year-ago
quarter. Long-term debt at April 30, 2000 stood at $2.8 billion compared to
nearly $2.5 billion at April 30, 1999.
We also recorded interest expense related to unconsolidated joint venture
projects of $2.7 million in the quarter ended April 30, 2000 compared to $2.8
million in the previous year. This reflects our 50% share of the interest
expense of Silver Legacy and Monte Carlo.
26
<PAGE>
INCOME TAX
The effective tax rate was approximately 37.5% for the three months ended
April 30, 2000 and 1999. This rate reflects the corporate statutory rate of 35%
plus the effect of various nondeductible expenses, primarily the amortization of
goodwill.
FISCAL 2000 COMPARED WITH FISCAL 1999
RESULTS OF OPERATIONS
For the year ended January 31, 2000, we reported net income of $42.2
million, or $.46 per share, compared to $85.2 million, or $.90 per share, in the
prior year. The results for fiscal 2000 include $83.0 million in preopening
expenses associated with Mandalay Bay, our flagship hotel-casino resort in Las
Vegas, and MotorCity Casino, a 53.5%-owned temporary casino in Detroit. Mandalay
Bay opened March 2, 1999 and MotorCity Casino opened December 14, 1999. Fiscal
2000 results also include $5.4 million in write-offs related to a proposed
timeshare resort in Las Vegas which we decided not to pursue. Fiscal 1999
results include $6.5 million of political campaign costs associated with
Proposition 5, a voter initiative to approve gaming on Native American lands in
California. Excluding the effects of these nonrecurring items, earnings per
share were $1.08 for fiscal 2000 versus $.94 in the prior year. This increase in
earnings reflected the openings of Mandalay Bay and MotorCity Casino, as well as
significantly improved results at Grand Victoria, offset by increased net
interest expense due to higher average borrowings.
The preopening expenses mentioned above were recorded in two ways. Costs
incurred prior to January 31, 1999 were treated as a cumulative effect of a
change in accounting principle and expensed in the first quarter of fiscal 2000.
Costs incurred subsequent to January 31, 1999 were expensed as incurred. See
Note 1 of Notes to Consolidated Financial Statements included in this
prospectus.
REVENUES
Revenues for fiscal 2000 increased $571.1 million, or 39%, from the prior
year. All of our wholly owned and joint venture properties posted increases in
revenues, with the overall increase attributable primarily to Mandalay Bay,
which produced revenues of $456.2 million in its initial 11 months of operation.
MotorCity Casino was also a contributor, generating revenues of $39.0 million.
At Gold Strike Casino Resort in Tunica County, Mississippi, revenues rose $20.6
million, or 19%. The addition of 1,100 hotel rooms in early 1998 has enabled
this property to be marketed more effectively and has spurred growth in its
operating results. Grand Victoria, our riverboat casino in Illinois, generated a
$13.4 million, or 40%, increase in its contribution to our revenues. Legislation
permitting dockside gaming was passed in June 1999 and was a significant factor
in this increase. This legislation is, however, being challenged in court.
Meanwhile, revenues at Excalibur rose $10.9 million, or 4%, driven by higher
room and occupancy rates during the year.
We record our share of the operating income of our unconsolidated joint
ventures (Grand Victoria, Monte Carlo and Silver Legacy) as revenue under
earnings of unconsolidated affiliates. Results of MotorCity Casino, however, are
consolidated for financial reporting purposes.
Casino revenues increased $241.6 million, or 34%, during fiscal 2000, due
principally to the openings of Mandalay Bay ($182.6 million in casino revenues)
and MotorCity Casino ($36.1 million in casino revenues). Gold Strike-Tunica,
with a 19% increase to $110.0 million, also contributed to the overall growth in
casino revenues. Hotel revenues, meanwhile, rose $178.5 million, or 50%, due to
the opening of Mandalay Bay combined with higher room and occupancy rates at our
other Las Vegas properties. Revenues in our other revenue centers (principally
food, beverage, amusements, retail and entertainment) rose $180.8 million, or
43%. This increase was due primarily to Mandalay Bay and to increased visitor
counts at our other properties.
27
<PAGE>
On October 31, 1999, the lease pursuant to which Mandalay operated the
Silver City Casino expired and we ceased operation of that facility. Total
revenues for Silver City for the nine months it was open in fiscal 2000
accounted for less than one-half of one percent of our consolidated revenues for
that period.
INCOME FROM OPERATIONS (EXCLUDING NONRECURRING ITEMS)
Income from operations for fiscal 2000 increased $79.0 million, or 32%, from
the prior year. The composite operating margin was 16.0%, compared to 16.8% in
fiscal 1999. While the opening of Mandalay Bay was the main driver of this
growth, all of our wholly owned properties, with the exception of Edgewater,
reported double-digit increases in income from operations. All of the growth
occurred in the first three quarters of the year; fourth quarter results were
unchanged from the prior year due to an unusually soft holiday period in Nevada.
A discussion of operating results by market follows.
LAS VEGAS
Overall, operating income at our Las Vegas properties increased $54.1
million, or 31%. Mandalay Bay led the way, generating $26.3 million in its first
11 months. At Luxor, operating income increased $11.5 million, or 21%, while it
rose $8.1 million, or 14%, at Excalibur. Both properties benefitted from higher
room and occupancy rates. Luxor also benefitted from lower advertising and
marketing expenses (a national advertising campaign had been in effect during
the prior year). Meanwhile, operating income at Circus Circus-Las Vegas grew by
$6.1 million, or 20%, due to higher average daily room rates. The 50%-owned
Monte Carlo also benefitted from higher room rates, with its contribution to
operating income rising 3% to $29.4 million.
RENO
In Reno, Circus Circus posted a $2.6 million, or 21%, increase in operating
income over the prior year. Contributing to this strong year-to-year comparison
were gains in occupancy and room rates from the prior year. Meanwhile, our share
of operating income from Silver Legacy grew 3% to $20.4 million in fiscal 2000.
Operating results at both Reno properties improved despite the absence of a
major bowling tournament last year. Reno is the host to national bowling
tournaments two out of every three years, and in fiscal 2000 the city was
without a tournament.
Although Mandalay owns 50% of Silver Legacy, during fiscal 2000 we recorded
approximately two-thirds of Silver Legacy's operating income as a priority
return on our investment. Based upon current projections, we anticipate that
this priority return will be eliminated during fiscal 2001, and we will receive
our normal 50% allocation.
LAUGHLIN
Our two properties in Laughlin -- Colorado Belle and Edgewater -- reported a
combined decrease in operating income of $1.0 million, or 5%, from the prior
year. While both properties reported increases in revenues, health insurance
costs grew as a result of unexpected increases in claims, particularly at
Edgewater.
OTHER MARKETS
At Gold Strike, in Tunica County, Mississippi, operating income rose 76%
during fiscal 2000, to $21.2 million. The increase is the result of the addition
of an 1,100-room hotel tower and extensive remodeling of the property that was
completed during the first quarter of the prior year.
28
<PAGE>
The 50%-owned Grand Victoria's contribution to income from operations grew
by $13.8 million for the year. As previously noted, the introduction of dockside
gaming was the principal factor in this increase.
DEPRECIATION AND AMORTIZATION
In fiscal 2000, depreciation and amortization expense rose $36.2 million, to
$178.3 million. This increase derived primarily from the addition of Mandalay
Bay and MotorCity Casino. For fiscal 2001, we estimate that our depreciation
expense will be approximately $210 million (including depreciation from
MotorCity, which is consolidated).
Depreciation expense by property (in millions):
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Luxor....................................................... $ 36.8 $ 41.8
Mandalay Bay................................................ 33.9 --
Excalibur................................................... 16.6 15.0
Circus Circus-Las Vegas/Slots-A-Fun/Silver City............. 24.0 24.6
Gold Strike-Tunica.......................................... 13.4 14.0
Colorado Belle/Edgewater.................................... 10.7 9.5
Circus Circus-Reno.......................................... 10.8 12.0
MotorCity Casino............................................ 5.9 --
Other....................................................... 26.2 25.2
------ ------
$178.3 $142.1
====== ======
</TABLE>
INTEREST EXPENSE
In fiscal 2000, interest incurred (excluding interest expense from
unconsolidated affiliates and before capitalized interest) rose $35.6 million to
$176.7 million. We had higher average debt outstanding ($2.5 billion versus $2.0
billion in fiscal 1999) that was related principally to the completion of
construction of Mandalay Bay and our core components of masterplan mile.
Capitalized interest was $11.0 million in fiscal 2000 versus $45.5 million in
the prior year; the decrease was attributable to the completion of Mandalay Bay.
We recorded interest expense from unconsolidated affiliates of approximately
$11.1 million in fiscal 2000 versus $12.3 million in fiscal 1999. These amounts
represent our 50% share of Silver Legacy's and Monte Carlo's interest expense.
TAXES
The effective tax rates for the years ended January 31, 2000 and 1999 were
39.1% and 39.5%. These rates reflect the federal statutory rate of 35% plus the
effect of various nondeductible expenses, primarily the amortization of goodwill
associated with our 1995 Gold Strike acquisition. For fiscal 2001, we estimate
our effective tax rate will be approximately 37%.
FISCAL 1999 COMPARED WITH FISCAL 1998
RESULTS OF OPERATIONS
Excluding the effect of nonrecurring items, earnings per share for fiscal
1999 were $.94 versus $1.01 in the prior year. During fiscal 1999, we recorded a
charge to corporate expense of $6.5 million for political campaign costs
associated with Proposition 5 in California. In the prior year, we recognized
29
<PAGE>
approximately $8.0 million in costs associated with the resignation of our
chairman and $3.4 million in preopening expenses related to a new 1,100-room
hotel at our remodeled Gold Strike Casino Resort in Tunica County, Mississippi.
Also during fiscal 1998, we recognized a $6.0 million gain on the sale of a
company airplane.
The decrease in earnings per share 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 fiscal 1998.
All of our wholly owned properties posted increases in revenues, with the
exception of Excalibur, whose revenues declined slightly. The primary
contributors to the increase were Gold Strike-Tunica, Luxor and Circus
Circus-Las Vegas. The completion of an 1,100-room hotel tower at Gold
Strike-Tunica in the first quarter of fiscal 1999 contributed to a 133% increase
in revenue at that property. Luxor achieved a revenue increase of 15% due to 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 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 our joint venture properties. Our share of the operating income of joint
ventures 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 a 23% decrease in Grand Victoria's contribution.
INCOME FROM OPERATIONS (EXCLUDING NONRECURRING ITEMS)
Income from operations for fiscal 1999 increased $2.1 million, or 1%, from
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 we started to reap the benefits of our larger capacity, product
advertising and player marketing efforts.
Operating income at Luxor rose 12% due primarily to a new national
advertising campaign, while at Circus Circus-Las Vegas, operating income also
grew 12% driven by higher contributions from the hotel and food departments.
These increases were largely offset by 10% decreases at Excalibur and the
50%-owned Monte Carlo. Both properties incurred higher marketing expenses while
revenues remained level. Meanwhile, Circus Circus-Reno posted an 18% increase in
operating income, benefitting from the casino remodeling that was completed in
the prior year and from more favorable weather. In Laughlin, our two properties
posted a 9% increase in operating income, their first year-over-year increase
since 1993. At Gold Strike-Tunica, operating income more than quadrupled to
$12.1 million, as that property benefitted from extensive remodeling and the
addition of an 1,100-room hotel tower which were completed in early 1998.
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.
30
<PAGE>
INTEREST EXPENSE
In fiscal 1999, interest incurred (excluding interest expense from
unconsolidated affiliates and before capitalized interest) rose $30.2 million to
$141.1 million. This increase was due primarily to higher average debt
outstanding ($2.0 billion versus $1.6 billion in fiscal 1998) which was 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.
Mandalay recorded interest expense from unconsolidated affiliates of
approximately $12.3 million in fiscal 1999 versus $15.6 million in fiscal 1998.
These amounts represent our 50% share of Silver Legacy's and Monte Carlo's
interest expense.
FINANCIAL POSITION AND CAPITAL RESOURCES
Mandalay had cash and cash equivalents of $142.6 million at April 30, 2000,
representing normal daily operating requirements. Our pretax cash flow from
operations, before preopening expenses, was $185.9 million for the three months
ended April 30, 2000 versus $141.8 million in the prior year, an increase of
31%. In this context, pretax cash flow from operations is defined as income from
operations plus noncash operating expenses (primarily depreciation and
amortization) plus rent expense related to certain equipment at Mandalay Bay
which was financed pursuant to an operating lease agreement. In the first
quarter ended April 30, 2000, we used our cash flow to fund a portion of the
purchase of 11.9 million shares of our common stock. In the prior year quarter,
the cash flow was used to fund construction of Mandalay Bay and other
miscellaneous construction projects.
CAPITAL SPENDING
Capital expenditures for the quarter ended April 30, 2000 were $32.6
million, of which $14.6 million related to the Shark Reef at Mandalay Bay, our
new saltwater aquarium attraction which opened June 20, 2000.
Capital expenditures in fiscal 2000 were $352.1 million compared with $671.5
million in fiscal 1999 and $663.3 million in fiscal 1998. The majority of
capital expenditures in fiscal 2000 related to the construction of Mandalay Bay
($140.6 million), the construction of the convention center and arena at
Mandalay Bay ($46.1 million), the construction of the monorail connecting
Mandalay Bay, Luxor and Excalibur ($26.8 million), the construction of the
aquarium exhibit ($23.6 million) and the renovation of the hotel rooms at
Excalibur ($13.9 million).
Most of the 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 completion of construction and
remodeling at Gold Strike-Tunica ($18.8 million) and the renovation of the hotel
rooms at Excalibur ($12.3 million).
CREDIT FACILITY
To allow for increased borrowing capacity during the construction of
Mandalay Bay, we amended our unsecured credit facility with our bank group in
May 1998 to provide a more liberal test for total indebtedness during
construction and a new leverage test for senior debt. The facility, which
currently permits total borrowings of $1.8 billion, was amended in June 1999 to
provide for a single leverage test for total indebtedness. As part of our
corporate debt program, we also have a commercial paper program pursuant to
which we may utilize up to $1 billion of our borrowing capacity under the credit
facility to issue commercial paper. As of April 30, 2000, we had aggregate
borrowings of approximately $1.6 billion outstanding under the credit facility
and an additional $50 million outstanding under our corporate debt program.
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<PAGE>
LEASE FACILITY
On October 30, 1998, we entered into an operating lease with a group of
financial institutions (the "Lease Facility") that permits us to lease up to
$200 million of equipment. As of June 30, 1999, we had utilized the entire $200
million Lease Facility to lease equipment at Mandalay Bay. Concurrently, the
commitment under our bank credit facility was permanently reduced by the amount
of the lease financing to the current $1.8 billion level. The base term of the
lease expires June 30, 2001, but the lease provides for up to two successive
one-year renewal terms.
OTHER LONG TERM DEBT
In August 1998, we filed a shelf registration statement relating to $550
million of securities. These securities may be issued from time to time in the
form of additional Mandalay debt securities or preferred securities of Delaware
business trusts formed for the purpose of issuing their trust securities and
investing the proceeds in our debt securities. In November 1998, we issued $275
million principal amount of 9 1/4% Senior Subordinated Notes due December 1,
2005 under this registration statement. Proceeds from this offering were used to
repay outstanding borrowings under the credit facility. See Note 3 of Notes to
Consolidated Financial Statements included in this prospectus.
SILVER LEGACY
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, Mandalay 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.
NEW PROJECTS
MANDALAY BAY
On March 2, 1999, we opened Mandalay Bay, a 43-story hotel-casino resort in
Las Vegas, Nevada. Mandalay Bay is part of our masterplan mile, our development
property with approximately one mile of frontage on the Las Vegas Strip.
Four Seasons operates 424 rooms at Mandalay Bay, providing Las Vegas
visitors with a luxury "five-diamond" hospitality experience. The Four Seasons
Hotel, which is owned by us and managed by Four Seasons, represents the first
step in our 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 $1 billion.
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 in others. We retained
geotechnical, structural engineering and foundation consultants who evaluated
the situation and recommended remedial measures, which were completed prior to
the opening of the property. The evaluation of these remedial measures will
continue over time to determine if any further action will be required.
MASTERPLAN MILE
Masterplan mile is our development property with approximately one mile of
frontage on the Las Vegas Strip. The property currently contains the Mandalay
Bay, Luxor and Excalibur sites. Our development plan for masterplan mile
includes various core components which will be cross-marketed to guests at our
existing and future hotel-casino within this resort development. These
components include a 125,000-square-foot convention facility (which opened
March 12, 1999) and a 12,000-seat
32
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arena (which opened April 10, 1999). The total cost of the convention facility
and arena (excluding land, capitalized interest and preopening expenses) was
approximately $125 million. Additional core components include a monorail system
(which opened April 10, 1999) linking the resorts within our masterplan mile, as
well as an aquarium exhibit, the Shark Reef at Mandalay Bay, which opened
June 20, 2000. The cost of the monorail (excluding land, capitalized interest
and preopening expenses) was approximately $40 million. The estimated cost of
the aquarium (excluding land, capitalized interest and preopening expenses) is
approximately $45 million, of which $39.9 million had been incurred as of
April 30, 2000. We may add other core components to our development plan for
masterplan mile in the future.
DETROIT, MICHIGAN
We have formed a joint venture with the Detroit-based Atwater Casino Group
to build, own and operate a hotel-casino in Detroit, Michigan. This joint
venture is one of three groups which negotiated development agreements with the
city. We had an initial 45% ownership interest in the joint venture. Effective
December 14, 1999, we acquired an additional 8.5% interest at a cost of $38.4
million, thus increasing our total ownership interest to 53.5%.
Pending the development of a permanent hotel-casino, the joint venture
constructed a temporary casino (MotorCity Casino) in downtown Detroit, which
opened December 14, 1999. MotorCity Casino contains approximately 75,000 square
feet of gaming space, with approximately 2,600 slot machines and 136 table
games, plus five restaurants and a 3,450-space parking facility. The cost of the
temporary casino, including land and capitalized interest but excluding
preopening expenses, was approximately $150 million. This cost was financed
pursuant to the joint venture's $150 million credit facility, which is secured
by the assets associated with the temporary casino. Mandalay has guaranteed this
credit facility subject to the release of the guaranty if certain performance
measures are reached. The joint venture's operation of the temporary casino is
subject to ongoing regulatory oversight, and its ability to proceed with a
permanent hotel-casino facility is contingent upon the receipt of all necessary
gaming approvals and satisfaction of other conditions.
The Detroit joint venture is planning a $600 million permanent hotel-casino
facility. We have committed to contribute 20% of this amount in the form of
equity, and the joint venture will seek project-specific funding for the balance
of the cost. The development agreement provides that we will guarantee
completion of the permanent facility and will enter into a keep-well guarantee
with the city, pursuant to which we could be required to contribute additional
funds, if and as needed, to continue operation of the project for a period of
two years. This keep-well agreement also applies to the temporary casino.
Mandalay has issued letters of credit totaling $50 million for the benefit of
Bank of America in order to back letters of credit issued by Bank of America for
the same total amount. The Bank of America letters of credit were issued to
secure payments of principal and interest on bonds issued by the Economic
Development Corporation of the City of Detroit. The proceeds of the bonds are to
be used to finance costs associated with activities (including acquisition)
relating to the land on which the permanent facility will be built.
Various lawsuits have been filed in the state and federal courts challenging
the constitutionality of the Detroit Casino Competitive Selection Process and
the Michigan Gaming Control and Revenue Act, and seeking to appeal the issuance
of a certificate of suitability to MotorCity Casino. No assurance can be given
regarding the timing and outcome of these proceedings. An adverse ruling in any
of these lawsuits could adversely impact the status of our joint venture's
operation of the temporary facility, as well as its ability to obtain a
certificate of suitability and a casino license for its permanent facility.
MISSISSIPPI GULF COAST. We have announced 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. Certain of the approvals to commence
development we had previously received have been successfully
33
<PAGE>
challenged in federal court. We will not commence the design and construction of
this resort prior to a satisfactory resolution of all legal actions and our
receipt of all necessary permits and approvals. Currently, we expect the resort
to include approximately 1,500 rooms and involve an investment of approximately
$225 million. Present plans call for Mandalay to own 90% of the resort, with a
partner contributing land (up to 500 acres) in exchange for the remaining 10%
interest.
LIQUIDITY
Based on our operating cash flows, credit facility and ability to raise
additional funds through debt or equity markets, we believe we have sufficient
capital resources to meet all of our existing cash obligations, fund our capital
commitments on projects under way and strategically purchase shares of our
common stock. As of April 30, 2000, under our most restrictive loan covenant, we
could issue additional debt of approximately $966 million. Our borrowing
capacity under this covenant can fluctuate substantially from quarter to quarter
depending upon our operating cash flow. In May 2000, our Board of Directors
authorized the repurchase of up to 15% (or approximately 11.7 million) of the
outstanding shares of common stock, as market conditions and other factors
warrant.
MARKET RISK AND DERIVATIVE FINANCIAL INSTRUMENTS
Mandalay is exposed to market risk in the form of fluctuations in interest
rates and their potential impact upon our variable-rate debt. We manage this
market risk by utilizing derivative financial instruments in accordance with
established policies and procedures. We evaluate our exposure to market risk by
monitoring interest rates in the marketplace. We do not utilize derivative
financial instruments for trading purposes. There were no material quantitative
changes in our market risk exposure, or how such risks are managed, during
fiscal 2000.
Our 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 our exposure to counterparty credit risk in interest rate swaps,
we enter 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 our credit facility, which
management believes further minimizes the risk of nonperformance.
The following table provides information about our 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.
34
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31,
----------------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL
-------- -------- -------- -------- -------- ---------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term debt (including
current portion)
Fixed-rate.................... $ 0.5 $ 0.3 $ 0.3 $150.2 $ 0.3 $927.7 $1,079.3
Average interest rate......... 5.6% 6.7% 6.7% 6.7% 6.7% 7.6% 7.5%
Variable-rate................. $ 12.5 $ 52.5 $1,535.0 $ 25.0 -- -- $1,625.0
Average interest rate......... 6.9% 7.3% 7.3% 7.4% -- -- 7.3%
Interest rate swaps
Pay fixed..................... $200.0 -- $ 200.0 $200.0 -- $150.0 $ 750.0
Average payable rate.......... 6.1% -- 6.1% 6.4% -- 5.9% 6.1%
Average receivable rate....... 6.9% -- 7.3% 7.4% -- 7.7% 7.3%
</TABLE>
YEAR 2000 READINESS DISCLOSURE
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) might recognize a date using "00" as the year 1900 rather than the
year 2000. This has generally been referred to as the Year 2000 issue. The
inability to correctly recognize the year 2000 created the potential for
computer system failures or miscalculations by computer programs, which might
have disrupted operations.
We established a task force to coordinate our response to the Year 2000
issue, and established a program for dealing with the issue at our wholly owned
properties and at our joint venture properties. The program is described in our
earlier reports on Form 10-K and Form 10-Q beginning with our report on Form
10-Q for the quarter ended July 31, 1998.
The program was completed prior to January 31, 2000, and, to date, we have
not experienced any significant Year 2000 problems or incurred any disruption in
operations.
We estimate that the total cost of making our systems and those of our joint
venture properties Year 2000 compliant was approximately $6 million. Most of
this cost related to the acquisition of new computer hardware and software to
replace noncompliant personal computers and noncompliant software. These costs
were capitalized, and the equipment and software are being depreciated over
their expected useful lives. To the extent that existing hardware or software
was replaced, we recognized a loss currently for the undepreciated balance. This
loss is included in the above cost estimate. Furthermore, all costs related to
software modification and to the administration of our Year 2000 project were
expensed as incurred and are likewise included in the cost estimate above.
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BUSINESS AND PROPERTIES
OVERVIEW
We are one of the largest hotel-casino operators in the United States in
terms of guest rooms and casino square footage. We have the largest scaled
hotel-casino resort development in Las Vegas, the world's largest gaming market.
This "masterplan mile" consists of three interconnected megaresorts on 230
acres, including our newest property, Mandalay Bay. We operate 16 properties
with more than 27,000 guest rooms and more than one million square feet of
casino space in Nevada, Mississippi, Illinois and Michigan. Of these properties,
12 are wholly owned and have more than 22,400 guest rooms and more than 800,000
square feet of casino space. In addition, we own a 50% interest in three joint
venture casino properties with approximately 4,700 guest rooms and more than
200,000 square feet of casino space and a 53.5% interest in a fourth joint
venture casino with approximately 75,000 square feet of casino space.
We have provided below information as of April 30, 2000 about our properties
that we wholly own and operate, except as otherwise indicated.
<TABLE>
<CAPTION>
APPROXIMATE
GUEST CASINO SQUARE GAMING PARKING
LOCATION/PROPERTY ROOMS FOOTAGE SLOTS(1) TABLES(2) SPACES
----------------- -------- ------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
LAS VEGAS, NEVADA
Mandalay Bay(3)........................ 3,700 135,000 2,276 130 7,000
Luxor.................................. 4,404 120,000 2,013 105 3,200
Excalibur.............................. 4,008 110,000 2,471 80 4,000
Circus Circus.......................... 3,744 109,000 2,210 79 4,700
Monte Carlo (50% Owned)................ 3,002 90,000 2,056 71 4,000
Slots-A-Fun............................ -- 16,700 526 27 --
RENO, NEVADA
Circus Circus.......................... 1,572 60,000 1,639 72 3,000
Silver Legacy (50% Owned).............. 1,711 85,000 2,240 79 1,800
LAUGHLIN, NEVADA
Colorado Belle......................... 1,226 64,000 1,289 41 1,700
Edgewater.............................. 1,450 44,000 1,261 37 2,300
JEAN, NEVADA
Gold Strike............................ 812 37,000 1,020 20 2,100
Nevada Landing......................... 303 36,000 1,020 21 1,400
HENDERSON, NEVADA
Railroad Pass.......................... 120 21,000 374 9 600
TUNICA COUNTY, MISSISSIPPI
Gold Strike............................ 1,066 48,000 1,488 50 1,400
DETROIT, MICHIGAN
MotorCity (53.5% Owned)(4)............. -- 75,000 2,600 136 3,450
ELGIN, ILLINOIS
Grand Victoria (50% Owned)............. -- 36,000 994 53 2,000
------ --------- ------ ----- ------
Total................................ 27,118 1,086,700 25,477 1,010 42,650
====== ========= ====== ===== ======
</TABLE>
------------------------
(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. Mandalay Bay also offers baccarat.
(3) This property, which opened March 2, 1999, includes a Four Seasons Hotel
with 424 guest rooms that we own and Four Seasons Hotels Limited manages.
(4) This property, which opened December 14, 1999, is being operated pending the
construction of a permanent hotel-casino facility which, as currently
planned, will have approximately 800 guest rooms, a 100,000-square-foot
casino and 4,100 parking spaces.
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STRATEGY
Our objective is to continue being a leader in resort entertainment, with
casino gaming as our core strength. Consistent with this objective, we are
pursuing the following strategies:
BEING A LEADER IN EACH OF OUR MARKETS. We intend to continue being a
leading owner and operator of destination resort properties in major gaming
markets within the U.S. Our properties are located in Las Vegas, Reno and
Laughlin, Nevada; Tunica County, Mississippi; Elgin, Illinois (approximately 40
miles northwest of Chicago); and Detroit, Michigan. We have a proven record of
building successful megaresorts, including Mandalay Bay, Luxor, Excalibur and
Monte Carlo on the Las Vegas Strip. We are planning to develop a hotel-casino
resort on the Mississippi Gulf Coast which we believe represents a significant
growth opportunity. We expect to continue to focus our future development
projects on high growth gaming markets such as those in which we are currently
operating or pursuing expansion opportunities.
OWNING AND OPERATING "MUST SEE" DESTINATIONS. Within each of our existing
and target markets, our goal is to own and operate gaming resorts that are
viewed by tourists as "must see" properties. In pursuing this strategy, we seek
to develop properties that are distinctively themed and provide customers with a
memorable vacation experience that includes resort hotel and casino facilities,
premier entertainment events and critically acclaimed dining venues, such as
Charlie Palmer's Aureole, Wolfgang Puck's Trattoria Del Lupo, China Grill,
rumjungle, Red Square and Border Grill at Mandalay Bay. We believe that our
hotel-casino resort properties are among the leaders in their respective
markets.
FURTHER DEVELOPING OUR MASTERPLAN MILE. We currently control the largest
casino development parcel in Las Vegas, our masterplan mile, that includes 230
acres of land, of which approximately 60 acres are still available for
development, and approximately one mile of frontage on the Las Vegas Strip.
Mandalay Bay is the centerpiece of this "Strip within the Strip" of
interconnected entertainment destinations and is connected to our integrated
convention facilities and 12,000-seat arena, as well as our two other masterplan
mile resorts, Luxor and Excalibur. Together, these three resorts include more
than 12,000 guest rooms and more than 360,000 square feet of casino space. The
long-term plan for completion of our masterplan mile presently includes as many
as two additional resorts and additional entertainment facilities. We believe
the masterplan mile represents a unique gaming resort complex that has no
comparably scaled equivalent in the United States.
TARGETING MULTIPLE SEGMENTS OF CUSTOMERS. We target a broad range of
customers by providing a quality resort experience at an attractive value. We
have an array of properties that target all segments of the market. With the
opening of Mandalay Bay, we increased our commitment to providing additional
amenities for our upscale clientele and expanded our target market to include
premium clientele. Our masterplan mile development enables us to attract and
service all segments of the market in Las Vegas, the world's largest resort
destinations for entertainment.
MAXIMIZING CUSTOMER SATISFACTION THROUGH STRATEGIC ALLIANCES. We create
"must see" destinations within our resorts, in part, by entering into strategic
alliances with premier partners. For example, we own, and Four Seasons Hotels
Limited operates, a Four Seasons Hotel within Mandalay Bay. We believe this
arrangement enhances Mandalay Bay's appeal by providing the option of a
"five-diamond" hotel experience. This arrangement is the first step of a broader
effort to identify strategic opportunities for the development of hotel and
casino properties worldwide. In addition, we are a partner with HOB
Entertainment, Inc. in the ownership of the House of Blues nightclub and
restaurant, including its signature Foundation Room on the top floor of Mandalay
Bay and in March 2000 we opened a production of the off-Broadway show Blue Man
Group ("Live at Luxor") under a shared profit agreement. We believe such
alliances help us provide high-quality, distinctively-themed entertainment as a
part of the total resort experience offered by Mandalay.
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UTILIZING TECHNOLOGY TO ENHANCE PROFITABILITY. We have invested and will
continue to invest in technology and tools that help us better market to and
understand our customers. Technology allows for the most efficient pricing
models, yield management systems and targeted marketing. Through our customized
yield management systems, we are able to adjust the room rates at our properties
to achieve an optimal balance between the highest average daily room rate and
occupancy levels. We also sell rooms directly to consumers on the Internet,
where we believe that we have emerged as an early leader, and will aggressively
seek to grow this component of our distribution model. By utilizing our database
of customer information we are able to better understand our customers' spending
habits and can extend this platform, for example, through strategic marketing
alliances with e-commerce companies. This data mining helps us devise strategies
to keep our customers at our hotel-casino resorts, and thus capture "leakage" of
customer spending at competitor properties, and to maximize customer spending
per room. Targeted marketing lets us maximize the impact of our advertising
through a much more focused marketing campaign.
PROPERTY DESCRIPTIONS
We are providing below, additional information concerning each of our
markets and our properties within those markets.
LAS VEGAS, NEVADA
Las Vegas has seen positive market trends in 1999, driven by the opening of
four new megaresorts on the Las Vegas Strip, including Mandalay Bay. In 1999,
Las Vegas' visitor volume increased by 10.5% to 33.8 million visitors, occupancy
increased to 88.0% from 85.8%, and total gaming revenue increased by 14.2% to
$5.7 billion in the Las Vegas market.
MANDALAY BAY. This property, which opened March 2, 1999, is the first major
resort on the Las Vegas Strip to greet visitors arriving in Las Vegas on I-15,
the primary thoroughfare between Las Vegas and southern California. The 43-story
South Seas themed hotel-casino resort has approximately 3,700 guest rooms
(including the 424-room Four Seasons at Mandalay Bay) and a 135,000-square-foot
casino which, as of April 30, 2000, featured 2,276 slot machines and 130 table
games. Mandalay Bay's attractions include an 11-acre tropical lagoon featuring a
sand-and-surf beach and a three-quarter-mile lazy river ride. The property
features 13 restaurants, such as Charlie Palmer's Aureole, Wolfgang Puck's
Trattoria Del Lupo, China Grill, rumjungle, Red Square and Border Grill, as well
as a House of Blues nightclub and restaurant, including its signature Foundation
Room (situated on Mandalay Bay's top floor). Additional features include a
125,000-square-foot convention facility and a 30,000-square-foot spa. Mandalay
Bay offers multiple entertainment venues that include the Shark Reef at Mandalay
Bay featuring sharks and rare sea predators, a 1,700-seat showroom, the
rumjungle nightclub and a 12,000-seat special events arena that features
additional entertainment and sporting events. Mandalay Bay was designed to
attract a higher income customer than we have historically targeted.
LUXOR. This property is an Egyptian-themed hotel and casino complex
situated on 64 acres of our masterplan mile, between Mandalay Bay and Excalibur.
The resort features a 30-story pyramid and two 22-story hotel towers. In total,
the property has 4,404 guest rooms. The resort has a 120,000-square-foot casino
which, as of April 30, 2000, featured 2,013 slot machines and 105 table games.
Luxor offers 20,000 square feet of convention space, a 20,000-square-foot spa, a
1,200-seat showroom that features the off-Broadway show "Blue Man Group," a
nightclub, and food and entertainment venues on three different levels beneath a
soaring hotel atrium. The pyramid's 2,454 guest 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.
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EXCALIBUR. This property is a castle-themed hotel and casino complex
situated on a 53-acre site immediately to the north of Luxor. Excalibur has
4,008 hotel rooms and a 110,000-square-foot casino which, as of April 30, 2000,
featured 2,471 slot machines and 80 table games. Excalibur's other public areas
include a Renaissance fair, a medieval village, an amphitheater with a 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 restaurant 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. This property, which is our original resort, is a
circus-themed hotel and casino complex situated on approximately 69 acres on the
north end of the Las Vegas Strip. The property features 3,744 guest rooms and a
109,000-square-foot casino which, as of April 30, 2000, featured 2,210 slot
machines and 79 table games. 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 Recreational Vehicle Park.
MONTE CARLO (50% OWNED). Through a wholly owned entity, we are a 50%
participant with a subsidiary of MGM MIRAGE in a joint venture which owns and
operates Monte Carlo, a hotel and casino resort situated on 46 acres with
approximately 600 feet of frontage in the Las Vegas Strip. The property is
situated between Bellagio, a 3,000-room resort owned and operated by MGM MIRAGE
and connected to Monte Carlo by a monorail, and New York-New York, a 2,000-room
hotel-casino resort owned by MGM MIRAGE. Monte Carlo's casino reflects a
palatial style reminiscent of the BELLE EPOQUE, the French Victorian
architecture of the late 19th century. Monte Carlo features 3,002 guest rooms
and a 90,000-square-foot casino which, as of April 30, 2000, featured 2,056 slot
machines and 71 table games. Amenities at Monte Carlo include three specialty
restaurants, a buffet, a coffee shop, a food court, a microbrewery which
features live entertainment, approximately 15,000 square feet of meeting and
banquet space, and tennis courts. 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.
RENO, NEVADA
Reno is located near the Nevada-California state line. The Reno market
caters to locals of the Lake Tahoe-Reno area and tourists primarily from
northern California. In 1999, Reno's total gaming revenue increased 4.1% to
$807.5 million.
CIRCUS CIRCUS-RENO. This property is a circus-themed hotel and casino
complex situated in downtown Reno, Nevada. The property features 1,572 guest
rooms and a 60,000-square-foot casino which, as of April 30, 2000, featured
1,639 slot machines and 72 table games. Like its sister property in Las Vegas,
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
property also has two specialty restaurants, a buffet with a
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seating capacity of approximately 450, a coffee shop, a deli/bakery, a fast food
snack bar, cocktail lounges, a gift shop and specialty shops.
SILVER LEGACY (50% OWNED). Through a wholly owned entity, we are a 50%
participant with Eldorado Limited Liability Company in a joint venture which
owns and operates Silver Legacy, a hotel-casino and entertainment complex
situated on two city blocks in downtown Reno, Nevada. The property is located
between Circus Circus-Reno and the Eldorado Hotel & Casino, which is owned and
operated by an affiliate of our joint venture partner at Silver Legacy. 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 historical Reno. 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 casino
offers 85,000 square feet of casino space which, as of April 30, 2000, featured
2,240 slot machines and 79 table games. The hotel offers 1,711 guest rooms.
Silver Legacy's attractions include a 120 foot tall mining rig, which is
situated over a replica of a silver mine and extends up from the center of the
casino floor into a 180-foot diameter dome structure. Silver Legacy also
features five restaurants and several bars, a 25,000-square-foot special events
center, custom retail shops, a health spa and an outdoor pool and sun deck.
LAUGHLIN, NEVADA
Laughlin is situated on the Colorado River at the southern tip of Nevada
approximately 90 miles south of Las Vegas. This market generates revenues
primarily from southern California and Arizona residents who visit Laughlin for
vacation or gambling. Typically, approximately 20% of people who visit Laughlin
are first-time visitors, while 80% are repeat visitors. This market caters to a
more mature population. Currently, this market has ten hotel-casinos with a
total room capacity of approximately 11,000. Between our two Laughlin
properties, we have approximately 25% of the total rooms in the Laughlin market.
In 1999, Laughlin's total gaming revenue increased 8.3% to $532.0 million.
COLORADO BELLE. This property is situated on a 22-acre site on the bank of
the Colorado River (with nearly 1,080 feet of river frontage) in Laughlin,
Nevada. The Colorado Belle, which features a 600-foot replica of a Mississippi
riverboat, includes a 1,226-room hotel and a 64,000-square-foot casino which, as
of April 30, 2000, featured 1,289 slot machines and 41 table games. The property
also includes 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. This property is situated on a 16-acre site adjacent to the
Colorado Belle with nearly 1,640 feet of frontage on the Colorado River. The
property has 1,450 guest rooms and a 44,000-square-foot casino which, as of
April 30, 2000, featured 1,261 slot machines and 37 table games. Edgewater's
facilities include a specialty restaurant, a coffee shop, a 735-seat buffet, a
snack bar and cocktail lounges.
JEAN, NEVADA
Jean is located between Las Vegas and southern California, approximately 25
miles south of Las Vegas and 12 miles north of the California-Nevada state line.
The principal highway between Las Vegas and southern California is Interstate-15
which passes directly through Jean, hence, Jean attracts gaming customers almost
entirely from the large number of people traveling between Las Vegas and
southern California.
GOLD STRIKE. This property is an "Old West" themed hotel-casino located on
approximately 51 acres of land on the east side of Interstate-15. The property
has 812 guest rooms and a 37,000-square-foot casino which, as of April 30, 2000,
featured 1,020 slot machines and 20 table games. Gold Strike
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also includes, among other amenities, a swimming pool and spa, several
restaurants, a banquet center equipped to serve 260 people, a gift shop and an
arcade. The casino has a stage bar with regularly scheduled live entertainment
and a casino bar.
NEVADA LANDING. This property is a turn-of-the-century riverboat themed
hotel-casino located on approximately 55 acres of land across Interstate-15 from
Gold Strike. The property has 303 guest rooms and a 36,000-square-foot casino
which, as of April 30, 2000, featured 1,020 slot machines and 21 table games.
Nevada Landing includes a 72-seat Chinese restaurant, a full-service coffee
shop, a buffet with a seating capacity of 140, a snack bar, a gift shop, a
swimming pool and spa and a 300-guest banquet facility.
HENDERSON, NEVADA
RAILROAD PASS. This property is situated on approximately 56 acres along
US-93, the direct route between Las Vegas and Phoenix, Arizona. The property has
120 guest rooms and a 21,000-square-foot casino which, as of April 30, 2000,
featured 374 slot machines and nine table games. Railroad Pass includes, among
other amenities, two full-service restaurants, a buffet, gift shop, two bars,
swimming pool and a banquet facility that will accommodate approximately 200
guests. In contrast with our 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
Tunica County is located 20 miles south of Memphis, Tennessee on the
Mississippi River. Tunica County attracts customers from Mississippi and
surrounding states, including cities such as Memphis, Tennessee and Little Rock,
Arkansas.
GOLD STRIKE-TUNICA. This property is a dockside casino situated on a
24-acre site along the Mississippi River in Tunica County, approximately three
miles west of Mississippi State Highway 61 (a major north/south highway
connecting Memphis with Tunica County) and 20 miles south of Memphis. The
property includes a 1,066-guest-room, 31-story hotel tower which was completed
and placed in service during late 1997 and early 1998. The facilities at Gold
Strike-Tunica include a 48,000-square-foot casino which, as of April 30, 2000,
featured approximately 1,488 slot machines and 50 table games. The property also
features a 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. We also own an
undivided one-half interest in an additional 388 acres of land which may be used
for future development.
DETROIT, MICHIGAN
MOTORCITY CASINO (53.5% OWNED). On December 14, 1999, along with our joint
venture partner, Atwater Casino Group, we opened MotorCity Casino, a temporary
casino facility in Detroit, Michigan, which is being operated pending the
construction of a permanent hotel-casino. The temporary casino includes
approximately 75,000 square feet of casino space with approximately 2,600 slot
machines and 136 table games, plus five restaurants and a 3,450-space parking
facility. We currently plan to build a $600 million hotel-casino, which will
have approximately 800 hotel rooms, a 100,000 square-foot casino, eight
restaurants and a 4,100-space parking facility. We are committed to contribute
20% of the development costs in the form of equity and we plan to fund the
balance through project-specific debt financing. We chose to participate in this
project due to Detroit's strong demographics and limited competition and to
further diversify our cash flow stream.
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The development agreement for Detroit provides that Mandalay will guarantee
completion of the project and will enter into a keep-well guarantee with the
city, pursuant to which we could be required to contribute additional funds, if
and as needed, to continue operation of the permanent facility for a period of
two years. When the permanent facility is completed and opened, we will manage
the property and will receive a management fee for our services from the Detroit
Joint Venture.
The ability to construct, open and operate the planned permanent facility is
contingent upon the receipt of all necessary gaming approvals and satisfaction
of other customary conditions. See "Regulation and Licensing--Michigan Gaming
Laws."
Our ability to own or operate a gaming facility in Detroit, Michigan is
subject to certain outstanding litigation. See "--Litigation."
ELGIN, ILLINOIS
GRAND VICTORIA (50% OWNED). Through a wholly owned subsidiary, we are a 50%
participant with an affiliate of Hyatt Development Corp. in a joint venture
which owns and operates Grand Victoria. 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 two-story
vessel is 420 feet in length and 110 feet in width, and provides a maximum
80,000 square feet of casino space, approximately 36,000 square feet of which
was being used as of April 30, 2000. As of that date, the casino offered 994
slot machines and 53 gaming tables. After gaming legislation was passed earlier
this year, the boat now offers dockside gaming, which means its operation is no
longer restricted by fixed cruising schedules. The property also features a
dockside complex that contains an approximately 83,000-square-foot pavilion with
an approximately 400-seat buffet, a 76-seat fine dining restaurant, a VIP lounge
and a gift shop. Grand Victoria is strategically located in Elgin among the
residential suburbs of Chicago, with nearby freeway access and direct train
service from downtown Chicago. 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 nine riverboat gaming licenses currently
granted state-wide. Recently passed legislation in Illinois would allow a casino
in Rosemont, approximately 16 miles from the Grand Victoria. The legislation is
being challenged in court.
MARKETING
We have 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 our gaming
operations. Recently at our properties, such as Mandalay Bay, and to a lesser
extent Luxor, we have begun to serve higher income casino customers and to host
conventions. Our philosophy remains one of providing the best value in each of
the market segments where we compete.
MANDALAY BAY. Mandalay Bay offers a level of entertainment and hotel
accommodations which is designed to draw a better-income customer than we have
historically targeted. Designed with a South Seas theme, Mandalay Bay offers its
guests internationally renowned restaurants which provide guests a wide variety
of dining options. Mandalay Bay's entertainment attractions include an 11-acre
lagoon with a surfing beach and a lazy river ride, a House of Blues, rumjungle,
the Shark Reef at Mandalay Bay, a 1,700-seat showroom and a special events arena
where brand-name entertainment and sporting events are offered. In addition,
Mandalay Bay's 125,000-square-foot convention facility marks our entry into
competition for the convention and meeting segment of visitors to Las Vegas.
LUXOR. Luxor offers a level of entertainment and hotel accommodations which
is designed to attract the top segment of the middle-income stratum of
customers. Designed with an Egyptian theme and highly decorated rooms, Luxor's
30-story pyramid offers its guests a tri-level entertainment area, including an
IMAX theater, dynamic motion rides, a popular nightclub and theatrical revues.
We
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completed an expansion program at the Luxor in 1997 which added 1,950 new hotel
rooms, a new spa, 20,000 square feet of convention space, a 1,200-seat showroom
that features "Blue Man Group" and the nightclub.
EXCALIBUR. Excalibur attracts customers by offering guest rooms, food and
entertainment at medium 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. Circus Circus-Las Vegas and
Circus Circus-Reno have popular buffets, attractive because of their variety,
quality and low price. From a "Big Top" above the casino, each of these
properties offers 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, an enclosed and
climate-controlled five-acre structure, offers additional theme park attractions
at Circus Circus-Las Vegas.
COLORADO BELLE AND EDGEWATER. The Colorado Belle and Edgewater 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 that property's casino and other facilities. Connected by a scenic
walkway, the two resorts form an inviting shoreline along the Colorado River.
GOLD STRIKE AND NEVADA LANDING. Gold Strike and Nevada Landing 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. Gold Strike-Tunica, our first wholly owned casino
outside of Nevada, is part of an integrated three casino development (Casino
Center) that provides patrons with the opportunity to visit any of the three
casinos without driving, an unique experience in the Tunica County market. In
the first quarter of 1998 we completed the opening of a 31-story hotel tower
with 1,066 guest rooms at Gold Strike-Tunica, which previously had no hotel
rooms. This property's original Circus-themed casino and other facilities were
also remodeled and rethemed into a more elegant resort.
We maintain an active media advertising program through radio, television,
billboards and printed publications primarily in Nevada, California and Arizona
for our Nevada properties and in the Memphis area for our Gold Strike-Tunica
property. In addition, we advertise on and allow patrons to make room
reservations via the Internet, where we believe we are in the forefront of our
competition. We also offer complimentary hotel accommodations, meals and drinks
to selected customers.
COST CONTROLS AND OPERATIONS
We maintain stringent cost controls which historically have been exemplified
by a general policy of offering minimal credit for gaming customers at our
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. We have also brought this policy to our 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
Mandalay Bay, and to a lesser extent, Luxor.
We maintain strict controls over the issuance of credit and aggressively
pursue collection of customer debts. These collection efforts are similar to
those used by most large corporations, including
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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 our
accounts receivable that is owed by foreigners is not currently material, to the
extent we hold obligations of foreign debtors, the collectibility of those debts
may be affected by a number of factors, including changes in currency exchange
rates and economic conditions in the customers' home countries.
Our current operations at each of our casinos are conducted 24 hours a day,
every day of the year, with the exception of Grand Victoria which operates
22 hours a day, every day of the year. We do not consider our business to be
highly seasonal, although our operating income is typically somewhat lower in
the fourth quarter, affected by the slower travel period leading up to the
December holiday period. We emphasize courteous and prompt service to our
customers and aspire to a high standard of excellence in all of our operations.
In connection with our gaming activities, we follow a policy of stringent
controls and cross checks on the recording of all receipts and disbursements.
The audit and cash controls we have developed and utilize 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 our slot
machines;
- tables and other games; and
- the rapid analysis and resolution of discrepancies or deviations from
normal performance.
CURRENT EXPANSION ACTIVITIES
Consistent with past practice and the longstanding policy of making
substantial investments in our gaming business at regular intervals, we continue
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
our wholly owned operating properties are currently located, or in other
jurisdictions within the United States or abroad where gaming has been
legalized. Our new investments may be in properties that are wholly owned and
operated by us, or may be in properties that are developed, owned and/or
operated through joint ventures with one or more other parties.
MASTERPLAN MILE
Our masterplan mile, which is the site of our most recently-completed
resort, Mandalay Bay, as well as our Luxor and Excalibur properties, includes
approximately 60 acres of land which is yet to be developed. The long-term plan
for completion of our masterplan mile presently includes as many as two
additional resorts and additional entertainment facilities. At this time, we
have not determined the timing, scope or design of any future development on our
masterplan mile.
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MISSISSIPPI GULF COAST
We have announced that we plan 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 as many as 1,500 hotel rooms and require an investment of approximately
$225 million. Certain of the approvals to commence development we had previously
received have been successfully challenged in federal court. We will not
commence the design and construction of this resort prior to a satisfactory
resolution of all legal actions and our receipt of all necessary permits and
approvals. As presently contemplated, we will own 90% of the resort and a
partner will contribute the land in exchange for the remaining 10% interest.
LITIGATION
SLOT MACHINE LITIGATION
On April 26, 1994, William H. Poulos brought a class action in the U.S.
District Court for the Middle District of Florida, Orlando Division captioned
WILLIAM H. POULOS, ET AL. V. CAESARS WORLD, INC. ET AL., against 41
manufacturers, distributors and casino operators of video poker and electronic
slot machines, including Mandalay. On May 10, 1994, another plaintiff filed a
class action complaint in the United States District Court for the Middle
District of Florida--WILLIAM AHEARN, ET AL. V. CAESARS WORLD, INC. ET
AL.--alleging substantially the same allegations against 48 defendants,
including Mandalay. On September 26, 1995, a third action was filed against 45
defendants, including Mandalay, in the U.S. District Court for the District of
Nevada--LARRY SCHREIER, ET AL. V. CAESARS WORLD, INC. ET AL. The court
consolidated the three cases in the U.S. District Court for the District of
Nevada under the case captioned WILLIAM H. POULOS, ET AL. V. CAESARS
WORLD, INC. ET AL.
The consolidated complaints allege that the defendants are involved in a
scheme to induce people to play electronic video poker and slot machines based
on false beliefs regarding how such machines operate and the extent to which a
player is likely to win on any given play. The actions included claims under the
federal Racketeering Influenced and Corrupt Organizations Act, fraud, unjust
enrichment and negligent misrepresentation, and seek unspecified compensatory
and punitive damages. A motion for class certification was filed in March 1998
but has not been ruled upon by the court. Discovery on the merits has been
stayed pending a ruling on the motion for class certification.
DETROIT LITIGATION
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 Michigan Gaming Control and
Revenue Act (the "Michigan Act") and the City of Detroit's Casino Development
Competitive Selection Process ordinance (the "Detroit 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 Michigan 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 Michigan
Act. However, the Sixth Circuit reversed the District Court's determination that
(i) the Lac Vieux Band lacked standing to challenge the Detroit ordinance,
(ii) the First Amendment is not implicated in the Detroit ordinance, and
(iii) 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. In a decision issued on July 14, 2000, the United States District
Court for the Western District of Michigan concluded that the Detroit ordinance
as enacted is constitutional and survives the strict scrutiny analysis.
Consistent with this decision, the District Court entered an Order granting
Summary
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Judgment in favor of the defendants and dismissed the case in its entirety. On
July 27, 2000, the Lac Vieux Band of Lake Superior Chippewa Indians appealed
this decision to the Sixth Circuit. No assurance can be given regarding the
probable result of this litigation.
In BARDEN DETROIT CASINO, L.L.C. V. THE CITY OF DETROIT, ET AL., Barden
Detroit Casino, L.L.C. sought to challenge the validity of the Michigan Act and
the Detroit ordinance. On July 22, 1999 the United States District Court for the
Eastern District of Michigan entered an Order dismissing this challenge. Barden
Detroit Casino, L.L.C. has appealed the District Court's decision to the United
States Court of Appeals for the Sixth Circuit. The appeal is currently pending
in the Court of Appeals. No assurance can be given regarding the timing or
outcome of further proceedings in this litigation.
If it is ultimately determined that the Michigan Act or the Detroit
ordinance is defective, this could result in the termination of the license to
operate our temporary casino or otherwise adversely impact our ability to
continue to operate that facility and could prevent or otherwise adversely
impact our ability to construct, open or operate our proposed permanent
hotel-casino in downtown Detroit.
In a separate action entitled LAC VIEUX DESERT BAND OF LAKE SUPERIOR
CHIPPEWA INDIANS V. MICHIGAN GAMING CONTROL BOARD, the Lac Vieux Band of Lake
Superior Chippewa Indians seeks to appeal in the Michigan Court of Appeals the
Michigan Gaming Control Board's grant of a casino license to our Detroit joint
venture. The standing of the Lac Vieux Band to appeal the Michigan Gaming
Control Board's issuance of the casino license is being challenged in the
Michigan Court of Appeals. If it is determined that the Lac Vieux Band has
standing to appeal the issuance of the license, then the Michigan Court of
Appeals can review the issuance of the casino license to our Detroit joint
venture based upon standards set forth in the Michigan Administrative Procedures
Act for appeal of an administrative decision. No assurance can be given
regarding the probable result of this litigation.
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REGULATION AND LICENSING
Each of our casinos, including those owned and operated by the joint
ventures in which we participate, is subject to extensive regulation under laws,
rules and supervisory procedures primarily in the jurisdiction where located or
docked. Some jurisdictions, however, empower their regulators to investigate
participation by licensees in gaming outside their jurisdiction and require
access to and periodic reports respecting those gaming activities. Violations of
laws in one jurisdiction could result in disciplinary action in other
jurisdictions.
Under provisions of gaming laws in which we have operations and under
Mandalay's Amended and Restated Certificate of Incorporation, certain of our
securities are subject to restrictions on ownership which may be imposed by
specified governmental authorities. The restrictions may require a holder of our
securities to dispose of the securities or, if the holder refuses to dispose of
the securities, we may be required to repurchase the securities.
Each holder of a note, by accepting any note, will be deemed to have agreed
to be bound by the requirements imposed on holders of our debt securities by the
gaming authority of any jurisdiction in which we or any of our subsidiaries or
joint ventures in which we participate conducts or proposes to conduct gaming
activity. See "Description of the Exchange Notes--Mandatory Disposition Pursuant
to Gaming Laws." In addition, the indenture governing the notes provides that
each holder and beneficial owner of the notes, by accepting or otherwise
acquiring an interest in any of the notes, will be deemed to have agreed that if
the gaming authority of any jurisdiction in which we or any of our subsidiaries
conducts or proposes to conduct gaming requires that a person who is a holder or
beneficial owner must be licensed, qualified or found suitable under applicable
gaming laws, the holder or beneficial owner will apply for a license,
qualification or finding of suitability within the required time period. If the
person fails to apply or become licensed or qualified or is found unsuitable,
Mandalay will have the right, at its option:
- to require the person to dispose of his or her notes or beneficial
interest in the notes within 30 days of receipt of notice of Mandalay's
election or any earlier date that the relevant gaming authority may
request or prescribe; or
- to redeem the notes (possibly within less than 30 days following the
notice of redemption if requested or prescribed by the gaming authority)
at a redemption price equal to the lesser of:
- the person's cost;
- 100% of the principal amount, plus accrued and unpaid interest to the
redemption date or the date of the finding of unsuitability, whichever
is earlier; and
- any other amount required by applicable law or by order of any gaming
authority.
We will notify the trustee under the indenture in writing of any redemption
under these circumstances as soon as practicable. We will not be responsible for
any costs or expenses any holder or beneficial owner may incur in connection
with its application for a license, qualification or finding of suitability.
NEVADA GAMING LAWS
The ownership and operation of casino gaming facilities in the State of
Nevada, such as the Nevada gaming facilities we and the joint ventures in which
we participate own and operate, are subject to the Nevada Gaming Control Act and
the regulations promulgated under this Act and various local regulations. Our
Nevada gaming operations and those of its Nevada joint ventures are subject to
the licensing and regulatory control of the Nevada Gaming Commission, the Nevada
State Gaming Control Board and, depending on the facility's location, the Clark
County Liquor and Gaming Licensing Board or the City of Reno, which we refer to
collectively as the "Nevada Gaming Authorities."
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The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things:
- the prevention of unsavory or unsuitable persons from having a direct or
indirect involvement with gaming at any time or in any capacity;
- the establishment and maintenance of responsible accounting practices and
procedures;
- the maintenance of effective controls over the financial practices of
licensees, including the establishment and 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;
- the prevention of cheating and fraudulent practices; and
- providing a source of state and local revenues through taxation and
licensing fees.
Changes in these laws, regulations and procedures could have an adverse
effect on our gaming operations.
Each of Mandalay's subsidiaries that currently operates a casino in Nevada
is required to be licensed by the Nevada Gaming Authorities. The gaming license
requires the periodic payment of fees and taxes and is not transferable.
Mandalay is required to be registered by the Nevada Gaming Commission as a
publicly traded corporation and as such, is required periodically to submit
detailed financial and operating reports to the Nevada Gaming Commission and
furnish any other information that the Nevada Gaming Commission may require. No
person may become a stockholder of, or receive any percentage of profits from, a
licensed casino without first obtaining licenses and approvals from the Nevada
Gaming Authorities. We have obtained from the Nevada Gaming Authorities the
various registrations, findings of suitability, approvals, 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, Mandalay or any of its
licensed subsidiaries in order to determine whether the individual is suitable
or should be licensed as a business associate of a gaming licensee. Mandalay and
its licensed subsidiaries' officers, directors and key employees must file
applications with the Nevada Gaming Authorities and 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. An applicant for licensing or an applicant for a finding
of suitability must pay for 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 licensing, the Nevada Gaming Authorities have the 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 Mandalay or any licensed subsidiary, Mandalay and the licensed
subsidiary would have to sever all relationships with that person. In addition,
the Nevada Gaming Commission may require Mandalay or a licensed subsidiary to
terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or questions pertaining to licensing
are not subject to judicial review in Nevada.
Mandalay and all of its licensed subsidiaries are required to submit
detailed financial and operating reports to the Nevada Gaming Commission.
Substantially all of our or a licensed subsidiaries' material loans, leases,
sales of securities and similar financing transactions must be reported to, or
approved by, the Nevada Gaming Commission.
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If the Nevada Gaming Commission determined that Mandalay or a licensed
subsidiary violated the Nevada Gaming Control Act, it could limit, condition,
suspend or revoke our gaming licenses. In addition, Mandalay, the licensed
subsidiary, and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Gaming Control Act at the discretion of
the Nevada Gaming Commission. Further, a supervisor could be appointed by the
Nevada Gaming Commission to operate a licensed subsidiary's gaming establishment
and, under specified circumstances, earnings generated during the supervisor's
appointment, except for the reasonable rental value of the premises, could be
forfeited to the State of Nevada. Limitation, conditioning or suspension of any
gaming license of a licensed subsidiary and the appointment of a supervisor
could, or revocation of any gaming license would, have a material adverse effect
on our gaming operations.
Any beneficial holder of our common stock, or any of our other voting
securities, regardless of the number of shares owned, may be required to file an
application, be investigated, and have that person's suitability as a beneficial
holder of our voting securities determined if the Nevada Gaming Commission has
reason to believe that the ownership would otherwise be inconsistent with the
declared policies of the State of Nevada. The applicant must pay all costs of
the investigation incurred by the Nevada Gaming Authorities in conducting any
investigation.
The Nevada Gaming Control Act requires any person who acquires a beneficial
ownership of more than 5% of Mandalay's voting securities to report the
acquisition to the Nevada Gaming Commission. The Nevada Gaming Control Act
requires that beneficial owners of more than 10% of Mandalay's voting securities
apply to the Nevada Gaming Commission for a finding of suitability within thirty
days after the Chairman of the Nevada State Gaming Control Board mails the
written notice requiring such filing. An "institutional investor," as defined in
the Nevada Act, which acquires beneficial ownership of more than 10%, but not
more than 15%, of Mandalay's voting securities may apply to the Nevada Gaming
Commission for a waiver of a finding of suitability if the institutional
investor holds Mandalay's voting securities for investment purposes only. An
institutional investor will be deemed to hold Mandalay's voting securities for
investment purposes if it acquired and holds Mandalay's voting securities 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 Mandalay's board of
directors;
- any change in Mandalay's corporate charter, bylaws, management, policies
or operations, or any of its gaming affiliates; or
- any other action which the Nevada Gaming Commission finds to be
inconsistent with holding Mandalay's voting securities for investment
purposes only.
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include:
- voting on all matters voted on by stockholders;
- 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
- other activities as that the Nevada Gaming Commission may determine to be
consistent with investment intent.
If the beneficial holder of Mandalay's voting securities who must be found
suitable is a corporation, partnership, limited partnership, limited liability
company 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.
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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 Gaming
Commission or by the Chairman of the Nevada State Gaming Control 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 Mandalay's voting securities beyond the period of time as may be prescribed
by the Nevada Gaming Commission may be guilty of a criminal offense. Mandalay
will be 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
it or a licensed subsidiary, it:
- pays that person any dividend or interest upon any of Mandalay's voting
securities;
- allows that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person;
- pays remuneration in any form to that person for services rendered or
otherwise; or
- fails to pursue all lawful efforts to require the unsuitable person to
relinquish the voting securities including, if necessary, the immediate
purchase of the 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 Gaming Commission may, in its discretion, require the holder of
any debt security of a registered publicly traded corporation, such as the
notes, to file applications, be investigated and be found suitable to own the
debt security of the registered corporation. If the Nevada Gaming Commission
determines that a person is unsuitable to own the security, then under the
Nevada Gaming Control Act, the registered publicly traded corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Gaming Commission, it:
- pays to the unsuitable person any dividend, interest or any distribution
whatsoever;
- recognizes any voting right by the unsuitable person in connection with
the securities;
- pays the unsuitable person remuneration in any form; or
- makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar transaction.
Mandalay 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 the disclosure may be grounds for finding the record holder
unsuitable. Mandalay is also required to render maximum assistance in
determining the identity of the beneficial owner of any of our voting
securities. The Nevada Gaming Commission has the power to require our stock
certificates to bear a legend indicating that the securities are subject to the
Nevada Gaming Control Act. To date, the Nevada Gaming Commission has not imposed
that requirement on us.
Mandalay may not make a public offering of its securities without the prior
approval of the Nevada Gaming Commission if it intends to use the securities or
the proceeds from the offering to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for those
purposes or for similar transactions. On January 28, 1999, the Nevada Gaming
Commission granted Mandalay prior approval to make public offerings for a period
of two years, subject to some conditions, which we refer to as the "shelf
approval." The shelf approval also applies to any company that Mandalay wholly
owns which is a publicly traded corporation or would become a publicly traded
corporation pursuant to a public offering. The shelf approval also includes
approval for our registered
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and licensed subsidiaries to guarantee any security issued by, and to
hypothecate their assets to secure the payment or performance of any obligations
evidenced by a security issued by, Mandalay or an affiliate in a public offering
under the shelf approval. The shelf approval also includes approval to place
restrictions upon the transfer of and enter into agreements not to encumber the
equity securities of the licensed subsidiaries, which we refer to as "stock
restrictions." The shelf approval, however, may be rescinded for good cause
without prior notice upon the issuance of an interlocutory stop order by the
Chairman of the Nevada State Gaming Control Board. The shelf approval does not
constitute a finding, recommendation or approval of the Nevada Gaming
Authorities as to the accuracy or adequacy of this prospectus or the investment
merits of the securities offered by this prospectus. Any statement indicating
otherwise is unlawful. This exchange offer qualifies as a public offering and is
being made pursuant to the shelf approval. The stock restrictions in respect of
the exchange notes also will be covered by the shelf approval. The stock
restrictions in respect of the old notes are not covered by the shelf approval
and require the prior approval of the Nevada Gaming Commission, upon the
recommendation of the Nevada State Gaming Control Board, in order to be
effective. Mandalay has filed an application requesting this approval.
Mandalay must obtain prior approval of the Nevada Gaming Commission with
respect to a change in control through:
- merger;
- consolidation;
- stock or asset acquisitions;
- management or consulting agreements; or
- any act or conduct by a person whereby the person obtains control of
Mandalay.
Entities seeking to acquire control of a registered publicly-traded
corporation must satisfy the Nevada State Gaming Control Board and Nevada Gaming
Commission in a variety of stringent standards before assuming control of the
registered corporation. The Nevada Gaming Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licenses, and registered publicly-traded corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Gaming 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:
- assure the financial stability of corporate gaming operators and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
Approvals may be required from the Nevada Gaming Commission before Mandalay
can make exceptional repurchases of voting securities above their current market
price 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 our board of directors in response to a tender
offer made directly to its stockholders for the purpose of acquiring control of
Mandalay.
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 licensed
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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:
- a percentage of the gross revenues received;
- the number of gaming devices operated; or
- the number of table games operated.
A casino entertainment tax is also paid by casino operations where
entertainment is furnished in connection with the selling or serving of food or
refreshments or the selling of merchandise. Nevada corporate licensees that hold
a license as an operator of a slot machine route, or a manufacturer's or
distributor's license, also pay fees and taxes to the State of Nevada. The
licensed subsidiaries currently pay monthly fees to the Nevada Gaming Commission
equal to a maximum of 6.25% of gross revenues.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with those persons (collectively,
"licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada State Gaming Control Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada State Gaming Control Board of the
licensee's participation in such foreign gaming. The revolving fund is subject
to increase or decrease in the discretion of the Nevada Gaming Commission.
Thereafter, licensees are required to comply with the reporting requirements
imposed by the Nevada Gaming Control Act. A licensee is also subject to
disciplinary action by the Nevada Gaming Commission if it:
- knowingly violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation;
- fails to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations;
- engages in activities or enters into associations that are harmful to the
State of Nevada or its ability to collect gaming taxes and fees; or
- employs, contracts with or associates 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 establishments operated by a licensed
subsidiary is subject to licensing, control and regulation by applicable local
regulatory agencies. All licenses are revocable and are not transferable. The
agencies involved have full power to limit, condition, suspend or revoke any
license, and any disciplinary action could, and revocation would, have a
material adverse effect upon the operations of the licensed subsidiary.
MISSISSIPPI GAMING LAWS
Mandalay conducts its Mississippi gaming operations through a Mississippi
subsidiary, Circus Circus Mississippi, Inc. ("CCMI"), which owns and operates
the Gold Strike-Tunica casino in Tunica County, Mississippi. The ownership and
operation of casino facilities in Mississippi are subject to extensive state and
local regulation, but primarily the licensing and regulatory control of the
Mississippi Gaming Commission and the Mississippi State Tax Commission.
The Mississippi Gaming Control Act, which legalized dockside casino gaming
in Mississippi, was enacted on June 29, 1990. Although not identical, the
Mississippi Gaming Control Act is similar to the Nevada Gaming Control Act.
Effective October 29, 1991, the Mississippi Gaming Commission adopted
regulations in furtherance of the Mississippi Gaming Control Act (the
"regulations") which are also similar in many respects to the Nevada gaming
regulations.
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The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Gaming Commission seek to:
- prevent unsavory or unsuitable persons from having any direct or indirect
involvement with gaming at any time or in any capacity;
- establish and maintain responsible accounting practices and procedures;
- maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs and
safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Gaming Commission;
- prevent cheating and fraudulent practices;
- provide a source of state and local revenues through taxation and
licensing fees; and
- ensure that gaming licensees, to the extent practicable, employ
Mississippi residents.
The regulations are subject to amendment and interpretation by the
Mississippi Gaming Commission. Changes in Mississippi law, the regulations
and/or interpretations of the Mississippi Gaming Control Act and the regulations
by the Mississippi Gaming Commission may limit or otherwise materially affect
the types of gaming that may be conducted and could have a material adverse
effect on Mandalay and CCMI's Mississippi gaming operations.
The Mississippi Gaming Control Act provides for legalized dockside gaming at
the discretion of the 14 counties that either border the Gulf Coast or the
Mississippi River, but only if the voters in these counties have not voted to
prohibit gaming in that county. As of August 1, 2000, dockside gaming was
permissible in nine of the 14 eligible counties in the state and gaming
operations had commenced in Adams, Coahoma, Hancock, Harrison, Tunica, Warren
and Washington counties. Under Mississippi law, gaming vessels must be located
on the Mississippi River or on navigable waters in eligible counties along the
Mississippi River, or in the waters of the State of Mississippi lying south of
the state in eligible counties along the Mississippi Gulf Coast. The law permits
unlimited stakes gaming on permanently moored vessels on a 24-hour basis and
does not restrict the percentage of space which may be utilized for gaming.
There are no limitations on the number of gaming licenses which may be issued in
Mississippi. The legal age for gaming in Mississippi is 21.
Mandalay and its Mississippi licensee subsidiary, CCMI, are subject to the
licensing and regulatory control of the Mississippi Gaming Commission. Mandalay
is registered under the Mississippi Gaming Control Act as a publicly-traded
holding company of CCMI and will be required periodically to submit detailed
financial, operating and other reports to the Mississippi Gaming Commission and
furnish any other information which the Mississippi Gaming Commission may
require. If we are unable to satisfy the registration requirements of the
Mississippi Gaming Control Act, Mandalay and CCMI cannot own or operate gaming
facilities in Mississippi. CCMI must maintain a gaming license from the
Mississippi Gaming Commission to operate a casino in Mississippi. The
Mississippi Gaming Commission issues the licenses. CCMI will also be required
periodically to submit detailed financial, operating and other reports to the
Mississippi Gaming Commission and the Mississippi State Tax Commission and to
furnish any other information required thereby.
Gaming licenses are not transferable, are issued for a maximum term of three
years and must be renewed periodically thereafter. CCMI received its Mississippi
gaming license on August 18, 1994 and renewals on August 19, 1996 and
August 20, 1998. On July 20, 2000 the Mississippi Gaming Commission renewed the
Mississippi gaming license of CCMI for a term of three years, effective
August 21, 2000. No person may become a stockholder of or receive any percentage
of profits from a licensed subsidiary of a holding company without first
obtaining licenses and approvals from the Mississippi Gaming Commission.
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Certain of Mandalay's officers, directors and employees and the officers,
directors and key employees of CCMI who are actively and directly engaged in the
administration or supervision of gaming in Mississippi must be found suitable or
be licensed by the Mississippi Gaming Commission. Mandalay believes it and CCMI
have applied for all necessary findings of suitability with respect to these
persons, although the Mississippi Gaming Commission, in its discretion, may
require additional persons to file applications for findings of suitability. In
addition, any person having a material relationship or involvement with Mandalay
or CCMI may be required to be found suitable, in which case those persons must
pay the costs and fees associated with the investigation. A finding of
suitability requires submission of detailed personal financial information
followed by a thorough investigation. There can be no assurance that a person
who is subject to a finding of suitability will be found suitable by the
Mississippi Gaming Commission. The Mississippi Gaming Commission may deny an
application for a finding of suitability for any cause that it deems reasonable.
Findings of suitability must be periodically renewed.
Changes in certain licensed positions must be reported to the Mississippi
Gaming Commission. In addition to its authority to deny an application for a
finding of suitability, the Mississippi Gaming Commission has jurisdiction to
disapprove a change in a licensed position. The Mississippi Gaming Commission
has the power to require Mandalay and CCMI to suspend or dismiss officers,
directors and other key employees or sever relationships with other persons who
refuse to file appropriate applications or whom the authorities find unsuitable
to act in their capacities.
Employees associated with gaming must obtain work permits that are subject
to immediate suspension. The Mississippi Gaming Commission will refuse to issue
a work permit to a person convicted of a felony and it may refuse to issue a
work permit to a gaming employee if the employee has committed various
misdemeanors or knowingly violated the Mississippi Gaming Control Act or for any
other reasonable cause.
At any time, the Mississippi Gaming Commission has the power to investigate
and require a finding of suitability of any of Mandalay's record or beneficial
stockholders, regardless of the percentage of ownership. Mississippi law
requires any person who acquires more than 5% of the common stock of a
publicly-traded corporation registered with the Mississippi Gaming Commission to
report the acquisition to the Mississippi Gaming Commission, and that person may
be required to be found suitable. Also, any person who becomes a beneficial
owner of more than 10% of the common stock of such a company, as reported to the
Mississippi Gaming Commission, must apply for a finding of suitability by the
Commission and must pay the costs and fees that the Mississippi Gaming
Commission incurs in conducting the investigation. The Mississippi Gaming
Commission has generally exercised its discretion to require a finding of
suitability of any beneficial owner of more than 5% of a registered public
company's common stock. However, the Mississippi Gaming Commission has adopted a
policy that may permit institutional investors to own beneficially up to 15% of
a registered public company's common stock without a finding of suitability. If
a stockholder 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 Mississippi Gaming Commission may at any time dissolve,
suspend, condition, limit or restrict a finding of suitability to own Mandalay's
equity interests for any cause it deems reasonable.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi Gaming
Commission may be found unsuitable. Any person found unsuitable and who holds,
directly or indirectly, any beneficial ownership of Mandalay's securities beyond
the time that the Mississippi Gaming Commission prescribes, may be guilty of a
misdemeanor. Mandalay is subject to disciplinary action if, after receiving
notice that a person is unsuitable to be a stockholder or to have any other
relationship with Mandalay or CCMI, Mandalay:
- pays the unsuitable person any dividend or other distribution upon its
voting securities;
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- recognizes the exercise, directly or indirectly, of any voting rights
conferred by securities held by the unsuitable person;
- pays the unsuitable person any remuneration in any form for services
rendered or otherwise, except in limited and specific circumstances; or
- fails to pursue all lawful efforts to require the unsuitable person to
divest himself of the securities, including, if necessary, the immediate
purchase of the securities for cash at a fair market value.
Mandalay may be required to disclose to the Mississippi Gaming Commission
upon request the identities of the holders of any debt or other securities. In
addition, under the Mississippi Gaming Control Act the Mississippi Gaming
Commission may, in its discretion:
- require holders of debt securities of registered corporations to file
applications;
- investigate the holders; and
- require the holders to be found suitable to own the debt securities.
Although the Mississippi Gaming Commission generally does not require the
individual holders of obligations such as notes to be investigated and found
suitable, the Mississippi Gaming Commission retains the discretion to do so for
any reason, including but not limited to a default, or where the holder of the
debt instrument exercises a material influence over the gaming operations of the
entity in question. Any holder of debt or equity securities required to apply
for a finding of suitability must pay all investigative fees and costs of the
Mississippi Gaming Commission in connection with the investigation.
CCMI must maintain in Mississippi a current ledger with respect to the
ownership of its equity securities and Mandalay must maintain in Mississippi a
current list of its stockholders which must reflect the record ownership of each
outstanding share of any equity security issued by Mandalay. The ledger and
stockholder lists must be available for inspection by the Mississippi Gaming
Commission at any time. If any of Mandalay's 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 Gaming Commission. A failure
to make that disclosure may be grounds for finding the record holder unsuitable.
Mandalay must also render maximum assistance in determining the identity of the
beneficial owner.
The Mississippi Gaming Control Act requires that the certificates
representing securities of a registered publicly-traded corporation bear a
legend to the general effect that the securities are subject to the Mississippi
Gaming Control Act and the regulations of the Mississippi Gaming Commission. The
Mississippi Gaming Commission has granted Mandalay a waiver of this legend
requirement. The Mississippi Gaming Commission has the power to impose
additional restrictions on Mandalay and the holders of its securities at any
time.
Substantially all loans, leases, sales of securities and similar financing
transactions by a licensed gaming subsidiary must be reported to or approved by
the Mississippi Gaming Commission. A licensed gaming subsidiary may not make a
public offering of its securities, but may pledge or mortgage casino facilities
if it obtains the prior approval of the Mississippi Gaming Commission. Mandalay
may not make a public offering of its securities without the prior approval of
the Mississippi Gaming Commission if any part of the proceeds of the offering is
to be used to finance the construction, acquisition or operation of gaming
facilities in Mississippi or to retire or extend obligations incurred for those
purposes. The approval, if given, does not constitute a recommendation or
approval of the accuracy or adequacy of the prospectus or the investment merits
of the securities subject to the offering. On February 17, 2000, the Mississippi
Gaming Commission granted Mandalay a waiver of the prior approval requirement
for its securities offerings for a period of two years, subject to certain
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conditions. The waiver may be rescinded for good cause without prior notice upon
the issuance of an interlocutory stop order by the Executive Director of the
Mississippi Gaming Commission.
Under the regulations of the Mississippi Gaming Commission, CCMI may not
guarantee a security issued by Mandalay pursuant to a public offering, or pledge
its assets to secure payment or performance of the obligations evidenced by the
security issued by Mandalay, without the prior approval of the Mississippi
Gaming Commission. Similarly, Mandalay may not pledge the stock or other
ownership interests of CCMI, nor may the pledgee of these ownership interests
foreclose on the pledge, without the prior approval of the Mississippi Gaming
Commission. Moreover, restrictions on the transfer of an equity security issued
by CCMI and agreements not to encumber these securities are ineffective without
the prior approval of the Mississippi Gaming Commission. The waiver of the prior
approval requirement for Mandalay's securities offerings received from the
Mississippi Gaming Commission on February 17, 2000 includes a waiver of the
prior approval requirement for such guarantees, pledges and restrictions of
CCMI, subject to certain conditions.
Mandalay cannot change its control through merger, consolidation,
acquisition of assets, management or consulting agreements or any form of
takeover without the prior approval of the Mississippi Gaming Commission. The
Mississippi Gaming Commission may also require controlling stockholders,
officers, directors, and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.
The Mississippi Legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Mississippi and
corporations whose stock is publicly-traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi Gaming Commission has established a regulatory scheme to ameliorate
the potentially adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi's policy to:
- assure the financial stability of corporate gaming operators and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
Mandalay may be required to obtain approval from the Mississippi Gaming
Commission before it may make exceptional repurchases of voting securities in
excess of the current market price of its common stock (commonly called
"greenmail") or before it may consummate a corporate acquisition opposed by
management. The regulations will also require prior approval by the Mississippi
Gaming Commission if Mandalay adopts a plan of recapitalization proposed by its
board of directors opposing a tender offer made directly to the stockholders for
the purpose of acquiring control of Mandalay.
Neither Mandalay nor CCMI may engage in gaming activities in Mississippi
while Mandalay, CCMI and/or persons found suitable to be associated with the
gaming license of CCMI conduct gaming operations outside of Mississippi without
approval of the Mississippi Gaming Commission. The Mississippi Gaming Commission
may require determinations that there are means for the Mississippi Gaming
Commission to have access to information concerning Mandalay's and Mandalay's
affiliates' out-of-state gaming operations. Mandalay received waivers of foreign
gaming approval from the Mississippi Gaming Commission for the conduct of gaming
operations in Nevada, Indiana, Louisiana, Illinois, New Jersey, Michigan and
Ontario, Canada, but may be required to obtain the approval or a waiver of such
approval from the Mississippi Gaming Commission before engaging in any
additional future gaming operations outside of Mississippi.
If the Mississippi Gaming Commission decides that a licensed gaming
subsidiary violated a gaming law or regulation, the Mississippi Gaming
Commission could limit, condition, suspend or revoke the
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license of the subsidiary. In addition, we, the licensed subsidiary and the
persons involved could be subject to substantial fines for each separate
violation. A violation under any of Mandalay's other operating subsidiaries'
gaming licenses may be deemed a violation of CCMI's gaming license. Because of a
violation, the Mississippi Gaming Commission could attempt to appoint a
supervisor to operate the casino facilities. Limitation, conditioning or
suspension of CCMI's gaming license or Mandalay's registration as a
publicly-traded holding company of CCMI, or the appointment of a supervisor
could, and revocation of any gaming license or registration would, materially
adversely affect Mandalay's Mississippi gaming operations.
A licensed gaming subsidiary must pay license fees and taxes, computed in
various ways depending on the type of gaming involved, to the State of
Mississippi and to the county or city in which the licensed gaming subsidiary
conducts operations. Depending upon the particular fee or tax involved, these
fees and taxes are payable either monthly, quarterly or annually and are based
upon:
- a percentage of the gross gaming revenues received by the casino
operation;
- the number of slot machines operated by the casino; and
- the number of table games operated by the casino.
The license fee payable to the State of Mississippi is based upon "gaming
receipts," generally defined as gross receipts less payouts to customers as
winnings, and equals:
- 4% of gaming receipts of $50,000 or less per month;
- 6% of gaming receipts over $50,000 and less than $134,000 per month; and
- 8% of gaming receipts over $134,000 per month.
These license fees are allowed as a credit against our Mississippi income
tax liability for the year paid. The gross revenue fee imposed by the
Mississippi cities and counties in which casino operations are located is in
addition to the fees payable to the State of Mississippi and equals
approximately 4% of the gaming receipts.
The Mississippi Gaming Commission adopted a regulation in 1994 requiring as
a condition of licensure or license renewal that a gaming establishment's plan
include a 500-car parking facility in close proximity to the casino complex and
infrastructure facilities which will amount to at least 25% of the casino cost.
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, we believe CCMI is in
compliance with this requirement. On January 21, 1999, the Mississippi Gaming
Commission adopted an amendment to this regulation which increased the
infrastructure requirement to 100% from the existing 25%; however, the
regulation grandfathers existing licensees and applies only to new casino
projects and casinos that are not operating at the time of acquisition or
purchase, and would therefore not apply to CCMI.
Both the local jurisdiction and the Alcoholic Beverage Control Division of
the Mississippi State Tax Commission license, control and regulate the sale of
alcoholic beverages by CCMI. The Gold Strike-Tunica casino owned and operated by
CCMI is in an area designated as a special resort area, which allows casinos
located therein to serve alcoholic beverages on a 24-hour basis. The Alcohol
Beverage Control Division has the full power to limit, condition, suspend or
revoke any license for the service of alcoholic beverages or to place a licensee
on probation with or without conditions. Any disciplinary action could, and
revocation would, have a material adverse effect upon the casino's operations.
Mandalay's and CCMI's key officers and managers must be investigated by the
Alcoholic Beverage Control Division in connection with its liquor permits and
changes in key positions must be approved by the Alcoholic Beverage Control
Division.
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ILLINOIS GAMING LAWS
We are subject to the jurisdiction of the Illinois gaming authorities as a
result of our acquisition of Grand Victoria Riverboat Casino based in Elgin,
Illinois.
In February 1990, the State of Illinois legalized riverboat gambling. The
Illinois Riverboat Gambling Act (the "Illinois Act") authorizes the five-member
Illinois Gaming Board (the "Illinois Board") to issue up to ten riverboat gaming
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. Pursuant to the initial Illinois Act, a licensed owner who
holds greater than a 10% interest in one riverboat operation, could hold no more
than a 10% interest in any other riverboat operation. In addition, the initial
Illinois Act restricted the location of certain of the ten owners' licenses.
Four of the licenses were to be located on the Mississippi River, one license
was to be at a location on the Illinois River south of Marshall County and one
license had to be located on the Des Plaines River in Will County. The remaining
licenses were not restricted as to location. Currently, nine owner's licenses
are in operation in Alton, Aurora, East Peoria, East St. Louis, Elgin,
Metropolis, Rock Island and two licenses in Joliet. The tenth license, which was
initially granted to an operator in East Dubuque, was not renewed by the
Illinois Board and has been the subject of on-going litigation.
Furthermore, under the initial Illinois Act, no gambling could be conducted
while a riverboat was docked. A gambling excursion could last no more than four
hours, and a gaming excursion was deemed to have started when the first
passenger boarded a riverboat. Gaming could continue during passenger boarding
for a period of up to 30 minutes. Gaming was also allowed for a period of up to
30 minutes after the gangplank or its equivalent was lowered, thereby allowing
passengers to exit the riverboat. During the 30-minute exit time period, new
passengers were not allowed to board the riverboat. Although riverboats were
mandated to cruise, there were certain exceptions. If a riverboat captain
reasonably determined that either it was unsafe to transport passengers on the
waterway due to inclement weather or the riverboat had been rendered temporarily
inoperable by unforeseeable mechanical or structural difficulties or river
icing, the riverboat could remain dockside or return to the dock. In those
situations, a gaming excursion could begin or continue while the gangplank or
its equivalent was raised and remained raised, in which event the riverboat was
not considered docked. If a gaming excursion had to begin or continue with the
gangplank or its equivalent raised, and the riverboat did not leave the dock,
entry of new patrons on to the riverboat was prohibited until the completion of
the excursion.
In June of 1999, amendments to the Illinois Act were passed by the
legislature and signed into law by the Governor. The amended Illinois Act
redefined the conduct of gaming in the state. Pursuant to the amended Illinois
Act, riverboats can conduct gambling without cruising, and passengers can enter
and leave a riverboat at any time. In addition, riverboats may now be located
upon any water within Illinois and not just navigable waterways. There is no
longer any prohibition of a riverboat being located in Cook County. Riverboats
are now defined as self-propelled excursion boats or permanently moored barges.
The amended Illinois Act requires that only three, rather than four owner's
licenses, be located on the Mississippi River. The 10% ownership prohibition has
also been removed. Therefore, subject to certain Illinois Board rules,
individuals or entities could own more than one riverboat operation.
The amended Illinois Act also allows for the relocation of a riverboat home
dock. A licensee that was not conducting riverboat gambling on January 1, 1998,
may apply to the Illinois Board for renewal and approval of relocation to a new
home dock and the Illinois Board shall grant the application and approval of the
new home dock upon the licensee providing to the Illinois Board authorization
from the new dockside community. Pursuant to the amended Illinois Act, the
former owner and operator of the East Dubuque riverboat has applied for renewal
of its license and to relocate its operation to
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Rosemont, Illinois. Any licensee that relocates in accordance with the
provisions of the amended Illinois Act, must attain a level of at least 20%
minority ownership of such a gaming operation.
The constitutionality of the amended Illinois Act has been challenged and is
currently the subject of litigation. There is no assurance that the amended
Illinois Act will be upheld as constitutional. If the amended Illinois Act is
deemed unconstitutional, all of the new provisions would no longer be in effect.
Specifically, in that situation, riverboats would have to return to cruising in
order to conduct gaming.
The Illinois Act strictly regulates the facilities, persons, associations
and practices related to gaming operations. 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 has
authority over 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. Gaming positions are
counted as follows:
- electronic gaming devices positions 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.
Each owner's license initially runs for a period of three years. Thereafter,
the license must be renewed annually. Under the amended Illinois Act, the Board
may renew an owner's license for up to four years. 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 requirement of the
Illinois Act and Illinois Board rules. The owner's license for Grand Victoria
Riverboat Casino was issued in October 1994 and was valid for three years. Since
that time, the license has been renewed annually, with the most recent renewal
approved by the Illinois Board in October of 1999 for a one year period. An
ownership interest in an owner's license may not be transferred or pledged as
collateral without the prior approval of the Illinois Board.
Pursuant to the amended Illinois Act, which lifted the 10% ownership
prohibition, the Illinois Board established certain rules to effectuate this
statutory change. In deciding whether to approve direct or indirect ownership or
control of an owner's license, the Illinois Board shall consider the impact of
any economic concentration of the ownership or control. No direct or indirect
ownership or control may be approved which will result in undue economic
concentration of the ownership of a riverboat gambling operation in Illinois.
Undue economic concentration means that a person or entity would have actual or
potential domination of riverboat gambling in Illinois sufficient to:
- substantially impede or suppress competition among holders of owner's
licenses;
- adversely impact the economic stability of the riverboat casino industry
in Illinois; or
- negatively impact the purposes of the Illinois Act, including tourism,
economic development, benefits to local communities, and State and local
revenues.
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The Illinois Board will consider the following criteria in determining
whether the approval of the issuance, transfer or holding of a license will
create undue economic concentration:
- percentage share of the market presently owned or controlled by the person
or entity;
- estimated increase in the market share if the person or entity is approved
to hold the owner's license;
- relative position of other persons or entities that own or control owner's
licenses in Illinois;
- current and projected financial condition of the riverboat gaming
industry;
- current market conditions, including proximity and level of competition,
consumer demand, market concentration, and any other relevant
characteristics of the market;
- whether the license to be approved has separate organizational structures
or other independent obligations;
- potential impact on the projected future growth and development of the
riverboat gambling industry, the local communities in which licenses are
located, and the State of Illinois;
- barriers to entry into the riverboat gambling industry and if the approval
of the license will operate as a barrier to new companies and individuals
desiring to enter the market;
- whether the approval of the license is likely to result in enhancing the
quality and customer appeal of products and services offered by riverboat
casinos in order to maintain or increase their respective market shares;
- whether a restriction on the approval of the additional license is
necessary in order to encourage and preserve competition in casino
operations; and
- any other relevant information.
The Illinois Act does not limit the maximum bet or per patron loss. Minimum
and maximum wagers on games are set by the owner licensee. Wagering may not be
conducted with money or other negotiable currency. No person under the age of 21
is permitted to wager and wagers may only be received from a person present on
the riverboat. With respect to electronic gaming devices, the payout percentage
may not be less than 80% nor more than 100%.
As admission tax is imposed on the owner of a riverboat operation. Under the
amended Illinois Act, a $2.00 admission tax is imposed for each admission to a
riverboat casino. 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, on a daily basis, to wire the wagering tax
payment to the Illinois Board.
In addition to owner's licenses, the Illinois Board also requires licensing
for all vendors of gaming supplies and equipment and for all employees of a
riverboat gaming operation. The Illinois Board is authorized to conduct
investigations into the conduct of gaming and into alleged violations of the
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Illinois Act and the Illinois Board rules. Employees and agents of the Illinois
Board have access to and may inspect any facilities relating to the riverboat
gaming operation.
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.
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 that 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 this is material to the regulatory concerns and obligations of
the Illinois Board for the specified licensee or applicant.
In order to assist the Gaming Board in its determination of Key Persons,
applicants for or holders of an owner's license must provide to the Gaming Board
a Table of Organization, Ownership and Control (the "Table"). The Table must
identify in sufficient detail the hierarchy of individuals and Business Entities
that, through direct or indirect means, manage own or control the interest and
assets of the applicant or licensee holder. If a Business Entity identified in
the Table is a publicly traded company, the following information must be
provided in the Table:
- the name and 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 this information is known or contained in
Schedule 13D or 13G SEC 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% of the
voting shares of the entity; and
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- any trust holding more than 5% ownership or voting interest in Mandalay,
to the extent this information is known or contained in Schedule 13D or
13G SEC filings.
The Table may be disclosed under the Freedom of Information Act.
Each owner licensee must provide a means for the economic disassociation of
a Key Person in the event such economic disassociation is required by an order
of the Gaming Board. Based upon findings from an investigation into the
character, reputation, experience, associations, business probity and financial
integrity of a Key Person, the Gaming Board may enter an order upon the licensee
or require the economic disassociation of the Key Person.
Furthermore, each applicant 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 Gaming Board
may also require an applicant or owner licensee to disclose any other principal
or investor and require the investigation and approval of these individuals.
The Illinois Gaming 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 non-voting 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 Gaming Board denies an application for such
a transfer and if no hearing is requested, the applicant for the transfer of
ownership interest 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 Gaming 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 these
securities, notify the Administrator of the 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 this level of ownership interest. The owner 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. The institutional investor also has an obligation to notify the
Administrator of its ownership interest.
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 than 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.
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:
- Key Persons;
- type of entity;
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- equity and debt capitalization of the entity;
- investors and/or debt holders;
- source of funds;
- applicant's economic development plan;
- riverboat capacity or significant design change;
- gaming positions;
- anticipated economic impact; or
- 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 the 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:
- cash flow, casino cash and working capital requirements;
- debt service requirements obligations and covenants associated with
financial instrument;
- requirements for repairs and maintenance and capital improvements;
- employment or economic development requirements of the Act; and
- a licensee's financial projections.
The Illinois Board may waive any licensing requirement or procedure provided
by rule if it determines that the 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.
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 Mandalay. Some of this legislation,
if enacted, could adversely affect the gaming industry or Mandalay. No assurance
can be given whether such or similar legislation will be enacted.
Uncertainty exists regarding the Illinois gambling regulatory environment
due to limited experience in interpreting the Illinois Act.
MICHIGAN GAMING LAWS
Mandalay is subject to regulation by the Michigan Gaming Control Board
("Michigan Board") pursuant to the Michigan Gaming Control and Revenue Act
("Michigan Act") as a result of ownership of 53.5% of Detroit Entertainment,
L.L.C., a Michigan limited liability company, d/b/a MotorCity Casino (herein
"MotorCity Casino").
The qualification standards established by the Michigan Act and Rules are
very comprehensive. A burden of proof by "clear and convincing evidence" is
placed upon the applicant. The focus of these standards is suitability as to:
- character;
- reputation;
- integrity;
- business probity;
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- experience;
- ability;
- financial ability and responsibility; and
- any other criteria considered appropriate by the Michigan Board.
MotorCity's casino license is a one-year license. The license will be
renewed by the Michigan Board on an annual basis if the Michigan Board
determines that MotorCity Casino continues to meet all requirements established
by the Michigan Act and Rules.
The Michigan Act permits the licensing and operation of up to three casinos
in any Michigan city that meets certain requirements.
At the present time, the only city in Michigan that meets these requirements
is Detroit. To date, two casino licenses have been issued. An application for
the third casino license is pending before the Michigan Board. It is not certain
when the Michigan Board will issue the third casino license.
The Michigan Board is composed of five persons. It has the authority to:
- enforce the provisions of the Michigan Act;
- license casinos in accordance with the provisions of the Michigan Act; and
- regulate all aspects of the operation of casinos licensed by the Michigan
Board.
The Michigan Board's jurisdiction extends to every person and business
entity involved in casino gaming operations governed by the Michigan Act and
Rules.
The Michigan Act and Rules strictly regulate all aspects of the ownership
and operation of casinos licensed under the Michigan Act. This includes
regulation of:
- all related buildings, facilities, bars, restaurants, hotels, cocktail
lounges, retail establishments, arenas and rooms functionally or
physically connected to the casino; and
- any other facility located in the city of Detroit that is under the
control of the casino licensee or an affiliated company.
Collectively, the Michigan Act calls all of these buildings, facilities and
other amenities the "Casino Enterprise."
The Michigan Board, the Michigan Attorney General and the Michigan State
Police have been assigned to investigate and inspect the casinos licensed under
the Michigan Act. These employees have the right to inspect all facilities
relating to the Casino Enterprise.
The Michigan Act and Rules require that "Key Persons" meet the requirements
set forth in the Michigan Act and Rules. Key Persons include:
- officers, directors, trustees, partners and proprietors of a casino
licensee or an affiliate or holding company of a casino licensee that has
control of a casino licensee;
- a person that holds a combined direct, indirect or attributed debt or
equity interest of more than 5% in a person that holds a casino license;
- a person that holds a combined direct, indirect, or attributed equity
interest of more than 5% in a person that holds a casino license;
- a managerial employee of an affiliate or holding company that has control
of a person that holds a casino license; and
- various management level employees of the casino licensee.
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The Michigan Act defines "control" of a casino licensee as having greater
than 15% direct or indirect pecuniary interest in the casino licensee. Mandalay
has control of MotorCity Casino.
Key Persons are required to timely file and update qualification information
with the Michigan Board and then be approved by the Michigan Board.
The Michigan Act and Rules require compliance with qualification standards
for obtaining and retaining a direct or indirect ownership interest in a casino
and for transferring an ownership interest in a casino. Owners are required to
timely file and update information required to be submitted to the Michigan
Board.
The Michigan Board can require compliance with the qualification and
approval standards whenever the Michigan Board determines that it is in the best
interests of the Michigan casino regulatory process to do so regardless of the
amount of direct or indirect beneficial ownership interest involved or the
nature of the ownership interest.
The Michigan Act and Rules distinguish between shareholders of a privately
owned company and shareholders of a publicly traded company for qualification
purposes.
Shareholders of a privately owned company who directly or indirectly
beneficially own 1% or more of a casino licensee or casino license applicant
must submit qualification information to the Michigan Board and be approved by
the Michigan Board.
Shareholders that own more than 5% of a publicly traded company that owns 1%
or more of one of the Detroit casinos must submit and update qualification
information to the Michigan Board. Mandalay owns more than 1% of MotorCity
casino and, therefore, each shareholder that owns more than 5% of the shares of
Mandalay is subject to the qualification requirements established by the
Michigan Act and Rules.
There are special rules for an "institutional investor" that has invested in
a publicly traded company that owns 1% or more of a Detroit casino or a Michigan
casino license applicant.
The Michigan Board is currently taking the position that an institutional
investor that individually or, in association with others, directly or
indirectly holds or acquires beneficial ownership of more than 5% of Mandalay
must notify the Michigan Board of its interest in Mandalay within 10 business
days after the institutional investor acquires more than a 5% interest in
Mandalay or files a Form 13D or 13G with the SEC. The institutional investor may
be required by the Michigan Board to supply additional information to the
Michigan Board. The Michigan Board may require the institutional investor to be
found suitable.
An institutional investor that individually or, in association with others,
directly or indirectly holds or acquires beneficial ownership of more than a 5%
interest but less than a 10% interest in Mandalay may request from the Michigan
Board a waiver of the eligibility and suitability requirements if the
institutional investor purchased the interest in Mandalay for investment
purposes only and not for the purpose of influencing or affecting the affairs of
Mandalay, MotorCity Casino 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).
An institutional investor that individually or, in association with others,
directly or indirectly holds or acquires beneficial ownership of more than a 10%
interest but not more than a 15% interest in Mandalay may request from the
Michigan Board a waiver of the eligibility and suitability requirements if the
institutional investor purchased the interest in Mandalay for investment
purposes only and not for the purpose of influencing or affecting the affairs of
Mandalay, MotorCity Casino or its affiliates. The Michigan Rules require that an
institutional investor within these ownership parameters must disclose detailed
information concerning the institutional investor.
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An institutional investor that individually or, in association with others,
directly or indirectly holds or acquires beneficial ownership of more than a 15%
interest in Mandalay is required to file qualification information with the
Michigan Board within 45 days after acquiring the interest and is required to
meet qualification and approval standards.
The Michigan Act and Rules regulate an institutional investor owning debt
securities of a casino licensee's affiliates. An institutional investor may be
required to meet the Michigan Act's qualification standards if the institutional
investor:
- owns or acquires beneficial ownership of 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
- owns or acquires beneficial ownership of more than 50% of any issue of the
outstanding debt of the casino licensee's affiliate or affiliated company.
An institutional investor that owns or acquires beneficial ownership of more
than 5% but less than 10% of debt securities of a casino licensee's affiliate or
affiliated company which are in any way related to the financing of the casino
licensee may be granted a waiver of the eligibility and suitability requirements
of the Michigan Act and Michigan Rules if:
- the debt securities do not represent more than 20% of the outstanding debt
of the casino licensee's affiliate or affiliated company; or
- 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
- the debt securities are those of a publicly traded corporation and were
purchased for investment purposes only.
The Michigan Act and Rules regulate the transfer of a direct or indirect
interest in a casino licensee. The Michigan Board must be notified in advance of
any proposed transfer of a direct or indirect interest. If the proposed transfer
involves more than a 1% direct or indirect interest, the proposed transfer may
not be consummated until the transfer has been approved by the Michigan Board.
In all events, the parties proposing to engage in the transfer action should
determine the applicable requirements of the Michigan Act and Rules before
completing the transfer transaction.
Formal notice of certain events must be given to and approval obtained from
the Michigan Board by the casino licensee or applicant and any of their
affiliates or holding companies whenever any of the following events occur:
- a change of a Key Person;
- a change in entity;
- a change in equity or debt capitalization of the entity;
- a change in investors subject to the Michigan Act and Michigan Rules;
- a change in debt holders subject to the Michigan Act and Michigan Rules.
- a change in source of funds; or
- related party transactions exceeding $250,000 in a 12-month period.
The Michigan Act declares that a person or entity that is required to meet
the Michigan Act's suitability standards will not be eligible if any of the
following circumstances exist:
- the applicant has been convicted of a felony anywhere in the United
States;
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- the applicant has been convicted of a misdemeanor involving gambling,
theft, fraud, or dishonesty;
- the applicant has submitted an application that contains false
information;
- the applicant or affiliate owns more than a 10% ownership interest in any
entity holding a casino license issued under the Michigan Act;
- the applicant holds any elective office in the United States (with certain
minor exceptions), is an employee of any gaming regulatory body in the
United States or is employed by a governmental unit of the State of
Michigan;
- the Michigan Board concludes that the applicant lacks the requisite
suitability as to integrity, moral character and reputation, personal and
business probity, financial ability and experience, responsibility, or
means to develop, construct, operate or maintain the casino; or
- the applicant fails to meet other criteria considered appropriate by the
Michigan Board that are not arbitrary, capricious or contrary to the
provisions of the Michigan Act.
The Michigan Act prohibits casino licensees and applicants and certain
related persons from making contributions to candidates for state or local
office in the State of Michigan and to committees supporting any such candidates
during various periods, including periods prior to licensure.
The political contribution restriction applies to casino license applicants,
casino licensees and all of the following persons and entities:
- any person or entity that holds at least a 1% interest in the casino
licensee or Casino Enterprise;
- any person who is an officer or managerial employee of the casino licensee
or Casino Enterprise;
- any person who is an officer of the person who holds at least a 1%
interest in the casino licensee or Casino Enterprise; and
- any person that is an independent committee of the casino licensee or
Casino Enterprise.
The Michigan Act also applies this restriction to spouses, parents, children
and spouses of children of persons holding an interest in the casino licensee or
Casino Enterprise. However, the portion of the political contribution
restriction relating to spouses, parents, children and spouses of children has
been declared unconstitutional by Attorney General Frank Kelley in Attorney
General Opinion No. 7002 issued on December 17, 1998 in those instances where
the contribution is not a willful attempt to evade the political contribution
restrictions contained in the Michigan Act.
The penalties for violation of the political contribution restriction
includes fines, imprisonment or both.
If a shareholder who is required to submit qualification information to the
Michigan Board is not approved by the Michigan Board, the shareholder must
promptly dispose of 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 does not
obtain approval for the acquisition from the Michigan Board, the person may not
acquire the shares and must promptly dispose of 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, the Key Person must
promptly cease all involvement in the Michigan Casino Enterprise.
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As required under the Michigan Act, MotorCity Casino has a Development
Agreement with the City of Detroit. The Development Agreement is currently in
effect.
MotorCity Casino has constructed a temporary casino in accordance with the
terms of the Development Agreement. This temporary casino opened on
December 14, 1999. Under the terms of the Development Agreement, the temporary
casino is to be operated for no more than 48 months unless otherwise agreed by
the City of Detroit, at which time the temporary casino is to be closed and the
permanent casino opened. Detroit Entertainment, L.L.C. is prepared to begin
construction of the permanent casino in accordance with the Development
Agreement once the permanent casino site designated by the City of Detroit has
been acquired in accordance with procedures developed by the City of Detroit and
the construction site is ready 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.
The Development Agreement entered into between the City of Detroit and
Detroit Entertainment, L.L.C. has numerous terms and conditions relating to
following:
- the construction of the temporary and permanent casino;
- the employment of Detroit residents, minorities and women to staff the
operation of the temporary and permanent casinos; and
- the use of Detroit based, minority and woman owned vendors and suppliers.
MotorCity Casino has agreed to exercise its reasonable best efforts to
comply with vendor and supplier use and hiring goals. Failure to comply with the
terms of the Development Agreement could adversely effect its casino license.
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 Casino Interest. Violation of this registration
requirement for more than 30 days is a misdemeanor that is subject to a fine of
not more than $1,000. The Casino Interest registration requirement is completely
separate and apart from the eligibility and qualification requirements
established by the Michigan Act and Michigan Rules. A person holding a Casino
Interest includes:
- a person who holds at least a 1% interest in a casino licensee or a Casino
Enterprise;
- a person who is a partner, officer or key or managerial employee of the
casino licensee or Casino Enterprise;
- a person who is an officer of the person who holds at least a 1% interest
in the casino licensee or Casino Enterprise; and
- the spouse or children of any of these persons.
A "person" includes any individual and legal entity.
However, the portion of the Casino Interest registration requirement that
requires spouses and children of persons holding a Casino Interest to register
with the Michigan Secretary of State has been declared invalid by Attorney
General Jennifer Granholm in Attorney General Opinion No. 7053 issued on May 3,
2000.
The Casino Interest Registration Form may be obtained from the Michigan
Secretary of State in Lansing, Michigan.
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The Michigan Act and Rules establish extensive requirements and procedures
relating to all of the following:
- operation of casino games;
- ownership records;
- reporting of transactions;
- handling of money;
- extending credit;
- accounting and editing;
- internal control systems; and
- compliance reporting.
The Michigan Act and Rules do not limit the maximum bet or per person loss.
No person under the age of 21 years is permitted to wager in a casino licensed
under the Michigan Act. MotorCity Casino may operate 24 hours a day, 7 days a
week. MotorCity Casino is subject to regulation by the Michigan Liquor Control
Commission. The Michigan Act subjects MotorCity Casino to five forms of gaming
taxes and fees:
- a nonrefundable license application fee of $50,000;
- a $25,000 casino license fee, which is payable annually;
- a wagering tax equal to 18% of adjusted gross receipts;
- a municipal services fee in an amount equal to the greater of 1.25% of
adjusted gross receipts or $4,000,000; and
- the payment of all regulatory and enforcement costs, including compulsive
gaming programs, casino related programs and activities, casino related
services provided by the Michigan Attorney General and casino related
expenses of the Michigan State Police up to a combined total annual
maximum charge of $25,000,000 in the first year of casino operations for
all casinos licensed under the Michigan Act. This maximum amount is
adjusted annually by the Detroit Consumer Price Index.
No casino licensed under the Michigan Act is liable for the payment of more
than 1/3 of the total annual assessment. This fee is placed into a services fee
fund. This service fee fund is prohibited from exceeding $65,000,000. If this
service fee fund exceeds $65,000,000, any amount in excess of $65,000,000 must
be credited towards the annual payments the casinos licensed under the Michigan
Act are required to make to the service fee fund.
The five forms of fees and taxes listed above are in addition to the taxes,
fees and assessments customarily paid by business entities in the State of
Michigan and the City of Detroit.
The holder of a casino license issued under the Michigan Act is subject to a
variety of penalties for violation of the Michigan Act or Rules. The penalties
include, but are not necessarily limited to, the following:
- monetary fines;
- suspension of the casino license;
- revocation of the casino license;
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- civil penalties 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;
- criminal penalties;
- seizure and/or destruction of gaming equipment;
- seizure and/or sale of gaming operations;
- imposition of a conservatorship; and
- imposition of restrictions or conditions on gaming operations by the
Michigan Board.
The Michigan Board is required to comply with the Michigan Act, the Michigan
Rules, the Michigan Administrative Procedures Act and other applicable laws and
regulations. The Michigan Board 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
- 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 procedures
provided by the Michigan Rules provided that the waiver does not violate the
Michigan Act. Any such waiver must be based upon a determination by the Michigan
Board that the waiver is in the best interests of the public and the gaming
industry.
The Michigan Board may amend or change the Michigan Rules provided that the
amendment or change complies with the Michigan Act and other applicable Michigan
law.
Uncertainty exists regarding the Michigan gaming regulatory environment due
to the limited experience in interpreting the Michigan Act and the Michigan
Rules. The Michigan Act and Michigan Rules are evolving pursuant to an ongoing
regulatory, legislative and judicial process. Therefore, the Michigan Act and
Michigan Rules are subject to and, in all probability will, change with the
maturation of casino gaming regulated by the Michigan Act.
Various regulatory proposals have been and in all likelihood will continue
to be discussed by the Detroit City Council concerning the regulation of casinos
in the City of Detroit. Legislation proposed to or by the Detroit City Council,
if enacted, could adversely effect the gaming industry, Detroit Entertainment,
L.L.C. or Mandalay. No assurance can be given whether additional ordinances will
be enacted and what effect such ordinances could have on the operation of
casinos in the City of Detroit.
From time to time various proposals have been introduced in the Michigan
legislature which related to casino gaming in Detroit. Some of the proposals, if
enacted, would effect the taxation, regulation, operation or other aspects of
the gaming industry, Detroit Entertainment, L.L.C. or Mandalay. No assurance can
be given whether additional legislation will be enacted and what effect such
legislation could have on the operation of casinos in the City of Detroit.
The constitutionality of the Detroit Casino Competitive Selection Process
Ordinance and the Michigan Act has been challenged in separate federal court
proceedings initiated by the Lac Vieux Band of Lake Superior Chippewa Indians
and by Barden Detroit Casino, L.L.C. If it is subsequently determined that
either the Detroit Casino Competitive Selection Process Ordinance or the
Michigan Act is defective and this determination is upheld, this may impact the
validity of the Development Agreement entered into between Detroit
Entertainment, L.L.C. and the City of Detroit or the casino license issued to
Detroit Entertainment, L.L.C., which could have an adverse impact upon us. No
assurance can be given regarding the probable result of either proceeding.
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The Lac Vieux Band of Lake Superior Chippewa Indians has also filed an
appeal with the Michigan Court of Appeals for judicial review of the Michigan
Board's grant of a casino license to Detroit Entertainment, L.L.C. If the Court
of Appeals determines that the Lac Vieux Band has status to appeal the Michigan
Board's issuance of the casino license to Detroit Entertainment, L.L.C., the
casino license issued by the Michigan Board to Detroit Entertainment, L.L.C.
could be adversely effected, which could have an adverse impact upon us. No
assurance can be given regarding the probable result of this litigation.
If it is ultimately determined that either the Michigan Act or the Detroit
ordinance is defective, this could result in the termination of the license to
operate our temporary casino or otherwise adversely impact our ability to
continue to operate that facility and could prevent or otherwise adversely
impact our ability to construct, open or operate our proposed permanent
hotel-casino in downtown Detroit. This may have an impact upon the validity of
the Development Agreement entered into between the City of Detroit and Detroit
Entertainment, L.L.C., and the casino license issued to Detroit Entertainment,
L.L.C.
Litigation challenging the condemnation of real property by the City of
Detroit for the permanent casino construction site has been initiated. As a
result of this litigation, 47 pending land condemnations initiated by the City
of Detroit have been dismissed. The litigation surrounding the condemnation of
land for use in construction of the permanent casinos in the City of Detroit
could substantially delay the construction of the permanent casino by Detroit
Entertainment, L.L.C. No assurance can be given regarding the impact of such a
delay.
INTERNAL REVENUE SERVICE REGULATIONS
The Internal Revenue Service requires operators of casinos located in the
United States to file information returns for U.S. citizens, including names and
addresses of winners, for keno and slot machine winnings in excess of stipulated
amounts. The Internal Revenue Service also requires operators to withhold taxes
on some keno, bingo and slot machine winnings of nonresident aliens. We are
unable to predict the extent, to which these requirements, if extended, might
impede or otherwise adversely affect operations of, and/or income from, the
other games.
Regulations adopted by the Financial Crimes Enforcement Network of the
Treasury Department and the gaming regulatory authorities in some of the
domestic jurisdictions in which we operate casinos, or in which we may apply for
licensing to operate a casino, require the reporting of currency transactions in
excess of $10,000 occurring within a gaming day, including identification of the
patron by name and social security number. This reporting obligation began in
May 1985 and may have resulted in the loss of gaming revenues to jurisdictions
outside the United States which are exempt from the ambit of these regulations.
OTHER LAWS AND REGULATIONS
Each of the casino hotels and the riverboat and dockside casinos described
in this prospectus is subject to extensive state and local regulations and, on a
periodic basis, must obtain various licenses and permits, including those
required to sell alcoholic beverages. We believe that we and the joint ventures
in which we participate have obtained all required licenses and permits and our
businesses, including those of our joint ventures, are conducted in substantial
compliance with applicable laws.
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DESCRIPTION OF OTHER INDEBTEDNESS
The following is a brief summary of important terms of Mandalay's other
material indebtedness:
REVOLVING CREDIT FACILITY
We have a senior unsecured revolving credit facility which permits us to
borrow up to $1.8 billion from a syndicate of financial institutions for which
Bank of America, N.A. acts as administrative agent. To the extent we have debt
outstanding from time to time under the commercial paper program described
below, we are required to maintain an equivalent amount of credit available
under the revolving credit facility to repay that debt. The revolving credit
facility includes a covenant which requires us to maintain a total debt to
EBITDA ratio, as defined, of not more than 5-to-1 as of the last day of each
fiscal quarter. The revolving credit facility matures on July 31, 2002 and may
be extended in one year increments at our request with the prior written consent
of the lenders. At April 30, 2000, an aggregate of approximately $1.6 billion
was outstanding under the revolving credit facility, and, under our total debt
covenant, approximately $966 million of additional indebtedness could have been
incurred, including up to approximately $0.2 billion under the facility's
available balance. Following the issuance of the old notes on July 24, 2000, we
used the net proceeds from the issuance of the old notes to reduce the amount of
our indebtedness then outstanding under the revolving credit facility by
approximately $488.3 million. Following the issuance on August 16, 2000 of our
9 1/2% senior notes due 2008, we used the net proceeds from the issuance of
those notes to further reduce the amount of our indebtedness then outstanding
under the revolving credit facility by approximately $195.8 million.
On October 30, 1998, we entered into an operating lease agreement with a
group of financial institutions which expires June 30, 2001, subject to our
right to extend the term for up to two additional one-year periods. Pursuant to
this agreement, we have leased $200 million of equipment at Mandalay Bay and
permanently reduced our borrowing capacity under the revolving credit facility
by an equivalent amount to the current limit of $1.8 billion.
We are currently in the process of securing a second credit facility for an
estimated $140 million to improve our borrowing flexibility. This additional
credit facility is expected to close in September 2000. Our ability to borrow
under the current credit facility is, and our ability to borrow under the new
credit facility will be, subject to our compliance with the covenants in the
current credit facility.
6.45% SENIOR NOTES DUE 2006
In February 1996, we issued $200 million of 6.45% senior notes due
February 1, 2006 in a registered offering. The 6.45% notes are not redeemable
prior to their maturity. The 6.45% notes are unsecured senior obligations and
rank equally with all of our senior unsecured debt.
9 1/2% SENIOR NOTES DUE 2008
In August 2000, we issued $200 million aggregate principal amount of 9 1/2%
senior notes due 2008 in a private placement. The 9 1/2% notes are redeemable at
any time prior to their maturity at a redemption price equal to 100% of their
principal amount plus a make-whole premium. The 9 1/2% notes are unsecured
senior obligations and rank equally with all of our senior unsecured debt.
7.0% DEBENTURES DUE 2036
In November 1996, we issued $150 million aggregate principal amount of 7.0%
debentures due 2036 in a registered offering. The 7.0% debentures are not
redeemable at our option prior to their maturity. The debentures are redeemable
at the option of their holders on November 15, 2008 at 100% of their principal
amount plus accrued interest. The 7.0% debentures are unsecured senior
obligations and rank equally with all of our senior unsecured debt.
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6.70% DEBENTURES DUE 2096
In November 1996, we issued $150 million aggregate principal amount of 6.70%
debentures due 2096 in a registered offering. The 6.70% debentures are not
redeemable at our option prior to their maturity. The debentures are redeemable
at the option of their holders on November 15, 2003 at 100% of their principal
amount plus accrued interest. The 6.70% debentures are unsecured senior
obligations and rank equally with all of our senior unsecured debt.
6 3/4% SENIOR SUBORDINATED NOTES DUE 2003
In July 1993, we issued $150 million aggregate principal amount of 6 3/4%
senior subordinated notes due 2003 in a registered offering. The 6 3/4% notes
are not redeemable prior to their maturity. The 6 3/4% notes are unsecured
senior subordinated obligations and rank junior to all of our senior debt.
9 1/4% SENIOR SUBORDINATED NOTES DUE 2005
In November 1998, we issued $275 million aggregate principal amount of
9 1/4% senior subordinated notes due 2005 in a registered offering. The 9 1/4%
notes are redeemable at any time prior to their maturity at the redemption
prices described in the indenture governing the 9 1/4% notes. The 9 1/4% notes
are unsecured senior subordinated obligations and rank junior to all of our
senior debt.
7 5/8% SENIOR SUBORDINATED DEBENTURES DUE 2013
In July 1993, we issued $150 million aggregate principal amount of 7 5/8%
senior subordinated debentures due 2013 in a registered offering. The 7 5/8%
debentures are not redeemable prior to their maturity. The 7 5/8% debentures are
unsecured senior subordinated obligations and rank junior to all of our senior
debt.
COMMERCIAL PAPER PROGRAM
We have a $1 billion commercial paper program. To the extent that we incur
debt under this program, we must maintain an equivalent amount of credit
available under our revolving credit facility. We have borrowed under the
program for various periods since it was established. At April 30, 2000, we did
not have any outstanding borrowings under the commercial paper program.
See Note 3 of "Notes to the Consolidated Financial Statements" included in
this prospectus for additional information concerning our indebtedness,
including the indebtedness under our 53.5%-owned Detroit joint venture's credit
facility, which is guaranteed by Mandalay.
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THE EXCHANGE OFFER
GENERAL
As of the date of this prospectus, $500 million in principal amount of the
old notes is outstanding. This prospectus, together with the letter of
transmittal, is first being sent to holders on , 2000.
PURPOSE OF THE EXCHANGE OFFER
We issued the old notes on July 24, 2000 in a transaction exempt from the
registration requirements of the Securities Act. Accordingly, the old notes may
not be reoffered, resold, or otherwise transferred unless so registered or
unless an applicable exemption from the registration and prospectus delivery
requirements of the Securities Act is available.
In connection with the sale of the old notes, we entered into the
registration rights agreement, which requires us to:
- file a registration statement with the Commission relating to the exchange
offer not later than 30 days after the date of issuance of the old notes;
- use our best efforts to cause the registration statement relating to the
exchange offer to become effective under the Securities Act within 120
days after the date of issuance of the old notes; and
- use our best efforts to complete the exchange offer within 150 days from
the original issuance of the old notes or, if obligated to file a shelf
registration statement, to use our best efforts to cause the shelf
registration statement to be declared effective by the 150th day after the
original issuance of the old notes. We have filed a copy of the
registration rights agreement as an exhibit to the registration statement
of which this prospectus is a part.
We are making the exchange offer to satisfy our obligations under the
registration rights agreement. Other than pursuant to the registration rights
agreement, we are not required to file any registration statement to register
any outstanding old notes. Holders of old notes who do not tender their old
notes or whose old notes are tendered but not accepted in the exchange offer
must rely on an exemption from the registration requirements under the
securities laws, including the Securities Act, if they wish to sell their old
notes.
We are making the exchange offer in reliance on the position of the staff of
the Commission as set forth in interpretive letters addressed to third parties
in other transactions. However, we have not sought our own interpretive letter
and we can provide no assurance that the staff would make a similar
determination with respect to the exchange offer as it has in interpretive
letters to third parties. Based on these interpretations by the staff, we
believe that the exchange notes issued in the exchange offer in exchange for old
notes may be offered for resale, resold and otherwise transferred by a holder
other than any holder who is a broker-dealer or an "affiliate" of ours within
the meaning of Rule 405 of the Securities Act, without further compliance with
the registration and prospectus delivery requirements of the Securities Act,
provided that:
- the exchange notes are acquired in the ordinary course of the holder's
business;
- the holder has no arrangement or understanding with any person to
participate in the distribution of the exchange notes; and
- the holder is not engaged in, and does not intend to engage in a
distribution of the exchange notes.
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For additional information, see "--Resale of Exchange Notes." Each
broker-dealer that receives exchange notes for its own account in exchange for
old notes, where the broker-dealer acquired the old notes as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
For additional information, see "Plan of Distribution."
TERMS OF THE EXCHANGE
We are offering to exchange, subject to the conditions described in this
prospectus and in the letter of transmittal accompanying this prospectus, $1,000
in principal amount of exchange notes for each $1,000 in principal amount of the
old notes. The terms of the exchange notes are identical in all material
respects to the terms of the old notes, except that the exchange notes will
generally be freely transferable by holders of the exchange notes and will not
be subject to the terms of the registration rights agreement. The exchange notes
will evidence the same indebtedness as the old notes exchanged therefor and will
be entitled to the benefits of the indenture. For additional information, see
"Description of the Exchange Notes."
The exchange offer is not conditioned upon the tender of any minimum
principal amount of old notes.
We have not requested, and do not intend to request, an interpretation by
the staff of the Commission as to whether the exchange notes issued in exchange
for the old notes may be offered for sale, resold or otherwise transferred by
any holder without compliance with the registration and prospectus delivery
provisions of the Securities Act. Instead, based on an interpretation by the
staff of the Commission set forth in a series of no-action letters issued to
third parties, we believe that exchange notes issued in the exchange offer in
exchange for old notes may be offered for sale, resold and otherwise transferred
by any holder of exchange notes, other than any holder that is a broker-dealer
or is an "affiliate" of ours within the meaning of Rule 405 under the Securities
Act, without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that:
- the exchange notes are acquired in the ordinary course of the holder's
business;
- the holder has no arrangement or understanding with any person to
participate in the distribution of the exchange notes; and
- the holder is not engaged in, and does not intend to engage in a
distribution of the exchange notes.
Since the Commission has not considered the exchange offer in the context of
a no-action letter, we can provide no assurance that the staff of the Commission
would make a similar determination with respect to the exchange offer. Any
holder who is an affiliate of ours or who tenders old notes in the exchange
offer for the purpose of participating in a distribution of the exchange notes
cannot rely on the interpretation by the staff of the Commission and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of exchange notes. Each broker-dealer that receives
exchange notes for its own account in exchange for old notes, where the
broker-dealer acquired the old notes as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. For additional information,
see "Plan of Distribution."
The exchange notes will accrue interest from the last interest payment date
on which interest was paid on the old notes or, if no interest was paid on the
old notes, from the date of issuance of the old notes, which was on July 24,
2000. Holders whose old notes are accepted for exchange will be deemed to have
waived the right to receive any interest accrued on the old notes.
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Tendering holders of the old notes will not be required to pay brokerage
commissions or fees or, transfer taxes, except as specified in the instructions
in the letter of transmittal, with respect to the exchange of the old notes in
the exchange offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The exchange offer will expire at 5:00 p.m., New York City time, on
, 2000, unless we, in our sole discretion, have extended the period of
time for which the exchange offer is open. The time and date, as it may be
extended, is referred to herein as the "expiration date." The expiration date
will be at least 20 business days after the commencement of the exchange offer
in accordance with Rule 14e-1(a) under the Exchange Act. We expressly reserve
the right, at any time or from time to time, to extend the period of time during
which the exchange offer is open, and thereby delay acceptance for exchange of
any old notes. We will extend the expiration date by giving oral or written
notice of the extension to the exchange agent and by timely public announcement
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. During the extension, all old notes
previously tendered will remain subject to the exchange offer unless properly
withdrawn.
We expressly reserve the right to:
- terminate or amend the exchange offer and not to accept for exchange any
old notes not previously accepted for exchange upon the occurrence of any
of the events specified below under "--Certain Conditions to the Exchange
Offer" which have not been waived by us; and
- amend the terms of the exchange offer in any manner which, in our good
faith judgment, is advantageous to the holders of the old notes, whether
before or after any tender of the old notes.
If any termination or amendment occurs, we will notify the exchange agent
and will either issue a press release or give oral or written notice to the
holders of the old notes as promptly as practicable.
For purposes of the exchange offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless we terminate
the exchange offer prior to 5:00 p.m., New York City time, on the expiration
date, we will exchange the exchange notes for the old notes promptly following
the expiration date.
PROCEDURES FOR TENDERING OLD NOTES
Our acceptance of old notes tendered by a holder will constitute a binding
agreement between the tendering holder and us upon the terms and subject to the
conditions described in this prospectus and in the accompanying letter of
transmittal. All references in this prospectus to the letter of transmittal are
deemed to include a facsimile of the letter of transmittal.
A holder of old notes may tender the old notes by:
- properly completing and signing the letter of transmittal;
- properly completing any required signature guarantees;
- properly completing any other documents required by the letter of
transmittal; and
- delivering all of the above, together with the certificate or certificates
representing the old notes being tendered, to the exchange agent at its
address set forth below on or prior to the expiration date; or
- complying with the procedure for book-entry transfer described below; or
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- complying with the guaranteed delivery procedures described below.
The method of delivery of old notes, letters of transmittal and all other
required documents is at the election and risk of the holders. If the delivery
is by mail, it is recommended that registered mail properly insured, with return
receipt requested, be used. In all cases, sufficient time should be allowed to
ensure timely delivery. Holders should not send old notes or letters of
transmittal to us.
The signature on the letter of transmittal need not be guaranteed if:
- tendered old notes are registered in the name of the signer of the letter
of transmittal; and
- the exchange notes to be issued in exchange for the old notes are to be
issued in the name of the holder; and
- any untendered old notes are to be reissued in the name of the holder.
In any other case, the tendered old notes must be:
- endorsed or accompanied by written instruments of transfer in form
satisfactory to us;
- duly executed by the holder; and
- the signature on the endorsement or instrument of transfer must be
guaranteed by a bank, broker, dealer, credit union, savings association,
clearing agency or other institution, each an "eligible institution" that
is a member of a recognized signature guarantee medallion program within
the meaning of Rule 17Ad-15 under the Exchange Act.
If the exchange notes and/or old notes not exchanged are to be delivered to an
address other than that of the registered holder appearing on the note register
for the old notes, the signature in the letter of transmittal must be guaranteed
by an eligible institution.
The exchange agent will make a request within two business days after the
date of receipt of this prospectus to establish accounts with respect to the old
notes at The Depository Trust Company, the "book-entry transfer facility," for
the purpose of facilitating the exchange offer. We refer to the Depository Trust
Company in this prospectus as "DTC." Subject to establishing the accounts, any
financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of old notes by causing the
book-entry transfer facility to transfer the old notes into the exchange agent's
account with respect to the old notes in accordance with the book-entry transfer
facility's procedures for the transfer. Although delivery of old notes may be
effected through book-entry transfer into the exchange agent's account at the
book-entry transfer facility, an appropriate letter of transmittal with any
required signature guarantee and all other required documents, or an agent's
message, must in each case be properly transmitted to and received or confirmed
by the exchange agent at its address set forth below prior to the expiration
date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures.
The exchange agent and DTC have confirmed that the exchange offer is
eligible for the DTC Automated Tender Offer Program. We refer to the Automated
Tender Offer Program in this prospectus as "ATOP". Accordingly, DTC participants
may, in lieu of physically completing and signing the letter of transmittal and
delivering it to the exchange agent, electronically transmit their acceptance of
the exchange offer by causing DTC to transfer old notes to the exchange agent in
accordance with DTCs ATOP procedures for transfer. DTC will then send an agent's
message.
The term "agent's message" means a message which:
- is transmitted by DTC;
- received by the exchange agent and forming part of the book-entry
transfer;
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- states that DTC has received an express acknowledgment from a participant
in DTC that is tendering old notes which are the subject of the book-entry
transfer;
- states that the participant has received and agrees to be bound by all of
the terms of the letter of transmittal; and
- states that we may enforce the agreement against the participant.
If a holder desires to accept the exchange offer and time will not permit a
letter of transmittal or old notes to reach the exchange agent before the
expiration date or the procedure for book-entry transfer cannot be completed on
a timely basis, the holder may effect a tender if the exchange agent has
received at its address set forth below on or prior to the expiration date, a
letter, telegram or facsimile transmission, and an original delivered by
guaranteed overnight courier, from an eligible institution setting forth:
- the name and address of the tendering holder;
- the names in which the old notes are registered and, if possible, the
certificate numbers of the old notes to be tendered; and
- a statement that the tender is being made thereby and guaranteeing that
within three business days after the expiration date, the old notes in
proper form for transfer, or a confirmation of book-entry transfer of such
old notes into the exchange agent's account at the book-entry transfer
facility and an agent's message, will be delivered by the eligible
institution together with a properly completed and duly executed letter of
transmittal and any other required documents.
Unless old notes being tendered by the above-described method are deposited
with the exchange agent, a tender will be deemed to have been received as of the
date when:
- the tendering holder's properly completed and duly signed letter of
transmittal, or a properly transmitted agent's message, accompanied by the
old notes or a confirmation of book-entry transfer of the old notes into
the exchange agent's account at the book-entry transfer facility is
received by the exchange agent; or
- a notice of guaranteed delivery or letter, telegram or facsimile
transmission to similar effect from an eligible institution is received by
the exchange agent.
Issuances of exchange notes in exchange for old notes tendered pursuant to a
notice of guaranteed delivery or letter, telegram or facsimile transmission to
similar effect by an eligible institution will be made only against deposit of
the letter of transmittal and any other required documents and the tendered old
notes or a confirmation of book-entry and an agent's message.
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance of old notes tendered for exchange will be determined by
us in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all tenders of any old notes not
properly tendered or not to accept any old notes which acceptance might, in our
judgment or the judgment of our counsel, be unlawful. We also reserve the
absolute right to waive any defects or irregularities or conditions of the
exchange offer as to any old notes either before or after the expiration date,
including the right to waive the ineligibility of any holder who seeks to tender
old notes in the exchange offer. The interpretation of the terms and conditions
of the exchange offer, including the letter of transmittal and the instructions
contained in the letter of transmittal, by us will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of old notes for exchange must be cured within such reasonable period of time as
we determine. Neither we, the exchange agent nor any other person has any duty
to give notification of any defect or irregularity with respect to any tender of
old notes for exchange, nor will any of us incur any liability for failure to
give such notification.
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If the letter of transmittal is signed by a person or persons other than the
registered holder or holders of old notes, the old notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders appear on the old notes.
If the letter of transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
us, such persons must submit proper evidence satisfactory to us of their
authority to so act.
By tendering, each holder represents to us that, among other things:
- the exchange notes acquired pursuant to the exchange offer are being
acquired in the ordinary course of business of the holder;
- the holder is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the exchange notes; and
- the holder is not an "affiliate," as defined under Rule 405 of the
Securities Act, of ours.
Each broker-dealer that receives exchange notes for its own account in
exchange for old notes, where the broker-dealer acquired the old notes as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of the exchange
notes. For additional information, see "Plan of Distribution."
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The letter of transmittal contains, among other things, the following terms
and conditions, which are part of the exchange offer.
The party tendering old notes for exchange exchanges, assigns and transfers
the old notes to us and irrevocably constitutes and appoints the exchange agent
as his agent and attorney-in-fact to cause the old notes to be assigned,
transferred and exchanged. We refer to the party tendering notes herein as the
"transferor." The transferor represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the old notes and to acquire
exchange notes issuable upon the exchange of the tendered old notes, and that,
when the same are accepted for exchange, we will acquire good and unencumbered
title to the tendered old notes, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The transferor
also warrants that it will, upon request, execute and deliver any additional
documents deemed by the exchange agent or us to be necessary or desirable to
complete the exchange, assignment and transfer of tendered old notes or transfer
ownership of such old notes on the account books maintained by a book-entry
transfer facility. The transferor further agrees that acceptance of any tendered
old notes by us and the issuance of exchange notes in exchange for old notes
will constitute performance in full by us of various of our obligations under
the registration rights agreement. All authority conferred by the transferor
will survive the death or incapacity of the transferor and every obligation of
the transferor will be binding upon the heirs, legal representatives,
successors, assigns, executors and administrators of the transferor.
The transferor certifies that it is not an "affiliate" of ours within the
meaning of Rule 405 under the Securities Act and that it is acquiring the
exchange notes offered hereby in the ordinary course of the transferor's
business and that the transferor has no arrangement with any person to
participate in the distribution of the exchange notes.
Each holder, other than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a distribution of exchange notes.
Each transferor which is a broker-dealer receiving exchange notes for its own
account must acknowledge that it will deliver a prospectus in connection
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with any resale of the exchange notes. By so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
WITHDRAWAL RIGHTS
Tenders of old notes may be withdrawn at any time prior to the expiration
date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission, with receipt confirmed by telephone, or letter
must be received by the exchange agent at the address set forth in this
prospectus prior to the expiration date. Any notice of withdrawal must:
- specify the name of the person having tendered the old notes to be
withdrawn;
- identify the old notes to be withdrawn, including the certificate number
or numbers and principal amount of such old notes;
- specify the principal amount of old notes to be withdrawn;
- include a statement that the holder is withdrawing his election to have
the old notes exchanged;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the old notes were tendered or as
otherwise described above, including any required signature guarantees, or
be accompanied by documents of transfer sufficient to have the trustee
under the indenture register the transfer of the old notes into the name
of the person withdrawing the tender; and
- specify the name in which any such old notes are to be registered, if
different from that of the person who tendered the old notes.
The exchange agent will return the properly withdrawn old notes promptly
following receipt of the notice of withdrawal. If old notes have been tendered
pursuant to the procedure for book-entry transfer, any notice of withdrawal must
specify the name and number of the account at the book-entry transfer facility
to be credited with the withdrawn old notes or otherwise comply with the
book-entry transfer facility procedure. All questions as to the validity of
notices of withdrawals, including time of receipt, will be determined by us and
our determination will be final and binding on all parties.
Any old notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the exchange offer. Any old notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder without cost to the holder. In the case of old notes
tendered by book-entry transfer into the exchange agent's account at the
book-entry transfer facility pursuant to the book-entry transfer procedures
described above, the old notes will be credited to an account with the
book-entry transfer facility specified by the holder. In either case, the old
notes will be returned as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn old notes may be
retendered by following one of the procedures described under "Procedures for
Tendering Old Notes" above at any time prior to the expiration date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, on the expiration date, all old notes properly tendered and will
issue the exchange notes promptly after such acceptance. See "--Certain
Conditions to the Exchange Offer" below for more detailed information. For
purposes of the exchange offer, we will be deemed to have accepted properly
tendered old notes for exchange when, and if, we have given oral or written
notice of our acceptance to the exchange agent.
For each old note accepted for exchange, the holder of the old note will
receive an exchange note having a principal amount equal to that of the
surrendered old note.
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In all cases, issuance of exchange notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after:
- timely receipt by the exchange agent of certificates for the old notes or
a timely book-entry confirmation of the old notes into the exchange
agent's account at the book-entry transfer facility;
- a properly completed and duly executed letter of transmittal, or a
properly transmitted agent's message; and
- timely receipt by the exchange agent of all other required documents.
If any tendered old notes are not accepted for any reason described in the
terms and conditions of the exchange offer or if old notes are submitted for a
greater principal amount than the holder desires to exchange, the unaccepted or
nonexchanged old notes will be returned without expense to the tendering holder
of the old notes. In the case of old notes tendered by book-entry transfer into
the exchange agent's account at the book-entry transfer facility pursuant to the
book-entry transfer procedures described above, the non-exchanged old notes will
be credited to an account maintained with the book-entry transfer facility. In
either case, the old notes will be returned as promptly as practicable after the
expiration of the exchange offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, or any extension
of the exchange offer, we will not be required to accept for exchange, or to
issue exchange notes in exchange for, any old notes and may terminate or amend
the exchange offer, by oral or written notice to the exchange agent or by a
timely press release, if at any time before the acceptance of the old notes for
exchange or the exchange of the exchange notes for such old notes, any of the
following conditions exist:
- any action or proceeding is instituted or threatened in any court or by or
before any governmental agency with respect to the exchange offer which,
in our judgment would reasonably be expected to impair our ability to
proceed with the exchange offer; or
- the exchange offer, or the making of any exchange by a holder, violates
applicable law or any applicable interpretation of the staff of the
Commission.
Regardless of whether any of the conditions has occurred, we may amend the
exchange offer in any manner which, in our good faith judgment, is advantageous
to holders of the old notes.
The conditions described above are for our sole benefit and may be asserted
by us regardless of the circumstances giving rise to the condition or we may
waive any condition in whole or in part at any time and from time to time in our
sole discretion. Our failure at any time to exercise any of the rights described
above will not be deemed a waiver of the right and each right will be deemed an
ongoing right which we may assert at any time and from time to time.
If we waive or amend the conditions above, we will, if required by law,
extend the exchange offer for a minimum of five business days from the date that
we first give notice, by public announcement or otherwise, of the waiver or
amendment, if the exchange offer would otherwise expire within the five
business-day period. Any determination by us concerning the events described
above will be final and binding upon all parties.
The exchange offer is not conditioned upon any minimum principal amount of
old notes being tendered.
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EXCHANGE AGENT
The Bank of New York has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be directed to the
exchange agent at one of the addresses set forth below:
<TABLE>
<S> <C> <C>
BY REGISTERED OR FACSIMILE TRANSACTIONS: BY HAND OR OVERNIGHT DELIVERY:
CERTIFIED MAIL: (Eligible Institutions Only) The Bank of New York
The Bank of New York (212) 815-6339 101 Barclay Street
101 Barclay Street, 7E TO CONFIRM BY TELEPHONE Corporate Trust Services Window
New York, New York 10286 OR FOR INFORMATION CALL: Ground Level
Attn: Kin Lau (212) 815-3750 New York, New York 10286
Reorganization Department Attn: Kin Lau
Reorganization Department
</TABLE>
You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for notices of guaranteed delivery to the exchange agent at the address
and telephone number set forth in the letter of transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL,
OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE SET
FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith. We will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this and other
related documents to the beneficial owners of the old notes and in handling or
forwarding tenders for their customers.
We will pay the estimated cash expenses to be incurred in connection with
the exchange offer. We estimate the expenses to be approximately $200,000, which
includes fees and expenses of the exchange agent, trustee, registration fees,
accounting, legal, printing and related fees and expenses.
No person has been authorized to give any information or to make any
representations in connection with the exchange offer other than those contained
in this prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by us. Neither the delivery of this
prospectus nor any exchange made pursuant to this prospectus, under any
circumstances, create any implication that there has been no change in our
affairs since the respective dates as of which information is given in this
prospectus. The exchange offer is not being made to, nor will tenders be
accepted from or on behalf of, holders of old notes in any jurisdiction in which
the making of the exchange offer or the acceptance of the exchange offer would
not be in compliance with the laws of the jurisdiction. However, we may, at our
discretion, take such action as we may deem necessary to make the exchange offer
in the jurisdiction and extend the exchange offer to holders of old notes in the
jurisdiction. In any jurisdiction the securities laws or blue sky laws of which
require the exchange offer to be made by a licensed broker or dealer, the
exchange offer is being made on our behalf by one or more registered brokers or
dealers which are licensed under the laws of the jurisdiction.
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TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. However, the transfer taxes will be
payable by the tendering holder if:
- certificates representing exchange notes or old notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or
are to be issued in the name of, any person other than the registered
holder of the old notes tendered; or
- tendered old notes are registered in the name of any person other than the
person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of old
notes pursuant to the exchange offer.
We will bill the amount of the transfer taxes directly to the tendering
holder if satisfactory evidence of payment of the taxes or exemption therefrom
is not submitted with the letter of transmittal.
ACCOUNTING TREATMENT
For accounting purposes, we will not recognize gain or loss upon the
exchange of the exchange notes for old notes. We will amortize expenses incurred
in connection with the issuance of the exchange notes over the term of the
exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who do not exchange their old notes for exchange notes
pursuant to the exchange offer will continue to be subject to the restrictions
on transfer of the old notes as described in the legend on the old notes. Old
notes not exchanged pursuant to the exchange offer will continue to remain
outstanding in accordance with their terms. In general, the old notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. We do not currently anticipate that we will
register the old notes under the Securities Act.
Participation in the exchange offer is voluntary, and holders of old notes
should carefully consider whether to participate. Holders of old notes are urged
to consult their financial and tax advisors in making their own decision on what
action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered old notes pursuant to the terms of, this exchange offer, we
will have fulfilled a covenant contained in the registration rights agreement.
Holders of old notes who do not tender their old notes in the exchange offer
will continue to hold the old notes and will be entitled to all the rights and
limitations applicable to the old notes under the indenture, except for any
rights under the registration rights agreement that by their terms terminate or
cease to have further effectiveness as a result of the making of this exchange
offer. All untendered old notes will continue to be subject to the restrictions
on transfer described in the indenture. To the extent that old notes are
tendered and accepted in the exchange offer, the trading market for untendered
old notes could be adversely affected.
We may in the future seek to acquire, subject to the terms of the indenture,
untendered old notes in open market or privately negotiated transactions,
through subsequent exchange offers or otherwise. We have no present plan to
acquire any old notes which are not tendered in the exchange offer.
RESALE OF EXCHANGE NOTES
We are making the exchange offer in reliance on the position of the staff of
the Commission as set forth in interpretive letters addressed to third parties
in other transactions. However, we have not sought our own interpretive letter
and we can provide no assurance that the staff would make a similar
determination with respect to the exchange offer as it has in such interpretive
letters to third parties.
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Based on these interpretations by the staff, we believe that the exchange notes
issued pursuant to the exchange offer in exchange for old notes may be offered
for resale, resold and otherwise transferred by a holder, other than any holder
who is a broker-dealer or an "affiliate" of ours within the meaning of Rule 405
of the Securities Act, without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that:
- the exchange notes are acquired in the ordinary course of the holder's
business; and
- the holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution of the exchange notes.
However, any holder who is:
- an "affiliate" of ours;
- who has an arrangement or understanding with respect to the distribution
of the exchange notes to be acquired pursuant to the exchange offer; or
- any broker-dealer who purchased old notes from us to resell pursuant to
Rule 144A or any other available exemption under the Securities Act,
could not rely on the applicable interpretations of the staff and must comply
with the registration and prospectus delivery requirements of the Securities
Act. A broker-dealer who holds old notes that were acquired for its own account
as a result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of exchange notes. Each such broker-dealer that
receives exchange notes for its own account in exchange for old notes, where the
broker-dealer acquired the old notes as a result of market-making activities or
other trading activities, must acknowledge, as provided in the letter of
transmittal, that it will deliver a prospectus in connection with any resale of
such exchange notes. For more detailed information, see "Plan of Distribution."
In addition, to comply with the securities laws of various jurisdictions, if
applicable, the exchange notes may not be offered or sold unless they have been
registered or qualified for sale in the jurisdiction or an exemption from
registration or qualification is available and is complied with. We have agreed,
pursuant to the registration rights agreement and subject to specified
limitations therein, to register or qualify the exchange notes for offer or sale
under the securities or blue sky laws of the jurisdictions as any holder of the
exchange notes reasonably requests. The registration or qualification may
require the imposition of restrictions or conditions, including suitability
requirements for offerees or purchasers, in connection with the offer or sale of
any exchange notes.
SHELF REGISTRATION STATEMENT
If:
- any changes in law or the applicable interpretations of the staff of the
Commission do not permit us to effect the exchange offer; or
- for any reason the exchange offer is not consummated within 150 days
following the date of original issuance of the old notes; or
- any holder of the old notes, other than the initial purchasers, is not
eligible to participate in the exchange offer; or
- upon the request of any initial purchaser under specified circumstances,
we will, at, our cost:
- as promptly as practicable, file the shelf registration statement covering
resales of the old notes;
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- use our best efforts to cause the shelf registration statement to be
declared effective under the Securities Act within 90 days after the shelf
registration statement is filed with the Commission; and
- use our best efforts to keep the shelf registration statement effective
until two years after its effective date or until one year after the
effective date if the shelf registration statement is filed at the request
of any initial purchaser.
We will, in the event of the filing of a shelf registration statement,
provide to each holder of the old notes copies of the prospectus which is a part
of the shelf registration statement, notify each holder when the shelf
registration statement for the old notes has become effective and take other
actions as are required to permit unrestricted resales of the old notes. A
holder of old notes that sells the old notes pursuant to the shelf registration
statement generally:
- will be required to be named as a selling securityholder in the related
prospectus and to deliver a prospectus to purchasers;
- will be subject to some of the civil liability provisions under the
Securities Act in connection with the sales; and
- will be bound by the provisions of the registration rights agreement which
are applicable to the holder, including specified indemnification
obligations.
In addition, each holder of the old notes will be required to deliver
information to be used in connection with the shelf registration statement and
to provide comments on the shelf registration statement within the time periods
specified in the registration rights agreement in order to have their old notes
included in the shelf registration statement and to benefit from the provisions
regarding liquidated damages described below.
LIQUIDATED DAMAGES
If:
(a) the exchange offer registration statement is not filed with the
Commission on or prior to the 30th calendar day following the date of
original issue of the old notes;
(b) the exchange offer registration statement is not declared effective on
or prior to the 120th calendar day following the date of original issue
of the old notes; or
(c) the exchange offer is not consummated or a shelf registration statement
is not declared effective, in either case, on or prior to the 150th
calendar day following the date of original issue of the old notes,
the interest rate borne by the old notes will increase by .25% per year upon the
occurrence of any of the events described in (a) through (c) above, each of
which will constitute a registration default. The interest rate will increase by
.25% each 90-day period that a registration default continues, provided that the
maximum aggregate increase in the interest rate will in no event exceed one
percent (1%) per year. Following the cure of all registration defaults the
accrual of this additional interest will cease and the interest rate will revert
to the original rate.
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DESCRIPTION OF THE EXCHANGE NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "Mandalay"
refers only to Mandalay Resort Group and not to any of its subsidiaries. The
term "exchange notes" refers to the 10 1/4% Senior Subordinated Notes due 2007
offered pursuant to this prospectus. The term "notes" refers to the old notes
and the exchange notes collectively.
Mandalay will issue the exchange notes under an indenture between itself and
The Bank of New York, as trustee. The terms of the exchange notes include those
stated in the indenture and those made part of the indenture by reference to the
Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because the indenture, and not this description, defines your
rights as holders of the exchange notes. A copy of the indenture is filed as an
exhibit to the registration statement of which this prospectus is a part.
RANKING
The exchange notes will be:
- unsecured general obligations of Mandalay;
- junior in right of payment to all existing and future Senior Debt of
Mandalay; and
- equal in right of payment with all existing and future senior subordinated
Debt of Mandalay.
The exchange notes will effectively rank junior to Senior Debt of Mandalay
and to all liabilities of Mandalay's subsidiaries, including trade payables.
Mandalay's subsidiaries had approximately $456.8 million of indebtedness
outstanding at April 30, 2000, excluding any indebtedness included in Senior
Debt. The indenture will permit Mandalay and its subsidiaries to incur
additional Debt, including the incurrence of additional Senior Debt by Mandalay.
PRINCIPAL, MATURITY AND INTEREST
Mandalay will issue exchange notes in a maximum aggregate principal amount
of $500 million. Mandalay will issue the exchange notes in denominations of
$1,000 and integral multiples of $1,000. The exchange notes will mature on
August 1, 2007.
Interest on the exchange notes will accrue at the annual rate of 10 1/4%.
Interest will be payable semiannually in arrears on February 1 and August 1,
beginning on February 1, 2001. Mandalay will make each interest payment to the
holders of record of the exchange notes on the immediately preceding January 15
and July 15.
Interest on the exchange notes will accrue from the last interest payment
date on which interest was paid on the old notes, or, if no interest was paid on
the old notes, from the date of issuance of the old notes, which was July 24,
2000. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
REDEMPTION
OPTIONAL REDEMPTION
Except as provided below, Mandalay may not redeem the exchange notes prior
to maturity. Prior to maturity, upon not less than 30 nor more than 60 days'
notice, Mandalay may redeem the exchange notes in whole but not in part at a
redemption price equal to 100% of the principal amount thereof plus the
Make-Whole Premium, together with accrued and unpaid interest thereon, if any,
to the applicable redemption date.
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"MAKE-WHOLE PREMIUM" means, with respect to any exchange note at any
redemption date, the excess, if any, of (a) the present value of the sum of the
principal amount that would be payable on such exchange note at maturity and all
remaining interest payments (not including any portion of such payments of
interest accrued as of the redemption date) to and including August 1, 2007
discounted on a semi-annual bond equivalent basis from August 1, 2007 to the
redemption date at a per annum interest rate equal to the sum of the Treasury
Yield (determined on the business day immediately preceding the date of such
redemption), plus 50 basis points, over (b) the principal amount of the exchange
note being redeemed.
"TREASURY YIELD" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by and
published in the most recent Federal Reserve Statistical Release H.15
(519) which has become publicly available at least two business days prior to
the date fixed for redemption (or, if such Statistical Release is no longer
published, any publicly available source of similar data)) most nearly equal to
the then remaining average life of the notes, provided that if the average life
of the notes is not equal to the constant maturity of a United States Treasury
security for which a weekly average yield is given, the Treasury Yield shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the average life of the notes is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERING
On or prior to August 1, 2003, Mandalay may, at its option, use the net
proceeds of a Public Equity Offering to redeem up to 35% of the originally
issued aggregate principal amount of the notes, at a redemption price in cash
equal to 110.25% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption; PROVIDED that not less than
$325 million in aggregate principal amount of notes is outstanding following
this redemption. Notice of any redemption under these circumstances must be
given not later than 60 days after the consummation of the Public Equity
Offering.
SELECTION AND NOTICE
In the case of a partial redemption, selection of the notes for redemption
will be made pro rata, by lot or such other method as the trustee in its sole
discretion deems appropriate and just. However, any redemption pursuant to the
provisions relating to a Public Equity Offering will be made on a pro rata basis
or on as nearly a pro rata basis as practicable (subject to DTC procedures). No
notes of a principal amount of $1,000 or less will be redeemed in part. If any
note is to be redeemed in part only, the notice of redemption that relates to
that note will state the portion of the principal amount of the note to be
redeemed. A new note in a principal amount equal to the unredeemed portion of
the note will be issued in the name of the holder of the note upon surrender for
cancellation of the original note. Notices of redemption will be mailed by first
class mail at least 30 but not more than 60 days before the redemption date to
each holder of notes to be redeemed at its registered address. Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on notes called for redemption unless
Mandalay defaults in providing the funds for the redemption and the notes called
for redemption will no longer be outstanding.
MANDATORY REDEMPTION
Mandalay will not be required to make any mandatory sinking fund payments in
respect of the exchange notes.
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MANDATORY DISPOSITION PURSUANT TO GAMING LAWS
Each holder, by accepting an exchange note, shall be deemed to have agreed
that if the gaming authority of any jurisdiction in which Mandalay or any of its
subsidiaries conducts or proposes to conduct gaming requires that a person who
is a holder or the beneficial owner of exchange notes be licensed, qualified or
found suitable under applicable gaming laws, the holder or beneficial owner, as
the case may be, will apply for a license, qualification or a finding of
suitability within the required time period. If the person fails to apply or
become licensed or qualified or is found unsuitable, Mandalay will have the
right, at its option:
- to require the person to dispose of its exchange notes or beneficial
interest in the exchange notes within 30 days of receipt of notice of
Mandalay's election or any earlier date that the gaming authority may
request or prescribe; or
- to redeem the exchange notes (possibly within less than 30 days following
the notice of redemption if requested or prescribed by the gaming
authority) at a redemption price equal to the lesser of:
- the person's cost;
- 100% of the principal amount of the exchange notes, plus accrued and
unpaid interest, if any, to the redemption date or the date of any
failure to comply, whichever is earlier; and
- any other amount as may be required by applicable law or by order of
any gaming authority.
Mandalay will notify the trustee in writing of any redemption under these
circumstances as soon as practicable. Mandalay will not be responsible for any
costs or expenses any holder may incur in connection with its application for a
license, qualification or a finding of suitability.
Immediately upon the imposition by any gaming authority of a finding that
any holder or beneficial owner dispose of the exchange notes, that holder or
beneficial owner will have no further right:
- to exercise, directly or indirectly, through any trustee, nominee or any
other person or entity, any right conferred by the exchange notes; or
- to receive any interest, dividends or any other distributions or payments
with respect to the notes, except the redemption price referred to above.
SUBORDINATION
The payment of principal, premium and interest, if any, on the exchange
notes will be junior in right of payment, to the prior payment in full of all
current and future Senior Debt of Mandalay.
Upon the maturity of any Senior Debt because of lapse of time, acceleration
or otherwise, payment in full must be made on that Senior Debt before the
holders of the exchange notes will be entitled to receive any payment with
respect to the exchange notes. The holders of Senior Debt will be entitled to
receive payment in full of all obligations due on the Senior Debt (including
interest after the commencement of any bankruptcy, insolvency or similar
proceeding at the rate specified in the applicable Senior Debt, whether or not
the interest is an allowed claim in any such proceeding) before the holders of
the exchange notes will be entitled to receive any payment with respect to the
exchange notes (except that holders of the exchange notes may receive payments
made from the trust described under "--Legal Defeasance and Covenant
Defeasance"), in the event of any distribution to creditors of Mandalay:
- in a liquidation or dissolution or other winding-up or reorganization,
whether voluntary or involuntary, of Mandalay;
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- in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Mandalay or its property;
- in an assignment for the benefit of creditors; or
- in any marshaling of Mandalay's assets and liabilities.
Mandalay also may not make any payment in respect of the exchange notes,
except from the trust described under "--Legal Defeasance and Covenant
Defeasance," if an event of default on Senior Debt occurs and is continuing
beyond any applicable grace period that entitles the holders of the Senior Debt
to accelerate the maturity of the Senior Debt or if the event of default would
be caused by any payment upon or in respect of the exchange notes; PROVIDED,
HOWEVER, that if the event of default is other than a default in payment of any
amount due in connection with the Senior Debt, Mandalay will be permitted to
continue to make payments of interest on the exchange notes.
If Mandalay makes any payment or distribution to the trustee or any holder
of the exchange notes prohibited by the terms of the Senior Debt, the payment
will be required to be paid over and delivered to the holders of the Senior Debt
or their representatives.
If Mandalay fails to make any payment on the exchange notes when due or
within any applicable grace period, whether or not on account of the
subordination provisions referred to above, the failure would constitute an
Event of Default under the indenture and would enable the holders of the notes
to accelerate the maturity of the notes. See "--Events of Default."
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of Mandalay, holders of the exchange
notes may recover less, ratably, than creditors of Mandalay who are holders of
Senior Debt. See "Risk Factors--The right to receive payments on the exchange
notes will be junior to some of our existing and possibly all of our future
borrowings."
ADDITIONAL COVENANTS OF MANDALAY
LIMITATION ON LIENS
With the exceptions listed below, neither Mandalay nor any subsidiary will
issue, assume or guarantee any Debt secured by a Lien upon any Consolidated
Property without equally and ratably securing the exchange notes with (or prior
to) the Debt secured by the Lien, for so long as the Debt shall be so secured.
This limitation on liens will not apply to:
(a) Liens existing on the date of issuance of the old notes;
(b) Liens affecting property of a corporation or other entity existing at
the time it becomes a subsidiary of Mandalay or at the time of
acquisition through a merger, a consolidation or otherwise by Mandalay or
any subsidiary;
(c) Liens on property existing at the time of acquisition or incurred to
secure payment of all or part of the purchase price or to secure Debt
incurred prior to, at the time of, or within 24 months after the
acquisition, for the purpose of financing all or part of the purchase
price;
(d) Liens on property to secure all or part of the cost of improvements or
construction or Debt incurred to provide funds for that purpose in a
principal amount not exceeding the cost of those improvements or
construction;
(e) Liens to secure Debt of a subsidiary to Mandalay or to a subsidiary of
Mandalay;
(f) Liens to secure Debt of Mandalay, the proceeds of which are used
substantially simultaneously to retire Funded Debt;
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(g) purchase money security Liens on personal property;
(h) Liens securing Debt of Mandalay, the proceeds of which are used within
24 months for the Project Cost of the construction and development or
improvement of a Resort Property;
(i) Liens on the stock, partnership or other equity interest of Mandalay or
any subsidiary in any Joint Venture or any subsidiary which owns an
equity interest in the Joint Venture to secure Debt, provided the amount
of the Debt is contributed and/or advanced solely to the Joint Venture;
(j) Liens securing Senior Debt;
(k) Liens to any government or governmental body, including the United
States or any state, or any department, agency, instrumentality, or
political subdivision of any such jurisdiction;
(l) Liens required by any contract or statute in order to permit Mandalay or
any subsidiary to perform any contract made by Mandalay or any subsidiary
with or at the request of a governmental entity including the United
States or any state, or any department, agency, instrumentality or
political subdivision of any such jurisdiction;
(m) mechanic's, materialman's, carrier's or other like Liens, arising in the
ordinary course of business;
(n) Liens for taxes and assessments and similar charges either (i) not
delinquent or (ii) contested in good faith by appropriate proceedings and
to which Mandalay or a subsidiary shall have set aside adequate reserves
on its books;
(o) zoning restrictions, easements, licenses, covenants, reservations,
restrictions on the use of real property and certain other minor
irregularities of title; and
(p) certain extensions, renewals or replacements, in whole or in part, of
any Liens referred to in the foregoing clauses (a) through (j) or of any
Debt secured thereby.
Notwithstanding the foregoing, Mandalay and any of its subsidiaries may,
without securing the exchange notes, issue, assume or guarantee Debt which would
otherwise be subject to the foregoing restrictions in an aggregate principal
amount which, together with all other such Debt of Mandalay and its subsidiaries
would otherwise be subject to the foregoing restrictions (not including Debt
permitted to be secured under clauses (a) through (j) inclusive above) and the
aggregate Value of Sale and Lease-Back Transactions (other than those in
connection with which Mandalay has voluntarily retired Funded Debt) does not any
one time exceed 15% of Consolidated Net Tangible Assets of Mandalay and its
subsidiaries.
"VALUE" means, with respect to a Sale and Lease-Back Transaction, as of any
particular time, the amount equal to the greater of (a) the net proceeds of the
sale or transfer of property leased pursuant to such Sale and Lease-Back
Transaction and (b) the fair value (in the opinion of Mandalay's board of
directors) of such property at the time of entering into such Sale and
Lease-Back Transaction.
LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS
Neither Mandalay nor any subsidiary will enter into any arrangement with any
Person (other than Mandalay or a subsidiary of Mandalay), or to which any such
person is a party providing for the lease to Mandalay or a subsidiary for a
period of more than three years of any Consolidated Property that has been or is
to be sold or transferred by Mandalay or any subsidiary to that Person or to any
other Person (other than Mandalay or a subsidiary), to which funds have been or
are to be advanced by that
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Person or other Person on the security of the leased property ("Sale and
Lease-Back Transaction"), unless either:
- Mandalay or the subsidiary would be entitled, pursuant to the provisions
described in clauses (a) through (p) under "--Limitation on Liens" above,
to create, assume or suffer to exist a Lien on the property to be leased
without equally and ratably securing the exchange notes, or
- an amount equal to the greater of:
- the net cash proceeds of the sale or transfer of the property; and
- the fair market value (in the opinion of Mandalay's board of directors)
of any proceeds of the sale or transfer of the property (subject to
credits for certain voluntary retirements of Funded Debt)
is applied within 120 days to the retirement or other discharge of the notes or
Funded Debt.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
Mandalay may not: (a) consolidate or merge with or into another Person; or
(b) sell, assign, transfer or convey its properties and assets substantially in
their entirety to any Person, unless:
- either: (A) Mandalay is the surviving entity; or (B) the successor is an
entity organized or existing under the laws of the United States, any
state thereof or the District of Columbia;
- the Person formed by or surviving the consolidation or merger (if other
than Mandalay) or the Person to which the sale, assignment, transfer or
conveyance shall have been made assumes all the obligations of Mandalay
under the exchange notes and the indenture; and
- immediately after the transaction no Default or Event of Default exists.
Unless Mandalay is the surviving entity, all of Mandalay's obligations will
terminate.
This "Merger, Consolidation or Sale of Assets" covenant will not apply to,
and Mandalay will not be released from its obligations under the exchange notes
and the indenture in the event of, a sale, assignment, transfer, conveyance or
other disposition of properties or assets solely between or among Mandalay and
any of its subsidiaries.
CHANGE OF CONTROL
In the event of a Change of Control (the date of such occurrence being the
"Change of Control Date"), Mandalay will notify the holders of exchange notes in
writing of such occurrence and will make an offer to purchase (the "Change of
Control Offer"), on a business day (the "Change of Control Payment Date") not
later than 30 days following the Change of Control Date, all exchange notes then
outstanding at a purchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the Change of Control Payment Date.
Notice of a Change of Control Offer shall be mailed by Mandalay to the holders
not less than 30 days nor more than 45 days before the Change of Control Payment
Date. The Change of Control Offer is required to remain open for at least 20
business days and until the close of business on the Change of Control Payment
Date. It is anticipated that a Change of Control will constitute an event of
default under the Credit Facilities, which will allow the lenders to accelerate
their loans and to require Mandalay to prepay all of its obligations under the
Credit Facilities.
Mandalay shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act, and any other applicable securities laws or
regulations and any applicable requirements of any securities exchange on which
the exchange notes are listed, in connection with the repurchase of exchange
notes pursuant to a Change of Control Offer, and any violation of the provisions
of the indenture relating to a Change of Control Offer occurring as a result of
such compliance shall not be
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deemed a Default under the indenture. Neither the Board of Directors nor the
Trustee may waive Mandalay's obligations to repurchase the exchange notes upon a
Change of Control.
GAMING APPROVALS
Restrictions on the transfer of the equity securities of Mandalay's licensed
Nevada subsidiaries, and agreements not to encumber these equity securities, in
each case in respect of the old notes, require the prior approval of the Nevada
Gaming Commission, upon the recommendation of the Nevada State Gaming Control
Board, in order to become effective. This approval is required only in respect
of such restrictions and agreements contained in indentures for notes that have
not been registered under the Securities Act. Similar approvals must be obtained
from the Mississippi Gaming Commission with respect to these restrictions,
whether securities are issued in a private placement or a public offering,
although the Mississippi Gaming Commission has granted Mandalay's licensed
Mississippi subsidiary a waiver of such approvals through February 17, 2002 so
that only notification is required. For more information, see "Regulation and
Licensing--Nevada Gaming Laws," "--Mississippi Gaming Laws, "--Illinois Gaming
Laws," and "--Michigan Gaming Laws."
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
- failure to pay any interest upon the notes when it becomes due and
payable, and continuance of this default for a period of 30 days (whether
or not prohibited by the subordination provisions of the indenture);
- failure to pay principal of or premium, if any, on the notes when due, at
maturity, upon redemption, pursuant to an offer to purchase required under
the indenture, pursuant to the Change of Control provisions or otherwise
by acceleration or otherwise (whether or not prohibited by the
subordination provision of the indenture);
- failure to comply with its obligations described under "Change of
Control;"
- failure to perform, or breach of, any covenant of Mandalay in the
indenture (other than the covenant relating to corporate existence and the
article relating to successor corporations which are immediate Events of
Defaults) that continues for a period of 30 days after notice to Mandalay;
- the occurrence of an event of default under any instrument evidencing Debt
of Mandalay or its subsidiaries entitling the holder or holders of the
Debt to accelerate the payment of a total principal amount of $10,000,000
or more of the Debt, which event of default is not cured or waived in
accordance with the provisions of such instrument, or the Debt is not
discharged, within 30 days after the receipt by Mandalay of notice from
the trustee or the holders of 25% in principal amount of the then
outstanding notes of the event of default and requiring Mandalay to cause
the event of default to be cured or the Debt to be discharged; and
- certain events of bankruptcy, insolvency or reorganization in respect of
Mandalay.
If any Event of Default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the then outstanding notes may, by giving
notice to Mandalay, declare all the notes to be due and payable immediately (but
in no event more than the maximum amount of principal and interest on the notes
allowed by law). This declaration may be rescinded by the holders of a majority
in principal amount of the notes outstanding at that time if, among other
conditions, all existing Events of Default relating to the notes have been cured
or waived and if the rescission would not conflict with any judgment or decree.
Holders of the exchange notes may not enforce the indenture or the exchange
notes except as provided in the indenture. Subject to certain limitations,
holders of a majority in aggregate principal
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amount of the then outstanding notes may direct the trustee in its exercise of
any trust or power. The trustee may withhold from holders of the notes notice of
any continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines in good faith
that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
Mandalay is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Mandalay is required to deliver to the trustee a statement
specifying the Default or Event of Default.
AMENDMENT, SUPPLEMENT AND WAIVER
Mandalay and the trustee may amend any provisions of the indenture or the
exchange notes with the consent of the holders of at least a majority in
principal amount of the notes then outstanding. The holders of a majority in
principal amount of the notes may waive compliance by Mandalay with any such
provision; PROVIDED, HOWEVER, that without the consent of each holder affected,
an amendment or waiver may not (with respect to any notes held by a
non-consenting holder):
- reduce the amount of the notes whose holders must consent to an amendment,
supplement or waiver;
- reduce the rate of, or extend the time for payment of interest on, any
note in a manner adverse to the holders;
- reduce the principal of, or extend the fixed maturity or fixed redemption
date of any note, in a manner adverse to the holders;
- waive a default in the principal of, or interest on, any note;
- waive a default upon the occurrence of a Change of Control;
- make any change in the subordination of the notes in a manner adverse to
the holders or in a manner which will cause any note to be senior to any
other note in right of payment;
- make any note payable in money other than that stated in the note; or
- make any change relating to the percentage required for modification.
Notwithstanding the preceding, without the consent of any holder of notes,
Mandalay and the trustee may amend or supplement the indenture or the notes:
- to cure any ambiguity, defect or inconsistency;
- to provide for the assumption of Mandalay's obligations to holders of
notes in the case of a merger or consolidation or sale of assets in
accordance with the covenant "Merger, Consolidation, or Sale of Assets;"
- to provide to the extent permitted by law, that all or a portion of the
obligations of Mandalay under the indenture be represented by appropriate
records maintained by Mandalay or the trustee in addition to or in place
of the notes;
- to comply with any requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act;
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- to add to, change or eliminate any of the provisions of the indenture in
respect of the notes, PROVIDED, HOWEVER, that any addition, change or
elimination (a) shall neither (i) apply to any series of notes created
prior to execution of the supplemental indenture and entitled to the
benefit of the provision nor (ii) modify the rights of any holder of the
notes or (b) shall become effective only when there is no outstanding note
of any series created prior to the execution of the supplemental indenture
and entitled to the benefit of the provision;
- to make any change that would not adversely affect the legal rights under
the indenture of any holder of notes; or
- to establish any additional series of notes as permitted by the indenture.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of Mandalay, as such, shall have any liability for any obligations
of Mandalay or any successor entity or any of Mandalay's Affiliates under the
exchange notes or the indenture, or for any claim based on, in respect of, or by
reason of, those obligations or their creation. Each holder of exchange notes by
accepting an exchange note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the exchange notes.
The waiver may not be effective to waive liabilities under the federal
securities laws.
REPORTS
So long as any notes are outstanding, Mandalay will file with the trustee,
and mail to holders of outstanding notes, all reports it mails or causes to be
mailed to its stockholders generally, any of the supplementary and periodic
information, documents and reports which may be required pursuant to Section 13
or Section 15(d) of the Exchange Act in respect of a security listed and
registered on a national securities exchange as may be prescribed from time to
time in these rules and regulations.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Mandalay may elect to have all of its obligations discharged with respect to
the outstanding notes ("Legal Defeasance") except for:
- the rights of holders of outstanding notes to receive payments in respect
of the principal of, premium, if any, and interest on their notes when
these payments are due from the trust referred to below;
- Mandalay's obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
- the rights, powers, trusts, duties and immunities of the trustee, and
Mandalay's obligations in connection therewith; and
- the Legal Defeasance provisions of the indenture.
In addition, Mandalay may, at its option, elect to have the obligations of
Mandalay released with respect to certain covenants that are described in the
indenture ("Covenant Defeasance") and thereafter any omission to comply with
those covenants shall not constitute a Default or Event of Default with respect
to the notes. If Covenant Defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance, among
other things:
- Mandalay must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the notes, cash in U.S. dollars, U.S. Government
Obligations, or a combination of the two, in amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the outstanding notes on the stated maturity or on the applicable
redemption date, as the case may be, and Mandalay must specify whether the
notes are being defeased to maturity or to a particular redemption date;
- Mandalay shall have delivered to the trustee an opinion of counsel in the
United States reasonably acceptable to the trustee confirming that the
holders of the outstanding notes will not recognize income, gain or loss
for Federal income tax purposes as a result of the Legal Defeasance or the
Covenant Defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if the Legal Defeasance or Covenant Defeasance had not occurred;
- no Default or Event of Default shall have occurred and be continuing on
the date of the deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to the deposit) and
with respect to Legal Defeasance only, insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time during the
period ending on the 91st day after the date of deposit;
- the Legal Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under the terms of the indenture;
and
- Mandalay must deliver to the trustee an Officers' Certificate stating that
all of the conditions listed above have been complied with.
BOOK-ENTRY; DELIVERY AND FORM
The exchange notes will be issued in the form of one or more global notes.
The global notes will be deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of DTC or its nominee, who will be
the global notes holder. Except as described below, the global notes may be
transferred, in whole and not in part, only to DTC or another nominee of DTC.
Investors may hold their beneficial interests in the global notes directly
through DTC if they are participating organizations or "participants" in the
system or indirectly through organizations that are participants in the system.
DEPOSITORY PROCEDURES
DTC has advised Mandalay that DTC is a limited-purpose trust company that
was created to hold securities for its participants and to facilitate the
clearance and settlement of transactions in these securities between
participants through electronic book-entry changes in accounts of its
participants. The participants include securities brokers and dealers (including
the initial purchasers), banks and trust companies, clearing corporations and
certain other organizations. Access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies, which we refer to
as "indirect participants," that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by or on behalf of DTC
only through the participants or the indirect participants.
Mandalay expects that pursuant to procedures established by DTC:
- upon deposit of the global notes, DTC will credit the accounts of
participants designated by the exchange agent with portions of the
principal amount of the global notes; and
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- ownership of the exchange notes evidenced by the global notes will be
shown on, and the transfer of ownership of the exchange notes will be
effected only through, records maintained by DTC (with respect to the
interests of the participants), the participants and the indirect
participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer exchange notes evidenced by the
global notes will be limited to that extent.
So long as the global notes holder is the registered owner of any exchange
notes, the global notes holder will be considered the sole holder under the
indenture of any exchange notes evidenced by the global notes. Beneficial owners
of exchange notes evidenced by the global notes will not be considered the
owners or holders thereof under the indenture for any purpose, including with
respect to the giving of any directions, instructions or approvals to the
trustee thereunder. Neither Mandalay nor the trustee will have any
responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC relating to the
exchange notes.
Payments in respect of the principal of, premium, if any, interest and
Additional Interest (as defined herein), if any, on any exchange notes
registered in the name of the global notes holder on the applicable record date
will be payable by the trustee to or at the direction of the global notes holder
in its capacity as the registered holder under the indenture. Under the terms of
the indenture, Mandalay and the applicable trustee may treat the persons in
whose names exchange notes, including the global notes, are registered as the
owners thereof for the purpose of receiving any payments. Consequently, neither
Mandalay nor the trustee has or will have any responsibility or liability for
the payment of these amounts to beneficial owners of exchange notes. Mandalay
believes, however, that it is currently the policy of DTC to immediately credit
the accounts of the relevant participants with these payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of DTC. Payments by the participants
and the indirect participants to the beneficial owners of exchange notes will be
governed by standing instructions and customary practice and will be the
responsibility of the participants or the indirect participants.
CERTIFICATED SECURITIES
Any person having a beneficial interest in a global note will not be
entitled to receive physical delivery of the exchange notes. However, if:
- Mandalay notifies the trustee in writing that DTC is not longer willing or
able to act as a depositary and Mandalay is unable to locate a qualified
successor within 90 days, Mandalay will issue exchange notes in such form
in exchange for the global notes, or
- Mandalay, at its option, notifies the trustee in writing that it elects to
cause the issuance of notes in the form of certificated securities under
the indenture, then, upon surrender by the global notes holder of its
global notes, exchange notes in such form will be issued to each person
that the global notes holder and DTC identify as being the beneficial
owner of the related exchange notes.
Neither Mandalay nor the trustee will be liable for any delay by the global
notes holder or DTC in identifying the beneficial owners of exchange notes and
Mandalay and the trustee may conclusively rely on, and will be protected in
relying on, instructions from the global notes holder or DTC for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the exchange notes
represented by the global notes (including principal, premium, if any, interest
and Additional Interest, if any) be made to the accounts specified by the global
notes holder. With respect to certificated securities, Mandalay will
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make all payments of principal, premium, if any, interest and Additional
Interest, if any, to the accounts specified by the holders thereof or, if no
account is specified, by mailing a check to each such holder's registered
address.
PAYING AGENT AND REGISTRAR FOR THE EXCHANGE NOTES
The trustee will initially act as paying agent and registrar for the
exchange notes. Mandalay may change the paying agent or registrar without prior
notice to the holders of the exchange notes, and Mandalay or any of its
subsidiaries may act as paying agent, registrar or co-registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange its exchange notes in accordance with the
indenture. The registrar and the trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and Mandalay
may require a holder to pay any taxes and fees required by law or permitted by
the indenture. Mandalay is not required to transfer or exchange any exchange
note selected for redemption. Also, Mandalay is not required to transfer or
exchange any exchange note for a period of 15 days before a selection of notes
to be redeemed.
The registered holder of an exchange note will be treated as the owner of it
for all purposes.
CONCERNING THE TRUSTEE
The Bank of New York is the trustee under the indenture. If the trustee
becomes a creditor of Mandalay, the indenture limits its right to obtain payment
of claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate the conflict within 90 days, apply to the
Commission for permission to continue or resign.
The holders of a majority in total principal amount of the then outstanding
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing and is known to the trustee, the trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to these provisions, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request of any holder of exchange notes, unless the holder
offers to the trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all of these terms, as well as
any other capitalized terms used in this prospectus for which no definition is
provided.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the term "controlling," "controlled by"
and "under common control with") as used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by agreement or
otherwise.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
made, the amount of the liability in respect of a capital lease that would at
such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"CAPITAL STOCK" means with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, and any rights (other
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than debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock.
"CHANGE OF CONTROL" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Stock of
Mandalay; or (b) Mandalay consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any person or any person consolidates
with, or merges with or into, Mandalay, in any such event pursuant to a
transaction in which the outstanding Voting Stock of Mandalay is converted into
or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of Mandalay is converted into
or exchanged for Voting Stock (other than Disqualified Stock) of the surviving
or transferee corporation or its parent corporation and (ii) immediately after
such transaction no "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act) is the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the total
Voting Stock of the surviving or transferee corporation, as applicable; or
(c) during any consecutive two-year period, individuals who at the beginning of
such period constituted the Board (together with any new directors whose
election by the Board of Directors or whose nomination for election by the
stockholders of Mandalay was approved by a vote of a majority of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors then in
office.
"CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of assets of
Mandalay and its subsidiaries (less applicable reserves and other properly
deductible items) after deducting therefrom (a) all current liabilities of
Mandalay and its subsidiaries (excluding any liabilities which are by their
terms renewable or extendible at the option of the obligor thereon to a time
more than 12 months from the time as of which the amount thereof is being
computed) and (b) all goodwill, trade names, trademarks, patents, purchased
technology, unamortized debt discount and any other like intangibles, all as set
forth on the most recent quarterly balance sheet of Mandalay and its
consolidated subsidiaries and computed in accordance with generally accepted
accounting principles.
"CREDIT FACILITIES" means, with respect to Mandalay, one or more debt
facilities or commercial paper facilities, in each case with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"CONSOLIDATED PROPERTY" means any property of Mandalay or its subsidiaries.
"DEBT" of any person means (a) any indebtedness of such person, contingent
or otherwise, in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
letters of credit, or representing the balance deferred and unpaid of the
purchase price of any property, including any such indebtedness incurred in
connection with the acquisition by such person or any of its subsidiaries of any
other business or entity, if and to the extent such indebtedness would appear as
a liability upon a balance sheet of such person prepared in accordance with
generally accepted accounting principles, including for such purpose obligations
under capitalized leases, and
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(b) any guaranty, endorsement (other than for collection or deposit in the
ordinary course of business), discount with recourse, agreement (contingent or
otherwise) to purchase, repurchase or otherwise acquire or to supply or advance
funds with respect to, or to become liable with respect to (directly or
indirectly) any indebtedness, obligation, liability or dividend of any person,
but shall not include indebtedness or amounts owed (except to banks or other
financial institutions) for compensation to employees, or for goods or materials
purchased, or services utilized, in the ordinary course of business of such
person. Notwithstanding anything to the contrary in the foregoing, "Debt" shall
not include (i) any contracts providing for the completion of construction or
other payment or performance with respect to the construction, maintenance or
improvement of property or equipment of Mandalay or its Affiliates or (ii) any
contracts providing for the obligation to advance funds, property or services on
behalf of an Affiliate of Mandalay in order to maintain the financial condition
of such Affiliate, in each case, including Existing and Permitted Completion
Guarantees and Make-Well Agreements. For purposes hereof, a "capitalized lease"
shall be deemed to mean a lease of real or personal property which, in
accordance with generally accepted accounting principles, is required to be
capitalized.
"DEFAULT" means any event that after notice or lapse of time, or both, would
become an Event of Default.
"DETROIT JOINT VENTURE" means the Michigan limited liability company
governed by an Operating Agreement, dated October 7, 1997, by and between Circus
Circus Michigan, Inc., a wholly owned subsidiary of Mandalay, and Atwater Casino
Group, L.L.C.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock of
such Person which, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable (in each case, other than into
common stock of Mandalay), pursuant to a sinking funk obligation or otherwise,
or is exchangeable for Debt, or is redeemable at the option of the holder
thereof, in whole or in part, on or prior to the final maturity date of the
specified security. Notwithstanding the foregoing, in no event shall Capital
Stock that is considered Disqualified Stock solely by reason of such Capital
Stock being convertible at the option of the holder of such Capital Stock into
other Capital Stock (other than Disqualified Stock) constitute Disqualified
Stock.
"EXISTING AND PERMITTED COMPLETION GUARANTEES AND MAKE-WELL AGREEMENTS"
means (i) that certain Amended and Restated Make-Well Agreement by Mandalay in
favor of Bank of America National Trust and Savings Association dated as of
November 24, 1997 relating to the Circus and Eldorado joint venture, a Nevada
general partnership, as such agreement may be amended (including any amendment
and restatement thereof), supplemented or otherwise modified from time to time,
including any extension of the term thereof, (ii) that certain Company Guaranty
by Mandalay in favor of Bank of America National Trust and Savings Association
dated as of June 30, 1999, and any other contract providing for the completion
of construction or other payment or performance with respect to the
construction, maintenance or improvement of property or equipment of the Detroit
Joint Venture, or (iii) any "make-well," "keep-well" or other agreement or
arrangement of whatever nature providing for the obligation to advance funds,
property or services on behalf of the Detroit Joint Venture, or given for the
purpose of assuring or holding harmless any governmental entity or agency and/or
lender against loss with respect to any obligation of the Detroit Joint Venture.
"FUNDED DEBT" means all Debt of Mandalay that (i) matures by its terms, or
is renewable at the option of any obligor thereon to a date, more than one year
after the date of original issuance of such Debt and (ii) ranks at least equal
in right of payment with the notes.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in
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such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect from time
to time.
"JOINT VENTURE" means (i) with respect to properties located in the United
States, any partnership, corporation or other entity, in which up to and
including 50% of the partnership interests, outstanding voting stock or other
equity interests is owned, directly or indirectly, by Mandalay and/or one or
more subsidiaries, and (ii) with respect to properties located outside the
United States, any partnership, corporation or other entity, in which up to and
including 60% of the partnership interests, outstanding voting stock or other
equity interests is owned, directly or indirectly, by Mandalay and/or one or
more subsidiaries.
"LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, security interest, lien (statutory or other), or
preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Debt.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PROJECT COST" means, with respect to any Resort Property, the aggregate
costs required to complete such construction project in accordance with the
plans therefor and applicable legal requirements, as set forth in an Officers'
Certificate submitted to the Trustee, setting forth in reasonable detail all
amounts theretofore expended and any anticipated costs and expenses estimated to
be incurred and reserves to be established in connection with the construction
and development of such future addition or improvement, including direct costs
related thereto such as construction management, architectural engineering and
interior design fees, site work, utility installations and hook-up fees,
construction permits, certificates and bonds, land acquisition costs and the
cost of furniture, fixtures, furnishings, machinery and equipment, but excluding
the following: principal or interest payments on any Debt (other than interest
which is required to be capitalized in accordance with generally accepted
accounting principles, which shall be included in determining Project Cost), or
costs related to the operation of the Resort Property including, but not limited
to, non-construction supplies and pre-operating payroll.
"PUBLIC EQUITY OFFERING" means an underwritten public offering of Capital
Stock (other than Redeemable Capital Stock) of Mandalay made on a primary basis
by Mandalay pursuant to a registration statement filed with and declared
effective by the Commission in accordance with the Securities Act, resulting in
net cash proceeds to Mandalay (after deducting any underwriting discounts and
commissions) of at least $50.0 million.
"REDEEMABLE CAPITAL STOCK" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is or upon the happening of an
event or passage of time would be, required to be redeemed prior to the stated
maturity of the notes or is redeemable at the option of the holder thereof at
any time prior to the stated maturity of the notes, or is convertible into or
exchangeable for debt securities at any time prior to the stated maturity of the
notes.
"RESORT PROPERTY" means any property owned or to be owned by Mandalay or any
subsidiary that is, or will be upon completion, a casino (including a riverboat
casino), casino-hotel, destination resort or a theme park.
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"SENIOR DEBT" means the principal, premium, if any, and interest on any Debt
of Mandalay, whether created, incurred, issued, assumed or guaranteed, unless,
in the case of any particular Debt, the instrument creating or evidencing such
Debt expressly provides that such Debt shall not be senior in right of payment
to the notes. Without limiting the generality of the foregoing, Senior Debt
shall include:
(1) the principal of, and interest on, and other amounts due under any of
the Credit Facilities;
(2) any obligation of Mandalay under (a) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (b)
other agreements or arrangements designed to protect against interest
rate fluctuations;
(3) any standby letters of credit of Mandalay;
(4) Debt evidenced by:
(a) the 6.45% Senior Notes due 2006,
(b) the 9 1/2% Senior Notes due 2008,
(c) the 7.0% Debentures due 2036 and
(d) the 6.70% Debentures due 2096.
Notwithstanding anything to the contrary in the preceding clauses (1)
through (4), Senior Debt will not include:
(1) any obligation for federal, state, local or other taxes;
(2) any Debt between Mandalay and its subsidiaries or Affiliates;
(3) any obligation for trade payables or services rendered;
(4) any notes equal in right of payment, including
(a) the 6 3/4% Senior Subordinated Notes due 2003,
(b) the 9 1/4% Senior Subordinated Notes due 2005 and
(c) the 7 5/8% Senior Subordinated Debentures due 2013;
(5) any Debt of Mandalay expressly by its terms or by operation of law
ranking junior in right of payment to any other Debt of Mandalay;
(6) to the extent that it may constitute Debt, any obligations under leases
(other than capital lease obligations) or management agreements; and
(7) any obligation that by obligation of law is subordinate to any general
unsecured obligations of Mandalay;
PROVIDED, that any guaranty by Mandalay of Debt of a subsidiary of Mandalay to
third parties shall constitute Senior Debt unless, in the case of any particular
guaranty, the instrument or creating or evidencing the same provides that such
guaranty is subordinated to any other Debt of Mandalay; PROVIDED, FURTHER, that
in the event a subsidiary of Mandalay advances to Mandalay the proceeds
attributable to Debt incurred by such subsidiary to a third party that has been
guaranteed by Mandalay pursuant to a guaranty which itself constitutes Senior
Debt, then such obligations of Mandalay to repay such advance to the subsidiary
shall constitute Senior Debt, unless such obligation is created or evidenced by
an instrument that provides that such obligation is subordinated to any other
Debt of Mandalay.
"SUBSIDIARY" of any person means (i) any corporation of which at least a
majority in interest of the outstanding stock having by the terms thereof voting
power under ordinary circumstances to elect a majority of the directors of such
corporation, irrespective of whether or not at the time stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the
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happening of any contingency, is at the time, directly or indirectly, owned or
controlled by such person, or by one or more other corporations a majority in
interest of such stock of which is similarly owned or controlled, or by such
person and one or more other corporations a majority in interest of such stock
of which is similarly owned or controlled and (ii) any other person (other than
a corporation, or a partnership, corporation or other entity described in
clause (ii) of the definition of Joint Venture) in which such person or any
subsidiary, directly or indirectly, has greater than a 50% ownership interest.
"TREASURY SECURITIES" mean any investment in obligations issued or
guaranteed by the United States government or any agency thereof.
"VOTING STOCK" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof to vote in
the election of members of the board of directors of such Person.
"WHOLLY OWNED" with respect to any subsidiary, means any subsidiary of any
Person of which at least 99% of the outstanding Capital Stock is owned by such
Person or another wholly owned subsidiary of such Person. For purposes of this
definition, any directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the ownership of
a subsidiary.
102
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
The following is a discussion of the material federal income tax
considerations relevant to the exchange of the old notes for the exchange notes.
The discussion is based upon the Internal Revenue Code of 1986, as amended,
applicable Treasury regulations, judicial authority and administrative rulings
and practice. We cannot assure you that the Internal Revenue Service (the
"Service") will not take a contrary view, and no ruling from the Service has
been or will be sought. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to holders. Certain holders
(including, without limitation, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, persons holding notes as a part of a
hedging or conversion transaction or a straddle, persons whose functional
currency is not the U.S. dollar, and persons who are not citizens or residents
of the United States or who are foreign corporations, foreign partnerships or
foreign estates or trusts as to the United States) may be subject to special
rules not discussed below. In addition, the discussion does not consider the
effect of any applicable state, local, foreign or other tax laws.
EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES OF EXCHANGING OLD NOTES FOR EXCHANGE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD NOTES FOR EXCHANGE NOTES
The exchange of the old notes for the exchange notes in the exchange offer
will not be treated as an "exchange" for federal income tax purposes, because
the old notes will not be considered to differ materially in kind or extent from
the exchange notes. The holder will have a basis for the exchange notes equal to
the basis of the old notes and the holder's holding period for the exchange
notes will include the period during which the old notes were held. Accordingly,
no material federal income tax consequences will result to holders exchanging
old notes for exchange notes.
103
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. Broker-dealers may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of exchange notes received in exchange for old notes
where the broker-dealer acquired the old notes as a result of market-making
activities or other trading activities. To the extent a broker-dealer
participates in the exchange offer and so notifies us, we have agreed to make
this prospectus, as amended or supplemented, available to the broker-dealer for
use in connection with any such resale. We will promptly send additional copies
of this prospectus and any amendment or supplement to any broker-dealer that
requests the documents in the letter of transmittal.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers or any other persons. Broker-dealers may sell exchange notes
received by them for their own account pursuant to the exchange offer from time
to time in one or more transactions:
- in the over-the-counter market;
- in negotiated transactions;
- through the writing of options on the exchange notes; or
- through a combination of the above methods of resale,
at market prices prevailing at the time of resale, at prices related to the
prevailing market prices or negotiated prices. Broker-dealers may resell
exchange notes directly to purchasers or to or through brokers or dealers who
may receive compensation in the form of commissions or concessions from any
broker-dealer and/or the purchasers of the exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of the exchange notes may be deemed to be "underwriters" within the
meaning of the Securities Act and any profit on any resale of exchange notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incident to the exchange offer, other
than commissions and concessions of any broker-dealer. We also will provide
indemnification against specified liabilities, including liabilities that may
arise under the Securities Act, to broker-dealers that make a market in the old
notes and exchange old notes in the exchange offer for exchange notes.
By its acceptance of the exchange offer, any broker-dealer that receives
exchange notes pursuant to the exchange offer agrees to notify us before using
the prospectus in connection with the sale or transfer of exchange notes. The
broker-dealer further acknowledges and agrees that, upon receipt of notice from
us of the happening of any event which:
- makes any statement in the prospectus untrue in any material respect;
- requires the making of any changes in the prospectus to make the
statements in the prospectus not misleading; or
- may impose upon us disclosure obligations that may have a material adverse
effect on us,
which notice we agree to deliver promptly to the broker-dealer, the
broker-dealer will suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and have furnished
copies of any amendment or supplement to the prospectus to the broker-dealer.
104
<PAGE>
LEGAL MATTERS
Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia, Pennsylvania will
pass upon various legal matters for us in connection with the exchange notes
offered hereby. Certain matters of Nevada law will be passed upon for us by
Schreck Morris, Las Vegas, Nevada.
EXPERTS
The audited consolidated financial statements and schedules of Mandalay
included in and/or incorporated by reference in this prospectus, and elsewhere
in the registration statement of which this prospectus is a part, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included or incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.
105
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C> <C>
Condensed Consolidated Balance Sheets at April 30, 2000
(Unaudited) and January 31, 2000.......................... F-2
Condensed Consolidated Statements of Income (Unaudited) for
the three months ended April 30, 2000 and 1999............ F-3
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three months ended April 30, 2000 and 1999........ F-4
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-5
Consolidated Balance Sheets at January 31, 2000 and
January 31, 1999.......................................... F-11
Consolidated Statements of Income for the years ended
January 31, 2000, 1999 and 1998........................... F-12
Consolidated Statements of Cash Flows for the years ended
January 31, 2000, 1999 and 1998........................... F-13
Consolidated Statements of Stockholders' Equity for the
years ended January 31, 2000, 1999 and 1998............... F-14
Notes to Consolidated Financial Statements.................. F-15
Report of Independent Public Accountants.................... F-31
Management's Report on Financial Statements................. F-32
</TABLE>
F-1
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 142,578 $ 116,617
Receivables............................................... 74,964 62,167
Inventories............................................... 27,326 28,499
Prepaid expenses and other................................ 68,831 74,256
---------- ----------
Total current assets.................................... 313,699 281,539
PROPERTY, EQUIPMENT AND LEASEHOLD INTERESTS, at cost, less
accumulated depreciation and amortization of $944,152 and
$893,776, respectively.................................... 3,316,521 3,335,071
EXCESS OF PURCHASE PRICE OVER FAIR MARKET value of net
assets acquired, net...................................... 393,362 396,433
NOTES RECEIVABLE............................................ 3,798 1,605
INVESTMENTS IN UNCONSOLIDATED AFFILIATES.................... 262,268 264,995
OTHER ASSETS................................................ 60,281 49,833
---------- ----------
Total Assets............................................ $4,349,929 $4,329,476
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 25,271 $ 13,022
Accounts payable--trade................................... 43,863 40,395
Accounts payable--construction............................ 9,575 33,415
Accrued liabilities....................................... 206,660 157,787
---------- ----------
Total current liabilities............................... 285,369 244,619
LONG-TERM DEBT.............................................. 2,803,705 2,691,292
DEFERRED INCOME TAX......................................... 215,788 210,689
OTHER LONG-TERM LIABILITIES................................. 20,459 20,192
---------- ----------
Total liabilities....................................... 3,325,321 3,166,792
---------- ----------
MINORITY INTEREST........................................... (21,505) (25,096)
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 2/3 par value
Authorized--450,000,000 shares
Issued--113,634,013 shares.............................. 1,894 1,894
Preferred stock, $.01 par value
Authorized--75,000,000 shares........................... -- --
Additional paid-in capital................................ 565,887 565,925
Retained earnings......................................... 1,250,490 1,201,632
Treasury stock (35,647,584 and 23,764,216 shares), at
cost.................................................... (772,158) (581,671)
---------- ----------
Total stockholders' equity.............................. 1,046,113 1,187,780
---------- ----------
Total Liabilities and Stockholders' Equity.............. $4,349,929 $4,329,476
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-2
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Casino.................................................... $ 314,659 $ 216,815
Rooms..................................................... 159,930 130,610
Food and beverage......................................... 105,502 81,355
Other..................................................... 69,748 50,953
Earnings of unconsolidated affiliates..................... 29,649 21,994
----------- -----------
679,488 501,727
Less--complimentary allowances............................ (39,872) (30,468)
----------- -----------
639,616 471,259
----------- -----------
COSTS AND EXPENSES:
Casino.................................................... 162,145 110,519
Rooms..................................................... 50,644 41,965
Food and beverage......................................... 76,781 64,134
Other operating expenses.................................. 50,031 34,599
General and administrative................................ 99,681 73,308
Depreciation and amortization............................. 51,577 41,090
Operating lease rent...................................... 9,680 2,415
Preopening expenses....................................... 255 33,610
----------- -----------
500,794 401,640
----------- -----------
OPERATING PROFIT BEFORE CORPORATE EXPENSE................... 138,822 69,619
CORPORATE EXPENSE........................................... 7,907 7,120
----------- -----------
INCOME FROM OPERATIONS...................................... 130,915 62,499
----------- -----------
OTHER INCOME (EXPENSE):
Interest, dividend and other income....................... 2,492 522
Guarantee fees from unconsolidated affiliate.............. 621 715
Interest expense.......................................... (49,487) (33,507)
Interest expense from unconsolidated affiliates........... (2,705) (2,802)
----------- -----------
(49,079) (35,072)
----------- -----------
MINORITY INTEREST........................................... 3,591 --
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAX...................... 78,245 27,427
Provision for income tax.................................. 29,387 10,288
----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE................................................. 48,858 17,139
Cumulative effect of change in accounting principle for
preopening expenses, net of tax benefit of $11,843...... -- (21,994)
----------- -----------
NET INCOME (LOSS)........................................... $ 48,858 $ (4,855)
=========== ===========
BASIC EARNINGS PER SHARE
Income before cumulative effect of change in accounting
principle............................................... $ 0.58 $ 0.19
Cumulative effect of change in accounting principle....... $ -- $ (0.24)
----------- -----------
Net income (loss) per share............................... $ 0.58 $ (0.05)
=========== ===========
DILUTED EARNINGS PER SHARE
Income before cumulative effect of change in accounting
principle............................................... $ 0.58 $ 0.19
Cumulative effect of change in accounting principle....... $ -- $ (0.24)
----------- -----------
Net income (loss) per share............................... $ 0.58 $ (0.05)
=========== ===========
Average shares outstanding--basic........................... 84,077,239 90,540,287
=========== ===========
Average shares outstanding--diluted......................... 84,779,605 91,583,038
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-3
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 48,858 $ (4,855)
--------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 54,313 43,262
Gain on disposition of fixed assets..................... (16) (19)
Increase in other current assets........................ (6,199) (35,311)
(Increase) decrease in other noncurrent assets.......... (10,418) 15,703
Increase in interest payable............................ 16,606 13,658
Increase in other current liabilities................... 35,735 19,004
Increase (decrease) in deferred income tax.............. 5,099 (1,990)
Decrease in other noncurrent liabilities................ -- (16)
Unconsolidated affiliates' distributions in excess of
earnings.............................................. 2,556 8,602
Minority interest in earnings........................... 3,591 --
--------- ---------
Total adjustments..................................... 101,267 62,893
--------- ---------
Net cash provided by operating activities............. 150,125 58,038
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (32,640) (213,547)
Decrease in construction payable.......................... (23,840) (24,221)
Increase in investments in unconsolidated affiliates...... -- (2,155)
Proceeds from sale of equipment and other assets.......... 14 251
Increase in notes receivable.............................. (2,193) (6,863)
Other..................................................... 121 --
--------- ---------
Net cash used in investing activities................. (58,538) (246,535)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net effect on cash of issuances and payments of debt with
original maturities of three months or less............. 125,000 204,515
Issuances of debt with original maturities in excess of
three months............................................ -- 480
Principal payments of debt with original maturities in
excess of three months.................................. (369) (819)
Exercise of stock options and warrants.................... 420 135
Purchases of treasury stock............................... (190,943) (7,258)
Other..................................................... 266 613
--------- ---------
Net cash (used in) provided by financing activities... (65,626) 197,666
--------- ---------
Net increase in cash and cash equivalents................... 25,961 9,169
Cash and cash equivalents at beginning of period............ 116,617 81,389
--------- ---------
Cash and cash equivalents at end of period.................. $ 142,578 $ 90,558
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the period for:
Interest (net of amount capitalized)...................... $ 31,728 $ 18,946
Income tax................................................ $ 365 $ 110
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-4
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All information for the three months ended April 30, 2000 and 1999 is
unaudited)
(1) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
Mandalay Resort Group (the "Company"), which changed its name from Circus
Circus Enterprises, Inc. effective June 18, 1999, was incorporated February 27,
1974. The Company owns and operates hotel and casino facilities in Las Vegas,
Reno, Laughlin, Jean and Henderson, Nevada and a hotel and dockside casino in
Tunica County, Mississippi. In Detroit, Michigan, the Company is the majority
investor in a temporary casino which opened December 14, 1999. 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.
The condensed consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries and the Detroit joint venture, which is
required to be consolidated. Material intercompany accounts and transactions
have been eliminated. Investments in 50% or less owned affiliated companies are
accounted for under the equity method.
Minority interest, as reflected on the Condensed Consolidated Financial
Statements, represents the 46.5% interest of the minority partners in MotorCity
Casino in Detroit, Michigan.
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. In
the opinion of management, all adjustments (which include normal recurring
adjustments) necessary for a fair statement of results for the interim periods
have been made. The results for the three month period are not necessarily
indicative of results to be expected for the full fiscal year.
Certain reclassifications have been made to the financial statements for the
three months ended April 30, 1999 to conform to the financial statement
presentation for the three months ended April 30, 2000. These reclassifications
have no effect on net income.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended January 31, 2000.
F-5
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All information for the three months ended April 30, 2000 and 1999 is
unaudited)
(2) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
2000 2000
----------- ------------
(UNAUDITED)
<S> <C> <C>
Amounts due under bank credit agreement at floating interest
rates, weighted average of 7.0% and 6.8%.................. $1,550,000 $1,425,000
Amounts due under corporate debt program at floating
interest rates, weighted average of 6.7% and 6.2%......... 50,000 50,000
Amounts due under majority-owned joint venture revolving
credit facility at floating interest rates, weighted
average of 7.3% and 7.1%.................................. 150,000 150,000
9-1/4% Senior Subordinated Notes due 2005................... 275,000 275,000
6.45% Senior Notes due 2006 (net of unamortized discount of
$253 and $264)............................................ 199,747 199,736
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 $51 and $55)...................... 149,949 149,945
7.0% Debentures due 2036 (net of unamortized discount of
$116 and $119)............................................ 149,884 149,881
6.70% Debentures due 2096 (net of unamortized discount of
$171 and $183)............................................ 149,829 149,817
Other notes................................................. 4,567 4,935
---------- ----------
2,828,976 2,704,314
Less--current portion....................................... (25,271) (13,022)
---------- ----------
$2,803,705 $2,691,292
========== ==========
</TABLE>
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 6.1%) and receives a
variable interest rate (weighted average of approximately 6.2% at April 30,
2000) on $550 million notional
F-6
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All information for the three months ended April 30, 2000 and 1999 is
unaudited)
(2) LONG-TERM DEBT (CONTINUED)
amount of "initial" swaps. The net effect of all such swaps resulted in a
reduction of interest expense of approximately $116,000 for the three months
ended April 30, 2000. 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% 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 two initial swaps of $200 million notional amount each
terminate in fiscal 2003 and 2004.
The Company also entered into a forward interest rate swap with a notional
amount of $200 million which had an effective date of December 31, 1999 and a
termination date of March 31, 2000. Under this agreement, the Company paid a
fixed rate of 6.1% and received a variable interest rate based on three-month
LIBOR.
As of April 30, 2000, under its most restrictive loan covenant, the Company
was restricted from issuing additional debt in excess of approximately $966
million. Our borrowing capacity under this covenant can fluctuate substantially
from quarter to quarter depending upon our operating cash flow.
(3) LEASE FACILITY
On October 30, 1998, the Company entered into an operating lease agreement
with a group of financial institutions (the "Lease Facility") to permit the
Company to lease up to $200 million of equipment. As of June 30, 1999, the
Company had utilized the entire $200 million Lease Facility to lease equipment
at Mandalay Bay and the commitment under the Company's bank credit facility was
permanently reduced to $1.8 billion. The base term of the lease expires June 30,
2001, but the lease provides for up to two successive one-year renewal terms.
The rent expense related to this lease facility is reported separately on the
income statement as "operating lease rent."
(4) 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 relating to the Company's common
stock and one of the plans also permits grants of the Company's common stock as
performance share and restricted stock awards. The only awards granted pursuant
to such plans through April 30, 2000 are stock options, which are generally
exercisable in one or more installments beginning not less than six months after
the grant date.
F-7
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All information for the three months ended April 30, 2000 and 1999 is
unaudited)
(4) STOCK OPTIONS (CONTINUED)
Summarized information for stock options granted pursuant to the Company's
plans is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, 2000
--------------------
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding at beginning of period....................... 6,014,959 $13.70
Granted.................................................. 461,500 13.17
Exercised................................................ (37,332) 11.25
Canceled................................................. -- --
--------- ------
Outstanding at end of period............................. 6,439,127 $13.67
========= ======
Options exercisable at end of period..................... 2,931,702 $13.50
Options available for grant at end of period............. 1,465,532
</TABLE>
Options available for grant at April 30, 2000 include 389,500 shares
reserved for issuance only as annual formula awards of 10,000 shares each to
nonemployee directors pursuant to a plan that expires in June 2001.
(5) STOCK RELATED MATTERS
For the three months ended April 30, 2000, the Company repurchased 11.9
million shares of its common stock at a cost of $190.9 million.
(6) EARNINGS PER SHARE
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>
THREE MONTHS ENDED
APRIL 30,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS, EXCEPT
EARNINGS PER SHARE)
<S> <C> <C>
Net income (loss)......................................... $48,858 $(4,855)
======= =======
Weighted average shares outstanding used in computation of
basic earnings per share................................ 84,077 90,540
Stock options............................................. 703 1,043
------- -------
Weighted average shares outstanding used in computation of
diluted earnings per share.............................. 84,780 91,583
======= =======
Basic earnings (loss) per share........................... $ .58 $ (.05)
======= =======
Diluted earnings (loss) per share......................... $ .58 $ (.05)
======= =======
</TABLE>
F-8
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All information for the three months ended April 30, 2000 and 1999 is
unaudited)
(7) INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has investments in unconsolidated affiliates that are accounted
for under the equity method. Using the equity method, original investments are
recorded at cost and adjusted by the Company's share of earnings or losses of
these entities. The investment balance also includes interest capitalized during
construction (net of amortization). Investments in unconsolidated affiliates
consist of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
Circus and Eldorado Joint Venture (50%)
(Silver Legacy, Reno, Nevada)....................... $ 89,392 $ 87,150
Elgin Riverboat Resort (50%)
(Grand Victoria, Elgin, Illinois)................... 37,297 40,780
Victoria Partners (50%)
(Monte Carlo, Las Vegas, Nevada).................... 135,579 137,065
-------- --------
$262,268 $264,995
======== ========
</TABLE>
The above unconsolidated affiliates operate with fiscal years ending on
December 31. Summarized results of operations of the unconsolidated affiliates
are as follows (unaudited, in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues................................................ $207,869 $174,359
Expenses................................................ 154,095 145,933
Operating income........................................ 53,775 28,426
Net income.............................................. 48,914 23,186
</TABLE>
Included in the above are revenues of the Grand Victoria of $99,767 and
$67,581 for the three months ended March 31, 2000 and 1999. The property's
operating margin during those periods was 30% and 24%, respectively.
(8) 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 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).
We have formed a joint venture with the Detroit-based Atwater Casino Group
to build, own and operate a hotel/casino in Detroit, Michigan. This joint
venture is one of three groups which negotiated development agreements with the
city. We had an initial 45% ownership interest in the joint venture. Effective
December 14, 1999, we acquired an additional 8.5% interest at a cost of $38.4
million, thus increasing our total ownership interest to 53.5%.
F-9
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(All information for the three months ended April 30, 2000 and 1999 is
unaudited)
(8) COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Pending the development of a permanent hotel/casino, the joint venture
constructed a temporary casino (MotorCity Casino) in downtown Detroit, which
opened December 14, 1999. MotorCity Casino contains approximately 75,000 square
feet of gaming space, with approximately 2,600 slot machines and 136 table
games, plus five restaurants and a 3,450-space parking facility. The cost of the
temporary casino, including land and capitalized interest but excluding
preopening expenses, was approximately $150 million. This cost was financed
pursuant to the joint venture's $150 million credit facility, which is secured
by the assets associated with the temporary casino. Mandalay has guaranteed this
credit facility subject to the release of the guaranty if certain performance
measures are reached. The joint venture's operation of the temporary casino is
subject to ongoing regulatory oversight, and its ability to proceed with a
permanent hotel/casino facility is contingent upon the receipt of all necessary
gaming approvals and satisfaction of other conditions.
The Detroit joint venture is planning a $600 million permanent hotel/casino
facility. We have committed to contribute 20% of this amount in the form of
equity, and the joint venture will seek project-specific funding for the balance
of the cost. The development agreement provides that we will guarantee
completion of the permanent facility and will enter into a keep-well guarantee
with the city, pursuant to which we could be required to contribute additional
funds, if and as needed, to continue operation of the project for a period of
two years. This keep-well agreement also applies to the temporary casino.
Mandalay has issued letters of credit totaling $50 million for the benefit of
Bank of America in order to back letters of credit issued by Bank of America for
the same total amount. The Bank of America letters of credit were issued to
secure payments of principal and interest on bonds issued by the Economic
Development Corporation of the City of Detroit. The proceeds of the bonds are to
be used to finance costs associated with activities (including acquisition)
relating to the land on which the permanent facility will be built.
Various lawsuits have been filed in the state and federal courts challenging
the constitutionality of the Detroit Casino Competitive Selection Process and
the Michigan Gaming Control and Revenue Act, and seeking to appeal the issuance
of a certificate of suitability to MotorCity Casino. No assurance can be given
regarding the timing and outcome of these proceedings. An adverse ruling in any
of these lawsuits could adversely impact the status of our joint venture's
operation of the temporary facility, as well as its ability to obtain a
certificate of suitability and a casino license for its permanent facility.
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.
F-10
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 116,617 $ 81,389
Accounts receivable....................................... 53,071 26,136
Income tax receivable..................................... 9,096 --
Inventories............................................... 28,499 24,270
Prepaid expenses.......................................... 47,807 21,451
Deferred income tax....................................... 26,449 8,032
---------- ----------
Total current assets.................................. 281,539 161,278
---------- ----------
Property, equipment and leasehold interests, at cost, net... 3,335,071 3,000,822
---------- ----------
Other assets
Excess of purchase price over fair market value of net
assets acquired, net...................................... 396,433 367,076
Notes receivable.......................................... 1,605 10,895
Investments in unconsolidated affiliates.................. 264,995 271,707
Deferred charges and other assets......................... 49,833 57,929
---------- ----------
Total other assets.................................... 712,866 707,607
---------- ----------
Total assets.......................................... $4,329,476 $3,869,707
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 13,022 $ 3,481
Accounts and contracts payable
Trade................................................... 40,395 23,745
Construction............................................ 33,415 75,030
Accrued liabilities
Salaries, wages and vacations........................... 46,897 40,006
Progressive jackpots.................................... 11,417 8,889
Advance room deposits................................... 11,005 8,195
Interest payable........................................ 19,395 27,767
Other................................................... 69,073 44,460
---------- ----------
Total current liabilities............................. 244,619 231,573
---------- ----------
Long-term debt.............................................. 2,691,292 2,259,149
---------- ----------
Other liabilities
Deferred income tax....................................... 210,689 200,376
Other long-term liabilities............................... 20,192 20,981
---------- ----------
Total other liabilities............................... 230,881 221,357
---------- ----------
Total liabilities..................................... 3,166,792 2,712,079
---------- ----------
Commitments and contingent liabilities
---------- ----------
Minority interest........................................... (25,096) --
---------- ----------
Stockholders' equity
Common stock $.01- 2/3 par value
Authorized--450,000,000 shares
Issued--113,634,013 and 113,622,508 shares................ 1,894 1,894
Preferred stock $.01 par value
Authorized--75,000,000 shares -- --
Additional paid-in capital................................ 565,925 558,935
Retained earnings......................................... 1,201,632 1,159,469
Treasury stock (23,764,216 and 22,959,425 shares), at
cost.................................................... (581,671) (562,670)
---------- ----------
Total stockholders' equity.............................. 1,187,780 1,157,628
---------- ----------
Total liabilities and stockholders' equity.............. $4,329,476 $3,869,707
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Casino.................................................... $ 951,492 $ 709,909 $ 632,122
Rooms..................................................... 534,132 355,635 330,644
Food and beverage......................................... 346,647 246,622 215,584
Other..................................................... 251,509 170,701 142,407
Earnings of unconsolidated affiliates..................... 98,627 83,967 98,977
---------- ---------- ----------
2,182,407 1,566,834 1,419,734
Less--complimentary allowances............................ (131,509) (87,054) (65,247)
---------- ---------- ----------
2,050,898 1,479,780 1,354,487
---------- ---------- ----------
Costs and expenses
Casino.................................................... 510,794 367,449 316,902
Rooms..................................................... 189,419 128,622 122,934
Food and beverage......................................... 276,261 207,663 199,955
Other operating expenses.................................. 179,907 113,864 99,460
General and administrative................................ 339,455 253,138 223,263
Depreciation and amortization............................. 169,226 133,801 117,474
Operating lease rent...................................... 25,994 -- --
Preopening expenses....................................... 49,134 -- 3,447
Abandonment loss.......................................... 5,433 -- --
---------- ---------- ----------
1,745,623 1,204,537 1,083,435
---------- ---------- ----------
Operating profit before corporate expense................... 305,275 275,243 271,052
Corporate expense........................................... 31,539 32,464 34,552
---------- ---------- ----------
Income from operations...................................... 273,736 242,779 236,500
---------- ---------- ----------
Other income (expense)
Interest, dividends and other income...................... 3,652 2,730 9,779
Interest income and guarantee fees from unconsolidated
affiliate............................................... 2,775 3,122 6,041
Interest expense.......................................... (165,670) (95,541) (88,847)
Interest expense from unconsolidated affiliates........... (11,085) (12,275) (15,551)
---------- ---------- ----------
(170,328) (101,964) (88,578)
---------- ---------- ----------
Minority interest......................................... (292) -- --
---------- ---------- ----------
Income before provision for income tax.................... 103,116 140,815 147,922
Provision for income tax.................................. 38,959 55,617 58,014
---------- ---------- ----------
Income before cumulative effect of change in accounting
principle............................................... 64,157 85,198 89,908
Cumulative effect of change in accounting principle for
pre-opening expenses, net of tax benefit of $11,843..... (21,994) -- --
---------- ---------- ----------
Net income................................................ $ 42,163 $ 85,198 $ 89,908
========== ========== ==========
Basic earnings per share:
Income before cumulative effect of change in accounting
principle............................................... $ .71 $ .90 $ .95
Cumulative effect of change in accounting principle....... (.24) -- --
---------- ---------- ----------
Net income................................................ $ .47 $ .90 $ .95
========== ========== ==========
Diluted earnings per share:
Income before cumulative effect of change in accounting
principle............................................... $ .70 $ .90 $ .94
Cumulative effect of change in accounting principle....... (.24) -- --
---------- ---------- ----------
Net income................................................ $ .46 $ .90 $ .94
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
INCREASE (DECREASE) IN CASH ---------------------------------
AND CASH EQUIVALENTS 2000 1999 1998
--------------------------- --------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income................................................ $ 42,163 $ 85,198 $ 89,908
--------- --------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization........................... 172,407 142,141 129,729
Increase (decrease) in deferred income tax.............. (8,104) 24,281 24,005
Increase (decrease) in interest payable................. (8,372) 9,939 8,824
(Gain) loss on sale of fixed assets..................... 2,903 (1,641) (6,519)
(Increase) decrease in other current assets............. (53,797) 4,504 (2,605)
Increase in other current liabilities................... 42,930 19,906 6,148
(Increase) decrease in other noncurrent assets.......... 21,217 (35,817) (785)
Decrease in other noncurrent liabilities................ (49) (65) (65)
Unconsolidated affiliates' earnings in excess of
distributions......................................... (6,419) (10,863) (33,330)
--------- --------- ---------
Total adjustments..................................... 162,716 152,385 125,402
--------- --------- ---------
Net cash provided by operating activities............... 204,879 237,583 215,310
--------- --------- ---------
Cash flows from investing activities
Capital expenditures...................................... (352,133) (671,547) (663,270)
Increase (decrease) in construction payable............... (63,474) 34,360 19,526
(Increase) decrease in investments in unconsolidated
affiliates.............................................. 10,728 (5,865) (8,353)
Net cash paid for additional ownership interest in joint
venture................................................. (19,331) -- --
(Increase) decrease in notes receivable................... (24,952) (9,820) 35,368
Proceeds from sale of equipment and other assets.......... 697 5,788 8,160
--------- --------- ---------
Net cash used in investing activities................... (448,465) (647,084) (608,569)
--------- --------- ---------
Cash flows from financing activities
Proceeds from issuance of senior notes.................... -- 275,000 --
Net effect on cash of issuances and payments of debt with
initial maturities of three months or less.............. 294,990 502,528 474,355
Issuance of debt with initial maturities in excess of
three months............................................ -- 337,334 201,843
Principal payments of debt with initial maturities in
excess of three months.................................. (3,425) (644,241) (290,712)
Exercise of stock options................................. 17,616 310 7,889
Purchase of stock warrants................................ -- -- (2,000)
Purchases of treasury stock............................... (29,627) (51,634) (1,300)
Other..................................................... (740) 12,962 (7,701)
--------- --------- ---------
Net cash provided by financing activities............... 278,814 432,259 382,374
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 35,228 22,758 (10,885)
Cash and cash equivalents at beginning of year.............. 81,389 58,631 69,516
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 116,617 $ 81,389 $ 58,631
========= ========= =========
Supplemental cash flow disclosures
Cash paid during the year for
Interest (net of amount capitalized).................... $ 170,272 $ 82,879 $ 77,426
Income tax.............................................. $ 42,551 $ 18,770 $ 37,395
Acquisition of additional ownership interest in joint
venture
Cash paid............................................... $ (38,386) $ -- $ --
Current assets, other than cash......................... (13,462) -- --
Property and equipment.................................. (146,143) -- --
Other assets............................................ (14,092) -- --
Current liabilities..................................... 33,693 -- --
Long-term debt.......................................... 179,180 -- --
Stockholders' equity.................................... (20,121) -- --
--------- --------- ---------
Net cash paid for acquisition........................... $ (19,331) $ -- $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<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>
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 1,159,469 (562,670) 1,157,628
Net income...................... -- -- -- 42,163 -- 42,163
Exercise of stock options....... 11 -- 6,990 -- 10,626 17,616
Treasury stock acquired (1,672
shares), at cost.............. -- -- -- -- (29,627) (29,627)
------- ------ -------- ---------- --------- ----------
Balance, January 31, 2000......... 113,634 $1,894 $565,925 $1,201,632 $(581,671) $1,187,780
======= ====== ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
Mandalay Resort Group (the "Company"), which changed its name from Circus
Circus Enterprises, Inc. effective June 18, 1999, was incorporated February 27,
1974. The Company owns and operates hotel and casino facilities in Las Vegas,
Reno, Laughlin, Jean and Henderson, Nevada and a hotel and dockside casino in
Tunica County, Mississippi. In Detroit, Michigan, the Company is the majority
investor in a temporary casino which opened December 14, 1999. 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,
its wholly owned subsidiaries and the Detroit joint venture, which is required
to be consolidated. Material intercompany accounts and transactions have been
eliminated. Investments in 50% or less owned affiliated companies are accounted
for under the equity method.
GOODWILL
On December 14, 1999, the Company purchased an additional ownership interest
in a joint venture which operates MotorCity Casino, a temporary casino in
Detroit, Michigan, bringing its total ownership interest to 53.5%. 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 1, 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 $38.4 million for the
purchase of the additional ownership interest in MotorCity Casino, $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 with the exception of the MotorCity
Casino interest which is being amortized over a period of 25 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, 2000, 1999 and 1998, were $11.0 million, $45.5 million and $22.0
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.
F-15
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
At January 31, 2000 and 1999, 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 $51.7 million and
$41.3 million, as of January 31, 2000 and 1999, respectively.
REVENUES AND EXPENSES
Casino revenues are the net difference between the sums received as winnings
and the sums paid as losses. 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: $76.5 million, $58.7 million and $45.9
million for the fiscal years ended January 31, 2000, 1999 and 1998,
respectively. For the three years, approximately 80-85% of such costs were for
food and beverage with the balance for rooms.
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. In accordance with the American
Institute of Certified Public Accountants' Statement of Position 98-5,
preopening expenses incurred prior to January 31, 1999 ($33.8 million), on
projects opening after that date, are reflected, net of income tax benefit of
$11.8 million, as a cumulative effect of a change in accounting principle for
preopening expenses in the consolidated statements of income. Preopening
expenses incurred after January 31, 1999 are expensed as incurred.
F-16
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Previously, these costs were capitalized prior to the opening of the specific
project and were charged to expense at the commencement of operations.
For the year ended January 31, 2000, preopening expenses of $83.0 million
relate primarily to Mandalay Bay, The Four Seasons at Mandalay Bay, and the
Company's joint venture in Detroit. 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.
ABANDONMENT LOSS
During fiscal 2000, the Company wrote off $5.4 million related to a proposed
timeshare resort in Las Vegas which the Company decided not to pursue.
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,
-----------------------
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land and land leases........................................ $ 364,781 $ 362,661
Buildings and improvements.................................. 2,872,900 1,851,511
Equipment, furniture and fixtures........................... 896,435 653,058
Leasehold interests and improvements........................ 11,305 11,192
---------- ----------
4,145,421 2,878,422
Less--accumulated depreciation and amortization............. (893,776) (733,967)
---------- ----------
3,251,645 2,144,455
Construction in progress.................................... 83,426 856,367
---------- ----------
$3,335,071 $3,000,822
========== ==========
</TABLE>
F-17
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Amounts due under bank credit agreements at floating
interest rates, weighted average of 6.8% and 6.0%......... $1,425,000 $1,130,000
Amounts due under corporate debt program at floating
interest rates, weighted average of 6.2% and 5.7%......... 50,000 50,000
Amounts due under majority-owned joint venture revolving
credit facility at floating interest rates, weighted
average of 7.1%........................................... 150,000 --
9 1/4% Senior Subordinated Notes due 2005................... 275,000 275,000
6.45% Senior Notes due 2006 (net of unamortized discount of
$264 and $308)............................................ 199,736 199,692
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 $55 and $71)...................... 149,945 149,929
7.0% Debentures due 2036 (net of unamortized discount of
$119 and $133)............................................ 149,881 149,867
6.70% Debentures due 2096 (net of unamortized discount of
$183 and $231)............................................ 149,817 149,769
Other notes................................................. 4,935 8,373
---------- ----------
2,704,314 2,262,630
Less--current portion....................................... (13,022) (3,481)
---------- ----------
$2,691,292 $2,259,149
========== ==========
</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 permanent 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 total debt 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, 2000, the
Company had $1.4 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.
F-18
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. LONG-TERM DEBT (CONTINUED)
On December 14, 1999, the Company acquired an additional 8.5% ownership
interest in the joint venture that owns and operates MotorCity Casino in
Detroit, Michigan bringing the total ownership interest to 53.5%. Therefore,
long-term debt of that joint venture is reflected as an obligation of the
Company. In June 1999, the joint venture entered into a $150 million reducing
revolving credit facility (the "Detroit Facility") which matures on June 30,
2003. The Detroit Facility reduces by fixed amounts quarterly, beginning on
December 31, 2000, and contains financial covenants regarding total debt,
capital expenditures and investments. The Detroit Facility was used primarily to
develop and construct the temporary casino facility. The Detroit Facility is
unconditionally guaranteed by the Company, subject to release after one year if
certain performance measures are reached. As of January 31, 2000, the joint
venture had $150 million of borrowings outstanding under the Detroit Facility.
The fair value of the debt issued under the Detroit Facility approximates the
carrying amount 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, 2000, the estimated fair value of the 9 1/4% Notes was $273.6
million, based on their trading price.
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, 2000,
the estimated fair value of the 7.0% Debentures was $131.3 million and the
estimated fair value of the 6.70% Debentures was $139.1 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,
2000, the estimated fair value of the 6.45% Notes was $177.0 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
F-19
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. LONG-TERM DEBT (CONTINUED)
program. As of January 31, 2000, the estimated fair value of the 6 3/4% Notes
was $138.8 million and the estimated fair value of the 7 5/8% Debentures was
$126.0 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 6.1%) and receives a
variable interest rate (weighted average of approximately 6.1% at January 31,
2000) on $550 million notional amount of "initial" swaps. The net effect of all
such swaps resulted in additional interest expense of $1.7 million for the year.
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
two initial swaps of $200 million notional amount each terminate in fiscal 2003
and 2004.
The Company had also entered into a forward interest rate swap with a
notional amount of $200 million which has an effective date of December 31, 1999
and a termination date of March 31, 2000. Under this agreement, the Company paid
a fixed rate of 6.1% and received a variable interest rate based on three-month
LIBOR.
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 are predominantly members of the Company's bank group.
If the Company had terminated all swaps as of January 31, 2000, the Company
would have received a net amount of approximately $11.4 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, 2000. The Company does not expect the adoption of this
pronouncement to materially impact its results of operations or financial
position.
F-20
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. LONG-TERM DEBT (CONTINUED)
As of January 31, 2000, under the Company's most restrictive loan covenant,
the Company was restricted from issuing additional debt in excess of
approximately $10 million.
Required annual principal payments as of January 31, 2000 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31, (IN THOUSANDS)
--------------------------------------
<S> <C>
2001........................................................ $ 13,022
2002........................................................ 52,793
2003........................................................ 1,535,274
2004........................................................ 175,219
2005........................................................ 274
Thereafter.................................................. 927,732
----------
$2,704,314
==========
</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") to permit the
Company to lease up to $200 million of equipment. As of June 30, 1999, the
Company had utilized the entire $200 million Lease Facility to lease equipment
at Mandalay Bay and the commitment under the Company's bank credit facility was
permanently reduced to $1.8 billion. The base term of the lease expires June 30,
2001, but the lease provides for up to two successive one-year renewal terms.
The rent expense related to this lease facility is reported separately on the
consolidated statements of income as operating lease rent.
On October 31, 1999, the lease pursuant to which the Company operated the
Silver City Casino expired and the Company ceased operation of that facility.
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, 2000 under those
operating leases that have lease terms in excess of one year:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31, (IN THOUSANDS)
--------------------------------------
<S> <C>
2001........................................................ $40,236
2002........................................................ 20,789
2003........................................................ 1,709
2004........................................................ 1,036
2005........................................................ 636
Thereafter.................................................. 6,109
-------
$70,515
=======
</TABLE>
Rent expense for all leases accounted for as operating leases was as
follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating rent expense............................. $27,988 $3,454 $3,211
======= ====== ======
</TABLE>
F-21
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INCOME TAX
The components of the provision for income tax are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal....................................... $ 38,069 $34,810 $36,980
State......................................... 734 510 491
-------- ------- -------
38,803 35,320 37,471
-------- ------- -------
Deferred
Federal....................................... (11,687) 20,297 20,543
-------- ------- -------
$ 27,116 $55,617 $58,014
======== ======= =======
</TABLE>
The Company has recognized a tax benefit of $1.7 million, $38,000 and
$0.9 million related to the exercise of stock options for the fiscal years ended
January 31, 2000, 1999 and 1998, respectively. Such amounts reduce the current
portion of taxes payable.
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,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
<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............................
$ 10,723 $11,811 $14,089
Effect of writing off preopening expenses for
financial statement purposes and amortizing
over five years for tax purposes.............. (16,932) 1,062 1,281
Difference between book and tax basis of assets
written off................................... -- 497 327
Book reserve for bad debts not currently
deductible for tax purposes................... (2,715) (872) (462)
Difference between book and tax basis of
investments in unconsolidated affiliates...... (2,294) 3,392 5,730
Outstanding chips and tokens.................... 42 1,501 (150)
Capitalized interest............................ 431 2,993 1,432
Other, net...................................... (942) (87) (1,704)
-------- ------- -------
$(11,687) $20,297 $20,543
======== ======= =======
</TABLE>
F-22
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INCOME TAX (CONTINUED)
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,
------------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Federal statutory tax rate............................ 35.0% 35.0% 35.0%
Nondeductible goodwill................................ 5.3 2.5 2.4
Nondeductible political contributions................. .8 2.0 .3
Nondeductible compensation............................ -- -- 2.2
Nondeductible tax credits............................. (1.8) (.6) (.5)
Other, net............................................ (.2) .6 (.2)
---- ---- ----
Effective tax rate.................................... 39.1% 39.5% 39.2%
==== ==== ====
</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, 2000 and 1999, under the provisions of Statement of Financial
Accounting Standards No. 109, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities
Property and equipment................................ $192,898 $176,592
Investments in unconsolidated affiliates.............. 17,310 18,697
Other................................................. 9,647 13,205
-------- --------
Gross deferred tax liabilities...................... 219,855 208,494
-------- --------
Deferred tax assets
Accrued vacation benefits............................. 6,471 5,045
Bad debt reserve...................................... 4,832 2,117
Preopening expense, net of amortization............... 17,451 520
Other................................................. 6,861 8,468
-------- --------
Gross deferred tax assets........................... 35,615 16,150
-------- --------
Net deferred tax liabilities........................ $184,240 $192,344
======== ========
</TABLE>
NOTE 6. EMPLOYEE RETIREMENT PLANS
Approximately 41% of the Company's employees are covered by union-sponsored,
collectively bargained, multi-employer, defined benefit pension plans. The
Company contributed $12.8 million, $10.2 million and $9.9 million during the
years ended January 31, 2000, 1999 and 1998, 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
F-23
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. EMPLOYEE RETIREMENT PLANS (CONTINUED)
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 $4.7 million, $4.5 million and
$4.2 million in the years ended January 31, 2000, 1999 and 1998. 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 upon retirement
based upon the employees' years of service, compensation and SERP tier. For the
fiscal year ending January 31, 2000, approximately $2.9 million of benefits were
accrued and expensed. The SERP is being funded through life insurance contracts
on the key employees, though the plan does not require formal funding. At
January 31, 2000, the life insurance contracts had a value of $10.3 million. The
vested benefit obligation and accumulated benefit obligation were $6.0 million
and $11.2 million, respectively, at January 31, 2000.
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,
--------------------------------------------------------------------
2000 1999 1998
-------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year........................... 3,872,674 $14.72 5,143,505 $23.94 7,183,560 $25.43
Granted.......................... 3,354,666 14.20 3,188,335 12.51 575,000 23.52
Exercised........................ (878,914) 18.08 (16,500) 13.29 (341,005) 20.75
Canceled......................... (333,467) 19.08 (4,442,666) 23.81 (2,274,050) 29.01
--------- ---------- ----------
Outstanding at end of year....... 6,014,959 $13.70 3,872,674 $14.72 5,143,505 $23.94
========= ========== ==========
Options exercisable at end of
year........................... 1,937,662 $13.71 1,314,005 $21.19 3,340,498 $22.54
Options available for grant at
end of year.................... 1,927,032 3,973,231 2,026,900
</TABLE>
F-24
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. STOCK OPTIONS (CONTINUED)
The following table summarizes information about stock options outstanding
at January 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YRS) PRICE EXERCISABLE PRICE
------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$11.25 to $11.25.......... 2,161,793 5.77 $11.25 1,457,662 $11.25
13.00 to 13.00............ 2,824,333 9.02 13.00 -- --
14.50 to 23.08............ 780,000 6.25 19.72 480,000 21.18
24.00 to 24.00............ 248,833 9.30 24.00 -- --
--------- ---- ------ --------- ------
6,014,959 7.51 $13.70 1,937,662 $13.71
========= ==== ====== ========= ======
</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.
F-25
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. STOCK OPTIONS (CONTINUED)
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.
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
-------------------
(IN THOUSANDS, EXCEPT SHARE DATA) 2000 1999
--------------------------------- -------- --------
<S> <C> <C>
Net income
As reported............................................. $42,163 $85,198
Pro forma............................................... 31,527 79,722
Net income per share (basic)
As reported............................................. $ .47 $ .90
Pro forma............................................... .35 .84
Net income per share (diluted)
As reported............................................. $ .46 $ .90
Pro forma............................................... .34 .84
Weighted average assumptions
Expected stock price volatility......................... 45.1% 43.6%
Risk-free interest rate................................. 6.4% 5.0%
Expected option lives (years)........................... 2.7 2.1
Estimated fair value of options granted................. $ 4.79 $ 3.50
</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
F-26
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCK RELATED MATTERS (CONTINUED)
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, 2000, the Company repurchased 1.7 million
shares of its common stock at a cost of $29.6 million. In the fiscal years ended
1999 and 1998, the Company repurchased 4.5 million shares of its common stock at
a cost of $51.6 million and 38,486 shares of its common stock at a cost of $1.3
million, respectively.
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.
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
Earnings per share is computed and presented in accordance with Statement of
Financial Accounting Standards No. 128--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 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.
F-27
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998
------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net income.................................................. $42,163 $85,198 $89,908
======= ======= =======
Weighted average shares outstanding used in computation of
basic earnings per share.................................. 90,607 94,601 94,943
Stock options............................................... 1,289 70 309
------- ------- -------
Weighted average shares outstanding used in computation of
diluted earnings per share................................ 91,896 94,671 95,252
======= ======= =======
Basic earnings per share.................................... $ .47 $ .90 $ .95
======= ======= =======
Diluted earnings per share.................................. $ .46 $ .90 $ .94
======= ======= =======
</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,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Circus and Eldorado Joint Venture (50%)
(Silver Legacy, Reno, Nevada)......................... $ 87,150 $ 74,871
Elgin Riverboat Resort (50%)
(Grand Victoria, Elgin, Illinois)..................... 40,780 42,461
Victoria Partners (50%)
(Monte Carlo, Las Vegas, Nevada)...................... 137,065 141,658
Detroit Entertainment (see below)
(MotorCity Casino, Detroit, Michigan)................. -- 12,717
-------- --------
$264,995 $271,707
======== ========
</TABLE>
Effective December 14, 1999, the Company acquired an additional 8.5%
interest in Detroit Entertainment, bringing its total investment to 53.5%. As a
result of this majority ownership position, the Company is no longer accounting
for its investment under the equity method and is consolidating Detroit
Entertainment results beginning December 14, 1999.
F-28
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. INVESTMENTS IN UNCONSOLIDATED AFFILIATES (CONTINUED)
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, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
-------------- -------- --------
<S> <C> <C>
Current assets.......................................... $ 95,602 $ 81,539
Property and other assets, net.......................... 698,982 747,790
Current liabilities..................................... 71,712 74,177
Long-term debt and other liabilities.................... 261,006 283,006
Equity.................................................. 461,866 472,146
</TABLE>
Summarized results of operations of the unconsolidated affiliates for the
years ended December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
-------------- -------- --------
<S> <C> <C>
Revenues................................................ $764,664 $676,268
Expenses................................................ 577,193 518,169
Operating income........................................ 187,471 158,099
Net income.............................................. 166,816 134,405
</TABLE>
NOTE 11. 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, Mandalay 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 has formed a joint venture with the Detroit-based Atwater Casino
Group to build, own and operate a hotel/casino in Detroit, Michigan. This joint
venture is one of three groups which negotiated development agreements with the
city. Mandalay had an initial 45% ownership interest in the joint venture.
Effective December 14, 1999, the Company acquired an additional 8.5% interest at
a cost of $38.4 million, thus increasing its total ownership interest to 53.5%.
Pending the development of a permanent hotel/casino, the joint venture
constructed a temporary casino (MotorCity Casino) in downtown Detroit, which
opened December 14, 1999. MotorCity Casino contains approximately 75,000 square
feet of gaming space, with approximately 2,600 slot machines and 136 table
games, plus five restaurants and a 3,450-space parking facility. The cost of the
temporary casino, including land and capitalized interest but excluding
preopening expenses, was approximately $150 million. This cost was financed
pursuant to the joint venture's $150 million credit facility, which is secured
by the assets associated with the temporary casino. Mandalay has guaranteed this
credit facility subject to the release of the guaranty if certain performance
measures are reached. The joint venture's operation of the temporary casino is
subject to ongoing regulatory oversight, and its ability to proceed with a
permanent hotel/casino facility is contingent upon the receipt of all necessary
gaming approvals and satisfaction of other conditions.
The Detroit joint venture is planning a $600 million permanent hotel/casino
facility. The Company has committed to contribute 20% of this amount in the form
of equity, and the joint venture will seek
F-29
<PAGE>
MANDALAY RESORT GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES. (CONTINUED)
project-specific funding for the balance of the cost. The development agreement
provides that Mandalay will guarantee completion of the permanent facility and
will enter into a keep-well guarantee with the city, pursuant to which it could
be required to contribute additional funds, if and as needed, to continue
operation of the project for a period of two years. This keep-well agreement
also applies to the temporary casino.
Mandalay has issued letters of credit totaling $50 million for the benefit
of Bank of America in order to back letters of credit issued by Bank of America
for the same total amount. The Bank of America letters of credit were issued to
secure payments of principal and interest on bonds issued by the Economic
Development Corporation of the City of Detroit. The proceeds of the bonds are to
be used to finance costs associated with activities (including acquisition)
relating to the land on which the permanent facility will be built.
Various lawsuits have been filed in the state and federal courts challenging
the constitutionality of the Detroit Casino Competitive Selection Process and
the Michigan Gaming Control and Revenue Act, and seeking to appeal the issuance
of a certificate of suitability to MotorCity Casino. No assurance can be given
regarding the timing and outcome of these proceedings. An adverse ruling in any
of these lawsuits could adversely impact the status of the joint venture's
operation of the temporary facility, as well as its ability to obtain a
certificate of suitability and a casino license for its permanent facility.
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.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Mandalay Resort Group:
We have audited the accompanying consolidated balance sheets of Mandalay
Resort Group (a Nevada corporation) and subsidiaries as of January 31, 2000 and
1999 and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended January 31, 2000.
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 auditing standards generally
accepted in the United States. 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 Mandalay Resort Group and
subsidiaries as of January 31, 2000 and 1999 and the results of their operations
and their cash flows for each of the three years in the period ended
January 31, 2000, in conformity with accounting principles generally accepted in
the United States.
As discussed in Note 1 of Notes to Consolidated Financial Statements, the
Company changed its method of accounting for preopening expenses effective
February 1, 1999.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 22, 2000
F-31
<PAGE>
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.
F-32
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[LOGO]
MANDALAY RESORT GROUP
OFFER TO EXCHANGE UP TO $500,000,000 OF ITS
10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR UP TO $500,000,000 OF ITS
OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
-------------
PROSPECTUS
-------------
, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.7502 of the Nevada Revised Statutes (the "Nevada Law") permits a
corporation to indemnify any of its directors, officers, employees and agents
against costs and expenses arising from claims, suits and proceedings if such
persons acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Notwithstanding the foregoing, no indemnification may be made in
respect of any claim, issue or matter, as to which such person is adjudged to be
liable to the corporation unless and only to the extent that a court of
competent jurisdiction determines that in view of all the circumstances of the
case, the person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
In accordance with Nevada Revised Statutes 78.037, Article XI of the
registrant's Restated Articles of Incorporation provides that no director or
officer of the registrant shall be personally liable to the registrant or its
stockholders for damages for breach of fiduciary duty as a director or officer,
except for (a) acts or omissions which include intentional misconduct, fraud or
a knowing violation of law, or (b) the payment of dividends in violation of
Nevada Revised Statutes 78.300.
Article X, Section 10.2 of the registrant's Restated Bylaws provides for
mandatory indemnification of directors and officers to the fullest extent now or
hereafter permitted by law.
The registrant maintains liability insurance under which officers and
directors are generally indemnified against losses and liability (including
costs, expenses, settlements, and judgments) incurred by them in such
capacities, individually or otherwise, other than specified excluded losses. The
insurance policy will pay on behalf of the registrant all covered losses for
which the registrant grants indemnification of each officer or director as
permitted by law which the officer or director becomes legally obligated to pay
on account of an indemnifiable claim. The policy generally covers liabilities
arising under the federal securities laws, other than specified exclusions such
as any payment for a loss arising out of a deliberate criminal or deliberate
fraudulent act by the insured.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<C> <S>
*4.1 Indenture dated as of July 24, 2000 by and among the
Registrant and The Bank of New York, with respect to
$500 million aggregate principal amount of 10 1/4% Senior
Subordinated Notes due 2007
*4.2 Registration Rights Agreement dated as of July 24, 2000 by
and among the Registrant and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Banc of America
Securities LLC, Donaldson, Lufkin & Jenrette Securities
Corporation, Deutsche Bank Securities Inc., Commerzbank
Capital Markets Corporation, Credit Suisse First Boston
Corporation, Wasserstein Perella Securities, Inc.,
FleetBoston Robertson Stephens Inc., and SG Cowen Securities
Corporation
4.3 Amended and Restated Loan Agreement dated as of May 23,
1997, among the Registrant, Bank of America National Trust
Association, as Administrative Agent for the Banks
(Incorporated by reference to Exhibit 4(a) to the
Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended April 30, 1997.)
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
4.4 Amendment No. 1 to Amended and Restated Loan Agreement, by
and among the Registrant, 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 Registrant's Quarterly
Report for the quarterly period ended October 31, 1997.)
4.5 Amendment No. 2 to the Loan Agreement, by and among the
Registrant, 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 Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended April 30, 1998.)
4.6 Amendment No. 3, dated as of June 22, 1999, to the Amended
and Restated Loan Agreement dated as of May 23, 1997, by and
among the Registrant, the Banks named therein and Bank of
America National Trust and Savings Association, as
administrative agent for the Banks (Incorported by reference
to Exhibit 4(a) to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended July 31, 1999.)
*5 Opinions of Wolf, Block, Schorr and Solis-Cohen LLP,
Philadelphia, Pennsylvania, and Schreck Morris, Las Vegas,
Nevada
*12 Statement regarding Computation of Ratio of Earnings to
Fixed Charges
21 Subsidiaries of Registrant (Incorporated by reference to
Exhibit 21 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 2000.)
23.1 Consent of Wolf, Block, Schorr and Solis-Cohen LLP (included
as part of Exhibit 5)
23.2 Consent of Schreck Morris (included as part of Exhibit 5)
23.3 Consent of Arthur Andersen LLP
24 Power of Attorney (included on Page II-4 of this
Registration Statement as originally filed)
*25 Statement of Eligibility and Qualification on Form T-1 of
The Bank of New York, as trustee of the 10 1/4% Senior
Subordinated Notes due 2007 of the Registrant
99.1 Form of Letter of Transmittal with respect to the Exchange
Offer
99.2 Form of Notice of Guaranteed Delivery with respect to the
Exchange Offer
*99.3 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
*99.4 Client Letter
99.5 Broker Dealer Letter
</TABLE>
------------------------
* Previously filed.
Per Regulation S-K 601(b)(4)(iii)(A), the registrant agrees to file
applicable agreements with the Commission upon request.
(b) FINANCIAL STATEMENTS AND SCHEDULES
None.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
II-2
<PAGE>
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) of the Act if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Las Vegas,
State of Nevada, on August 29, 2000.
<TABLE>
<S> <C> <C>
MANDALAY RESORT GROUP
By: /s/ MICHAEL S. ENSIGN
-----------------------------------------
Michael S. Ensign,
Chairman of the Board
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board, Chief
/s/ MICHAEL S. ENSIGN Executive Officer and Chief
------------------------------------ Operating Officer (Principal August 29, 2000
Michael S. Ensign Executive Officer)
/s/ WILLIAM A. RICHARDSON
------------------------------------ Vice Chairman of the Board August 29, 2000
William A. Richardson
/s/ GLENN W. SCHAEFFER President, Chief Financial Officer,
------------------------------------ Treasurer and Director (Principal August 29, 2000
Glenn W. Schaeffer Financial Officer)
/s/ LES MARTIN Vice President and Chief Accounting
------------------------------------ Officer (Principal Accounting August 29, 2000
Les Martin Officer)
*
------------------------------------ Director August 29, 2000
William E. Bannen
*
------------------------------------ Director August 29, 2000
Arthur H. Bilger
*
------------------------------------ Director August 29, 2000
Rose McKinney-James
*
------------------------------------ Director August 29, 2000
Michael D. McKee
*
------------------------------------ Director August 29, 2000
Donna B. More
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ GLENN W. SCHAEFFER
-------------------------------
Glenn W. Schaeffer ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S> <C>
*4.1 Indenture dated as of July 24, 2000 by and among the
Registrant and The Bank of New York, with respect to
$500 million aggregate principal amount of 10 1/4% Senior
Subordinated Notes due 2007
*4.2 Registration Rights Agreement dated as of July 24, 2000 by
and among the Registrant and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Banc of
America Securities LLC, Donaldson, Lufkin & Jenrette
Securities Corporation, Deutsche Bank Securities Inc.,
Commerzbank Capital Markets Corporation, Credit Suisse
First Boston Corporation, Wasserstein Perella Securities,
Inc., FleetBoston Robertson Stephens Inc., and SG Cowen
Securities Corporation
4.3 Amended and Restated Loan Agreement dated as of May 23,
1997, among the Registrant, Bank of America National Trust
Association, as Administrative Agent for the Banks
(Incorporated by reference to Exhibit 4(a) to the
Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended April 30, 1997.)
4.4 Amendment No. 1 to Amended and Restated Loan Agreement, by
and among the Registrant, 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 Registrant's Quarterly
Report for the quarterly period ended October 31, 1997.)
4.5 Amendment No. 2 to the Loan Agreement, by and among the
Registrant, 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 Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended April 30, 1998.)
4.6 Amendment No. 3, dated as of June 22, 1999, to the Amended
and Restated Loan Agreement dated as of May 23, 1997, by
and among the Registrant, the Banks named therein and Bank
of America National Trust and Savings Association, as
administrative agent for the Banks (Incorported by
reference to Exhibit 4(a) to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended
July 31, 1999.)
*5 Opinions of Wolf, Block, Schorr and Solis-Cohen LLP,
Philadelphia, Pennsylvania, and Schreck Morris, Las Vegas,
Nevada
*12 Statement regarding Computation of Ratio of Earnings to
Fixed Charges
21 Subsidiaries of Registrant (Incorporated by reference to
Exhibit 21 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 2000.)
23.1 Consent of Wolf, Block, Schorr and Solis-Cohen LLP (included
as part of Exhibit 5)
23.2 Consent of Schreck Morris (included as part of Exhibit 5)
23.3 Consent of Arthur Andersen LLP
24 Power of Attorney (included on Page II-4 of this
Registration Statement as originally filed)
*25 Statement of Eligibility and Qualification on Form T-1 of
The Bank of New York, as trustee of the 10 1/4% Senior
Subordinated Notes due 2007 of the Registrant
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S> <C>
99.1 Form of Letter of Transmittal with respect to the Exchange
Offer
99.2 Form of Notice of Guaranteed Delivery with respect to the
Exchange Offer
*99.3 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
*99.4 Client Letter
99.5 Broker Dealer Letter
</TABLE>
------------------------
* Previously filed.
