<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
GRIFFIN GAMING & ENTERTAINMENT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials. (Fee paid by Sun
International Hotels Limited)
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
GRIFFIN GAMING & ENTERTAINMENT, INC.
1133 BOARDWALK
ATLANTIC CITY, NEW JERSEY 08401
November 1, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting (the "Special
Meeting") of holders of common stock, par value $.01 per share (the "GGE Common
Stock"), of Griffin Gaming & Entertainment, Inc. ("GGE"). The Special Meeting
will be held at Merv Griffin's Resorts Casino Hotel, located at 1133 Boardwalk,
Atlantic City, NJ 08401, on December 10, 1996, beginning at 9:30 a.m., local
time. The purpose of the Special Meeting is set forth below and in the
accompanying Notice of Special Meeting of Holders of GGE Common Stock and
described in detail in the accompanying Joint Proxy Statement/Prospectus.
On August 19, 1996, GGE entered into an Agreement and Plan of Merger, as
amended (the "Merger Agreement"), with Sun International Hotels Limited ("Sun")
and Sun Merger Corp., a wholly owned subsidiary of Sun ("Sub"), pursuant to
which Sub will be merged with and into GGE (the "Merger"), with GGE surviving as
a wholly owned subsidiary of Sun. Subject to the terms and conditions of the
Merger Agreement, each share of GGE Common Stock outstanding immediately prior
to the effective time (the "Effective Time") of the Merger will be converted
into the right to receive the Conversion Number (as defined in the accompanying
Joint Proxy Statement/ Prospectus) of a fully paid and nonassessable ordinary
share, $.001 par value per share of Sun ("Ordinary Shares"). Cash will be paid
in lieu of any fractional Ordinary Shares. Also subject to the terms of the
Merger Agreement, each issued and outstanding share of Class B common stock, par
value $.01 per share, of GGE ("GGE Class B Stock") will be converted into the
right to receive .1928 of a fully paid and nonassessable Ordinary Share. As of
the Effective Time, the fraction of an Ordinary Share into which a share of GGE
Class B Stock is converted will trade as part of a unit with $1,000 principal
amount of Resorts International Hotel Financing, Inc. 11.375% Junior Mortgage
Notes due 2004.
In order to accomplish the Merger, holders of GGE Common Stock are being
asked to adopt the Merger Agreement.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
ADVISABLE AND FAIR TO AND IN THE BEST INTERESTS OF GGE AND ITS STOCKHOLDERS AND
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT. THE BOARD UNANIMOUSLY RECOMMENDS
THAT YOU VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT. YOU SHOULD READ THE
"RISK FACTORS" SECTION IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS FOR
A DESCRIPTION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER BEFORE VOTING.
Morgan Stanley & Co. Incorporated acted as financial advisor to GGE in
connection with the Merger and rendered an opinion to the Board of Directors of
GGE that, as of August 19, 1996 and based upon and subject to the various
considerations set forth therein, the consideration to be received by holders of
GGE Common Stock pursuant to the Merger Agreement is fair to such holders from a
financial point of view.
Consummation of the Merger is subject to certain conditions, including the
adoption of the Merger Agreement by the holders of GGE Common Stock, approval of
an amendment to the Restated Articles of Association of Sun by the shareholders
of Sun, and the review by, and receipt of certain approvals from, regulatory
authorities including the New Jersey Casino Control Commission.
You are urged to read the accompanying Joint Proxy Statement/Prospectus,
which provides you with a description of the terms of the proposed transaction.
A copy of the Merger Agreement is included as Annex I to the Joint Proxy
Statement/Prospectus.
It is important that your shares be represented at the Special Meeting.
Whether or not you plan to attend the Special Meeting in person, you are
requested to complete, date and sign the enclosed proxy card and return it in
the enclosed postage-paid envelope as promptly as possible.
Thank you for your time and attention to the accompanying Notice of Special
Meeting and Joint Proxy Statement/Prospectus.
Very truly yours,
<TABLE>
<S> <C>
Merv Griffin Thomas E. Gallagher
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
<PAGE>
GRIFFIN GAMING & ENTERTAINMENT, INC.
1133 BOARDWALK
ATLANTIC CITY, NEW JERSEY 08401
NOTICE OF SPECIAL MEETING OF HOLDERS OF GGE COMMON STOCK
TO BE HELD ON DECEMBER 10, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Special Meeting") of
holders of common stock, par value $.01 per share (the "GGE Common Stock"), of
Griffin Gaming & Entertainment, Inc. ("GGE"), will be held at Merv Griffin's
Resorts Casino Hotel, located at 1133 Boardwalk, Atlantic City, NJ 08401, on
December 10, 1996, beginning at 9:30 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated as of August 19, 1996, as amended (the "Merger Agreement"), among
GGE, Sun International Hotels Limited, a corporation organized and existing
under the laws of the Commonwealth of The Bahamas ("Sun"), and Sun Merger Corp.,
a Delaware corporation and a wholly owned subsidiary of Sun ("Sub"), providing
for the merger (the "Merger") of Sub with and into GGE, and the conversion of
each share of GGE Common Stock into the right to receive the Conversion Number
(as defined in the accompanying Joint Proxy Statement/Prospectus) of a fully
paid and nonassessable ordinary share, $.001 par value per share, of Sun
("Ordinary Shares"). Cash will be paid in lieu of any fractional Ordinary
Shares. Also subject to the terms and conditions of the Merger Agreement, each
issued and outstanding share of Class B common stock, par value $.01 per share,
of GGE ("GGE Class B Stock") shall be converted into the right to receive .1928
of a fully paid and nonassessable Ordinary Share (the "Class B Consideration").
As of the Effective Time, all such shares of GGE Common Stock and GGE Class B
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate representing
any such shares of GGE Common Stock or GGE Class B Stock shall cease to have any
rights with respect thereto, except the right to receive the Conversion Number
of an Ordinary Share plus cash in lieu of fractional Ordinary Shares or the
Class B Consideration, as the case may be, to be issued in consideration
therefor upon surrender of such certificate in accordance with the terms of the
Merger Agreement, without interest.
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
As a result of the Merger, GGE will become a wholly owned subsidiary of Sun.
The Merger and related matters are described in greater detail in, and a copy of
the Merger Agreement is attached as Annex I to, the accompanying Joint Proxy
Statement/ Prospectus.
Holders of record of GGE Common Stock at the close of business on November
1, 1996, (the "GGE Record Date"), are entitled to notice of and to vote at the
Special Meeting and any adjournments or postponements thereof. Holders of shares
of GGE Class B Stock are not entitled to vote on the proposal to adopt the
Merger Agreement.
Approval of the proposal described in item 1 above requires the affirmative
vote of the holders of a majority of the outstanding shares of GGE Common Stock.
The holders of 2,125,108 shares of GGE Common Stock (representing
approximately 27% of the outstanding shares as of the close of business on the
GGE Record Date) have entered into a Stockholder Agreement, dated as of August
19, 1996, as amended, with Sun (the "GGE Stockholder Agreement"), pursuant to
which such holders have agreed to vote their shares of GGE Common Stock in favor
of adoption of the Merger Agreement and the transactions contemplated thereby
(subject to certain conditions set forth in the GGE Stockholder Agreement) and
to refrain from exercising their warrants until after the effective time of the
Merger. The GGE Stockholder Agreement is described in greater detail in, and a
copy is attached as Annex II to, the accompanying Joint Proxy
Statement/Prospectus.
<PAGE>
IT IS IMPORTANT THAT ALL SHARES OF GGE COMMON STOCK BE REPRESENTED AT THE
SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON, YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND
RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS PROMPTLY AS POSSIBLE. THE
ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. Any stockholder who
signs and mails a proxy may revoke such proxy by delivering written notice of
such revocation to the Secretary of GGE prior to the time voting is declared
closed or by attending the Special Meeting and voting in person. Please see the
accompanying Joint Proxy Statement/Prospectus for further details regarding the
treatment of proxies at the Special Meeting.
In the event that there are not sufficient votes to approve and adopt the
Merger Agreement, it is expected that the Special Meeting will be postponed or
adjourned in order to permit further solicitation of proxies by or on behalf of
GGE.
Please do not mail any stock certificates at this time.
By Order of the Board of Directors,
David G. Bowden
SECRETARY
November 1, 1996
<PAGE>
SUN INTERNATIONAL HOTELS LIMITED
AND
GRIFFIN GAMING & ENTERTAINMENT, INC.
JOINT PROXY STATEMENT
------------------------
SUN INTERNATIONAL HOTELS LIMITED
PROSPECTUS
------------------------
This Joint Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is
being furnished to (i) the holders of ordinary shares, $.001 par value per share
("Ordinary Shares"), of Sun International Hotels Limited, a corporation
organized and existing under the laws of the Commonwealth of The Bahamas
("Sun"), in connection with the solicitation of proxies by the Board of
Directors of Sun (the "Sun Board") for use at an extraordinary general meeting
of shareholders of Sun to be held on December 10, 1996, and at any and all
adjournments or postponements thereof (the "Sun Extraordinary General Meeting"),
and (ii) the holders of common stock, par value $.01 per share ("GGE Common
Stock"), of Griffin Gaming & Entertainment, Inc., a Delaware corporation
("GGE"), in connection with the solicitation of proxies by the Board of
Directors of GGE (the "GGE Board") for use at a Special Meeting of holders of
GGE Common Stock to be held on December 10, 1996, and at any and all
adjournments or postponements thereof (the "GGE Special Meeting" and, together
with the Sun Extraordinary General Meeting, the "Special Meetings"). The holders
of Class B common stock, par value $.01 per share, of GGE ("GGE Class B Stock")
are entitled to notice of, but are not entitled to vote at, the GGE Special
Meeting.
This Proxy Statement/Prospectus relates to the Agreement and Plan of Merger
dated as of August 19, 1996, as amended (the "Merger Agreement") among Sun, Sun
Merger Corp., a Delaware corporation and a wholly owned subsidiary of Sun
("Sub"), and GGE, which provides for the merger (the "Merger") of Sub with and
into GGE, with GGE surviving as a wholly owned subsidiary of Sun. Subject to the
terms and conditions of the Merger Agreement, each share of GGE Common Stock
outstanding immediately prior to the effective time of the Merger (the
"Effective Time") (other than shares owned directly or indirectly by Sun or GGE,
which will be canceled) will be converted into the right to receive the
Conversion Number (as defined under "SUMMARY--The Merger and the Merger
Agreement") of a fully paid and nonassessable Ordinary Share. Cash will be paid
to holders of GGE Common Stock in lieu of any fractional Ordinary Shares. Also
subject to the terms and conditions of the Merger Agreement, each share of GGE
Class B Stock outstanding immediately prior to the Effective Time will be
converted into the right to receive .1928 of a fully paid and nonassessable
Ordinary Share (the "Class B Consideration"). As of the Effective Time, the
fraction of an Ordinary Share into which a share of GGE Class B Stock is
converted shall trade as part of a unit (a "Unit") with $1,000 principal amount
of Resorts International Hotel Financing, Inc. 11.375% Junior Mortgage Notes due
2004 (the "Junior Mortgage Notes").
At the Sun Extraordinary General Meeting, holders of Ordinary Shares are
being asked to approve an amendment to the Restated Articles of Association of
Sun (the "Sun Charter") to add certain provisions relating to the New Jersey
Casino Control Act and regulations promulgated thereunder (the "NJCCA") required
in connection with the Merger (the "Charter Amendment"). Approval of the Charter
Amendment will require the affirmative vote of the holders of a majority of the
Ordinary Shares outstanding as of the close of business on October 28, 1996 (the
"Sun Record Date"). As used herein, approval of the Charter Amendment is
referred to as the "Sun Shareholder Approval."
Sun International Investments Limited ("SIIL") controlled approximately 55%
of the Ordinary Shares outstanding on the Sun Record Date and has entered into a
Stockholder Agreement dated as of August 19, 1996, as amended (the "Sun
Stockholder Agreement"), with GGE, pursuant to which SIIL has agreed, subject to
certain conditions, to vote all Ordinary Shares owned by it in favor of the
Charter Amendment. The effect of the Sun Stockholder Agreement is that SIIL,
because of its ownership of a majority of the outstanding Ordinary Shares, has
agreed to cast enough votes in favor of the Charter Amendment to
1
<PAGE>
ensure its approval. The Sun Stockholder Agreement is described in greater
detail in, and a copy is attached as Annex III to, this Proxy
Statement/Prospectus.
At the GGE Special Meeting, holders of GGE Common Stock are being asked to
adopt the Merger Agreement (the "GGE Stockholder Approval", and together with
the Sun Shareholder Approval, the "Stockholder Approvals"). Adoption of the
Merger Agreement will require the affirmative vote of the holders of a majority
of the outstanding shares of GGE Common Stock as of the close of business on
November 1, 1996 (the "GGE Record Date"), with each share of GGE Common Stock
entitling the holder thereof to one vote at the GGE Special Meeting.
The holders of 2,125,108 shares of GGE Common Stock (representing
approximately 27% of the outstanding shares as of the close of business on the
GGE Record Date) have entered into a Stockholder Agreement, dated as of August
19, 1996, as amended, with Sun (the "GGE Stockholder Agreement" and together
with the Sun Stockholder Agreement, the "Stockholder Agreements"), pursuant to
which such holders have agreed to vote their shares of GGE Common Stock in favor
of the adoption of the Merger Agreement (subject to certain conditions set forth
in the GGE Stockholder Agreement) and to refrain from exercising their warrants
until after the Effective Time. The GGE Stockholder Agreement is described in
greater detail in, and a copy is attached as Annex II to, this Proxy
Statement/Prospectus. See "THE STOCKHOLDER AGREEMENTS--GGE Stockholder
Agreement."
The consummation of the Merger is subject, among other things, to the
Stockholder Approvals and the receipt of certain regulatory approvals including
approval of the New Jersey Casino Control Commission (the "NJCC"). SEE "RISK
FACTORS" COMMENCING ON PAGE 25 FOR A DESCRIPTION OF CERTAIN MATTERS THAT SHOULD
BE CONSIDERED BEFORE VOTING. A COPY OF THE MERGER AGREEMENT IS ATTACHED HERETO
AS ANNEX I.
This Proxy Statement/Prospectus also constitutes the Prospectus of Sun filed
as part of a Registration Statement on Form F-4 (the "Form F-4") with the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act"), relating to the registration of Ordinary
Shares issuable upon consummation of the Merger (including Ordinary Shares
issuable upon the exercise of options and warrants for GGE Common Stock to the
extent exercised prior to the Effective Time).
The Ordinary Shares are listed for trading under the symbol "SIH" on the New
York Stock Exchange (the "NYSE"). The GGE Common Stock is listed for trading
under the symbol "GGE" on the American Stock Exchange (the "ASE"). On August 16,
1996, the last full trading day prior to the execution of the Merger Agreement,
the last reported sale prices of Ordinary Shares and GGE Common Stock, on the
NYSE Composite Transactions Tape and ASE Transactions List, respectively, were
$51.875 per share and $11.875 per share, respectively. On October 31, 1996, the
last full trading day prior to the date of this Proxy Statement/Prospectus, the
last reported sale prices of Ordinary Shares and GGE Common Stock, as reported
on the NYSE Composite Transactions Tape and the ASE Transactions List,
respectively, were $47.25 per share and $20.75 per share, respectively.
This Proxy Statement/Prospectus and the enclosed forms of proxy are first
being mailed to shareholders of Sun and stockholders of GGE on or about November
4, 1996.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON
OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
2
<PAGE>
NO GAMING REGULATORY AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Proxy Statement/Prospectus is November 1, 1996.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AVAILABLE INFORMATION.......................... 5
ENFORCEABILITY OF CIVIL LIABILITIES............ 5
INCORPORATION OF DOCUMENTS BY REFERENCE........ 6
SUMMARY........................................ 7
RISK FACTORS................................... 25
Cautionary Statement....................... 25
Risk Factors Related to the Merger......... 25
Fixed Range of Exchange Ratios Despite
Possible Change in Stock Prices...... 25
Necessity of Receiving Governmental
Approvals Prior to the Merger........ 25
Consummation of the Merger Prior to
Receipt of Plenary License........... 26
Interests of Certain Persons in the
Merger............................... 26
Divestiture Risk of Proposed Charter
Amendment............................ 26
Risk Factors Related to Sun................ 27
Risks Associated with New Projects and
Expansion of Sun..................... 27
GENERAL............................... 27
DEVELOPMENT, CONSTRUCTION AND RELATED
RISKS............................... 27
ABILITY TO COMPLETE PROJECTS ON TIME
AND WITHIN BUDGET................... 27
NEED FOR ADDITIONAL FINANCING......... 28
MOHEGAN SUN PROJECT COSTS............. 28
Competition............................ 28
GENERAL............................... 28
PARADISE ISLAND....................... 29
THE MOHEGAN SUN CASINO................ 29
OTHER EXISTING OPERATIONS............. 29
Control by Principal Shareholder....... 30
Regulatory and Political Factors....... 30
Certain Matters Pertaining to
Chairman............................. 31
TCA Management Agreement............... 31
Limited Recourse against Tribal
Assets............................... 32
Possible Environmental Liabilities..... 32
Shares Eligible for Future Sale........ 33
Dividends and Dividend Policy.......... 33
Volatility of Price of Securities...... 33
Dependence on Key Personnel............ 33
Dependence on Air Service.............. 34
Seasonality and Weather................ 34
Risk Factors Related to GGE................ 34
Recent Operating Results............... 34
Competition............................ 34
Possible Environmental Liabilities..... 35
<CAPTION>
PAGE
---------
<S> <C>
SUN EXTRAORDINARY GENERAL MEETING.............. 36
Purpose................................ 36
Record Date; Voting Rights............. 36
Share Ownership of Management and
SIIL................................. 36
Quorum................................. 36
Proxies................................ 36
Solicitation of Proxies................ 37
Required Vote.......................... 37
PROPOSED SUN CHARTER AMENDMENT................. 37
GGE SPECIAL MEETING............................ 39
Purpose................................ 39
Record Date; Voting Rights............. 39
Share Ownership of Management and
Significant Stockholders............. 39
Quorum................................. 39
Proxies................................ 40
Solicitation of Proxies................ 40
Required Vote.......................... 40
THE STOCKHOLDER AGREEMENTS..................... 41
GGE Stockholder Agreement.............. 41
Sun Stockholder Agreement.............. 42
THE MERGER..................................... 43
General................................ 43
Background of the Merger............... 43
Sun's Reasons for the Merger;
Recommendation of its Board of
Directors............................ 45
Opinion of Sun's Financial Advisor..... 45
GGE's Reasons for the Merger;
Recommendation of its Board of
Directors............................ 49
Opinion of GGE's Financial Advisor..... 50
Interests of Certain Persons in the
Merger............................... 54
Resale of Ordinary Shares Issued in the
Merger; Affiliates................... 57
Certain Federal Income Tax
Consequences......................... 57
Anticipated Accounting Treatment....... 58
Regulatory Approvals................... 58
NEW JERSEY CASINO CONTROL COMMISSION
APPROVAL............................ 58
ANTITRUST............................. 59
Appraisal and Dissenters' Rights....... 59
Stock Exchange Listing................. 60
Delisting and Deregistration of GGE
Common Stock......................... 60
THE MERGER AGREEMENT........................... 61
COMPARATIVE PER SHARE MARKET INFORMATION....... 73
UNAUDITED PRO FORMA FINANCIAL INFORMATION...... 75
DESCRIPTION OF GGE CAPITAL STOCK............... 81
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
GGE Common Stock....................... 81
<S> <C>
GGE Class B Stock...................... 81
GGE Preferred Stock.................... 81
DESCRIPTION OF SUN CAPITAL STOCK............... 82
Ordinary Shares........................ 82
Preference Shares...................... 82
COMPARISON OF THE RIGHTS OF SUN SHAREHOLDERS
AND GGE STOCKHOLDERS.......................... 83
Dividend Rights........................ 83
Voting Rights.......................... 83
Directors.............................. 84
Call of Extraordinary General
Meetings/Special Meetings............ 85
Action by Stockholders or Shareholders
Without a Meeting.................... 85
Amendment to Sun Memorandum/ GGE
Charter.............................. 86
Amendment to Sun Charter/GGE By-Laws... 86
Approval of Mergers and Asset Sales.... 86
Restricted Transactions................ 87
Amendment to Terms of Ordinary
Shares............................... 87
Rights of Appraisal.................... 87
Indemnification of Directors and
Officers............................. 88
Anti-Takeover Provisions............... 88
Rights of Inspection................... 89
Liquidation Rights..................... 89
Case Law and Court Systems............. 89
BUSINESS OF SUN................................ 90
General................................ 90
The Properties and Current Expansion
Projects............................. 90
THE BAHAMAS........................... 90
CONNECTICUT........................... 92
INDIAN OCEAN.......................... 94
FRANCE................................ 95
Competition............................ 95
PARADISE ISLAND....................... 95
THE MOHEGAN SUN CASINO................ 96
OTHER EXISTING OPERATIONS............. 96
Certain Matters Affecting Sun's
Paradise Island Operations........... 96
<CAPTION>
PAGE
---------
<S> <C>
AIRLINE ARRANGEMENTS.................. 96
UNION CONTRACT ARRANGEMENTS........... 97
CASINO LICENSE........................ 97
GAMING TAXES AND FEES................. 97
ATLANTIS CASINO LEASE................. 97
MANAGEMENT AGREEMENT.................. 97
CERTAIN ARRANGEMENTS WITH THE BAHAMIAN
GOVERNMENT.......................... 98
New Agreement with the Bahamian
Government........................... 98
CASINO LICENSE FEES AND WIN TAXES..... 98
STAMP TAX AND IMPORT DUTY............. 99
JOINT MARKETING ARRANGEMENTS.......... 99
INFRASTRUCTURE........................ 99
Certain Matters Affecting the Mohegan
Sun Casino........................... 99
THE MOHEGAN TRIBE..................... 99
TCA MANAGEMENT AGREEMENT.............. 99
Revolving Credit Facility.............. 101
MANAGEMENT OF SUN.............................. 104
PRINCIPAL SHAREHOLDER OF SUN................... 107
BUSINESS OF GGE................................ 108
General................................ 108
The Properties and Current Expansion
Project.............................. 108
RESORTS CASINO HOTEL.................. 108
SHOWBOAT LEASE........................ 109
OTHER PROPERTIES...................... 109
Competition............................ 109
Certain Matters Affecting GGE's
Operations........................... 109
NEW CONVENTION CENTER AND CASINO/HOTEL
EXPANSION........................... 109
MARKETING............................. 110
SEASONAL FACTORS...................... 111
REGULATION AND GAMING TAXES AND
FEES................................ 111
LEGAL MATTERS.................................. 113
EXPERTS........................................ 113
</TABLE>
<TABLE>
<S> <C>
Annex I Merger Agreement, as amended
Annex II GGE Stockholder Agreement, as amended
Annex III Sun Stockholder Agreement, as amended
Annex IV Opinion of Bear, Stearns & Co. Inc.
Annex V Opinion of Morgan Stanley & Co.
Incorporated
Annex VI Form of License and Services Agreement
</TABLE>
4
<PAGE>
AVAILABLE INFORMATION
Sun is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), applicable to foreign issuers, and
in accordance therewith files reports, including annual reports on Form 20-F,
and other information with the SEC. Sun makes available to its shareholders
annual reports containing audited financial statements within 105 days of the
end of each fiscal year and publishes quarterly reports containing selected
financial data for the first three quarters of the fiscal year within 60 days of
the end of such fiscal quarter (in each case prepared in accordance with
generally accepted accounting principals in the United States ("U.S. GAAP")).
Sun is exempt from the rules under the Exchange Act prescribing the furnishing
and content of proxy statements to shareholders. However, Sun furnishes
shareholders with statements with respect to annual or extraordinary meetings of
shareholders, as well as such other reports as may from time to time be
authorized by the Sun Board or be required under law. GGE is subject to the
informational requirements of the Exchange Act, and in accordance therewith
files reports, proxy statements and other information with the SEC. Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following
Regional Offices of the SEC: Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60611; and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such reports, proxy statements and
other information may be obtained from the Public Reference Section of the SEC,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC
maintains a Web site at http://www.sec.gov that contains such reports, proxy
statements and other information. Copies of such materials filed by Sun can be
inspected at the NYSE, 20 Broad Street, New York, New York 10005. Copies of such
materials filed by GGE can be inspected at the offices of the ASE at 86 Trinity
Place, New York, New York 10006.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Form F-4, certain parts of which are omitted in accordance with the
rules and regulations of the SEC. Reference is made to the Form F-4 and the
exhibits thereto for further information. Statements contained or incorporated
by reference herein concerning the provisions of any agreement or other document
filed as an exhibit to the Form F-4 or otherwise filed with the SEC are not
necessarily complete and reference is hereby made to the copy thereof so filed
for more detailed information, each such statement being qualified in its
entirety by such reference.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (EXCLUDING
EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO
THE INFORMATION INCORPORATED HEREIN) ARE AVAILABLE UPON REQUEST FROM, IN THE
CASE OF DOCUMENTS RELATING TO SUN, SUN INTERNATIONAL HOTELS LIMITED, CORAL
TOWERS, PARADISE ISLAND, THE BAHAMAS (TELEPHONE: (809) 363-2516), AND, IN THE
CASE OF DOCUMENTS RELATING TO GGE, GRIFFIN GAMING & ENTERTAINMENT, INC., 1133
BOARDWALK, ATLANTIC CITY, NEW JERSEY 08401, ATTENTION: SECRETARY (TELEPHONE:
(609) 344-6000). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY DECEMBER 3, 1996.
ENFORCEABILITY OF CIVIL LIABILITIES
Sun is a Bahamian international business company incorporated under the
International Business Companies Act, 1989 of the Commonwealth of The Bahamas
(the "IBCA"). Certain of the directors and executive officers of Sun reside
outside the United States. A substantial portion of the assets of such persons
and of Sun are located outside the United States. As a result, in the opinion of
Harry B. Sands & Company, Bahamian counsel to Sun, it may be difficult or
impossible to effect service of process within the United States upon such
persons, to bring suit in the United States or to enforce, in the United States
courts, any judgment obtained there against such persons predicated upon any
civil liability provisions of the United States federal securities laws. It is
unlikely that Bahamian courts would entertain original actions against Bahamian
companies, their directors or officers predicated solely upon United States
federal securities laws. Furthermore, judgments predicated upon any civil
liability provisions of the United States federal securities laws are not
directly enforceable in The Bahamas. Rather, a lawsuit must be brought in The
Bahamas on any such judgment. Subject to consideration of private international
law, in general, a judgment obtained after due trial by a court of competent
jurisdiction, which is final and conclusive as to the issues in contention, is
actionable in Bahamian courts and is impeachable only upon the grounds of (i)
fraud, (ii) public policy and (iii) natural justice.
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INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents heretofore filed with the SEC pursuant to the
Exchange Act are incorporated herein by reference:
1. Sun's Annual Report on Form 20-F for the fiscal year ended December 31,
1995 (the "1995 Sun 20-F");
2. Sun's Reports on Form 6-K dated January 30, 1996, February 2, 1996, March
21, 1996, May 2, 1996, June 4, 1996, July 25, 1996, August 19, 1996, August 22,
1996, September 6, 1996, and October 1, 1996.
3. The description of Ordinary Shares set forth in Sun's Registration
Statements filed pursuant to Section 12 of the Exchange Act, and any amendment
or report filed for the purpose of updating such description.
4. GGE's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "1995 GGE 10-K");
5. The portions of GGE's Proxy Statement dated April 5, 1996 that have been
incorporated by reference in the 1995 GGE 10-K;
6. GGE's Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1996 and June 30, 1996; and
7. GGE's Current Report on Form 8-K reporting an event on August 19, 1996.
All reports and other documents filed by either Sun or GGE pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Proxy Statement/Prospectus and prior to the date of its respective Special
Meeting shall be deemed to be incorporated by reference herein and to be a part
hereof from the dates of filing such reports and documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein, or in any
other subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER SUN OR GGE. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES, NOR DOES IT CONSTITUTE THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF SUN OR GGE SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
AS USED HEREIN, UNLESS THE CONTEXT OTHERWISE CLEARLY REQUIRES: "SUN" REFERS
TO SUN INTERNATIONAL HOTELS LIMITED AND ITS CONSOLIDATED SUBSIDIARIES AND "GGE"
REFERS TO GRIFFIN GAMING & ENTERTAINMENT, INC. AND ITS CONSOLIDATED
SUBSIDIARIES. CAPITALIZED TERMS NOT DEFINED IN THIS PROXY STATEMENT/PROSPECTUS
HAVE THE RESPECTIVE MEANINGS SPECIFIED IN THE MERGER AGREEMENT.
------------------------
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO
SUN AND SUB HAS BEEN PROVIDED BY SUN. ALL INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS WITH RESPECT TO GGE HAS BEEN PROVIDED BY GGE.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE
TO, AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO. THIS PROXY STATEMENT/PROSPECTUS
INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT, AND SUCH STATEMENTS ARE SUBJECT TO THE SAFE-HARBOR CREATED BY
SUCH SECTION.
------------------------
SHAREHOLDERS OF SUN AND STOCKHOLDERS OF GGE ARE URGED TO READ THIS PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY AND SHOULD
CONSIDER CAREFULLY THE INFORMATION SET FORTH BELOW UNDER THE HEADING "RISK
FACTORS."
------------------------
SUN INTERNATIONAL HOTELS LIMITED
GENERAL
Sun is an international resort and gaming company which develops and manages
premier resort and casino properties. Sun currently operates resort hotels and
casinos in Connecticut, The Bahamas, the Indian Ocean and France and has several
properties under development. Sun's largest property is the Atlantis Resort &
Casino ("Atlantis"), a 1,147-room resort and casino located on Paradise Island,
The Bahamas. Following its acquisition by Sun, Atlantis was redeveloped into an
ocean-themed destination resort through a $140 million capital expenditure
program (the "Initial Development Program"). Seeking to capitalize on the
success of Atlantis, Sun expects to commence construction of an approximately
$375 million expansion project (the "Paradise Island Expansion") in the fourth
quarter of 1996. The Paradise Island Expansion will substantially increase Sun's
room base on Paradise Island with the construction of a new 1,200-room deluxe
hotel, significantly increase its casino capacity and convention space and
expand Atlantis' ocean-themed adventure attractions. As part of its continued
development of Paradise Island, Sun recently acquired the 562-room Holiday Inn
Pirate's Cove Resort (the "Pirate's Cove Hotel") adjacent to Atlantis for
approximately $12 million in cash plus the assumption of approximately $22.6
million of indebtedness. In addition to the Paradise Island Expansion, Sun is
planning an approximately $16 million renovation of Pirate's Cove Hotel to
create a moderately-priced hotel within the Atlantis complex (the "Pirate's Cove
Renovation"). Sun expects to complete the Paradise Island Expansion by the
second quarter of 1998, and the Pirate's Cove Renovation by the fourth quarter
of 1998, thus creating an integrated 3,000-room resort complex appealing to all
market segments which will include approximately 1,200 deluxe rooms, 1,100
mid-market rooms and 700 moderately priced rooms. After completion of these
projects, Sun will continue to own approximately 190 acres of undeveloped land
on Paradise Island with extensive beach and golf course frontage.
The Mohegan Sun Casino in Montville, Connecticut (the "Mohegan Sun Casino"),
which was developed for the Mohegan Tribe of Indians of Connecticut (the
"Mohegan Tribe") by a partnership in which Sun owns a 50% interest, was opened
on October 12, 1996. The Mohegan Sun Casino consists of approximately 150,000
square feet of gaming space and features approximately 2,670 slot machines (with
capacity for approximately 3,000 slot machines), 180 table games and parking for
7,500 cars.
Sun currently manages 10 hotels containing approximately 3,200 rooms and six
casinos with an aggregate of over 200,000 square feet of gaming space containing
more than 4,000 slot machines and 300 table games. Sun anticipates that by the
fourth quarter of 1998 it will manage 11 hotels containing in excess of 4,400
rooms and six casinos with an aggregate of approximately 220,000 square feet of
gaming space containing approximately 5,000 slot machines and 350 table games.
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PARADISE ISLAND REDEVELOPMENT
Following the acquisition of its Paradise Island operations on May 3, 1994,
Sun embarked upon the Initial Development Program, which included the
refurbishment of all 1,147 guest rooms at Atlantis, the construction of new
specialty food and beverage facilities, an upgrading of the 30,000-square foot
casino (the "Atlantis Casino") and the creation of a 14-acre saltwater marine
life habitat which runs through Atlantis. The marine life habitat features the
world's largest open air aquarium, showcasing over 100 species of marine life,
waterfalls, lagoons, adventure walks and clear tunnels submerged in a predator
lagoon through which visitors can walk and be surrounded by sharks, sea turtles,
stingrays and other marine life. The Initial Development Program was
substantially completed by December 1994, after only seven months of
construction. Results of Atlantis since completion of the Initial Development
Program have exceeded management's expectations. For the year ended December 31,
1995, Atlantis achieved average occupancy and average daily room rates of 85%
and $122, respectively, which Sun believes are the highest the property has
achieved during the last ten years. For the six months ended June 30, 1996,
Atlantis achieved average occupancy and average daily room rates of 92% and
$162, respectively.
THE PROPERTIES AND CURRENT EXPANSION PROJECTS
THE BAHAMAS PROPERTIES
Sun, through its wholly owned Bahamian subsidiary, Sun International Bahamas
Limited ("Sun Bahamas"), owns approximately 562 acres constituting almost 70% of
Paradise Island. Approximately 220 acres are currently available for future
development, of which 30 acres will be used for the Paradise Island Expansion.
In addition to Atlantis, Sun's Paradise Island operations include the Ocean Club
Golf & Tennis Resort (the "Ocean Club"), a luxury resort hotel with 59 guest
rooms, the Paradise Paradise Beach Resort ("Paradise Paradise"), a 100-room
beachfront resort hotel catering to value-conscious tourists and a championship
18-hole golf course (the "Paradise Island Golf Course"). The Atlantis Casino
features approximately 830 slot machines and 70 table games in 30,000 square
feet of gaming space. Paradise Island has extensive existing infrastructure and
is easily accessible from the densely populated eastern United States. There are
regularly scheduled airline flights from south Florida and New York City to
either Paradise Island or neighboring Nassau, having flight times of
approximately 50 minutes and three hours, respectively.
THE PARADISE ISLAND EXPANSION, PIRATE'S COVE RENOVATION
The further development of Paradise Island is the cornerstone of Sun's
expansion plans, and its approximately 220 acres of undeveloped property provide
Sun with an opportunity to expand Paradise Island into a master planned and
highly themed destination resort centered around spectacular Bahamian beaches
and the wonders of the ocean. Sun expects to begin construction of the Paradise
Island Expansion during the fourth quarter of 1996 and to complete construction
during the second quarter of 1998 at a cost of approximately $375 million. Sun
does not expect the construction of the Paradise Island Expansion to interfere
materially with its operations at Atlantis. The Paradise Island Expansion will
include the construction of a 1,200-room deluxe hotel. It is also intended to
significantly increase gaming space and convention and meeting facilities and to
expand the ocean-themed attractions of Atlantis with the addition of numerous
marine attractions. Upon completion of the Paradise Island Expansion, guests
will be able to explore a significantly expanded ocean-themed adventure
environment containing lagoons, waterfalls, watersports and exotic marine life
exhibits.
Consistent with Sun's strategy of offering accomodations that appeal to
broad market segments within a single master planned destination resort, Sun has
acquired the Pirate's Cove Hotel on Paradise Island located adjacent to
Atlantis. Sun intends to use this property to house many of the construction
laborers during the Paradise Island Expansion. In addition, Sun intends to
implement the approximately $16 million Pirate's Cove Renovation, which is
expected to be completed during the fourth quarter of 1998, to position
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the Pirate's Cove Hotel as Atlantis' moderately priced unit. Assuming completion
of the Paradise Island Expansion and the Pirate's Cove Renovation, Sun will
operate five hotels on Paradise Island with an aggregate of approximately 3,000
hotel rooms.
Sun continues to explore additional development opportunities on Paradise
Island. Following the completion of the Paradise Island Expansion and the
Pirate's Cove Renovation, management's long-term growth plan includes the
potential development of additional resort properties on Paradise Island, each
appealing to a distinct target market. For example, management anticipates that
additional expansion opportunities will exist to develop room capacity that
caters to budget-oriented customers at lower price points than those currently
offered at Atlantis. In addition, management believes that similar expansion
opportunities exist in the luxury end of the market with a further build-out of
the Ocean Club. Other potential development projects may include residential
villas, timeshare developments, marinas and golf course communities. Any further
development projects on Paradise Island will be constructed on the approximately
190 acres of undeveloped land remaining after the Paradise Island Expansion,
which includes extensive beach and golf course frontage, or on additional tracts
of land that may be acquired from time to time.
ARRANGEMENTS WITH BAHAMIAN GOVERNMENT
In connection with the Paradise Island Expansion and in order to stimulate
Sun's further investment in The Bahamas, the Government of the Commonwealth of
The Bahamas and Sun have reached an agreement granting Sun certain tax relief
and investment credits. See "BUSINESS OF SUN -- New Agreement with the Bahamian
Government."
CONNECTICUT
Sun has a 50% interest in, and is a managing partner of, Trading Cove
Associates, a Connecticut general partnership ("TCA"), which developed and
manages the Mohegan Sun Casino for the Mohegan Tribe in Montville, Connecticut.
Under a seven-year management agreement between TCA and the Mohegan Tribe (the
"TCA Management Agreement"), TCA manages the Mohegan Sun Casino in exchange for
payments ranging from 30% to 40% of pretax income (as defined in the TCA
Management Agreement), depending upon profitability thresholds.
Sun estimates the total cost of developing, constructing, equiping and
opening the Mohegan Sun Casino to be approximately $305 million, exclusive of
$13 million in initial working capital. The source of funds consists of (i) $175
million from the sale by the Mohegan Tribal Gaming Authority (the "Mohegan
Gaming Authority") of Senior Secured Notes due 2002 (the "Mohegan Senior Notes")
to certain institutional investors in a private placement (the "Mohegan
Offering"), (ii) $40 million from the sale by the Mohegan Gaming Authority of
Subordinated Notes due 2003 (the "Subordinated Notes") in connection with the
Mohegan Offering (specifically, $38.3 million to Sun and $1.7 million to TCA),
(iii) $50 million committed by Sun pursuant to a completion guarantee (the
"Secured Completion Guarantee"), for which Sun received certain subordinated
indebtedness (the "Secured Completion Guarantee Notes"), and (iv) $40 million of
equipment financing. In addition, $13 million of initial working capital has
been provided by a bank working capital facility.
Construction of the Mohegan Sun Casino began in early October 1995, and the
facility commenced operations on October 12, 1996. Sun believes that the
demographics of the area surrounding the Mohegan Sun Casino are extremely
favorable, with 10.2 million adults residing within 100 miles and 21.8 million
adults residing within 150 miles of the Mohegan Sun Casino. The Mohegan Sun
Casino is located approximately ten miles west of Foxwoods Resort & Casino
("Foxwoods"), which Sun believes to be one of the most profitable casinos in the
world. Foxwoods, which is operated by the Mashantucket Pequot Tribe of Indians
(the "Pequot Tribe"), reported approximately $595 million of revenues from slot
machines for the 12 months ended June 30, 1996, an average of approximately $405
per slot machine per day.
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The Mohegan Sun Casino is readily accessable from the interstate highway
systems through its own four-lane access road with a direct exit from
Connecticut Route 2A (a four-lane expressway), which connects to I-395,
approximately one mile from the Mohegan Sun Casino. I-395 connects to I-95, the
main highway that connects Boston, Providence and New York City, approximately
five miles further away. Sun believes that the location, ease of access and
distinctive northeastern Indian theme of the Mohegan Sun Casino should enable it
to capture a significant share of the gaming market in the northeastern United
States.
INDIAN OCEAN
Sun owns 22.8% of Sun Resorts Limited, a Mauritian company which is publicly
traded on the Mauritius Stock Exchange ("Sun Indian Ocean"). Sun manages each of
Sun Indian Ocean's six resort hotels pursuant to management contracts for which
it receives management fees calculated as a percentage of revenue, adjusted
operating income and development expenditures. Sun Indian Ocean is regarded as
one of the premier resort operators in the Indian Ocean and owns five beach
resort hotels in Mauritius and one in the Comoros, with a total of approximately
1,400 rooms. Mauritius and the Comoros are tropical islands located in the
Indian Ocean approximately 1,200 miles and 200 miles, respectively, from the
east coast of mainland Africa. The resorts in Mauritius and the Comoros are
marketed primarily to tourists from Europe and South Africa. Two of the five
Mauritian resorts offer deluxe accommodations and are acknowledged by the
European travel trade to be among the finest resorts in the world. The other
three Mauritian resorts and the hotel in the Comoros cater to mid-market
travellers. Sun Indian Ocean owns five of the 16 major hotels in Mauritius,
representing approximately 36% of the room inventory among properties with more
than 80 rooms.
FRANCE
Sun owns an effective 25% interest in Societe de Participation et
d'Investissements dans les Casinos, a private French company ("Sun France"),
which owns four locals-oriented casinos in France, located in Nice, Chamonix and
in the Marseilles districts of Cassis and Carry-le-Rouet. Sun provides various
services to Sun France's four casinos under a technical assistance agreement
pursuant to which Sun receives a fixed fee equivalent to approximately $800,000
per year (at current exchange rates). Sun's principal partners in Sun France are
Chargeurs, S.A., Accor S.A. and the Barriere Family, the latter two of which
have broad experience in the French domestic gaming and international lodging
industries. Sun France operates in excess of 20,000 square feet of gaming space
containing approximately 530 slot machines and 60 table games.
HISTORY AND OWNERSHIP
Sun was established in 1993 in order to acquire the Paradise Island Resort &
Casino and related operations from Resorts International, Inc. (predecessor to
GGE), which acquisition was completed in May 1994. In May 1995, Sun acquired
from SIIL its equity interests in Sun Indian Ocean and Sun France and SIIL's
project development and management businesses. SIIL, which controls
approximately 55% of Sun's Ordinary Shares (approximately 48% assuming
consummation of the Merger at a Conversion Number of .4324), is a private
holding company in which each of Caledonia Investments plc, a United Kingdom
company publicly traded on the London Stock Exchange ("Caledonia"), Safmarine &
Rennies Holdings Limited, a South African company publicly traded on the
Johannesburg Stock Exchange ("Safren"), and a trust for the family of Mr.
Solomon Kerzner (Chairman of Sun) controls approximately a one-third equity
interest.
Additional information concerning Sun is included in the documents
incorporated by reference in this Proxy Statement/ Prospectus. See "AVAILABLE
INFORMATION" and "INCORPORATION OF DOCUMENTS BY REFERENCE."
Sun's principal executive offices are located at Coral Towers, Paradise
Island, The Bahamas and its telephone number is (809) 363-2516. See "BUSINESS OF
SUN."
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GRIFFIN GAMING & ENTERTAINMENT, INC.
GGE is a holding company which, through its indirect wholly owned subsidiary
Resorts International Hotel, Inc. ("RIH"), is principally engaged in the
ownership and operation of Merv Griffin's Resorts Casino Hotel (the "Resorts
Casino Hotel") in Atlantic City, New Jersey. The Resorts Casino Hotel has
approximately 660 guest rooms, a 70,000 square foot casino, an 8,000 square foot
simulcast parimutuel betting and poker area and related facilities and is
located on the Boardwalk.
In 1995 GGE purchased a 4.4 acre tract on the Boardwalk (the "Chalfonte
Site") adjacent to the Resorts Casino Hotel on which it planned to construct up
to 700 new hotel rooms, 70,000 square feet of casino space and a 2,000 space
parking garage and transportation center (the "Chalfonte Project"). Subject to
the receipt of regulatory approvals, GGE planned to break ground in the fall of
1996 on the infrastructure necessary to support the full expansion. The first
phase of construction was expected to consist of 500 new hotel rooms, 50,000
square feet of casino space and the new garage. Construction costs for this
phase were estimated at approximately $200 million. GGE also recently entered
into a five year lease with an option to purchase approximately 3 acres to the
north of the Resorts Casino Hotel, purchased an adjacent parcel of land and was
successful in vacating the portion of North Carolina Avenue that lies between
the Chalfonte Site and the Resorts Casino Hotel. These parcels together with the
Chalfonte Site total more than 9 acres, all of which would play a role in GGE's
expansion plans. Although the Merger Agreement limits the amount of capital
expenditures that GGE can make on this project prior to consummation of the
Merger or termination of the Merger Agreement, GGE is continuing with the
process of obtaining permits and limited design activities. Sun has advised GGE
that if and when the Merger is consummated, Sun expects to proceed with
development of the Chalfonte Site, although it expects to reconsider the type of
facility and significantly increase the amount to be invested (the "Revised
Chalfont Project").
Approximately 10 acres of Boardwalk property owned by GGE are leased to
Atlantic City Showboat, Inc. ("ACS") under a 99-year net lease expiring in 2082
(the "Showboat Lease"). All lease payments due under the Showboat Lease directly
service GGE's interest obligations under GGE's $105,333,000 principal amount of
First Mortgage Non-Recourse Pass-Through Notes (the "Showboat Notes"). The
leased acreage is the site of the Showboat Casino Hotel ("Showboat") which is
operated by ACS.
GGE also owns approximately 7.7 acres in the South Inlet area and other real
estate in the Atlantic City area, most of which is vacant land.
Additional information concerning GGE is included in the documents
incorporated by reference in this Proxy Statement/Prospectus. See "AVAILABLE
INFORMATION" and "INCORPORATION OF DOCUMENTS BY REFERENCE."
GGE's principal executive offices are located at 1133 Boardwalk, Atlantic
City, New Jersey 08401 and its telephone number is (609) 344-6000. See "BUSINESS
OF GGE."
SUN MERGER CORP.
Sub was incorporated in Delaware on August 12, 1996, solely for the purpose
of engaging in the transactions contemplated by the Merger Agreement and has
engaged in no other business other than incident to its creation and the Merger
Agreement and the transactions contemplated by the Merger Agreement. Its
principal executive offices are located at Coral Towers, Paradise Island, The
Bahamas and its telephone number is (809) 363-2516.
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THE SPECIAL MEETINGS
SUN
PURPOSE. The Sun Extraordinary General Meeting will be held in Room 501 of
the Holiday Inn Crowne Plaza, 1605 Broadway, New York, NY 10019, on December 10,
1996, at 8:30 a.m., local time, to consider and vote upon a proposal to approve
the Charter Amendment. See "SUN EXTRAORDINARY GENERAL MEETING--Purpose."
RECORD DATE. Only holders of record of Ordinary Shares at the Sun Record
Date are entitled to receive notice of and to vote at the Sun Extraordinary
General Meeting. At the Sun Record Date, there were 29,245,184 Ordinary Shares
outstanding, each of which entitles the registered holder thereof to one vote.
See "SUN EXTRAORDINARY GENERAL MEETING--Record Date; Voting Rights."
SHARE OWNERSHIP OF MANAGEMENT AND SIIL. At the close of business on the Sun
Record Date, SIIL controlled approximately 55% of the Ordinary Shares then
outstanding and directors and executive officers of Sun, as a group, were the
owners of an aggregate of less than 1% of the Ordinary Shares then outstanding,
excluding Ordinary Shares issuable upon exercise of options. See "SUN
EXTRAORDINARY GENERAL MEETING--Share Ownership of Management and SIIL" and
"PRINCIPAL SHAREHOLDER OF SUN."
REQUIRED VOTE. Approval of the Charter Amendment will require the
affirmative vote of the holders of a majority of the Ordinary Shares outstanding
as of the Sun Record Date. SIIL has entered into the Sun Stockholder Agreement,
the effect of which is to ensure approval of the Charter Amendment. See "THE
STOCKHOLDER AGREEMENTS--Sun Stockholder Agreement."
An abstention with respect to the Charter Amendment will have the effect of
a vote cast against such proposal. The Ordinary Shares represented by valid
proxies received will be voted in the manner specified on the proxies. Where a
specific choice is not indicated, the Ordinary Shares represented by valid
proxies received will be voted "FOR" approval of the Charter Amendment. Brokers
who hold Ordinary Shares as nominees will not have discretionary authority to
vote such Ordinary Shares on the Charter Amendment in the absence of
instructions from the beneficial owners thereof. Any shares which are not voted
because the nominee-broker lacks such discretionary authority will have the
effect of votes cast against the Charter Amendment. See "SUN EXTRAORDINARY
GENERAL MEETING--Required Vote."
GGE
PURPOSE. The GGE Special Meeting will be held at Merv Griffin's Resorts
Casino Hotel, located at 1133 Boardwalk, Atlantic City, NJ 08401, on December
10, 1996, at 9:30 a.m., local time, to consider and vote upon a proposal to
adopt the Merger Agreement, which provides for the Merger of Sub with and into
GGE, with GGE surviving as a wholly owned subsidiary of Sun. See "GGE SPECIAL
MEETING-- Purpose."
RECORD DATE. Only holders of record of GGE Common Stock at the close of
business on the GGE Record Date are entitled to receive notice of and to vote at
the GGE Special Meeting. At the GGE Record Date, there were 7,942,785 shares of
GGE Common Stock outstanding. Each share of GGE Common Stock entitles the
registered holder thereof to one vote at the GGE Special Meeting. See "GGE
SPECIAL MEETING--Record Date; Voting Rights."
SHARE OWNERSHIP OF MANAGEMENT AND SIGNIFICIANT GGE STOCKHOLDERS. On the GGE
Record Date, directors and executive officers of GGE, as a group, were the
beneficial owners of an aggregate of 2,241,528 shares (approximately 28% of the
GGE Common Stock then outstanding), excluding shares issuable upon exercise of
their options and warrants. Of these shares, 2,125,108 were beneficially owned
by Merv Griffin, Chairman of the Board of GGE, through Atlantic Resorts
Holdings, Inc. ("Atlantic"), a corporation controlled by Mr. Griffin (each of
Atlantic and Merv Griffin, a "Significant GGE Stockholder" and, together, the
"Significant GGE Stockholders"). See "GGE SPECIAL MEETING--Share Ownership of
Management and Significant Stockholders."
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REQUIRED VOTE. Adoption of the Merger Agreement will require the
affirmative vote of the holders of a majority of the outstanding shares of GGE
Common Stock. The shares of GGE Common Stock represented by valid proxies
received will be voted in the manner specified on the proxies. Where a specific
choice is not indicated, the shares represented by valid proxies received will
be voted "FOR" the adoption of the Merger Agreement. An abstention will have the
effect of a vote cast against adoption of the Merger Agreement. Brokers who hold
shares of GGE Common Stock as nominees will not have discretionary authority to
vote such shares in the absence of instructions from the beneficial owners
thereof. Any shares which are not voted because the nominee-broker lacks such
discretionary authority will have the effect of votes cast against adoption of
the Merger Agreement. See "GGE SPECIAL MEETING--Required Vote."
Pursuant to the terms of the GGE Stockholder Agreement, the Significant GGE
Stockholders have agreed, among other things, subject to certain conditions set
forth therein, to vote their shares of GGE Common Stock in favor of the adoption
of the Merger Agreement at the GGE Special Meeting (or alternatively, upon Sun's
request, to grant Sun a proxy to so vote such shares, provided Sun has obtained
all necessary approvals in connection with such proxy). The general effect of
the GGE Stockholder Agreement is to ensure the affirmative vote at the GGE
Special Meeting of a significant number of shares of GGE Common Stock. See "THE
STOCKHOLDER AGREEMENTS--GGE Stockholder Agreement."
PROPOSED SUN CHARTER AMENDMENT
The proposed Charter Amendment, if approved, will add provisions to the Sun
Charter which would require any holder of debt or equity securities of Sun
(including Ordinary Shares) who was determined by the NJCC to be a Disqualified
Holder (as defined in the NJCCA) (the date on which such determination was made,
the "Notice Date") to dispose of such securities within 120 days of the
determination of such holder's disqualification. The provisions would also allow
Sun to redeem any securities held by a Disqualified Holder beyond the 120 day
time limit at the lesser of the lowest closing sale price of such securities
between the Notice Date and 120 days after the Notice Date and the price paid
for such securities when acquired. The effect of the Charter Amendment and Sun
holding a New Jersey casino license would be to give the NJCC the ability to
prevent certain people from owning Sun's debt or equity securities.
THE MERGER AND THE MERGER AGREEMENT
GENERAL. At the Effective Time of the Merger, Sub will be merged with and
into GGE, with GGE continuing as the surviving corporation and a wholly owned
subsidiary of Sun. As a result of the Merger, the separate corporate existence
of Sub will cease and GGE will succeed to all the rights and be responsible for
all the obligations of Sub in accordance with the Delaware General Corporation
Law (the "DGCL"). Subject to the terms and conditions of the Merger Agreement,
each share of GGE Common Stock outstanding immediately prior to the Effective
Time (other than shares owned directly or indirectly by Sun or GGE, which will
be canceled) will be converted into the right to receive the Conversion Number
(as defined below) of a fully paid and nonassessable Ordinary Share. "Conversion
Number" means .4324; PROVIDED, HOWEVER, that if the average of the closing sales
prices of one Ordinary Share on the NYSE Composite Transactions List (as
reported in the WALL STREET JOURNAL or, if not reported thereby, any other
authoritative source) for each of the 15 consecutive trading days immediately
preceding the fifth trading day prior to the Effective Time (the "Average Market
Price") is less than $47.41, then the Conversion Number shall be the quotient,
rounded to the fourth decimal place, obtained by dividing 20.5 by the Average
Market Price. However, Sun may terminate the Merger Agreement and elect not to
consummate the transactions contemplated thereby if the Average Market Price is
less than $41.625; PROVIDED, HOWEVER, that Sun shall furnish GGE with written
notice two NYSE trading days in advance of the date that it intends to terminate
the Merger Agreement for this reason and, during such two trading day period,
GGE
13
<PAGE>
shall be entitled to elect to go forward with the Merger and, if GGE shall
timely make such election, Sun shall not terminate the Merger Agreement for this
reason and the "Conversion Number" shall mean .4925. Cash will be paid to
holders of GGE Common Stock in lieu of any fractional Ordinary Shares. Also,
subject to the terms and conditions of the Merger Agreement, each issued and
outstanding share of GGE Class B Stock will be converted into the right to
receive the Class B Consideration. As of the Effective Time, all such shares of
GGE Common Stock and GGE Class B Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares of GGE Common Stock or GGE Class B
Stock shall cease to have any rights with respect thereto, except the right to
receive the Conversion Number of an Ordinary Share plus cash in lieu of
fractional Ordinary Shares or the Class B Consideration, as the case may be, to
be issued in consideration therefor upon surrender of the relevant certificates
in accordance with the terms of the Merger Agreement, without interest. As of
the Effective Time, the fraction of an Ordinary Share into which a share of GGE
Class B Stock is converted shall trade as part of a Unit.
HOLDERS OF GGE COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING
SHARES OF GGE COMMON STOCK WITH THE ENCLOSED PROXY CARD. IF THE MERGER IS
CONSUMMATED, A LETTER OF TRANSMITTAL WILL BE MAILED AS SOON AS PRACTICABLE AFTER
THE MERGER TO EACH PERSON WHO WAS A HOLDER OF OUTSTANDING SHARES OF GGE COMMON
STOCK IMMEDIATELY PRIOR TO THE CONSUMMATION OF THE MERGER. HOLDERS OF GGE COMMON
STOCK SHOULD SEND CERTIFICATES REPRESENTING GGE COMMON STOCK TO THE EXCHANGE
AGENT (AS DEFINED) ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH THE
INSTRUCTIONS CONTAINED IN, THE LETTER OF TRANSMITTAL. SIMILARLY, IF THE MERGER
IS CONSUMMATED, A LETTER OF TRANSMITTAL WILL BE MAILED AS SOON AS PRACTICABLE
AFTER THE MERGER TO EACH PERSON WHO WAS A HOLDER OF OUTSTANDING SHARES OF GGE
CLASS B STOCK IMMEDIATELY PRIOR TO THE CONSUMMATION OF THE MERGER. HOLDERS OF
GGE CLASS B STOCK SHOULD SEND CERTIFICATES REPRESENTING UNITS COMPRISING SHARES
OF GGE CLASS B STOCK AND JUNIOR MORTGAGE NOTES TO THE EXCHANGE AGENT ONLY AFTER
THEY RECEIVE, AND IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED IN, THE LETTER
OF TRANSMITTAL. See "THE MERGER AGREEMENT--Exchange of GGE Common Stock and GGE
Class B Stock."
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware unless the Certificate of
Merger provides for a later time of effectiveness. The filing of the Certificate
of Merger will occur as soon as practicable on or after the Closing Date (as
defined in the Merger Agreement). See "THE MERGER AGREEMENT--Conditions to the
Consummation of the Merger; Conditions to Each Party's Obligation to Effect the
Merger."
ORDINARY SHARES TO BE ISSUED. Based on the number of shares of GGE Common
Stock and GGE Class B Stock outstanding at the GGE Record Date and based on an
assumed Conversion Number of .4324 and Class B Consideration of .1928 of an
Ordinary Share per share of GGE Class B Stock, 4,113,545 Ordinary Shares would
be issued upon consummation of the Merger, assuming exercise of all outstanding
options and warrants for shares of GGE Common Stock prior to the Effective Time.
RECOMMENDATION OF THE SUN BOARD. The Sun Board has unanimously approved the
Merger Agreement and the Charter Amendment. THE SUN BOARD UNANIMOUSLY RECOMMENDS
THAT THE SHAREHOLDERS OF SUN VOTE "FOR" APPROVAL OF THE CHARTER AMENDMENT AT THE
SUN EXTRAORDINARY GENERAL MEETING. See "THE MERGER--Sun's Reasons for the
Merger; Recommendation of its Board of Directors" and "PROPOSED SUN CHARTER
AMENDMENT."
OPINION OF SUN'S FINANCIAL ADVISOR. Bear, Stearns & Co. Inc. ("Bear
Stearns") has acted as financial advisor to Sun in connection with the Merger
and has delivered its written opinion (the "Bear Stearns Opinion") dated August
18, 1996, to the Sun Board, to the effect that, based upon and subject to the
14
<PAGE>
various considerations set forth therein, as of the date of such opinion, the
Merger is fair, from a financial point of view, to Sun. The full text of the
Bear Stearns Opinion which sets forth a description of the assumptions made,
general procedures followed, factors considered and limitations on the review
undertaken, is attached hereto as Annex IV and should be read carefully in its
entirety. See "THE MERGER-- Opinion of Sun's Financial Advisor."
RECOMMENDATION OF THE GGE BOARD. The GGE Board has unanimously determined
that the Merger is advisable and fair to and in the best interests of GGE and
its stockholders and has unanimously approved the Merger Agreement. THE GGE
BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF GGE COMMON STOCK VOTE "FOR" THE
ADOPTION OF THE MERGER AGREEMENT AT THE GGE SPECIAL MEETING. For a discussion of
the interests that certain directors and executive officers of GGE have with
respect to the Merger that are different from, or in addition to, the interests
of stockholders of GGE generally, see "THE MERGER--Interests of Certain Persons
in the Merger." Such interests, together with other relevant factors, were
considered by the GGE Board in making its recommendation and approving the
Merger Agreement. See "THE MERGER--GGE's Reasons for the Merger; Recommendation
of its Board of Directors."
OPINION OF GGE'S FINANCIAL ADVISOR. Morgan Stanley & Co. Incorporated
("Morgan Stanley") was retained by GGE to provide its written opinion (the
"Morgan Stanley Opinion") dated August 19, 1996 to the GGE Board to the effect
that, based upon and subject to the various considerations set forth therein, as
of the date of such opinion, the consideration to be received by the holders of
shares of GGE Common Stock (other than Sun and its affiliates) pursuant to the
Merger Agreement is fair to such holders from a financial point of view. The
full text of the Morgan Stanley Opinion which sets forth the assumptions made,
general procedures followed, factors considered and limitations on the review
undertaken by Morgan Stanley in rendering its opinion, is attached hereto as
Annex V and should be read carefully in its entirety. See "THE MERGER--Opinion
of GGE's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain directors and executive
officers of GGE have certain interests in the Merger that are different from, or
in addition to, the interests of stockholders of GGE generally. Such interests
include, among other things, potential payments under severance agreements and
the assumption of outstanding options and warrants to purchase GGE Common Stock
by Sun and the substitution of Ordinary Shares as the underlying stock in such
options and warrants. It is expected that each of Thomas E. Gallagher (President
and Chief Executive Officer of GGE) and Matthew B. Kearney (Executive Vice
President--Finance and Chief Financial Officer of GGE) will enter into a
severance agreement with GGE. Each severance agreement is expected to provide,
among other things, for the payment of certain benefits to the executive officer
in the event of termination. Also, contingent upon consummation of the Merger
and pursuant to the Merger Agreement, GGE has granted to its executive officers
performance bonuses in the aggregate amount of $2,725,000. See "THE
MERGER--Interests of Certain Persons in the Merger." In addition, subject to
certain conditions, for six years from the Effective Time, Sun has agreed to
maintain (i) GGE's current directors' and officers' insurance and
indemnification policy, to the extent that such policy provides coverage for
events occurring at or prior to the Effective Time, for all persons who were
directors and officers of GGE on the date of the Merger Agreement and (ii) all
rights to indemnification for all acts or omissions occurring at or prior to the
Effective Time for all current and former directors and officers of GGE. See
"THE MERGER--Interests of Certain Persons in the Merger" and "THE MERGER
AGREEMENT--Indemnification, Exculpation and Insurance."
LICENSE AND SERVICES AGREEMENT. Upon the closing of the Merger, GGE, The
Griffin Group, Inc., a corporation controlled by Mr. Griffin (the "Griffin
Group"), and RIH will enter into a License and Services Agreement (the "License
and Services Agreement") pursuant to which (a) the current license and services
agreement between such parties will be terminated and (b) the Griffin Group will
provide to GGE, RIH and Sun a non-exclusive license to use the name and likeness
of Merv Griffin to advertise and promote Resorts Casino Hotel, Atlantis and the
Mohegan Sun Casino. The License and Services
15
<PAGE>
Agreement is to continue to September 16, 2001, unless terminated earlier by
either GGE or the Griffin Group under certain circumstances. Also, in accordance
with the terms of the License and Services Agreement, total aggregate
compensation of $10,973,000 is to be paid to the Griffin Group upon execution of
such agreement which amount may be retained by the Griffin Group in the event of
any termination. A copy of the form of License and Services Agreement is
attached hereto as Annex VI. See "THE STOCKHOLDER AGREEMENTS--GGE Stockholder
Agreement" and "THE MERGER--Interests of Certain Persons in the Merger."
APPRAISAL AND DISSENTERS' RIGHTS. Pursuant to the IBCA, holders of Ordinary
Shares who abstain from voting or who vote against a transaction or modification
of their rights as shareholders (such as the Charter Amendment) have two
potential remedies under Bahamian law. Such holders could allege the transaction
or modification was oppressive or unfairly disregarded their rights and could
apply to a Bahamian court under the IBCA for an order to restrain such
transaction or modification. The burden of proving to the court that the
necessary oppression or prejudice exists is onerous and rests with the holders.
If any holder were successful with such a claim, a Bahamian court would have the
power to issue a wide variety of orders, including an order requiring
liquidation of Sun. In addition, holders of 15% or more of the Ordinary Shares
who did not vote in favor of a modification of their rights as shareholders
could apply to a Bahamian court to have such modification cancelled. Such an
application must be made within 21 days after the date upon which the consent
was given or the resolution was passed authorizing the modification of class
rights. To be successful, the applicants would have to satisfy the court that
the modification would unfairly prejudice them. If such an application were
made, the modification in rights would not take effect until confirmed by the
court and the court would have the power to cancel the modification if satisfied
that the applicants would be unfairly prejudiced.
A Bahamian court has the discretion to award costs and expenses in
accordance with established principles, which generally results in the
successful party being awarded its costs and expenses against the unsuccessful
party.
Under the DGCL, the stockholders of GGE are not entitled to appraisal rights
with respect to the adoption of the Merger Agreement. See "THE MERGER--Appraisal
and Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. Cravath, Swaine & Moore, counsel
to Sun, and Gibson, Dunn & Crutcher LLP, counsel to GGE, have delivered to Sun
and GGE, respectively, opinions dated the date hereof (which will be confirmed
as of the Closing Date), to the effect that the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and Sun, Sub and GGE will each be a party
to the reorganization within the meaning of Section 368(b) of the Code. Based
upon such opinion, no gain or loss will be recognized by the stockholders of GGE
upon the exchange of their GGE Common Stock or GGE Class B Stock solely for
Ordinary Shares pursuant to the Merger, except with respect to cash, if any,
received in lieu of fractional Ordinary Shares. See "THE MERGER--Certain Federal
Income Tax Consequences" and "THE MERGER AGREEMENT--Conditions to the
Consummation of the Merger; Conditions to Each Party's Obligation to Effect the
Merger."
GOVERNMENTAL AND REGULATORY APPROVALS. The respective obligations of Sun,
Sub and GGE to consummate the Merger are subject to certain conditions,
including: (i) the required approvals of the NJCC having been obtained; (ii) the
absence of any statute, rule, regulation, temporary restraining order,
preliminary or permanent injunction or other order of any court or other
governmental entity preventing consummation of the Merger; (iii) the approval
for listing on the NYSE of the Ordinary Shares issuable pursuant to the Merger
and the approval for continued listing on the ASE of the Junior Mortgage Notes
and the fractional Ordinary Shares which will trade with each Unit; and (iv) the
expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). See "THE MERGER--Regulatory Approvals" and "THE MERGER
16
<PAGE>
AGREEMENT--Conditions to the Consummation of the Merger; Conditions to Each
Party's Obligation to Effect the Merger."
INTERIM CASINO AUTHORIZATION. Sun's obligation to consummate the Merger is
conditioned on approval by the NJCC of Sun's application for qualification (a
"Plenary License") as a Holding Company (as defined in the NJCCA). On October
30, 1996, Sun received interim casino authorization from the NJCC (an "ICA").
Receipt of an ICA gives Sun the option to close the Merger before receipt of the
Plenary License. Although Sun has the option to complete the acquisition based
on an ICA, pursuant to the Merger Agreement, it is not obligated to do so until
its receives a Plenary License. The Division of Gaming Enforcement has stated
that it expects to complete its full investigation of Sun by the spring of 1997
and the NJCC would be expected to have a hearing on Sun's Plenary License
promptly thereafter. See "THE MERGER--Regulatory Approvals--New Jersey Casino
Control Commission Approval" and "RISK FACTORS--Risk Factors Related to the
Merger--Consummation of the Merger Prior to Receipt of Plenary License."
ACCOUNTING TREATMENT. The Merger is expected to be accounted for under the
"purchase" method of accounting, in accordance with generally accepted
accounting principles. See "THE MERGER--Anticipated Accounting Treatment."
COMPARATIVE PER SHARE MARKET INFORMATION. Set forth below are the last
reported sales prices of Ordinary Shares and GGE Common Stock on August 16,
1996, the last full trading day prior to the execution of the Merger Agreement,
as reported on the NYSE Composite Transactions Tape and ASE Transactions List,
respectively, and the equivalent pro forma sale price of GGE Common Stock on
such date, as determined by multiplying such last reported sale price of
Ordinary Shares by an assumed Conversion Number of .4324:
<TABLE>
<S> <C>
Ordinary Shares..................................................... $ 51.88
GGE Common Stock.................................................... $ 11.88
GGE equivalent...................................................... $ 22.43
</TABLE>
On October 31, 1996, the last trading day prior to the date of this Proxy
Statement/Prospectus, the last reported sales prices of Ordinary Shares and GGE
Common Stock, as reported on the NYSE Composite Transactions Tape, and the ASE
Transactions List, respectively, were $47.25 per share and $20.75 per share,
respectively. As described under "--General", the Conversion Number is subject
to adjustment if the Average Market Price of Ordinary Shares is less than
$47.41.
TERMINATION OF THE MERGER AGREEMENT; FEES AND EXPENSES. The Merger
Agreement may be terminated prior to the Effective Time by mutual agreement of
Sun, Sub and GGE. The Merger Agreement may also be terminated prior to the
Effective Time by either Sun or GGE (i) if (a) the GGE Stockholder Approval is
not obtained by reason of the failure to obtain the required vote at the GGE
Special Meeting or any adjournment or postponement thereof; (b) the Merger is
not consummated on or before June 30, 1997, subject to certain exceptions; or
(c) any governmental entity has issued an order enjoining or otherwise
prohibiting the Merger and such order becomes final and nonappealable; or (ii)
provided that the terminating party is not then in material breach of the Merger
Agreement, if the other party breaches any of the representations, warranties,
covenants or other agreements made by such party and such breach has not been or
cannot be cured within 30 days following written notice to the breaching party
and such breach would entitle the non-breaching party not to consummate the
transactions contemplated by the Merger Agreement. If, in the opinion of the GGE
Board, after consultation with outside counsel, failure to do so would be
inconsistent with its fiduciary duties to GGE's stockholders under applicable
law, the GGE Board may terminate the Merger Agreement and enter into an
agreement with respect to or consummate a transaction constituting a
"competitive proposal" (as defined in the Merger Agreement) at any time after
the second business day following Sun's receipt of written notice advising Sun
that the GGE Board has received a competitive proposal, specifying the material
terms and conditions of such competitive proposal
17
<PAGE>
and identifying the person making such competitive proposal; PROVIDED that GGE
may not enter into an agreement with respect to a competitive proposal unless
(a) GGE shall have furnished Sun with written notice no later than 12:00 noon
two business days in advance of any date that it intends to enter into such
agreement and (b) GGE, at the time of such termination, pays certain expenses
and a termination fee to Sun, as provided in the Merger Agreement. The Merger
Agreement is terminable by either Sun or GGE if the NJCC denies Sun a permanent
license under the NJCCA and such denial becomes final and nonappealable.
Finally, the Merger Agreement may be terminated by Sun (i) if (a) the GGE Board
or any committee thereof shall have withdrawn or modified in a manner adverse to
Sun or Sub its approval or recommendation of the Merger or the Merger Agreement,
or approved or recommended any takeover proposal, (b) GGE shall have entered
into any agreement with respect to any competitive proposal in accordance with
the terms of the Merger Agreement or (c) the GGE Board or any committee thereof
shall have resolved to take any of the actions described in (a) or (b); (ii) if
upon a vote at a duly held Sun Shareholders Meeting (as defined in the Merger
Agreement) or any adjournment thereof at which the Sun Shareholder Approval
shall have been voted upon, the Sun Shareholder Approval shall not have been
obtained; or (iii) if the Average Market Price is less than $41.625; provided,
however, that Sun shall furnish GGE with written notice two NYSE trading days in
advance of the date that it intends to terminate the Merger Agreement for this
reason and, during such two trading day period, GGE shall be entitled to elect
to go forward with the Merger and, if GGE shall timely make such election, Sun
shall not terminate the Merger Agreement for this reason (and the Conversion
Number will then be .4925). See "THE MERGER AGREEMENT--Termination." The Merger
Agreement also provides for the payment of a termination fee under certain
circumstances. See "THE MERGER AGREEMENT--Fees and Expenses."
18
<PAGE>
SUN INTERNATIONAL HOTELS LIMITED
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(in thousands, except per share and operating data)
The selected consolidated historical financial data presented below have
been derived from and should be read in conjunction with the Sun audited
consolidated financial statements and unaudited interim consolidated financial
statements in the 1995 Sun 20-F and in Sun's Report on Form 6-K dated September
6, 1996, which are incorporated by reference in this Proxy Statement/Prospectus.
Unaudited interim data reflects, in the opinion of Sun management, all
adjustments considered necessary for a fair presentation of results of such
interim period. Results for unaudited interim periods are not necessarily
indicative of results which may be expected for any other interim or annual
period. As a result of Sun's acquisition of its Paradise Island operations in
May 1994 and the Initial Development Program in 1994, the earnings and operating
data of Sun for 1995 and subsequent periods are not comparable to such data for
prior periods. Sun publishes its financial statements in U.S. dollars and in
accordance with U.S. GAAP. In this Proxy Statement/Prospectus, references to
U.S. dollars, US$ and $ are to U.S. currency.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED ------------------------
DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996
-------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gaming............................................ $ 79,605 $ 42,206 $ 40,826
Rooms............................................. 50,412 25,551 36,001
Food and beverage................................. 50,806 25,395 33,390
Tour operations................................... 16,338 8,339 8,752
Managmeent fee income............................. 4,858 2,382 2,338
Other revenues.................................... 21,195 10,861 12,710
Promotional allowances............................ (9,274) (5,745) (7,136)
Net revenues...................................... 213,940 108,989 126,881
Income from operations............................ 22,990 15,768 19,157
Equity in earnings of associated corporations..... 2,313 900 995
Net income........................................ 18,359 13,487 23,467
Net income per share before accretion (a)......... $ 0.87 $ 0.69 $ 0.86
Weighted average number of shares outstanding..... 21,194 19,606 27,332
OTHER DATA:
EBITDA (b)........................................ $ 33,226 $ 20,859 $ 24,981
Cash flows from operating activities.............. 24,560 14,263 18,820
Cash flows from investing activities.............. (45,843) (32,988) (5,485)
Cash flows from financing activities.............. 1,337 1,893 136,111
PARADISE ISLAND OPERATING DATA:
Average number of rooms........................... 1,318 1,318 1,306
Average occupancy................................. 83% 83% 91%
Average daily room rate........................... $ 126 $ 129 $ 167
Average number of slot machines................... 811 797 827
Win per slot machine per day...................... $ 115 $ 121 $ 128
Average number of table games..................... 68 69 69
Win per table game per day........................ $ 1,851 $ 1,978 $ 1,729
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30,
AT DECEMBER --------------------
31, 1995 1995 1996
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET RELATED DATA:
Cash and cash equivalents............................ $ 14,890 $ 18,073 $ 164,336(c)
Total assets......................................... 370,427 322,096 517,467
Total debt........................................... 121,153 81,452 1,122
Shareholders' equity................................. 135,611 131,380 484,785
</TABLE>
- ------------------------
(a) Prior to the public offering of Ordinary Shares that was consummated on
March 1, 1996 (the "Equity Offering"), the holders of Sun's Series A
Ordinary Shares had a put right requiring Sun to purchase any such shares
tendered at a price of $17.50 per share (subject to certain adjustments).
Prior to the termination of such put right concurrently with the
consummation of the Equity Offering, Sun accreted the difference between the
original issue price and the put right price by charging amounts to equity
based on the effective interest method.
(b) EBITDA represents income from operations before interest expense, taxes and
depreciation and amortization. EBITDA should not be construed as an
alternative to operating income or any other measure of performance
determined in accordance with U.S. GAAP or as an indicator of Sun's
operating performance, liquidity or cash flows generated by operating,
investing and financing activities. Sun has included the information
concerning EBITDA as management understands it is used by certain investors
as one measure of cash flow. This line enables comparison of Sun's
performance with the performance of other companies that report EBITDA.
(c) Includes $15 million used by Sun to cash collateralize a letter of credit
issued in connection with the Mohegan Sun Casino and $6.1 million used by
Sun to cash collateralize Sun France borrowings.
20
<PAGE>
GRIFFIN GAMING & ENTERTAINMENT, INC.
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(in thousands, except per share data)
The selected consolidated historical financial data presented below have
been derived from and should be read in conjunction with the GGE audited
consolidated financial statements and unaudited interim consolidated financial
statements in the 1995 GGE 10-K and in GGE's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, which are incorporated by reference in this
Proxy Statement/ Prospectus. Unaudited interim data reflect, in the opinion of
GGE management, all adjustments (consisting solely of normal recurring
adjustments) considered necessary for a fair presentation of results of such
interim period. Results for unaudited interim periods are not necessarily
indicative of results which may be expected for any other interim or annual
period. See "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," in the 1995 GGE 10-K and in Forms 10-Q
filed by GGE subsequent thereto.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING INFORMATION (NOTE A) 1991 1992 1993 1994 1995 1995 1996
- ---------------------------------------- --------- --------- --------- --------- --------- --------- ---------
Operating revenues...................... $ 418,243 $ 436,934 $ 439,564 $ 353,016 $ 301,740 $ 146,461 $ 142,973
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from operations (Note
B).................................... $ 16,036 $ 21,502 $ 12,898 $ (48,570) $ 41,678 $ 18,337 $ 12,591
Recapitalization costs (Note C)......... (2,848) (8,789) (5,232)
Proceeds from litigation trust (Note
D).................................... 2,542
Other income (deductions), net (Note
E).................................... (58,438) (73,456) (105,273) (47,631) (25,779) (12,621) (12,906)
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income taxes and
extraordinary items................... (42,402) (54,802) (101,164) (98,891) 15,899 5,716 (315)
Income tax benefit (expense) (Note F)... 831 1,348 (1,000)
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before extraordinary
items................................. (41,571) (53,454) (102,164) (98,891) 15,899 5,716 (315)
Extraordinary items (Note G)............ 190,008
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)..................... $ (41,571) $ (53,454) $(102,164) $ 91,117 $ 15,899 $ 5,716 $ (315)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Per share data--primary:
Earnings (loss) before extraordinary
items............................... $ (10.35) $ (13.27) $ (25.34) $ (15.13) $ 1.87 $ .68 $ (.04)
Extraordinary items................... 29.07
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)................... $ (10.35) $ (13.27) $ (25.34) $ 13.94 $ 1.87 $ .68 $ (.04)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Per share data--fully diluted:
Net earnings (loss)................... $ 1.83 $ .66 $ (.04)
--------- --------- ---------
--------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------- AT JUNE 30,
BALANCE SHEET INFORMATION (NOTE A) 1991 1992 1993 1994 1995 1996
- ------------------------------------------------ --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total assets.................................... $ 567,890 $ 568,950 $ 575,785 $ 317,248 $ 338,451 $ 342,594
Currrent maturities of long-term debt (Note
H)............................................ $ 1,571 $ 828 $ 466,336 $ 5 $ 589 $ 613
Long-term debt, excluding current maturities
(Note H)...................................... $ 392,667 $ 460,712 $ 85,029 $ 212,466 $ 217,356 $ 219,129
Shareholders' equity (deficit).................. $ 36,099 $ (17,262) $(113,744) $ 10,031 $ 25,947 $ 25,632
</TABLE>
NOTES TO SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
NOTE A: As part of a prepackaged bankruptcy reorganization (the "GGE
Restructuring") which was effective on May 3, 1994, GGE sold its Paradise Island
subsidiaries as well as certain U.S. assets that supported the Paradise Island
operations, and GGE's scheduled airline operation which serviced routes between
south Florida and Paradise Island was effectively disposed of.
Also as part of the GGE Restructuring, GGE exchanged $481,907,000 principal
amount of publicly held debt securities (the "Series Notes") for $160,000,000
principal amount of publicly held debt securities and other consideration. See
Note 2 of Notes to Consolidated Financial Statements in the 1995 GGE 10-K.
21
<PAGE>
NOTE B: The loss from operations in 1994 includes a $72,463,000 loss on the sale
of the Paradise Island operations and properties and a charge of $20,525,000 for
the write-down of certain non-operating properties to net realizable value.
NOTE C: Recapitalization costs incurred in 1992, 1993 and 1994 relate to the GGE
Restructuring.
NOTE D: Proceeds from the litigation trust represents cash distributed to GGE
from a litigation trust established under a previous plan of reorganization to
pursue certain claims against a former affiliate.
NOTE E: This item includes interest income, interest expense and amortization of
debt discounts.
NOTE F: For the years 1991 and 1992 GGE accounted for income taxes in accordance
with Statement of Financial Accounting Standards No. 96, "Accounting for Income
Taxes." Effective January 1, 1993, GGE adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." There was no effect on the
accompanying financial data nor was there a cumulative effect of adopting this
statement.
The income tax benefits reported in 1991 and 1992 represent federal income
tax refunds. In August 1993 tax law changes were enacted which resulted in an
increase in GGE's federal income tax rate. This increase resulted in a
$1,000,000 increase in GGE's deferred income tax liability and a deferred income
tax provision of the same amount.
NOTE G: As described in Note A, as part of the GGE Restructuring, GGE exchanged
its Series Notes for certain consideration. The difference between the carrying
value of the Series Notes and the sum of the fair values of the items exchanged
therefor resulted in a gain of $186,000,000 which is reported as an
extraordinary item.
In November 1994, a subsidiary of GGE purchased 12,899 Units comprising
$12,899,000 principal amount of Junior Mortgage Notes and 12,899 shares of GGE
Class B Stock at a price of $6,740,000. The resulting gain of $4,008,000 was
recorded as an extraordinary item.
NOTE H: These items are presented net of unamortized discounts.
22
<PAGE>
SUN INTERNATIONAL HOTELS LIMITED
SELECTED UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL DATA
(in thousands, except per share data)
The selected unaudited consolidated pro forma statement of operations data
provided below have been prepared assuming that the Merger had occurred on
January 1, 1995. The selected unaudited consolidated pro forma balance sheet
data presented below have been prepared assuming that the Merger had been
consummated on June 30, 1996. The selected unaudited consolidated pro forma
financial data is presented for informational purposes only and do not purport
to present what the consolidated balance sheet would have been had the Merger,
in fact, occurred on June 30, 1996 or what the consolidated results of
operations for the year ended December 31, 1995 or for the six months ended June
30, 1996 would have been had the Merger, in fact, occurred on January 1, 1995 or
to project the results of operations for any future period.
The unaudited pro forma financial data set forth below should be read in
conjunction with (i) the Financial Statements and related notes thereto and the
information set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the 1995 Sun 20-F and the Forms 6-K
filed by Sun subsequent thereto, each of which is incorporated by reference in
this Proxy Statement/ Prospectus, and (ii) the Unaudited Pro Forma Financial
Statements and the notes thereto set forth in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
Statement of Operations Data:
Gaming.................................................................... $ 347,829 $ 168,072
Rooms..................................................................... 66,477 43,015
Food and beverage......................................................... 78,574 46,229
Tour operations........................................................... 16,338 8,752
Management fee income..................................................... 4,858 2,338
Other revenues............................................................ 39,372 21,366
Promotional allowances.................................................... (37,768) (19,918)
Net revenues.............................................................. 515,680 269,854
Depreciation and amortization............................................. 27,277 13,779
Income from operations.................................................... 61,079 29,998
Interest expense, net..................................................... 29,120 7,545
Equity in earnings of associated corporations............................. 2,313 995
Net income................................................................ 31,119 23,485
Net income per share before accretion (a)................................. $ 1.24 $ 0.75
Weighted average number of shares outstanding............................. 25,088 31,226
Other Data:
EBITDA (b)................................................................ $ 88,356 $ 43,777
<CAPTION>
AT JUNE 30, 1996
-----------------
(UNAUDITED)
<S> <C> <C>
Balance Sheet Related Data:
Cash and cash equivalents (c)................................................................ $ 204,692
Total assets................................................................................. 1,062,303
Total debt................................................................................... 252,598
Shareholders' equity......................................................................... 679,609
</TABLE>
23
<PAGE>
SUN INTERNATIONAL HOTELS LIMITED
SELECTED UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL DATA
- ------------------------
(a) Prior to the public offering of Ordinary Shares that was consummated on
March 1, 1996 (the "Equity Offering"), the holders of Sun's Series A
Ordinary Shares had a put right requiring Sun to purchase any such shares
tendered at a price of $17.50 per share (subject to certain adjustments).
Prior to the termination of such put right concurrently with the
consummation of the Equity Offering, Sun accreted the difference between the
original issue price and the put right price by charging amounts to equity
based on the effective interest method.
(b) EBITDA represents income from operations before interest expense, taxes and
depreciation and amortization. EBITDA should not be construed as an
alternative to operating income or any other measure of performance
determined in accordance with U.S. GAAP or as an indicator of Sun's
operating performance, liquidity or cash flows generated by operating,
investing and financing activities. Sun has included the information
concerning EBITDA as management understands it is used by certain investors
as one measure of cash flow. This line enables comparison of Sun's
performance with the performance of other companies that report EBITDA.
(c) Includes $15 million used by Sun to cash collateralize a letter of credit
issued in connection with the Mohegan Sun Casino and $6.1 million used by
Sun to cash collateralize Sun France borrowings.
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RISK FACTORS
In considering whether to approve the Charter Amendment or adopt the Merger
Agreement, as the case may be, the shareholders of Sun and stockholders of GGE
should consider the following matters.
CAUTIONARY STATEMENT
Sun and GGE wish to caution readers that all of their forward-looking
statements in this Proxy Statement/Prospectus, which include all statements
which, at the time made, speak about the future, are based upon Sun and GGE's
interpretation of what they believe are significant factors affecting their
businesses. Sun and GGE believe the important factors contained in this "RISK
FACTORS" section, among others, in some cases have affected, and, in the future,
could affect, Sun and/or GGE's actual results and could cause Sun and/or GGE's
actual results for 1996, and beyond, to differ materially from those expressed
in any forward-looking statements made by, or on behalf of, either Sun or GGE.
RISK FACTORS RELATED TO THE MERGER
FIXED RANGE OF EXCHANGE RATIOS DESPITE POSSIBLE CHANGE IN STOCK PRICES
The Conversion Number is expressed in the Merger Agreement as a fixed ratio
which is subject to adjustment in the event the Average Market Price is below
$47.41 but which is not subject to adjustment in the event of any increase in
the price of Ordinary Shares above $47.41. Furthermore, if the Average Market
Price is below $41.625 and Sun seeks to terminate the Merger Agreement and GGE
elects to go forward with the Merger, the Conversion Number will be fixed at
.4925 and will not be subject to adjustment. The price of Ordinary Shares and
the Average Market Price at the Effective Time may vary from the price of
Ordinary Shares at the date of this Proxy Statement/Prospectus and at the dates
of the Special Meetings, possibly by a material amount. Such variations may be
the result of changes in the business, operations or prospects of Sun or GGE,
market assessments of the likelihood that the Merger will be consummated and the
timing thereof, regulatory considerations, general market and economic
conditions and other factors. Because the Effective Time will occur at a date
later than the Special Meetings, there can be no assurance that the price of
Ordinary Shares on the dates of the Special Meetings will be indicative of the
price of Ordinary Shares or the Average Market Price at the Effective Time. The
Effective Time will occur as soon as practicable following the Special Meetings
and the satisfaction or waiver of the conditions set forth in the Merger
Agreement. Shareholders of Sun and stockholders of GGE are urged to obtain
current market quotations for Ordinary Shares and GGE Common Stock. See "THE
MERGER AGREEMENT--Exchange of GGE Common Stock and GGE Class B Stock" and "--
Conditions to the Consummation of the Merger; Conditions to Each Party's
Obligation to Effect the Merger."
NECESSITY OF RECEIVING GOVERNMENTAL APPROVALS PRIOR TO THE MERGER
Approval of the NJCC is required for the issuance, renewal or transfer of
casino licenses for New Jersey casinos. Only entities holding a casino license
or determined by the NJCC to be qualified to the standards set forth in the
NJCCA may own or operate New Jersey casinos or own more than 5% of the stock of
any corporation that owns or operates a New Jersey casino. The NJCCA also
prohibits a sale by the corporate holder of a casino license of more than 5% of
its stock to an unqualified person. Sun, Sub and GGE, therefore, would be
legally prohibited from effecting the Merger if Sun was not appropriately
qualified at the Effective Time. While the NJCC has granted Sun an ICA, there
can be no assurance that the NJCC will approve Sun's application for a Plenary
License. Receipt of an ICA gives Sun the option, but not the obligation, to
consummate the Merger before receipt of a Plenary License. The Division of
Gaming Enforcement has stated that it expects to complete its full investigation
of Sun by the spring of 1997 and the NJCC would be expected to have a hearing on
Sun's Plenary License promptly thereafter. In the event Sun elects to wait to
receive a Plenary License before consummating the Merger, there would be a
substantial amount of time between the date of the Special Meetings and the
Effective Time. See "-- Fixed Range of Exchange Ratios Despite Possible Change
in Stock Prices." In addition, the consummation
25
<PAGE>
of the Merger is conditioned upon the expiration or termination of the
applicable waiting period under the HSR Act. Other filings with, notifications
to and authorizations and approvals of, various governmental agencies with
respect to the transactions contemplated by the Merger Agreement, relating to
securities and other issues of law, must also be made and received prior to the
consummation of the Merger. See "THE MERGER--Regulatory Approvals."
CONSUMMATION OF THE MERGER PRIOR TO RECEIPT OF PLENARY LICENSE
Sun's obligation to consummate the Merger is conditioned on approval by the
NJCC of Sun's application for a Plenary License. On October 30, 1996, Sun
received an ICA, which gives Sun the option, but not the obligation, to
consummate the Merger before receipt of the Plenary License. In granting an ICA
to Sun, the NJCC found that Sun is qualified to act as a Holding Company on a
preliminary basis, pending a final determination. In addition, as part of its
ICA approval, the NJCC approved Sun's selection of former New Jersey Governor
Thomas H. Kean as the ICA trustee to act in accordance with the NJCCA.
In the event Sun elects to consummate the Merger pursuant to an ICA, the
NJCCA would require Sun to place the GGE Securities (as defined in the NJCCA)
into a "stand by" trust (the "ICA Trust") with Governor Kean as trustee (the
"ICA Trustee"). If after the consummation of the Merger the NJCC subsequently
determines that there is reasonable cause to believe that Sun should not be
granted a Plenary License, the ICA Trust would become activated and the ICA
Trustee would take control of GGE pending a final determination by the NJCC with
respect to Sun's application for a Plenary License, with the exception that Sun
could request that the NJCC direct the ICA Trustee to dispose of the GGE
Securities prior to the final qualification determination. In the event Sun's
application for a Plenary License was denied, the ICA Trustee would be obligated
to dispose of all GGE Securities held in the ICA Trust. Sun would then only be
entitled to receive the lesser of (i) the fair market value and (ii) the price
paid by Sun for the GGE Securities. Transaction costs paid by Sun in respect of
the Merger would not be recoverable by Sun regardless of the price at which the
GGE Securities held in the ICA Trust were sold. There can be no assurance that
if Sun elects to consummate the Merger pursuant to an ICA that Sun would not
sustain substantial losses from the sale of GGE Securities from an ICA Trust in
the event Sun's application for a Plenary License were denied.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Merger by the GGE Board, the
holders of GGE Common Stock should be aware that certain directors and executive
officers of GGE have certain interests in the Merger that are different from, or
in addition to, the interests of holders of GGE Common Stock generally; such
interests, together with other relevant factors, were considered by the GGE
Board in making its recommendation and approving the Merger Agreement. See "THE
MERGER--Interests of Certain Persons in the Merger."
DIVESTITURE RISK OF PROPOSED CHARTER AMENDMENT
The NJCCA provides that the debt or equity securities of any corporation
holding a New Jersey casino license may not be controlled by any person
determined by the NJCC to be a Disqualified Holder. In order to ensure that a
Disqualified Holder would be unable to control a licensed corporation's
securities, the NJCCA requires the charter or by-laws of such corporation to
provide that a person determined by the NJCC to be a Disqualified Holder (i) not
be allowed to cast any vote in respect of any of such corporation's securities;
(ii) be required to dispose of any of such corporation's securities held by him
within 120 days of the NJCC determination that such holder is a Disqualified
Holder; and (iii) have any of such corporation's securities held by him beyond
120 days of the NJCC determination that he is a Disqualified Holder subject to
redemption by such corporation at the lesser of fair market value and the price
paid for such securities less any of such corporation's legal and other expenses
incurred in effecting such redemption.
26
<PAGE>
The Charter Amendment, if approved, will add the provisions described in
(i), (ii) and (iii) above to the Sun Charter and all holders of Sun's debt or
equity securities (including Ordinary Shares) will become subject to such
provisions when the Charter Amendment is filed with the Registrar of Companies
of The Bahamas. There can be no assurance that a holder of Ordinary Shares will
not be determined to be a Disqualified Holder by the NJCC nor that such holder
would not incur substantial financial loss in the disposition of his/her
Ordinary Shares or in the redemption of such Ordinary Shares by Sun.
RISK FACTORS RELATED TO SUN
RISKS ASSOCIATED WITH NEW PROJECTS AND EXPANSION OF SUN
GENERAL
The ability of Sun to take advantage of business opportunities and further
develop existing businesses will depend upon a number of factors, including the
availability of financing, terms and covenants in its credit facilities, the
ability of Sun, its key employees and, in certain cases, its partners to obtain
governmental licenses, approvals and permits (including gaming and liquor
licenses and permits and approvals relating to land use, construction and
zoning) and, in some cases, the ability to find, and maintain relationships
with, suitable development and business partners. The failure to obtain required
licenses, permits or approvals in a timely manner or the loss or suspension of
any such license, permit or approval may delay, restrict or prevent one or more
projects, including the Paradise Island Expansion and the Pirate's Cove
Renovation, from opening or from opening as scheduled or Sun from being the
developer, manager or operator of one or more such projects.
DEVELOPMENT, CONSTRUCTION AND RELATED RISKS
The Paradise Island Expansion is expected to be completed by the second
quarter of 1998 and the Pirate's Cove Renovation is expected to be completed
during the fourth quarter of 1998. Development projects such as these, however,
are inherently subject to significant development and construction risks,
including, but not limited to, labor disputes, shortages of material and skilled
labor, weather interference, unforeseen engineering problems, unforeseen
environmental problems, fire, natural disasters, geological problems,
construction, demolition, excavation, regulatory and/or equipment problems and
unanticipated cost increases, any of which could give rise to delays or cost
overruns. Pre-existing environmental conditions, if any, on development sites
can result in material liabilities and additional costs, as well as delays. See
"--Possible Environmental Liabilities". The foregoing factors may delay or
prohibit the construction or opening of one or more such projects or any future
projects undertaken by Sun.
ABILITY TO COMPLETE PROJECTS ON TIME AND WITHIN BUDGET
The anticipated construction costs and completion dates for the Paradise
Island Expansion and the Pirate's Cove Renovation are based on preliminary
estimates and conceptual plans prepared by Sun. No assurances can be given that
current budgets and estimates will prove to be accurate. In addition, no
assurance can be given that the Paradise Island Expansion will commence
construction during the fourth quarter of 1996 and will be completed during the
second quarter of 1998, that the Pirate's Cove Renovation will be completed
during the fourth quarter of 1998 or that construction costs for the Paradise
Island Expansion or the Pirate's Cove Renovation will not exceed budgeted
amounts. Failure to complete the Paradise Island Expansion or the Pirate's Cove
Renovation may have a material adverse effect on the results of operations and
financial condition of Sun. There can be no assurance that any development
project, including the Paradise Island Expansion or the Pirate's Cove
Renovation, will become operational as scheduled, or at all, or ultimately
result in profitable operations. If any development project is not successful,
Sun would be required to write off costs or investments associated with such
project.
27
<PAGE>
NEED FOR ADDITIONAL FINANCING
The development of resorts and casinos is capital-intensive. In connection
with the Paradise Island Expansion, the Pirate's Cove Renovation and any other
future development projects, including the Revised Chalfonte Project, it may be
necessary for Sun and, in certain cases, its partners to raise additional
financing, including by accessing the capital markets through the issuance of
debt or equity securities. Although Sun has in place a $250 million revolving
bank credit facility (the "Revolving Credit Facility"), such facility contains
certain conditions precedent to funding. No assurances can be given that Sun
will be able to satisfy such conditions precedent at the time that funding under
the Revolving Credit Facility is needed or that Sun will be able to comply with
the covenants and other terms of the credit agreement. Additionally, there can
be no assurance that Sun and its partners, if applicable, will be able to raise
any additional financing which may become necessary in connection with the
Paradise Island Expansion, the Pirate's Cove Renovation or any future
development projects, including the Revised Chalfonte Project. See "BUSINESS OF
SUN--Revolving Credit Facility."
MOHEGAN SUN PROJECT COSTS
Although the Mohegan Sun Casino has commenced operations, the final
development cost calculations have not been finalized. The anticipated project
costs for developing, constructing, equipping and opening the Mohegan Sun Casino
are based on budgets prepared by the Mohegan Gaming Authority with the
assistance of Sun, TCA and the contractors. The Mohegan Gaming Authority has
entered into a guaranteed maximum price contract with Morse Diesel International
for the construction of the Mohegan Sun Casino. The final amount of such
contract, however, is subject to modification based upon the occurrence of
certain events, such as design change orders and costs associated with certain
types of delays. The Mohegan Gaming Authority and Morse Diesel International
have certain cost matters that have not been finalized as to whether such
matters are covered under the guaranteed maximum price or whether such cost
increases are the result of change orders or other events that could result in
an increase in the contract price. The resolution of these issues in favor of
Morse Diesel International may result in the final cost of the Mohegan Sun
Casino exceeding its current budget. Based upon its review of the budget and the
open cost items, the Mohegan Gaming Authority believes that the final
construction cost will not exceed the construction budget by an amount greater
than the available contingency. There is no assurance that the construction
costs for the Mohegan Sun Casino will not exceed budgeted amounts. The Mohegan
Gaming Authority may not obligate itself to pay development costs in excess of
$325 million without the further consent of the National Indian Gaming
Commission (the "NIGC"). In the event the resolution of the issues with Morse
Diesel International result in total development costs being in excess of $325
million, the Mohegan Gaming Authority would require the consent of the NIGC, and
there can be no assurances such consent would be given.
COMPETITION
GENERAL
The resort and casino industries are characterized by a high degree of
competition among a large number of participants and are largely dependent on
tourism. Sun competes with resorts both with and without gaming and with gaming
facilities generally, including land-based casinos, riverboat, dockside and
cruise ship on-board casinos and other forms of gaming, as well as other forms
of entertainment. A number of Sun's competitors are larger and have greater
financial and other resources than Sun. In addition, a number of jurisdictions
have recently legalized gaming and other jurisdictions are considering the
legalization of gaming. Sun cannot predict what effect a continued proliferation
of gaming and the resulting increase in competition could have on Sun's ability
to compete effectively in the future.
Sun believes that the ability to compete effectively in the resort and
gaming industries, particularly the destination resort and gaming industries, is
based on several factors, including the scope, quality, location and
accessibility of resort and gaming facilities and amenities, the effectiveness
of marketing efforts,
28
<PAGE>
customer service, the relative convenience of available transportation, service
and the quality and price of rooms, food and beverages, convention facilities
and entertainment.
PARADISE ISLAND
Sun's Paradise Island operations compete with cruise ships and other hotels
and resorts, particularly those on Paradise Island and New Providence Island in
The Bahamas as well as those on Grand Bahama Island and other Caribbean islands.
Future casino developments in other locations are also a potential source of
competition for Sun's Paradise Island operations. The introduction of additional
casino gaming, particularly land-based gaming in the United States and
especially the eastern regions of the United States, could reduce the number of
tourists visiting The Bahamas and could be a substantial source of competition
for Atlantis.
THE MOHEGAN SUN CASINO
Because the Mohegan Sun Casino is marketed primarily to the day-trip
customer, it competes primarily with other casinos within 150 miles and, to a
lesser extent, with casinos in Atlantic City, New Jersey, some of which have
greater resources and name recognition than Sun or the Mohegan Tribe. Currently,
Foxwoods is the only casino in operation within 150 miles of the Mohegan Sun
Casino site. Foxwoods is located approximately 10 miles from the Mohegan Sun
Casino site and is currently the largest gaming facility in the United States in
terms of the number of slot machines. In addition, Foxwoods offers a number of
amenities that the Mohegan Sun Casino does not currently plan to offer,
including hotels and extensive non-gaming entertainment facilities. Foxwoods has
been in operation for more than four years and the Mohegan Gaming Authority
believes that Foxwoods' successful operation has enabled it to build financial
resources that are currently substantially greater than those of the Mohegan
Gaming Authority or the Mohegan Tribe.
Currently, outside Atlantic City, New Jersey, casino gaming in the
northeastern United States may be conducted only by federally recognized Indian
tribes operating under the Indian Gaming Regulatory Act of 1988, as amended
("IGRA"). In addition to the Pequot Tribe, which operates Foxwoods, a federally
recognized tribe in Rhode Island and a federally recognized tribe in
Massachusetts are each seeking to establish gaming operations in their
respective states. The Oneida Tribe, which operates a gaming facility in upstate
New York, is seeking to expand its operations. In addition, a number of Indian
tribes in New England are seeking federal recognition in order to establish
gaming operations. Sun cannot predict whether any of these tribes will be
successful in establishing gaming operations and, if established, whether such
gaming operations will have a material adverse effect on the proposed operations
of the Mohegan Sun Casino.
In addition, a number of states, including Connecticut, have investigated
legalizing casino gaming by non-Indians in one or more locations. In November
1995, the Connecticut state legislature rejected a proposal submitted by the
Pequot Tribe to develop a casino in Bridgeport, Connecticut. The Pequot proposal
had been submitted in response to a request for proposals made by the State of
Connecticut. Under the tribal-state compact between the Mohegan Tribe and the
State of Connecticut, if Connecticut were to legalize any gaming operations
other than pursuant to IGRA (i.e., by an Indian tribe on Indian land) with slot
machines or other commercial casino games, the Mohegan Tribe would no longer be
required to make payments to the State of Connecticut related to slot machine
revenues. Sun is unable to predict whether the Connecticut state legislature
will accept any other casino proposal and, if such proposal results in a casino
being constructed and opened, whether such casino will have a material adverse
effect on the Mohegan Sun Casino.
OTHER EXISTING OPERATIONS
Sun Indian Ocean owns, and Sun manages, resort hotels in Mauritius and the
Comoros. As vacation destinations, these resorts are in competition with other
locations offering vacations to tourists from Europe, southern Africa and parts
of Asia. In Mauritius, there is also competition from other resorts on
29
<PAGE>
the island. Sun France owns, and Sun provides technical assistance to, casinos
located in Nice, Chamonix, Cassis and Carry-le-Rouet. Casino licenses in France
may be issued only in resort towns or locations with natural spa facilities.
Currently, Sun considers there to be approximately eight casinos that are in
direct competition with the Sun France casinos. If additional casino licenses
were granted in the resort locations in which Sun France operates and such
casinos were built, Sun France's casinos would be faced with direct competition
from those casinos.
CONTROL BY PRINCIPAL SHAREHOLDER
SIIL controls approximately 55% of the Ordinary Shares of Sun (approximately
48% assuming the consummation of the Merger at a Conversion Number of .4324)
and, accordingly, is able to control the outcome of substantially all matters
requiring shareholder approval, including the election of Sun's directors,
thereby controlling the management, policies and business operations of Sun.
Pursuant to the terms of a new heads of agreement, dated December 13, 1995,
as amended (the "New Heads of Agreement"), among Sun, SIIL and the Government of
the Commonwealth of The Bahamas, SIIL has agreed, among other things, to
maintain voting power in Sun of not less than 45% until six months after
completion of the Paradise Island Expansion and thereafter to control a majority
of the Sun Board for an additional five years. The requirement that SIIL
maintains this level of voting power could have an adverse effect on Sun's
ability in the future to obtain certain types of financing and could also have
an adverse effect on Sun's ability to expand its business through acquisitions.
In addition, this requirement could significantly restrict an entity's ability
to acquire control of Sun.
REGULATORY AND POLITICAL FACTORS
The operation of gaming facilities is generally subject to extensive
governmental regulation. Regulatory authorities typically require various
registrations, licenses, findings of suitability and approvals to be held by
operators of gaming facilities. The regulatory authorities in these
jurisdictions generally have broad discretion in the granting, renewal,
suspension and revocation of licenses and require that such registrations,
licenses, findings and approvals be renewed or updated periodically. In
addition, gaming debts may not be legally enforced in certain foreign
jurisdictions or in certain jurisdictions within the United States and,
therefore, Sun may be unable to collect gaming debts from patrons of its casinos
who reside in such jurisdictions. Sun and the necessary key personnel are
currently qualified to operate in all the jurisdictions in which Sun operates.
In connection with the Mohegan Sun Casino, each of the partners of TCA and
certain employees of the Mohegan Sun Casino must be licensed by relevant tribal
and state authorities. Each of the partners of TCA has received a gaming license
from the Commissioner of Revenue Services of the State of Connecticut. No
assurances can be given, however, that any new or permanent licenses, permits or
approvals that may be required by Sun, its key employees and its partners, if
applicable, in the future will be granted or that its existing licenses, permits
and approvals will be renewed or will not be suspended or revoked in the future.
In addition, gaming licenses or management agreements held or subsequently
acquired by Sun or its subsidiaries pursuant to applicable law and regulations,
including the IGRA and NIGC regulations, may require review, approval or
licensing of any person or entity directly, or indirectly possessing or
acquiring 10% or more of Sun's equity securities (a "Substantial Interest"). The
NIGC is required to review, and approve any such person or entity and make a
finding of suitability pursuant to the IGRA and NIGC regulations. If the NIGC
were to determine that a person or entity holding a Substantial Interest in a
gaming management agreement was unsuitable, prior approval of the management
agreement could be revoked, subsequent approvals or renewals could be blocked,
and certain required gaming licenses could be suspended, rescinded or denied.
See "--TCA Management Agreement".
Due to the extensive regulatory environments in which Sun operates, the
various countries in which it operates and its dependence on tourism, Sun's
operations may be materially and adversely affected by developments with respect
to inflation, interest rates, government policies, price and wage controls,
exchange control regulations, exchange rates, taxation, expropriation, political
and social instability and
30
<PAGE>
other political or economic developments in or affecting the jurisdictions in
which it operates and from which it draws tourists.
Gaming operators generally are subject to significant taxation and fees.
Such taxes and fees are subject to increase at any time. Sun pays substantial
taxes and fees with respect to its gaming operations and will likely incur
similar taxes and fees in any other jurisdictions in which it conducts gaming
operations in the future. Any material increase or the adoption of additional
taxes or fees could have a material adverse effect on Sun.
As owner and manager of resort and gaming properties in a number of
jurisdictions, Sun is subject to a wide range of laws and regulations with
regard to such matters as taxation, exchange controls, labor relations, land use
controls and environmental controls, and such laws and regulations, and
governmental authorities responsible for such laws and regulations, can and do
change.
CERTAIN MATTERS PERTAINING TO CHAIRMAN
Certain media reports have questioned the suitability of Sun's Chairman, Mr.
Solomon Kerzner, and Sun to hold gaming licenses as a result of events that
occurred in 1986, in the Transkei, a former "tribal homeland" that was regarded
by South Africa as an independent country but not recognized as such by the
international community, relating to an alleged improper payment of $450,000
made to Chief George Matanzima, then Prime Minister of the Transkei who was
overthrown by a military coup in 1988. The Transkei matter had been previously
disclosed to the Mohegan Tribe, the NIGC and the Connecticut State Police and,
following an investigation, the Mohegan Tribe approved Mr. Kerzner and Sun as
partners in TCA, the developer and manager of the Mohegan Sun Casino. The NIGC
subsequently approved the contract between the Mohegan Tribe and TCA. In
addition, after investigation of the Transkei matter, the State of Connecticut
recently issued Mr. Kerzner a permanent gaming license.
In April 1994, as part of South Africa's new constitutional process, the
Transkei was reincorporated into South Africa and the Attorney General of the
Transkei is now an official of the South African judicial system. In October
1995, Mr. Kerzner, although not officially notified, learned that the Attorney
General of the Transkei had requested that the South African police investigate
the 1986 payment. The report of the investigating police officer, made available
to the attorneys for the companies involved in accordance with South African law
states that, by allowing the payment to be made, Mr. Kerzner acted without any
personal benefit in an effort to protect what Mr. Kerzner believed to be
legitimate rights of the companies involved, which were being threatened by
Chief Matanzima. Such report also describes Chief Matanzima's action as being
tantamount to commercial extortion and concludes that the State will have
difficulty proving that the individuals or companies involved acted with the
necessary intent to commit a crime. In an August 1996 report to a parliamentary
committee, the Attorney General of the Transkei indicated that a decision
considering the advisability to proceed with the case may not be made by him
before next year. Until the case is officially closed, there can be no assurance
that Mr. Kerzner will not be charged.
The Transkei events, which occurred ten years ago, have not affected the
ability of Sun or Mr. Kerzner to be licensed in the jurisdictions in which Sun
operates. After disclosure to all applicable licensing authorities of the facts
surrounding the Transkei matter, and following investigations, Sun and Mr.
Kerzner hold gaming licenses in The Bahamas and Connecticut, Sun holds gaming
licenses in France, and companies in southern Africa of which Mr. Kerzner has
been chairman and chief executive officer hold gaming licenses in South Africa,
including the Transkei region. Although the Transkei matter has not affected the
licensing qualifications of Mr. Kerzner or Sun to date, no assurances can be
given that Mr. Kerzner or Sun's licensing qualifications will not be so affected
in the future.
TCA MANAGEMENT AGREEMENT
Management fees payable to TCA pursuant to the TCA Management Agreement and
payments with respect to the Subordinated Notes and Secured Completion Guarantee
Notes purchased by Sun are subordinate in right to required payments on the
Mohegan Senior Notes. The ability of the Mohegan
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Gaming Authority to meet its payment obligations and its debt service
requirements, including with respect to the Subordinated Notes, Secured
Completion Guarantee Notes and payment of management fees to TCA will be
entirely dependent upon the future performance of the Mohegan Sun Casino, which
is subject to financial, economic, political, competitive, regulatory,
environmental and other factors, many of which are beyond its control.
The NIGC has the power to require modifications of management agreements
with respect to casinos owned by Indian tribes if those agreements are at
variance with applicable law, or regulations, or to void agreements if the
management company fails to comply with the terms of the agreement or applicable
laws or regulations. In addition, management agreements can be renewed or
extended by the parties only with the approval of the NIGC. If the NIGC were to
determine that a person or entity holding a Substantial Interest in a gaming
management agreement was unsuitable, prior approval of the management agreement
could be revoked, subsequent approvals or renewals could be blocked, and certain
required gaming licenses could be suspended, rescinded or denied. The voiding or
modification of the terms of the TCA Management Agreement could have a material
adverse effect on the results of operations and financial condition of Sun. See
"--Regulatory and Political Factors".
LIMITED RECOURSE AGAINST TRIBAL ASSETS
Although the Mohegan Tribe and the Mohegan Gaming Authority have sovereign
immunity and may not be sued without their consent, the Mohegan Tribe and the
Mohegan Gaming Authority have granted a limited waiver of sovereign immunity and
consent to suit in connection with the TCA Management Agreement, the
Subordinated Notes and the Secured Completion Guarantee Notes. In addition, the
Mohegan Gaming Authority has granted a limited waiver of sovereign immunity and
consent to suit with respect to the enforcement of the obligation to repay the
Mohegan Senior Notes. In the event that such waiver of sovereign immunity is
held to be ineffective, TCA and Sun could be precluded from judicially enforcing
their rights and remedies. Generally, however, waivers of sovereign immunity
have been held to be enforceable against Indian tribes such as the Mohegan
Tribe.
POSSIBLE ENVIRONMENTAL LIABILITIES
The Mohegan Sun Casino site was formerly occupied by United Nuclear
Corporation ("UNC"), a naval products manufacturer of, among other things,
nuclear reactor fuel components. UNC's facility was officially decommissioned on
June 8, 1994, when the Nuclear Regulatory Commission ("NRC") confirmed that all
licensable quantities of special nuclear material ("SNM") had been removed from
the Mohegan Sun Casino site and that any residual SNM contamination was
remediated in accordance with the NRC approved decommissioning plan.
From 1991 through 1993, UNC commissioned an environmental consultant to
perform a series of environmental audits and reports on the Mohegan Sun Casino
site, including an extensive Phase III Report. A Phase III Report typically
includes additional soil investigations and/or groundwater monitoring based upon
soil and groundwater samples gathered during the course of a previous
environmental report. The environmental audits and soil sampling programs
detected in the preparation of such Phase III Report, among other things,
volatile organic chemicals, heavy metals and fuel hydrocarbons in the soil and
groundwater. Extensive remediation of contaminated soils and additional
investigations were then completed. Although the Mohegan Sun Casino site
currently meets state remediation requirements, no assurance can be given that
the various environmental reports or any other existing environmental studies
with respect to the Mohegan Sun Casino site revealed all environmental
liabilities, that any prior owners or tenants of the Mohegan Sun Casino site did
not create any material environmental condition not known to the Mohegan Gaming
Authority, that future laws, ordinances or regulations will not impose any
material environmental liability or that a material environmental condition does
not otherwise exist on the Mohegan Sun Casino site. Future remediation may be
necessary if excavation and construction exposes contaminated soil which has
otherwise been deemed isolated and not subject to cleanup requirements. Such
remediation could adversely impact the results of operations of the Mohegan Sun
Casino and the Mohegan Gaming Authority and therefore the results of operations
and financial condition of Sun.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of Ordinary Shares in the public market could
adversely affect the market price of the Ordinary Shares.
SIIL controls approximately 55% of all the outstanding Ordinary Shares
(approximately 48% assuming the consummation of the Merger at a Conversion
Number of .4324). SIIL, by virtue of its control of Sun, could effectively cause
Sun to file a registration statement and sell any and all the Ordinary Shares
held by it.
TCW Special Credits on behalf of certain funds and accounts ("TCW") and
Fidelity Management & Research Company on behalf of certain funds and accounts
managed by it and its affiliates ("Fidelity") together hold approximately 6% of
the outstanding Ordinary Shares. TCW and Fidelity have certain registration
rights granted to them by Sun in respect of such Ordinary Shares.
At the annual general meeting held in 1995, the shareholders of Sun approved
the Sun Stock Option Plan (the "Plan"). The Plan provides for options to be
granted to acquire up to 2,000,000 Ordinary Shares. Currently there are options
granted pursuant to the Plan to acquire 1,659,346 Ordinary Shares at option
exercise prices ranging from $11.6875 to $50.00, 49,732 of which were
exercisable as of the date of this Proxy Statement/Prospectus.
Merv Griffin beneficially owns 2,125,108 shares (excluding shares issuable
upon exercise of his warrants) of GGE Common Stock which will, assuming
consummation of the Merger, be converted into the right to receive 918,896
Ordinary Shares (assuming a Conversion Number of .4324).
DIVIDENDS AND DIVIDEND POLICY
The declaration, payment and amount of dividends on the Ordinary Shares are
determined by the Sun Board. As a holding company, Sun's ability to pay
dividends on the Ordinary Shares is subject to Sun's subsidiaries having
sufficient earnings and cash flows to allow Sun to receive distributions from
its subsidiaries. Moreover, the Revolving Credit Facility contains certain
restrictions relating to distributions from Sun's subsidiaries. See "BUSINESS OF
SUN--Revolving Credit Facility." There can be no assurance that Sun will pay
dividends or as to the amount or timing thereof.
VOLATILITY OF PRICE OF SECURITIES
The market prices of securities of companies whose future operating results
are highly dependent on the passage, repeal or defeat of relevant legislation,
actions of regulatory bodies and specific developments, such as the opening of
new projects, are often highly volatile. Announcements concerning legislation
approving, repealing or defeating gaming, regulatory actions concerning tax
rates and enforcement of regulations, the granting of licenses, other
governmental actions, developments in the gaming industry generally,
announcements by Sun or by competitors, results of Sun's operations and
financial market conditions generally may have a significant impact on the
market price of the Ordinary Shares.
DEPENDENCE ON KEY PERSONNEL
Sun depends upon the efforts and skills of Mr. Solomon Kerzner, its Chairman
and Chief Executive Officer. See "MANAGEMENT OF SUN". Mr. Kerzner is also the
Chairman of World Leisure Group Limited, a British Virgin Islands corporation
("WLG"), which indirectly owns through intermediate entities approximately
one-third of the outstanding equity of SIIL, and is also a beneficiary of a
Kerzner family trust which owns WLG. The loss of the services of Mr. Kerzner or
his inability to devote sufficient attention to the operations of Sun could have
a material adverse effect on Sun's ability to develop potential business
opportunities. According to Mr. Kerzner's employment contract with Sun, he is
obligated to devote at least two-thirds of his working time to the operations of
Sun until July 1, 1998. In addition, Mr. Kerzner has agreed, subject to certain
specified exceptions, that during the term of his employment he will not
directly or indirectly engage in any business competitive with the business of
Sun in any part of the world outside southern Africa and that he will bring all
business opportunities relevant to the business of
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Sun to the attention of Sun and permit Sun exclusively to exploit such
opportunities. There is no assurance that two-thirds of Mr. Kerzner's working
time will be sufficient to enable Sun to develop its business.
DEPENDENCE ON AIR SERVICE
Most patrons of Sun's resorts on Paradise Island and virtually all the
patrons of Sun Indian Ocean's hotels arrive by air. Although Sun considers the
current level of air service to The Bahamas and Mauritius to be adequate, any
interruption or reduction of air service to The Bahamas or Mauritius could have
an adverse effect on Sun.
SEASONALITY AND WEATHER
Sun's business has historically been seasonal, with the largest number of
patrons visiting The Bahamas and Mauritius during late December and the first
three months of the calendar year. Accordingly, revenues and operating profits
for Sun have historically been higher during the first calendar quarter than in
successive quarters. In addition, The Bahamas, Mauritius and the Comoros are
subject to tropical weather and storms which, if severe, can interrupt the
normal operations of Sun and affect tourism.
RISK FACTORS RELATED TO GGE
RECENT OPERATING RESULTS
Two factors negatively affected GGE's operating results in the first half of
1996 -- heightened competition for patrons in the Atlantic City market and
severe weather conditions during the first quarter of 1996.
As competition for patrons has intensified, promotions -- complimentary
services (rooms, food and beverage provided to patrons without charge), cash
giveaways and events -- have increased. In recent quarters certain competitors
have increased complimentaries and cash giveaways dramatically. Although GGE did
increase its promotions somewhat during the first quarter of 1996 and more
significantly during the second quarter of 1996, it still has elected not to
keep pace with the industry's increased promotions due to the belief that the
resulting increase in gaming win would not be sufficient to justify the
incremental costs incurred. Consequently, GGE's market share of revenues has
suffered. Also, expansions at two competing Atlantic City properties were
completed in May 1996 which, together, added approximately 1,100 hotel rooms and
approximately 60,000 square feet of gaming space to the Atlantic City market.
Several other companies have announced plans to expand existing or construct new
casino/hotels in Atlantic City. GGE can give no assurance that the increased
cost of obtaining gaming revenues will not continue in future periods.
Also, the severe weather experienced during the first quarter of 1996
adversely affected operations in that period as the principal means of
transportation to Atlantic City is by automobile or bus. The impact of inclement
weather is more severe on the Resorts Casino Hotel than on competing properties
which are more accessible from main thoroughfares and which currently have more
covered parking and covered terminals for bus patrons.
COMPETITION
Competition in the Atlantic City casino/hotel industry is intense.
Casino/hotels compete primarily on the basis of promotional allowances,
entertainment, advertising, services provided to patrons, caliber of personnel,
attractiveness of the hotel and casino areas and related amenities, and parking
facilities. The Resorts Casino Hotel competes directly with 11 casino/hotels in
Atlantic City which, in the aggregate, contain almost 1,000,000 square feet of
gaming area, including simulcast betting and poker rooms, and almost 10,000
hotel rooms. Significant additional expansion is expected in the near future.
The Resorts Casino Hotel is located at the eastern end of the Boardwalk
adjacent to the Trump Taj Mahal Casino Resort (the "Taj Mahal"), which is next
to the Showboat. These three properties have a total of approximately 2,700
hotel rooms and approximately 314,000 square feet of gaming space in close
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proximity to each other. In 1995, the three casino/hotels combined generated
approximately 30% of the gross gaming revenue of Atlantic City. A 28-foot wide
enclosed pedestrian bridge between the Resorts Casino Hotel and the Taj Mahal
allows patrons of both hotels and guests for events being held at the Resorts
Casino Hotel and the Taj Mahal to move between the facilities without exposure
to the weather. A similar enclosed pedestrian bridge connects the Showboat to
the Taj Mahal, allowing patrons to walk under cover among all three
casino/hotels. The remaining nine Atlantic City casino/hotels are located
approximately one-half mile to one and one-half miles to the west on the
Boardwalk or in the Marina area of Atlantic City.
In recent years, competition for the gaming patron outside of Atlantic City
has become extremely intense. In 1988, only Nevada and New Jersey had legalized
casino operations. Currently, twenty four states have legalized casinos on land,
water or Indian reservations. Also, The Bahamas and other destination resorts in
the Caribbean and Canada have increased the competition for gaming revenue.
Thus, the competition for the destination resort patron has intensified.
Directly competing with Atlantic City for the day-trip patron is Foxwoods. The
Mohegan Sun Casino provides additional competition for the Resorts Casino Hotel.
The Oneida Indians opened a casino near Syracuse, New York in 1993 which they
are now seeking to expand. Other Indian tribes in the states of New York and
Rhode Island are seeking federal recognition in order to establish gaming
operations which would further increase the competition for day-trip patrons.
POSSIBLE ENVIRONMENTAL LIABILITIES
The Environmental Protection Agency ("EPA") has named a predecessor to GGE
as a potentially responsible party in the Bay Drum hazardous waste site (the
"Site") in Tampa, Florida which the EPA has listed on the National Priorities
List. No formal action has commenced against GGE and GGE intends to dispute any
claims of this nature, if asserted. Although it may ultimately be determined
that GGE is one of several hundred parties that are jointly and severally liable
for the costs of Site remediation and for damages to natural resources at the
Site caused by hazardous wastes, the extent of such liability, if any, cannot be
determined at this time.
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SUN EXTRAORDINARY GENERAL MEETING
PURPOSE
At the Sun Extraordinary General Meeting, the shareholders of Sun will
consider and vote upon a proposal to approve the Charter Amendment.
The Sun Board has unanimously approved the Merger Agreement and the Charter
Amendment. THE SUN BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF SUN
VOTE "FOR" APPROVAL OF THE CHARTER AMENDMENT AT THE SUN EXTRAORDINARY GENERAL
MEETING. See "THE MERGER--Sun's Reasons for the Merger; Recommendation of its
Board of Directors" and "PROPOSED SUN CHARTER AMENDMENT."
RECORD DATE; VOTING RIGHTS
Only holders of record of Ordinary Shares at the Sun Record Date, October
28, 1996, are entitled to receive notice of and to vote at the Sun Extraordinary
General Meeting. At the Sun Record Date, there were 29,245,184 Ordinary Shares
outstanding, each of which entitles the registered holder thereof to one vote.
SHARE OWNERSHIP OF MANAGEMENT AND SIIL
At the Sun Record Date, directors and executive officers of Sun, as a group,
were the owners of an aggregate of less than 1% of the Ordinary Shares then
outstanding (excluding Ordinary Shares issuable pursuant to their Stock Options)
and SIIL controlled approximately 55% of the Ordinary Shares then outstanding.
See "THE STOCKHOLDER AGREEMENTS--Sun Stockholder Agreement" and "PRINCIPAL
SHAREHOLDER OF SUN."
QUORUM
Under the IBCA and the Sun Charter, the presence of a quorum is required to
transact business at the Sun Extraordinary General Meeting. The presence in
person or by proxy of the holders of a majority of outstanding Ordinary Shares
shall constitute a quorum on all matters.
Ordinary Shares represented by proxies which are marked "abstain" will be
counted as shares present for purposes of determining the presence of a quorum
on all matters, as will Ordinary Shares that are represented by proxies that are
executed by any broker, fiduciary or other nominee on behalf of the beneficial
owner(s) thereof regardless of whether authority to vote is withheld from such
broker, fiduciary or nominee on one or more matters. SIIL's agreement to vote
its Ordinary Shares at the Sun Extraordinary General Meeting pursuant to the Sun
Stockholder Agreement ensures a quorum at the Sun Extraordinary General Meeting.
See "THE STOCKHOLDER AGREEMENTS--Sun Stockholder Agreement."
PROXIES
All Ordinary Shares represented by properly executed proxies in the enclosed
form which are received prior to or at the Sun Extraordinary General Meeting and
have not been revoked will be voted in accordance with the instructions
indicated in such proxies. If no instructions are indicated, such shares will be
voted FOR approval of the Charter Amendment. In addition, the persons designated
in such proxy will have discretion to vote upon any other matter which properly
comes before the Sun Extraordinary General Meeting such as a procedural matter
relating to the Sun Extraordinary General Meeting, including the right to vote
for any adjournment thereof proposed to solicit additional proxies. Any proxy
may be revoked by the shareholder executing it by delivering written notice
thereof to the Corporate Secretary of Sun prior to the time voting is declared
closed or by attending the Sun Extraordinary General Meeting and voting in
person. Attendance at the Sun Extraordinary General Meeting will not in and of
itself constitute the revocation of a proxy.
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SOLICITATION OF PROXIES
The solicitation of proxies for the Sun Extraordinary General Meeting is
being made on behalf of the Sun Board. Pursuant to the Merger Agreement, the
entire cost of proxy solicitation for the Sun Extraordinary General Meeting,
including the reasonable expenses of brokers, fiduciaries and other nominees in
forwarding solicitation materials to beneficial owners, will be borne by Sun,
except that Sun and GGE will share equally all printing and mailing expenses and
filing fees. Solicitation will be by mail, except for any personal solicitation
made orally or in writing by or under the direction of directors, officers and
employees of Sun. Sun may request persons, such as brokers, nominees and
fiduciaries, holding Ordinary Shares in their names to forward proxy materials
to the beneficial owners and it will reimburse such persons for their reasonable
expenses incurred in doing so.
REQUIRED VOTE
Approval of the Charter Amendment will require the affirmative vote of the
holders of a majority of the Ordinary Shares outstanding as of the Sun Record
Date.
An abstention with respect to the Charter Amendment will have the effect of
a vote cast against such proposal. The Ordinary Shares represented by valid
proxies received will be voted in the manner specified on the proxies. Where a
specific choice is not indicated, the Ordinary Shares represented by valid
proxies received will be voted "FOR" approval of the Charter Amendment. Brokers
who hold Ordinary Shares as nominees will not have discretionary authority to
vote such shares on the Charter Amendment in the absence of instructions from
the beneficial owners thereof. Any shares which are not voted because the
nominee-broker lacks such discretionary authority will have the effect of votes
cast against the Charter Amendment. SIIL's agreement, pursuant to the Sun
Stockholder Agreement, to vote its Ordinary Shares in favor of the Charter
Amendment ensures a number of affirmative votes sufficient to approve the
Charter Amendment. See "THE STOCKHOLDER AGREEMENTS--Sun Stockholder Agreement."
PROPOSED SUN CHARTER AMENDMENT
At the Sun Extraordinary General Meeting, the shareholders of Sun will be
asked to consider and vote upon a proposal to approve and adopt the Charter
Amendment which would add the following provisions to the Sun Charter required
by the NJCCA as a result of the Merger:
"These Articles of Association shall be subject to the New Jersey Casino
Control Act, N.J.S.A. 5:12-1 et seq., and the rules and regulations of the
New Jersey Casino Control Commission (the "Commission") as they currently
exist or as they hereinafter may be amended (the "Act"), including without
limitation the following:
A. The securities (as defined in the Act) of the Corporation shall
always be subject to redemption by the Corporation, by action of the Board
of Directors, if, in the judgment of the Board of Directors, such action
should be taken, pursuant to the International Business Companies Act of
1989 of the Commonwealth of The Bahamas or any other applicable provision of
law, to the extent necessary to prevent the loss or secure the reinstatement
of any government-issued license or franchise held by the Corporation or any
Subsidiary (as defined in Paragraph E of this Article) to conduct any
portion of the business of the Corporation or such Subsidiary, which license
or franchise is conditioned upon some or all of the holders of the
Corporation's securities possessing prescribed qualifications. In the event
a holder of the Corporation's securities is found not to possess such
prescribed qualifications by the Commission pursuant to the Act (a
"Disqualified Holder"), such Disqualified Holder shall indemnify the
Corporation for any and all direct or indirect costs, including attorneys'
fees, incurred by the Corporation as a result of such holder's continuing
ownership or failure to divest promptly.
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B. Except as is otherwise expressly provided in instruments containing
the terms of the Corporation's securities, which instruments have been
approved by the Commission, so long as the Corporation shall remain a
publicly traded holding company as defined in the Act, in accordance with
N.J.S.A. 5:12-82(d)(7) and (9), all securities of the Corporation shall be
held subject to the condition that if a holder thereof is found to be a
Disqualified Holder, such holder shall dispose of his interest in the
Corporation within 120 days following the Corporation's receipt of notice
(the "Notice Date") of the holder's disqualification. Promptly following its
receipt of notice from the Commission that a holder of securities of the
Corporation has been found disqualified, the Corporation shall either
deliver such written notice personally to the Disqualified Holder, mail it
to such Disqualified Holder at the address shown on the Corporation's books
and records, or use any other reasonable means to provide notice. Failure of
the Corporation to provide notice to a Disqualified Holder after making
reasonable efforts to do so shall not preclude the Corporation from
exercising its rights.
If any Disqualified Holder fails to dispose of his securities within 120
days of the Notice Date, the Corporation may redeem such securities at the
lesser of (i) the lowest closing sale price of such securities between the
Notice Date and the date 120 days after the Notice Date, or (ii) such
holder's original purchase price.
C. If the Corporation shall become a privately-held holding company as
defined in the Act, in accordance with N.J.S.A. 5:12-82(d)(7), (8) and (10),
the Commission shall have the right of prior approval with regard to
transfers of securities, shares, and other interests in the Corporation and
the Corporation shall have the absolute right to redeem at the market price
or purchase price, whichever is the lesser, any security, share or other
interest in the Corporation in accordance with the Act.
D. So long as the Corporation shall remain a holding company as defined
in the Act, in accordance with N.J.S.A. 5:12-105(e), commencing on the date
the Commission serves notice on the Corporation that a security holder has
been found disqualified, it shall be unlawful for the Disqualified Holder to
(i) receive any dividends or interest upon any such securities of the
Corporation held by such holder; (ii) exercise, directly or through any
trustee or nominee, any right conferred by such securities; or (iii) receive
any remuneration in any form, for services rendered or otherwise, from any
Subsidiary of the Corporation that holds a casino license.
E. For purposes of this Article, the term "Subsidiary" shall have the
meaning set forth in N.J.S.A. 5:12-47."
The Sun Board by resolution dated August 18, 1996 has adopted the Charter
Amendment.
The Charter Amendment is a necessary prerequisite to the consummation of the
Merger as the NJCC will not approve the Merger and Sun would not be permitted to
own a New Jersey casino without the required language being added to the Sun
Charter.
Approval of the Charter Amendment will require the affirmative vote of the
holders of a majority of the Ordinary Shares outstanding as of the Sun Record
Date. SIIL's agreement, pursuant to the Sun Stockholder Agreement, subject to
certain conditions, to vote its Ordinary Shares in favor of the Charter
Amendment ensures a number of affirmative votes sufficient to approve the
Charter Amendment. If so approved, the Charter Amendment will be effective upon
the filing thereof with the Registrar of Companies in The Bahamas. Approval of
the Charter Amendment will result in all holders of Ordinary Shares being
subject to the redemption provisions of the amended Sun Charter.
THE SUN BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF SUN VOTE "FOR"
THE APPROVAL OF THE CHARTER AMENDMENT.
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GGE SPECIAL MEETING
PURPOSE
At the GGE Special Meeting, the holders of GGE Common Stock will consider
and vote upon a proposal to adopt the Merger Agreement.
The GGE Board has unanimously determined that the Merger is advisable and
fair to and in the best interests of GGE and its stockholders and has approved
the Merger Agreement. THE GGE BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
GGE COMMON STOCK VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT AT THE GGE
SPECIAL MEETING. See "THE MERGER--GGE's Reasons for the Merger; Recommendation
of its Board of Directors."
For a discussion of (i) the interests that certain directors and executive
officers of GGE have with respect to the Merger that are different from, or in
addition to, the interests of stockholders of GGE generally and (ii) information
regarding the treatment of options and warrants to purchase GGE Common Stock and
other rights of certain directors and executive officers of GGE, see "THE
STOCKHOLDER AGREEMENTS--GGE Stockholder Agreement", "THE MERGER--Interests of
Certain Persons in the Merger" and "THE MERGER AGREEMENT--Effect on GGE Benefit
Plans, Stock Options and Warrants." Such interests, together with other relevant
factors, were considered by the GGE Board in making its recommendation and
approving the Merger Agreement.
RECORD DATE; VOTING RIGHTS
Only holders of record of GGE Common Stock at the GGE Record Date, November
1, 1996, are entitled to receive notice of and to vote at the GGE Special
Meeting. At the GGE Record Date, there were 7,942,785 shares of GGE Common Stock
outstanding. Each registered holder of GGE Common Stock is entitled to one vote
per share at the GGE Special Meeting. Holders of GGE Class B Stock are not
entitled to vote at the GGE Special Meeting but are entitled to notice thereof.
SHARE OWNERSHIP OF MANAGEMENT AND SIGNIFICANT STOCKHOLDERS
At the close of business on the GGE Record Date, directors and executive
officers of GGE, as a group, were the beneficial owners of an aggregate of
2,241,528 shares (approximately 28% of the GGE Common Stock then outstanding)
excluding shares issuable pursuant to their options and warrants. Of these
shares, 2,125,108 were beneficially owned by Merv Griffin, one of the
Significant GGE Stockholders. Pursuant to the terms of the GGE Stockholder
Agreement, the Significant GGE Stockholders have agreed, subject to certain
conditions set forth in the GGE Stockholder Agreement, to vote their shares of
GGE Common Stock in favor of the adoption of the Merger Agreement at the GGE
Special Meeting. The general effect of the GGE Stockholder Agreement, subject to
certain conditions set forth therein, is to ensure the affirmative vote at the
GGE Special Meeting of 2,125,108 shares of GGE Common Stock representing
approximately 27% of the GGE Common Stock outstanding as of the GGE Record Date.
See "THE STOCKHOLDER AGREEMENTS--GGE Stockholder Agreement."
QUORUM
Under the DGCL and GGE's Amended and Restated By-Laws (the "GGE By-Laws"),
the presence of a quorum is required to transact business at the GGE Special
Meeting. The presence in person or by proxy of stockholders entitled to cast a
majority in number of votes upon a question to be considered constitutes a
quorum. Pursuant to the terms of the GGE Stockholder Agreement, each Significant
GGE Stockholder who is a party thereto has agreed to vote his or its shares in
person or by proxy at the GGE Special Meeting. See "THE STOCKHOLDER
AGREEMENTS--GGE Stockholder Agreement."
Shares of GGE Common Stock represented by proxies which are marked "abstain"
will be counted as shares present for purposes of determining the presence of a
quorum on all matters, as will shares that are
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represented by proxies that are executed by any broker, fiduciary or other
nominee on behalf of the beneficial owner(s) thereof regardless of whether
authority to vote is withheld by such broker, fiduciary or nominee on one or
more matters.
In the event that a quorum is not present at the GGE Special Meeting, it is
expected that such meeting will be adjourned or postponed to solicit additional
proxies.
PROXIES
All shares of GGE Common Stock represented by properly executed proxies in
the enclosed form which are received prior to or at the GGE Special Meeting and
have not been revoked will be voted in accordance with the instructions
indicated in such proxies. If no instructions are indicated, such shares will be
voted FOR the adoption of the Merger Agreement. In addition, the persons
designated in such proxy will have discretion to vote upon any other matter
which properly comes before the GGE Special Meeting such as a procedural matter
relating to the GGE Special Meeting, including the right to vote for any
adjournment thereof proposed to solicit additional proxies. Any proxy may be
revoked by the stockholder executing it by delivering written notice thereof to
the Secretary of GGE prior to the time voting is declared closed or by attending
the GGE Special Meeting and voting in person. Attendance at the GGE Special
Meeting will not in and of itself constitute the revocation of a proxy.
SOLICITATION OF PROXIES
The solicitation of proxies for the GGE Special Meeting is being made on
behalf of the GGE Board. Pursuant to the Merger Agreement, the entire cost of
proxy solicitation for the GGE Special Meeting, including the reasonable
expenses of brokers, fiduciaries and other nominees in forwarding solicitation
materials to beneficial owners, will be borne by GGE, except that Sun and GGE
will share equally all printing and mailing expenses and filing fees.
Solicitation will be by mail, except for any personal solicitation made orally
or in writing by or under the direction of directors, officers and employees of
GGE. GGE may request persons, such as brokers, nominees and fiduciaries, holding
GGE Common Stock in their names to forward proxy materials to the beneficial
owners and it will reimburse such persons for their reasonable expenses incurred
in doing so.
REQUIRED VOTE
Adoption of the Merger Agreement will require the affirmative vote of a
majority of the outstanding shares of GGE Common Stock. An abstention will have
the effect of a vote cast against such proposal. Brokers who hold GGE Common
Stock as nominees will not have discretionary authority to vote such shares in
the absence of instructions from the beneficial owners thereof. Any shares which
are not voted because the nominee-broker lacks such discretionary authority will
have the effect of votes cast against such proposal. The terms of the GGE
Stockholder Agreement are intended to ensure that the shares of certain holders
of GGE Common Stock will be voted at the GGE Special Meeting in favor of the
adoption of the Merger Agreement. See "THE STOCKHOLDER AGREEMENTS--GGE
Stockholder Agreement."
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THE STOCKHOLDER AGREEMENTS
THE DESCRIPTION OF THE STOCKHOLDER AGREEMENTS CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE STOCKHOLDER AGREEMENTS, COPIES OF WHICH ARE
ATTACHED HERETO AS ANNEX II AND ANNEX III, AND ARE INCORPORATED HEREIN BY
REFERENCE.
GGE STOCKHOLDER AGREEMENT
On August 19, 1996, Sun entered into the GGE Stockholder Agreement with the
Significant GGE Stockholders.
Together, the Significant GGE Stockholders held, on the GGE Record Date,
approximately 27% of the outstanding GGE Common Stock and are therefore together
able to control approximately 27% of the vote on all matters submitted to a vote
of the holders of GGE Common Stock, including the adoption of the Merger
Agreement.
Pursuant to the terms of the GGE Stockholder Agreement, each Significant GGE
Stockholder has agreed, until the GGE Stockholder Agreement is terminated by its
terms, to vote (or cause to be voted) at the GGE Special Meeting or in any other
circumstances upon which a vote, consent or other approval with respect to the
Merger Agreement is sought, his or its shares of GGE Common Stock (together, the
"Subject Shares") in favor of the adoption of the Merger Agreement (or
alternatively upon Sun's request, to grant Sun a proxy to so vote the Subject
Shares, provided Sun has obtained all necessary approvals in connection with
such proxy).
Further, each Significant GGE Stockholder has agreed: (a) to vote (or cause
to be voted), at any meeting of the stockholders of GGE or in any other
circumstances upon which his or its vote, consent or other approval is sought,
the Subject Shares against (i) any merger agreement or merger (other than the
Merger Agreement and the Merger), consolidation, combination, sale of
substantial assets, reorganization, recapitalization, dissolution, liquidation
or winding up of or by GGE or any other takeover proposal (as defined in the
Merger Agreement) or (ii) any amendment of GGE's Restated Certificate of
Incorporation (the "GGE Charter"), the GGE By-Laws or any other proposal or
transaction involving GGE or any of its subsidiaries, which amendment or other
proposal or transaction would in any manner impede, frustrate, prevent or
nullify the Merger, the Merger Agreement or any of the other transactions
contemplated by the Merger Agreement or change in any manner the voting rights
of any class of GGE Common Stock; and (b) not to (i) sell, transfer, pledge,
assign or otherwise encumber or dispose of (including by gift) any of the
Subject Shares, any option ("Option") or warrant ("Warrant") in respect of any
GGE Common Stock or any shares of GGE Common Stock subject to any option or
warrant other than pursuant to the Merger, (ii) enter into any voting
arrangement, whether by proxy, voting agreement or otherwise, in connection
with, directly or indirectly, any takeover proposal, (iii) exercise any Option
or Warrant, in whole or in part or (iv) commit or agree to take any of the
foregoing actions.
Pursuant to the terms of the GGE Stockholder Agreement, each Significant GGE
Stockholder is prohibited from directly or indirectly soliciting, initiating or
encouraging the submission of any takeover proposal, or taking any actions to
facilitate any inquiries or the making of any proposal that constitutes or may
reasonably be expected to lead to a takeover proposal. In addition, each
Significant GGE Stockholder has agreed to use all reasonable efforts to take,
until the consummation of the Merger or the termination of the Merger Agreement,
all actions, and to do and cooperate in doing, all things necessary, proper and
advisable, to make effective, in the most expeditious manner practicable, the
Merger and the transactions contemplated thereby. In the event the Merger
Agreement is terminated under circumstances where Sun is or may become entitled
to receive the termination fee as described under "THE MERGER AGREEMENT--Fees
and Expenses," each Significant GGE Stockholder will be obligated to pay to Sun
on demand an amount equal to 50% of the profit (as determined pursuant to the
terms of the GGE Stockholder Agreement) of such Significant GGE Stockholder from
the consummation of any takeover proposal that is consummated within one year of
such termination. In addition, in the event the Significant
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GGE Stockholders are required to make the payment described in the preceding
sentence, each Significant GGE Stockholder shall pay to Sun on demand 50% of the
amount equal to the excess of (a) any consideration received by such Significant
GGE Stockholder, directly or indirectly, in respect of employment, services,
licenses or other agreements or arrangements over (b) the consideration, if any,
that would have been received by such Significant GGE Stockholder pursuant to
the License and Services Agreement (which is included as Annex VI hereto),
valuing any non-cash consideration in accordance with the terms of the GGE
Stockholder Agreement.
The GGE Stockholder Agreement shall terminate upon the earlier of (a) July
31, 1997 and (b) the Effective Time of the Merger. In addition, subject to
certain conditions, the GGE Stockholder Agreement will terminate at the time the
Merger Agreement is terminated for any of certain specified reasons.
SUN STOCKHOLDER AGREEMENT
Pursuant to the terms of the Sun Stockholder Agreement, SIIL, the
controlling Sun shareholder, has agreed, among other things, until the Sun
Stockholder Agreement is terminated by its terms, to vote the Ordinary Shares
then held by SIIL, or grant a consent or approval in respect of such Ordinary
Shares, at any meeting of Sun shareholders or at any adjournment thereof or in
any other circumstances upon which its vote, consent or other approval is
sought, (i) in favor of any amendments to the Sun Charter that add such
provisions as may be necessary as a result of consummation of the transactions
contemplated by the Merger Agreement to comply with the NJCCA and (ii) if the
Merger Agreement is amended to change the structure of the Merger, in favor of
the approval and adoption of the Merger Agreement and the approval of the terms
of the Merger Agreement and each of the transactions contemplated by the Merger
Agreement. See "THE MERGER AGREEMENT--Termination."
The Sun Stockholder Agreement shall terminate upon the earlier of (a) the
termination of the Merger Agreement and (b) the Effective Time of the Merger.
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THE MERGER
GENERAL
At the Effective Time of the Merger, Sub will be merged with and into GGE,
with GGE continuing as the surviving corporation and a wholly owned subsidiary
of Sun. As a result of the Merger, the separate corporate existence of Sub will
cease and GGE will succeed to all the rights and be responsible for all the
obligations of Sub in accordance with the DGCL. Subject to the terms and
conditions of the Merger Agreement, each share of GGE Common Stock outstanding
immediately prior to the Effective Time (other than shares owned directly or
indirectly by Sun or GGE, which will be canceled) will be converted into the
right to receive the Conversion Number of an Ordinary Share. Cash will be paid
to holders of GGE Common Stock in lieu of any fractional Ordinary Shares. Also
subject to the terms and conditions of the Merger Agreement, each issued and
outstanding share of GGE Class B Stock will be converted into the right to
receive the Class B Consideration. As a result of such conversion, the holders
of GGE Class B Stock will not be entitled to special rights with respect to the
election of directors to which holders of GGE Class B Stock were previously
entitled. As of the Effective Time, the fraction of an Ordinary Share into which
a share of GGE Class B Stock is converted shall be traded as part of a Unit. See
"THE MERGER AGREEMENT--Conversion of GGE Common Stock",-- "Conversion of GGE
Class B Stock", "-- Fractional Shares" and "DESCRIPTION OF GGE CAPITAL STOCK."
The Merger Agreement also provides for the assumption by Sun of certain GGE
options and warrants.
ORDINARY SHARES ISSUED IN CONNECTION WITH THE MERGER. Based on the number
of shares of GGE Common Stock and GGE Class B Stock outstanding on the GGE
Record Date and based on an assumed Conversion Number of .4324 and Class B
Consideration of .1928 of an Ordinary Share per share of GGE Class B Stock,
4,113,545 Ordinary Shares would be issued upon consummation of the Merger,
assuming exercise of all outstanding options and warrants for shares of GGE
Common Stock prior to the Effective Time.
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware unless the Certificate of
Merger provides for a later time of effectiveness. The filing of the Certificate
of Merger will occur as soon as practicable on or after the Closing Date. See
"THE MERGER AGREEMENT--Conditions to the Consummation of the Merger; Conditions
to Each Party's Obligation to Effect the Merger."
BACKGROUND OF THE MERGER
In May 1994, Sun and GGE closed a transaction in which Sun acquired the
Paradise Island businesses of Resorts International, Inc. (predecessor to GGE).
In May 1996, Sun publicly expressed its interest in entering the Atlantic
City market and asked Bear Stearns, its financial advisor, to review the public
documents of GGE to determine the advisability of pursuing a possible
acquisition. In July 1996, representatives of Sun expressed interest in
acquiring some of GGE's excess real estate holdings in Atlantic City and
requested a meeting with GGE executives. On July 17, 1996, GGE's Executive Vice
President--Finance and Chief Financial Officer, Matthew B. Kearney, met with
Sun's President, Howard B. Kerzner and Sun's Executive Vice President--General
Counsel, Charles D. Adamo regarding the possible sale to Sun of GGE's excess
real estate holdings in the South Inlet area of Atlantic City, an area where it
had been publicly reported that MGM Grand was planning a major development. Sun
indicated its interest in the Atlantic City market and in a possible
casino/hotel/resort to be developed in that area. Sun stated that it intended to
file an application with the NJCC for a license to own and operate a casino in
Atlantic City. At this meeting, the possibility of a combination of the two
companies was raised.
On July 20, 1996, Mr. Kearney met again with Mr. H.B. Kerzner and with Sun's
Chairman and Chief Executive Officer, Solomon Kerzner, at which time Sun's
possible interest in pursuing a combination
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transaction was further discussed. Subsequently, several telephone discussions
were held between representatives of GGE and representatives of Sun resulting in
a subsequent meeting between Mr. Kearney and Mr. H.B. Kerzner in Florida on July
25, 1996 at which Sun expressed its interest in a possible merger transaction
with GGE.
On July 30, 1996, at the invitation of Messrs. H.B. Kerzner and Adamo, the
President and Chief Executive Officer of GGE, Thomas E. Gallagher, Lawrence
Cohen, Executive Vice President and Chief Financial Officer of the Griffin
Group, and Mr. Kearney visited Sun's joint venture development with the Mohegan
Tribe then under construction in Montville, Connecticut and also visited the
Foxwoods casino operated by the Pequot Tribe at Ledyard, Connecticut,
approximately ten miles away. Following this visit, during the period July 30
through August 2, Mr. Gallagher consulted by telephone with individual members
of the GGE Board to ascertain their preliminary views regarding a possible
transaction with Sun and the process for evaluating and negotiating such a
transaction, including the potential range of acceptable consideration and the
possible retention of a financial advisor to GGE.
On August 1, 1996, Mr. Kearney met with Mr. H.B. Kerzner in Atlantic City,
and later on the same day Mr. Gallagher met with Mr. H.B. Kerzner in New York
City. During these meetings, discussions continued regarding the possible terms
upon which a merger transaction might be negotiated. Thereafter, on August 2 and
3, 1996, several telephone discussions took place between Messrs. Gallagher,
Kearney and representatives of Sun. The principal topic was a possible merger of
GGE with Sun on the basis of a stock for stock exchange at a ratio involving a
significant premium over GGE's then current market price although specific
prices were not agreed upon.
On August 5, 1996, GGE retained Morgan Stanley to act as financial advisor
to GGE in connection with further consideration of a possible business
combination.
On August 7, 1996, a regularly scheduled meeting of the GGE Board was held
in New York City, at which GGE management reported on the status of discussions
with Sun and presentations were made by GGE's outside counsel as to applicable
legal issues and by Morgan Stanley regarding the diligence and valuation
process.
On August 9, 1996, Messrs. Gallagher and Kearney, together with Morgan
Stanley, met with Sun executives and Bear Stearns at the offices of Bear Stearns
and began the formal diligence process. Subsequently, Morgan Stanley and Bear
Stearns continued diligence procedures directly with one another and with Sun
and GGE. In addition, GGE's and Sun's respective outside auditors were
respectively requested to interview Sun's and GGE's auditors with regard to the
financial statements of Sun and GGE.
On August 12, 1996, a regularly scheduled meeting of the Sun Board was held
at Paradise Island at which Sun management reported on the status of discussions
with GGE. Bear Stearns, who were retained as financial advisors, made a
presentation regarding a possible transaction with GGE, and the Sun Board
authorized Sun management to continue to negotiate the terms of such a
transaction. During the week of August 12, 1996, additional financial and legal
due diligence was conducted by GGE's and Sun's respective outside counsels and
financial advisors. On August 14, 1996 a special meeting of the GGE Board was
held telephonically at which further discussion of the desirability of a
business combination occurred, along with extensive discussion of possible
financial terms of such a merger. At such meeting, further presentations were
made by GGE's outside counsel and by Morgan Stanley.
Representatives of GGE and Sun and their respective counsel met at the
offices of Sun's outside counsel on August 14 and 15, 1996 to continue
negotiations regarding the form of merger agreement.
On August 16, 17 and 18, 1996 further negotiations were conducted between
Messrs. Gallagher and Kearney of GGE and Messrs. H.B. Kerzner and Adamo of Sun.
On August 18, 1996, the Sun Board held a meeting at which Bear Stearns
delivered an oral fairness opinion. Following presentations by key members of
Sun management and a review of the terms of the
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Merger by the Sun Board, the Sun Board approved the terms of and authorized Sun
management to execute the Merger Agreement and approved the transactions
contemplated thereby.
On August 19, 1996, the GGE Board held a meeting in New York to consider the
terms of the Merger Agreement. Following a report by management, presentations
by Morgan Stanley, GGE's independent auditors and counsel, and extensive
discussions of relevant considerations, including the outlook for the Atlantic
City gaming market and GGE's expansion plans, financial and valuation analyses
of GGE and Sun, Morgan Stanley's fairness opinion, detailed review of the Merger
Agreement, regulatory matters and due diligence, the GGE Board unanimously
approved the Merger and authorized the execution and delivery of the Merger
Agreement.
SUN'S REASONS FOR THE MERGER; RECOMMENDATION OF ITS BOARD OF DIRECTORS
The Sun Board has carefully considered the terms of the Merger and has
approved the Merger Agreement, the Charter Amendment and the related
transactions and unanimously recommends that the Sun shareholders vote FOR the
approval of the Charter Amendment at the Sun Extraordinary General Meeting.
The Sun Board believes that the terms of the Merger are attractive to Sun
and that the Merger would be strategically advantageous for Sun and would
enhance future value for Sun shareholders.
In reaching its conclusion, the Sun Board considered, among other things:
(i) the judgment, advice and analyses of its management; (ii) the analysis
prepared by, and the opinion of, Bear Stearns; (iii) the financial condition,
results of operations and cash flows of Sun and GGE, both on an historical and a
prospective basis; (iv) the synergies and operating efficiencies that should
become available to the combined enterprise as a result of the Merger; (v) the
strategic benefits of the Merger; (vi) the current and
prospective environment in which Sun operates, including international, national
and local economic conditions, the competitive environment for resort and gaming
companies generally and the trend towards consolidation in the gaming industry;
(vii) the express terms and conditions of the Merger Agreement, which were
viewed as providing an equitable basis for the Merger from the standpoint of
Sun; (viii) historical market prices and trading information with respect to
Ordinary Shares and GGE Common Stock; (ix) the tax effects of the Merger on Sun;
and (x) the ability of Sun and GGE to obtain the necessary regulatory approvals.
The foregoing discussion of the information and factors considered and given
weight by the Sun Board is not intended to be exhaustive. In view of the variety
of factors considered in connection with its evaluation of the Merger, the Sun
Board did not find it practicable to and did not quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Sun Board may have given
different weights to different factors.
THE SUN BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF ORDINARY SHARES
VOTE "FOR" APPROVAL OF THE CHARTER AMENDMENT.
OPINION OF SUN'S FINANCIAL ADVISOR
Sun, pursuant to an engagement letter dated August 18, 1996 (the "Engagement
Letter"), retained Bear Stearns as its exclusive financial advisor in connection
with Sun's proposed acquisition of GGE.
At the August 18, 1996 meeting of the Sun Board, Bear Stearns delivered its
oral opinion, confirmed in writing as of such date, to the effect that, as of
the date thereof, and subject to the assumptions and qualifications set forth
therein, the Merger was fair, from a financial point of view, to Sun. As
described below, Bear Stearns also performed and received a fee for certain
other financial advisory services for Sun in connection with the Merger.
THE FULL TEXT OF THE WRITTEN OPINION OF BEAR STEARNS, DATED AS OF AUGUST 18,
1996, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON
THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX IV HERETO
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AND IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE BEAR STEARNS OPINION
SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. HOLDERS OF ORDINARY SHARES ARE URGED
TO READ THE BEAR STEARNS OPINION IN ITS ENTIRETY.
The opinion of Bear Stearns is intended solely for the benefit and use of
the Sun Board and does not constitute a recommendation to any holder of Ordinary
Shares as to how such holder should vote in connection with the Merger. Bear
Stearns' opinion is necessarily based on economic, market and other conditions,
and the information made available to it, as of the date of its opinion.
The Conversion Number together with the provisions for adjustment of the
Conversion Number were determined by arm's-length negotiation between Sun and
GGE, although Sun consulted with Bear Stearns from time to time with respect
thereto. No limitations were imposed by Sun on Bear Stearns with respect to the
investigations made or the procedures followed by Bear Stearns in rendering its
opinion.
In connection with rendering its opinion, Bear Stearns, among other things:
(i) reviewed the Merger Agreement in substantially final form; (ii) reviewed
Sun's Annual Report on Form 20-F for the fiscal years ended December 31, 1994
and 1995, and its Reports on Form 6-K setting forth its financial results for
the periods ended March 31, 1996 and June 30, 1996; (iii) reviewed certain
operating and financial information, including projections, provided to Bear
Stearns by the management of Sun relating to Sun's business and prospects (the
"Sun Projections"); (iv) met with certain members of Sun's senior management to
discuss its operations, historical financial statements and future prospects;
(v) visited Sun's facilities on Paradise Island, The Bahamas and in Montville,
Connecticut; (vi) reviewed GGE's Annual Reports to Shareholders and Annual
Reports on Form 10-K for the fiscal years ended December 31, 1993 through 1995,
and its Quarterly Reports on Form 10-Q for the periods ended March 31, 1996 and
June 30, 1996; (vii) reviewed certain operating and financial information,
including projections, provided to Bear Stearns by Sun's management relating to
GGE's business and prospects (the "GGE Projections" and, together with the Sun
Projections, the "Projections"); (viii) met with certain members of GGE's senior
management to review certain operating and financial information and to discuss
its operations, historical financial statements, business and future prospects;
(ix) visited GGE's facilities in Atlantic City, New Jersey; (x) reviewed the
historical prices and trading volumes of Ordinary Shares and the GGE Common
Stock; (xi) reviewed publicly available financial data and stock market
performance data of companies that it deemed generally comparable to Sun and to
GGE; (xii) reviewed the terms of recent acquisitions of companies that it deemed
generally comparable to GGE; and (xiii) conducted such other studies, analyses,
inquiries and investigations as it deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed the
accuracy and completeness of the financial and other information provided to it
by Sun and GGE and representations of GGE's senior management related thereto.
With respect to the Projections, Bear Stearns assumed that they were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of Sun and GGE as to the expected future
performance of Sun and GGE, respectively. Bear Stearns did not assume any
responsibility for the information or Projections provided to it and Bear
Stearns further relied upon the assurances of the management of Sun that they
have no actual knowledge of any facts that would make the information or
Projections provided to Bear Stearns incomplete or misleading. In arriving at
its opinion, Bear Stearns did not perform or obtain any independent appraisal of
the assets of Sun or GGE. Bear Stearns' opinion does not address Sun's
underlying decision to effect the Merger.
In connection with preparing and rendering its opinion, Bear Stearns
performed a variety of valuation, financial and comparative analyses. The
summary of such analyses set forth below does not purport to be a complete
description of the analyses underlying Bear Stearns' opinion. The preparation of
a fairness opinion is a complex process and is not necessarily susceptible to
summary description. Bear Stearns believes that its analyses must be considered
as a whole, and that selecting portions of its analyses and the factors
considered by it, without considering all such factors and analyses, could
create an incomplete view
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of the processes underlying Bear Stearns' opinion. Moreover, the estimates
contained in such analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Accordingly, because such estimates are inherently subject to substantial
uncertainty, neither Bear Stearns nor any other person assumes responsibility
for their accuracy.
The following is a summary of the material valuation, financial and
comparative analyses performed by Bear Stearns in arriving at its written
opinion.
IMPLIED ACQUISITION MULTIPLE. Bear Stearns calculated enterprise values for
the acquisition of GGE based on a range of purchase prices of $20.00, $22.00 and
$24.00 per share for the outstanding common stock of GGE (assuming that all
outstanding options and warrants were exercised and excluding indebtedness of
approximately $105 million related to the Showboat Notes) of $269.9 million,
$288.9 million and $307.9 million, respectively.
Based on estimated earnings before interest, taxes, depreciation and
amortization of $41.5 million, Bear Stearns then calculated an implied
enterprise value as a multiple of estimated fiscal year 1996 EBITDA of 6.5x,
6.9x and 7.4x for the illustrative per share prices of GGE Common Stock of
$20.00, $22.00 (the price closest to the consideration to be received in the
Merger based on the closing price of the Ordinary Shares on August 16, 1996) and
$24.00, respectively.
COMPARABLE COMPANY ANALYSIS. Bear Stearns reviewed and compared certain
actual and estimated financial, operating and market information of GGE with the
publicly available information of five selected publicly traded companies in the
gaming industry that, in Bear Stearns' judgment, were generally comparable to
GGE (the "Peer Group" or the "Comparable Companies"). The Comparable Companies
consisted of Aztar Corporation ("Aztar"), Harrah's Entertainment, Inc.
("Harrah's"), Hollywood Casino Corp. ("Hollywood"), Showboat, Inc. ("Showboat
Inc.") and Trump Hotels & Casino Resorts, Inc. ("Trump"). Bear Stearns
calculated enterprise value (based on closing stock prices as of August 16,
1996) as a multiple of operating cash flow based on 1996 and 1997 estimates for
each of the Comparable Companies.
This analysis resulted in multiples of enterprise value to estimated
operating cash flow (based on Bear Stearns Equity research and other Wall Street
estimates) for Aztar, Harrah's, Hollywood, Showboat and Trump in a range from
5.5x to 9.3x and a mean of 7.1x for 1996 and from 5.3x to 6.7x and a mean of
5.9x for 1997, compared to the approximate 6.9x for GGE, based on the
consideration to be issued in the Merger, in both 1996 and 1997 (assuming EBITDA
of $41.5 million for 1996 and 1997).
Bear Stearns noted that no company utilized in the above comparable company
analysis is identical to GGE. Accordingly, an analysis of the foregoing is not
purely mathematical and involves complex considerations and judgments concerning
differences in financial and operating characteristics of the Comparable
Companies and other factors that could affect their public trading value.
SELECTED ACQUISITION ANALYSIS. Bear Stearns reviewed certain publicly
available information regarding four transactions (the "Selected Acquisitions")
involving the acquisition or proposed acquisition of all or part of certain
companies in the gaming industry. The Selected Acquisitions consisted of the
acquisition or proposed acquisition of all or part of Bally Entertainment
Corporation by Hilton Hotels Corporation (the "Bally's Acquisition"), of Trump
Castle Casino Resort by Trump Hotels & Casino Resorts, Inc. (the "Trump
Acquisition"), of Gold Strike Hotel & Gambling Hall and certain other related
assets by Circus Enterprises, Inc. (the "Gold Strike Acquisition") and of
Caesars World, Inc. by ITT Corporation (the "Caesars Acquisition"). Bear Stearns
calculated the total transaction value of the Merger (at $22.00 per share of GGE
Common Stock) and the Selected Acquisitions as a multiple of projected operating
cash flow.
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This analysis resulted in multiples of total transaction value to projected
operating cash flow (based on Wall Street and other publicly available
estimates) for the Bally's Acquisition, the Trump Acquisition, the Gold Strike
Acquisition and the Caesars Acquisition in a range from 7.7x to 9.7x with a mean
of 8.7x, compared to 6.9x for the Merger.
Bear Stearns noted that no transaction utilized in the above selected
acquisition transaction analysis is identical to the Merger. Accordingly, an
analysis of the foregoing is not purely mathematical and involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the acquired companies in such transactions and other factors
that could affect their acquisition and public trading values.
RELATIVE CONTRIBUTION ANALYSIS. Bear Stearns analyzed the relative
contribution by each of Sun and GGE to the post-Merger combined entity on a pro
forma basis with respect to, among other things, revenues, EBITDA, earnings
before interest and taxes ("EBIT"), and net income in light of their respective
enterprise values (i.e., equity value plus total recourse debt less unrestricted
cash and equivalents) and equity values. The results of this analysis indicated
that GGE would contribute 11.5% and 17.3% of the post-Merger combined entity's
equity value and enterprise value, respectively, based on the closing price for
the Ordinary Shares as of August 16, 1996. Based on a variety of assumptions,
this analysis indicated that for the periods 1995, 1996 and 1997, GGE would
contribute, on a pro forma basis, approximately (i) 57.8%, 52.7% and 50.5%,
respectively, of the post-Merger combined entity's reported revenues, (ii)
52.4%, 54.1% and 44.7%, respectively, of the post-Merger combined entity's
reported EBITDA, (iii) 64.5%, 46.5% and 36.7%, respectively, of the post-Merger
combined entity's reported EBIT and (iv) 46.6%, 29.2% and 20.6%, respectively,
of the post-Merger combined entity's reported net income.
In performing such analyses, Bear Stearns noted that (i) it did not take
into account any potential revenue enhancements and operating synergies that
might be realized after the Merger, (ii) revenues, EBITDA and EBIT excluded
rental revenue and interest expense related to the Showboat Notes and (iii)
EBITDA and EBIT excluded interest income on certain debt owned by Sun that Sun
includes in EBITDA and EBIT for budget and financial reporting purposes.
PRO FORMA MERGER ANALYSIS. Bear Stearns analyzed earnings per share ("EPS")
estimates for 1997, 1998, 1999 and 2000 for both Sun and, on a pro forma basis,
the combined entity after the Merger. These analyses were based upon projections
provided by the management of Sun and publicly available research analysts
estimates. Such analyses did not take into account any potential synergies or
cost savings that might be realized after the Merger. Such analysis indicated
that the Merger would result in accretion (dilution) in fully diluted EPS of
(2.5%), (4.8%), (3.4%) and 12.8% in 1997, 1998, 1999 and 2000, respectively, as
compared to the projected EPS of Sun on a stand-alone basis.
HISTORICAL STOCK TRADING ANALYSIS. Bear Stearns reviewed the historical
public trading prices of the GGE Common Stock over various periods of time,
including, among others, the one and two year periods ended August 16, 1996.
Bear Stearns also reviewed the historical performance over the same two periods
of a stock price index comprised of the common shares of the Comparable
Companies, excluding Harrah's in the two-year period analysis only and the S&P
400.
OTHER ANALYSES. Bear Stearns conducted such other analyses as it deemed
necessary, including reviewing historical and projected financial and operating
data for both Sun and GGE and pro forma combined income statement and balance
sheet data for the post-Merger combined entity, analyzing selected investment
research reports on, and earnings and other estimates for, each of Sun and GGE
and various of their business segments and analyzing available information
regarding the stock ownership profiles of Sun and GGE.
Pursuant to the Engagement Letter, Sun agreed to pay Bear Stearns a fee of
$500,000 for rendering its opinion in connection with the Merger, which fee
became payable at the time Bear Stearns delivered its opinion or, if Bear
Stearns had not been asked to deliver an opinion, Bear Stearns being prepared to
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deliver an opinion with respect to the Merger. Sun has also agreed to pay Bear
Stearns an additional fee, payable upon consummation of the Merger, of $500,000.
Accordingly, if the Merger is consummated, Bear Stearns will receive total fees
of $1 million. In addition, Sun has also agreed to reimburse Bear Stearns,
whether or not the Merger is consummated, for all reasonable out-of-pocket
expenses incurred by Bear Stearns in connection with its engagement, including
fees and disbursements of counsel and of other consultants and advisors retained
by Bear Stearns with the consent of Sun, provided that such expense
reimbursement shall not exceed $50,000. Sun has also agreed to indemnify Bear
Stearns and certain related persons against certain liabilities in connection
with its engagement, including certain liabilities under the federal securities
laws.
On September 21, 1995, Bear Stearns was the lead underwriter for a $175
million Senior Secured Note offering for the Mohegan Tribal Gaming Authority to
finance the development of the Mohegan Sun Casino which will be managed by an
affiliate of Sun. In addition, on February 27, 1996, Bear Stearns co-managed an
offering of 8.44 million Ordinary Shares. Bear Stearns also acted as financial
advisor to GGE in connection with the GGE Bankruptcy Plan and related matters.
In the ordinary course of its business, Bear Stearns may actively trade the
equity securities of Sun and GGE for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Bear Stearns is an internationally recognized investment banking firm and
was selected as financial advisor to Sun in connection with the Merger because
of its substantial experience and expertise in transactions similar to the
Merger. As part of its investment banking business, Bear Stearns regularly is
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
GGE'S REASONS FOR THE MERGER; RECOMMENDATION OF ITS BOARD OF DIRECTORS
The GGE Board has carefully considered the terms of the proposed Merger and
believes that the Merger and the related transactions are fair to and in the
best interests of GGE and its stockholders. The GGE Board has approved the
Merger and the related transactions and recommends that the GGE stockholders
vote FOR the adoption of the Merger Agreement at the GGE Special Meeting.
The GGE Board believes that the Merger would be strategically advantageous
for the combined companies and would enhance future value for GGE's
stockholders.
In reaching its conclusion, the GGE Board considered, among other things:
(i) discussions with GGE senior management beginning in the late spring of 1995
through early summer of 1996 regarding developments in the gaming industry, the
competitive position of GGE in that industry and in Atlantic City, possible
strategic combinations or other transactions, and the possible disposition of
certain of GGE's excess real estate holdings in Atlantic City; (ii) the fact
that one or more third parties had previously approached GGE about possible
purchases of certain of GGE's excess real estate holdings; (iii) that GGE agreed
in late 1995 to give options on a portion of its excess real estate holdings and
that it at that time agreed to continue to consider other proposals for other
options; (iv) the judgment, advice and analyses of its management; (v) the
financial condition, results of operations and cash flows of Sun and GGE, both
on an historical and a prospective basis; (vi) the synergies and operating
efficiencies that should become available to the combined enterprise as a result
of the Merger; (vii) the strategic benefits of the Merger to both GGE and Sun;
(viii) the current and prospective environment in which GGE operates, including
national and local economic conditions, the competitive environment for resort
and gaming companies generally and particularly in Atlantic City and the trend
towards consolidation in the gaming industry; (ix) the express terms and
conditions of the Merger Agreement, which were viewed as providing an equitable
basis for the Merger from the standpoint of GGE; (x) historical market prices
and trading information with respect to GGE Common Stock and Ordinary Shares;
(xi) the analysis prepared by, and
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the opinion of, Morgan Stanley; (xii) the tax effects of the Merger on GGE and
its stockholders; and (xiii) the ability of Sun and GGE to obtain the necessary
regulatory approvals.
The foregoing discussion of the information and factors considered and given
weight by the GGE Board is not intended to be exhaustive. In view of the variety
of factors considered in connection with its evaluation of the Merger, the GGE
Board did not find it practicable to and did not quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the GGE Board may have given
different weights to different factors. In considering the recommendation of the
GGE Board with respect to the Merger, GGE stockholders should be aware that the
interests that certain directors and executive officers of GGE have with respect
to the Merger are different from, or in addition to, the interests of holders of
GGE Common Stock generally. The GGE Board was aware of these interests and took
these interests into account in approving the Merger Agreement and the
transactions contemplated thereby. See "THE MERGER--- Interests of Certain
Persons in the Merger."
THE GGE BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF GGE COMMON STOCK
VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT.
OPINION OF GGE'S FINANCIAL ADVISOR
Morgan Stanley was retained by GGE to provide its opinion in connection with
the Merger and related matters based upon Morgan Stanley's experience and
expertise. At the August 19, 1996 meeting of the GGE Board, Morgan Stanley
rendered to the GGE Board an oral opinion, confirmed in writing as of such date,
to the effect that, as of such date and based on certain matters stated therein,
the Conversion Number pursuant to the Merger Agreement was fair from a financial
point of view to the holders of shares of GGE Common Stock (other than Sun and
its affiliates).
THE FULL TEXT OF MORGAN STANLEY'S OPINION DATED AS OF AUGUST 19, 1996, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX V TO THIS PROXY STATEMENT/PROSPECTUS AND
IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF GGE COMMON STOCK SHOULD READ
MORGAN STANLEY'S OPINION CAREFULLY IN ITS ENTIRETY. THE MORGAN STANLEY OPINION
IS DIRECTED TO THE GGE BOARD AND THE FAIRNESS OF THE CONVERSION NUMBER FROM A
FINANCIAL POINT OF VIEW TO THE HOLDERS OF SHARES OF GGE COMMON STOCK, AND IT
DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF GGE COMMON STOCK (OTHER THAN SUN AND ITS
AFFILIATES) AS TO HOW TO VOTE AT THE GGE SPECIAL MEETING. THE SUMMARY OF MORGAN
STANLEY'S OPINION SET FORTH IN THIS PROXY STATEMENT/ PROSPECTUS IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Morgan Stanley (i) reviewed certain publicly
available financial statements and other information of GGE; (ii) reviewed
certain publicly available financial statements and other information of Sun;
(iii) reviewed certain internal financial statements and other financial and
operating data concerning GGE prepared by the management of GGE; (iv) reviewed
certain internal financial statements and other financial and operating data
concerning Sun prepared by the management of Sun; (v) analyzed certain 1996
budget information prepared by the management of GGE; (vi) analyzed certain
financial projections prepared by Sun's financial advisor; (vii) discussed the
past and current operations and financial condition and the prospects of GGE
with senior executives of GGE; (viii) discussed the past and current operations
and financial condition and the prospects of Sun with senior executives of Sun;
(ix) reviewed the reported prices and trading activity for Ordinary Shares; (x)
reviewed the reported prices and trading activity for the GGE Common Stock; (xi)
compared the financial performance of GGE and the prices and trading activity of
GGE Common Stock with that of certain other comparable publicly traded companies
and their securities; (xii) compared the financial performance of Sun and the
prices and trading activity of the Ordinary Shares with that of certain other
comparable publicly traded companies and their securities; (xiii) reviewed the
financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (xiv) participated in discussions among
representatives of GGE, Sun and their financial and legal advisors; (xv)
reviewed the Merger Agreement and certain related documents; and (xvi) performed
such other analyses and considered such other factors as it deemed appropriate.
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In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to
financial projections, including the 1996 budget of GGE, Morgan Stanley assumed
that they had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of GGE or
Sun, respectively. Morgan Stanley did not make an independent valuation or
appraisal of the assets or liabilities of GGE or Sun, nor was Morgan Stanley
furnished with any such appraisals. Morgan Stanley assumed that the Merger will
qualify as a tax-free "reorganization" within the meaning of the Code. Morgan
Stanley also assumed that the Merger will be consummated in accordance with the
terms set forth in the Merger Agreement. Each Morgan Stanley opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to Morgan Stanley as of, the date thereof.
In arriving at its opinion, Morgan Stanley was not authorized to solicit,
and did not solicit, nor did it receive any indication of, interest from any
party with respect to the acquisition, business combination or other
extraordinary transaction involving GGE or any of its assets.
The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the GGE Board in connection with the preparation of
the Morgan Stanley Opinion dated August 19, 1996 and with its oral presentation
to the GGE Board on August 19, 1996.
PUBLIC MARKET OVERVIEW. Morgan Stanley reviewed certain trading information
for each of GGE and Sun, including market value, market capitalization and
institutional ownership. Morgan Stanley also reviewed historical and forward
trading multiples for each company. This review indicated that for GGE's and
Sun's last twelve months ("LTM") ended June 30, 1996, the high and low closing
prices for shares of GGE Common Stock and Ordinary Shares were $17.375 and
$10.00 and $54.00 and $25.00, respectively. Morgan Stanley calculated the
fully-diluted aggregate value of each of GGE and Sun, $284.4 million and
$1,396.9 million, respectively, as a multiple of each of their respective LTM
revenues; EBITDA and EBIT. The multiples yielded by such calculation were: (i)
with respect to revenues, 1.0x and 5.8x, respectively, (ii) with respect to
EBITDA, 5.9x and 34.6x, respectively, and (iii) with respect to EBIT, 7.9x and
48.5x, respectively.
HISTORICAL STOCK PERFORMANCE. Morgan Stanley also compared the trading
price of the shares of GGE Common Stock and Ordinary Shares to (i) the S&P 400
Index, (ii) a composite index of certain large capitalization gaming companies
(the "Large Cap Index Companies"), specifically Bally Entertainment Corporation,
Circus Circus Enterprises, Inc., Harrah's Entertainment, Inc., Mirage Resorts
Incorporated and MGM Grand, Inc. (the "Large Cap Gaming Companies") and Hilton
Hotels Corporation, ITT Corporation (the "Hotel/Casino Companies"), and (iii) a
composite index of certain mid-size capitalization gaming companies (the "Mid
Cap Index Companies"), specifically, Argosy Gaming Co., Aztar Corporation, Boyd
Gaming Corporation, Casino America, Casino Magic Corp., Grand Casinos, Inc.,
Hollywood Casino Corporation, Jackpot Enterprises, Inc., Players International,
Inc., Pratt Hotel Corporation, Presidents Casinos, Inc., Primadonna Resorts,
Inc., Rio Hotel & Casino, Showboat Incorporated, Station Casinos Inc. and Trump
Hotels & Casino Resorts, Inc.
COMPARABLE COMPANY TRADING ANALYSIS. Morgan Stanley performed a comparable
public company trading analysis pursuant to which it compared certain publicly
available financial and operating data, projections of future financial
performance and market statistics (calculated based upon closing stock prices on
August 16, 1996), of (i) the Large Cap Gaming Companies, (ii) the Hotel/Casino
Companies, (iii) certain mid-size capitalization companies (The "Mid Cap Gaming
Companies"), specifically, the Mid Cap Index Companies plus Pratt Hotel Corp.
and President Casinos, Inc., (iv) a stand-alone strip property, specifically
Stratosphere Corporation ("Stratosphere") and (v) certain gaming equipment
manufacturers (the "Gaming Equipment Companies"), specifically Anchor Gaming,
Casino Data Systems, GTech Holdings and International Game Technology. Morgan
Stanley compared (i) the closing stock price as a multiple of estimated 1996 and
1997 EPS and of LTM after-tax cash flow ("OCF") and of book value,
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(ii) the aggregate value (consisting of market capitalization and total debt) as
a multiple of each of LTM revenues, EBITDA and EBIT, (iii) the projected 5 year
growth rate and (iv) the ratio of price to 1996 and 1997 EPS and calculated the
mean and median of each multiple by company category.
For the Large Cap Gaming Companies, such analysis indicated: (i) mean and
median price to estimated 1996 EPS multiples of 21.2x and 20.4x, respectively,
(ii) mean and median price to estimated 1997 EPS multiples of 17.2x and 17.6x,
respectively, (iii) mean and median price to LTM OCF multiples of 10.0x and
8.8x, (iv) mean and median price to book value multiples of 3.4x and 3.1x,
respecively, (v) mean and median aggregate value to LTM revenue multiples of
2.6x and 2.8x, respectively, (vi) mean and median aggregate value to LTM EBITDA
multiples of 9.1x and 9.2x, respectively, (vii) mean and median aggregate value
to LTM EBIT multiples of 12.7x and 12.2x, respectively, (viii) mean and median
dividend yield of 0.0% for each, (ix) mean and median projected 5 year growth of
19.2x and 19.0x, respectively, (x) mean and median ratio of price to 1996 EPS to
EPS growth rates of 1.1x and 1.0x, respectively, and (xi) mean and median ratio
of price to 1997 EPS to EPS growth rates of 0.9x for each.
For the Hotel/Casino Companies, such analysis indicated: (i) mean and median
price to estimated 1997 EPS multiples of 23.6x for each, (ii) mean and median
price to estimated 1997 EPS multiples of 19.2x for each, (iii) mean and median
price to LTM OCF multiples of 15.0x for each, (iv) mean and median price to book
value multiples of 3.0x for each, (v) mean and median aggregate value to LTM
revenue multiples of 2.5x for each, (vi) mean and median aggregate value to LTM
EBITDA multiples of 11.5x for each, (vii) mean and median aggregate value to LTM
EBIT multiples of 15.9x for each, (viii) mean and median dividend yield of 0.6%
for each, (ix) mean and median projected 5 year growth of 18.5x for each, (x)
mean and median ratio of price to 1996 EPS to EPS growth rates of 1.3x for each
and (xi) mean and median ratio of price to 1997 EPS to EPS growth rates of 1.0x
for each.
For the Mid Cap Gaming Companies, such analysis indicated: (i) mean and
median price to estimated 1996 EPS multiples of 15.6x and 14.4x, respectively,
(ii) mean and median price to estimated 1997 EPS multiples of 11.4x and 11.7x,
respectively, (iii) mean and median price to LTM OCF multiples of 6.8x and 6.5x,
respectively, (iv) mean and median price to book value multiples of 1.9x and
1.5x, respectively, (v) mean and median aggregate value to LTM revenue multiples
of 1.6x and 1.7x, respectively, (vi) mean and median aggregate value to LTM
EBITDA multiples of 7.5x and 7.3x, respectively, (vii) mean and median aggregate
value to LTM EBIT multiples of 13.4x and 11.6x, (viii) mean and median dividend
yield of 0.2% and 0.0%, respectively, (ix) mean and median projected 5 year
growth of 18.3x and 18.0x, respectively, (x) mean and median ratio of price to
1996 EPS of 0.8x for each and (xi) mean and median ratio of price to 1997 EPS of
0.6x and 0.7x, respectively. For Stratosphere, such analysis indicated: (i) mean
price to estimated 1997 EPS multiple of 200x, (ii) mean price to book value
multiple of 0.6x, (iii) mean aggregate value to LTM revenue multiple of 26.7x,
(iv) mean aggregate value to LTM EBITDA multiple of 23.8x, (v) mean aggregate
value of LTM EBIT multiple of 28.4x, (vi) mean dividend yield of 0.0%, (vii)
mean projected 5 year growth of 17.5x and (viii) mean ratio of price to 1997 EPS
of 11.4x.
For the Gaming Equipment Companies, such analysis indicated: (i) mean and
median price to estimated 1996 EPS multiples of 23.2x and 24.0x, respectively,
(ii) mean and median price to estimated 1997 EPS multiples of 17.0x and 17.9x,
respectively, (iii) mean and median price to LTM OCF multiples of 23.1x and
24.8x, respectively, (iv) mean and median price to book value multiples of 5.2x
and 4.0x, respectively, (v) mean and median aggregate value to LTM revenue
multiples of 4.8x and 5.2x, respectively, (vi) mean and median aggregate value
to LTM EBITDA multiples of 18.3x and 18.4x, respectively, (vii) mean and median
aggregate value to LTM EBIT multiples of 18.2x and 15.0x, respectively, (viii)
mean and median dividend yield of 0.2% and 0.0%, respectively, (ix) mean and
median projected 5 year growth of 21.0x and 21.9x, respectively, (x) mean and
median ratio of price to 1996 EPS to EPS growth rates of 1.1x for each and (xi)
mean and median ratio of price to 1997 EPS to EPS growth rates of 0.8x and 0.7x,
respectively.
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No company utilized as a comparison in the comparable companies analysis is
identical to GGE. In evaluating the comparable companies, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of GGE, such as the impact of competition on GGE and the
industry generally, industry growth and the absence of any adverse material
change in the financial condition and prospects of GGE or the industry or in the
financial markets in general.
COMPARABLE PRECEDENT TRANSACTION ANALYSIS. Morgan Stanley reviewed certain
publicly available information regarding 14 transactions from 1993 to 1995 and
for each transaction calculated (i) the equity value as a multiple of each of
earnings and OCF for the last 12 months and to book value, (ii) the asset value
as a multiple of sales, EBITDA and estimated EBITDA, and (iii) the premium as a
percentage of unaffected price. Such analysis indicated that equity value as a
multiple of earnings, OCF and book value, respectively, (i) ranged from 23.0x to
36.6x, with a mean of 29.2x and a median of 28.1x, (ii) ranged from 6.6x to
14.7x, with a mean of 12.1x and a median of 13.6x and (iii) ranged from 0.5x to
8.9x, with a mean of 3.1x and a median of 2.0x. Such analysis also indicated
that asset value as a multiple of sales, EBITDA and estimated EBITDA,
respectively, (i) ranged from 0.6x to 4.9x, with a mean of 2.1x and a median of
1.8x, (ii) ranged from 4.5x to 11.4x, with a mean of 8.1x and a median of 8.7x
and (iii) ranged from 4.7x to 9.2x, with a mean of 6.9x and a median of 6.8x.
Such analysis indicated that the premium to unaffected price ranged from 6.0% to
65.1%, with a mean of 31.9% and a median of 23.5%.
No transaction utilized in the comparable transaction analysis is identical
to the Merger. In evaluating the precedent transactions, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of GGE, such as the impact of competition on the business of
GGE and the industry generally, industry growth and the absence of any adverse
material change in the financial condition and prospects of GGE or the industry
or in the financial markets in general. Mathematical analysis (such as
determining the average or median) is not in itself a meaningful method of using
comparable transaction data.
DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed a discounted cash
flow analysis, for GGE, on a stand-alone basis (the "Base Case"), and Sun, on a
stand-alone basis, based upon estimates of projected financial performance
prepared by the management of GGE and the financial advisor to Sun. In addition,
Morgan Stanley performed an analysis adjusted to reflect GGE's contemplated
expansion into the Chalfonte Site and certain variants thereof (the "Chalfonte
Case"). Using these projections, Morgan Stanley calculated ranges of total
equity value and total equity value per share, based upon the discounted net
present value of the sum of (i) the projected stream of unlevered free cash
flows from 1996 through 2006, (ii) the projected terminal value at such year
based upon a range of multiples of projected EBITDA and (iii) the assumed cash
value net of debt and based on several discount rates (ranging from 12.0% to
17.0%). At respective terminal EBITDA multiples of 5.0x, 5.5x and 6.0x, the
analysis yielded ranges of total equity value per share for GGE assuming the
Base Case of (i) $8.32 to $10.01, (ii) $8.89 to $10.68 and (iii) $9.45 to
$11.34. At respective terminal EBITDA multiples of 5.5x, 6.0x and 6.5x, the
analysis yielded ranges of total equity value per share for GGE assuming the
Chalfonte Case of (i) $14.12 to $20.25, (ii) $15.20 to $21.53 and (iii) $16.29
to $22.81. At respective terminal EBITDA multiples of 7.0x, 8.0x and 9.0x, the
analysis yielded ranges of total equity value per share for Sun of (i) $48 to
$53, (ii) $50 to $56 and (iii) $53 to $60.
PRO FORMA CONTRIBUTION ANALYSIS. In addition, Morgan Stanley compared the
pro forma fully diluted relative equity ownership of the stockholders of GGE and
shareholders of Sun in the combined company of 11.3% and 88.7%, respectively, to
the pro forma relative contributions of each of GGE and Sun to the combined
company for the LTM for EBITDA, EBIT and net income and for the years ending
December 1996 and 1997 for net income. With respect to the years 1996 and 1997,
such analysis was based on Institutional Brokers Estimated System estimates. The
analysis indicated, among other things, that for
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LTM, 1996 and 1997, respectively, GGE would have contributed (i) 54.6% of LTM
EBITDA, 55.5% of LTM EBIT and 26.5% of LTM net income, (ii) 20.3% of 1996 net
income and (iii) 16.6% of 1997 net income.
PRO FORMA MERGER ANALYSIS. Morgan Stanley also analyzed certain pro forma
effects resulting from the Merger based upon the Conversion Number, including
the impact of the Merger on the EPS of GGE and Sun. Such analysis was based on
the financial projections of the management of GGE and the financial advisor to
Sun. The analysis indicated that, for the GGE stockholders, on an EPS basis the
Merger would be slightly accretive in 1996 and 1997 and slightly dilutive in
1998, 1999 and 2000.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portion of Morgan Stanley's analyses, without considering all analyses, would
create an incomplete view of the process underlying the Morgan Stanley Opinion.
In addition, Morgan Stanley may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting for
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of GGE or Sun.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of GGE or Sun. The analyses
performed by Morgan Stanley are not necessarily indicative of actual values,
which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as a part of Morgan Stanley's
analysis of the fairness of the Conversion Number from a financial point of view
to the holders of shares of GGE Common Stock and were provided to the GGE Board
in connection with the delivery of the Morgan Stanley Opinion. The analyses do
not purport to be appraisals or to reflect the prices at which GGE or Sun might
actually be sold. Because such estimates are inherently subject to uncertainty,
neither GGE, Sun nor Morgan Stanley nor any other person assumes responsibility
for their accuracy. In addition, as described above, the Morgan Stanley Opinion,
including Morgan Stanley's presentation to the GGE Board, was one of many
factors taken into consideration by the GGE Board in making its determination to
approve the Merger.
The GGE Board retained Morgan Stanley based upon its experience and
expertise. Morgan Stanley is an internationally recognized investment banking
and financial advisory firm. Morgan Stanley, as part of its investment banking
business, is regularly engaged in the valuation of business and securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. Morgan Stanley is a
full-service securities firm engaged in securities trading and brokerage
activities, as well as providing investment banking and financial advisory
services. In the ordinary course of its trading and brokerage activities, Morgan
Stanley or its affiliates may at any time hold long or short positions, and may
trade or otherwise effect transactions, for its own account or the accounts of
customers, in securities of GGE or Sun. In the past, Morgan Stanley and its
affiliates have provided financial advisory services to GGE and Sun and have
received customary fees for the rendering of these services.
Pursuant to a letter agreement dated as of August 5, 1996, GGE has agreed to
pay Morgan Stanley an opinion fee equal to $1.5 million, payable upon
consummation of the Merger. In addition to the foregoing compensation, GGE has
agreed to reimburse Morgan Stanley for its expenses, including reasonable fees
and expenses of its counsel, and to indemnify Morgan Stanley for liabilities and
expenses arising out of the engagement and the transactions in connection
therewith, including liabilities under federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the GGE Board with respect to the
approval and adoption of the Merger Agreement and the transactions contemplated
thereby, stockholders of GGE should be aware
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that certain members of the management of GGE and the GGE Board have certain
interests in the Merger that are different from, or in addition to, the
interests of stockholders of GGE generally.
GGE STOCKHOLDER AGREEMENT. Atlantic and Merv Griffin, Chairman of the Board
of GGE, have entered into the GGE Stockholder Agreement, in their capacities as
stockholders of GGE. The general effect of the GGE Stockholder Agreement,
subject to certain conditions set forth therein, is to ensure the affirmative
vote at the GGE Special Meeting of 2,125,108 shares of GGE Common Stock for
adoption of the Merger Agreement. Because Atlantic and Mr. Griffin have agreed,
pursuant to the GGE Stockholder Agreement, to pay over to Sun 50% of the profit
(as determined pursuant to the terms of the GGE Stockholder Agreement) from the
consummation of any takeover proposal in the event that the Merger Agreement is
terminated under circumstances where Sun is entitled to receive the termination
fee as described under "THE MERGER AGREEMENT--Fees and Expenses," Atlantic and
Mr. Griffin would have less incentive than other stockholders of GGE to approve
any competing offer for GGE. See "THE STOCKHOLDER AGREEMENTS--GGE Stockholder
Agreement."
LICENSE AND SERVICES AGREEMENT. In connection with the Merger, the Griffin
Group (a corporation controlled by Merv Griffin), GGE and RIH will enter into
the License and Services Agreement (the form of which is attached hereto as
Annex VI and is incorporated herein by reference), pursuant to which (a) the
current license and services agreement between the Griffin Group, GGE and RIH,
dated as of September 17, 1992 (the "1992 License Agreement"), will be
terminated, (b) the term of the license and services will be extended for a
period of four years beyond the expiration of the 1992 License Agreement to
September 16, 2001, and (c) the applicability of the license and services will
be expanded to be available to certain of Sun's other properties in Connecticut
and The Bahamas.
As in the 1992 License Agreement, the License and Services Agreement grants
to GGE a non-exclusive license to use the name and likeness of Merv Griffin to
advertise and promote Casino Properties (as defined therein, including, in the
case of the License and Services Agreement, the Atlantis and Mohegan Sun Casino
properties as well as the Resorts Casino Hotel). GGE also has the non-exclusive
right to use certain shows and gaming concepts set forth therein and the
non-exclusive right to services provided by Mr. Griffin, on a pay or play basis,
as marketing consultant and as host, producer, presenter and featured performer
in various shows to be presented at the Casino Properties.
The final payment obligation of $2,425,000 under the 1992 License Agreement
was satisfied in 1994 and this prepayment was compensation for services from
September 17, 1996 until the expiration of such agreement on September 16, 1997.
Upon execution of the License and Services Agreement, the 1992 License Agreement
will be terminated. However, the License and Services Agreement provides for the
continuation of license and services for the remaining period of the 1992
License Agreement and calls for no additional compensation for the period
through September 16, 1997. Accordingly, none of the amounts prepaid under the
1992 License Agreement for such period will be repaid to GGE.
Pursuant to the License and Services Agreement, GGE will pay to the Griffin
Group fees calculated using the same formula used in calculating fees in the
1992 License Agreement. Such compensation amounts to $2,546,000 for the period
from September 17, 1997 to September 16, 1998, and $2,673,000, $2,807,000, and
$2,947,000 for the respective three years thereafter until expiration on
September 16, 2001. In accordance with the terms of the License and Services
Agreement, such annual compensation is to be paid to the Griffin Group in the
aggregate amount of $10,973,000 upon execution of such agreement. Additionally
all business, travel and other expenses incurred by the Griffin Group in
connection with providing requested services are to be paid by GGE as such
expenses are incurred.
The License and Services Agreement is to continue until September 16, 2001
and provides for earlier termination by either GGE or the Griffin Group under
certain circumstances. Upon any termination of the agreement, the Griffin Group
is entitled to retain all monies paid to it thus far and is entitled to be paid
all amounts owing to it as of the date of termination. Additionally, in the
event of any sale or other disposition
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of any of the Casino Properties, GGE must cease the use of the name and likeness
of Mr. Griffin with respect to such property.
GGE also agrees to indemnify, defend and hold harmless the Griffin Group and
Mr. Griffin against certain claims, losses and costs and to maintain certain
insurance coverage with Mr. Griffin and the Griffin Group as named insureds.
EMPLOYEE BENEFITS. Under the Merger Agreement, Sun has indicated that it
intends for a period of two years following the Effective Time, to, or cause GGE
to, continue to maintain employee benefit plans, programs and policies for the
employees of GGE and its subsidiaries which, in the aggregate, provide benefits
that are no less favorable than such benefits as are provided to such employees
under those plans, programs and policies in effect on the date of the Merger
Agreement. See "THE MERGER AGREEMENT--Effect on GGE Benefit Plans, Stock Options
and Warrants." As a result of these arrangements, current members of GGE's
management, may continue to receive employee benefits at least as favorable as
those currently provided to them by GGE following the Merger.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. Under the
Merger Agreement, Sun has agreed that all rights to indemnification and
exculpation from liabilities for acts or omissions occurring at or prior to the
Effective Time existing as of the date of the Merger Agreement in favor of the
current or former directors and officers of GGE and its subsidiaries as provided
in their respective organizational documents shall survive the Merger and
continue in full force and effect in accordance with their terms. In addition,
subject to certain conditions, for six years after the Effective Time, Sun has
agreed to maintain GGE's current directors' and officers' insurance and
indemnification policy, to the extent that such policy provides coverage for
events occurring prior to the Effective Time, for all persons who were directors
and officers of GGE on the date of the Merger Agreement. See "THE MERGER
AGREEMENT-- Indemnification, Exculpation and Insurance."
GGE OPTIONS. Pursuant to the Merger Agreement each outstanding employee and
director stock option to purchase shares of GGE Common Stock (an "Employee Stock
Option") granted under the GGE Stock Option Plans, as amended and restated
through the date of the Merger Agreement (the "Stock Plans") that is outstanding
immediately prior to the Effective Time will be automatically converted at the
Effective Time into an option to acquire, on the same terms and conditions as
were applicable under the Employee Stock Option, including vesting (and, where
applicable, accelerated vesting) and the rights of the holder under the terms of
such Employee Stock Option, a number of Ordinary Shares equal to the number of
shares of GGE Common Stock for which such option was exercisable, adjusted to
give effect to the Conversion Number. See "THE MERGER AGREEMENT--Effect on GGE
Benefit Plans, Stock Options and Warrants." As of the GGE Record Date, 189,500
shares were issuable to executive officers and directors of GGE, 76,833 of which
will vest upon consummation of the Merger, and the remainder of which have
previously vested.
SEVERANCE AGREEMENTS. Each of Thomas E. Gallagher (President and Chief
Executive Officer of GGE) and Matthew B. Kearney (Executive Vice
President-Finance and Chief Financial Officer of GGE) will enter into a
severance agreement wtih GGE. Although the terms of such severance agreements
have not been finalized as of the date of this Proxy Statement/Prospectus, it is
anticipated that each such severance agreement will be for a term of three years
from the Effective Time. Each severance agreement is anticipated to provide for
the payment of certain benefits to the executive officer if (i) a Change of
Control (as defined therein) occurs and (ii) within a three year period of such
Change of Control, the officer is discharged other than for Cause (as defined
therein), or resigns due to certain stated reasons, including a reduction in
compensation or responsibilities. The benefits expected to be paid under each
such severance agreement consist of, among other things, (x) a lump sum payment
equal to approximately 2.99 times the average annual salary (including bonuses)
of the executive officer for the five preceding calendar years or for the period
of employment if less than five years, (y) any amounts due to the executive
officer under existing incentive compensation plans and (z) a cash payment in
lieu of shares of GGE
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Common Stock issuable upon the exercise of Employee Stock Options granted to the
executive officer. Also, it is expected that if the execuitve officers become
subject to the excise tax described in Section 280G of the Code, as amended, GGE
may make additional payments to the executive officers to hold them harmless, on
an after-tax basis, against such excise tax. The consummation of the Merger will
constitute a Change in Control for purposes of the severance agreements.
EMPLOYMENT ARRANGEMENTS WITH SUN. In connection with the Merger, certain
officers of GGE may become directly employed or engaged as consultants by Sun
after the Effective Time and would be expected to enter into employment or
consultant agreements with Sun. The terms of such agreements have not been
finalized as of the date of this Proxy Statement/Prospectus.
BONUSES. Contingent upon consummation of the Merger and pursuant to the
Merger Agreement, GGE has granted to its executive officers performance bonuses
in the aggregate amount of $2,725,000.
RESALE OF ORDINARY SHARES ISSUED IN THE MERGER; AFFILIATES
The Ordinary Shares to be issued in the Merger will be freely transferable,
except that shares issued to any GGE stockholder who may be deemed to be an
"affiliate" (as defined under the Securities Act, and generally including,
without limitation, directors, certain executive officers and beneficial owners
of 10% or more of a class of capital stock) of GGE for purposes of Rule 145
under the Securities Act may be resold by them only in transactions permitted by
the resale provisions of Rule 145 or as otherwise permitted under the Securities
Act. The Merger Agreement provides that Sun's obligation to consummate the
Merger is subject to Sun receiving, prior to the Closing Date, a letter
agreement from each affiliate of GGE to the effect that such person will not
offer or sell or otherwise dispose of any Ordinary Shares issued to such person
in or pursuant to the Merger in violation of the Securities Act or the rules and
regulations promulgated thereunder. This Proxy Statement/Prospectus does not
cover resales of Ordinary Shares received by any person who may be deemed to be
an affiliate of GGE.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal Federal income tax
consequences of the Merger to stockholders of GGE and does not purport to be a
complete analysis or listing of all potential tax effects relevant to a decision
whether to vote in favor of adoption of the Merger Agreement. The discussion
does not reflect the individual tax position of any stockholder of GGE and does
not address the tax consequences that may be relevant to stockholders of GGE
with special tax status, including but not limited to financial institutions,
dealers in securities, holders that are not citizens or residents of the United
States, tax-exempt entities and holders that acquired GGE Common Stock upon the
exercise of employee stock options or otherwise as compensation. Moreover, the
discussion does not address any consequences arising under the laws of any
state, locality or foreign jurisdiction. Finally, the tax consequences to
holders of stock options or warrants are not discussed. The discussion is based
on the Code, Treasury Regulations thereunder and administrative rulings and
court decisions as of the date hereof. All of the foregoing are subject to
change and any such change could affect the continuing validity of this
discussion. Stockholders of GGE are urged to consult with their own tax advisors
regarding the tax consequences of the Merger to them, including the effects of
Federal, state, local, foreign and other tax laws.
Cravath, Swaine & Moore, counsel to Sun, and Gibson, Dunn & Crutcher LLP,
counsel to GGE, have delivered to Sun and GGE, respectively, an opinion, dated
the date hereof, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code and Sun, Sub and GGE will each
be a party to the reorganization within the meaning of Section 368(b) of the
Code. Such opinions assume that the Merger will take place as described in the
Merger Agreement and that certain factual matters represented by Sun, Sub and
GGE, which will be reconfirmed prior to the Closing Date, are true and correct.
It is a condition to the obligations of Sun and GGE to consummate the Merger
that each shall
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receive an opinion, dated the Closing Date, confirming the opinion described
herein. Based upon such opinions, the following will be the material Federal
income tax consequences of the Merger:
(i) no gain or loss will be recognized by the stockholders of GGE upon
receipt of Ordinary Shares in exchange for their GGE Common Stock or GGE Class B
Stock, except that a holder of GGE Common Stock who receives cash in lieu of a
fractional Ordinary Share will recognize gain or loss equal to the difference
between the amount of such cash and the tax basis allocated to such
stockholder's fractional Ordinary Share. Such gain or loss will constitute
long-term capital gain or loss if, at the Effective Time, such stockholder's GGE
Common Stock or GGE Class B Stock is held as a capital asset and has been held
for more than one year;
(ii) the tax basis of the Ordinary Shares received by the stockholders of
GGE will be the same as the tax basis of such stockholders' GGE Common Stock or
GGE Class B Stock exchanged therefor; and
(iii) the holding period of the Ordinary Shares in the hands of the GGE
stockholders will include the holding period of such stockholders' GGE Common
Stock or GGE Class B Stock exchanged therefor, provided that such GGE Common
Stock or GGE Class B Stock is held as a capital asset at the Effective Time.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a purchase in accordance with
generally accepted accounting principles. After the Merger, the results of
operations of GGE will be included in the consolidated financial statements of
Sun. On the date that the Merger becomes effective, the cost of the GGE
acquisition to Sun, based upon (i) the value of the Ordinary Shares exchanged
for GGE Common Stock and GGE Class B Stock at the time of the consummation of
the Merger and (ii) the costs incurred by Sun related to the Merger, will be
allocated to the net assets acquired based upon their respective estimated fair
market value. The excess of the cost over the estimated fair value of net assets
will be recorded as goodwill.
REGULATORY APPROVALS
NEW JERSEY CASINO CONTROL COMMISSION APPROVAL
The ownership and operations of hotel-casino facilities in Atlantic City,
New Jersey are subject to extensive state regulation under the NJCCA. No
hotel-casino facility may operate unless various licenses, qualifications and
approvals are obtained from New Jersey regulatory authorities, including the
NJCC. The NJCC is authorized under the NJCCA to adopt regulations covering a
broad spectrum of gaming and gaming related activities and to prescribe the
methods and forms of applications for licenses.
In order to be granted a casino license under the NJCCA, officers and
directors of a licensee and its employees who are employed in casino operations
in Atlantic City are required to be licensed or qualified by the NJCC. A Holding
Company (which Sun would become as a result of the Merger) is also subject to
qualification by the NJCC as are its controlling shareholders (as defined in the
NJCCA), directors, officers and certain employees. In addition, all contracts
and leases entered into by a licensee would be subject to approval and certain
enterprises which transact business with the licensee would themselves have to
be licensed.
The NJCCA requires prior approval from the NJCC before control of a casino
licensee can be transferred. However, pursuant to an ICA, a person can take
control of a New Jersey casino licensee pending the issuance of a Plenary
License. On October 30, 1996, Sun received an ICA. In the event Sun elects to
consummate the Merger pursuant to an ICA, the NJCCA would require Sun to place
the GGE Securities into the ICA Trust. If, after the Merger is consummated, the
NJCC subsequently determines that there is reasonable cause to believe that Sun
should not be granted a Plenary License, the ICA Trust would become activated
and the ICA Trustee would take control of GGE pending a final determination by
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the NJCC with respect to Sun's application for a Plenary License, with the
exception that Sun may request that the NJCC direct the ICA Trustee to dispose
of all of the GGE Securities prior to the final qualification determination. In
the event Sun's application for a Plenary License is denied, the ICA Trustee
would be obligated to dispose of all of GGE Securities held in the ICA Trust to
appropriately licensed or qualified persons and Sun is then only entitled to
receive the lesser of (i) the fair market value and (ii) the price paid by Sun
for the GGE Securities. Transaction costs paid by Sun in respect of the
acquisition of the GGE Securities would not be recoverable by Sun regardless of
the price at which the GGE Securities held in the ICA Trust were sold.
For a more complete description of the various applicable gaming regulatory
requirements under the New Jersey Gaming Laws, see "BUSINESS OF GGE--Certain
Matters Affecting GGE's Operations-- Regulation and Gaming Taxes and Fees."
ANTITRUST
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission ("the FTC"), the Merger may not be consummated until notifications
have been given and certain information and materials have been furnished to the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the FTC and specified waiting period requirements have been satisfied. On
November 1, 1996, Sun and GGE filed all appropriate Notification and Report
Forms with the Antitrust Division and the FTC with respect to the Merger. If
either the Antitrust Division or the FTC were to open an investigation and raise
substantive issues in connection with the Merger, the parties may engage in
negotiations with such agency concerning possible means of addressing those
issues and may agree to delay consummation of the Merger pending the resolution
of such negotiations. At any time, before or after the Special Meetings, the
Antitrust Division or the FTC could take such action under the antitrust laws as
it deems necessary or desirable in the public interest, including seeking to
enjoin the Merger or seeking the divestiture of certain assets of Sun or its
subsidiaries or of GGE or its subsidiaries.
In addition, state antitrust authorities may also bring legal action under
state or Federal antitrust laws. Such action could include seeking to enjoin the
consummation of the Merger or seeking divestiture of certain assets of Sun or
GGE. Private parties may also seek to take legal action under the antitrust laws
under certain circumstances. There can be no assurance that a challenge to the
Merger on antitrust grounds will not be made or, if such a challenge is made,
with respect to the result thereof.
APPRAISAL AND DISSENTERS' RIGHTS
Pursuant to the IBCA, holders of Ordinary Shares who abstain from voting or
who vote against a transaction or modification of their rights as shareholders
(such as the Charter Amendment) have two potential remedies under Bahamian law.
Such holders could allege the transaction or modification was oppressive to or
unfairly disregarded their rights and could apply to a Bahamian court under the
IBCA for an order to restrain such transaction or modification. The burden of
proving to the court that the necessary oppression or prejudice exists is
onerous and rests with the holders. If any holder were successful with such a
claim, a Bahamian court would have the power to issue a wide variety of orders,
including a liquidation of Sun. In addition, holders of 15% or more of the
Ordinary Shares who did not vote in favor of a modification of their rights as
shareholders could apply to a Bahamian court to have such modification
cancelled. Such an application must be made within 21 days after the date upon
which the consent was given or the resolution was passed authorizing the
modification of class rights. To be successful, the applicants would have to
satisfy the court that the modification would unfairly prejudice them. If such
an application were made, the variations in rights would not take effect until
confirmed by the court and the court would have the power to cancel the
modification if satisfied that the applicants would be unfairly prejudiced.
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A Bahamian court has the discretion to award costs and expenses in
accordance with established principles, which generally results in the
successful party being awarded its costs and expenses against the unsuccessful
party.
Under the DGCL, the stockholders of GGE are not entitled to appraisal rights
with respect to the adoption of the Merger Agreement.
STOCK EXCHANGE LISTING
It is a condition to the consummation of the Merger that the Ordinary Shares
to be issued in the Merger be authorized for listing on the NYSE, upon official
notice of issuance, and that the Units continue to be listed on the ASE together
with the fractional Ordinary Shares issued in connection therewith.
DELISTING AND DEREGISTRATION OF GGE COMMON STOCK
If the Merger is consummated, the GGE Common Stock and the GGE Class B Stock
will be delisted from the ASE and will be deregistered under the Exchange Act.
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THE MERGER AGREEMENT
THE DESCRIPTION OF THE MERGER AGREEMENT CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE AGREEMENT AND PLAN OF MERGER DATED AS OF AUGUST 19,
1996, AND THE AMENDMENT THERETO DATED AS OF OCTOBER 10, 1996, COPIES OF WHICH
ARE ATTACHED HERETO AS ANNEX I AND INCORPORATED HEREIN BY REFERENCE.
CERTIFICATE OF INCORPORATION AND BY-LAWS. The Merger Agreement provides
that the Restated Certificate of Incorporation of GGE, as in effect immediately
prior to the Effective Time, will remain the certificate of incorporation of GGE
until thereafter changed or amended.
The By-Laws of GGE as in effect immediately before the Effective Time will
remain the by-laws of GGE until thereafter changed or amended.
DIRECTORS AND OFFICERS. The directors of Sub immediately prior to the
Effective Time will become the directors of GGE until their successors have been
duly elected and qualified or until their earlier resignation or removal. The
directors of Sub currently are Howard B. Kerzner, President of Sun, Kevin
DeSanctis, Chief Operating Officer, North America and the Caribbean of Sun, and
Charles D. Adamo, Executive Vice President, General Counsel of Sun. The officers
of GGE immediately prior to the Effective Time will remain the officers of GGE
until their successors have been duly elected and qualified or until their
earlier resignation or removal. See "THE MERGER--Interests of Certain Persons in
the Merger."
CONVERSION OF GGE COMMON STOCK. Subject to the Merger Agreement's provision
that no fractional Ordinary Shares will be issued in respect of GGE Common Stock
in the Merger, each issued and outstanding share of GGE Common Stock (other than
shares owned directly or indirectly by GGE or Sun, which will be canceled) will
be converted into the right to receive the Conversion Number of a fully paid and
nonassessable Ordinary Share. The Conversion Number is .4324; PROVIDED, HOWEVER,
that if the Average Market Price is less than $47.41, then the Conversion Number
shall be the quotient, rounded to the fourth decimal place, obtained by dividing
20.5 by the Average Market Price. However, Sun may terminate the Merger
Agreement and elect not to consummate the transactions contemplated thereby if
the Average Market Price is less than $41.625; PROVIDED, HOWEVER, that Sun shall
furnish GGE with written notice two NYSE trading days in advance of the date
that it intends to terminate the Merger Agreement for this reason and, during
such two trading day period, GGE shall be entitled to elect to go forward with
the Merger and, if GGE shall timely make such election, Sun shall not terminate
the Merger Agreement for this reason and the Conversion Number will be .4925. As
of the Effective Time, all such shares of GGE Common Stock will no longer be
outstanding and will automatically be canceled and retired and will cease to
exist, and each holder of a certificate representing any such shares of GGE
Common Stock will cease to have any rights with respect thereto, except the
right to receive, per share, the Conversion Number of a fully paid and
nonassessable Ordinary Share and any cash in lieu of any fractional Ordinary
Shares to be issued or paid in consideration therefor upon surrender of such
certificate in accordance with the terms of the Merger Agreement, without
interest. See "SUMMARY--The Merger and the Merger Agreement."
FRACTIONAL SHARES. No fractional Ordinary Shares will be issued in respect
of GGE Common Stock in the Merger. Each holder of shares of GGE Common Stock
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of an Ordinary Share (after taking into account all
certificates delivered by such holder) will receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of an Ordinary
Share multiplied by the closing price of an Ordinary Share on the NYSE Composite
Transactions List (as reported by the WALL STREET JOURNAL or, if not reported
thereby, any other authoritative source) on the Closing Date.
CONVERSION OF GGE CLASS B STOCK. Each issued and outstanding share of GGE
Class B Stock shall be converted into the right to receive the Class B
Consideration. As a result of such conversion, the holders of GGE Class B Stock
will not be entitled to special rights with respect to the election of directors
to which holders of GGE Class B Stock were previously entitled. As of the
Effective Time, all such shares of GGE
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Class B Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares of GGE Class B Stock shall cease to have any rights
with respect thereto, except the right to receive the Class B Consideration to
be issued in consideration therefor upon surrender of the relevant certificates
in accordance with the terms of the Merger Agreement, without interest. As of
the Effective Time, the fraction of an Ordinary Share into which a share of GGE
Class B Stock is converted shall be issued, and trade, as part of a Unit.
EFFECTIVE TIME OF THE MERGER. As soon as practicable on or after the
Closing Date, the parties to the Merger Agreement will file a Certificate of
Merger with the Secretary of State of the State of Delaware. The Merger will
become effective at such time as the Certificate of Merger is duly filed with
the Secretary of State of the State of Delaware or at such other time as Sub and
GGE shall agree to specify in the Certificate of Merger. The Merger Agreement
may be terminated as discussed in "--Termination" below.
SUBSTITUTION OF PARTIES. The Merger Agreement provides that at the election
of Sun, any direct or indirect wholly owned subsidiary of Sun may be substituted
for Sub as a constituent corporation in the Merger or, also at the election of
Sun, the structure of the Merger will be changed in order to qualify the
transaction as another form of tax-free incorporation transaction under Section
351 of the Code (and in the latter case the GGE Common Stock will be converted
into the right to receive common stock of a newly-formed corporation of which
both Sun and GGE will become wholly owned subsidiaries and the GGE Class B Stock
shall remain outstanding, and otherwise on substantially the same terms as set
forth in the Merger Agreement) (subject, in each case, to the parties executing
an appropriate amendment to the Merger Agreement).
EXCHANGE OF GGE COMMON STOCK AND GGE CLASS B STOCK. The Merger Agreement
provides that the exchange of shares of GGE Common Stock and GGE Class B Stock
in the Merger will be effected as follows:
(i) as of the Effective Time, Sun will deposit with such bank or trust
company as may be designated by Sun (the "Exchange Agent"), for the benefit of
holders of shares of GGE Common Stock and GGE Class B Stock, certificates
representing Ordinary Shares, together with any dividends or distributions with
respect thereto with a record date after the Effective Time, and any cash
payable in lieu of any fractional Ordinary Shares, issuable, in exchange for
outstanding shares of GGE Common Stock;
(ii) as soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of GGE Common Stock (the "Common Certificates") or GGE Class
B Stock (the "Class B Certificates", and, together with the Common Certificates,
the "Certificates") whose shares were converted into the right to receive, per
share, the Conversion Number of a fully paid and nonassessable Ordinary Share or
the Class B Consideration, as applicable, pursuant to the Merger Agreement, (a)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent and shall be in such form and have such
other provisions as Sun may reasonably specify) and (b) instructions for use in
effecting the surrender of the Certificates in exchange for the Conversion
Number of a fully paid and nonassessable Ordinary Share or the Class B
Consideration, as applicable. Upon surrender of a Certificate for cancellation
to the Exchange Agent or to such other agent or agents as may be appointed by
Sun, together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Exchange Agent (including, in the
case of Class B Certificates, the related Junior Mortgage Notes), the holder of
such Certificate shall be entitled to receive in exchange therefor (a) in the
case of Common Certificates, a certificate representing that number of whole
Ordinary Shares and cash, if any, which such holder has the right to receive
pursuant to the provisions of the Merger Agreement, and (b) in the case of Class
B Certificates, a certificate representing that number of fractional Ordinary
Shares which such holder has the right to receive pursuant to the provisions of
the Merger Agreement, together with the Junior Mortgage Notes surrendered with
such Class B Certificates and, in each case, the Certificate so
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surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of GGE Common Stock or Units which is not registered in the transfer
records of GGE, a certificate representing the proper number of Ordinary Shares
may be issued to a person other than the person in whose name the Certificate so
surrendered is registered, if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such payment
shall pay any transfer or other taxes required by reason of the issuance of
Ordinary Shares to a person other than the registered holder of such Certificate
or establish to the satisfaction of Sun that such tax has been paid or is not
applicable. Until surrendered as contemplated by the Merger Agreement, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Conversion Number of a fully
paid and nonassessable Ordinary Share or the Class B Consideration, as
applicable, and cash, if any, which the holder thereof has the right to receive
in respect of such Certificate pursuant to the provisions of the Merger
Agreement. No interest will be paid or will accrue on any cash payable to
holders of Certificates pursuant to the provisions of the Merger Agreement.
GGE STOCKHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE EXCHANGE AGENT UNTIL
THEY HAVE RECEIVED TRANSMITTAL LETTERS AND INSTRUCTIONS.
All Ordinary Shares issued and cash in lieu of fractional shares paid upon
surrender for exchange of Certificates will be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of GGE Common Stock
theretofore represented by such Certificates.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement includes various
customary representations and warranties of the parties thereto. The Merger
Agreement includes representations and warranties by GGE as to, among other
things: (i) the organization, standing and corporate power of GGE and its
subsidiaries; (ii) GGE's capitalization; (iii) the authorization, execution,
delivery, performance and enforceability of the Merger Agreement and related
matters; (iv) the Merger Agreement's noncontravention of (A) the GGE Charter or
the GGE By-Laws, and (B) any agreement, judgment or law in any manner which
would have a material adverse effect on GGE, materially impair GGE's ability to
perform its obligations under the Merger Agreement or materially delay the
Merger; (v) the absence of the need (except as specified) for governmental or
other filings, consents, approvals or actions with respect to the Merger
Agreement and the transactions contemplated thereby; (vi) documents filed by GGE
with the SEC and the accuracy of information contained therein; (vii) the
accuracy of information supplied by GGE in connection with this Proxy
Statement/Prospectus and the Form F-4; (viii) the absence of certain material
changes or events since the most recent audited financial statements filed with
the SEC, including any material adverse change (as defined in the Merger
Agreement), any declaration, setting aside or payment of any dividend, any
split, reclassification or combination of any of its capital stock or any
issuance or authorization of any issuance of any other securities in lieu of, or
in substitution for, shares of its capital stock, any increases in compensation,
severance or termination pay to its executive officers and other key employees,
except as required under existing agreements or compensation increases in the
ordinary course or as disclosed, any material damage or destruction and certain
changes in accounting methods, principles or practices; (ix) the absence of
material pending or threatened litigation, except as disclosed; (x) the absence
of changes in GGE's benefit plans; (xi) the terms, existence, operations,
liabilities and compliance with applicable laws of GGE's benefit plans and
certain other matters relating to the Employee Retirement Income Security Act of
1974, as amended; (xii) filing of tax returns and payment of taxes; (xiii) the
absence of any payments which would be characterized as an "excess parachute
payment" by the Internal Revenue Service; (xiv) votes necessary to approve and
adopt the Merger Agreement and the transactions contemplated thereby; (xv)
approval by the GGE Board of the Merger Agreement and the Stockholder Agreements
and the inapplicability of Section 203 of the DGCL, relating to business
combinations with interested stockholders, to the Merger Agreement and the
transactions contemplated thereby; (xvi) labor relations; (xvii) brokers' fees
and expenses; (xviii) receipt of an opinion from GGE's financial advisor; (xix)
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compliance with applicable laws; (xx) certain debt instruments and other
material contracts; (xxi) intellectual property; (xxii) title to properties and
assets other than real property; (xxiii) insurance and (xxiv) additional real
estate matters.
The Merger Agreement also includes representations and warranties by Sun and
Sub as to, among other things: (i) the organization, standing and corporate
power of Sun and Sub; (ii) the capitalization of Sun and Sub; (iii) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters; (iv) the Merger Agreement's noncontravention of
(A) their memorandum or articles of association, certificate of incorporation or
by-laws, and (B) any agreement, judgment or law in any manner which would have a
material adverse effect on Sun, materially impair Sun's ability to perform its
obligations under the Merger Agreement or materially delay the Merger; (v) the
absence of the need (except as specified) for governmental or other filings,
consents, approvals or actions with respect to the Merger Agreement and the
transactions contemplated thereby; (vi) documents filed by Sun with the SEC and
the accuracy of information contained therein; (vii) the accuracy of information
supplied by Sun in connection with this Proxy Statement/Prospectus and the Form
F-4; (viii) the absence of certain material changes or events since the most
recent audited financial statements filed with the SEC, including any material
adverse change, setting aside or payment of any dividend, any split,
reclassification or combination of Ordinary Shares or any issuance or
authorization of any issuance of any other securities in lieu of, or in
substitution for, shares of its capital stock or any material damage or
destruction; (ix) no material pending or threatened litigation; (x) brokers'
fees and expenses; (xi) operations of Sub; (xii) votes necessary to approve the
Charter Amendment; (xiii) compliance with applicable laws; and (xiv) permits and
license applications.
NO SOLICITATION. The Merger Agreement provides that GGE shall not, nor
shall it permit any of its subsidiaries to, nor shall it authorize or permit any
officer, director or employee of or any investment banker, attorney or other
advisor or representative of, GGE or any of its subsidiaries to, (i) solicit,
initiate or encourage the submission of any takeover proposal (the Merger
Agreement defines "takeover proposal" as any proposal or offer from any person
relating to any direct or indirect acquisition or purchase of a material amount
of assets of GGE or any of its subsidiaries or of over 20% of any class of
equity securities (other than acquisitions of stock by institutional investors
in the ordinary course of business) of GGE or any of its subsidiaries or any
tender offer or exchange offer that if consummated would result in any person
beneficially owning 20% or more of any class of equity securities of GGE or any
of its subsidiaries or which would require approval under any Gaming Law (as
defined in the Merger Agreement), or any merger, consolidation, business
combination, sale of substantially all assets, recapitalization, liquidation,
dissolution or similar transaction involving GGE or any of its subsidiaries
other than the transactions contemplated by the Merger Agreement, or any other
transaction the consummation of which would reasonably be expected to impede,
interfere with, prevent or materially delay the Merger or which would reasonably
be expected to dilute materially the benefits to Sun of the transactions
contemplated by the Merger Agreement) or (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate the making of any proposal that
constitutes, or may reasonably be expected to lead to, any takeover proposal;
PROVIDED, HOWEVER, that if, at any time prior to the receipt of the GGE
Stockholder Approval, in the opinion of the GGE Board after consultation with
outside counsel, such failure to so act would be inconsistent with its fiduciary
duties to GGE stockholders under applicable law, GGE may, in response to an
unsolicited takeover proposal, and subject to certain conditions, (x) furnish
information with respect to GGE pursuant to a customary confidentiality
agreement to any person making such proposal and (y) participate in negotiations
regarding such proposal. The Merger Agreement provides that any violation of the
restrictions set forth in the preceding sentence by any officer, director or
employee of GGE or any of its subsidiaries, whether or not such person is
purporting to act on behalf of GGE or any of its subsidiaries or otherwise,
shall be deemed to be a breach of the Merger Agreement by GGE.
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Except as set forth in the Merger Agreement, neither the GGE Board nor any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Sun or Sub, the approval or recommendation by the
GGE Board or any committee thereof of the Merger Agreement or the Merger, (ii)
approve or recommend or propose to approve or recommend, any takeover proposal
or (iii) enter into any agreement with respect to any takeover proposal. The
Merger Agreement provides, however, that if in the opinion of the GGE Board,
after consultation with outside counsel, failure to do so would be inconsistent
with its fiduciary duties to GGE's stockholders under applicable law, the GGE
Board may (subject to the terms of this and the following sentences) withdraw or
modify its approval or recommendation of the Merger Agreement or the Merger,
approve or recommend a competitive proposal (the Merger Agreement defines
"competitive proposal" as (x) a bona fide takeover proposal to acquire, directly
or indirectly, for consideration consisting of cash and/or securities, more than
50% of the shares of GGE Common Stock then outstanding or all or substantially
all the assets of GGE, and (y) otherwise on terms which the GGE Board determines
in its good faith reasonable judgment to be more favorable to the GGE
stockholders than the Merger (taking into account any improvements to the Merger
proposed by Sun)), or enter into an agreement with respect to a competitive
proposal, in each case at any time after the second business day following Sun's
receipt of written notice (a "Notice of Competitive Proposal") advising Sun that
the GGE Board has received a competitive proposal, specifying the material terms
and conditions of such competitive proposal and identifying the person making
such competitive proposal; PROVIDED that GGE shall not enter into an agreement
with respect to a competitive proposal unless GGE shall have furnished Sun with
written notice no later than 12:00 noon two business days in advance of any date
that it intends to enter into such agreement. In addition, if GGE proposes to
enter into an agreement with respect to any takeover proposal, it shall
concurrently with entering into such agreement pay, or cause to be paid, to Sun
the Expenses and the Termination Fee (each as defined below under "--Fees and
Expenses").
In addition to the obligations of GGE set forth in the preceeding two
paragraphs, the Merger Agreement requires that GGE promptly advise Sun of any
request for information or of any takeover proposal, the identity of the person
making any such request or takeover proposal and all the material terms and
conditions thereof. GGE will keep Sun fully informed of the status and details
(including amendments or proposed amendments) of any such request or takeover
proposal.
BUSINESS OF GGE PENDING THE MERGER. GGE has agreed that, from the date of
the Merger Agreement to the Effective Time or earlier termination of the Merger
Agreement, it will, and it will cause its subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course in substantially
the same manner as conducted prior to the execution of the Merger Agreement and
in compliance in all material respects with all applicable laws and regulations.
GGE has also agreed that from the date of the Merger Agreement to the Effective
Time, unless Sun agrees in writing or as otherwise permitted by the Merger
Agreement, it will not, and it will not permit any of its subsidiaries to, among
other things: (i) (A) declare, set aside or pay any dividends or other
distributions on shares of its capital stock, other than dividends by a wholly
owned subsidiary to GGE, (B) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of, or in substitution for shares of its capital stock, (C) purchase,
redeem or otherwise acquire any shares of its capital stock; (ii) issue,
deliver, sell, pledge or otherwise encumber any shares of its capital stock,
other than upon the exercise of outstanding GGE employee stock options in
accordance with their present terms; (iii) amend the GGE Charter or the GGE
By-Laws; (iv) make any material acquisition or enter into any merger; (v) sell,
lease, license, mortgage or otherwise encumber or dispose of any of its property
or assets other than in the ordinary course of business and consistent with past
practice; (vi) except as specified in the Merger Agreement, make any loans,
advances or capital contributions to, or investments in, any person, other than
to GGE or any of its wholly owned subsidiaries; (vii) make any new capital
expenditures other than in the ordinary course of business and, in the case of
the Chalfonte Project, in amounts consistent with the schedule set forth in the
Merger Agreement; (viii) make any material tax election or settle or compromise
any material tax liability; (ix) except in the ordinary course of business or
except as would not reasonably
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be expected to have a material adverse effect (as defined in the Merger
Agreement) on GGE, modify, amend or terminate any material contract or
agreement; (x) make any material change to its accounting methods, principles or
practices, except as may be required by generally accepted accounting
principles; (xi) pay, discharge or satisfy any claims, liabilities or
obligations other than in the ordinary course of business; (xii) except as
required to comply with applicable law and as disclosed (A) adopt, enter into,
terminate or amend any benefit plan or other arrangement for the benefit or
welfare of any director, officer or current or former employee, (B) increase in
any manner the compensation or fringe benefits of, or pay any bonus to, any
director, officer or employee (except for normal increases or bonuses in the
ordinary course of business consistent with past practice), (C) pay any benefit
not provided for under any benefit plan, (D) except as permitted in clause (B),
grant any awards under any bonus, incentive, performance or other compensation
plan or arrangement or benefit plan (including the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance units or
restricted stock, or the removal of existing restrictions in any benefit plans
or agreement or awards made thereunder) or (E) take any action to fund or in any
other way secure the payment of compensation or benefits under any employee
plan, agreement, contract or arrangement or benefit plan); (xiii) issue any
additional Junior Mortgage Notes; or (xiv) authorize or agree to take any of the
foregoing actions.
BUSINESS OF SUN PENDING THE MERGER. Sun has agreed that, from the date of
the Merger Agreement to the Effective Time, unless GGE agrees in writing or as
otherwise permitted by the Merger Agreement, it will not: (i) (A) declare, set
aside or pay any dividends or other distributions on shares of its capital stock
or (B) split, combine or reclassify any of its capital stock or, except for the
creation of a holding company as described in the Merger Agreement, issue or
authorize the issuance of any other securities in lieu of or in substitution for
shares of its capital stock; or (ii) authorize or agree to take any of the
foregoing actions.
REASONABLE EFFORTS. Subject to certain conditions, each of Sun, Sub and GGE
have agreed to use all reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by the Merger Agreement and the Stockholder
Agreements, including (i) in the case of Sun, (1) the obtaining of all necessary
approvals by the NJCC under the NJCCA and the rules and regulations promulgated
thereunder required in connection with the Merger and the Merger Agreement, (2)
promptly filing an ICA Petition requesting ICA pursuant to NJSA 5:12-95.12 et
seq., and (3) not withdrawing the ICA Petition or Sun's and Sub's application to
the NJCC for a permanent license under the NJCCA, (ii) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from other
governmental entities and the making of all necessary registrations and filings
(including filings with governmental entities and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any governmental entity, (iii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iv) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging the Merger Agreement or the Stockholder Agreements or the
consummation of the transactions contemplated by the Merger Agreement or the
Stockholder Agreements, including seeking to have any stay or temporary
restraining order entered by any court or other governmental entity vacated or
reversed, and (v) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, the Merger Agreement and the Stockholder Agreements; PROVIDED,
HOWEVER,that a party shall not be obligated to take any action pursuant to the
foregoing if the taking of such action or the obtaining of any waiver, consent,
approval or exemption is reasonably likely (x) to be materially burdensome to
such party and its subsidiaries taken as a whole or to impact in a materially
adverse manner the economic or business benefits of the transactions
contemplated by the Merger Agreement or the Stockholder Agreements so as to
render inadvisable the consummation of the Merger or (y) in the case of Sun, to
result in the imposition of certain conditions. In connection with and without
limiting the foregoing, GGE and its Board of Directors shall (i) take all action
necessary to ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to the Merger, the Merger
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Agreement, the GGE Stockholder Agreement or any of the other transactions
contemplated by the Merger Agreement or the GGE Stockholder Agreement and (ii)
if any state takeover statute or similar statute or regulation becomes
applicable to the Merger, the Merger Agreement, the GGE Stockholder Agreement or
any other transaction contemplated by the Merger Agreement or the GGE
Stockholder Agreement, take all action necessary to ensure that the Merger and
the other transactions contemplated by the Merger Agreement and the Stockholder
Agreements may be consummated as promptly as practicable on the terms
contemplated by the Merger Agreement and the Stockholder Agreements and
otherwise to minimize the effect of such statute or regulation on the Merger and
the other transactions contemplated by the Merger Agreement and the GGE
Stockholder Agreement.
CLASS B OPTION. Under the Merger Agreement, Sun has an irrevocable option
to purchase, at any time or from time to time during the term of the Merger
Agreement, any or all of the Units that are owned by GGE or by any subsidiary of
GGE at the time or times of exercise of such option by Sun at a purchase price
equal to the per unit closing price of such Units on the ASE Transaction List
(as reported by the WALL STREET JOURNAL or, if not reported thereby, any other
authoritative source) for the trading day immediately preceding the exercise
date (the "Class B Option").
The Class B Option may be exercised at any time or from time to time by Sun
(or its designee which must be a direct or indirect wholly owned subsidiary of
Sun), by delivery of written notice to GGE of such exercise, specifying the
number of Units to be purchased and the place, time and date of the closing of
such purchase. At such closing, GGE shall (or shall cause its subsidiary to)
deliver to Sun or such designee a certificate or certificates evidencing all of
the Units to be purchased, duly endorsed in blank or accompanied by an
assignment duly endorsed in blank in proper form for transfer, against delivery
by Sun or such designee of the aggregate purchase price for such Units, by wire
transfer of same day funds to the account designated in writing by GGE.
If Sun exercises the Class B Option and the Merger Agreement is thereafter
terminated, Sun must promptly thereafter execute and deliver to GGE an
agreement, in form and substance reasonably satisfactory to Sun and GGE, to vote
any GGE Class B Stock directly or indirectly owned by Sun (i) in any election of
directors in accordance with the recommendation of the GGE Board and (ii) at
GGE's request, in favor of any proposed amendment to GGE's certificate of
incorporation and by-laws necessary to eliminate GGE Class B Stock or to
eliminate the Class B Directors (as defined below under "COMPARISON OF THE
RIGHTS OF SUN SHAREHOLDERS AND GGE STOCKHOLDERS--Directors").
CONDITIONS TO THE CONSUMMATION OF THE MERGER; CONDITIONS TO EACH PARTY'S
OBLIGATION TO EFFECT THE MERGER. The respective obligations of each of Sun, Sub
and GGE are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions: (i) each of the GGE Stockholder Approval and
Sun Shareholder Approval will have been obtained; (ii) no statute, rule,
regulation, executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order enacted, entered, promulgated, enforced or
issued by any court of competent jurisdiction or other Governmental Entity or
other legal restraint or prohibition preventing the consummation of the Merger
shall be in effect; (iii) the Form F-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order; (iv) the Ordinary Shares issuable to the GGE stockholders
pursuant to the Merger Agreement, upon exercise of warrants and under the stock
plans shall have been approved for listing on the NYSE, subject to official
notice of issuance, and the Units shall continue to be approved for listing on
the ASE.
CONDITIONS TO THE OBLIGATIONS OF SUN AND SUB. In addition to the foregoing
conditions, the obligations of Sun and Sub to effect the Merger are further
subject to satisfaction or waiver of the following conditions: (i) the
representations and warranties of GGE set forth in the Merger Agreement that are
qualified as to materiality shall be true and correct, and the representations
and warranties of GGE set forth in the Merger Agreement that are not so
qualified shall be true and correct in all material respects, in each case as of
the date of the Merger Agreement and as of the Closing Date as though made on
and as of
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the Closing Date, except as otherwise contemplated by the Merger Agreement, and
Sun shall have received a certificate signed on behalf of GGE by the chief
executive officer and the chief financial officer to such effect; (ii) GGE will
have performed in all material respects all obligations required to be performed
by it under the Merger Agreement at or prior to the Closing Date and Sun shall
have received a certificate signed on behalf of GGE by the chief executive
officer and chief financial officer of GGE to such effect; (iii) Sun will have
received an executed agreement from each "affiliate" of GGE for purposes of Rule
145 under the Securities Act; (iv) there shall not be pending or threatened any
suit, action or proceeding by any Governmental Entity, or any suit, action or
proceeding by any other person which has a reasonable likelihood of success, in
each case (A) challenging the acquisition by Sun or Sub or any shares of capital
stock of GGE or the surviving corporation, seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by the
Merger Agreement or the Stockholder Agreements or seeking to obtain from GGE,
Sun or Sub any damages that are material in relation to GGE and its subsidiaries
taken as a whole, (B) seeking to prohibit or limit the ownership or operation by
GGE, Sun or any of their respective subsidiaries of any material portion of the
business or assets of GGE, Sun or any of their respective subsidiaries, or to
compel GGE, Sun or any of their respective subsidiaries to dispose of or hold
separate any material portion of the business or assets of GGE, Sun or any of
their respective subsidiaries, as a result of the Merger or any of the other
transactions contemplated by the Merger Agreement or the Stockholder Agreements,
(C) seeking to impose limitations on the ability of Sun or Sub to acquire or
hold, or exercise full rights of ownership of, any shares of capital stock of
GGE or the surviving corporation, including the right to vote GGE Common Stock
or GGE Class B Stock, or common stock of the surviving corporation, on all
matters properly presented to the stockholders of GGE or the surviving
corporation, respectively, (D) seeking to prohibit Sun or any of its
subsidiaries from effectively controlling in any material respect the business
or operations of GGE or its subsidiaries or (E) which otherwise could reasonably
be expected to have a material adverse effect on GGE or Sun. In addition, there
shall not be any statute, rule, regulation, judgment or order enacted, entered,
enforced or promulgated that is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in clauses (B) through (D)
above; (v) all consents, approvals, orders or authorizations of any governmental
entity, including approvals by the NJCC under the NJCCA and the rules and
regulations promulgated thereunder and approvals under the New Jersey Industrial
Site Recovery Act, required in connection with the Merger or the Merger
Agreement or the Stockholder Agreements or the consummation of any of the
transactions contemplated by the Merger Agreement or the Stockholder Agreements
shall have been obtained and shall be in full force and effect without the
imposition of any conditions or restriction of a type specified in the Merger
Agreement, it being understood that receipt of the relief requested by the ICA
Petition shall not satisfy this condition insofar as this condition relates to
approvals under the NJCCA; (vi) Sun shall have received from Cravath, Swaine &
Moore, counsel to Sun, on the date of this Proxy Statement/Prospectus and on the
Closing Date opinions, in each case dated as of such respective dates and
stating that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that Sun,
Sub and GGE will each be a party to that reorganization within the meaning of
Section 368(b) of the Code; (vii) Sun shall have received all state securities
or "blue sky" authorizations necessary to issue the Ordinary Shares issuable
pursuant to the Merger Agreement.
CONDITIONS TO THE OBLIGATIONS OF GGE. In addition to the foregoing
conditions, the obligation of GGE to effect the Merger is further subject to
satisfaction or waiver of the following conditions: (i) the representations and
warranties of Sun and Sub set forth in the Merger Agreement that are qualified
as to materiality shall be true and correct, and the representations and
warranties of Sun and Sub set forth in the Merger Agreement that are not so
qualified shall be true and correct in all material respects, in each case as of
the date of the Merger Agreement and as of the Closing Date as though made on
and as of the Closing Date, except as otherwise contemplated by the Merger
Agreement, and GGE shall have received a certificate signed on behalf of Sun by
an executive officer of Sun to such effect; (ii) Sun and Sub will have performed
in all material respects all obligations required to be performed by them under
the Merger
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Agreement at or prior to the Closing Date and GGE shall have received a
certificate signed on behalf of Sun by an executive officer of Sun to such
effect; and (iii) GGE will have received opinions from Gibson, Dunn & Crutcher
LLP, counsel to GGE, on the date of this Proxy Statement/Prospectus and on the
Closing Date, in each case dated as of such respective dates and stating that
the Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that Sun, Sub and GGE will
each be a party to that reorganization within the meaning of Section 368(b) of
the Code.
EFFECT ON GGE BENEFIT PLANS, STOCK OPTIONS AND WARRANTS. The Merger
Agreement provides that for a period of two years immediately following the
Closing (as defined in the Merger Agreement), Sun intends to continue to
maintain employee benefit plans, programs and policies for the employees of GGE
and its subsidiaries which, in the aggregate, provide benefits that are no less
favorable than those provided to them under GGE's plans, programs and policies
as of the date of the Merger Agreement.
The Merger Agreement also provides that, as soon as practicable after August
19, 1996, the GGE Board (or, if appropriate, any committee administering the
Stock Plans (as defined below)) shall adopt such resolutions or take such other
actions as may be required to effect the following:
(i) adjust the terms of the Employee Stock Options granted under the
Stock Plans, whether vested or unvested, as necessary to provide that, at
the Effective Time, each Employee Stock Option outstanding immediately prior
to the Effective Time shall be deemed to constitute an option to acquire, on
the same terms and conditions as were applicable under such Employee Stock
Option, including vesting (and, where applicable under the terms of such
Employee Stock Option, accelerated vesting) and the rights of the holder
under the terms of such Employee Stock Option, the same number of Ordinary
Shares as the holder of such Employee Stock Option would have been entitled
to receive pursuant to the Merger had such holder exercised such Employee
Stock Option in full immediately prior to the Effective Time (the "Deemed
Sun Share Amount"), at a price per Ordinary Share equal to (A) the aggregate
exercise price for the shares of GGE Common Stock otherwise purchasable
pursuant to such Employee Stock Option divided by (B) the aggregate Deemed
Sun Share Amount with respect to such Employee Stock Option (each, as so
adjusted, an "Adjusted Option"); PROVIDED, HOWEVER, that in the case of any
option to which Section 421 of the Code applies by reason of its
qualification under any of Section 422 through 424 of the Code ("qualified
stock options"), the option price, the number of shares purchasable pursuant
to such option and the terms and conditions of exercise of such option shall
be determined in order to comply with Section 424 of the Code; and
(ii) subject to the consent of Sun, such consent not to be unreasonably
withheld, make such other changes to the Stock Plans as GGE and Sun may
determine appropriate to give effect to the Merger.
The Merger Agreement further provides that:
(a) The provisions in the Stock Plans and any other GGE employee benefit
plan providing for the issuance, transfer or grant of any capital stock of
GGE or any interest in respect of any capital stock of GGE shall be deleted
as of the Effective Time, and GGE shall use its best efforts to ensure that
following the Effective Time no holder of an Employee Stock Option or any
participant in any Stock Plan shall have any right thereunder to acquire any
capital stock of GGE or Sun, except as provided in the Merger Agreement.
(b) As soon as practicable after the Effective Time, Sun shall deliver
to the holders of Employee Stock Options appropriate notices setting forth
such holders' rights pursuant to the respective Stock Plans and the
agreements evidencing the grants of such Employee Stock Options shall
continue in effect on the same terms and conditions (subject to certain
adjustments set forth in the Merger Agreement). Sun shall comply with the
terms of the Stock Plans and ensure, to the extent required by, and subject
to the provisions of, the Stock Plans, that the Employee Stock Options which
qualified as
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qualified stock options prior to the Effective Time continue to qualify as
qualified stock options after the Effective Time.
(c) Sun shall take such actions as are reasonably necessary for the
assumption of the Stock Plans of GGE, including the reservation, issuance
and listing of Ordinary Shares as is necessary to effectuate the
transactions contemplated by such paragraph (a). As soon as reasonably
practicable after the Effective Time, Sun shall prepare and file with the
SEC a registration statement on Form S-8 with respect to Ordinary Shares
subject to Employee Stock Options and shall use its best efforts to maintain
the effectiveness of a registration statement or registration statements
covering such Employee Stock Options (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such Employee
Stock Options remain outstanding.
(d) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms and the terms of the related
Stock Plan by delivering a properly executed notice of exercise to Sun,
together with the consideration therefor and the Federal withholding tax
information, if any, required in accordance with the related Stock Plan.
(e) All restrictions or limitations on transfer and vesting with respect
to Employee Stock Options awarded under the Stock Plans, to the extent that
such restrictions or limitations shall not have already lapsed, shall remain
in full force and effect with respect to such options after giving effect to
the Merger and the assumption by Sun as set forth above.
(f) At the Effective Time, Sun shall assume the due and punctual
observance and performance of the covenants and conditions of the GGE
Warrants pursuant to Section 3.1(i) thereof (as in effect on the date of the
Merger Agreement).
INDEMNIFICATION, EXCULPATION AND INSURANCE. The Merger Agreement provides
that all rights to indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time existing at the date of
the Merger Agreement in favor of the current or former directors and officers of
GGE and its subsidiaries as provided in their respective certificates of
incorporation, by-laws and indemnification agreements will continue in full
force and effect in accordance with their terms for at least six years from the
Effective Time. The Merger Agreement further provides that Sun will cause to be
maintained for at least such six-year period GGE's current directors' and
officers' insurance and indemnification policy to the extent such policy
provides coverage for events occurring prior to the Effective Time for all
persons who were directors and officers of GGE on the date of the Merger
Agreement, provided that the annual premium for such policy does not exceed 150%
of the last annual premium paid prior to the date of the Merger Agreement;
PROVIDED, HOWEVER, that Sun may, in lieu of maintaining such insurance, cause
coverage to be provided under any policy maintained for the benefit of Sun or
any of its subsidiaries, so long as the terms thereof are no less advantageous
to the intended beneficiaries than the existing insurance.
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after the Stockholder Approvals:
(i) by the mutual written consent of Sun, Sub and GGE;
(ii) by either Sun or GGE (a) if (1) the GGE Stockholder Approval has
not been obtained by reason of the failure to obtain the required vote at
the GGE Special Meeting or any adjournment or postponement thereof; (2) the
Merger has not been consummated on or before June 30, 1997, unless the
failure to consummate the Merger is the result of a willful and material
breach of the Merger Agreement by the party seeking to terminate the Merger
Agreement; PROVIDED, HOWEVER, that the passage of such period shall be
tolled for any part thereof during which any party shall be subject to a
nonfinal order, injunction, decree, ruling or action restraining, enjoining
or otherwise prohibiting the consummation of the Merger or the calling or
holding of the GGE Special Meeting or the Sun Extraordinary General Meeting;
or (3) any other governmental entity has issued an order, injunction,
70
<PAGE>
decree or ruling, or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, injunction,
decree, ruling or other action becomes final and nonappealable, or (b)
provided that the terminating party is not then in material breach of the
Merger Agreement, if the other party breaches any of the representations,
warranties, covenants or other agreements made by such party in the Merger
Agreement and such breach is not or cannot be cured within 30 days following
written notice to the breaching party and such breach would entitle the non-
breaching party not to consummate the transactions contemplated by the
Merger Agreement;
(iii) by GGE in connection with entering into a definitive agreement with
respect to a competitive proposal in accordance with the Merger Agreement,
provided it has complied with all provisions thereof, including the notice
provisions therein, and that it makes simultaneous payment of the
Termination Fee and the Expenses;
(iv) by either Sun or GGE if the relief requested by the ICA Petition
shall have been denied and such denial shall have become final and
nonappealable;
(v) by either Sun or GGE if the NJCC shall have denied Sun a permanent
license under the NJCCA and such denial shall have become final and
nonappealable;
(vi) by Sun if (a) the GGE Board or any committee thereof shall have
withdrawn or modified in a manner adverse to Sun or Sub its approval or
recommendation of the Merger or the Merger Agreement, or approved or
recommended any takeover proposal, (b) GGE shall have entered into any
agreement with respect to any competitive proposal in accordance with the
Merger Agreement, or (c) the GGE Board or any committee thereof shall have
resolved to take any of the foregoing actions;
(vii) by Sun if, upon a vote at the Sun Extraordinary General Meeting or
any adjournment thereof at which the Sun Shareholder Approval shall have
been voted upon, the Sun Shareholder Approval shall not have been obtained;
(viii) by Sun if the Average Market Price is less than $41.625; PROVIDED,
however, that Sun shall furnish GGE with written notice two NYSE trading
days in advance of the date that it intends to terminate the Merger
Agreement for this reason and, during such two trading day period, GGE shall
be entitled to elect to go forward with the Merger and, if GGE shall timely
make such election, Sun shall not terminate the Merger Agreement for this
reason and the Conversion Number will be .4925; or
(ix) by Sun if GGE shall have made the ICA Election.
FEES AND EXPENSES. Except for printing and mailing expenses and filing fees
relating to the Form F-4 and this Proxy Statement/Prospectus, which will be
shared equally, Sun and GGE will each pay its own costs and expenses in
connection with the Merger Agreement, the Stockholder Agreements and the
transactions contemplated thereby, whether or not the Merger is consummated. The
Merger Agreement also provides that GGE will immediately pay to Sun the sum of
(x) all of Sun's reasonably documented out-of-pocket expenses in an amount up to
but not to exceed $940,000.00 (the "Expenses") and (y) $9,400,000.00 (the
"Termination Fee") upon demand if (i) Sun or Sub terminates the Merger Agreement
in response to (A) the modification or withdrawal by the GGE Board of its
recommendation of the Merger or the Merger Agreement, (B) the entering into by
GGE of an agreement with respect to a competitive proposal in accordance with
the Merger Agreement, or (C) the GGE Board shall have resolved to take any of
the foregoing actions; PROVIDED, HOWEVER, that Sun shall be entitled to only the
Expenses where Sun or Sub terminates the Merger Agreement in response to (A) or
(C) above; PROVIDED FURTHER, HOWEVER, that if GGE subsequently consummates or
enters into an agreement relating to a competitive proposal within 12 months of
such termination, GGE shall also pay to Sun the Termination Fee, (ii) GGE
terminates the Merger Agreement in connection with entering into a definitive
agreement in connection with a competitive proposal or (iii) prior to any
termination of the Merger Agreement, a takeover proposal shall have been made
and within 12 months of such termination, a transaction constituting a takeover
proposal is
71
<PAGE>
consummated or GGE enters into an agreement with respect to, or approves or
recommends a takeover proposal. The amount of Expenses so payable shall be the
amount set forth in an estimate delivered by Sun, subject to upward or downward
adjustment (not to be in excess of the amount set forth in clause (x) above)
upon delivery of reasonable documentation therefor.
Unless Sun and GGE shall have reached the agreement contemplated by the
Merger Agreement in respect of the Chalfonte Project, Sun shall pay, or cause to
be paid, an amount equal to the ICA Amount (as defined below), in same day funds
to GGE upon demand, if GGE or Sun terminates the Merger Agreement because the
relief requested by the ICA Petition shall have been denied and such denial
shall have become final and non-appealable or because the NJCC shall have denied
Sun a permanent license under the NJCCA and such denial shall have become final
and non-appealable. "ICA Amount" shall mean $9,400,000.00 minus the aggregate
capital expenditures made by GGE in respect of the Chalfonte Project from the
date of the Merger Agreement to the date of such termination (other than capital
expenditures for work completed on the Chalfonte Project prior to the date of
the Merger Agreement but not yet paid for by GGE).
AMENDMENT. The Merger Agreement may be amended by the parties thereto by an
instrument in writing signed on behalf of each party at any time before or after
the Stockholder Approvals; PROVIDED, that after any such approval, no amendment
can be made if applicable law would require further approval by such
stockholders or such shareholders, unless such further approval is obtained.
WAIVER. At any time prior to the Effective Time, the Merger Agreement
permits each party thereto to (in each case pursuant to a written instrument):
(i) extend the time for the performance of any of the obligations or other acts
of the other parties thereto; (ii) waive any inaccuracies in the representations
and warranties of the other parties contained therein or in any document
delivered pursuant thereto; and (iii) subject to the proviso contained in
"--Amendment" above, waive compliance by the other parties with any of the
agreements or conditions contained in the Merger Agreement.
72
<PAGE>
COMPARATIVE PER SHARE MARKET
INFORMATION
Ordinary Shares have been traded on the NYSE since February 27, 1996, under
the symbol "SIH". Prior to February 27, 1996, Sun had two series of Ordinary
Shares outstanding, the Series A Ordinary Shares and the Series B Ordinary
Shares. The Series A Ordinary Shares were quoted through the Nasdaq National
Market System (the "Nasdaq System") from May 4, 1994 to February 26, 1996 under
the symbol "SIHLF". The Series B Ordinary Shares, which traded separately from
the Series A Ordinary Shares, were quoted through the Nasdaq System from May 15,
1995 to February 26, 1996 under the symbol "SIHBF". On February 27, 1996, the
Series A Ordinary Shares and the Series B Ordinary Shares were redesignated as
Ordinary Shares. Prior to this redesignation, the Series A Ordinary Shares had a
put right associated with them pursuant to which holders of such shares had the
right to have them redeemed by Sun at certain fixed prices on certain dates. GGE
Common Stock is traded on the ASE, under the symbol "GGE".
For the periods indicated, the table below sets forth the high and low sales
prices for the Series A and B Ordinary Shares as reported on the Nasdaq System,
the high and low sales prices for the Ordinary Shares as reported on the NYSE,
and the high and low sales prices of GGE Common Stock as reported on the ASE.
The following table also gives effect to a one-for-five reverse stock split with
respect to GGE Common Stock which occurred on June 30, 1995.
<TABLE>
<CAPTION>
SUN
----------------------------------------------------------------
SERIES A SERIES B
ORDINARY ORDINARY ORDINARY GGE
SHARES- SHARES- SHARES- COMMON STOCK-
NASDAQ SYSTEM NASDAQ SYSTEM NYSE ASE
-------------------- -------------------- -------------------- --------------------
QUARTER HIGH LOW HIGH LOW HIGH LOW HIGH LOW
- ----------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994
First............................ -- -- -- -- -- -- $9.38 $6.56
Second*.......................... $ 15.00 $ 11.94 -- -- -- -- 8.44 3.75
Third............................ 12.88 11.38 -- -- -- -- 5.63 3.75
Fourth........................... 19.63 11.75 -- -- -- -- 5.00 3.75
1995
First............................ $ 19.63 $ 16.19 -- -- -- -- $ 12.50 $4.06
Second**......................... 22.00 16.00 $ 21.75 $ 15.50 -- -- 19.69 11.56
Third............................ 31.75 22.00 31.88 21.75 -- -- 17.25 11.88
Fourth........................... 32.00 27.00 32.00 27.00 -- -- 14.25 10.00
1996
First***......................... $ 37.25 $ 25.00 $ 37.25 $ 24.00 $ 38.75 $ 25.50 $ 15.13 $10.63
Second........................... -- -- -- -- 53.63 37.13 17.38 13.38
Third............................ -- -- -- -- 51.25 43.75 21.00 11.38
Fourth (through October 31,
1996).......................... -- -- -- -- 54.13 47.13 22.50 20.00
</TABLE>
- ------------------------
* Beginning on May 4, 1994 with respect to the Series A Ordinary Shares.
** Beginning on May 15, 1995 with respect to the Series B Ordinary Shares.
*** Through February 26, 1996 with respect to the Series A and B Ordinary Shares
and beginning on February 27, 1996 with respect to the Ordinary Shares.
73
<PAGE>
Set forth below are the last reported sales prices of Ordinary Shares and
GGE Common Stock on August 16, 1996, the last full trading day prior to the
execution of the Merger Agreement, as reported on the NYSE Composite
Transactions Tape and the ASE Transactions List, respectively, and the
equivalent pro forma sale price of GGE Common Stock on such date, as determined
by multiplying such last reported sale price of Ordinary Shares by an assumed
Conversion Number of .4324:
<TABLE>
<S> <C>
Ordinary Shares..................................................... $51.88
GGE Common Stock.................................................... $ 11.88
GGE equivalent...................................................... $ 22.43
</TABLE>
On October 31, 1996, the last trading day prior to the date of this Proxy
Statement/Prospectus, the last reported sales prices of Ordinary Shares and GGE
Common Stock, as reported on the NYSE Composite Transactions Tape and the ASE
Transactions List, respectively, were $47.25 per share and $20.75 per share,
respectively. As described under "SUMMARY--The Merger and The Merger Agreement--
General" the Conversion Number is subject to adjustment if the Average Market
Price of Ordinary Shares is less than $47.41.
74
<PAGE>
UNAUDITED PRO FORMA
FINANCIAL INFORMATION
The Unaudited Pro Forma Consolidated Balance Sheet of Sun as of June 30,
1996 and the Unaudited Pro Forma Consolidated Statements of Income of Sun for
the year ended December 31, 1995 and for the six months ended June 30, 1996 are
set forth below.
The Unaudited Pro Forma Consolidated Balance Sheet has been prepared
assuming that the Merger had been consummated on June 30, 1996. The Unaudited
Pro Forma Consolidated Statements of Income have been prepared assuming that the
Merger had occurred on January 1, 1995.
The Unaudited Pro Forma Financial Statements are presented for informational
purposes only and do not purport to present what the Consolidated Balance Sheet
would have been had the Merger, in fact, occurred on June 30, 1996 or what the
Consolidated Results of Operations for the year ended December 31, 1995 or for
the six months ended June 30, 1996 would have been had the Merger, in fact,
occurred on January 1, 1995 or to project the results of operations for any
future period.
The Unaudited Pro Forma Financial Statements should be read in conjunction
with the Financial Statements and related notes thereto and the information set
forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations", each of which is incorporated by reference in this Proxy
Statement/Prospectus.
75
<PAGE>
SUN INTERNATIONAL HOTELS LIMITED
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
GGE & PRO FORMA
SUN SUBSIDIARIES ADJUSTMENTS PRO FORMA
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 164,336 $ 56,329 $ (5,000 (a) $ 204,692
(10,973 (l)
Restricted cash.................................... 4,454 4,454
Trade receivables.................................. 15,879 7,794 23,673
Due from affiliates................................ 1,942 1,942
Inventories........................................ 3,993 2,109 6,102
Prepaid expenses................................... 1,346 6,637 7,983
----------- --------------- ------------ ------------
Total current assets............................. 187,496 77,323 (15,973) 248,846
Property and equipment............................... 246,598 157,661 15,000(c) 453,259
34,000(d)
Land held for investment, development or resale...... 93,939 60,000(e) 153,939
Subordinated notes receivable........................ 42,783 42,783
Due from affiliates.................................. 1,140 1,140
Investment in associated corporations................ 32,118 32,118
Goodwill............................................. 98,242(b) 98,242
Deferred charges and other assets.................... 7,332 13,671 10,973(l) 31,976
----------- --------------- ------------ ------------
Total assets..................................... $ 517,467 $ 342,594 $ 202,242 $ 1,062,303
----------- --------------- ------------ ------------
----------- --------------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt............... $ 75 $ 613 $ $ 688
Accounts payable and accrued liabilities........... 31,560 43,945 11,000(a) 86,505
----------- --------------- ------------ ------------
Total current liabilities........................ 31,635 44,558 11,000 87,193
Deferred income taxes................................ 53,275 (9,684 (f) 43,591
Long-term debt net of unamortized discount and
current maturities................................. 1,047 219,129 31,734(g) 251,910
Commitments and contingencies........................
Shareholders' equity................................. 484,785 25,632 194,824(a) 679,609
(25,632 (h)
----------- --------------- ------------ ------------
Total liabilities and shareholders' equity........... $ 517,467 $ 342,594 $ 202,242 $ 1,062,303
----------- --------------- ------------ ------------
----------- --------------- ------------ ------------
Book value per share............................. $ 16.68 $ 3.21 $ 20.49
----------- --------------- ------------
----------- --------------- ------------
</TABLE>
76
<PAGE>
SUN INTERNATIONAL HOTELS LIMITED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------
GGE & PRO FORMA
SUN SUBSIDIARIES ADJUSTMENTS PRO FORMA
---------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Gaming.......................................... $ 79,605 $ 268,224 $ $ 347,829
Rooms........................................... 50,412 16,065 66,477
Food and beverage............................... 50,806 27,768 78,574
Tour operations................................. 16,338 16,338
Management fee income........................... 4,858 4,858
Other revenues.................................. 21,195 18,177 39,372
---------- --------------- -----------
Gross revenues.................................... 223,214 330,234 553,448
Promotional allowances............................ (9,274) (28,494) (37,768)
---------- --------------- -----------
Net revenues.................................... 213,940 301,740 515,680
---------- --------------- -----------
Cost and Expenses:
Gaming.......................................... 44,388 156,091 200,479
Rooms........................................... 9,696 3,698 13,394
Food and beverage............................... 34,167 14,235 48,402
Other operating expenses........................ 33,677 34,281 67,958
Selling, general and administrative............. 33,153 38,305 71,458
Tour operations................................. 16,148 16,148
Corporate expenses.............................. 9,485 9,485
Depreciation and amortization................... 10,236 13,452 2,456(i) 27,277
1,133(i)
---------- --------------- ----------- -----------
Total costs and expenses.................... 190,950 260,062 3,589 454,601
---------- --------------- ----------- -----------
Income from Operations............................ 22,990 41,678 (3,589) 61,079
Other Income (Expenses):
Interest income................................. 2,426 3,518 5,944
Interest expense................................ (9,746) (29,297) 3,979(j) (35,064)
Equity in earnings of associated corporations... 2,313 2,313
Gain on sale of airline option.................. 911 911
---------- --------------- ----------- -----------
Income before taxes............................... 18,894 15,899 390 35,183
Provision for income taxes........................ 535 3,529(k) 4,064
---------- --------------- ----------- -----------
Net Income........................................ $ 18,359 $ 15,899 $ (3,139) $ 31,119
---------- --------------- ----------- -----------
---------- --------------- ----------- -----------
Net income per share of Series A and B Ordinary
Shares before accretion of redemption value... $ 1.24
Net income per share of Series A and B Ordinary
Shares after accretion of redemption value.... $ 1.18
Weighted average number of shares outstanding... 25,088
</TABLE>
77
<PAGE>
SUN INTERNATIONAL HOTELS LIMITED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
GGE & PRO FORMA
SUN SUBSIDIARIES ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues:
Gaming............................................ $ 40,826 $ 127,246 $ $ 168,072
Rooms............................................. 36,001 7,014 43,015
Food and beverage................................. 33,390 12,839 46,229
Tour operations................................... 8,752 8,752
Management fee income............................. 2,338 2,338
Other revenues.................................... 12,710 8,656 21,366
----------- --------------- -----------
Gross revenues........................................ 134,017 155,755 289,772
Promotional allowances................................ (7,136) (12,782) (19,918)
----------- --------------- -----------
Net revenues...................................... 126,881 142,973 269,854
----------- --------------- -----------
Cost and Expenses:
Gaming............................................ 23,645 79,257 102,902
Rooms............................................. 5,900 1,985 7,885
Food and beverage................................. 21,038 7,176 28,214
Other operating expenses.......................... 18,175 16,722 34,897
Selling, general and administrative............... 18,526 19,037 37,563
Tour operations................................... 8,905 8,905
Corporate expenses................................ 5,711 5,711
Depreciation and amortization..................... 5,824 6,205 1,183(i) 13,779
567(i)
----------- --------------- ----------- -----------
Total costs and expenses........................ 107,724 130,382 1,750 239,856
----------- --------------- ----------- -----------
Income from Operations................................ 19,157 12,591 (1,750) 29,998
Other Income (Expenses):
Interest income................................... 5,588 1,570 7,158
Interest expense.................................. (2,310) (14,476) 2,083(j) (14,703)
Gain on sale of fixed assets...................... 229 229
Equity in earnings of associated corporations..... 995 995
----------- --------------- ----------- -----------
Income (loss) Before Taxes............................ 23,659 (315) 333 23,677
Provision for Income Taxes............................ 192 192
----------- --------------- ----------- -----------
Net Income (loss)..................................... $ 23,467 $ (315) $ 333 $ 23,485
----------- --------------- ----------- -----------
----------- --------------- ----------- -----------
Net income per share.................................. $ .75
Weighted average number of shares outstanding......... 31,226
</TABLE>
78
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA ADJUSTMENTS:
The Unaudited Pro Forma Financial Statements have been prepared to give
effect to the Merger in a business combination to be accounted for as a purchase
for accounting purposes. Based upon the respective per share values of Ordinary
Shares and GGE Common Stock as of August 16, 1996, the last full trading day
prior to the announcement of the Merger, each share outstanding of GGE Common
Stock will be exchanged for .4324 Ordinary Shares and each share of GGE Class B
Stock outstanding will be converted into .1928 Ordinary Shares.
A description of the pro forma adjustments is as follows:
(a) To record the issuance of 4,109,718 Ordinary Shares as consideration for the
Merger and the estimate of $16,000 in transaction related costs. The
aggregate purchase price of the Merger, including the related transaction
costs is $210,824, which reflects merger costs of $16,000 and the value of
the shares issued in the exchange of $194,824 (an average value of $50 per
share of common stock based upon the price of the Ordinary Shares several
days before and after the date of the Merger Agreement less the proceeds
from outstanding GGE options and warrants). The pro forma financial
statements assume $5,000 of transaction related costs are settled in cash at
the Closing Date, while the remaining $11,000 will become accrued
liabilities.
(b) To record the allocation of the excess of the purchase price over the net
assets acquired as follows:
<TABLE>
<CAPTION>
Aggregate purchase price....................................... $ 210,824
<S> <C>
Book value of net assets acquired.............................. (25,632)
---------
Excess of purchase price over net assets acquired.............. $ 185,192
---------
---------
</TABLE>
Sun has made a preliminary allocation of the excess of the purchase price
over the book value of GGE's assets and liabilities based upon information
received to date on the fair values of assets and liabilities acquired.
Management has allocated the excess of the purchase price over net assets
acquired as follows:
<TABLE>
<CAPTION>
Land held for investment, development or resale................... $ 60,000
<S> <C>
Land and land rights.............................................. 15,000
Hotels and other buildings........................................ 34,000
Deferred income taxes............................................. 9,684
Long-term debt.................................................... (31,734)
Goodwill.......................................................... 98,242
---------
$ 185,192
---------
---------
</TABLE>
(c) To reflect the land and land rights at estimated market value at June 30,
1996.
(d) To reflect the hotels and other buildings at their estimated fair value at
June 30, 1996.
(e) To reflect the land held for investment, development or resale at estimated
market value at June 30, 1996.
79
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(f) To reduce deferred income taxes payable at June 30, 1996 based upon (i) the
impact of pro forma adjustments of assets and liabilities acquired and (ii)
the planned utilization of built-in tax gains available to Sun as a result
of the Merger.
(g) To record the carrying value of GGE debt at its fair value which
approximates its face value. The fair value presented for GGE's long-term
debt is based upon quoted market prices.
(h) To eliminate the historical book value of GGE.
(i) To reflect the additional amortization and depreciation expense resulting
from the allocation of the purchase price to goodwill and hotels and other
buildings. Sun amortizes goodwill over a period of 40 years and depreciates
hotels and other buildings over a period of 30 years.
(j) To reflect the elimination of the accretion of debt discount as a result of
reflecting the GGE debt at fair value at the Merger date.
(k) To record a provision for income taxes based upon the pro forma income
before income taxes.
(l) To record prepayment of Licenses and Services Agreement on the closing date.
80
<PAGE>
DESCRIPTION OF GGE CAPITAL STOCK
GGE is currently authorized to issue (i) 100,120,000 shares of common stock,
consisting of 100,000,000 shares of GGE Common Stock and 120,000 shares of GGE
Class B Stock, and (ii) 10,000,000 shares of Preferred Stock, par value $.01 per
share ("GGE Preferred Stock"). As of November 1, 1996, 7,942,785 shares of GGE
Common Stock, 35,000 shares of GGE Class B Stock and no shares of GGE Preferred
Stock were issued and outstanding. The GGE Common Stock is issued and held
subject to the qualification, redemption and divestiture requirements of the
NJCCA. See "BUSINESS OF GGE-- Certain Matters Affecting GGE's Operations."
GGE COMMON STOCK
Each holder of GGE Common Stock is entitled to one vote per share on all
matters submitted to a vote of shareholders except for the election of the Class
B Directors. In the election of directors, no holder of GGE Common Stock has
cumulative voting rights. Each share of GGE Common Stock is entitled to share
equally in dividends from sources legally available therefor when, as, and if
declared by the GGE Board. Upon liquidation or dissolution of GGE, whether
voluntary or involuntary, each share of GGE Common Stock is entitled to share
equally in the assets of GGE available for distribution to the holders of GGE
Common Stock after distribution to all holders of GGE Common Stock and GGE Class
B Stock of $.01 per share. No conversion or preemptive rights or redemption or
sinking fund provisions are applicable to the GGE Common Stock. ChaseMellon
Shareholder Services, L.L.C. is the transfer agent for the GGE Common Stock, and
is also GGE's registrar.
GGE CLASS B STOCK
Each share of GGE Class B Stock is issued as part of a Unit comprising
$1,000 principal amount of Junior Mortgage Notes and one share of GGE Class B
Stock. Shares of GGE Class B Stock may not be transferred separately from the
related Junior Mortgage Notes. Except as may be prescribed by Delaware law, the
holders of GGE Class B Stock are not entitled to vote on any matter except that
the holders of GGE Class B Stock are entitled to vote separately as a class with
respect to the election of Class B Directors, which constitute one third of the
GGE Board, and with respect to certain amendments to the GGE Charter and the GGE
By-Laws which affect the rights of the holders of the GGE Class B Stock. Under
certain circumstances the holders of GGE Class B Stock would be entitled to
elect a majority of the GGE Board. Holders of GGE Class B Stock are not entitled
to the payment of dividends, except that in the event of an interest payment on
the Junior Mortgage Notes which is paid in additional Junior Mortgage Notes,
holders shall be entitled to a stock dividend such that one share of GGE Class B
Stock shall be issued in respect of each $1,000 in principal amount of such
additional Junior Mortgage Notes. The holders of the GGE Class B Stock shall not
be entitled to share in the distribution of assets in the event of any voluntary
or involuntary liquidation or dissolution of GGE other than a distribution of
$.01 per share. Upon redemption, or cancellation following the purchase thereof,
of each $1,000 principal amount of Junior Mortgage Notes, GGE will redeem, at a
price of $.01 per share, the share of GGE Class B Stock issued as part of that
Unit. U.S. Trust Company of California, N.A. is the transfer agent and registrar
for the Units.
GGE PREFERRED STOCK
Shares of GGE Preferred Stock may be issued from time to time in one or more
series with such designations, powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions as may be stated in the resolutions providing for the issue of such
series of GGE Preferred Stock adopted by the GGE Board, provided that no shares
of GGE Preferred Stock may be designated or issued with any rights to vote
together with the holders of the GGE Class B Stock for any purpose, and provided
further that the GGE Charter prohibits the issuance of any nonvoting equity
securities in compliance with section 1123 of the United States Bankruptcy Code,
11 U.S.C. section 1123,
81
<PAGE>
so long as such section is in effect and applicable to GGE. The GGE Board is
authorized, subject to certain limitations prescribed by law, to issue up to 10
million shares of preferred stock in one or more classes or series and to fix
the designations, powers, preferences, rights, qualifications, limitations or
restrictions, including voting rights, of those shares without any further vote
or action by stockholders. The rights of the holders of GGE Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of GGE.
DESCRIPTION OF SUN CAPITAL STOCK
Under the Sun Charter, Sun is currently authorized to issue 250,000,000
Ordinary Shares and 100,000,000 preference shares par value $.001 per share
("Preference Shares"). As of October 28, 1996, 29,245,184 Ordinary Shares were
issued and outstanding and no Preference Shares were issued and outstanding.
ORDINARY SHARES
Each holder of Ordinary Shares is entitled to one vote per share on all
matters submitted to a vote of shareholders. In the election of directors, no
shareholder has cumulative voting rights. Each Ordinary Share is entitled to
share equally in dividends from sources legally available therefor when, as, and
if declared by the Sun Board. Upon liquidation or dissolution of Sun, whether
voluntary or involuntary, each Ordinary Share is entitled to share equally in
the assets of Sun available for distribution to the holders of the Ordinary
Shares. No conversion or preemptive rights or redemption or sinking fund
provisions are applicable to the Ordinary Shares. The Bank of New York is the
transfer agent for the Ordinary Shares, and is also Sun's registrar.
PREFERENCE SHARES
Preference Shares may be issued from time to time in one or more series with
such designations, voting powers, dividend rights, rights of redemption,
conversion rights, other special rights, preferences and limitations as may be
stated in the resolutions providing for the issue of such Preference Shares
adopted by the Sun Board except that the Sun Charter prohibits the issuance of
any non-voting Preference Shares which are not entitled to elect at least one
director of Sun in the case where an event of default in the payment of
dividends has occurred and is continuing with respect to such shares. The
issuance of Preference Shares with voting and conversion rights may adversely
affect the voting power of the holders of Ordinary Shares. In addition, because
the terms of such Preference Shares may be fixed by the Sun Board without
shareholder action, the Preference Shares could be designated and issued quickly
in the event Sun requires additional equity capital. The Preference Shares could
also be designated and issued with terms calculated to defeat a proposed
acquisition of Sun or with terms making the removal of management more
difficult. Under certain circumstances, this could have the effect of decreasing
the market price of the Ordinary Shares.
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COMPARISON OF THE RIGHTS OF SUN SHAREHOLDERS
AND GGE STOCKHOLDERS
The statements set forth under this heading with respect to the IBCA, the
DGCL, the Sun Charter, the Sun Memorandum of Association (the "Sun Memorandum"),
the GGE Charter and the GGE By-Laws are brief summaries thereof and do not
purport to be complete; such statements are subject to the detailed provisions
of the IBCA, the DGCL, the Sun Charter, the Sun Memorandum, the GGE Charter and
the GGE By-Laws. See "AVAILABLE INFORMATION."
The following summary compares certain rights of the holders of Ordinary
Shares to the rights of the holders of GGE Common Stock. The rights of GGE
stockholders are governed principally by the DGCL, the GGE Charter and the GGE
By-Laws. Upon consummation of the Merger, such stockholders will become holders
of Ordinary Shares, and their rights will be governed principally by the IBCA,
the Sun Charter and the Sun Memorandum.
DIVIDEND RIGHTS
Under the IBCA, a corporation is prohibited from making a distribution to
stockholders if, after giving effect thereto: (i) such corporation would be
unable to meet its liabilities as they become due in the usual course of its
business; or (ii) the realizable value of the assets of such corporation would
be less than the sum of its total liabilities other than deferred taxes, as
shown in the books of account, and its issued and outstanding share capital.
Under the DGCL, a corporation may pay dividends out of surplus (defined as the
excess, if any, of net assets over capital) or, if no such surplus exists, out
of its net profits for the fiscal year in which such dividends are declared
and/or for its preceding fiscal year, PROVIDED, that dividends may not be paid
out of net profits if the capital of such corporation is less than the aggregate
amount of capital represented by the outstanding stock of all classes having a
preference upon the distribution of assets.
Holders of both Ordinary Shares and GGE Common Stock are entitled to receive
such dividends as may be declared by the Sun Board and the GGE Board,
respectively, out of funds legally available for such purpose. Neither Sun nor
GGE has ever declared or paid a cash dividend on Ordinary Shares or shares of
GGE Common Stock, respectively, and neither Sun nor GGE anticipates declaring or
paying any dividends on Ordinary Shares or shares of GGE Common Stock,
respectively, in the foreseeable future.
VOTING RIGHTS
Holders of Ordinary Shares vote as a single class on all matters submitted
to a vote of the shareholders, with each Ordinary Share entitled to one vote.
Except as otherwise provided by law, the Sun Charter or the Sun Memorandum,
matters submitted to a vote of the Sun shareholders must be approved by a
majority of the votes cast by the Sun shareholders. Holders of Ordinary Shares
are not entitled to cumulative votes in the election of directors.
Holders of GGE Common Stock are entitled to vote as a single class on all
matters, other than the election of the Class B Directors, submitted to a vote
of the stockholders, with each share of GGE Common Stock entitled to one vote.
Except as otherwise provided by law, the GGE Charter or the GGE By-Laws, matters
submitted to a vote of the holders of GGE Common Stock must be approved by a
majority of the votes cast by the holders of GGE Common Stock. Holders of GGE
Common Stock are not entitled to cumulative votes in the election of directors.
Except as may be prescribed by Delaware law, the holders of Class B Stock
are not entitled to vote on any matter except that the holders of Class B Stock
are entitled to vote separately as a class with respect to the election of Class
B Directors, which constitute one third of the GGE Board, and with respect to
certain amendments to the GGE Charter and the GGE By-Laws which affect the
rights of the holders of the
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Class B Stock. The holders of Class B Stock would be entitled to elect a
majority of the GGE Board upon the occurrence of certain events with respect to
the Junior Mortgage Notes.
Under the DGCL, the affirmative vote of a majority of the outstanding shares
of any class of common stock is required to approve, among other things, a
change in the aggregate number of authorized shares of such class, the par value
of the shares of such class, or the powers, preferences or special rights of the
shares of such class in a manner adversely affecting such shares.
DIRECTORS
NUMBER AND ELECTION OF DIRECTORS. Under both the IBCA and the DGCL, the
charter document, by-laws or articles of association of a corporation may
specify the number of directors. The Sun Charter currently provides that the Sun
Board shall consist of five directors each serving until the 1997 annual general
meeting and then, as elected at such meeting, for a term of one year. The Sun
shareholders, by resolution, may fill vacancies and newly created directorships.
Until May 5, 1999, two of Sun's directors must be independent directors (the
"Independent Directors"). To qualify as an Independent Director, the director
must not be an officer or employee of Sun or its subsidiaries and must not
otherwise have a relationship which, in the opinion of the Sun Board, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director.
The Sun Charter provides that nominations for directors can be made by the
Sun Board or by any shareholder entitled to vote for the election of directors
at a general meeting.
The GGE Charter currently provides that the GGE Board shall consist of six
directors, four of whom shall be elected by holders of GGE Common Stock (the
"Common Stock Directors") and two of whom shall be elected by holders of GGE
Class B Stock (the "Class B Directors"). By resolution the GGE Board may
increase or decrease the number of directors constituting the whole board,
provided that at all times, prior to the occurrence of certain events, at least
one-third of the GGE Board shall be composed of Class B Directors. Upon the
occurrence of certain events in respect of the Junior Mortgage Notes, the number
of directors constituting the whole board shall be increased, with such
vacancies filled by Class B Directors, such that the Class B Directors then
constitute a majority of the entire board. The GGE Board is divided into three
classes, such classes to be as nearly equal in number of directors as possible.
Each director serves for a term ending at the third annual stockholders' meeting
following the annual meeting at which such director was elected, the elections
for each class being staggered by one year intervals. Any vacancy among the
Common Stock Directors may be filled by a majority of the remaining Common Stock
Directors, provided that the holders of the GGE Common Stock removing any Common
Stock Director may at the same meeting fill the vacancy caused by such removal.
Any vacancy among the Class B Directors may be filled only by a majority of the
remaining Class B Directors, provided that the holders of the GGE Class B Stock
removing any Class B Director may at the same meeting fill the vacancy caused by
such removal. Upon the final retirement, redemption or payment of all of the
Junior Mortgage Notes, all Class B Directors shall resign and the GGE Board
shall be comprised entirely of six Common Stock Directors. Two of GGE's
directors must qualify as independent directors under the rules of the ASE. To
qualify as independent under the ASE rules and, thus, be an independent director
for purposes of the ASE rules, the director must not be an officer of GGE, must
not be related to its officers or represent concentrated or family holdings of
its shares, and, in the opinion of the GGE Board, must be free of any
relationship that would interfere with the exercise of independent judgment.
FIDUCIARY DUTIES OF DIRECTORS. Under the IBCA, directors have a duty to
perform their duties honestly and in good faith, in a manner they reasonably
believe to be in the best interests of the corporation on the Board of Directors
of which they serve, and with such care, diligence and skill as a reasonably
prudent person would use under similar circumstances. The burden of proving that
a director did not discharge his duties in such a manner is on the person making
the allegation.
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Under the DGCL, the business and affairs of a corporation are managed by or
under the direction of its board of directors. In exercising their powers,
directors are charged with an unyielding fiduciary duty to protect the interests
of the corporation and to act in the best interests of its stockholders. In
recognition of the managerial prerogatives granted to the directors of a
Delaware corporation, the DGCL presumes that, in making a business decision,
such directors are disinterested and act on an informed basis, in good faith and
in the honest belief that the action taken was in the best interests of such
corporation, which presumption is known as the "business judgment rule." A party
challenging the propriety of a decision of a board of directors bears the burden
of rebutting the applicability of the presumption of the business judgment rule
by demonstrating that, in reaching their decision, the directors breached one or
more of their fiduciary duties--good faith, loyalty and due care. If the
presumption is not rebutted, the business judgment rule attaches to protect the
directors and their decisions, and their business judgments will not be
judicially second guessed. Where, however, the presumption is rebutted, the
directors bear the burden of demonstrating the entire fairness of the relevant
transaction. Notwithstanding the foregoing, Delaware courts subject directors'
conduct to enhanced scrutiny in respect of defensive actions taken in response
to a threat to corporate control and approval of a transaction resulting in a
sale of such control.
LIABILITY OF DIRECTORS. Both the IBCA and the DGCL permit a corporation to
limit the personal liability of its directors, with specified exceptions. The
Sun Charter provides that to the fullest extent permitted by the IBCA, no
director or officer of Sun shall be liable to Sun or its shareholders for
monetary damages for breach of fiduciary duty as a director or officer.
The DGCL permits a corporation to include in its certificate of
incorporation a provision limiting or eliminating the liability of its directors
to such corporation or its stockholders for monetary damages arising from a
breach of fiduciary duty, except for: (i) a breach of the duty of loyalty to the
corporation, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) a declaration of a
dividend or the authorization of the repurchase or redemption of stock in
violation of the DGCL or (iv) any transaction from which the director derived an
improper personal benefit. The GGE Charter eliminates director liability to the
maximum extent permitted by the DGCL.
CALL OF EXTRAORDINARY GENERAL MEETINGS/SPECIAL MEETINGS
Subject to any provision in the Memorandum of Association or Articles of
Association for a lesser percentage, Section 58 of the IBCA permits a meeting of
shareholders to be called upon the written request of members holding more than
50% of the outstanding voting shares. The Sun Charter provides that the Sun
Board may convene an extraordinary general meeting whenever it thinks fit or
when requested to do so by the holders of at least 10% of the paid-up share
capital of Sun pursuant to the IBCA.
Under the DGCL, a special meeting of the stockholders may be called by the
board of directors or such other person as may be authorized by the certificate
of incorporation or by-laws. The GGE By-Laws provide that special meetings of
the holders of GGE Common Stock, and of the holders of the GGE Class B Stock,
may be called at any time by the Chairman of the GGE Board or by a majority of
the GGE Board.
ACTION BY STOCKHOLDERS OR SHAREHOLDERS WITHOUT A MEETING
The Sun Charter is silent on the subject of shareholder action without a
meeting. The IBCA provides for shareholder action without a meeting by the
written consent of a majority of shareholders. Under the DGCL, unless otherwise
provided in the certificate of incorporation, stockholder action may be taken
without meeting and without a vote if written consents in respect of such action
are signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which all shares entitled to vote thereon were present and voted. The GGE
Charter is silent as to the subject of stockholder action without a meeting.
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AMENDMENT TO SUN MEMORANDUM/GGE CHARTER
Under the IBCA, shareholders of a corporation such as Sun are entitled to
amend the Memorandum of Association upon the affirmative vote of a majority of
the outstanding Ordinary Shares, although the Sun Charter, rather than the Sun
Memorandum, contains most of the types of provisions typically found in a
certificate of incorporation under the DGCL. In addition, Section 17 of the IBCA
allows the directors to amend the Memorandum of Association where permitted by
the Memorandum of Association, the Articles of Association, or the IBCA. The GGE
Charter may be amended upon the affirmative vote of a majority of the GGE Board
and by the affirmative vote of the holders of a majority of the outstanding
shares of the GGE Common Stock, provided that the holders of the GGE Class B
Stock are entitled to vote separately as a class with respect to certain
amendments which affect their rights.
AMENDMENT TO SUN CHARTER/GGE BY-LAWS
The Sun Charter may be amended upon the affirmative vote of a majority of
the outstanding Ordinary Shares. In addition, Section 17 of the IBCA allows the
directors to amend the Articles of Association where permitted by the Memorandum
of Association, the Articles of Association or the IBCA.
The GGE Board has the power without the assent or vote of the stockholders
to amend the GGE By-Laws, provided that the holders of the GGE Class B Stock are
entitled to vote separately as a class with respect to certain amendments which
affect their rights.
APPROVAL OF MERGERS AND ASSET SALES
The IBCA contains certain provisions which address the subject of mergers
and asset sales. The Sun Charter, however, addresses the subject in greater
detail and provides that until May 5, 1999, any merger or consolidation
involving Sun or any sale, lease or other direct or indirect disposition of all
or substantially all of the assets of Sun and its subsidiaries in a transaction
or series of related transactions that could reasonably be expected to have an
adverse effect on the rights of holders of Ordinary Shares (other than SIIL
and/or persons affiliated with SIIL) and, in the case of any merger or
consolidation that would result in the holders of Ordinary Shares (other than
SIIL and/or persons affiliated with SIIL) no longer having an interest in Sun
(or the resulting entity, successor or acquiror), it shall be a condition to the
consummation of such transaction that Sun shall have obtained at its own expense
an opinion rendered by an internationally recognized investment banking firm
selected by the Independent Directors and engaged to the holders of the Ordinary
Shares. The Sun Charter also requires approval of 50% of the Independent
Directors for any such sale, lease or disposition. To qualify as an Independent
Director for purposes of the above provision, the director must not be an
officer or employee of Sun or its subsidiaries and must not otherwise have a
relationship which, in the opinion of the Sun Board, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director.
Under the DGCL, unless required by its certificate of incorporation, no vote
of the stockholders of a constituent corporation surviving a merger is necessary
to authorize such merger if: (i) the agreement of merger does not amend the
certificate of incorporation of such constituent corporation; (ii) each share of
stock of such constituent corporation outstanding prior to such merger is to be
an identical outstanding or treasury share of the surviving corporation after
such merger; (iii) either no shares of common stock of the surviving corporation
and no shares, securities or obligations convertible into such common stock are
to be issued under such agreement of merger, or the number of shares of common
stock issued or so issuable does not exceed 20% of the number thereof
outstanding immediately prior to such merger; and (iv) certain other conditions
are satisfied. In addition, the DGCL provides that a parent corporation that is
the record holder of at least 90% of the outstanding shares of each class of
stock of a subsidiary may merge such subsidiary into such parent corporation
without the approval of such subsidiary's stockholders or board of directors.
Whenever the approval of the stockholders of a corporation is required for an
agreement of merger or consolidation or for a sale, lease or exchange of all or
substantially all of its assets, such
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agreement, sale, lease or exchange must be approved by the affirmative vote of
the holders of a majority of outstanding shares of such corporation entitled to
vote thereon; PROVIDED, that under the DGCL, where a corporation's certificate
of incorporation provides for more or less than one vote per share on any
matter, the required vote is a majority of the combined voting power of the
corporation's stock. Thus, an agreement by GGE for a merger or consolidation, or
the sale, lease or exchange by GGE of all or substantially all of its assets,
must be approved by the affirmative vote of a majority of the combined voting
power of the outstanding shares of GGE Common Stock entitled to vote thereon.
RESTRICTED TRANSACTIONS
Until May 5, 1999, in addition to the restriction on mergers and asset sales
described above, Sun will also be restricted from taking the following actions
without the approval of 50% of the Independent Directors; PROVIDED, HOWEVER,
that the actions contemplated by paragraph (b) below will not be allowed to be
taken without the approval of a majority of the Independent Directors:
(a) any material transaction with SIIL or any affiliate thereof,
including any issuances of securities and arrangements (or any material
amendment thereto) with any such affiliate for management of Sun's
properties;
(b) any filing, approval for filing or undertaking any bankruptcy,
reorganization, recapitalization, liquidation or dissolution of Sun;
(c) any repurchase by Sun or any of its subsidiaries of any Ordinary
Shares held by SIIL or any of its affiliates; or
(d) any consent or approval of action proposed to be taken by any of the
subsidiaries of Sun if: (i) such proposed action is of a type substantially
the same as any of the actions described in paragraphs (a) through and
including (c) above and (ii) the articles of association or equivalent
charter documents of such subsidiaries provide that the adoption of such
proposed action requires the consent or approval, authorization or approval
of the shareholders of such subsidiaries.
To qualify as an Independent Director for purposes of the above provisions,
the director must not be an officer or employee of Sun or its subsidiaries and
must not otherwise have a relationship which, in the opinion of the Board of
Directors, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director.
AMENDMENT TO TERMS OF ORDINARY SHARES
The rights attached to Ordinary Shares may only be varied or abrogated by a
resolution of the Sun Board together with either (i) the consent in writing of
the holders of a majority in nominal value of the issued Ordinary Shares or (ii)
a resolution of members holding such Ordinary Shares passed at a separate
meeting of the holders of Ordinary Shares.
RIGHTS OF APPRAISAL
While not using the term "Appraisal Rights", the IBCA contains a provision
which may give rise to a shareholder's right that is similar to the DGCL concept
of appraisal rights under certain circumstances. Pursuant to the IBCA, holders
of Ordinary Shares who abstain from voting or who vote against a transaction or
modification of their rights as shareholders have two potential remedies under
Bahamian law. Such holders could allege the transaction or modification was
oppressive to or unfairly disregarded their rights and could apply to a Bahamian
court under the IBCA for an order to restrain such transaction or modification.
The burden of proving to the court that the necessary oppression or prejudice
exists is onerous and rests with the holders. If any holder were successful with
such a claim, a Bahamian court would have the power to issue a wide variety of
orders, including a liquidation of Sun. In addition, holders of 15% or more of
the Ordinary Shares who did not vote in favor of a modification of their rights
as
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shareholders could apply to a Bahamian court to have such modification
cancelled. Such an application must be made within 21 days after the date upon
which the consent was given or the resolution was passed authorizing the
modification of class rights. To be successful, the applicants would have to
satisfy the court that the modification would unfairly prejudice them. If such
an application were made, the variations in rights would not take effect until
confirmed by the court and the court would have the power to cancel the
modification if satisfied that the applicants would be unfairly prejudiced.
A Bahamian court has the discretion to award costs in accordance with
established principles, which generally results in the successful party being
awarded its costs against the unsuccessful party.
Under the DGCL, the stockholders of GGE are not entitled to appraisal rights
with respect to the approval and adoption of the Merger Agreement and the
transactions contemplated thereby.
The DGCL provides for appraisal rights on the part of the stockholders of a
corporation only in the case of certain mergers or consolidations and not
(unless the certificate of incorporation of a corporation so provides, which the
GGE Charter does not) in the case of other mergers, a sale or transfer of all or
substantially all of such corporation's assets or an amendment to such
corporation's certificate of incorporation. Moreover, the DGCL does not provide
for appraisal rights in connection with a merger or consolidation (unless the
certificate of incorporation so provides, which the GGE Charter does not) to the
holders of shares of a constituent corporation listed on a national securities
exchange (or designated as a national market system security by the National
Association of Securities Dealers, Inc.) or held of record by more than 2,000
stockholders, unless the applicable agreement of merger or consolidation
requires the holders of such shares to receive, in exchange for such shares, any
property other than shares of stock of the resulting or surviving corporation,
shares of stock of any other corporation listed on a national securities
exchange (or designated as described above) or held of record by more than 2,000
holders, cash in lieu of fractional shares or any combination of the foregoing.
In addition, the DGCL denies appraisal rights to the stockholders of the
surviving corporation in a merger if such merger did not require for its
approval the vote of the stockholders of such surviving corporation.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Both the IBCA and the DGCL permit a corporation to indemnify officers and
directors for liability arising from performance of their duties as officers and
directors with certain exceptions. The Sun Charter indemnifies officers,
directors and agents of Sun to the fullest extent permitted under the IBCA
provided that such officer, director or agent acted in good faith and in a
manner which he reasonably believed to be in, or not opposed to, the best
interests of Sun and with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
The GGE Charter indemnifies officers and directors to the fullest extent
permitted under applicable law provided that such officer or director acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of GGE, provided that, with certain exceptions, no
indemnification shall be made if such person shall have been adjudged liable to
the corporation with respect to actions or suits by or in the right of the
corporation.
ANTI-TAKEOVER PROVISIONS
The IBCA and the Sun Charter do not contain any anti-takeover provisions.
Section 203 of the DGCL applies to a broad range of business combinations
(as defined in the DGCL) between a Delaware corporation and an interested
stockholder (as defined by the DGCL). The DGCL definition of "business
combination" includes mergers, sales of assets, issuance of voting stock and
certain other transactions. An "interested stockholder" is defined as any person
who owns, directly or indirectly, 15% or more of the outstanding voting stock of
a corporation. The DGCL prohibits a corporation from engaging in a business
combination with an interested stockholder for a period of three years following
the
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date on which the stockholder became an interested stockholder, unless (i) the
board of directors approved the business combination before the stockholder
became an interested stockholder, or the board of directors approved the
transaction that resulted in the stockholder becoming an interested stockholder,
(ii) upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, such stockholder owned at least 85% of the
voting stock outstanding when the transaction began other than shares held by
directors who are also officers and by certain employee stock plans, or (iii)
the board of directors approved the business combination after the stockholder
became an interested stockholder and the business combination was approved at a
meeting by at least two-thirds of the outstanding voting stock not owned by such
stockholder.
RIGHTS OF INSPECTION
Under the IBCA and the DGCL, every shareholder, or stockholder, as the case
may be, upon proper written demand stating the purpose thereof, may inspect the
corporate books and records during usual business hours as long as such
inspection is for a proper purpose and during normal business hours. Under both
statutes, a "proper purpose" is any purpose reasonably related to the interest
of the inspecting person as a shareholder, or stockholder, as the case may be.
LIQUIDATION RIGHTS
The rights of the holders of Ordinary Shares upon the liquidation or
dissolution of Sun are substantially the same as the holders of GGE Common
Stock, and greater than that of holders of GGE Class B Stock (who have no
liquidation rights except to the extent of the par value of such stock), upon
the liquidation or dissolution of GGE. See "DESCRIPTION OF GGE CAPITAL STOCK"
and "DESCRIPTION OF SUN CAPITAL STOCK."
CASE LAW AND COURT SYSTEMS
There is a substantial body of case law in Delaware interpreting the
corporation laws of that state. A comparable body of judicial interpretation
does not yet exist in The Bahamas. Delaware also has established a system of
Chancery Courts to adjudicate matters arising under the DGCL. In The Bahamas,
matters arising under the IBCA are adjudicated by the general courts of The
Bahamas. As a result of these factors, there may be less certainty as to the
outcome of matters governed by the IBCA, and therefore it may be more difficult
to obtain legal guidance as to such matters, than would be the case under
Delaware law. See "ENFORCEABILITY OF CIVIL LIABILITIES."
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BUSINESS OF SUN
GENERAL
Sun is an international resort and gaming company incorporated in The
Bahamas which develops and manages premier resort and casino properties. Sun,
through its subsidiaries, currently operates resort hotels and casinos in
Connecticut, The Bahamas, the Indian Ocean and France. Sun's largest property is
Atlantis, a 1,147-room resort and casino located on Paradise Island, The
Bahamas. Following its acquisition by Sun, Atlantis was redeveloped into an
ocean-themed destination resort through the $140 million Initial Development
Program. Seeking to capitalize on the success of Atlantis, Sun expects to
commence construction of the approximately $375 million Paradise Island
Expansion in the fourth quarter of 1996. The Paradise Island Expansion will
substantially increase Sun's room base on Paradise Island with the construction
of a new 1,200-room deluxe hotel, significantly increase its casino capacity and
convention space and expand Atlantis' ocean-themed adventure attractions. As
part of its continued development of Paradise Island, Sun recently acquired the
562-room Pirate's Cove Hotel adjacent to Atlantis for approximately $12 million
in cash plus the assumption of approximately $22.6 million of indebtedness. In
connection with the Paradise Island Expansion, Sun is planning the Pirate's Cove
Renovation to create a moderately-priced hotel within the Atlantis complex. Sun
expects to complete the Paradise Island Expansion by the second quarter of 1998
and the Pirate's Cove Renovation by the fourth quarter of 1998, thus creating an
integrated 3,000-room resort complex appealing to all market segments which will
include approximately 1,200 deluxe rooms, 1,100 mid-market rooms and 700
moderately-priced rooms.
Sun's development projects which were completed during 1996 include the
Mohegan Sun Casino developed and managed for the Mohegan Tribe by TCA, a
partnership in which Sun, through its wholly owned subsidiary, Sun Cove Limited
("Sun Cove"), owns a 50% interest, and two new resort hotels on the Indian Ocean
island of Mauritius, for which Sun provides management services.
Sun currently manages 10 hotels containing approximately 3,200 rooms and six
casinos with an aggregate of over 200,000 square feet of gaming space containing
more than 4,000 slot machines and 300 table games. Sun anticipates that by the
fourth quarter of 1998, it will manage 11 hotels containing in excess of 4,400
rooms and six casinos with an aggregate of approximately 220,000 square feet of
gaming space containing approximately 5,000 slot machines and 350 table games.
Sun was established in 1993 in order to acquire the Paradise Island Resort &
Casino and related operations from Resorts International, Inc. (now GGE), which
acquisition closed on May 3, 1994. In May 1995, pursuant to provisions of the
Combination and Restructuring Agreement, dated December 12, 1994, between Sun
and SIIL, Sun acquired substantially all the operations outside southern Africa
of SIIL, which is the majority shareholder of Sun. Sun is SIIL's sole investment
vehicle for the development of entertainment, resort and gaming operations
outside southern Africa. SIIL, which controls approximately 55% (approximately
48% assuming consummation of the Merger at a Conversion Number of .4324) of
Sun's voting power, is a private holding company in which each of Caledonia,
Safren and a trust for the family of Mr. Solomon Kerzner controls approximately
a one-third interest. Sun has no interest in any company which operates resort
and/or casino properties in southern Africa. See "PRINCIPAL SHAREHOLDER OF SUN."
THE PROPERTIES AND CURRENT EXPANSION PROJECTS
THE BAHAMAS
Sun, through its wholly owned Bahamian subsidiary, Sun Bahamas, owns
approximately 562 acres or almost 70% of Paradise Island. Approximately 220
acres are available for future development of which 30 acres will be used for
the Paradise Island Expansion. Paradise Island has extensive existing
infrastructure and is easily accessible from the densely populated eastern
United States. There are regularly scheduled
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airline flights from south Florida and New York City to either Paradise Island
or neighboring Nassau, having flight times of approximately 50 minutes and three
hours, respectively.
Sun acquired its Paradise Island operations in May 1994. In December 1994,
Sun completed the Initial Development Program, pursuant to which Sun
reconstructed and refurbished its existing Paradise Island facilities and
created the ocean-themed environment of "Atlantis". Included in the Initial
Development Program was the refurbishment of all 1,147 guest rooms at Atlantis,
the construction of new specialty food and beverage facilities, an upgrading of
the 30,000-square foot Atlantis Casino and the creation of a 14-acre saltwater
marine life habitat which runs through Atlantis. The marine life habitat
features the world's largest open air aquarium, showcasing over 100 species of
marine life, waterfalls, lagoons, adventure walks and clear tunnels submerged in
a predator lagoon through which visitors can walk and be surrounded by sharks,
sea turtles, stingrays and other marine life. The construction was substantially
completed in only seven months, while the casino and substantial portions of the
hotel remained open. In addition, a portion of the Initial Development Program
expanded and improved the infrastructure on Paradise Island. Results of Atlantis
to date have exceeded management's expectations. For the year ended December 31,
1995, Atlantis achieved average occupancy, and average daily room rates of 85%
and $122, respectively, which Sun believes are the highest the property has
achieved during the last ten years. For the six months ended June 30, 1996,
Atlantis achieved average occupancy and average daily room rates of 92% and
$162, respectively.
Sun's operations on Paradise Island also include the Ocean Club, a luxury
hotel resort with 59 guest rooms, which was renovated as part of the Initial
Development Program, and Paradise Paradise, a 100-room beachfront resort hotel
catering to value-conscious tourists. In addition, Sun Bahamas owns and operates
convention facilities, shops, restaurants, bars and lounges, tennis courts, the
Paradise Island Golf Course and other resort facilities on Paradise Island. Sun
Bahamas also owns roads and other land improvements on Paradise Island, the
Paradise Island Airport and a water and sewage system which serves, at stated
charges, substantially all facilities on Paradise Island, including
non-affiliated customers. The water and sewage systems, which are operated with
the approval of the Bahamian Government, will require some expansion in
conjunction with the Paradise Island Expansion.
The Atlantis Casino is at the center of the Atlantis complex. The casino
building, situated between two hotel towers, contains nearly 165,000 square
feet, including the 30,000-square foot casino gaming area. It also houses seven
restaurants and bars, retail space and Le Cabaret Theater. The Atlantis Casino
contains approximately 830 slot machines and 70 table games.
The further development of Paradise Island is the cornerstone of Sun's
expansion plans, and its approximately 220 acres of currently undeveloped
property provide Sun with an opportunity to expand Paradise Island into a master
planned and highly themed destination resort centered around spectacular
Bahamian beaches and the wonders of the ocean. Sun expects to begin construction
of the Paradise Island Expansion during the fourth quarter of 1996 and to
complete the construction during the second quarter of 1998 at a cost of
approximately $375 million. Sun does not expect the construction of the Paradise
Island Expansion to interfere materially with its operations at Atlantis. The
Paradise Island Expansion will include the construction of a 1,200-room deluxe
hotel. It is also intended to significantly increase gaming space and convention
and meeting facilities and to expand the ocean-themed attractions of Atlantis
with the addition of numerous marine attractions. Upon completion of the
Paradise Island Expansion, guests will be able to explore a significantly
expanded ocean-themed adventure environment containing lagoons, waterfalls,
watersports and exotic marine life exhibits.
Consistent with Sun's strategy of offering accommodations that appeal to
broad market segments within a single master-planned destination resort, Sun has
recently acquired the 562-room Pirate's Cove Hotel on Paradise Island located
adjacent to Atlantis for approximately $12 million in cash plus the assumption
of approximately $22.6 million of indebtedness. Sun intends to use this property
to house many of the construction laborers during the Paradise Island Expansion.
In addition, Sun intends to implement
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the Pirate's Cove Renovation, which is expected to be completed during the
fourth quarter of 1998, to position the property as Atlantis' moderately priced
unit.
Following the completion of the Paradise Island Expansion and the Pirate's
Cove Renovation, Sun Bahamas will continue to own approximately 190 acres of
undeveloped land on Paradise Island with extensive beach and golf course
frontage. The Paradise Island Expansion and Pirate's Cove Renovation plans are
in their preliminary stages and could change significantly before commencement
or during construction, and there can be no assurance that the Paradise Island
Expansion will be completed as planned or on schedule. See "RISK FACTORS--Risk
Factors Related to Sun--Risks Associated with New Projects and Expansion of
Sun."
Sun intends to use borrowings under the Revolving Credit Facility to finance
part of the Paradise Island Expansion. The Revolving Credit Facility contains a
number of conditions precedent to funding. See "--Revolving Credit Facility."
Sun continues to explore additional development opportunities on Paradise
Island. Following the completion of the Paradise Island Expansion and the
Pirate's Cove Renovation, management's long-term growth plan includes the
potential development of additional resort properties on Paradise Island, each
appealing to a distinct target market. For example, management anticipates that
additional expansion opportunities will exist to develop room capacity that
caters to budget-oriented customers at lower price points than those currently
offered at Atlantis. In addition, management believes that similar expansion
opportunities exist in the luxury end of the market with a further build-out of
the Ocean Club. Other potential development projects may include residential
villas, timeshare developments, marinas and golf course communities. Any further
development projects on Paradise Island will be constructed on the approximately
190 acres of undeveloped land remaining after the Paradise Island Expansion,
which includes extensive beach and golf course frontage, or on additional tracts
of land that maybe acquired from time to time.
Sun International Representation, Inc., a Florida corporation and subsidiary
of Sun, together with its subsidiaries based in Florida, provides general and
administrative support services, marketing services, travel reservations and
wholesale tour services for Sun's Paradise Island operations.
CONNECTICUT
Sun, through a wholly owned subsidiary, has a 50% interest in, and is a
managing partner of, TCA, a Connecticut general partnership, which developed and
manages the Mohegan Sun Casino, an approximately $300 million casino and
entertainment complex for the Mohegan Tribe in Montville, Connecticut. The
Mohegan Gaming Authority and TCA received the requisite approvals from the NIGC
and the Bureau of Indian Affairs on September 29, 1995, to commence construction
of the Mohegan Sun Casino. Construction of the Mohegan Sun Casino began in early
October 1995, and the facility commenced operations on October 12, 1996. The
Mohegan Sun Casino incorporates a distinctive northeastern Native American
Indian theme which is conveyed through architectural features and the use of
natural design elements such as timber, stone and water. Guests enter the
Mohegan Sun Casino through one of four major entrances, each of which is
distinguished by a separate seasonal theme--winter, spring, summer and
fall--emphasizing the importance of the seasonal changes to tribal life. The
Mohegan Sun Casino includes approximately 150,000 square feet of gaming space,
which accommodates approximately 2,670 slot machines and 180 table games, and
parking for 7,500 cars. The site for the Mohegan Sun Casino is located
approximately one mile from the interchange of Interstate 395 and Connecticut
Route 2A (which was widened to a four-lane expressway). As part of its
integrated development plan, the Mohegan Gaming Authority constructed a
four-lane access road (with its own exit) from Route 2A, which gives patrons of
the Mohegan Sun Casino direct access to Interstate 395 and to Interstate 95, the
main highway connecting Boston, Providence and New York City.
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Sun believes that the demographics of the area surrounding the Mohegan Sun
Casino are extremely favorable, with 10.2 million adults residing within 100
miles and 21.8 million adults residing within 150 miles of the Mohegan Sun
Casino. The Mohegan Sun Casino is located approximately 10 miles west of
Foxwoods, which Sun believes to be one of the most profitable casinos in the
world. Foxwoods, which is operated by the Pequot Tribe, reported approximately
$595 million of revenues from slot machines for the 12 months ended June 30,
1996, an average of approximately $405 per slot machine per day. Sun believes
that the location, ease of access and distinctive northeastern Indian theme of
the Mohegan Sun Casino should enable it to capture a significant share of the
gaming market in the northeastern United States. See "RISK FACTORS--Risk Factors
Related to Sun--Competition--The Mohegan Sun Casino".
To fund the construction and development of the Mohegan Sun Casino, the
Mohegan Gaming Authority, an agency of the Mohegan Tribe, completed the Mohegan
Offering, a private placement to institutional investors of $175 million of
Mohegan Senior Notes, in September 1995. Fixed interest is payable on the
Mohegan Senior Notes at the rate of 13.5% per annum. In addition, certain cash
flow participation interest is payable on the Mohegan Senior Notes on each
interest payment date in an amount equal to 5% of the Mohegan Gaming Authority's
cash flow. In addition, the Mohegan Gaming Authority has $40 million of
equipment financing and $13 million of working capital financing.
In connection with the Mohegan Offering, Sun and TCA purchased $38.3 million
and $1.7 million, respectively, of the Subordinated Notes from the Mohegan
Gaming Authority. The Subordinated Notes bear interest at 15% per annum.
However, payment in cash of such interest is deferred until $87.5 million in
principal amount of the Mohegan Senior Notes have been retired and the Mohegan
Gaming Authority achieves a fixed charge coverage ratio of 2.5 to 1.0 over the
previous four fiscal quarters. The Subordinated Notes are subordinated in right
to required payments on the Mohegan Senior Notes, as are payments to TCA of
management fees under the TCA Management Agreement. In connection with its
supply of certain operational and financial support to TCA, Sun will receive
certain priority payments from TCA's management fees. Specifically, Sun will
receive priority payments from TCA of approximately $10 million for development
and construction services and for supplying the Secured Completion Guarantee. In
addition, Sun will receive a priority payment from TCA of 11.5% per annum of its
investment in the Subordinated Notes, so long as they are outstanding, for
supplying capital to the Mohegan Gaming Authority. Each of these priority
payments will be paid from TCA's management fees prior to the pro rata
distribution to TCA's partners (including Sun) of TCA's profits. The other
partners of TCA have the option to buy from Sun up to $19 million of
Subordinated Notes at par, and have indicated that they intend to exercise such
option.
Pursuant to the Secured Completion Guarantee and subject to certain
qualifications and limitations, Sun agreed to cause the Mohegan Sun Casino to be
completed and guaranteed, on a senior basis, the payment of all project costs
owing prior to such completion up to a maximum aggregate amount of $50 million.
Based upon the current budget for the Mohegan Sun Casino, Sun anticipates
funding the full $50 million under the Secured Completion Guarantee. The Mohegan
Gaming Authority is required to issue the Secured Completion Guarantee Notes in
principal amounts equal to payments made by Sun under the Secured Completion
Guarantee. Any such notes issued pursuant to the Secured Completion Guarantee
will bear interest at the prime rate as announced by Chemical Bank plus 1% per
annum. In addition, Sun will receive a priority payment from TCA of
approximately 16.5% per annum of its investment in the Secured Completion
Guarantee Notes issued as part of the Secured Completion Guarantee as long as
such notes are outstanding. SIIL has agreed to secure Sun's obligations under
the Secured Completion Guarantee with a pledge of 1,500,000 Ordinary Shares
owned by SIIL. In addition, Sun's obligations under the Secured Completion
Guarantee are secured by the $15 million letter of credit, which was obtained on
behalf of Sun.
The final calculations of the cost of developing, constructing, equipping
and opening the Mohegan Sun Casino have not been finalized but are expected to
total approximately $318 million, which consists of $305 million of project
development costs and $13 million of initial working capital. The sources of
funds
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for the project costs are (i) $175 million from the sale of the Mohegan Senior
Notes, (ii) $40 million from the sale of the Subordinated Notes, (iii) $50
million committed by Sun pursuant to the Secured Completion Guarantee and (iv)
$40 million of equipment financing. In addition, $13 million of initial working
capital has been provided by a bank working capital facility.
Sun Cove, a wholly owned subsidiary of Sun, is one of two managing partners
of TCA. All decisions of the managing partners require the concurrence of Sun
Cove and the other managing partner, LMW Investment, Inc. ("LMW"). In the event
of deadlock there are mutual buy-out provisions. Sun's other partners in TCA are
RJH Development Corp. ("RJH") and Slavik Suites, Inc. ("Slavik Suites"). LMW is
a Connecticut corporation controlled by Len Wolman. RJH is a New York
corporation controlled by Richard J. Hertz. Slavik Suites is a Michigan
corporation. All of the partners are primarily engaged in hotel management and
real estate development. Sun has been advised that the other partners are
restructuring with the effect that RJH will sell its interest to an entity
controlled by LMW and Slavik Suites.
No assurances can be given that the operating results of Mohegan Sun Casino
will meet management's expectations. See "RISK FACTORS--Risk Factors Related to
Sun--Risks Associated with New Projects and Expansion of Sun."
INDIAN OCEAN
Sun owns a 22.8% interest in Sun Indian Ocean, a Mauritian company which is
publicly traded on the Mauritius Stock Exchange. Sun Indian Ocean is regarded as
one of the premier resort operators in the Indian Ocean and owns five beach
resort hotels in Mauritius: the 179-room Le Saint Geran Hotel, Golf Club &
Casino ("Le Saint Geran"), the 200-room Le Touessrok Hotel & Ile Aux Cerfs ("Le
Touessrok"), the 250-room La Pirogue Hotel & Casino ("La Pirogue"), the 337-room
Le Coco Beach ("Le Coco Beach") and the 240-room Sugar Beach Resort Hotel
("Sugar Beach"). Sun Indian Ocean also owns the 180-room Le Galawa Beach Resort
("Le Galawa") in the Comoros. Mauritius and the Comoros are tropical islands
located in the Indian Ocean approximately 1,200 miles and 200 miles,
respectively, off the east coast of mainland Africa.
The resorts in Mauritius and the Comoros are marketed primarily to luxury
and mid-market tourists from Europe and southern Africa. Le Saint Geran and Le
Touessrok offer deluxe accommodations and are acknowledged by the European
travel trade to be among the finest resorts in the world. La Pirogue, Le Coco
Beach, Sugar Beach and Le Galawa cater to mid-market and budget travellers. Sun
Indian Ocean owns five of the 16 major hotels in Mauritius representing
approximately 36% of the room inventory among properties with more than 80
rooms.
Mauritius' tourist industry mainly comprises visitors from England, Germany,
France, Italy and South Africa. Scheduled air service to and from Mauritius is
provided through scheduled flights on numerous airlines including Air France,
British Airways, Cathay Pacific, Singapore Airlines, Air India, Air Mauritius,
Lufthansa and South African Airlines. Sun Indian Ocean is a leading resort
operator at the upper end of the market, as there is only one other five-star
property on Mauritius. Sun believes that the recent openings of Le Coco Beach
and Sugar Beach have increased its market share on Mauritius, further enhance
its presence in the mid-market and provide certain economies of scale.
Pursuant to the management agreements with Sun Indian Ocean, Sun provides
comprehensive management services under individual management agreements with
each of Le Saint Geran, Le Touessrok, La Pirogue, Sugar Beach and Le Coco Beach.
The term of each of these management agreements (the "Sun Indian Ocean
Management Agreements") continues through December 2003. Sun has the right to
extend each Sun Indian Ocean Management Agreement for a five-year period by
notice in writing delivered to Sun Indian Ocean by December 2001.
Under each of the Sun Indian Ocean Management Agreements, Sun receives a
management fee calculated as a percentage of revenues (2%) and adjusted EBITDA
(15%). In addition, under each of the
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Sun Indian Ocean Management Agreements other than the management agreement for
Le Saint Geran, Sun receives project consulting fees charged at 2.5% of the
total project costs for construction and refurbishment.
Sun also has a management agreement to provide services to Le Galawa in the
Comoros. The terms of this agreement are identical to the terms of the Sun
Indian Ocean Management Agreements except that Sun is entitled to receive a
basic fee of 3.5% of revenues rather than 2%. In addition, Sun Indian Ocean is
entitled to receive a basic fee of 1.5% of revenues.
FRANCE
Sun owns an effective 25% of Sun France, a private company founded in 1990,
which owns four locals-oriented casinos in France, located in Nice and Chamonix
and in the Marseilles districts of Cassis and Carry-le-Rouet. Sun's principal
partners in Sun France are Chargeurs, S.A., Accor S.A. and the Barriere Family,
the latter two of which have broad experience in the French domestic gaming and
international lodging industries. Accor, a publicly traded company, is one of
the largest hotel operators in the world, operating under the trade names
"Sofitel", "Novotel", "Mercure" and others. Barriere is one of the largest
French casino operators, operating 10 casinos. The Chargeurs organization is a
publicly traded industrial company in France.
In 1990, Sun France acquired the Casino Ruhl in Nice (the "Casino Ruhl") and
subsequently acquired the three additional casinos in 1992. The Casino Ruhl, the
only casino in Nice, operates 300 slot machines and 28 table games. The Cassis
casino operates 100 slot machines and 17 table games, the Carry-le-Rouet casino
operates 80 slot machines and one table game and the Chamonix casino operates 49
slot machines and 13 table games. Sun France operates in excess of 20,000 square
feet of gaming space, which contained approximately 530 slot machines and 60
table games.
In France customers are required to pay an entry fee payable to the
government and provide details of identity in order to gain access to table
games. Further information is required from patrons wishing to obtain credit
through credit cards. These requirements tend to limit the number of customers.
In addition, French casinos have traditionally been heavily regulated and taxed
with approximately a 60% levy on table games. The effective tax on slots is
lower, beginning at 40% and gradually increasing to 60%, with the result that
the profitability of Sun France will be largely determined by the number of slot
machines installed.
Sun provides various services to Sun France's four casinos under a technical
assistance agreement pursuant to which Sun receives a fixed fee equivalent to
approximately $800,000 per year (at current exchange rates). The technical
assistance agreement expires in 1997.
COMPETITION
PARADISE ISLAND
Sun's resorts on Paradise Island compete with cruise ships and other hotels,
resorts and casinos, particularly those on Paradise Island and New Providence
Island in The Bahamas. There are approximately 7,600 rooms for overnight guests
on Paradise Island and New Providence Island combined, of which approximately
3,100 are located on Paradise Island, including 1,318 in hotels owned and
operated by Sun. The Marriot Crystal Palace, a resort and casino with a theater
and other amenities located on New Providence Island, across Nassau harbor from
Paradise Island, is Atlantis' primary competitor on Paradise Island and New
Providence Island.
The Atlantis Casino also competes with the Princess Casino and, to a lesser
extent, the Lucayan Beach Resort and Casino, each of which offers hotel
accommodation, restaurants, gaming and other leisure facilities on Grand Bahama
Island, approximately 40 minutes by air from Paradise Island. The Atlantis
Casino also competes with the El San Juan located in Puerto Rico and, to a
lesser extent, with gaming
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casino facilities located in several other hotels and resorts in Puerto Rico,
with cruise ships which effectively provide additional rooms and with resorts
and casinos located on other Caribbean islands, in Atlantic City, in Las Vegas
and elsewhere in the United States. See "RISK FACTORS--Risk Factors Related to
Sun--Competition--Paradise Island" for a description of potential future
competition.
THE MOHEGAN SUN CASINO
The Mohegan Sun Casino is marketed primarily to day-trip customers.
Management believes it competes primarily with other casinos within 150 miles
and, to a lesser extent, with casinos in Atlantic City, New Jersey, certain of
which have greater resources and name recognition than Sun or the Mohegan Tribe.
Currently, Foxwoods is the only casino in operation within 150 miles of the
Mohegan Sun Casino site. Foxwoods is located approximately 10 miles from the
Mohegan Sun Casino site and is currently the largest gaming facility in the
United States in terms of the number of slot machines. In addition, Foxwoods
offers a number of amenities that the Mohegan Sun Casino does not currently
offer, including hotels and extensive non-gaming entertainment facilities.
Foxwoods has been in operation for more than four years, and the Mohegan Gaming
Authority believes that Foxwoods' successful operation has enabled it to build
financial resources that are currently substantially greater than those of the
Mohegan Gaming Authority or the Mohegan Tribe. A number of Indian tribes are
seeking to establish gaming operations in the northeastern United States. Sun
cannot predict whether any of these tribes will be successful in establishing
gaming operations. See "RISK FACTORS--Risk Factors Related to
Sun--Competition--The Mohegan Sun Casino."
OTHER EXISTING OPERATIONS
Sun Indian Ocean's resorts on Mauritius and the Comoros, as vacation
destinations, are in competition with other locations offering vacations to
tourists from Europe, South Africa and parts of Asia. In Mauritius, there is
also competition from other resorts on the island. In the Comoros, however,
there are no competitive resorts at the current time.
Sun Indian Ocean has a leading position in the luxury end of the Mauritian
hotel market where it owns two of the three luxury hotels offering a total of
379 rooms, while the competing hotel offers only 84 rooms. It faces more
competition for the mid-market La Pirogue and Sugar Beach and for the budget Le
Coco Beach. In total, there are approximately 4,000 hotel rooms of international
quality available in Mauritius, of which 1,500 are marketed in approximately the
same price bracket as La Pirogue and Sugar Beach. There is currently one
competing hotel with 141 rooms that is situated on the same beach as La Pirogue.
In France, casino licenses may be issued only in resort towns or locations
with natural spa facilities. If additional casino licenses were granted in the
resort locations in which Sun France operates and such casinos were built, Sun
France's casinos would face competition from those casinos. There are currently
no other casino facilities in the towns where Sun France operates; however,
there are approximately eight casinos in Cannes, Monte Carlo and other towns
along the Cote d'Azur which are in direct competition with the Sun France
casinos. See "RISK FACTORS--Risk Factors Related to Sun--Competition--Other
Existing Operations."
CERTAIN MATTERS AFFECTING SUN'S PARADISE ISLAND OPERATIONS
AIRLINE ARRANGEMENTS
The majority of patrons at Sun's resorts on Paradise Island arrive through
the recently expanded Nassau International Airport located on New Providence
Island. This large, modern facility is served by several carriers offering
frequently scheduled jet service from New York, Atlanta, Toronto, Miami and
other cities. Ground transportation is facilitated by a bridge linking Paradise
Island and New Providence Island.
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Additionally, Sun Bahamas, through a subsidiary, owns and operates the
Paradise Island Airport, a short takeoff and landing facility, including a
3,000-foot runway, airport terminal and customs building, situated on 63 acres
of land located at the southeast corner of Paradise Island. Paradise Island
Airlines, through a code-sharing arrangement with U.S. Air, provides regularly
scheduled air service from southern Florida to Paradise Island pursuant to a
Services Agreement with Sun. This agreement will expire in mid-1998 and will be
automatically renewed for one-year terms unless notice of non-renewal is given
at least six months prior to expiration. Sun believes, however, that fewer than
15% of its patrons arrive via the Paradise Island Airport.
UNION CONTRACT ARRANGEMENTS
In The Bahamas, approximately 1,900 of Sun Bahamas employees are represented
by The Bahamas Catering and Allied Workers Union (the "Union"). Sun Bahamas
participates in The Bahamas Hotel Employers Association (the "Association"),
which represents resort operators in the Paradise Island-New Providence Island
area. The Association's existing contract with the Union expires in 1998. Sun
believes that Sun Bahamas' and the Association's relations with the Union are
good.
CASINO LICENSE
Paradise Enterprises Limited, a subsidiary of Sun ("PEL"), is currently
licensed to operate the Atlantis Casino under the Bahamian Gaming Act. In
accordance with Bahamian casino licensing requirements, PEL is obligated to have
its casino license renewed annually by the Gaming Board of the Commonwealth of
The Bahamas. In addition, other than an existing obligation to grant two
additional casino licenses, the Bahamian Government has agreed that it will
grant no new casino licenses with respect to gaming operations on Paradise
Island or New Providence Island for a period of 20 years from the date of the
Heads of Agreement (as defined below), provided that Sun Bahamas achieves 75% of
its projected minimum employment growth of 2,000 full-time jobs in connection
with its expansion and development plans by year ten of the renewal period. The
moratorium on granting new casino licenses will remain in place, however, in the
event such growth is not achieved because of overall poor market conditions
rather than inadequate management by Sun.
GAMING TAXES AND FEES
Currently, the Gaming Act provides for taxes on casino revenues consisting
of an annual basic license fee of $200,000 plus a tax of 25% on all gaming win
up to $10 million, 20% on the next $6 million of win, 10% on the next $4 million
of win and 5% on all win over $20 million.
ATLANTIS CASINO LEASE
A subsidiary of Sun entered into various agreements effective in 1978,
pursuant to which the Atlantis Casino is leased to the Hotel Corporation of The
Bahamas ("HCB"), a government-owned entity, at an annual rental of $500,000.
Pursuant to the Heads of Agreement, PEL has an exclusive right to manage and
operate the Atlantis Casino, for which it currently pays HCB an annual operating
fee of $3 million and 5% of the gaming win above $20 million. Prior to the
acquisition of Sun's Paradise Island operations, PEL paid HCB an annual
operating fee of $5 million and 15% of gaming win above $25 million.
MANAGEMENT AGREEMENT
The Bahamian Government has extended the existing management agreement
between HCB and PEL through May 2014. The amended annual payment terms beginning
in May 1994 are as follows: (i) for years one through five, a $3 million base
fee plus 5% of gaming win over $20 million, (ii) for years six through ten, a $3
million base fee plus 7.5% of gaming win over $20 million, (iii) for years
eleven through fifteen, a $4 million base fee plus 10% of gaming win over $20
million and (iv) thereafter upon such terms
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as the relevant parties shall agree, provided that the fee shall not exceed a
base fee of $5 million plus 15% of gaming win above a threshold of $25 million.
Upon expiration, the management agreement will continue in effect with such
changes as the parties may agree but in any event on terms no less favorable
than those agreed upon with other casino managers on Paradise Island and New
Providence Island. The Bahamian Government has agreed to consider steps
eventually to eliminate the role of HCB and allow for direct licensing of
casinos.
The following table summarizes, for the period shown, the taxes and fees
paid or accrued by Sun Bahamas under the Gaming Act and certain agreements with
the Bahamian Government:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Gaming Taxes............................................................... $ 7.1 million
Basic License and Operating fees........................................... 6.2 million
-----------------
Total.................................................................. $ 13.3 million
-----------------
-----------------
</TABLE>
CERTAIN ARRANGEMENTS WITH THE BAHAMIAN GOVERNMENT
In August 1993, SIIL, Sun and the Bahamian Government entered into the Heads
of Agreement (as supplemented and amended, the "Heads of Agreement") pursuant to
which Sun agreed to pursue the Initial Development Program and SIIL, Sun and the
Bahamian Government agreed to a number of other arrangements described below.
CONTROL OF SUN. SIIL has agreed, pursuant to the Heads of Agreement, not to
reduce its voting interest in Sun below 45% until six months after completion of
the Paradise Island Expansion and thereafter to control a majority of the Sun
Board for a period of five additional years.
DEVELOPMENT. Sun has agreed to consider further development of certain of
its resorts on Paradise Island. Sun has also agreed to maintain the Ocean Club
as a luxury resort.
ATHOL ISLAND. Sun has the right to present a master plan for the
development of Athol Island, an undeveloped island east of Paradise Island, for
a period of three years ending May 1997. The Bahamian Government will not allow
any other development on Athol Island during such period.
JURISDICTION AND GOVERNING LAW. Sun has consented to jurisdiction of the
courts of the Commonwealth of The Bahamas. The Heads of Agreement is governed by
the laws of The Bahamas.
NEW AGREEMENT WITH THE BAHAMIAN GOVERNMENT
In connection with the Paradise Island Expansion, on December 13, 1995 Sun
and the Bahamian Government entered into the New Heads of Agreement, which
supplements the Heads of Agreement, pursuant to which Sun will receive certain
tax relief, incentives and other benefits described below. These benefits will
be granted in exchange for Sun agreeing to, among other things, spend a minimum
of $250 million on the Paradise Island Expansion, build a minimum of 1,000
additional guest rooms and employ and keep employed between 2,000 and 2,500
additional Bahamian workers after completion of the Paradise Island Expansion.
CASINO LICENSE FEES AND WIN TAXES
In replacement of the gaming taxes and the fees payable to the HCB, the
Bahamian Government has agreed, for a period of 20 years following completion of
the Paradise Island Expansion, to set annual casino license fees at $100,000 per
thousand square feet of casino space, plus a minimum annual casino win tax of
$4.3 million on all gaming win up to $20 million, 12.5% on all gaming win
between $20 million and $120 million and 10% on all gaming win in excess of $120
million. Additionally, during the first 11 years
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following completion of the Paradise Island Expansion, the Bahamian Government
will allow Sun to reduce the annual casino license fees by $5 million and to
reduce by 45% the win tax to be paid on gaming win between $20 million and $120
million.
STAMP TAX AND IMPORT DUTY
The New Heads of Agreement provides for an exemption of Sun from stamp tax
and import duty on much of the material and equipment which will be required for
the Paradise Island Expansion.
JOINT MARKETING ARRANGEMENTS
As part of the New Heads of Agreement, the Bahamian Government will extend,
until the year 2003, certain joint marketing arrangements with Sun pursuant to
which, among other things, Sun is eligible to receive matching funds of up to $4
million annually from the Bahamian Government for marketing and promotional
activities, subject to an eight-year total of $20 million.
INFRASTRUCTURE
The New Heads of Agreement includes several important government commitments
to improve the infrastructure of Paradise Island and New Providence Island.
These commitments include improving road access and other transportation
facilities used by visitors to Paradise Island and New Providence Island as well
as installation of a telecommunications cable from Florida to The Bahamas
through a joint venture with AT&T Corp.
CERTAIN MATTERS AFFECTING THE MOHEGAN SUN CASINO
THE MOHEGAN TRIBE
The Mohegan Tribe is a federally recognized Native American Indian tribe
with approximately 1,100 members, whose federal recognition became effective May
15, 1994. In May 1994, the Mohegan Tribe and the State of Connecticut entered
into a gaming compact to authorize and regulate Class III gaming operations
(slot machines and table games). TCA managed the development and construction
and manages the operation and marketing of the Mohegan Sun Casino.
TCA MANAGEMENT AGREEMENT
The Mohegan Tribe and TCA have entered into the TCA Management Agreement
pursuant to which the Mohegan Tribe has engaged TCA to develop, operate, manage
and maintain the Mohegan Sun Casino in exchange for an annual fee which is
calculated in three tiers based upon net revenues (as defined) set forth below
(in thousands):
<TABLE>
<CAPTION>
III
------------
II ANNUAL FEE
I ------------------ FROM
------------ ANNUAL FEE FROM TIERS I & II
40% OF TIER I PLUS 30% OF
NET REVENUES PLUS 35% OF NET NET REVENUES
UP TO REVENUES BETWEEN ABOVE
------------ ------------------ ------------
<S> <C> <C> <C>
Year 1........................................................... $ 50,546 $ 50,547-63,183 $ 63,183
Year 2........................................................... 73,115 73,116-91,394 91,394
Year 3........................................................... 91,798 91,799-114,747 114,747
Year 4........................................................... 95,693 95,694-119,616 119,616
Year 5........................................................... 104,107 104,108-130,134 130,134
Year 6 (subject to Buyout Option)................................ 114,335 114,336-142,919 142,919
Year 7 (subject to Buyout Option)................................ 130,944 130,945-163,680 163,680
</TABLE>
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MANAGEMENT FEES. The monthly management fee payments to TCA are calculated
against 1/12th of targeted annual net revenue amounts set forth in the TCA
Management Agreement and then adjusted to actual net revenue amounts realized
annually within 60 days of the close of each fiscal year. The annual adjustment
may or may not have a material effect on cash flow. In addition, TCA will be
required to establish, and, together with the Mohegan Tribe, make monthly
contributions to, a replacement reserve fund, which may be used to pay any
approved budgeted capital expenditures for the Mohegan Sun Casino. The annual
TCA contribution to such fund will total $1.2 million.
TERM. The term of the TCA Management Agreement is seven years from the date
of the opening of the Mohegan Sun Casino, subject to a one-time option for a
buy-out by the Mohegan Tribe on the last day of the 60th month following the
first full month of operations (the "Buyout Option"). In order to exercise the
Buyout Option, the Mohegan Tribe must fulfill certain obligations, including:
(i) fully paying and satisfying certain outstanding indebtedness, including all
indebtedness under the Mohegan Senior Notes, the Secured Completion Guarantee
Notes and the Subordinated Notes and (ii) entering into discussion with TCA to
determine the exercise price of the Buyout Option on commercially reasonable
terms.
PRIORITY PAYMENTS. In connection with its supplying certain operational and
financial support to TCA, Sun will receive priority payments of $10 million from
the TCA management fee. In addition, in exchange for providing capital to the
Mohegan Gaming Authority, each of the partners of TCA will be receiving a
priority payment from TCA equal to 11.5% per annum of its investment in the
Subordinated Notes so long as they are outstanding. Sun will also receive a
priority payment of approximately 16.5% per annum of its investments in the
Secured Completion Guarantee Notes so long as they are outstanding. Each of
these priority payments will be paid from TCA's management fees prior to the PRO
RATA distribution to TCA's partners of TCA's profits.
BUSINESS BOARD. Pursuant to the TCA Management Agreement, certain
decision-making authority and oversight duties are delegated to a committee
comprised of an equal number of representatives of the Mohegan Tribe and of TCA
(the "Business Board"). Actions by the Business Board require the unanimous
approval of its members or their respective designees. The Mohegan Tribe and TCA
have agreed that, in the event that the Business Board is unable to reach a
mutual decision or compromise, any disputes will be submitted to summary
arbitration before a single arbitrator, who will render a decision within 48
hours of submission of the dispute.
WAIVER OF SOVEREIGN IMMUNITY. Pursuant to the TCA Management Agreement, the
Mohegan Tribe has waived sovereign immunity for the purpose of permitting,
compelling or enforcing arbitration and has agreed to be sued by TCA in any
court of competent jurisdiction for the purpose of compelling arbitration or
enforcing any arbitration or judicial award arising out of the TCA Management
Agreement, the Secured Completion Guarantee, the Secured Completion Guarantee
Notes and the Subordinated Notes. The parties have agreed that all disputes and
claims arising out of the TCA Management Agreement or the Mohegan Tribe's gaming
ordinance will be submitted to binding arbitration, which shall be the sole
remedy of the parties, and that punitive damages may not be awarded to either
party by any arbitrator. The Mohegan Tribe's waiver of sovereign immunity is
limited to enforcement of money damages from undistributed or future net
revenues of the Mohegan Sun Casino (or, under certain conditions, net revenues
of other gaming operations of the Mohegan Tribe). Funds earned and paid to the
Mohegan Tribe as the Mohegan Tribe's share of net revenues prior to any judgment
or award are not subject to the waiver and would not be available for levy
pursuant to any judgment or award.
GAMING DISPUTES COURT. The Mohegan Tribe's Constitution (the "Mohegan
Constitution") provides for the governance of the Mohegan Tribe by a tribal
council, in which the legislative and executive powers of the Mohegan Tribe are
vested, and a constitutional review board. On July 20, 1995, the tribal council
enacted a tribal ordinance creating the Gaming Disputes Court (the "Court"),
which is composed of a trial and an appellate branch. The Mohegan Constitution
and the tribal ordinance establishing the Court give the Court exclusive
jurisdiction for the Mohegan Tribe over all disputes and controversies related
to
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gaming between any person or entity and the Mohegan Gaming Authority, the
Mohegan Tribe or TCA. The Court has been authorized by the Mohegan Constitution
to consist of at least four judges, none of whom may be members of the Mohegan
Tribe and each of whom must be either a retired federal judge or Connecticut
Attorney Trial Referee (who is an attorney appointed by the Connecticut Supreme
Court).
REVOLVING CREDIT FACILITY
Under the Revolving Credit Facility between Sun Bahamas (as borrower), Sun
and certain subsidiaries of Sun Bahamas (as guarantors), Standard Bank London,
Limited, Absa Bank Limited, Nedcor Bank Limited and Henry Ansabacher & Co.
Limited (as lenders) and The Bank of Nova Scotia and The Royal Bank of Scotland
plc (as managing agents and lenders), the lenders have committed to provide
revolving loans of up to $250 million; PROVIDED that as more fully set forth
below, various borrowing conditions and covenant restrictions in the Revolving
Credit Facility may limit Sun Bahamas' ability to borrow under the Revolving
Credit Facility. The proceeds of loans made under the Revolving Credit Facility
may be used by Sun Bahamas, Sun and the Restricted Subsidiaries (as defined
below) (i) for the Paradise Island Expansion, (ii) for general corporate
purposes and (iii) to make Permitted Investments (as defined below). The
Restricted Subsidiaries include the existing direct and indirect subsidiaries of
Sun, other than (i) Sun Bahamas, (ii) the subsidiary which holds the Pirate's
Cove Hotel and (iii) Sub. The subsidiaries which will hold the Atlantic City
assets of GGE will not be Restricted Subsidiaries. Future subsidiaries may be
Restricted Subsidiaries or unrestricted subsidiaries, at Sun's election.
The Revolving Credit Facility is guaranteed by Sun and each of the
Restricted Subsidiaries, and is secured by substantially all the assets of Sun
Bahamas and each of the guarantors. Loans under the Revolving Credit Facility
bear interest at a rate per annum equal to either (i) the higher of (a) The Bank
of Nova Scotia's base rate or (b) the Federal Funds rate plus one half of one
percent plus (in either case) a margin of 1.50% per annum or (ii) The Bank of
Nova Scotia's reserve-adjusted LIBO rate plus a margin of 2.25% per annum. The
margins set forth in the preceding sentence are subject to reduction in certain
circumstances based upon levels of operating cash flow and total debt. Loans
under the Revolving Credit Facility may be prepaid and reborrowed at any time
and from time to time, and are due in full on October 15, 2001.
The lenders' commitments to make loans under the Revolving Credit Facility
are subject to customary conditions precedent, including ongoing compliance with
financial and other covenants, no material adverse changes in the financial
condition, operations, assets, business or properties of Sun, Sun Bahamas and
the Restricted Subsidiaries (taken as a whole) and (during the completion of the
Paradise Island Expansion) ongoing performance of the construction in accordance
with the applicable plans and specifications, construction budget and
construction schedule. Certain additional conditions to borrowing (described
below) apply when the amount of loans outstanding will first be greater than (i)
the Allowed Amount (as defined below) and (ii) 150% of the Allowed Amount.
The Revolving Credit Facility contains customary covenants restricting the
freedom of operations of Sun and its subsidiaries, including (i) maintenance of
specified insurance coverage, (ii) an obligation to promptly notify the managing
agents if Sun Bahamas becomes aware that the Paradise Island Expansion is not
proceeding according to schedule, (iii) prohibitions on other indebtedness of
Sun, Sun Bahamas and the Restricted Subsidiaries, (iv) prohibitions on the
creation of liens upon any properties, revenues or assets of Sun, Sun Bahamas
and the Restricted Subsidiaries, (v) prohibitions on dividends and similar
distributions in excess of an amount equal to 10% of the previous years'
consolidated net income of Sun for any fiscal quarter (subject to a cap for any
fiscal year of 33% of such previous years' consolidated net income), (vi)
restrictions on capital expenditures by Sun, Sun Bahamas and its Restricted
Subsidiaries in any fiscal year, (vii) prohibitions on transactions with
affiliates unless such transactions are fair and equitable to Sun, Sun Bahamas
and the Restricted Subsidiaries and would be entered into by a prudent person,
(viii) prohibitions on the sale, transfer, lease, contribution or conveyance of
any assets of Sun, Sun Bahamas or the Restricted Subsidiaries in excess of $10
million in any fiscal year, or $35 million in
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aggregate during the term of the Revolving Credit Facility, and (ix)
prohibitions during the completion of the Paradise Island Expansion on change
orders in excess of $15 million (or which will affect the construction schedule
by more than 3 months or significantly affect the nature, scope or quality of
the Paradise Island Expansion) without the prior written approval of the
required lenders. In addition, the Revolving Credit Facility contains the
following financial covenants: (i) minimum Borrower EBITDA (as defined, but
generally meaning earnings of Sun Bahamas and its subsidiaries before interest
expense, income taxes, depreciation and amortization), tested on a rolling four
quarter basis, (ii) minimum Consolidated EBITDA (as defined, but generally
meaning earnings of Sun and its subsidiaries before interest expense, income
taxes, depreciation and amortization), tested on a rolling four quarter basis,
(iii) a minimum ratio of Consolidated EBITDA to consolidated interest expense of
Sun, (iv) minimum net worth for Sun and its subsidiaries, (v) a minimum ratio of
total debt of Sun, Sun Bahamas and the Restricted Subsidiaries to Unconsolidated
EBITDA (as defined, but generally meaning earnings of Sun, Sun Bahamas and the
Restricted Subsidiaries before interest expense, income taxes, depreciation and
amortization, tested on a rolling four quarter basis) equal to 4.5 to 1
initially and reducing to 3.5 to 1 on the earlier of November 1, 1999 or one
year after the completion of the Paradise Island Expansion (and reducing to 3.0
to 1 one year thereafter) and (vi) a minimum ratio of senior debt to
Unconsolidated EBITDA (the same ratio set forth in clause (v) above except
subordinated debt is excluded) equal to 4.0 to 1 initially and reducing to 3.0
to 1 and 2.0 to 1 at the times set forth in clause (v) above, respectively.
The following additional conditions to borrowing are applicable the first
time a borrowing results in the amount of loans outstanding under the Revolving
Credit Facility exceeding $100 million (subject to an increase to $125 million
if Consolidated EBITDA for 1996 exceeds $43 million) (such $100 million, as
adjusted to $125 million, if applicable, is the "Allowed Amount"): (i) a
performance bond for a portion of the construction contract costs for the
Paradise Island Expansion must have been obtained, (ii) a bringdown endorsement
to the title policy for the Paradise Island properties must have been obtained
and (iii) an amount at least equal to 150% of the Allowed Amount must have been
spent towards the Paradise Island Expansion (and Sun and its subsidiaries must
have funded from sources other than borrowings under the Revolving Credit
Facility at least 50% of the Allowed Amount towards the Paradise Island
Expansion plus all amounts by which the construction budget for the Paradise
Island Expansion exceeds $300 million (offset by amounts, if any, by which the
Permitted Investment Amount described below is reduced by Sun Bahamas to offset
such additional budgeted amounts prior to its having then paid such additional
budgeted costs towards the Paradise Island Expansion or for purposes of allowing
for more Permitted Investments as described below)). In order for the aggregate
borrowings under the Revolving Credit Facility to first exceed 150% of the
Allowed Amount, a further $75 million must have been spent on the Paradise
Island Expansion and, as modified to give effect to the additional expenditures
towards the Paradise Island Expansion, the additional conditions described in
the preceding sentence must again be satisfied.
The Revolving Credit Facility also requires that Sun, Sun Bahamas and the
Restricted Subsidiaries (i) not make or guarantee loans or advances to or of
third parties or unrestricted subsidiaries of Sun and (ii) not acquire any
securities, ownership or similar interest in any third parties or unrestricted
subsidiaries of Sun or (iii) not acquire any additional real property or
improvements, other than "Permitted Investments" that consist of the foregoing
(but limited to advances and investments in entities engaged in the hotel,
resort or gaming industries) in an amount which prior to the completion of the
Paradise Island Expansion shall not exceed the "Permitted Investment Amount".
The Permitted Investment Amount is initially $100 million, subject to increase
to $130 million if Consolidated EBITDA for 1996 exceeds $43 million. The
Permitted Investment Amount is reduced by (i) amounts guaranteed by Sun for its
unrestricted subsidiaries or third parties, (ii) debt (including capitalized
lease obligations) and deferred payments under conditional sales or other
similar title retention agreements that are recourse to Sun, Sun Bahamas or any
Restricted Subsidiary and that are incurred after June 28, 1996, (iii) advances
made under the Secured Completion Guaranty; in connection with the construction
of the Mohegan Sun Casino and (iv) amounts by which the construction budget for
the Paradise Island Expansion exceeds $300 million (but
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only to the extent that Sun and its subsidiaries have not then paid costs
towards completing the Paradise Island Expansion equal to such excess amount);
and the Permitted Investment Amount is increased by (i) repayments to Sun of the
Subordinated Notes and the Secured Completion Guarantee Notes, (ii) the net
proceeds received by Sun as a result of its issuance of equity or subordinated
debt securities, and (iii) amounts distributed to Sun by unrestricted
subsidiaries. It is currently anticipated that this covenant restricting
Permitted Investments will prevent Sun Bahamas from borrowing under the
Revolving Credit Facility (if Sun's current investment plans are consummated)
until such time as the Permitted Investment Amount is increased by at least $20
million as provided above or Sun and its Subsidiaries have paid at least $20
million towards the Paradise Island Expansion; however, Sun believes that even
with such limitation, sufficient cash resources will be available to fund such
required expenditures and other cash requirements currently anticipated (without
borrowing under the Revolving Credit Facility).
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MANAGEMENT OF SUN
The current directors of Sun are:
<TABLE>
<CAPTION>
DIRECTOR
NAME COUNTRY OF CITIZENSHIP SINCE
- ----------------------------------------- ----------------------------------------- -----------
<S> <C> <C>
Derek Hawton............................. South Africa 1993
Solomon Kerzner.......................... South Africa 1993
Peter Buckley............................ United Kingdom 1994
Howard Marks............................. United States 1994
Eric Siegel.............................. United States 1994
</TABLE>
Pursuant to the Sun Charter, the maximum number of directors of Sun is fixed
at five. The current directors of Sun will hold office until the date of the
annual general meeting to be held in 1997. At the annual general meeting to be
held in 1997, and at each subsequent annual general meeting, directors will be
appointed by resolution of the holders of Ordinary Shares to hold office until
the date of the next annual general meeting.
The current executive officers of Sun are:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME AGE SINCE
- ------------------------------------------------------------------------------------------------- --- -----------
<S> <C> <C>
Solomon Kerzner
Chairman and Chief Executive Officer........................................................... 61 1993
Howard B. Kerzner
President...................................................................................... 32 1995
Charles D. Adamo
Executive Vice President--General Counsel...................................................... 36 1995
John R. Allison
Executive Vice President--Chief Financial Officer.............................................. 50 1994
Kevin DeSanctis
Chief Operating Officer--North America & Caribbean............................................. 43 1995
William C. Katz
Executive Vice President--Project Development.................................................. 44 1995
Peter J. Venison
Chief Operating Officer--Europe & Indian Ocean................................................. 53 1995
</TABLE>
The backgrounds of each of the directors and the executive officers of Sun
are described below:
Solomon Kerzner, 61--Chairman and Chief Executive Officer. Mr. Kerzner has
been the Chairman and Chief Executive Officer of Sun since October 1993 and from
October 1993 to June 1996, was President. Mr. Kerzner is the Chairman of SIIL,
Sun's controlling shareholder, and of WLG, which owns an indirect interest in
SIIL. Mr. Kerzner is one of the visionary leaders of the resort and gaming
industries. Prior to founding Sun, Mr. Kerzner pioneered the concept of an
entertainment and gaming destination resort designed and managed to appeal to
multiple market segments by developing Sun City. Located approximately 100 miles
northwest of Johannesburg, South Africa, Sun City has been expanded in phases
since its opening in 1979. The resort has been designed to cater to a broad
public market by combining gaming with a wide variety of nongaming entertainment
experiences. Today, Sun City covers approximately 620 acres and attracts over
two million visitors annually. The facilities at Sun City include: four hotels
with approximately 1,300 rooms, an entertainment center that includes a
6,000-seat indoor superbowl, a 46-acre man-made lake for watersports and
approximately 55,000 square feet of gaming space. In 1992, Sun City was expanded
to include The Lost City, a $275 million themed resort which recreates a
forgotten African civilization that has been rediscovered. The Lost City covers
approximately 60 acres and its center includes
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The Palace, a 350-room luxury hotel. The resort also includes a man-made jungle
in which over one million trees were transplanted and the Valley of the Waves,
which includes a wave pool, adventure rides and sand beaches. During Mr.
Kerzner's 30-year career he has been responsible for the development of 21
hotels with over 5,500 rooms, and was the founder of the largest hotel chain in
southern Africa. Sun does not have any interest in any of the southern African
properties developed by Mr. Kerzner.
Howard B. Kerzner, 32--President. Mr. Kerzner joined Sun in May 1995 as
Executive Vice President--Corporate Development and has been President of Sun
since June 1996. Prior to that time, he was Director--Corporate Development of
SIIL from September 1992. Previously Mr. Kerzner was an Associate of Lazard
Freres & Co. LLC from September 1991. Prior to that Mr. Kerzner worked for the
First Boston Corporation. Mr. Kerzner is the son of Mr. Solomon Kerzner.
Charles D. Adamo, 36--Executive Vice President--General Counsel. Mr. Adamo
joined Sun in May 1995 as General Counsel. Prior to that time, he was Group
Legal Advisor of SIIL from September 1994. Previously, Mr. Adamo was engaged in
the practice of law at the firm of Cravath, Swaine & Moore in New York from
1986. Mr. Adamo is admitted to the bar in the State of New York.
John R. Allison, 50--Executive Vice President--Chief Financial Officer. Mr.
Allison joined Sun in May 1995 as Chief Financial Officer. Mr. Allison joined
SIIL in March 1994 as Group Financial Director. From December 1987 until
February 1994, Mr. Allison was Chief Financial Officer--South African Operations
of Sun International Inc. ("SII"), a resort and management holding company with
interests in approximately 27 hotels in southern Africa. Prior to that time, he
was the Group Financial Director of Kimberly-Clark (South Africa) Limited for
four years. He is a fellow of the Institute of Chartered Accountants in England
and Wales and a member of the South African Institute of Chartered Accountants.
Peter Buckley, 53--Director. Mr. Buckley has been a Director of Sun since
April 1994. Mr. Buckley is Chairman and Chief Executive Officer of Caledonia. In
1994 he was appointed Chairman of Caledonia having been Deputy Chairman and
Chief Executive since 1987. He is also Chairman of Amber Holdings PLC and
Sterling Industries PLC--both listed companies associated with Caledonia--as
well as being Chairman of British Air Transport (Holdings) Ltd., English &
Scottish Investors plc and Bristow Helicopter Group Limited. He is a
Non-executive Director of Close Brothers Group plc, Exco plc, RHS Enterprises
Ltd., Societe Generale de Surveillance Holding S.A.--Geneva, SIIL and the
Telegraph plc.
Kevin DeSanctis, 43--Chief Operating Officer--North America & Caribbean. Mr.
DeSanctis joined Sun in July 1995 as President, Gaming. Prior to joining Sun,
Mr. DeSanctis served as Executive Vice President and Chief Operating Officer of
Hemmeter Enterprises since April 1994. From 1991 to 1994, Mr. DeSanctis served
as President and Chief Operating Officer of the Trump Plaza Hotel and Casino.
From August 1989 to February 1991, Mr. DeSanctis served as Vice President of
Casino Operations of The Mirage Hotel and Casino in Las Vegas, Nevada. Prior to
August 1989, Mr. DeSanctis served in various positions in the casino industry.
D.A. Hawton, 58--Director. Mr. Hawton has been a Director of Sun since
December 1993. Mr. Hawton is Executive Chairman of Safren (among South Africa's
25 largest industrial groups employing 30,000 people). He is also Director of
South African Mutual Life Assurance (South Africa's largest insurance company
with assets in excess of $40 billion) and Director of Standard Bank Investment
Corporation (South Africa's largest banking group). Mr. Hawton is a fellow of
South Africa's chartered Institute of Secretaries.
William C. Katz, 44--Executive Vice President--Project Development. Mr. Katz
joined Sun in May 1995 as Executive Vice President--Project Development. Prior
to that time, he was Vice President-- Project Development, Americas & Caribbean,
of SIIL from September 1994. From 1993 to September 1994, Mr. Katz was
Operations Manager for Beauchamp Construction Company, Coral Gables, Florida.
From 1991 to 1993, Mr. Katz was Project Executive for Morse Diesel
International, Fort
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Lauderdale, Florida. From 1989 to 1991, Mr. Katz was Project Executive for
Stolte, Inc., Miami, Florida. Mr. Katz is a licensed general contractor in the
State of Florida.
Howard Marks, 50--Director. Mr. Marks has been a Director of Sun since April
1994. Mr. Marks is Chairman of Oaktree Capital Management, LLC ("Oaktree
Capital"). Oaktree Capital manages funds in excess of $5 billion for
institutional investors. Previously, Mr. Marks was employed by The TCW Group,
Inc. where he became Chief Investment Officer for Domestic Fixed Income and
President of its largest affiliate, TCW Asset Management Company. Mr. Marks is a
Director of New World Communications Group.
Eric Siegel, 38--Director. Mr. Siegel has been a Director of Sun since April
1994. Mr. Siegel is a Principal of Pegasus Insurance Partners and a Limited
Partner of Apollo Advisors, L.P. ("Apollo")/Lion Advisors, L.P. Apollo invests
in debt and equity securities and other instruments of public and private
companies. Mr. Siegel is also a Director and member of the executive committee
of El Paso Electric Company, a publicly traded utility company.
Peter J. Venison, 53--Chief Operating Officer-- Europe & Indian Ocean. Mr.
Venison joined Sun in May 1995 as Executive Vice President and President, Europe
& Indian Ocean. Prior to that time, he was a Managing Director of SII from May
1990. Before joining SII, Mr. Venison was President of Treadev Limited, a resort
development company.
STOCK OPTION PLANS. Sun has adopted the Sun Stock Option Plan which was
approved by the shareholders at the annual general meeting held in 1995. The
Plan provides for options to be granted to purchase up to 2,000,000 Ordinary
Shares, of which options to acquire 1,659,346 Ordinary Shares at exercise prices
ranging from $11.6875 to $50.00 have been granted. The Plan also provides for
the options to become exercisable, unless otherwise specified by the Board of
Directors and subject to certain acceleration and termination provisions, after
two years from the date of grant in respect of 20% of such options and
thereafter in installments of 20% per year over a five-year period. The options
will have a term of 10 years from the date of grant. Employees, officers and
directors of Sun and subsidiaries of Sun may be granted options under the Plan.
Such options may be transferred to trusts with respect to which any such
participants are beneficiaries and corporations or other entities controlled by
such participants.
COMPENSATION OF OFFICERS AND DIRECTORS. The total compensation paid to all
officers and directors of Sun as a group for the year ended December 31, 1995,
was $3,449,747.00.
106
<PAGE>
PRINCIPAL SHAREHOLDER OF SUN
<TABLE>
<CAPTION>
CLASS OF SHARES OWNER AMOUNT OWNED PERCENT OF CLASS
- ------------------------------------------------- --------------------------- -------------- ----------------
<S> <C> <C> <C>
Ordinary Shares.................................. SIIL 16,112,380 55%
Directors and Officers as a
Ordinary Shares.................................. group -- less than 1%
</TABLE>
SIIL, through its control of approximately 55% of the outstanding Ordinary
Shares as of October 28, 1996 (approximately 48% assuming consummation of the
Merger at a Conversion Number of .4324), controls Sun. WLG, a company owned by a
trust for the family of Mr. Solomon Kerzner, Chairman of the Board of Directors
and Chief Executive Officer of Sun, indirectly owns through intermediate
entities approximately one-third of the outstanding Ordinary Shares of SIIL.
Peter Buckley, a director of Sun and SIIL, is also Chairman and Chief Executive
Officer of Caledonia, an English corporation, which indirectly owns through
intermediate entities approximately one-third of the outstanding Ordinary Shares
of SIIL. Derek Hawton, a director of Sun and SIIL, is also Chairman and Chief
Executive Officer of Safren, a South African corporation, which indirectly
controls through intermediate entities approximately one-third of the
outstanding Ordinary Shares of SIIL.
Ownership participation in SIIL is governed by a Subscription and
Shareholders' Agreement. Rosegrove Limited ("Rosegrove") owns approximately
two-thirds of the outstanding equity of SIIL and World Leisure Investments
Limited, a Bermuda corporation ("WLI"), owns the remaining shares. WLI is owned
by WLG, which is owned by a trust for the benefit of the Kerzner family.
Rosegrove is owned indirectly and equally by Safren and Caledonia. Caledonia is
a diversified trading and investment company listed on the London Stock
Exchange. Safren is an industrial conglomerate whose interests span shipping,
warehousing, travel services, casino resorts and retailing. Safren is listed on
the Johannesburg Stock Exchange.
Currently, the officers and directors of Sun, as a group, hold options
granted pursuant to the Sun Stock Option Plan to acquire 1,088,205 Ordinary
Shares, 49,732 of which were exercisable as of the date of this Proxy
Statement/Prospectus.
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BUSINESS OF GGE
GENERAL
GGE is a holding company which, through RIH, its indirect wholly owned
subsidiary, is principally engaged in the ownership and operation of the Resorts
Casino Hotel in Atlantic City, New Jersey. GGE was known as Resorts
International, Inc. until its name change, which was effective June 30, 1995.
In Atlantic City, GGE owns and operates the Resorts Casino Hotel, which has
approximately 660 guest rooms, a 70,000 square foot casino, an 8,000 square foot
simulcast parimutuel betting and poker area and related facilities, located on
the Boardwalk. Approximately 10 acres of Boardwalk property owned by GGE is
leased to ACS under the Showboat Lease, a 99-year net lease expiring in 2082.
All lease payments due under the Showboat Lease directly service GGE's interest
obligations under the Showboat Notes. The leased acreage is the site of the
Showboat, which is operated by ACS. GGE also owns approximately 7.7 acres in the
South Inlet area and other real estate in the Atlantic City area, most of which
is vacant land.
Casino operations in Atlantic City are conducted under a casino license
which is subject to periodic review and renewal by action of the NJCC. GGE's
current license was renewed in January 1996 through January 31, 2000, subject to
a financial stability review midway through the license period.
In April 1994 the GGE Restructuring was confirmed by the United States
Bankruptcy Court for the District of Delaware and on May 3, 1994 the GGE
Restructuring became effective. GGE's reorganization under the GGE Restructuring
included, among other things, (i) the sale of GGE's Paradise Island operations
and properties and (ii) the exchange of $481,907,000 principal amount of public
indebtedness for $160,000,000 principal amount of new debt securities, 40% of
the GGE Common Stock, the proceeds from the sale of the Paradise Island
operations and approximately $36,700,000 cash. The Paradise Island assets
disposed of were sold to Sun. See "BUSINESS OF SUN--The Properties and Current
Expansion Projects--The Bahamas" and "SUMMARY--Griffin Gaming & Entertainment,
Inc.--Notes to Selected Consolidated Historical Financial Data."
THE PROPERTIES AND CURRENT EXPANSION PROJECT
RESORTS CASINO HOTEL
The Resorts Casino Hotel in Atlantic City, New Jersey commenced operations
in May 1978 and was the first casino/hotel opened in Atlantic City. This was
accomplished by the conversion of the former Haddon Hall Hotel, a classic hotel
structure originally built in the early 1900's, into a casino/hotel. It is
situated on approximately seven acres of land with approximately 310 feet of
Boardwalk frontage overlooking the Atlantic Ocean. The Resorts Casino Hotel
consists of two hotel towers, the 15-story East Tower and the nine-story North
Tower. In addition to the casino facilities described below, the casino/hotel
complex includes approximately 660 guest rooms and suites, the 1,400-seat
Superstar Theater, seven restaurants, one cocktail lounge, a VIP slot and table
player lounge, an indoor swimming pool and health club, and retail stores. The
complex also has approximately 50,000 square feet of convention facilities,
including eight large meeting rooms and a 16,000 square foot ballroom.
The Resorts Casino Hotel has a 70,000 square foot casino and a simulcast
parimutuel betting and poker area of approximately 8,000 square feet. In August
1996, these gaming areas contained 41 blackjack tables, 18 poker tables, 11
roulette tables, 10 dice tables, 8 Caribbean stud poker tables, 4 baccarat
tables, 2 let it ride poker tables, 2 three card poker tables, 2 pai gow poker
tables, 2 big six wheels, one sic bo table, 2,351 slot machines, and five
betting windows and four customer-operated terminals for simulcast parimutuel
betting. Also included in the simulcast area is a keno lounge which has two keno
cashier windows. There are also two keno windows in the bus waiting area and one
on the casino floor.
In 1995 GGE purchased the Chalfonte Site, a 4.4 acre tract on the Boardwalk
adjacent to the Resorts Casino Hotel, on which it planned to construct up to 700
new hotel rooms, 70,000 square feet of casino space and a 2,000 space parking
garage and transportation center. Subject to the receipt of regulatory
approvals, GGE planned to break ground in the fall of 1996 on the infrastructure
necessary to support the
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full expansion. The first phase of construction was expected to consist of 500
new hotel rooms, 50,000 square feet of casino space and the new garage.
Construction costs for this phase were estimated at approximately $200 million.
GGE also recently entered into a five year lease with an option to purchase
approximately 3 acres to the north of the Resorts Casino Hotel, purchased an
adjacent parcel and was successful in vacating the portion of North Carolina
Avenue that lies between the Chalfonte Site and the Resorts Casino Hotel. These
parcels, together with the Chalfonte Site, total more than 9 acres, all of which
would play a role in GGE's expansion plans. Although the Merger Agreement limits
the amount of capital expenditures that GGE can make on this project prior to
consummation of the Merger or termination of the Merger Agreement, GGE is
continuing with the process of obtaining permits and limited design activities.
Sun has advised GGE that if and when the Merger is consummated, Sun expects to
proceed with development of the Chalfonte Site, although it might reconsider the
type of facility to be developed.
Casino gaming in Atlantic City is highly competitive and is strictly
regulated under the NJCCA and regulations promulgated thereunder which affect
virtually all aspects of GGE's Atlantic City casino operations. See
"--Competition" and "--Certain Matters Affecting GGE's Operations--Regulation
and Gaming Taxes and Fees" below.
SHOWBOAT LEASE
The Showboat is situated on approximately 10 acres which are owned by GGE
and leased to ACS pursuant to the Showboat Lease, a 99-year net lease dated
October 26, 1983, as amended. The Showboat Lease provides for an initial annual
rental, which commenced in March 1987, of $6,340,000, subject to annual
adjustment based upon changes in the consumer price index. The annual rental is
$8,805,000 for the 1996 lease year. Showboat Notes are secured and serviced by
the Showboat Lease, and all lease payments are made to the Indenture Trustee for
the Showboat Notes to meet GGE's interest obligations under those notes.
OTHER PROPERTIES
GGE owns various non-operating sites, approximating 37 acres, and has a
lease with an option to purchase approximately 3 acres in Atlantic City that
could be developed. Included in these parcels are the 9 acres adjacent to
Resorts Casino Hotel and the 2 acre Steeplechase Pier site, both of which GGE
intends to develop. GGE also owns in fee an approximately 552 acre parcel
located in Atlantic City on Blackhorse Pike, of which approximately 545 acres
are considered to be woodlands and wetlands, which may not be developed. GGE
also owns in fee various individual parcels of property located in the area of
Atlantic City known as the South Inlet which in the aggregate constitute
approximately 7.7 acres and a parcel of land in Atlantic City consisting of
approximately six acres and a warehouse thereon. GGE is the owner of various
additional properties at scattered sites in Atlantic City. Principal among these
is the so-called "Trans Expo" site, a 2.3 acre parcel located near the site of
the new convention center.
COMPETITION
See "RISK FACTORS--Risk Factors Related to GGE" for a discussion of
competition in Atlantic City.
CERTAIN MATTERS AFFECTING GGE'S OPERATIONS
NEW CONVENTION CENTER AND CASINO/HOTEL EXPANSION
In January 1992, the State of New Jersey enacted legislation that authorized
a financing plan for the construction of a new convention center to be located
on a 30-acre site next to the Atlantic City train station at the base of the
Atlantic City Expressway. GGE understands that the new convention center will
have 500,000 square feet of exhibit space and an additional 109,000 square feet
of meeting rooms. Construction of the new convention center began in early 1993
and it is scheduled to be completed in the spring of 1997.
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The convention center is part of a broader plan that includes an additional
expansion of the Atlantic City International Airport, the transformation of the
main entryway into Atlantic City into a new corridor, and the construction of a
new 500 room convention hotel. Officials have commented upon the need for
improved commercial air service into Atlantic City as a factor in the success of
the proposed convention center. The corridor will link the new convention center
and hotel with the Boardwalk. In all, six blocks are to be transformed into an
expansive park with extensive landscaping, night-time lighting, a large fountain
and pool with an 86-foot lighthouse.
It is believed that additional hotel rooms are necessary to support the
convention center as well as to allow Atlantic City to become a competitive
destination resort. Thus, in addition to the 500 room convention hotel, to
further spur construction of new hotel rooms and renovation of substandard hotel
rooms into deluxe accommodations, up to a total of $100 million has been set
aside by the Casino Reinvestment Development Authority (the "CRDA"), a public
authority created under the NJCCA, to aid in financing such projects. To date,
the CRDA has approved the expansion projects submitted by eight casino/hotels
which are to receive CRDA financing totaling the $100 million set aside, and
could result in the construction of approximately 4,000 hotel rooms. Recently,
an additional $75 million was set aside to provide further incentive for
additional hotel rooms. Also, Mirage Resorts, Inc., a Las Vegas, Nevada
casino/hotel company, has been selected to be the developer of an approximately
180 acre tract in the Marina area of Atlantic City. Mirage Resorts, Inc.
proposes to build a $500 million, 2,000 room casino/ hotel, Boyd Gaming Corp.
proposes to build a $500 million, 1,000 room casino/hotel and Circus Circus
Enterprises, Inc. proposes to build a $600 million, 2,000 room casino/hotel on
that tract. GGE understands that negotiations regarding financing costs of
certain infrastructure improvements needed to develop that tract are ongoing
between the state of New Jersey and Mirage Resorts, Inc. Plans for the
construction of two other new casino/hotels in Atlantic City have also been
announced.
Although these developments are viewed as positive and favorable to the
future prospects of the Atlantic City gaming industry, GGE, at this point, can
make no representations as to whether, or to what extent, its results may be
affected by the completion of the new convention center, the airport expansion
projects and the proposed increase in number of hotel rooms in the area.
MARKETING
GGE continues to take advantage of the celebrity status of Merv Griffin, who
is actively engaged in the marketing of the Resorts Casino Hotel. Mr. Griffin,
who is Chairman of the Board of GGE, is featured in television commercials and
in print advertisements. Mr. Griffin also appears live at the Resorts Casino
Hotel in numerous entertainment events including the nationally televised "Merv
Griffin's New Year's Eve Special" which has been produced live at the Resorts
Casino Hotel each year since 1991.
GGE's marketing strategy is designed to enhance the appeal of the Resorts
Casino Hotel to the mid-and premium-level slot and table game players, although
slot players have been, in recent years, the primary focus of GGE's marketing
efforts. In 1993 GGE introduced the "cash-back" program, which rewards slot
players with cash refunds or complimentaries based on their volume of play, and
expanded and upgraded "Hollywood Hills," its high-limit slot area. This area was
further expanded in late May 1995. In the fall of 1994, GGE increased its
charter flight program to recapture lost market share in table win. The charter
program was further expanded in 1995 to attract mid-level slot players. In the
fall of 1994, GGE introduced the "Griffin Games," created by Merv Griffin,
whereby slot players are chosen at random to participate in daily slot
tournaments; daily tournament winners qualify to participate in a $100,000
"winners tournament." In January 1995 the "Griffin Games" were expanded to
include patrons playing blackjack and in January 1996 they were further expanded
to include roulette players. GGE also has a VIP slot and table player lounge,
"Club Griffin," which serves complimentary food and beverages.
GGE continues to emphasize entertainment as an integral part of its
marketing program. The musical variety show "Funderful", created and produced by
Merv Griffin, opened in September 1996 to excellent reviews. The entertainment
schedule is supplemented on a monthly basis with headliners who to date in
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1996 included, among others, Regis and Kathie Lee, Rosie O'Donnell, Tony Danza,
Tom Jones and the Beach Boys. In addition to the above, GGE continues to rely
heavily on its bus program to supply a critical mass of low- to mid-level slot
players.
SEASONAL FACTORS
GGE's business activities are strongly affected by seasonal factors that
influence the New Jersey beach tourist trade. Higher revenues and earnings are
typically realized from GGE's Atlantic City operations during the middle third
of the year.
REGULATION AND GAMING TAXES AND FEES
GENERAL. GGE's operations in Atlantic City are subject to regulation under
the NJCCA, which authorizes the establishment of casinos in Atlantic City,
provides for licensing, regulation and taxation of casinos and related persons
and entities and created the NJCC and the Division of Gaming Enforcement to
administer the NJCCA. In general, the provisions of the NJCCA concern: (i) the
ability, reputation, character, financial stability and integrity of casino
operators, their officers, directors and employees and others financially
interested in or in control of a casino; (ii) the nature and suitability of
hotel and casino facilities, operating methods and conditions; and (iii)
financial and accounting practices. Gaming operations are subject to a number of
restrictions relating to the rules of games, type of games permitted, credit
play, size of hotel and casino operations, hours of operation, persons who may
be employed and licensure of such persons, persons or entities that may do
business with casinos, the maintenance of accounting and cash control
procedures, security and other aspects of the business.
CASINO LICENSE. A casino license is initially issued for a term of one year
and must be renewed annually by action of the NJCC for the first two renewal
periods succeeding the initial issuance of a casino license. Thereafter the NJCC
may renew a casino license for a period of four years, although the NJCC may
reopen licensing hearings at any time. A license is not transferable and may be
conditioned, revoked or suspended at any time upon proper action by the NJCC.
The NJCCA also requires an operations certificate which, in effect, has a term
coextensive with that of a casino license. On February 26, 1979, the NJCC
granted a casino license to RIH for the operation of GGE's Atlantic City casino.
In January 1996, RIH's license was renewed until January 31, 2000. RIH's renewed
license is subject to a financial stability review midway through the license
period. In order for a casino license to be renewed, the licensee must show by
clear and convincing evidence that it meets all of the criteria set out in the
NJCCA, including the qualification of holding, intermediary and subsidiary
companies of a casino licensee and of the directors, officers and certain
employees of such companies.
RESTRICTIONS ON OWNERSHIP OF SECURITIES. The NJCCA imposes certain
restrictions upon the ownership of securities issued by a corporation which
holds a casino license or is a holding, intermediary or subsidiary company of a
corporate licensee (collectively, "holding company"). Among other restrictions,
the sale, assignment, transfer, pledge or other disposition of any security
issued by a corporation which holds a casino license is conditional and shall be
ineffective if disapproved by the NJCC. If the NJCC finds that an individual
owner or holder of any securities of a corporate licensee or its holding company
must be qualified and is not qualified under the NJCCA, the NJCC has the right
to propose any necessary remedial action. In the case of corporate holding
companies and affiliates whose securities are publicly traded, the NJCC may
require divestiture of the security held by any disqualified holder who is
required to be qualified under the NJCCA.
In the event that entities or persons required to be qualified refuse or
fail to qualify and fail to divest themselves of such security interest, the
NJCC has the right to take any necessary action, including the revocation or
suspension of the casino license. If any security holder of the licensee or its
holding company or affiliate who is required to be qualified is found
disqualified, it will be unlawful for the security holder to (i) receive any
dividends or interest upon any such securities, (ii) exercise, directly or
through any trustee or nominee, any right conferred by such securities or (iii)
receive any remuneration in any form from the
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corporate licensee for services rendered or otherwise. The GGE Charter provides
that all securities of GGE are held subject to the condition that if the holder
thereof is found to be disqualified by the NJCC pursuant to provisions of the
NJCCA, then that holder must dispose of his or her interest in the securities.
REMEDIES UNDER THE NJCCA. In the event that it is determined that a
licensee has violated, or fails to affirmatively prove that it meets all of the
criteria of, the NJCCA, or if a security holder of the licensee required to be
qualified is found disqualified but does not dispose of his securities in the
licensee or holding company, under certain circumstances the licensee could be
subject to fines or have its license suspended, conditioned or revoked. The
NJCCA provides for the mandatory appointment of a conservator to operate the
casino and hotel facility if a license is revoked or not renewed and permits the
appointment of a conservator if a license is suspended for a period in excess of
120 days. If a conservator is appointed, the suspended or former licensee is
entitled to a "fair rate of return out of net earnings, if any, during the
period of the conservatorship, taking into consideration that which amounts to a
fair rate of return in the casino or hotel industry." Under certain
circumstances, upon the revocation of a license or failure to renew, the
conservator, after approval by the NJCC and consultation with the former
licensee, may sell, assign, convey or otherwise dispose of all of the property
of the casino/hotel. In such cases, the former licensee is entitled to a summary
review of such proposed sale by the NJCC and creditors of the former licensee
and other parties in interest are entitled to prior written notice of sale.
LICENSE FEES, TAXES AND INVESTMENT OBLIGATIONS. The NJCCA provides for
casino license renewal fees and other fees based upon the cost of maintaining
control and regulatory activities and various license fees for the various
classes of employees. In addition, a casino licensee is subject annually to a
tax of 8% of "gross revenue" (defined under the NJCCA as casino win, less
provision for uncollectible accounts up to 4% of casino win) and license fees of
$500 on each slot machine. Also, the NJCCA has been amended to create a new
Atlantic City fund (the "AC Fund") for economic development projects other than
the construction and renovation of casino/hotels. Beginning in fiscal year
1995/1996 and for the following three fiscal years, if the amount of money
expended by the NJCC and the Division of Gaming Enforcement is less than
$57,300,000, the prior year's budget for these agencies, the amount of the
difference is to be contributed to the AC Fund. Thereafter, beginning with
fiscal year 1999/2000 and for the following three fiscal years, an amount equal
to the average paid into the AC Fund for the previous four fiscal years shall be
contributed to the AC Fund. Each licensee's share of the amount to be
contributed to the AC Fund is based upon its percentage of the total industry
gross revenue for the relevant fiscal year. After eight years, the casino
licensee's requirement to contribute to this fund ceases.
The following table summarizes, for the periods shown, the fees, taxes and
contributions assessed upon GGE by the NJCC.
<TABLE>
<CAPTION>
FOR THE YEAR
--------------------------------------------
<S> <C> <C> <C>
1993 1994 1995
------------- -------------- -------------
Gaming tax......................................................... $ 19,545,000 $ 19,996,000 $ 21,402,000
License, investigation, inspection and other fees.................. 3,985,000 4,218,000 3,917,000
Contribution to AC Fund............................................ 224,000
------------- -------------- -------------
$ 23,530,000 $ 24,214,000 $ 25,543,000
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
The NJCCA, as originally adopted, required a licensee to make investments
equal to 2% of the licensee's gross revenue (the "investment obligation") for
each calendar year, commencing in 1979, in which such gross revenue exceeded its
"cumulative investments" (as defined in the NJCCA). A licensee had five years
from the end of each calendar year to satisfy this investment obligation or
become liable for an "alternative tax" in the same amount. In 1984 the New
Jersey legislature amended the NJCCA so that these provisions now apply only to
investment obligations for the years 1979 through 1983. Certain issues have been
raised by the CRDA and the State of New Jersey Department of the Treasury (the
"Treasury") concerning the satisfaction of investment obligations for the years
1979 through 1983 by GGE. These
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matters were dormant for an extensive period of time until late 1995 when GGE
was contacted by the CRDA. CRDA legal representatives have recently indicated
that Treasury may take a position that GGE owes additional investment
alternative taxes including interest and possibly penalties. If these issues are
determined adversely, GGE could be required to pay the relevant amount in cash.
Management of GGE intends to contest these issues and believes a negotiated
settlement with an insignificant monetary cost to GGE is possible.
Effective for 1984 and subsequent years, the amended NJCCA requires a
licensee to satisfy its investment obligation by purchasing bonds to be issued
by the CRDA or by making other investments authorized by the CRDA, in an amount
equal to 1.25% of a licensee's gross revenue. If the investment obligation is
not satisfied, then the licensee will be subject to an investment alternative
tax of 2.5% of gross revenue. Licensees are required to make quarterly deposits
with the CRDA against their current year investment obligations. GGE's
investment obligations for the years 1995, 1994 and 1993 amounted to $3,348,000,
$3,124,000, and $3,054,000, respectively, and, with the exception of a $127,000
credit received in 1995 for making a donation, have been satisfied by deposits
made with the CRDA. At December 31, 1995, GGE held $5,567,000 face amount of
bonds issued by the CRDA and had $18,197,000 on deposit with the CRDA. The CRDA
bonds issued through 1995 have interest rates ranging from 3.9% to 7% and have
repayment terms of between 20 and 50 years.
LEGAL MATTERS
The validity of the Ordinary Shares being offered hereby is being passed
upon for Sun by Harry B. Sands and Company.
Cravath, Swaine & Moore, counsel to Sun, and Gibson, Dunn & Crutcher LLP,
counsel to GGE, have delivered opinions concerning certain Federal income tax
consequences of the Merger. See "THE MERGER AGREEMENT--Conditions to the
Obligations of Sun and Sub," "--Conditions to the Obligations of GGE" and "THE
MERGER --Certain Federal Income Tax Consequences."
EXPERTS
The consolidated financial statements of Griffin Gaming & Entertainment,
Inc. appearing in Griffin Gaming & Entertainment, Inc.'s Annual Report (Form
10-K) for the year ended December 31, 1995, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The combined financial statements of the PIRL Group, which consists of Sun
Bahamas, consolidated with its subsidiaries, combined with the accounts of
certain subsidiaries of Resorts International, incorporated by reference in
Sun's Annual Report (Form 20-F) for the year ended December 31, 1995 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon incorporated by reference therein and incorporated herein and in
the registration statement by reference. Such combined financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Sun International Hotels Limited
included herein and incorporated by reference in this Proxy
Statement/Prospectus, to the extent and for the periods indicated in the reports
thereon, have been audited by Arthur Andersen, chartered accountants, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements of the Mohegan Tribal Gaming Authority incorporated
by reference herein, to the extent and for the period indicated in the reports
thereon, have been audited by Arthur Andersen LLP and are incorporated herein by
reference in reliance upon such report.
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Annex I
================================================================================
AGREEMENT AND PLAN OF MERGER
Dated as of August 19, 1996,
Among
SUN INTERNATIONAL HOTELS LIMITED
SUN MERGER CORP.
And
GRIFFIN GAMING & ENTERTAINMENT, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
The Merger
SECTION 1.01. The Merger............................................ 2
SECTION 1.02. Closing............................................... 3
SECTION 1.03. Effective Time........................................ 3
SECTION 1.04. Effects of the Merger................................. 3
SECTION 1.05. Certificate of Incorporation
and By-laws...................................... 3
SECTION 1.06. Directors............................................. 4
SECTION 1.07. Officers.............................................. 4
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.01. Effect on Capital Stock............................... 4
SECTION 2.02. Exchange of Certificates.............................. 6
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties
of the Company................................... 10
SECTION 3.02. Representations and Warranties
of Parent and Sub................................ 32
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01. Conduct of Business................................... 40
SECTION 4.02. No Solicitation....................................... 44
ARTICLE V
Additional Agreements
SECTION 5.01. Preparation of the Form F-4
and the Proxy Statement;
Stockholders Meetings............................ 46
SECTION 5.02. Letters of the Company's Accountants.................. 48
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SECTION 5.03. Letters of Parent's Accountants....................... 48
SECTION 5.04. Access to Information; Confidentiality................ 48
SECTION 5.05. Reasonable Efforts.................................... 49
SECTION 5.06. Stock Options; Warrants............................... 50
SECTION 5.07. Benefit Plans......................................... 52
SECTION 5.08. Indemnification and Insurance......................... 53
SECTION 5.09. Fees and Expenses..................................... 53
SECTION 5.10. Public Announcements.................................. 55
SECTION 5.11. Affiliates............................................ 55
SECTION 5.12. NYSE Listing.......................................... 55
SECTION 5.13. Stockholder Litigation................................ 55
SECTION 5.14. Title Policies; Title Insurance....................... 56
SECTION 5.15. Surveys............................................... 56
SECTION 5.16. Class B Option........................................ 56
SECTION 5.17. Amendments to Junior Mortgage
Notes Indenture.................................. 57
SECTION 5.18. Chalfonte Project Parking Garage...................... 57
SECTION 5.19. Supplemental Indenture................................ 58
SECTION 5.20. ICA Election.......................................... 58
ARTICLE VI
Conditions Precedent
SECTION 6.01. Conditions to Each Party's
Obligation To Effect the Merger.................. 58
SECTION 6.02. Conditions to Obligations of Parent
and Sub.......................................... 59
SECTION 6.03. Conditions to Obligation of
the Company...................................... 61
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01. Termination........................................... 62
SECTION 7.02. Effect of Termination................................. 64
SECTION 7.03. Amendment............................................. 65
SECTION 7.04. Extension; Waiver..................................... 65
SECTION 7.05. Procedure for Termination, Amendment,
Extension or Waiver.............................. 65
ARTICLE VIII
General Provisions
SECTION 8.01. Nonsurvival of Representations
and Warranties................................... 66
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SECTION 8.02. Notices............................................... 66
SECTION 8.03. Definitions........................................... 67
SECTION 8.04. Interpretation........................................ 69
SECTION 8.05. Counterparts.......................................... 70
SECTION 8.06. Entire Agreement;
No Third-Party Beneficiaries..................... 70
SECTION 8.07. Governing Law......................................... 70
SECTION 8.08. Assignment............................................ 70
SECTION 8.09. Enforcement........................................... 71
iii
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AGREEMENT AND PLAN OF MERGER dated as of August 19,
1996, among Sun International Hotels Limited, a corporation
organized and existing under the laws of the Commonwealth of
the Bahamas ("Parent"), Sun Merger Corp., a Delaware
corporation and a wholly owned subsidiary of Parent ("Sub"),
and Griffin Gaming & Entertainment, Inc., a Delaware
corporation (the "Company").
WHEREAS the respective Boards of Directors of Parent, Sub and the
Company, and Parent acting as the sole stockholder of Sub, have approved the
merger of the Company with and into Sub (the "Merger"), upon the terms and
subject to the conditions set forth in this Agreement, whereby (i) each issued
and outstanding share of Common Stock, par value $.01 per share, of the Company
("Company Common Stock"), other than shares owned directly or indirectly by
Parent or the Company, will be converted into the right to receive the Merger
Consideration (as defined in Section 2.01(c)) and (ii) each issued and
outstanding share of Class B Common Stock, par value $.01 per share, of the
Company ("Company Class B Common Stock") which was issued, and trades, as a unit
(the "Units") with the Company's 11.375% Junior Mortgage Notes due 2004 (the
"Junior Mortgage Notes"), other than shares forming a part of Units owned
directly or indirectly by Parent or the Company, will be converted into the
right to receive the Class B Consideration (as defined in Section 2.01(d));
WHEREAS, as a condition of the willingness of Parent to enter into
this Agreement, those stockholders of the Company (the "Company Significant
Stockholders") listed on Schedule A attached to the Company Stockholder
Agreement (as defined below) have entered into the Stockholder Agreement dated
as of the date hereof (the "Company Stockholder Agreement") with Parent, which
provides, among other things, that, subject to the terms and conditions thereof,
each Company Significant Stockholder will vote its shares of Company Common
Stock in favor of the Merger and the approval and adoption of this Agreement;
WHEREAS, as a condition of the willingness of the Company to enter
into this Agreement, Sun International Investments Limited (the "Parent
Significant Stockholder") has entered into the Stockholder Agreement dated as of
the date hereof (the "Parent Stockholder Agreement", and,
<PAGE>
2
together with the Company Stockholder Agreement, the "Stockholder Agreements")
with the Company, which provides, among other things, that, subject to the terms
and conditions thereof, the Parent Significant Stockholder will vote its
Ordinary Shares, $.001 par value per share, of Parent (the "Ordinary Shares") in
favor of certain amendments to Parent's Articles of Association necessary to
comply with the New Jersey Casino Control Act;
WHEREAS the Board of Directors of the Company has approved the terms
of the Company Stockholder Agreement;
WHEREAS Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and
WHEREAS, for Federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
The Merger
SECTION 1.01. The Merger. (a) Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Delaware
General Corporation Law (the "DGCL"), the Company shall be merged with and into
Sub at the Effective Time (as defined in Section 1.03). Following the Effective
Time, the separate corporate existence of the Company shall cease and Sub shall
continue as the surviving corporation (the "Surviving Corporation") and shall
succeed to and assume all the rights and obligations of the Company in
accordance with the DGCL.
(b) At the election of Parent, any direct wholly owned subsidiary
(as defined in Section 8.03) of Parent may be substituted for Sub as a
constituent corporation in the Merger. In such event, the parties agree to
execute an appropriate amendment to this Agreement in order to reflect
<PAGE>
3
such substitution. Furthermore, at the election of Parent (the "DD Election"),
the structure of the Merger (as set forth in this Section 1.01) will be changed
in order to qualify the transaction as another form of tax-free incorporation
transaction under Section 351 of the Code (and in the latter case the Company
Common Stock will be converted into the right to receive common stock of a
newly-formed corporation of which both Parent and the Company will become wholly
owned subsidiaries and the Company Class B Common Stock shall remain
outstanding, and otherwise on substantially the same terms as set forth in this
Agreement). In the case of the DD Election, the parties agree to execute an
appropriate amendment to this Agreement in order to reflect such change in
structure.
SECTION 1.02. Closing. The closing of the Merger (the "Closing")
will take place at 10:00 a.m. on a date to be specified by the parties (the
"Closing Date"), which (subject to satisfaction or waiver of the conditions set
forth in Sections 6.01, 6.02 and 6.03) shall be no later than the second
business day after satisfaction or waiver of the conditions set forth in Section
6.01 and Section 6.02(e), at the offices of Cravath, Swaine & Moore, Worldwide
Plaza, 825 Eighth Avenue, New York, New York 10019, unless another time, date or
place is agreed to in writing by the parties hereto.
SECTION 1.03. Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file a certificate of merger or other appropriate documents (in any such
case, the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL and shall make all other filings or recordings required
under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Delaware Secretary of State, or at
such other time as Sub and the Company shall agree should be specified in the
Certificate of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the
effects set forth in Section 259 of the DGCL.
SECTION 1.05. Certificate of Incorporation and By-laws. (a) The
Certificate of Incorporation of Sub, as in effect immediately prior to the
Effective Time, shall be amended as of the Effective Time to read as set forth
in
<PAGE>
4
Exhibit A and, as so amended, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
(b) The By-laws of Sub as in effect at the Effective Time shall be
the By-laws of the Surviving Corporation, until thereafter changed or amended as
provided therein or by applicable law.
SECTION 1.06. Directors. The directors of Sub immediately prior to
the Effective Time shall become the directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
SECTION 1.07. Officers. The officers of the Company immediately
prior to the Effective Time shall be the officers of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.01. Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of capital stock of the Company or Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of
common stock, par value $.01 per share, of Sub shall continue to be one
validly issued and outstanding, fully paid and nonassessable share of
common stock, par value $.01 per share, of the Surviving Corporation. Each
certificate representing any such shares of Sub shall continue to
represent the same number of shares of the Surviving Corporation
(b) Cancellation of Treasury Stock and Parent- Owned Stock. Each
share of Company Common Stock or Company Class B Common Stock that is
owned by the Company or by any subsidiary of the Company and each share of
Company Common Stock or Company Class B Common
<PAGE>
5
Stock that is owned by Parent, Sub or any other subsidiary of Parent shall
automatically be cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(c) Conversion of Company Common Stock. Subject to Section 2.02(e),
each issued and outstanding share of Company Common Stock (other than
shares to be cancelled in accordance with Section 2.01(b)) shall be
converted into the right to receive the Conversion Number (as defined
below) of a fully paid and nonassessable Ordinary Share (the "Merger
Consideration"). Subject to the proviso to Section 7.01(h), the
"Conversion Number" means .4324; provided, however, if the average of the
closing sales prices of one Ordinary Share as reported on the New York
Stock Exchange ("NYSE") Composite Transactions List (as reported in the
Wall Street Journal or, if not reported thereby, any other authoritative
source) for each of the 15 consecutive trading days immediately preceding
the fifth trading day prior to the Effective Time (the "Average Market
Price") is less than $47.41, then the Conversion Number shall be the
quotient, rounded to the fourth decimal place, obtained by dividing 20.5
by the Average Market Price. As of the Effective Time, all such shares of
Company Common Stock shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such shares of Company Common
Stock shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration and any cash in lieu of
fractional Ordinary Shares to be issued or paid in consideration therefor
upon surrender of such certificate in accordance with Section 2.02,
without interest.
(d) Conversion of Company Class B Common Stock. Each issued and
outstanding share of Company Class B Common Stock (other than shares to be
cancelled in accordance with Section 2.01(b)) shall be converted into the
right to receive .1928 of a fully paid and nonassessable Ordinary Share
(the "Class B Consideration"). As of the Effective Time, all such shares
of Company Class B Common Stock shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such shares of Company Class B
Common Stock shall cease to have any rights
<PAGE>
6
with respect thereto, except the right to receive the Class B
Consideration to be issued in consideration therefor upon surrender of
such certificate in accordance with Section 2.02, without interest. As of
the Effective Time, the fraction of an Ordinary Share into which a share
of Company Class B Common Stock is converted shall be issued, and trade,
as a unit with the related Junior Mortgage Note in lieu of such share of
Company Class B Common Stock.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. As of
the Effective Time, Parent shall deposit with such bank or trust company as may
be designated by Parent (the "Exchange Agent"), for the benefit of the holders
of shares of Company Common Stock and Company Class B Common Stock, for exchange
in accordance with this Article II, through the Exchange Agent, certificates
representing the Ordinary Shares (such Ordinary Shares, together with any
dividends or distributions with respect thereto with a record date after the
Effective Time, and any cash payable in lieu of any fractional Ordinary Shares
being hereinafter referred to as the "Exchange Fund") issuable pursuant to
Section 2.01 in exchange for outstanding shares of Company Common Stock and
Company Class B Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Common
Certificates") or Company Class B Common Stock (the "Class B Certificates", and,
together with the Common Certificates, the "Certificates") whose shares were
converted into the right to receive the Merger Consideration or the Class B
Consideration, as applicable, pursuant to Section 2.01, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration or the Class B Consideration, as applicable. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange
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7
Agent (including, in the case of Class B Certificates, the related Junior
Mortgage Notes), the holder of such Certificate shall be entitled to receive in
exchange therefor (i) in the case of Common Certificates, a certificate
representing that number of whole Ordinary Shares and cash, if any, which such
holder has the right to receive pursuant to the provisions of this Article II,
and (ii) in the case of Class B Certificates, a certificate representing that
number of fractional Ordinary Shares and cash, if any, which such holder has the
right to receive pursuant to the provisions of this Article II, together with
the Junior Mortgage Notes surrendered with such Class B Certificates and, in
each case, the Certificate so surrendered shall forthwith be cancelled. In the
event of a transfer of ownership of Company Common Stock or Units which is not
registered in the transfer records of the Company, a certificate representing
the proper number of Ordinary Shares may be issued to a person (as defined in
Section 8.03) other than the person in whose name the Certificate so surrendered
is registered, if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such payment shall pay any
transfer or other taxes required by reason of the issuance of Ordinary Shares to
a person other than the registered holder of such Certificate or establish to
the satisfaction of Parent that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.02, each Certificate shall
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration or the Class B
Consideration, as applicable, and cash, if any, which the holder thereof has the
right to receive in respect of such Certificate pursuant to the provisions of
this Article II. No interest will be paid or will accrue on any cash payable to
holders of Certificates pursuant to the provisions of this Article II.
(c) Distributions with Respect to Unexchanged Shares. No dividends
or other distributions with respect to Ordinary Shares with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the Ordinary Shares represented thereby, and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to Section
2.02(e), and all such dividends, other distributions and cash in lieu of
fractional Ordinary Shares shall be paid by Parent to the Exchange Agent and
shall be included in the Exchange Fund, in each case until the surrender of such
Certificate in
<PAGE>
8
accordance with this Article II. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the holder
of the certificate representing whole (or, in the case of Class B Certificates,
fractional) Ordinary Shares issued in exchange therefor, without interest, (i)
at the time of such surrender, the amount of any cash payable in lieu of a
fractional Ordinary Share to which such holder is entitled pursuant to Section
2.02(e), in the case of Common Certificates, and the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole (or, in the case of Class B Certificates, fractional)
Ordinary Shares, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to such surrender and with a payment date subsequent to such surrender
payable with respect to such whole (or, in the case of Class B Certificates,
fractional) Ordinary Shares.
(d) No Further Ownership Rights in Company Common Stock or Company
Class B Common Stock. All Ordinary Shares issued upon the surrender for exchange
of Certificates in accordance with the terms of this Article II (including any
cash paid pursuant to this Article II) shall be deemed to have been issued (and
paid) in full satisfaction of all rights pertaining to the shares of Company
Common Stock or Company Class B Common Stock, as applicable, theretofore
represented by such Certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been declared or
made by the Company on such shares of Company Common Stock or Company Class B
Common Stock, as applicable, in accordance with the terms of this Agreement or
prior to the date of this Agreement and which remain unpaid at the Effective
Time, and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Common
Stock or Company Class B Common Stock which were outstanding immediately prior
to the Effective Time. If, after the Effective Time, Certificates are presented
to the Surviving Corporation or the Exchange Agent for any reason, they shall be
cancelled and exchanged as provided in this Article II, except as otherwise
provided by law.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional Ordinary Shares shall be
<PAGE>
9
issued upon the surrender for exchange of Common Certificates, no dividend or
distribution of Parent shall relate to such fractional share interests and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a shareholder of Parent.
(ii) Notwithstanding any other provision of this Agreement, each
holder of shares of Company Common Stock exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of an Ordinary Share
(after taking into account all Common Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
such fractional part of an Ordinary Share multiplied by the closing sales price
of one Ordinary Share on the NYSE Composite Transactions List (as reported by
the Wall Street Journal or, if not reported thereby, any other authoritative
source) on the Closing Date.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates for six months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of the Certificates who have not theretofore complied with this Article
II shall thereafter look only to Parent for payment of their claim for the
Merger Consideration or the Class B Consideration, as applicable, and any cash
or dividends or distributions payable to such holders pursuant to this Article
II.
(g) No Liability. None of Parent, Sub, the Company or the Exchange
Agent shall be liable to any person in respect of any Ordinary Shares (or any
dividends or distributions with respect thereto or with respect to any shares of
Company Common Stock or Company Class B Common Stock, as applicable, theretofore
represented by any Certificate) or any cash from the Exchange Fund delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificate shall not have been surrendered prior to seven
years after the Effective Time (or immediately prior to such earlier date on
which any Merger Consideration or Class B Consideration, as applicable, or any
cash or other dividends or distributions payable to the holder of such
Certificate pursuant to this Article II would otherwise escheat to or become the
property of any Governmental Entity (as defined in Section 3.01(d))), any such
Merger Consideration or Class B Consideration, as applicable, or cash or other
dividends or distributions
<PAGE>
10
shall, to the extent permitted by applicable law, become the property of the
Surviving Corporation, free and clear of all claims or interest of any person
previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by Parent, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Parent. In the event the Exchange Fund shall realize a loss on any such
investment, Parent shall deposit additional cash in the Exchange Fund to the
extent necessary to satisfy its obligation to distribute cash to the holders of
Company Common Stock in lieu of fractional shares as set forth in Section
2.02(e) or cash dividends or other distributions as set forth in Section
2.02(c).
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of the Company. Except
as set forth with respect to a specifically identified representation and
warranty on the Disclosure Schedule delivered by the Company to Parent prior to
the execution of this Agreement (the "Company Disclosure Schedule"), the Company
represents and warrants to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. Each of the Company
and each of its Significant Subsidiaries (as defined in Section 8.03) is a
corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated and has the
requisite corporate power and authority to carry on its business as now
being conducted. Each of the Company and each of its Significant
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed or to be in good standing individually or in
the aggregate would not have a material adverse effect (as defined in
Section 8.03) on the Company. The Company has delivered to Parent prior to
the
<PAGE>
11
execution of this Agreement complete and correct copies of its certificate
of incorporation and by-laws and the certificates of incorporation and
by-laws (or comparable organizational documents) of its Significant
Subsidiaries, in each case as amended to date.
(b) Subsidiaries. The Company Disclosure Schedule sets forth a true
and complete list of each subsidiary of the Company. All the outstanding
shares of capital stock of each subsidiary of the Company have been
validly issued and are fully paid and nonassessable and are owned by the
Company, by another subsidiary of the Company or by the Company and
another such subsidiary, free and clear of all pledges, claims, liens,
charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"). Except for the capital stock of its
subsidiaries, the Company does not own, directly or indirectly, any
capital stock or other ownership interest in any corporation, limited
liability company, partnership, joint venture or other entity.
(c) Capital Structure. The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock, 120,000 shares of
Company Class B Common Stock and 10,000,000 shares of Preferred Stock, par
value $.01 per share, of the Company ("Company Preferred Stock"). At the
close of business on August 15, 1996, (i) 7,941,035 shares of Company
Common Stock were issued and outstanding, (ii) 35,000 shares of Company
Class B Common Stock were issued and outstanding, (iii) no shares of
Company Preferred Stock were issued and outstanding, (iv) 0 shares of
Company Common Stock and 12,899 shares of Company Class B Common Stock
were held by the Company in its treasury or by subsidiaries of the
Company, (v) 1,240,362 shares of Company Common Stock were reserved for
issuance pursuant to the Stock Plans (as defined in Section 5.06(a)), (vi)
933,370 shares of Company Common Stock were reserved for issuance upon
exercise of all outstanding warrants of the Company (the "Company
Warrants") and (vii) 208,354 shares of Company Common Stock were reserved
for issuance upon settlement of Other Class 3C Claims, as defined in the
Company's plan of reorganization which was effected in 1990. Except as set
forth above, at the close of business on August 15, 1996, no shares of
capital stock or other voting securities of the Company were issued,
reserved
<PAGE>
12
for issuance or outstanding. There are no outstanding stock appreciation
rights or rights (other than the Employee Stock Options (as defined in
Section 5.06(a)) to receive shares of Company Common Stock on a deferred
basis granted under the Stock Plans or otherwise. The Company Disclosure
Schedule sets forth a complete and correct list, as of August 15, 1996, of
the holders of all Employee Stock Options, the number of shares subject to
each such option and the exercise prices thereof. All outstanding shares
of capital stock of the Company are, and all shares which may be issued
pursuant to the Stock Plans and the Company Warrants will be, when issued,
duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. There are no bonds, debentures, notes or
other indebtedness of the Company having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any
matters on which stockholders of the Company may vote; provided, however,
that shares of the Company Class B Common Stock trade as a unit with the
Junior Mortgage Notes and the holders of such shares are entitled to vote
on the election of certain directors to the Board of Directors of the
Company. Except as set forth above and except for the Company's obligation
to issue shares of Company Class B Common Stock upon the issuance of
additional Junior Mortgage Notes, there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any of its subsidiaries
is a party or by which any of them is bound obligating the Company or any
of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting
securities of the Company or of any of its subsidiaries or obligating the
Company or any of its subsidiaries to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. Except for the provisions set forth in the
Amended and Restated Certificate of Incorporation of the Company with
respect to the redemption of the securities of the Company pursuant to the
provisions of the New Jersey Casino Control Act and additional provisions
regarding the redemption of shares of Company Class B Stock, there are no
outstanding contractual obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock
<PAGE>
13
of the Company or any of its subsidiaries. There are no outstanding
contractual obligations of the Company to vote or to dispose of any shares
of the capital stock of any of its subsidiaries.
(d) Authority; Noncontravention. The Company has all requisite
corporate power and authority to enter into this Agreement and, subject to
the Company Stockholder Approval (as defined in Section 3.01(m)) with
respect to the Merger, to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by the Company and
the consummation by the Company of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on
the part of the Company, subject, in the case of the Merger, to the
Company Stockholder Approval. This Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with,
or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material
benefit under, or result in the creation of any Lien upon any of the
properties or assets of the Company or any of its subsidiaries under, (i)
the Amended and Restated Certificate of Incorporation or By-laws of the
Company or the comparable charter or organizational documents of any of
its subsidiaries, (ii) subject to the governmental filings and other
matters referred to in the following sentence, any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the
Company or any of its subsidiaries or any of their respective properties
or assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or
any of its subsidiaries or any of their respective properties or assets,
other than, in the case of clauses (ii) and (iii), any such conflicts,
violations, defaults, rights
<PAGE>
14
or Liens that individually or in the aggregate would not (x) have a
material adverse effect on the Company, (y) impair the ability of the
Company to perform its obligations under this Agreement in any material
respect or (z) delay in any material respect or prevent the consummation
of any of the transactions contemplated by this Agreement or the Company
Stockholder Agreement. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Federal, state or local
government or any court, administrative or regulatory agency or commission
or other governmental authority or agency (a "Governmental Entity"), is
required by the Company or any of its subsidiaries in connection with the
execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated by this
Agreement, except for (1) the filing of a premerger notification and
report form by the Company under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"); (2) the filing with
the Securities and Exchange Commission (the "SEC") of (A) a proxy
statement (such proxy statement, as amended or supplemented from time to
time, the "Proxy Statement") relating to the Company Stockholders Meeting
(as defined in Section 5.01(b)), and (B) such reports under Section 13(a)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as may be required in connection with this Agreement and the transactions
contemplated by this Agreement; (3) the approval by the New Jersey Casino
Control Commission under the New Jersey Casino Control Act and the rules
and regulations promulgated thereunder; (4) the filing of the Certificate
of Merger with the Delaware Secretary of State and appropriate documents
with the relevant authorities of other states in which the Company is
qualified to do business; (5) such filings with Governmental Entities as
may be required to satisfy the applicable requirements of state securities
or "blue sky" laws in connection with the transactions contemplated by
this Agreement; (6) filings under the New Jersey Industrial Site Recovery
Act; (7) the filing of International Capital Form S of the U.S. Department
of the Treasury; and (8) such filings with and approvals of the American
Stock Exchange ("ASE") to permit the Units and the Junior Mortgage Notes
to continue to be listed on the ASE.
<PAGE>
15
(e) SEC Documents; Undisclosed Liabilities. The Company has filed
all required reports, schedules, forms, statements and other documents
with the SEC since January 1, 1995 (the "SEC Documents"). As of their
respective dates, the SEC Documents complied in all material respects with
the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents when filed contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Except to the extent that information contained in any SEC Document has
been revised or superseded by a later-filed SEC Document, none of the SEC
Documents contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the
Company included in the SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto) and fairly present the consolidated
financial position of the Company and its consolidated subsidiaries as of
the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in
the Filed SEC Documents (as defined in Section 3.01(g)), and, except for
liabilities and obligations incurred since June 30, 1996 in the ordinary
course of business consistent with past practice, neither the Company nor
any of its subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by generally
accepted accounting principles to be recognized or disclosed on a
<PAGE>
16
consolidated balance sheet of the Company and its consolidated
subsidiaries or in the notes thereto and which, individually or in the
aggregate, could reasonably be expected to have a material adverse effect
on the Company.
(f) Information Supplied. None of the information supplied or to be
supplied by the Company specifically for inclusion or incorporation by
reference in (i) the registration statement on Form F-4 to be filed with
the SEC by Parent in connection with the issuance of Ordinary Shares in
the Merger (the "Form F-4") will, at the time the Form F-4 is filed with
the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading
or (ii) the Proxy Statement will, at the date it is first mailed to the
Company's stockholders or at the time of the Company Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the rules
and regulations thereunder, except that no representation or warranty is
made by the Company with respect to statements made or incorporated by
reference therein based on information supplied by Parent or Sub
specifically for inclusion or incorporation by reference in the Proxy
Statement.
(g) Absence of Certain Changes or Events. Except as disclosed in the
SEC Documents filed and publicly available prior to the date of this
Agreement (the "Filed SEC Documents"), since the date of the most recent
audited financial statements included in the Filed SEC Documents, the
Company has conducted its business only in the ordinary course, and there
has not been (i) any material adverse change (as defined in Section 8.03)
in the Company, (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to any of the Company's capital stock, (iii) any split,
combination or reclassification of any
<PAGE>
17
of its capital stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, (iv) (x) any granting by the Company or any
of its subsidiaries to any executive officer or other key employee of the
Company or any of its subsidiaries of any increase in compensation, except
for normal increases in the ordinary course of business consistent with
past practice or as required under any employment agreement in effect as
of the date of the most recent audited financial statements included in
the Filed SEC Documents, or (y) any granting by the Company or any of its
subsidiaries to any such executive officer or key employee of any increase
in severance or termination pay, except as was required under any
employment, severance or termination agreement in effect as of the date of
the most recent audited financial statements included in the Filed SEC
Documents, (v) any damage, destruction or loss, whether or not covered by
insurance, that has or could reasonably be expected to have a material
adverse effect on the Company, (vi) except insofar as may have been
disclosed in the Filed SEC Documents or required by a change in generally
accepted accounting principles, any change in accounting methods,
principles or practices by the Company materially affecting its assets,
liabilities or business or (vii) any other action taken which would have
constituted a breach of Section 4.01(a) (other than Section 4.01(a)(iii))
had it been in effect.
(h) Litigation. Except as disclosed in the Filed SEC Documents,
there is no suit, action or proceeding pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its
subsidiaries that individually or in the aggregate could reasonably be
expected to (i) have a material adverse effect on the Company, (ii) impair
the ability of the Company to perform its obligations under this Agreement
in any material respect or (iii) delay in any material respect or prevent
the consummation of any of the transactions contemplated by this Agreement
or the Company Stockholder Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against the Company or any of its subsidiaries having, or
which, insofar as reasonably can be foreseen, in the
<PAGE>
18
future would have, any effect referred to in clause (i), (ii) or (iii)
above.
(i) Absence of Changes in Benefit Plans. Except as disclosed in the
Filed SEC Documents, since the date of the most recent audited financial
statements included in the Filed SEC Documents, there has not been any
adoption or amendment in any material respect by the Company or any of its
subsidiaries of any collective bargaining agreement or any bonus, pension,
profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical
or other plan, arrangement or understanding (whether or not legally
binding) providing benefits to any current or former employee, officer or
director of the Company or any of its subsidiaries (collectively, "Benefit
Plans"). Without limiting the foregoing, except as disclosed in the Filed
SEC Documents, since the date of the most recent audited financial
statements included in the Filed SEC Documents, there has not been any
change in any actuarial or other assumption used to calculate funding
obligations with respect to any Pension Plan (as defined below), or in the
manner in which contributions to any Pension Plan are made or the basis on
which such contributions are determined. Except as disclosed in the Filed
SEC Documents, there exist no employment, consulting, severance,
termination or indemnification agreements, arrangements or understandings
between the Company or any of its subsidiaries and any current or former
employee, officer or director of the Company or any of its subsidiaries.
(j) ERISA Compliance. (i) The Company Disclosure Schedule contains a
list of each "employee pension benefit plan" (as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (a "Pension Plan"), each "employee welfare benefit plan" (as
defined in Section 3(1) of ERISA) (a "Welfare Plan"), and each other plan
arrangement or policy (written or oral) relating to stock options, stock
purchases, compensation, deferred compensation, severance, fringe benefits
or other employee benefits, in each case maintained, contributed to or
required to be maintained or contributed to by the Company, any of its
subsidiaries or any other
<PAGE>
19
person or entity that, together with the Company, is treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code (each, a
"Commonly Controlled Entity") which is currently in effect for the benefit
of any current or former employees, agents, officers, directors or
independent contractors of the Company or any of its subsidiaries
(collectively, "Benefit Plans"). None of the Benefit Plans, other than any
Benefit Plan that is a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA (a "Multiemployer Plan"), are subject to Title IV of
ERISA. No Commonly Controlled Entity has, within the past five years prior
to the date of this Agreement, maintained or contributed to a plan which
was subject to Title IV of ERISA other than a Multiemployer Plan. The
Company has delivered (or will deliver as soon as practicable after the
date of execution of this Agreement) to Parent true, complete and correct
copies of (w) each Benefit Plan (or, in the case of unwritten Benefit
Plans, descriptions thereof), (x) the two most recent annual reports on
Form 5500 filed with the Internal Revenue Service with respect to each
Benefit Plan (if any such report was required), (y) the most recent
summary plan description for each Benefit Plan for which such summary plan
description is required and (z) each currently effective trust agreement,
insurance or group annuity contract and each other funding or financing
arrangement relating to any Benefit Plan.
(ii) Each Benefit Plan has been administered in material compliance
with its terms, the applicable provisions of ERISA, the Code and all other
applicable laws and the terms of all applicable collective bargaining
agreements. The Company has not received notice of any investigations by
any governmental agency, termination proceedings or other claims (except
routine claims for benefits payable under the Benefit Plans), suits or
proceedings against any Benefit Plan or asserting any rights or claims to
benefits under any Benefit Plan.
(iii) Each Pension Plan that is intended to be a tax-qualified plan
has been the subject of a determination letter from the Internal Revenue
Service to the effect that such Pension Plan and related trust is
qualified and exempt from Federal income taxes under Sections 401(a) and
501(a), respectively, of the Code; no such determination letter has been
revoked, and, to
<PAGE>
20
the best knowledge of the Company, revocation has not been threatened; and
such Pension Plan has not been amended since the effective date of its
most recent determination letter in any respect that would adversely
affect its qualification. The Company has delivered (or will deliver as
soon as practicable after the date of this Agreement) to Parent a copy of
the most recent determination letter received with respect to each Pension
Plan for which such a letter has been issued, as well as a copy of any
pending application for a determination letter. No event has occurred that
could subject any Pension Plan to tax under Section 511 of the Code.
(iv) (1) Neither the Company nor any of its subsidiaries has engaged
in a "prohibited transaction" (as defined in Section 4975 of the Code or
Section 406 of ERISA) that involves the assets of any Benefit Plan that is
reasonably likely to subject the Company, any of its subsidiaries, any
employee of the Company or its subsidiaries or, to the best knowledge of
the Company, a non-employee trustee, non-employee administrator or other
non-employee fiduciary of any trust created under any Benefit Plan to the
tax or penalty on prohibited transactions imposed by Section 4975 of the
Code; and (2) none of the Company, any of its subsidiaries or, to the best
knowledge of the Company, any non-employee trustee, non-employee
administrator or other non-employee fiduciary of any Benefit Plan has
breached the fiduciary duty provisions of ERISA or any other applicable
law.
(v) No Commonly Controlled Entity has incurred any liability to a
Pension Plan (other than for contributions not yet due to a Defined
Benefit Plan and other than for the payment of premiums to the Pension
Benefit Guaranty Corporation not yet due), which liability, to the extent
currently due, has not been fully paid as of the date hereof or has not
been accrued on the Company's financial statements.
(vi) No Commonly Controlled Entity has announced an intention to
withdraw, but has not yet completed withdrawal, from a Multiemployer Plan;
and no action has been taken by any Commonly Controlled Entity to withdraw
from a Multiemployer Plan. The Company Disclosure Schedule also lists for
each Benefit Plan that is a Multiemployer Plan either the Company's best
estimate of the amount of withdrawal liability that
<PAGE>
21
would be incurred if each Commonly Controlled Entity were to make a
complete withdrawal from such plan as of the Closing Date and the amount
of "unfunded vested benefits" (within the meaning of Section 4211 of
ERISA) as of the end of the most recently completed plan year and as of
the date of this Agreement or a statement of the number of employees of
the Company and its Commonly Controlled Entities who are currently
eligible to participate therein.
(vii) No Commonly Controlled Entity has withdrawn from any
Multiemployer Plan where such withdrawal has resulted in any "withdrawal
liability" (as defined in Section 4201 of ERISA) for which any Commonly
Controlled Entity has any liability which has not been fully paid.
(viii) Except as specifically provided in this Agreement, no
employee of the Company or any of its subsidiaries will be entitled to any
additional benefits or any acceleration of the time of payment or vesting
of any benefits under any Benefit Plan or under any employment, severance,
termination or compensation agreement or as a result of the transactions
contemplated by this Agreement.
(ix) Except as provided in this Agreement, no compensation payable
by the Company or any of its subsidiaries to any of their employees under
any existing contract, Benefit Plan or other employment arrangement or
understanding would be subject to disallowance under Section 162(m) of the
Code.
(k) Taxes. (i) The Company, each subsidiary of the Company, and each
consolidated, combined or affiliated group of which the Company or any
subsidiary of the Company is or has been a member, each has timely filed
or caused to be filed, with the appropriate Taxing Authorities (as defined
in Section 8.03), within the time and in the manner prescribed by law, all
material consolidated and separate Tax Returns (as defined in Section
8.03) required to be filed by or on behalf of it and each such Tax Return
was complete and correct in all material respects at the time of filing.
(ii) All material Taxes (as defined in Section 8.03) required
to be shown on a consolidated or separate Tax return of the Company and
each subsidiary
<PAGE>
22
of the Company (collectively, "Covered Taxes") have been duly and timely
paid.
(iii) No Liens for Taxes exist with respect to any assets or
properties of the Company or any subsidiary of the Company, except for
statutory Liens for Taxes not yet due.
(iv) No material Tax Returns with respect to Covered Taxes are
under audit or examination by any Taxing Authority, and no written or
unwritten notice of such an audit or examination has been received by the
Company or any affiliate (as defined in Section 8.03) of the Company. Each
material deficiency resulting from any audit or examination relating to
Covered Taxes by any Taxing Authority has been paid, except for
deficiencies being contested in good faith. No material issues were raised
in writing by the relevant Taxing Authority during any audit or
examination relating to Covered Taxes, and no issues relating to Covered
Taxes which could reasonably be expected to have a material adverse effect
on the Company during a Post-Closing Tax Period (as defined in Section
8.03) were raised in writing by any Taxing Authority during any audit or
examination relating to other Taxes of the Company or any affiliate of the
Company.
(v) The Company Disclosure Schedule lists each state, county,
local, municipal or foreign jurisdiction in which the Company or any
subsidiary of the Company files, has ever filed, is required to file or
has been required to file a material Tax Return (other than a Tax Return
with respect to which the applicable statute of limitations has expired).
(vi) There is no agreement or other document extending, or
having the effect of extending, the period of assessment or collection of
any material amount of Covered Taxes and no power of attorney with respect
to any material amount of Covered Taxes has been executed or filed with
any Taxing Authority.
(vii) The Company Disclosure Schedule lists each non-federal
consolidated, combined, unitary or affiliated group for purposes of filing
Tax Returns or paying Taxes of which the Company or any subsidiary of the
Company is or has been a member, the jurisdiction in which such
consolidated, combined, unitary or
<PAGE>
23
affiliated group has filed or has been required to file a Tax Return that
includes the Company or any subsidiary of the Company, or the income,
assets or activities of any subsidiary of the Company, and the parent
corporation and/or other person that is or was responsible for filing such
Tax Returns.
(viii) Each subsidiary of the Company has been included as a
member of the consolidated group, within the meaning of Treas. Reg.
Section 1.1502-1(h), of which the Company is the common parent for
purposes of filing Federal tax returns for such consolidated group.
(ix) Neither the Company nor any subsidiary of the Company
shall be required to include in a Post-Closing Tax Period a material
amount of taxable income attributable to income that accrued in a
Pre-Closing Tax Period but was not recognized in any Pre-Closing Tax
Period as a result of the installment method of accounting, the completed
contract method of accounting, the long-term contract method of
accounting, the cash method of accounting or Section 481 of the Code or
comparable provisions of state, local or foreign Tax law.
(l) No Excess Parachute Payments. Except as provided in this
Agreement, any amount that could be received (whether in cash or property
or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer, director or
independent contractor of Company or any of its affiliates who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or
termination agreement, other compensation arrangement or Benefit Plan
currently in effect would not be characterized as an "excess parachute
payment" (as such term is defined in Section 280G(b)(1) of the Code).
(m) Voting Requirements. The affirmative vote of the holders of a
majority of the outstanding shares of the Company Common Stock and, to the
extent required under applicable law, the Company Class B Common Stock
(voting as a separate class) at the Company Stockholders Meeting (the
"Company Stockholder Approval") is the only vote of the holders of any
class or series of the Company's capital stock necessary to
<PAGE>
24
approve and adopt this Agreement and the transactions contemplated by this
Agreement.
(n) State Takeover Statutes. The Board of Directors of the Company
has approved the terms of this Agreement and the Company Stockholder
Agreement and the consummation of the Merger and the other transactions
contemplated by this Agreement and the Company Stockholder Agreement, and
such approval is sufficient to render inapplicable to the Merger and the
other transactions contemplated by this Agreement and the Company
Stockholder Agreement the provisions of Section 203 of the DGCL. To the
best of the Company's knowledge, no other state takeover statute or
similar statute or regulation applies or purports to apply to the Merger,
this Agreement, the Company Stockholder Agreement or any of the
transactions contemplated by this Agreement or the Company Stockholder
Agreement and no provision of the certificate of incorporation, by-laws or
other governing instruments of the Company or any of its subsidiaries
would, directly or indirectly, restrict or impair the ability of Parent or
any of its subsidiaries to vote, or otherwise to exercise the rights of a
stockholder with respect to, shares of the Company and its subsidiaries
that may be acquired or controlled directly or indirectly by Parent.
(o) Labor Matters. Neither the Company nor any of its subsidiaries
is the subject of any suit, action or proceeding which is pending or, to
the best knowledge of the Company, threatened, asserting that the Company
or any of its subsidiaries has committed an unfair labor practice (within
the meaning of the National Labor Relations Act or applicable state
statutes) or seeking to compel the Company or any of its subsidiaries to
bargain with any labor organization as to wages and conditions of
employment, in any such case, that is reasonably expected to result in a
material liability of the Company and its subsidiaries. No strike or other
labor dispute involving the Company or any of its subsidiaries is pending
or, to the best knowledge of the Company, threatened, except for any such
actual or threatened strike or other labor dispute arising after the date
of this Agreement which, individually or in the aggregate, would not have
a material adverse effect on the Company. To the best knowledge of the
Company, there is no activity
<PAGE>
25
involving any employees of the Company or any of its subsidiaries seeking
to certify a collective bargaining unit or engaging in any other
organizational activity, except for any such activity which would not have
a material adverse effect on the Company.
(p) Brokers. No broker, investment banker, financial advisor or
other person, other than Morgan Stanley & Co. Incorporated, the fees and
expenses of which will be paid by the Company, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement or the
Stockholder Agreements based upon arrangements made by or on behalf of the
Company or any of its subsidiaries. The Company has furnished to Parent
true and complete copies of all agreements under which any such fees or
expenses may be payable and all indemnification and other agreements
related to the engagement of the persons to whom such fees may be payable.
(q) Opinion of Financial Advisor. The Company has received the
opinion of Morgan Stanley & Co. Incorporated, dated the date of this
Agreement, to the effect that, as of such date, the Merger Consideration
is fair to the Company's stockholders from a financial point of view, a
photocopy of which signed opinion has been delivered to Parent.
(r) Compliance with Applicable Laws. (i) Each of the Company and
each of its subsidiaries has in effect all Federal, state and local
governmental approvals, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights ("Permits") necessary for it to own,
lease or operate its properties and assets and to carry on its business as
now conducted, and there has occurred no default under any such Permit,
except for the lack of Permits and for defaults under Permits which lack
or default could not, individually or in the aggregate, reasonably be
expected to result in a material adverse effect on the Company. Except as
disclosed in the Filed SEC Documents, each of the Company and each of its
subsidiaries are in compliance with all applicable statutes, laws,
ordinances, rules, regulations, judgments, decrees and orders of any
Governmental Entity, except for possible noncompliance that could not,
individually or in the aggregate, reasonably be
<PAGE>
26
expected to result in a material adverse effect on the Company.
(ii) Each of the Company and each of its subsidiaries is in
compliance with all applicable Gaming Laws, except for possible
noncompliance that could not, individually or in the aggregate, reasonably
be expected to result in a material adverse effect on the Company. The
term "Gaming Laws" means, with respect to any person, any Federal, state
or local statute, law, ordinance, rule, regulation, permit, consent,
approval, license, judgment, order, decree, injunction or other
authorization governing or relating to the current or contemplated casino
and gaming activities and operations of such person and its subsidiaries,
including the New Jersey Casino Control Act and the rules and regulations
promulgated thereunder.
(iii) Neither the Company nor any subsidiary of the Company nor any
director or officer of the Company or any subsidiary of the Company has
received any written claim, demand, notice, complaint, court order or
administrative order from any Governmental Entity since May 3, 1994 (the
"Consummation Date"), asserting that a license of it or them, as
applicable, under any Gaming Laws should be revoked or suspended.
(iv) Each of the Company and its subsidiaries is, and has been, and
each of the Company's former subsidiaries, while a subsidiary of the
Company, was in compliance with all applicable Environmental Laws, except
for possible noncompliance that could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
Company. The term "Environmental Laws" means any Federal, state, local or
foreign statute, ordinance, rule, regulation, permit, consent, approval,
license, judgment, order, decree, injunction or authorization relating to:
(A) Releases (as defined in 42 U.S.C. ss. 9601(22)) or threatened Releases
of Hazardous Materials (as hereinafter defined) into the natural
environment or workplace, (B) the generation, treatment, storage,
disposal, use, handling, management, manufacturing, transportation or
shipment of, or exposure to, a Hazardous Material or (C) the preservation
of, or the encroachment on, the natural environment (including the Federal
Water Pollution Control Act, the New Jersey
<PAGE>
27
Freshwater Wetlands Act and the New Jersey Coastal Area Facilities Review
Act).
(v) Neither the Company nor any subsidiary of the Company has
received any claim, demand, notice, complaint, court order, administrative
order or request for information from any Governmental Entity or private
party in the past five years, alleging violation of, or asserting any
noncompliance with or liability under or potential liability under, any
Environmental Laws which violation, noncompliance or liability could,
individually or in the aggregate, reasonably be expected to result in a
material adverse effect on the Company.
(vi) During the period of ownership or operation by the Company and
its subsidiaries of any of their current or previously owned or leased
properties, there have been no Releases of Hazardous Materials in, on,
under or affecting such properties and none of the Company or its
subsidiaries have disposed of any Hazardous Materials or any other
substance in a manner that has led, or could reasonably be anticipated to
lead to a Release except in each case for those Releases which
individually or in the aggregate are not reasonably likely to have a
material adverse effect on the Company. Prior to the period of ownership
or operation by the Company and its subsidiaries of any of their
respective current or previously owned or leased properties, to the best
knowledge of the Company, no Hazardous Materials were generated, treated,
stored, disposed of, used, handled, managed or manufactured at or
transported, shipped or disposed of from, such current or previously owned
or leased properties, and there were no Releases of Hazardous Materials
in, on, under or affecting any such property or any surrounding site,
except in each case for those actions or omissions which individually or
in the aggregate would not be reasonably likely to have a material adverse
effect on the Company. The term "Hazardous Material" means (1) hazardous
or toxic substances or wastes as defined under any Environmental Law, (2)
petroleum, including crude oil and any fractions thereof, (3) natural gas,
synthetic gas and any mixtures thereof, (4) asbestos and/or
asbestos-containing material or (5) polychlorinated biphenyls (PCBs) or
materials containing PCBs and any material regulated as a medical waste or
infectious waste.
<PAGE>
28
(vii) To the Company's knowledge, there are no underground storage
tanks or asbestos-containing materials located in, at or under any of the
facilities or real property owned, leased or operated by the Company or
any subsidiary of the Company, the presence of which could, individually
or in the aggregate, reasonably be expected to result in a material
adverse effect on the Company.
(viii) The Company Disclosure Schedule identifies the most current
environmental audits, assessments or studies completed within the last
five years that are in the possession of the Company or any subsidiary of
the Company with respect to the material facilities or real property
owned, leased or operated by the Company or any subsidiary of the Company.
The Company has furnished to Parent complete and correct copies of all
such audits, assessments and studies.
(s) Contracts; Debt Instruments. (i) Except for this Agreement and
as disclosed in the Filed SEC Documents, there are no contracts or
agreements that are material to the business, properties, assets,
condition (financial or otherwise), results of operations or prospects of
the Company and its subsidiaries taken as a whole. Neither the Company nor
any of its subsidiaries is in violation of or in default under (nor does
there exist any condition which upon the passage of time or the giving of
notice would cause such a violation of or default under) any loan or
credit agreement, note, bond, mortgage, indenture, lease, permit,
concession, franchise, license or any other contract, agreement,
arrangement or understanding to which it is a party or by which it or any
of its properties or assets is bound, except for violations or defaults
that could not, individually or in the aggregate, reasonably be expected
to result in a material adverse effect on the Company.
(ii) Set forth on the Company Disclosure Schedule is (x) a list of
all loan or credit agreements, notes, bonds, mortgages, indentures and
other agreements and instruments pursuant to which any indebtedness of the
Company or any of its subsidiaries in an aggregate principal amount in
excess of $1,000,000 is outstanding or may be incurred and (y) the
respective principal amounts currently outstanding thereunder. For
purposes of this Agreement, "indebtedness" shall mean, with
<PAGE>
29
respect to any person, without duplication, (A) all obligations of such
person for borrowed money, or with respect to deposits or advances of any
kind to such person, or upon which interest charges are customarily paid,
(B) all obligations of such person evidenced by bonds, debentures, notes
or similar instruments, (C) all obligations of such person under
conditional sale or other title retention agreements relating to property
purchased by such person, (D) all obligations of such person issued or
assumed as the deferred purchase price of property or services (excluding
obligations of such person to creditors for materials, inventory, services
and supplies incurred in the ordinary course of such person's business),
(E) all capitalized lease obligations of such person, (F) all obligations
of others secured by any Lien on property or assets owned or acquired by
such person, whether or not the obligations secured thereby have been
assumed, (G) all obligations of such person under interest rate or
currency hedging transactions (valued at the termination value thereof),
(H) all letters of credit issued for the account of such person and (I)
all guarantees and arrangements having the economic effect of a guarantee
of such person of any indebtedness of any other person.
(t) Intellectual Property. The Company and its subsidiaries own, or
are validly licensed or otherwise have the right to use, all patents,
patent rights, trademarks, trademark rights, trade names, trade name
rights, service marks, service mark rights, copyrights and other
proprietary intellectual property rights and computer programs
(collectively, "Intellectual Property Rights") which are material to the
conduct of the business of the Company or any of its subsidiaries. The
Company Disclosure Schedule sets forth a description of all Intellectual
Property Rights which are material to the conduct of the business of the
Company or any of its subsidiaries. Except as set forth in the Company
Disclosure Schedule, no claims are pending or, to the knowledge of the
Company, threatened that the Company or any of its subsidiaries is
infringing or otherwise adversely affecting the rights of any person with
regard to any Intellectual Property Right. To the knowledge of the
Company, except as set forth in the Company Disclosure Schedule, no person
is infringing the rights of the Company or any of its
<PAGE>
30
subsidiaries with respect to any Intellectual Property Right.
(u) Title to Properties; Assets Other than Real Property Interests.
(i) The Company Disclosure Schedule sets forth a complete list of all real
property and interests in real property owned or leased by the Company or
any of its subsidiaries and indicates whether such property is owned or
leased (each such owned property, an "Owned Property" and each such leased
property, a "Leased Property", and collectively, the "Real Property").
Except as set forth in the Company Disclosure Schedule, the Company or one
of its subsidiaries has good and marketable title to each Owned Property,
or a valid leasehold interest in each Leased Property, in each case free
and clear of all liens (as defined in Section 8.03), except for easements,
covenants, or restrictions of record that, individually or in the
aggregate, do not and will not materially interfere with its ability to
conduct its business at such Real Property as currently conducted. Except
as set forth in the Company Disclosure Schedule, each of the lessors
(under each such lease) and the Company or its subsidiary, as the case may
be has complied in all respects with the terms of all leases relating to
the Leased Property, except for any such noncompliance that, individually
or in the aggregate, does not and will not materially interfere with its
ability to conduct its business at such Leased Property as currently
conducted, and there are no defaults thereunder, or conditions that if
left unchanged could result in a default thereunder, and all such leases
are in full force and effect. The Company enjoys peaceful and undisturbed
possession under all such leases.
(ii) Each of the Company and each of its subsidiaries has good and
valid title to all its properties and assets, in each case free and clear
of all Liens, except (A) mechanics', carriers', workmen's, repairmen's or
other similar Liens arising or incurred in the ordinary course of
business, (B) Liens arising under conditional sales contracts and
equipment leases with third parties entered into in the ordinary course of
business, (C) Liens for taxes which are not due and payable or which may
thereafter be paid without penalty, (D) Liens which secure debt that is
reflected as a liability on the balance sheet of the Company and its
consolidated subsidiaries as of June 30, 1996,
<PAGE>
31
contained in the Filed SEC Documents and the existence of which is
indicated in the notes thereto and (E) other imperfections of title or
encumbrances, if any, which do not, individually or in the aggregate,
materially impair the continued use and operation of the assets to which
they relate in the business of the Company and its subsidiaries. This
paragraph (ii) does not relate to Real Property or interests in Real
Property, such items being the subject of paragraph (i) above.
(v) Insurance. Since the Consummation Date, the Company and its
subsidiaries have obtained and maintained in full force and effect
insurance with responsible and reputable insurance companies or
associations in such amounts, on such terms and covering such risks,
including fire and other risks insured against by extended coverage, as is
reasonably prudent, and since the Consummation Date each has maintained in
full force and effect public liability insurance, insurance against claims
for personal injury or death or property damage occurring in connection
with any of the activities of the Company or its subsidiaries or any of
any properties owned, occupied or controlled by the Company or its
subsidiaries, in such amount as reasonably deemed necessary by the Company
or its subsidiaries.
(w) Additional Real Estate Representations. (i) The occupancies and
uses of the Real Property identified as "Material Real Property" in
Section 3.01(w) of the Company Disclosure Schedule (the "Material Real
Property"), as well as the development, construction, management,
maintenance, servicing and operation of such Real Property, comply in all
material respects with all applicable laws, ordinances, rules,
regulations, orders and requirements of all Governmental Entities having
jurisdiction and are not in violation of any thereof in any manner
reasonably likely, individually or in the aggregate, to have a material
adverse effect on the use, value or operation of the Real Property to
which it relates; and the certificate(s) of occupancy, if required by
applicable law, and all other licenses and permits required by law for the
proper use and operation of such Real Property are in full force and
effect. All approvals, consents, permits, utility installations and
connections, curb cuts and street openings required for the development,
<PAGE>
32
construction, maintenance, operation and servicing of the Material Real
Property as currently used by the Company have been granted, effected, or
performed and completed (as the case may be), and all fees and charges
therefor have been fully paid. Neither the Company nor any subsidiary of
the Company has received written notice of any violations, suits, orders,
decrees or judgments relating to the violation of any applicable law,
ordinance, rule or regulation relating to zoning, building use and
occupancy, traffic, fire, health, sanitation, air pollution, ecological,
environmental or other laws or regulations, against, or with respect to,
the Material Real Property.
(ii) There is access between each Owned Property or Leased Property
and public roads adequate to serve the Company's current use of each such
Real Property and there are no pending or, to the Company's knowledge,
threatened proceedings that could have the effect of impairing or
restricting such access in any material respect. There are sufficient
parking spaces on Material Real Property as currently used to comply with
all applicable provisions of any agreements to which such Real Property is
subject, local zoning requirements and all other applicable laws and
governmental requirements. The material improvements upon the Material
Real Property contain no asbestos and the roof, foundation, sprinkler
mains, structural, mechanical and HVAC systems and masonry walls in any of
the material improvements upon the Material Real Property are in good
working condition and order and no significant repairs thereof are
required, and all periodic maintenance has been done and is being done
which is consistent with commercially reasonable maintenance standards for
real property of similar size and age in the vicinity of such Real
Property.
(iii) This Section 3.01(w) does not relate to Environmental Laws,
such items being the subject of Section 3.01(r) above.
SECTION 3.02. Representations and Warranties of Parent and Sub.
Except as set forth with respect to a specifically identified
representation and warranty on the Disclosure Schedule delivered by Parent
to the Company prior to the execution of this Agreement (the
<PAGE>
33
"Parent Disclosure Schedule"), Parent and Sub represent and warrant to the
Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and
Sub is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it was organized and has the
requisite corporate power and authority to carry on its business as now
being conducted. Each of Parent and Sub is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed or to be in
good standing individually or in the aggregate would not have a material
adverse effect on Parent. Parent has delivered to the Company complete and
correct copies of its Articles of Association and By-laws and the
Certificate of Incorporation and By-laws of Sub, in each case as amended
to the date hereof.
(b) Capital Structure. As of the date of this Agreement, the
authorized capital stock of Parent consists of 250,000,000 Ordinary Shares
and 100,000,000 preference shares, par value $.001 per share ("Preference
Shares"). At the close of business on August 15, 1996, (i) 29,051,842
Ordinary Shares were issued and outstanding, (ii) no Preference Shares
were issued and outstanding, (iii) no Ordinary Shares were held by Parent
in its treasury and (iv) 2,000,000 Ordinary Shares were reserved for
issuance pursuant to Parent's Stock Option Plan (the "Parent Stock Plan").
Except as set forth above, at the close of business on August 15, 1996, no
shares of capital stock or other voting securities of Parent were issued,
reserved for issuance or outstanding. All outstanding shares of capital
stock of Parent are, and all shares which may be issued pursuant to this
Agreement will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. As of the
date of this Agreement, there are no bonds, debentures, notes or other
indebtedness of Parent having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on
which shareholders of Parent may vote. Except as set forth above or as
otherwise contemplated by this Agreement, as of the date of this
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34
Agreement, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind
to which Parent is a party or by which it is bound obligating Parent to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of Parent or
obligating Parent to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. As of the date of this Agreement, there are no outstanding
contractual obligations of Parent to repurchase, redeem or otherwise
acquire any shares of capital stock of Parent. As of the date of this
Agreement, the authorized capital stock of Sub consists of 1,000 shares of
common stock, par value $.01 per share, 100 of which have been validly
issued, are fully paid and nonassessable and are owned by Parent free and
clear of any Lien.
(c) Authority; Noncontravention. Parent and Sub have all requisite
corporate power and authority to enter into this Agreement and, subject to
the Parent Shareholder Approval (as defined in Section 3.02(g)), to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement by Parent and Sub, as the case may be, have
been duly authorized by all necessary corporate action on the part of
Parent and Sub, subject, in the case of Parent, to the Parent Shareholder
Approval. This Agreement has been duly executed and delivered by Parent
and Sub and constitutes a valid and binding obligation of each such party,
enforceable against such party in accordance with its terms. The execution
and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or
result in the creation of any Lien upon any of the properties or assets of
Parent, Sub or any of Parent's other subsidiaries under, (i) the Articles
of Association or By-laws of Parent or the comparable charter or
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35
organizational documents of Sub or any such other subsidiary, (ii) subject
to the governmental filings and other matters referred to in the following
sentence, any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or
license applicable to Parent, Sub or such other subsidiary or any of their
respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent, Sub or such other subsidiary or any of their
respective properties or assets, other than, in the case of clauses (ii)
and (iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have a material adverse
effect on Parent, (y) impair the ability of Parent and Sub to perform
their respective obligations under this Agreement in any material respect
or (z) delay in any material respect or prevent the consummation of any of
the transactions contemplated by this Agreement or the Parent Stockholder
Agreement. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by Parent or Sub in connection with the execution and delivery of
this Agreement or the consummation by Parent or Sub, as the case may be,
of any of the transactions contemplated by this Agreement, except for (1)
the filing of a premerger notification and report form by Parent under the
HSR Act; (2) the filing with the SEC of the Form F-4 and the filing or
furnishing with or to the SEC of such reports under Section 13 of the
Exchange Act as may be required in connection with this Agreement, the
Stockholder Agreements and the transactions contemplated by this Agreement
and the Stockholder Agreements; (3) the approval by the New Jersey Casino
Control Commission under the New Jersey Casino Control Act and the rules
and regulations promulgated thereunder; (4) the filing of the Certificate
of Merger with the Delaware Secretary of State and appropriate documents
with the relevant authorities of other states in which the Company is
qualified to do business; (5) such filings with Governmental Entities as
may be required to satisfy the applicable requirements of state securities
or "blue sky" laws in connection with the transactions contemplated by
this Agreement; (6) such filings with
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36
and approvals of the NYSE and the ASE to permit the Ordinary Shares that
are to be issued in the Merger and under the Stock Plans to be listed on
the NYSE and the Units to continue to be listed on the ASE; (7) Form BE-13
and related forms to be filed with the U.S. Department of Commerce; and
(8) such filings and approvals as may be required solely by reason of the
Company's (as opposed to any third party's) participation in the
transactions contemplated by this Agreement.
(d) SEC Documents. Parent has filed all reports, schedules, forms,
statements and other documents required to be filed with the SEC since
January 1, 1995 (including any Reports on Form 6-K, the "Parent SEC
Documents"). As of their respective dates, the Parent SEC Documents
complied in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such Parent SEC Documents,
and none of the Parent SEC Documents when filed contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Except to the extent that information contained in any Parent SEC Document
has been revised or superseded by a later-filed Parent SEC Document, none
of the Parent SEC Documents contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Parent included in the Parent SEC Documents comply as to
form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by the rules
and regulations of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of Parent and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows
<PAGE>
37
for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). Except as set forth in the Filed
Parent SEC Documents (as defined in Section 3.02(f)), and except for
liabilities and obligations incurred since March 31, 1996, in the ordinary
course of business consistent with past practice, neither Parent nor any
of its subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by generally
accepted accounting principles to be recognized or disclosed on a
consolidated balance sheet of Parent and its consolidated subsidiaries or
in the notes thereto and which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on Parent.
(e) Information Supplied. None of the information supplied or to be
supplied by Parent or Sub specifically for inclusion or incorporation by
reference in (i) the Form F-4 will, at the time the Form F-4 is filed with
the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading,
or (ii) the Proxy Statement will, at the date the Proxy Statement is first
mailed to Company stockholders or at the time of the Company Stockholders
Meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they are made, not misleading. The Form F-4 will comply as to form in all
material respects with the requirements of the Securities Act and the
rules and regulations promulgated thereunder, except that no
representation or warranty is made by Parent or Sub with respect to
statements made or incorporated by reference in the Form F-4 based on
information supplied by the Company specifically for inclusion or
incorporation by reference therein.
(f) Absence of Certain Changes or Events. Except as disclosed in the
Parent SEC Documents filed (or furnished to the SEC) and publicly
available prior to the date of this Agreement (the "Filed Parent SEC
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38
Documents"), since the date of the most recent audited financial
statements included in the Filed Parent SEC Documents, Parent has
conducted its business only in the ordinary course, and there has not been
(i) any material adverse change in Parent, (ii) any split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or (iii) any
damage, destruction or loss, whether or not covered by insurance, that has
or is likely to have a material adverse effect on Parent.
(g) Voting Requirements. The affirmative vote at the Parent
Shareholders Meeting (as defined in Section 5.01(c)) of the holders of a
majority of the voting power of the outstanding Ordinary Shares entitled
to vote generally in an annual election of directors (the "Parent
Shareholder Approval") is the only vote of the holders of any class or
series of Parent's capital stock necessary to approve and adopt the
amendments to Parent's Articles of Association that are necessary to
comply with the New Jersey Casino Control Act and no other vote of holders
of any class or series of Parent's capital stock is necessary to approve
the transactions contemplated by this Agreement.
(h) Brokers. No broker, investment banker, financial advisor or
other person, other than Bear, Stearns & Co. Inc., the fees and expenses
of which will be paid by Parent, is entitled to any broker's, finders,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement or the Stockholder
Agreements based upon arrangements made by or on behalf of Parent or Sub.
(i) Interim Operations of Sub. Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby and has engaged in no
other business other than incident to its creation and this Agreement and
the transactions contemplated hereby.
(j) Permits. To the actual knowledge of Parent, there is no fact or
circumstance which would reasonably be expected to prevent or materially
delay the obtaining of any consent or approval by Parent which is
<PAGE>
39
required to be obtained by Parent in connection with this Agreement. The
Parent Disclosure Schedule identifies the filings made by Parent with the
New Jersey Casino Control Commission as of the date hereof in connection
with its licensing efforts in New Jersey.
(k) Litigation. Except as disclosed in the Filed Parent SEC
Documents, there is no suit, action or proceeding pending or, to the
knowledge of Parent, threatened against or affecting Parent or any of its
subsidiaries that individually or in the aggregate could reasonably be
expected to (i) have a material adverse effect on Parent, (ii) impair the
ability of Parent to perform its obligations under this Agreement in any
material respect or (iii) delay in any material respect or prevent the
consummation of any of the transactions contemplated by this Agreement or
the Parent Stockholder Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Parent or any of its subsidiaries having, or which,
insofar as reasonably can be foreseen, in the future would have, any
effect referred to in clause (i), (ii) or (iii) above.
(l) Compliance with Applicable Laws. (i) Each of Parent and each of
its subsidiaries has in effect all Permits necessary for it to own, lease
or operate its properties and assets and to carry on its business as now
conducted, and there has occurred no default under any such Permit, except
for the lack of Permits and for defaults under Permits which lack or
default could not, individually or in the aggregate, reasonably be
expected to result in a material adverse effect on Parent. Except as
disclosed in the Filed Parent SEC Documents, each of Parent and each of
its subsidiaries are in compliance with all applicable statutes, laws,
ordinances, rules, regulations, judgments, decrees and orders of any
Governmental Entity, except for possible noncompliance that could not,
individually or in the aggregate, reasonably be expected to result in a
material adverse effect on Parent.
(ii) Each of Parent and each of its subsidiaries is in compliance
with all applicable Gaming Laws, except for possible noncompliance that
could not, individually or in the aggregate, reasonably be
<PAGE>
40
expected to result in a material adverse effect on Parent.
(iii) Neither Parent nor any subsidiary of Parent nor any director
or officer of Parent or any subsidiary of Parent has received any written
claim, demand, notice, complaint, court order or administrative order from
any Governmental Entity since the Consummation Date, asserting that a
license of it or them, as applicable, under any Gaming Laws should be
revoked or suspended.
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01. Conduct of Business. (a) Conduct of Business by the
Company. During the period from the date of this Agreement to the Effective
Time, the Company shall, and shall cause its subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted and in compliance in all material
respects with all applicable laws and regulations and, to the extent consistent
therewith, use all reasonable efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers, licensors,
licensees and others having business dealings with them to the end that their
goodwill and ongoing businesses shall not be impaired at the Effective Time.
Without limiting the generality of the foregoing, during the period from the
date of this Agreement to the Effective Time without the prior consent of
Parent, the Company shall not, and shall not permit any of its subsidiaries to:
(i) (x) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than
dividends and distributions by a direct or indirect wholly owned
subsidiary of the Company to its parent, (y) split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (z) purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its subsidiaries or any other
securities thereof
<PAGE>
41
or any rights, warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities, including, subject to
Section 5.16, any of the Units that are owned by the Company or by any
subsidiary of the Company (other than the issuance of Company Common Stock
upon the exercise of Employee Stock Options outstanding on the date of
this Agreement and in accordance with their present terms);
(iii) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents;
(iv) acquire or agree to acquire (x) by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any
other manner, any business or any corporation, limited liability company,
partnership, joint venture, association or other business organization or
division thereof, or (y) any assets that individually or in the aggregate
are material to the Company and its subsidiaries taken as a whole;
(v) sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its properties or assets,
except in the ordinary course of business consistent with past practice;
(vi) (x) issue any additional Junior Mortgage Notes, (y) except as
set forth in Section 4.01(a) of the Company Disclosure Schedule, incur any
indebtedness or (z) make any loans, advances or capital contributions to,
or investments in, any other person, other than to the Company or any
direct or indirect wholly owned subsidiary of the Company;
(vii) make or agree to make any capital expenditure except for (A)
capital expenditures in respect of projects other than the Chalfonte
Project (as defined in Section 4.01(a) of the Company Disclosure Schedule)
as set forth in the Company's capital expenditure budget for 1996
delivered to Parent prior to the date
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42
of this Agreement, and in the case of capital expenditures for 1997, in
accordance with the Company's capital expenditure budget for 1997, which
shall be prepared on a reasonable basis consistent with such 1996 budget,
and (B) capital expenditures in respect of the Chalfonte Project (other
than the Chalfonte Garage (as defined in Section 5.18) and other than
capital expenditures for work completed on the Chalfonte Project prior to
the date of this Agreement but not yet paid for by the Company as set
forth in Section 4.01(a) of the Company Disclosure Schedule) during the
times and in the amounts set forth below:
(w) from September 1, to September 30, 1996, up to $900,000.00; (x)
from October 1, to October 31, 1996, up to $800,000.00; (y) from
November 1, to November 30, 1996, up to $700,000.00; from December
1, to December 31, 1996, up to $600,000.00; and during each calendar
month in 1997, up to $600,000.00;
(viii) make any material Tax election or settle or compromise any
material Tax liability;
(ix) except in the ordinary course of business or except as would
not reasonably be expected to have a material adverse effect on the
Company, modify, amend or terminate any material contract or agreement to
which the Company or any subsidiary is a party or waive, release or assign
any material rights or claims thereunder;
(x) pay, discharge or satisfy any claims, liabili ties or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of the Company included in the Filed SEC Documents or
incurred after the date of such financial statements in the ordinary
course of business consistent with past practice, or waive the benefits
of, or agree to modify in any manner, any confidentiality, standstill or
similar agreement to which the Company or any of its subsidiaries is a
party;
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43
(xi) make any material change to its accounting methods, principles
or practices, except as may be required by generally accepted accounting
principles; or
(xii) except as required to comply with applicable law and as
disclosed in Section 4.01(a) of the Company Disclosure Schedule, (v)
adopt, enter into, terminate or amend any Benefit Plan or other
arrangement for the benefit or welfare of any director, officer or current
or former employee, (w) increase in any manner the compensation or fringe
benefits of, or pay any bonus to, any director, officer or employee
(except for normal increases or bonuses in the ordinary course of business
consistent with past practice), (x) pay any benefit not provided for under
any Benefit Plan, (y) except as permitted in clause (w), grant any awards
under any bonus, incentive, performance or other compensation plan or
arrangement or Benefit Plan (including the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance
units or restricted stock, or the removal of existing restrictions in any
Benefit Plans or agreement or awards made thereunder) or (z) take any
action to fund or in any other way secure the payment of compensation or
benefits under any employee plan, agreement, contract or arrangement or
Benefit Plan); or
(xiii) authorize, or commit or agree to take, any of the foregoing
actions.
(b) Conduct of Business by Parent. During the period from the date of this
Agreement to the Effective Time, Parent shall not, and shall not permit any of
its subsidiaries to:
(i) (x) declare, set aside or pay any dividends on, or make any
other distributions in respect of, the Ordinary Shares or (y) split,
combine or reclassify the Ordinary Shares or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for the Ordinary Shares; or
(ii) authorize, or commit or agree to take, any of the foregoing
actions.
(c) Other Actions. The Company and Parent shall not, and shall not permit
any of their respective subsidiaries
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44
to, take any action that would, or that could reasonably be expected to, result
in (i) any of the representations and warranties of such party set forth in this
Agreement that are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect or (iii) any of the conditions set forth in Article VI not
being satisfied, except actions expressly permitted by Section 4.02 that could
have the effect specified in clause (iii) of this sentence.
(d) Advice of Changes. The Company and Parent shall promptly advise the
other party orally and in writing of (i) any representation or warranty made by
it contained in this Agreement that is qualified as to materiality becoming
untrue or inaccurate in any respect or any such representation or warranty that
is not so qualified becoming untrue or inaccurate in any material respect, (ii)
the failure by it to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement or (iii) any change or event having, or which, insofar as can
reasonably be foreseen, would have, a material adverse effect on such party and
its subsidiaries taken as a whole or on the truth of their respective
representations and warranties or the ability of the conditions set forth in
Article VI to be satisfied; provided, however, that no such notification shall
affect the representations, warranties, covenants or agreements of the parties
or the conditions to the obligations of the parties under this Agreement.
SECTION 4.02. No Solicitation. (a) The Company shall not, nor shall
it permit any of its subsidiaries to, nor shall it authorize or permit any
officer, director or employee of or any investment banker, attorney or other
advisor or representative of, the Company or any of its subsidiaries to, (i)
solicit, initiate or encourage the submission of any takeover proposal (as
defined in Section 8.03) or (ii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take any
other action to facilitate the making of any proposal that constitutes, or may
reasonably be expected to lead to, any takeover proposal; provided, however,
that if, at any time prior to the receipt of the Company Stockholder Approval,
in the opinion of the Board of Directors of the Company after consultation with
outside counsel, such failure to so act would be inconsistent with its fiduciary
duties to the Company's stockholders under
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45
applicable law, the Company may, in response to an unsolicited takeover
proposal, and subject to compliance with Section 4.02(c), (x) furnish
information with respect to the Company pursuant to a customary confidentiality
agreement to any person making such proposal and (y) participate in negotiations
regarding such proposal. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the preceding sentence by any
officer, director or employee of the Company or any of its subsidiaries, whether
or not such person is purporting to act on behalf of the Company or any of its
subsidiaries or otherwise, shall be deemed to be a breach of this Section
4.02(a) by the Company.
(b) Except as set forth in this Section 4.02(b), neither the Board
of Directors of the Company nor any committee thereof shall (x) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent or Sub,
the approval or recommendation by such Board of Directors or any such committee
of this Agreement or the Merger, (y) approve or recommend or propose to approve
or recommend, any takeover proposal or (z) enter into any agreement with respect
to any takeover proposal. Notwithstanding the foregoing, if in the opinion of
the Board of Directors of the Company, after consultation with outside counsel,
failure to do so would be inconsistent with its fiduciary duties to the
Company's stockholders under applicable law, the Board of Directors of the
Company may (subject to the terms of this and the following sentences) withdraw
or modify its approval or recommendation of this Agreement or the Merger,
approve or recommend a competitive proposal (as defined in Section 8.03), or
enter into an agreement with respect to a competitive proposal, in each case at
any time after the second business day following Parent's receipt of written
notice (a "Notice of Competitive Proposal") advising Parent that the Board of
Directors of the Company has received a competitive proposal, specifying the
material terms and conditions of such competitive proposal and identifying the
person making such competitive proposal; provided that the Company shall not
enter into an agreement with respect to a competitive proposal unless the
Company shall have furnished Parent with written notice no later than 12:00 noon
two business days in advance of any date that it intends to enter into such
agreement. In addition, if the Company proposes to enter into an agreement with
respect to any takeover proposal, it shall concurrently with entering into such
agreement pay, or cause to be paid, to
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46
Parent the Expenses and the Termination Fee (each as defined in Section
5.09(b)).
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 4.02, the Company promptly shall advise
Parent of any request for information or of any takeover proposal, the identity
of the person making any such request or takeover proposal and all the material
terms and conditions thereof. The Company will keep Parent fully informed of the
status and details (including amendments or proposed amendments) of any such
request or takeover proposal.
ARTICLE V
Additional Agreements
SECTION 5.01. Preparation of the Form F-4 and the Proxy Statement;
Stockholders Meetings. (a) As soon as practicable following the date of this
Agreement, the Company and Parent shall prepare and the Company shall file with
the SEC the Proxy Statement and Parent shall prepare and file with the SEC the
Form F-4, in which the Proxy Statement will be included as a prospectus. Each of
the Company and Parent shall use all reasonable efforts to have the Form F-4
declared effective under the Securities Act as promptly as practicable after
such filing. The Company will use all reasonable efforts to cause the Proxy
Statement to be mailed to the Company's stockholders, and Parent will use all
reasonable efforts to cause an appropriate proxy or information statement to be
mailed to Parent's shareholders, in each case as promptly as practicable after
the Form F-4 is declared effective under the Securities Act. Each of the Company
and Parent shall also take any action (other than qualifying to do business in
any jurisdiction in which it is not now so qualified or filing a general consent
to service of process) required to be taken under any applicable state
securities or "blue sky" laws in connection with the issuance of Ordinary Shares
in the Merger and under the Stock Plans and the Company shall furnish all
information concerning the Company and the holders of the Company Common Stock
and rights to acquire Company Common Stock pursuant to the Stock Plans as may be
reasonably requested in connection with any such action.
(b) The Company will, as soon as practicable following the date of
this Agreement, duly call, give notice
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47
of, convene and hold a meeting of its stockholders (the "Company Stockholders
Meeting") for the purpose of obtaining the Company Stockholder Approval. Without
limiting the generality of the foregoing, the Company agrees that its
obligations pursuant to the first sentence of this Section 5.01(b) shall not be
affected by the commencement, public proposal, public disclosure or
communication to the Company of any takeover proposal. The Company will, through
its Board of Directors, recommend to its stockholders the approval and adoption
of this Agreement and the transactions contemplated hereby, except to the extent
that the Board of Directors of the Company shall have withdrawn its
recommendation of this Agreement or the Merger as permitted by Section 4.02(b).
(c) Parent will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "Parent Shareholders Meeting") for the purpose of obtaining
the Parent Shareholder Approval. Parent will, through its Board of Directors,
recommend to its shareholders the approval and adoption of the amendments to its
Articles of Association to add such provisions as may be necessary to comply
with the New Jersey Casino Control Act as a result of consummation of the
transactions contemplated by this Agreement.
(d) The Company and Parent will use reasonable efforts to hold the
Company Stockholders Meeting and the Parent Stockholders Meeting as soon as
practicable after the date hereof.
(e) As of the date which is two business days prior to the date on
which the Form F-4 is to become effective under the Securities Act, if Parent
and the Company shall have reasonably concluded, based upon the advice of their
respective proxy solicitation firms and other relevant facts and circumstances,
that it is reasonably likely that any approval of the holders of Company Class B
Common Stock that may be required under applicable law in connection with the
transactions contemplated by this Agreement will not be obtained at the Company
Stockholders Meeting, then, at the written request of the Company delivered to
Parent on such date, Parent shall exercise the DD Option; provided, that Parent
shall not be obligated to exercise the DD Option if it is reasonably likely that
such exercise would result in a material adverse effect on Parent.
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48
SECTION 5.02. Letters of the Company's Accountants. The Company
shall use all reasonable efforts to cause to be delivered to Parent a letter of
Ernst & Young LLP, the Company's independent public accountants, dated a date
within two business days before the date on which the Form F-4 shall become
effective and a letter of Ernst & Young LLP dated a date within two business
days before the Closing Date, each addressed to Parent, in form and substance
reasonably satisfactory to Parent and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Form F-4.
SECTION 5.03. Letters of Parent's Accountants. Parent shall use all
reasonable efforts to cause to be delivered to the Company letters of Arthur
Andersen, LLP, Arthur Andersen, chartered accountants, and Ernst & Young LLP,
Parent's independent public accountants for the relevant periods prior to the
date hereof, dated a date within two business days before the date on which the
Form F-4 shall become effective and letters of Arthur Andersen, LLP, Arthur
Andersen, chartered accountants and Ernst & Young LLP dated a date within two
business days before the Closing Date, each addressed to the Company, in form
and substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Form F-4.
SECTION 5.04. Access to Information; Confidentiality. Subject to the
Confidentiality Agreement (as defined below), the Company shall, and shall cause
each of its subsidiaries to, afford to Parent and to the officers, employees,
accountants, counsel, financial advisors and other representatives of Parent,
reasonable access during normal business hours during the period prior to the
Effective Time to all their properties, books, contracts, commitments, personnel
and records and, during such period, the Company shall, and shall cause each of
its subsidiaries to, furnish promptly to Parent (a) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of Federal or state securities laws and (b)
all other information concerning its business, properties and personnel as
Parent may reasonably request. Parent will hold, and will cause officers,
employees, accountants, counsel, financial advisors and other representatives
and affiliates to hold, any nonpublic information in accordance
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49
with the terms of the Confidentiality Agreement dated as of August 9, 1996,
between Parent and the Company (the "Confidentiality Agreement").
SECTION 5.05. Reasonable Efforts. (a) Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties agrees to use
all reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement and the Stockholder Agreements, including (i) in
the case of Parent, (1) the obtaining of all necessary approvals by the New
Jersey Casino Control Commission under the New Jersey Casino Control Act and the
rules and regulations promulgated thereunder required in connection with the
Merger and this Agreement, (2) promptly filing a petition requesting "Interim
Casino Authorization" pursuant to NJSA 5:12-95.12 et seq. (the "ICA Petition"),
and (3) not withdrawing the ICA Petition or Parent's and Sub's application to
the New Jersey Casino Control Commission for a permanent license under the New
Jersey Casino Control Act, (ii) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from other Governmental Entities and
the making of all necessary registrations and filings (including filings with
Governmental Entities, such as those referred to in Sections 3.01(d)(1)-(8) and
3.02(c)(1)-(8)) and the taking of all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (iii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iv) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the Stockholder Agreements or the consummation of the transactions contemplated
by this Agreement or the Stockholder Agreements, including seeking to have any
stay or temporary restraining order entered by any court or other Governmental
Entity vacated or reversed, and (v) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement and the Stockholder Agreements;
provided, however, that a party shall not be obligated to take any action
pursuant to the foregoing if the taking of such action or the obtaining of any
waiver, consent, approval or exemption is reasonably likely (x) to be materially
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50
burdensome to such party and its subsidiaries taken as a whole or to impact in a
materially adverse manner the economic or business benefits of the transactions
contemplated by this Agreement or the Stockholder Agreements so as to render
inadvisable the consummation of the Merger or (y) in the case of Parent, to
result in the imposition of a condition or restriction of the type referred to
in clause (ii), (iii), (iv) or (v) of Section 6.02(d);
(b) In connection with and without limiting the foregoing, the
Company and its Board of Directors shall (i) take all action necessary to ensure
that no state takeover statute or similar statute or regulation is or becomes
applicable to the Merger, this Agreement, the Company Stockholder Agreement or
any of the other transactions contemplated by this Agreement or the Company
Stockholder Agreement and (ii) if any state takeover statute or similar statute
or regulation becomes applicable to the Merger, this Agreement, the Company
Stockholder Agreement or any other transaction contemplated by this Agreement or
the Company Stockholder Agreement, take all action necessary to ensure that the
Merger and the other transactions contemplated by this Agreement and the
Stockholder Agreements may be consummated as promptly as practicable on the
terms contemplated by this Agreement and the Stockholder Agreements and
otherwise to minimize the effect of such statute or regulation on the Merger and
the other transactions contemplated by this Agreement and the Company
Stockholder Agreement.
SECTION 5.06. Stock Options; Warrants. (a) As soon as practicable
following the date of this Agreement, the Board of Directors of the Company (or,
if appropriate, any committee administering the Stock Plans) shall adopt such
resolutions or take such other actions as may be required to effect the
following:
(i) adjust the terms of all outstanding (x) employee and director
stock options to purchase shares of Company Common Stock ("Employee Stock
Options") granted under the Company's Stock Option Plan, as amended and
restated through the date hereof, (the "Stock Plans") whether vested or
unvested, as necessary to provide that, at the Effective Time, each
Employee Stock Option outstanding immediately prior to the Effective Time
shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Employee Stock Option,
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51
including vesting (and, where applicable under the terms of such Employee
Stock Option, accelerated vesting) and the rights of the holder under the
terms of such Employee Stock Option, the same number of Ordinary Shares as
the holder of such Employee Stock Option would have been entitled to
receive pursuant to the Merger had such holder exercised such Employee
Stock Option in full immediately prior to the Effective Time (the "Deemed
Parent Share Amount"), at a price per Ordinary Share equal to (A) the
aggregate exercise price for the shares of Company Common Stock otherwise
purchasable pursuant to such Employee Stock Option divided by (B) the
aggregate Deemed Parent Share Amount with respect to such Employee Stock
Option (each, as so adjusted, an "Adjusted Option"); provided, however,
that in the case of any option to which Section 421 of the Code applies by
reason of its qualification under any of Sections 422 through 424 of the
Code ("qualified stock options"), the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of
exercise of such option shall be determined in order to comply with
Section 424 of the Code; and
(ii) subject to the consent of Parent, such consent not to be
unreasonably withheld, make such other changes to the Stock Plans as the
Company and Parent may determine appropriate to give effect to the Merger.
(b) The provisions in the Stock Plans and any other Benefit Plan
providing for the issuance, transfer or grant of any capital stock of the
Company or any interest in respect of any capital stock of the Company shall be
deleted as of the Effective Time, and the Company shall use its best efforts to
ensure that following the Effective Time no holder of an Employee Stock Option
or any participant in any Stock Plan shall have any right thereunder to acquire
any capital stock of the Company or Parent, except as provided in Section
5.06(a).
(c) As soon as practicable after the Effective Time, Parent shall
deliver to the holders of Employee Stock Options appropriate notices setting
forth such holders' rights pursuant to the respective Stock Plans and the
agreements evidencing the grants of such Employee Stock Options shall continue
in effect on the same terms and conditions (subject to the adjustments required
by this Section 5.06 after giving effect to the Merger and the
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52
provisions of paragraphs (a)(ii) and (f) of this Section 5.06). Parent shall
comply with the terms of the Stock Plans and ensure, to the extent required by,
and subject to the provisions of, the Stock Plans, that the Employee Stock
Options which qualified as qualified stock options prior to the Effective Time
continue to qualify as qualified stock options after the Effective Time.
(d) Parent shall take such actions as are reasonably necessary for
the assumption of the Stock Plans of the Company pursuant to Section 5.06(a),
including the reservation, issuance and listing of Ordinary Shares as is
necessary to effectuate the transactions contemplated by Section 5.06(a). As
soon as reasonably practicable after the Effective Time, Parent shall prepare
and file with the SEC a registration statement on Form S-8 with respect to
Ordinary Shares subject to Employee Stock Options and shall use its best efforts
to maintain the effectiveness of a registration statement or registration
statements covering such Employee Stock Options (and maintain the current status
of the prospectus or prospectuses contained therein) for so long as such
Employee Stock Options remain outstanding.
(e) A holder of an Adjusted Option may exercise such Adjusted Option
in whole or in part in accordance with its terms and the terms of the related
Stock Plan by delivering a properly executed notice of exercise to Parent,
together with the consideration therefor and the Federal withholding tax
information, if any, required in accordance with the related Stock Plan.
(f) All restrictions or limitations on transfer and vesting with
respect to Employee Stock Options awarded under the Stock Plans, to the extent
that such restrictions or limitations shall not have already lapsed, shall
remain in full force and effect with respect to such options after giving effect
to the Merger and the assumption by Parent as set forth above.
(g) At the Effective Time, the Surviving Corporation shall assume
the due and punctual observance and performance of the covenants and conditions
of the Company Warrants pursuant to Section 3.1(i) thereof (as in effect on the
date hereof).
SECTION 5.07. Benefit Plans. Except as provided in Section 5.06,
Parent currently intends to cause the Surviving Corporation to maintain for a
period of two years
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53
after the Effective Time employee benefit plans, programs and policies for the
employees of the Company and its subsidiaries which, in the aggregate, provide
benefits that are no less favorable to those provided to them under such plans,
programs and policies on the date hereof.
SECTION 5.08. Indemnification and Insurance. Parent and Sub agree
that all rights to indemnification for acts or omissions occurring prior to the
Effective Time now existing in favor of the current or former directors or
officers of the Company and its subsidiaries as provided in their respective
certificates of incorporation or by-laws (or comparable charter or
organizational documents) shall survive the Merger and shall continue in full
force and effect in accordance with their terms for a period of not less than
six years from the Effective Time. Parent will cause to be maintained for a
period of not less than six years from the Effective Time the Company's current
directors' and officers' insurance and indemnification policy to the extent that
it provides coverage for events occurring prior to the Effective Time ("D&O
Insurance") for all persons who are directors and officers of the Company on the
date of this Agreement, so long as the annual premium for such D&O Insurance is
not in excess of 150% of the last annual premium paid prior to the date of this
Agreement (the amount equal to such percentage of such last annual premium, the
"Maximum Premium"); provided, however, that Parent may, in lieu of maintaining
such existing D&O Insurance as provided above, cause coverage to be provided
under any policy maintained for the benefit of Parent or any of its
subsidiaries, so long as the terms thereof are no less advantageous to the
intended beneficiaries thereof than the existing D&O Insurance. Parent and the
Company agree that an annual premium in excess of the Maximum Premium would not
be presumed to be reasonable and acceptable in accordance with Article V,
Section I of the Amended and Restated Certificate of Incorporation of the
Company. If the existing D&O Insurance expires, is terminated or cancelled
during such six-year period, Parent will use all reasonable efforts to cause to
be obtained as much D&O Insurance as can be obtained for the remainder of such
period for an annualized premium not in excess of the Maximum Premium, on terms
and conditions no less advantageous to the covered persons than the existing D&O
Insurance. The Company represents to Parent that the Maximum Premium is
$1,297,500.
SECTION 5.09. Fees and Expenses. (a) Except as provided below in
this Section 5.09, all fees and expenses
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54
incurred in connection with the Merger, this Agreement, the Stockholder
Agreements and the transactions contemplated by this Agreement and the
Stockholder Agreements shall be paid by the party incurring such fees or
expenses, whether or not the Merger is consummated, except that each of Parent
and the Company shall bear and pay one-half of the costs and expenses incurred
in connection with the filing, printing and mailing of the Form F-4, the Proxy
Statement and Parent's proxy or information statement referred to in Section
5.01(a).
(b) The Company shall pay, or cause to be paid, in same day funds to
Parent the sum of (x) all of Parent's reasonably documented out-of-pocket
expenses in an amount up to but not to exceed $940,000.00 (the "Expenses") and
(y) $9,400,000.00 (the "Termination Fee") upon demand if (i) Parent or Sub
terminates this Agreement under Section 7.01(f); provided, however, that Parent
shall be entitled to only the Expenses where Parent or Sub terminates this
Agreement under Section 7.01(f)(i) or (iii); provided further, however, that if
the Company subsequently consummates or enters into an agreement relating to a
competitive proposal within 12 months of such termination, the Company shall
also pay to Parent the Termination Fee, (ii) the Company terminates this
Agreement pursuant to Section 7.01(c) or (iii) prior to any termination of this
Agreement, a takeover proposal shall have been made and within 12 months of such
termination, a transaction constituting a takeover proposal is consummated or
the Company enters into an agreement with respect to, or approves or recommends
a takeover proposal. The amount of Expenses so payable shall be the amount set
forth in an estimate delivered by Parent, subject to upward or downward
adjustment (not to be in excess of the amount set forth in clause (x) above)
upon delivery of reasonable documentation therefor.
(c) Unless Parent and the Company shall have reached the agreement
described in Section 5.18, Parent shall pay, or cause to be paid, an amount
equal to the ICA Amount (as defined below), in same day funds to the Company
upon demand, if the Company or Parent terminates this Agreement under Section
7.01(d) or Section 7.01(e). "ICA Amount" shall mean $9,400,000.00 minus the
aggregate capital expenditures made by the Company in respect of the Chalfonte
Project from the date hereof to the date of such termination (other than capital
expenditures for work completed on the Chalfonte Project prior to the date of
this Agreement but
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55
not yet paid for by the Company as set forth in Section 4.01(a) of the Company
Disclosure Schedule).
SECTION 5.10. Public Announcements. Parent and Sub, on the one hand,
and the Company, on the other hand, will consult with each other before issuing,
and provide each other the opportunity to review and comment upon any press
release or other public statements with respect to the transactions contemplated
by this Agreement or the Stockholder Agreements, including the Merger, and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement and the Stockholder
Agreements shall be in the form heretofore agreed to by the parties.
SECTION 5.11. Affiliates. Prior to the Closing Date, the Company
shall deliver to Parent a letter identifying all persons who are, at the time
the Merger is submitted for approval to the stockholders of the Company,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use all reasonable efforts to cause each such person to
deliver to Parent on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit B. The Company shall not register,
and shall instruct its transfer agent not to register, the transfer of any
certificate representing Company Common Stock owned of record or beneficially by
any Company Significant Stockholder, unless such transfer is made in compliance
with the terms of the Company Stockholder Agreement.
SECTION 5.12. NYSE Listing. Parent shall use all reasonable efforts
to cause the Ordinary Shares to be issued in the Merger as part of the Merger
Consideration, upon exercise of Company Warrants and under the Stock Plans to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date.
SECTION 5.13. Stockholder Litigation. The Company shall give Parent
the opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to the transactions
contemplated by this Agreement; provided,
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56
however, that no such settlement shall be agreed to without Parent's consent,
which consent shall not be unreasonably withheld.
SECTION 5.14. Title Policies; Title Insurance. At Parent's request
and expense, as soon as reasonably practicable, the Company shall deliver to
Parent, with respect to each parcel of Material Real Property, a policy of title
insurance insuring that the Company is the owner in fee simple or of a valid and
subsisting leasehold estate, as applicable, in each parcel of Material Real
Property, and its related improvements and fixtures in an amount not less than
the current fair market value of such Real Property which policy shall (i) be
issued by a title company acceptable to Parent, (ii) include such reinsurance
arrangements (with provisions for direct access) as shall be reasonably
acceptable to Parent, (iii) have been supplemented by such endorsements, or,
where such endorsements are not available at commercially reasonable premium
costs, and where opinions customarily are given with respect to such matters,
reasonably acceptable opinion letters of special counsel, architects or other
professionals, which counsel, architects or other professionals shall be
acceptable to Parent, as shall be required by Parent (including endorsements or
opinion letters on matters relating to nonimputation, public road access,
contiguity (where appropriate), survey and so-called comprehensive coverage over
covenants and restrictions), (iv) contain only such exceptions to title as are
permitted by Section 3.01(u) and (w) be effective on the Closing Date.
SECTION 5.15. Surveys. At Parent's request and expense, the Company
shall provide in respect of the Material Real Property, as soon as reasonably
practicable, surveys (i) prepared by a surveyor or engineer licensed to perform
surveys in the state where such Real Property is located (ii) dated not earlier
than 30 days prior to the date of delivery thereof, (iii) certified by the
surveyor in a manner reasonably acceptable to Parent and (iv) complying in all
respects with the minimum detail requirements of the American Land Title
Association, or local equivalent, as such requirements are in effect on the date
of preparation of such survey.
SECTION 5.16. Class B Option. (a) The Company hereby grants to
Parent an unconditional, irrevocable option to purchase, at any time or from
time to time during the term of this Agreement, any or all of the Units that are
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57
owned by the Company or by any subsidiary of the Company at the time or times of
exercise of such option by Parent at a purchase price equal to the per unit
closing price of such Units on the ASE Transaction List (as reported by the Wall
Street Journal or, if not reported thereby, any other authoritative source) for
the trading day immediately preceding the exercise date (the "Class B Option").
(b) The Class B Option may be exercised at any time or from time to
time by Parent (or its designee which must be a direct or indirect wholly owned
subsidiary of Parent), by delivery of written notice to the Company of such
exercise, specifying the number of Units to be purchased and the place, time and
date of the closing of such purchase. At such closing, the Company shall (or
shall cause its subsidiary to) deliver to Parent or such designee a certificate
or certificates evidencing all of the Units to be purchased, duly endorsed in
blank or accompanied by an assignment duly endorsed in blank in proper form for
transfer, against delivery by Parent or such designee of the aggregate purchase
price for such Units, by wire transfer of same day funds to the account
designated in writing by the Company.
(c) In the event that Parent shall exercise the Class B Option and
this Agreement shall thereafter be terminated, Parent shall promptly thereafter
execute and deliver to the Company an agreement, in form and substance
reasonably satisfactory to Parent and the Company, to vote any Company Class B
Common Stock directly or indirectly owned by Parent (i) in any election of
directors in accordance with the recommendation of the Board of Directors of the
Company and (ii) at the Company's request, in favor of any proposed amendment to
the Company's certificate of incorporation and by-laws necessary to eliminate
the Company Class B Common Stock or to eliminate the Class B Directors.
SECTION 5.17. Amendments to Junior Mortgage Notes Indenture. The
Company hereby agrees to enter into any amendments to the indenture relating to
the Junior Mortgage Notes as may be reasonably required in connection with the
Merger and the transactions contemplated by this Agreement.
SECTION 5.18. Chalfonte Project Parking Garage. During the 60-day
period following the date hereof, Parent and the Company shall use all
reasonable efforts to reach mutual agreement on the site for the parking garage
in respect of the Chalfonte Project (the "Chalfonte Garage"),
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and the budget, schedule and specifications for the construction of the
Chalfonte Garage.
SECTION 5.19. Supplemental Indenture. As soon as practicable on or
after the Closing Date, Parent will cause the Surviving Corporation to execute
and deliver the supplemental indenture required pursuant to Section 6.01(a)(1)
of the Indenture dated as of September 14, 1990, among Resorts International,
Inc., as issuer and Bank of New York, as trustee, with respect to $105,333,000
First Mortgage Non-Recourse Pass-Through Notes due June 30, 2000.
SECTION 5.20. ICA Election. If the relief requested by the ICA
Petition shall not have been granted by January 31, 1997, the Company shall be
entitled to elect to proceed with the construction of a parking garage in
respect of the Chalfonte Project (the "ICA Election"), on such site and under
such budget, schedule and specifications for the construction of such parking
garage as the Company shall reasonably determine, and to make capital
expenditures in connection therewith.
ARTICLE VI
Conditions Precedent
SECTION 6.01. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Company Stockholder Approval and Parent Shareholder Approval.
The Company Stockholder Approval and the Parent Shareholder Approval shall
have been obtained.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(c) No Injunctions or Restraints. No statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order enacted, entered, promulgated,
enforced
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or issued by any court of competent jurisdiction or other Governmental
Entity or other legal restraint or prohibition preventing the consummation
of the Merger shall be in effect.
(d) Form F-4. The Form F-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(e) NYSE and ASE Listings. The Ordinary Shares issuable to the
Company's stockholders pursuant to this Agreement, upon exercise of
Company Warrants and under the Stock Plans shall have been approved for
listing on the NYSE, subject to official notice of issuance, and the Units
shall continue to be approved for listing on the ASE.
SECTION 6.02. Conditions to Obligations of Parent and Sub. The
obligations of Parent and Sub to effect the Merger are further subject to
satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The repre sentations and
warranties of the Company set forth in this Agreement that are qualified
as to materiality shall be true and correct, and the representations and
warranties of the Company set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date, except as otherwise contemplated by this
Agreement, and Parent shall have received a certificate signed on behalf
of the Company by the chief executive officer and the chief financial
officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall
have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
Parent shall have received a certificate signed on behalf of the Company
by the chief executive officer and the chief financial officer of the
Company to such effect.
(c) Letters from Company Affiliates. Parent shall have received from
each person identified in the
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letter referred to in Section 5.11 an executed copy of an agreement
substantially in the form attached as Exhibit B.
(d) No Litigation. There shall not be pending or threatened any
suit, action or proceeding by any Governmental Entity, or any suit, action
or proceeding by any other person which has a reasonable likelihood of
success, in each case (i) challenging the acquisition by Parent or Sub of
any shares of capital stock of the Company or the Surviving Corporation,
seeking to restrain or prohibit the consummation of the Merger or any of
the other transactions contemplated by this Agreement or the Stockholder
Agreements or seeking to obtain from the Company, Parent or Sub any
damages that are material in relation to the Company and its subsidiaries
taken as a whole, (ii) seeking to prohibit or limit the ownership or
operation by the Company, Parent or any of their respective subsidiaries
of any material portion of the business or assets of the Company, Parent
or any of their respective subsidiaries, or to compel the Company, Parent
or any of their respective subsidiaries to dispose of or hold separate any
material portion of the business or assets of the Company, Parent or any
of their respective subsidiaries, as a result of the Merger or any of the
other transactions contemplated by this Agreement or the Stockholder
Agreements, (iii) seeking to impose limitations on the ability of Parent
or Sub to acquire or hold, or exercise full rights of ownership of, any
shares of capital stock of the Company or the Surviving Corporation,
including the right to vote the Company Common Stock, or common stock of
the Surviving Corporation, on all matters properly presented to the
stockholders of the Company or the Surviving Corporation, respectively,
(iv) seeking to prohibit Parent or any of its subsidiaries from
effectively controlling in any material respect the business or operations
of the Company or its subsidiaries or (v) which otherwise could reasonably
be expected to have a material adverse effect on the Company or Parent. In
addition, there shall not be any statute, rule, regulation, judgment or
order enacted, entered, enforced or promulgated that is reasonably likely
to result, directly or indirectly, in any of the consequences referred to
in clauses (ii) through (iv) above.
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(e) Consents, Approvals and Authorizations, etc. All consents,
approvals, orders or authorizations of any Governmental Entity, including
approvals by the New Jersey Casino Control Commission under the New Jersey
Casino Control Act and the rules and regulations promulgated thereunder
and approvals under the New Jersey Industrial Site Recovery Act, required
in connection with the Merger or this Agreement or the Stockholder
Agreements or the consummation of any of the transactions contemplated by
this Agreement or the Stockholder Agreements shall have been obtained and
shall be in full force and effect without the imposition of any conditions
or restrictions of the type referred to in Section 6.02(d) (ii), (iii) or
(iv), it being understood that receipt of the relief requested by the ICA
Petition shall not satisfy this condition insofar as this condition
relates to approvals under the New Jersey Casino Control Act.
(f) Tax Opinions. Parent shall have received from Cravath, Swaine &
Moore, counsel to Parent, on the date of the Proxy Statement and on the
Closing Date opinions, in each case dated as of such respective dates and
stating that the Merger will be treated for Federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code and that
Parent, Sub and the Company will each be a party to that reorganization
within the meaning of Section 368(b) of the Code. In rendering such
opinions, counsel for Parent shall be entitled to rely upon
representations of officers of Parent, Sub and the Company reasonably
satisfactory in form and substance to such counsel.
(g) Blue Sky. Parent shall have received all state securities or
"blue sky" authorizations necessary to issue the Ordinary Shares issuable
pursuant to this Agreement.
SECTION 6.03. Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is further subject to
satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The repre sentations and
warranties of Parent and Sub set forth in this Agreement that are
qualified as to materiality shall be true and correct, and the
representations and
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62
warranties of Parent and Sub set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date, except as otherwise contemplated by this
Agreement, and the Company shall have received a certificate signed on
behalf of Parent by an executive officer of Parent to such effect.
(b) Performance of Obligations of Parent and Sub. Parent and Sub
shall have performed in all material respects all obligations required to
be performed by them under this Agreement at or prior to the Closing Date,
and the Company shall have received a certificate signed on behalf of
Parent by an executive officer of Parent to such effect.
(c) Tax Opinions. The Company shall have received from Gibson, Dunn
& Crutcher, counsel to the Company, on the date of the Proxy Statement and
on the Closing Date opinions, in each case dated as of such respective
dates and stating that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code and that Parent, Sub and the Company will each be a party to that
reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinions, counsel for the Company shall be entitled to rely
upon representations of officers of Parent, Sub and the Company reasonably
satisfactory in form and substance to such counsel.
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01. Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after the Company
Stockholder Approval or the Parent Stockholder Approval:
(a) by mutual written consent of Parent, Sub and the Company; or
(b) by either Parent or the Company:
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(i) if, upon a vote at a duly held Company Stockholders
Meeting or any adjournment thereof at which the Company Stockholder
Approval shall have been voted upon, the Company Stockholder
Approval shall not have been obtained;
(ii) if the Merger shall not have been consummated on or
before June 30, 1997, unless the failure to consummate the Merger is
the result of a willful and material breach of this Agreement by the
party seeking to terminate this Agreement; provided, however, that
the passage of such period shall be tolled for any part thereof
during which any party shall be subject to a nonfinal order,
injunction, decree, ruling or action restraining, enjoining or
otherwise prohibiting the consummation of the Merger or the calling
or holding of the Company Stockholders Meeting or the Parent
Shareholders Meeting;
(iii) if any Governmental Entity shall have issued an order,
injunction, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such
order, injunction, decree, ruling or other action shall have become
final and nonappealable; or
(iv) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in
this Agreement which (A) would give rise to the failure of a
condition set forth in Section 6.02(a) or (b) or Section 6.03(a) or
(b), as applicable, and (B) cannot be or has not been cured within
30 days after the giving of written notice to the breaching party of
such breach (a "Material Breach") (provided that the terminating
party is not then in Material Breach of any representation,
warranty, covenant or other agreement contained in this Agreement);
(c) by the Company in connection with entering into a definitive
agreement in accordance with Section 4.02(b), provided it has complied
with all provisions thereof, including the notice provisions therein, and
that it makes simultaneous payment of the Termination Fee and the
Expenses;
<PAGE>
64
(d) by either Parent or the Company if the relief requested by the
ICA Petition shall have been denied and such denial shall have become
final and nonappealable;
(e) by either Parent or the Company if the New Jersey Casino Control
Commission shall have denied Parent a permanent license under the New
Jersey Casino Control Act and such denial shall have become final and
nonappealable;
(f) by Parent if (i) the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified in a manner adverse to
Parent or Sub its approval or recommendation of the Merger or this
Agreement, or approved or recommended any takeover proposal, (ii) the
Company shall have entered into any agreement with respect to any
competitive proposal in accordance with Section 4.02(b), or (iii) the
Board of Directors of the Company or any committee thereof shall have
resolved to take any of the foregoing actions;
(g) by Parent if, upon a vote at a duly held Parent Shareholders
Meeting or any adjournment thereof at which the Parent Shareholder
Approval shall have been voted upon, the Parent Shareholder Approval shall
not have been obtained;
(h) by Parent if the Average Market Price is less than $41.625;
provided, however, that Parent shall furnish the Company with written
notice two NYSE trading days in advance of the date that it intends to
terminate this Agreement pursuant to this Section 7.01(h) and, during such
two trading day period, the Company shall be entitled to elect to go
forward with the Merger and, if the Company shall timely make such
election, Parent shall not terminate this Agreement pursuant to this
Section 7.01(h) and the "Conversion Number" shall mean .4925; or
(i) by Parent if the Company shall have made the ICA Election.
SECTION 7.02. Effect of Termination. In the event of termination of
this Agreement by either the Company or Parent as provided in Section 7.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the
<PAGE>
65
Company, other than the provisions of Section 3.01(p), Section 3.02(h), the last
sentence of Section 5.04, Section 5.09, Section 5.16(c), this Section 7.02 and
Article VIII and except to the extent that such termination results from the
willful and material breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
SECTION 7.03. Amendment. This Agreement may be amended by the
parties at any time before or after the Company Stockholder Approval or the
Parent Shareholder Approval; provided, however, that after any such approval,
there shall not be made any amendment that by law requires further approval by
the stockholders of the Company or the shareholders of Parent without the
further approval of such stockholders or shareholders, as the case may be. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
SECTION 7.04. Extension; Waiver. At any time prior to the Effective
Time, a party may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to the proviso of Section 7.03, waive compliance by the other parties with any
of the agreements or conditions contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure of
any party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
SECTION 7.05. Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 7.01, an amendment
of this Agreement pursuant to Section 7.03 or an extension or waiver pursuant to
Section 7.04 shall, in order to be effective, require in the case of Parent, Sub
or the Company, action by its Board of Directors or, except in the case of Sub
or the Company with respect to any amendment to this Agreement, the duly
authorized designee of its Board of Directors.
<PAGE>
66
ARTICLE VIII
General Provisions
SECTION 8.01. Nonsurvival of Representations and Warranties. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 8.01 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
SECTION 8.02. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Sub, to
Sun International Hotels Limited
Badgemore House
Gravel Hill
Henley-on-Thames, RG94NR
England
Telecopy No.: 011-441-491 576526
Attention: Charles D. Adamo, Esq.
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Telecopy No.: (212) 474-3700
Attention: Peter S. Wilson, Esq.; and
(b) if to the Company, to
Griffin Gaming & Entertainment, Inc
1133 Boardwalk
Atlantic City, NJ 08401
Telecopy No.: (609) 345-3260
Attention: Thomas E. Gallagher
<PAGE>
67
with a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166-0193
Telecopy No.: (212) 351-4035
Attention: Steven R. Finley, Esq.
SECTION 8.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, such first person;
(b) "competitive proposal" means (x) a bona fide takeover proposal
to acquire, directly or indirectly, for consideration consisting of cash
and/or securities, more than 50% of the shares of Company Common Stock
then outstanding or all or substantially all the assets of the Company,
and (y) otherwise on terms which the Board of Directors of the Company
determines in its good faith reasonable judgment to be more favorable to
the Company's stockholders than the Merger (taking into account any
improvements to the Merger proposed by Parent);
(c) "indebtedness" has the meaning assigned thereto in Section
3.01(s)(ii);
(d) in respect of Real Property only, "lien" means any conditional
sale agreement, lease, sublease, option, easement, right-of-way,
encroachment, encumbrance, hypothecation, lien, mortgage, pledge,
reservation, restriction, security interest, title retention or other
security arrangement, or any adverse right or interest, charge or claim of
any nature whatsoever of, on, or with respect to any asset, property or
property interest; provided, however, that the term "lien" shall not
include (i) liens for water and sewage charges and current taxes not yet
due and payable or being contested in good faith, (ii) mechanics',
carriers', workers', repairers', materialmens', warehousemens' and other
similar liens arising or incurred in the ordinary course of business
<PAGE>
68
or (iii) all encumbrances approved in writing by the other party hereto;
(e) "material adverse change" or "material adverse effect" means,
when used in connection with the Company or Parent, any change or effect
(or any development that, insofar as can reasonably be foreseen, is likely
to result in any change or effect) that is materially adverse to the
business, properties, assets, condition (financial or otherwise), results
of operations or prospects of such party and its subsidiaries taken as a
whole;
(f) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(g) "Post-Closing Tax Period": means all taxable periods beginning
after the Closing Date and the portion beginning on the day after the
Closing Date of any taxable period that includes (but does not begin on)
such day.
(h) a "Significant Subsidiary" of the Company means each of GGRI,
Inc., Resorts International Hotel, Inc., Resorts International Hotel
Financing, Inc., Griffin Entertainment, Inc. and any other subsidiary of
the Company that would constitute a Significant Subsidiary within the
meaning of Rule 1-02 of Regulation S-X of the SEC;
(i) a "subsidiary" of any person means another person, an amount of
the voting securities or other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
securities or interests, 50% or more of the equity interests of which) is
owned directly or indirectly by such first person;
(j) "takeover proposal" means any proposal or offer from any person
relating to any direct or indirect acquisition or purchase of a material
amount of assets of the Company or any of its subsidiaries or of over 20%
of any class of equity securities (other than acquisitions of stock by
institutional investors in the ordinary course of business) of the Company
or
<PAGE>
69
any of its subsidiaries or any tender offer or exchange offer that if
consummated would result in any person beneficially owning 20% or more of
any class of equity securities of the Company or any of its subsidiaries
or which would require approval under any Gaming Law, or any merger,
consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its subsidiaries other than the
transactions contemplated by this Agreement, or any other transaction the
consummation of which would reasonably be expected to impede, interfere
with, prevent or materially delay the Merger or which would reasonably be
expected to dilute materially the benefits to Parent of the transactions
contemplated hereby;
(k) "Taxes" mean all Federal, state, local, foreign and other
governmental taxes, assessments, duties, fees, levies or similar charges
of any kind, including all sales, payroll, employment and other
withholding taxes, and including all obligations under any tax sharing
agreement, tax indemnity obligation or similar written or unwritten
agreement, arrangement or practice, and including all interest, penalties
and additions imposed with respect to such amounts;
(l) "Tax Return" means any return (including information returns),
report, declaration or statement relating to Taxes, including any schedule
or attachment thereto or amendment thereof; and
(m) "Taxing Authority" means any governmental or quasi-governmental
body exercising any Taxing authority or Tax regulatory authority.
SECTION 8.04. Interpretation. When a reference is made in this
Agreement to an Article, Section or Exhibit, such reference shall be to an
Article or Section of, or an Exhibit to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a
<PAGE>
70
whole and not to any particular provision of this Agreement. All terms defined
in this Agreement shall have the defined meanings when used in any certificate
or other document made or delivered pursuant hereto unless otherwise defined
therein. The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such term. Any agreement, instrument or
statute defined or referred to herein or in any agreement or instrument that is
referred to herein means such agreement, instrument or statute as from time to
time amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns and, in the case of an individual, to his or
her heirs and estate, as applicable.
SECTION 8.05. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein) and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter of this Agreement and (b) except for the
provisions of Article II, Section 5.06 and Section 5.08, are not intended to
confer upon any person other than the parties any rights or remedies.
SECTION 8.07. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 8.08. Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, except that
<PAGE>
71
Sub may assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect wholly
owned subsidiary of Parent, but no such assignment shall relieve Sub of any of
its obligations under this Agreement. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.09. Enforcement. The parties agree that irreparable damage
would occur and that the parties would not have any adequate remedy at law in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any Federal court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions
<PAGE>
72
contemplated by this Agreement in any court other than a Federal court sitting
in the State of Delaware or a Delaware state court.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
SUN INTERNATIONAL HOTELS LIMITED,
by
/s/Charles D. Adamo
-----------------------------------------
Name: Charles D. Adamo
Title: Executive Vice President,
General Counsel
SUN MERGER CORP.,
by
/s/Charles D. Adamo
-----------------------------------------
Name: Charles D. Adamo
Title: Vice President,
Secretary
GRIFFIN GAMING & ENTERTAINMENT,
INC.,
by
/s/Thomas E. Gallagher
-----------------------------------------
Name: Thomas E. Gallagher
Title: President and Chief
Executive Officer
<PAGE>
AMENDMENT dated as of October 10, 1996, to Agreement and
Plan of Merger dated as of August 19, 1996 (the "Merger
Agreement"), among Sun International Hotels Limited, a
corporation organized and existing under the laws of the
Commonwealth of The Bahamas ("Parent"), Sun Merger Corp., a
Delaware corporation and a wholly owned subsidiary of Parent
("Sub"), and Griffin Gaming & Entertainment, Inc., a Delaware
corporation (the "Company").
WHEREAS the respective Boards of Directors of Parent, Sub and the
Company, and Parent acting as the sole stockholder of Sub, have previously
approved the merger of the Company with and into Sub, upon the terms and
subject to the conditions set forth in the Merger Agreement;
WHEREAS Parent, Sub and the Company desire to amend the Merger
Agreement as set forth herein to provide for the merger of Sub with and into
the Company;
WHEREAS the respective Boards of Directors of Sub and the Company,
and Parent acting as the sole stockholder of Sub, have approved the merger of
Sub with and into the Company, upon the terms and subject to the conditions
set forth in the Merger Agreement as amended hereby;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties agree as follows:
SECTION 1. AMENDMENTS. (a) The first paragraph of the preamble to
the Merger Agreement is hereby amended and restated in its entirety to read
as follows:
"WHEREAS the respective Boards of Directors of Parent, Sub and the
Company, and Parent acting as the sole stockholder of Sub, have
approved the merger of Sub with and into the Company (the "Merger"),
upon the terms and subject to the conditions set forth in this
Agreement, whereby (i) each issued and outstanding share of Common
Stock, par value $.01 per share, of the Company
<PAGE>
2
("Company Common Stock"), other than shares owned directly or
indirectly by Parent or the Company, will be converted into the right
to receive the Merger Consideration (as defined in Section 2.01(c))
and (ii) each issued and outstanding share of Class B Common Stock,
par value $.01 per share, of the Company ("Company Class B Common
Stock") which was issued, and trades, as a unit (the "Units") with the
Company's 11.375% Junior Mortgage Notes due 2004 (the "Junior Mortgage
Notes"), will be converted into the right to receive the Class B
consideration (as defined in Section 2.01(d))".
(b) Section 1.01(a) of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"(a) Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Delaware General Corporation Law
(the "DGCL"), Sub shall be merged with and into the Company at the
Effective Time (as defined in Section 1.03). Following the Effective
Time, the separate corporate existence of Sub shall cease and the
Company shall continue as the surviving corporation (the "Surviving
Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the DGCL.".
(c) Section 1.05(a) of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"(a) The Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.".
(d) Section 1.05(b) of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"(b) The By-laws of the Company as in effect at the Effective Time
shall be the By-laws of the
<PAGE>
3
Surviving Corporation, until thereafter changed or amended as provided
therein or by applicable law."
(e) Section 2.01(a) of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of
capital stock of Sub shall be converted into and become one validly
issued, fully paid and nonassessable share of common stock, par
value $.01 per share, of the Surviving Corporation.".
(f) Section 2.01(b) of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"(b) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK. Each
share of Company Common Stock that is owned by the Company or by any
subsidiary of the Company and each share of Company Common Stock that
is owned by Parent, Sub or any other subsidiary of Parent shall
automatically be cancelled and retired and shall cease to exist,
and no consideration shall be delivered in exchange therefor.".
(g) Section 2.01(d) of the Merger Agreement is hereby amended and
restated in its entirety to read as follows:
"(d) CONVERSION OF COMPANY CLASS B COMMON STOCK. Each issued and
outstanding share of Company Class B Common Stock shall be converted
into the right to receive .1928 of a fully paid and nonassessable
Ordinary Share (the "Class B Consideration"). As of the Effective
Time, all such shares of Company Class B Common Stock shall no longer
be outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each holder of a certificate representing
any such shares of Company Class B Common Stock shall cease to have
any rights with respect thereto, except the right to receive the
Class B Consideration to be issued in consideration therefor upon
surrender of such certificate in accordance with Section 2.02, without
interest. As of the Effective Time,
<PAGE>
4
the fraction of an Ordinary Share into which a share of Company
Class B Common Stock is converted shall be issued, and trade, as a
unit with the related Junior Mortgage Note in lieu of such share of
Company Class B Common Stock.".
(h) Exhibit A to the Merger Agreement is hereby deleted.
SECTION 2. REPRESENTATIONS AND WARRANTIES. Each party hereto
hereby represents as to itself to the other parties hereto that:
(a) such party has all requisite corporate power and authority to
enter into this Amendment and, subject, in the case of the Company, to the
Company Stockholder Approval (as defined in the Merger Agreement) and, in
the case of Parent, to the Parent Shareholder Approval (as defined in the
Merger Agreement), to consummate the transactions contemplated by this
Amendment;
(b) the execution and delivery of this Amendment by such party and
the consummation by such party of the transactions contemplated by this
Amendment have been duly authorized by all necessary corporate action on
the part of such party, subject, in the case of the Company, to the Company
Stockholder Approval (as defined in the Merger Agreement) and, in the case
of Parent, to the Parent Shareholder Approval (as defined in the Merger
Agreement); and
(c) this Amendment has been duly executed and delivered by such
party and constitutes a valid and binding obligation of such party,
enforceable against such party in accordance with its terms.
SECTION 3. COUNTERPARTS. This Amendment may be executed in one or
more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
SECTION 4. GOVERNING LAW. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
<PAGE>
5
SECTION 5. FULL FORCE AND EFFECT. Except as specifically amended
hereby, the Merger Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used therein, the terms
"Agreement", "herein", "hereunder", "hereinafter", "hereto", "hereof", and
words of similar import shall, unless the context otherwise requires, refer
to the Merger Agreement as amended hereby. Any reference in any document to
the Merger Agreement shall be deemed to be a reference to the Merger
Agreement as amended hereby.
IN WITNESS WHEREOF, Parent, Sub and the Company have cause this
Amendment to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
SUN INTERNATIONAL HOTELS
LIMITED,
by /s/ C.D. Adams
---------------------------------------
Name: C.D. Adams
Title: EVP
SUN MERGER CORP.,
by /s/ C.D. Adams
------------------------------------
Name: C.D. Adams
Title: EVP
GRIFFIN GAMING &
ENTERTAINMENT, INC.,
by /s/ MATTHEW P. KEARNEY
------------------------------------
Name:
Title: Exec V.P. & Finance & CFO
<PAGE>
Annex II
STOCKHOLDER AGREEMENT dated as of August 19, 1996, among
SUN INTERNATIONAL HOTELS LIMITED, a corporation organized and
existing under the laws of the Commonwealth of the Bahamas
("Parent"), and the individual and the other party listed on
Schedule A attached hereto (each, a "Stockholder" and,
collectively, the "Stockholders").
WHEREAS Parent, Sun Merger Corp., a Delaware corporation and a
wholly owned subsidiary of Parent ("Sub"), and Griffin Gaming & Entertainment,
Inc., a Delaware corporation (the "Company"), propose to enter into an Agreement
and Plan of Merger dated as of the date hereof (as the same may be amended or
supplemented from time to time, including any amendment pursuant to Section 1.01
thereof, the "Merger Agreement") providing for the merger of the Company with
and into Sub (the "Merger") upon the terms and subject to the conditions set
forth in the Merger Agreement; and
WHEREAS each Stockholder owns (beneficially and of record) (i) the
number of shares of Common Stock, par value $.01 per share, of the Company (the
"Common Stock") set forth opposite its name on Schedule A attached hereto (such
shares of Common Stock owned of record, together with any other shares of Common
Stock acquired by such Stockholder after the date hereof and during the term of
this Agreement being collectively referred to herein as the "Subject Shares")
and (ii) options issued under the 1994 Stock Option Plan (the "Options") and
warrants (the "Warrants") to acquire the number of shares of Common Stock, if
any, set forth opposite its name on Schedule A attached hereto, and each
Stockholder desires that the Company, Parent and Sub enter into the Merger
Agreement; and
WHEREAS, as a condition to its willingness to enter into, and to
cause Sub to enter into, the Merger Agreement, Parent has requested that the
Stockholders enter into this Agreement.
NOW, THEREFORE, to induce Parent and Sub to enter into, and in
consideration of Parent and Sub entering into, the Merger Agreement, and in
consideration of the premises and the representations, warranties and agreements
contained herein, the parties hereto agree as follows:
<PAGE>
2
SECTION 1. Definitions. Capitalized terms used but not defined
herein shall have the meanings assigned to such terms in the Merger Agreement.
SECTION 2. Representations and Warranties of the Stockholders. Each
Stockholder hereby, severally and not jointly, represents and warrants to Parent
in respect of itself as follows:
(a) The Stockholder has all requisite power and authority to enter
into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by
the Stockholder and constitutes a valid and binding obligation of the
Stockholder enforceable in accordance with its terms. The execution and
delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will
not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time or both) under any provision of, any trust
agreement, loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise,
license, judgment, order, notice, decree, statute, law, ordinance, rule or
regulation applicable to the Stockholder or to any of the Stockholder's
property or assets. If the Stockholder is married and any of the
Stockholder's Subject Shares, Options or Warrants constitute community
property or otherwise need spousal or other approval for this Agreement to
be legal, valid and binding, this Agreement has been duly authorized,
executed and delivered by, and constitutes a valid and binding agreement
of, the Stockholder's spouse or the person giving such other approval,
enforceable against such spouse or person in accordance with its terms.
(b) The Stockholder is the record and beneficial owner of, and has
good and marketable title to, the Subject Shares and the Options and
Warrants, if any, set forth opposite its name on Schedule A attached
hereto, free and clear of any claims, liens, encumbrances, security
interests and other restrictions on rights of disposition whatsoever. As
of the date hereof, the Stockholder does not own, of record or
beneficially, any shares of capital stock of the Company other than the
Subject Shares and the shares of
<PAGE>
3
Common Stock subject to any Options or Warrants set forth opposite its
name on Schedule A attached hereto. The Stockholder has the sole right to
vote such Subject Shares, and none of such Subject Shares is subject to
any voting trust or other agreement, arrangement or restriction with
respect to the voting of such Subject Shares, except as contemplated by
this Agreement.
(c) No broker, investment banker, financial adviser or other person
is entitled to any broker's, finder's, financial adviser's or other
similar fee or commission in respect of this Agreement or in connection
with the transactions contemplated hereby based upon arrangements made by
or on behalf of the Stockholder.
SECTION 3. Representations and Warranties of Parent. Parent hereby
represents and warrants to the Stockholders that Parent has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent, and the consummation of the transactions contemplated hereby, have
been duly authorized by all necessary corporate action on the part of Parent.
This Agreement has been duly executed and delivered by Parent and constitutes a
valid and binding obligation of Parent enforceable in accordance with its terms.
SECTION 4. Agreements to Vote; Grant of Irrevocable Proxy;
Appointment of Proxy. Until the termination of this Agreement in accordance with
Section 11, each Stockholder, severally and not jointly, agrees as follows:
(a) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circum stances upon which its vote,
consent or other approval is sought, the Stockholder shall vote (or cause
to be voted) the Stockholder's Subject Shares (i) in favor of the Merger,
the approval and adoption of the Merger Agreement and the approval of the
terms of the Merger Agreement and each of the other transactions
contemplated by the Merger Agreement and (ii) against (A) any merger
agreement or merger (other than the Merger Agreement and the Merger),
consolidation, combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or by the
Company or any
<PAGE>
4
other takeover proposal as such term is defined in Section 8.03 of the
Merger Agreement (a "Takeover Proposal") or (B) any amendment of the
Company's Amended and Restated Certificate of Incorporation or by-laws or
other proposal or transaction involving the Company or any of its
subsidiaries, which amendment or other proposal or transaction would in
any manner impede, frustrate, prevent or nullify the Merger, the Merger
Agreement or any of the other transactions contemplated by the Merger
Agreement or change in any manner the voting rights of any class of
capital stock of the Company. Subject to Section 13, the Stockholder
further agrees not to commit or agree to take any action inconsistent with
the foregoing.
(b) The Stockholder represents that any proxies heretofore given in
respect of the Stockholder's Subject Shares are not irrevocable, and that
any such proxies are hereby revoked.
(c) Upon Parent's request, the Stockholder hereby agrees to
irrevocably grant to, and appoint, Parent, and any person who may
hereafter be designated by Parent as permitted under applicable law, and
each of them individually, the Stockholder's proxy and attorney-in-fact
(with full power of substitution), for and in the name, place and stead of
the Stockholder, to vote the Stockholder's Subject Shares, or grant a
consent or approval in respect of such Subject Shares, in favor of or
against, as the case may be, the matters set forth in Section 4(a), and to
execute and deliver an appropriate instrument irrevocably granting such
proxy, provided that Parent has obtained all approvals as may be necessary
in connection with the granting of such proxy to comply with the New
Jersey Casino Control Act.
(d) The Stockholder hereby affirms that any irrevocable proxy
granted pursuant to Section 4(c) will be given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy will be
given to secure the performance of the duties of the Stockholder under
this Agreement. The Stockholder hereby further affirms that, if granted
pursuant to such Section, the irrevocable proxy will be coupled with an
interest and may under no circumstances be revoked. If so granted, the
Stockholder hereby ratifies and confirms all that such irrevocable proxy
<PAGE>
5
may lawfully do or cause to be done by virtue thereof. Such irrevocable
proxy, if and when executed, is intended to be irrevocable in accordance
with the provisions of Section 212(e) of the Delaware General Corporation
Law.
SECTION 5. Covenants of the Stockholders. Until the termination of
this Agreement in accordance with Section 11, each Stockholder, severally and
not jointly, agrees as follows:
(a) Except as provided in the immediately succeeding sentence, the
Stockholder agrees not to (i) sell, transfer, pledge, assign or otherwise
encumber or dispose of (including by gift) (collectively, "Transfer"), or
enter into any contract, option or other arrangement (including any profit
sharing arrangement) with respect to the Transfer of, the Subject Shares,
any Option or Warrant or any shares of Common Stock subject to any Option
or Warrant to any person other than pursuant to the terms of the Merger,
(ii) enter into any voting arrangement, whether by proxy,
power-of-attorney, voting agreement, voting trust or otherwise, in
connection with, directly or indirectly, any Takeover Proposal or (iii)
exercise any Option or Warrant, in whole or in part, and agrees not to
commit or agree to take any of the foregoing actions. Notwithstanding the
foregoing, the Stockholder shall have the right, for estate planning
purposes, to Transfer Subject Shares to a transferee following the due
execution and delivery to Parent by each transferee of a legal, valid and
binding counterpart to this Agreement.
(b) Subject to the terms of Section 13, the Stockholder shall not,
nor shall it permit any director, officer, employee, investment banker,
attorney or other adviser or representative of the Stockholder to, (i)
solicit, initiate or encourage the submission of any Takeover Proposal or
(ii) participate in any discussions or negotiations regarding, or furnish
to any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes,
or may reasonably be expected to lead to, any Takeover Proposal.
<PAGE>
6
(c) Until after the Merger is consummated or the Merger Agreement is
terminated pursuant to its terms, the Stockholder shall use all reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other
transactions contemplated by the Merger Agreement.
(d) The Stockholder shall execute and deliver the letter
contemplated by Section 5.11 of the Merger Agreement.
(e) (i) In the event that the Merger Agreement shall have been
terminated under circumstances where Parent is or may become
entitled to receive the Termination Fee, the Stockholder shall pay
to Parent on demand an amount equal to 50% of all profit (determined
in accordance with Section 5(e)(ii)) of the Stockholder from the
consummation of any Takeover Proposal that is consummated within one
year of such termination or with respect to which a definitive
agreement is executed within one year of such termination.
(ii) For purposes of this Section 5(e), the profit of the
Stockholder from any Takeover Proposal shall equal (A) the aggregate
consideration received by the Stockholder, directly or indirectly,
pursuant to or in connection with such Takeover Proposal, valuing
any non-cash consideration (including any residual interest in the
Company) at its fair market value on the date of such consummation
plus (B) the fair market value, on the date of disposition, of all
Subject Shares, Options and Warrants of the Stockholder or shares of
Common Stock acquired by the Stockholder upon exercise of any Option
or Warrant disposed of after the termination of the Merger Agreement
and prior to the date of such consummation less (C) the fair market
value of the aggregate consideration that would have been issuable
or payable to the Stockholder if it had received the Merger
Consideration pursuant to the Merger Agreement as originally
executed, valued as of immediately prior to the first public
<PAGE>
7
announcement of the termination of, or the intention of Parent or
the Company to terminate, the Merger Agreement, as if the Merger had
been consummated on the date of such public announcement.
(iii) In the event that (x) prior to the Effective Time, a
Takeover Proposal shall have been made and (y) the Effective Time
shall have occurred and Parent for any reason shall have increased
the amount of Merger Consideration payable over that set forth in
the Merger Agreement in effect on the date hereof (the "Original
Merger Consideration"), the Stockholder shall pay to Parent on
demand an amount in cash equal to the product of (i) the sum of the
number of Subject Shares of the Stockholder and the number of shares
of Common Stock subject to Options and Warrants held by the
Stockholder as of the Effective Time and (ii) 50% of the excess, if
any, of (A) the per share cash consideration or the per share fair
market value of any non-cash consideration, as the case may be,
received by the Stockholder pursuant to the Merger Agreement, as
amended, determined as of the Effective Time, over (B) the fair
market value of the Original Merger Consideration determined as of
the time of the first increase in the amount of the Original Merger
Consideration.
(iv) For purposes of this Section 5(e), the fair market value
of any non-cash consideration consisting of:
(A) securities listed on a national
securities exchange or traded on
the NASDAQ/NMS shall be equal to
the average closing price per share
of such security as reported on
such exchange or NASDAQ/NMS for the
five trading days after the date of
valuation; and
(B) consideration which is other than cash or
securities of the form specified in clause (A) of
this Section 5(e)(iv) shall be determined by a
nationally
<PAGE>
8
recognized independent investment banking firm
mutually agreed upon by the parties within 10
business days of the event requiring selection of
such banking firm; provided, however, that if the
parties are unable to agree within two business
days after the date of such event as to the
investment banking firm, then the parties shall
each select one firm, and those firms shall select
a third investment banking firm, which third firm
shall make such determination; provided further,
that the fees and expenses of such investment
banking firm shall be borne equally by Parent, on
the one hand, and the Stockholders, on the other
hand. The determination of the investment banking
firm shall be binding upon the parties.
(v) Any payment of profit under this Section 5(e) may be paid
(x) in cash, by wire transfer of same day funds to an account
designated by Parent, or (y) through a mutually agreed transfer of
securities, to the extent such transfer is permitted by applicable
law and the transfer of such securities to Parent would not
adversely impact Parent or the value of such securities, by delivery
of such securities, suitably endorsed for transfer, to Parent or its
designee.
SECTION 6. Stop Transfer; Legend. The Company agrees with, and
covenants to, Parent that the Company shall not register the transfer of any
certificate representing any Stockholder's Subject Shares, unless such transfer
is made to Parent or Sub or otherwise in compliance with this Agreement. Each
Stockholder agrees that the Stockholder will tender to the Company, within five
business days after the date hereof, any and all certificates representing the
Stockholder's Subject Shares and the Company will inscribe or cause to be
inscribed upon such certificates the following legend: "The shares of Common
Stock, par value $0.01 per share, of Griffin Gaming & Entertainment, Inc.
represented by this certificate are subject to a Stockholder
<PAGE>
9
Agreement dated as of August 19, 1996, and may not be sold, transferred,
pledged, assigned or otherwise encumbered or disposed of, except in accordance
therewith. Copies of such Agreement may be obtained at the principal executive
offices of Griffin Gaming & Entertainment, Inc.
SECTION 7. Termination of License and Services Agreement. The
License and Services Agreement dated as of September 17, 1992, as amended,
among, The Griffin Group Inc., the Company and Resorts International Hotel,
Inc., is hereby terminated, effective as of the Effective Time, and no payments
shall be required to be made by any party thereto with respect to such
termination. Parent, the Company and The Griffin Group Inc. agree that at the
Closing, The Griffin Group Inc., the Surviving Corporation and Resorts
International Hotel, Inc. will enter into a License and Services Agreement
substantially in the form attached hereto as Exhibit A (the "New License
Agreement"). In the event the Stockholders are required to make any payments
under Section 5(e), each Stockholder shall pay to Parent on demand 50% of the
amount equal to the excess of (a) any consideration received by such
Stockholder, directly or indirectly, in respect of employment, services,
licenses or other agreements or arrangements over (b) the consideration, if any,
that would have been received by such Stockholder pursuant to the New License
Agreement (valuing any non-cash consideration in accordance with Section
5(e)(ii)).
SECTION 8. Further Assurances. Each Stockholder will, from time to
time, execute and deliver, or cause to be executed and delivered, such
additional or further consents, documents, proxies and other instruments and
take such further actions as Parent or Sub may reasonably request for the
purpose of effectively carrying out the transactions contemplated by this
Agreement.
SECTION 9. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties, except that
Parent may assign, in its sole discretion, any or all of its rights, interests
and obligations hereunder to any direct or indirect wholly owned subsidiary of
Parent. Any assignment in violation of the foregoing shall be void. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns.
<PAGE>
10
SECTION 10. Public Announcements. Each Stockholder will consult with
Parent before issuing, and provide Parent with the opportunity to review and
comment upon, any press release or other public statements with respect to the
transactions contemplated by this Agreement, including the Merger, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law or court process.
SECTION 11. Termination. This Agreement shall terminate upon the
earlier of (a) July 31, 1997 or (b) the Effective Time; provided, however, that
if the Company is not in breach of any of its obligations under the Merger
Agreement and none of the Stockholders are in breach of any of their obligations
under this Agreement, this Agreement shall terminate at the time the Merger
Agreement is terminated (i) pursuant to Section 7.01(a) thereof, (ii) by the
Company pursuant to Section 7.01(b)(iv), 7.01(d) or 7.01(e) thereof or (iii) by
Parent pursuant to Section 7.01(g) or 7.01(h) thereof. Notwithstanding the
foregoing, Section 5(e) and the last sentence of Section 7 shall survive the
consummation of the Merger or the termination of the Merger Agreement.
SECTION 12. Miscellaneous.
(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or sent by overnight courier (providing proof of
delivery) to Parent in accordance with Section 8.02 of the Merger
Agreement and to the Stockholders at their respective addresses set forth
on Schedule A attached hereto (or at such other address for a party as
shall be specified by like notice).
(c) Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include", "includes"
or "including"
<PAGE>
11
are used in this Agreement, they shall be deemed to be followed by the
words "without limitation".
(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed
by each of the parties and delivered to the other parties.
(e) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to
the subject matter hereof and (ii) is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.
(f) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware regardless
of the laws that might otherwise govern under applicable principles of
conflicts of law thereof.
(g) Severability. If any term, provision, covenant or restriction
herein, or the application thereof to any circumstance, shall, to any
extent, be held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions herein and the application thereof to any other
circumstances, shall remain in full force and effect, shall not in any way
be affected, impaired or invalidated, and shall be enforced to the fullest
extent permitted by law, and the parties hereto shall reasonably negotiate
in good faith a substitute term or provision that comes as close as
possible to the invalidated or unenforceable term or provision, and that
puts each party in a position as nearly comparable as possible to the
position each such party would have been in but for the finding of
invalidity or unenforceability, while remaining valid and enforceable.
(h) Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in
<PAGE>
12
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of
the United States located in the State of Delaware or in a Delaware state
court, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto (i)
consents to submit such party to the personal jurisdiction of any Federal
court located in the State of Delaware or any Delaware state court in the
event any dispute arises out of this Agreement or any of the transactions
contemplated hereby, (ii) agrees that such party will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave
from any such court, (iii) agrees that such party will not bring any
action relating to this Agreement or the transactions contemplated hereby
in any court other than a Federal court sitting in the state of Delaware
or a Delaware state court and (iv) waives any right to trial by jury with
respect to any claim or proceeding related to or arising out of this
Agreement or any of the transactions contemplated hereby.
SECTION 13. Stockholder Capacity. No person executing this Agreement
who is or becomes during the term hereof a director or officer of the Company
makes any agreement herein in his capacity as such director or officer. Each
Stockholder signs solely in his capacity as the record holder and beneficial
owner of such Stockholder's Subject Shares or Options or Warrants and nothing
herein shall limit or affect any actions taken by a Stockholder in his capacity
as an officer or director of the Company to the extent specifically permitted by
the Merger Agreement.
IN WITNESS WHEREOF, each of Parent and the Stockholder that is a
corporation has caused this Agreement to be signed by its officer thereunto duly
authorized and each other Stockholder has signed this Agreement, all as of the
date first written above.
<PAGE>
SUN INTERNATIONAL HOTELS LIMITED,
By: /s/ Charles D. Adamo
------------------------------
Name: Charles D. Adamo
Title: Executive Vice
President, General Counsel
ATLANTIC RESORTS HOLDINGS, INC.
By: /s/ Lawrence Cohen
------------------------------
Name: Lawrence Cohen
Title: Vice President
/s/ Merv Griffin
------------------------------
Merv Griffin
IN WITNESS WHEREOF, each of the Company, The Griffin Group Inc., and
Resorts International Hotel, Inc. consent to the provisions of Section 7 hereof,
and the Company consents to the provisions of Section 6 hereof, all as of the
date first written above.
GRIFFIN GAMING & ENTERTAINMENT,
INC.,
By: /s/ Thomas E. Gallagher
------------------------------
Name:
Title: President and CEO
THE GRIFFIN GROUP INC.,
By: /s/ Lawrence Cohen
------------------------------
Name: Lawrence Cohen
Title: Vice President
<PAGE>
RESORTS INTERNATIONAL HOTEL, INC.,
By: /s/ Matthew B. Kearney
------------------------------
Name:
Title:
<PAGE>
SCHEDULE A
Number of Number of
Number of Shares of Shares of Number of
Shares of Common Common Shares of
Name and Common Stock Stock Stock Common Stock
Address of Owned Subject to Subject to Beneficially
Stockholder of Record Options Warrants Owned
----------- --------- ------- -------- -----
Atlantic Resorts 2,125,108 0 746,696 2,871,804
Holdings, Inc.
c/o The Griffin
Group, Inc.
780 Third Avenue
New York, NY 10017
Merv Griffin 0 0 0 2,871,804
c/o The Griffin
Group, Inc.
780 Third Avenue
New York, NY 10017
<PAGE>
AMENDMENT dated as of October 10, 1996, to Stockholder Agreement
dated as of August 19, 1996 (the "Stockholder Agreement"), among Sun
International Hotels Limited, a corporation organized and existing
under the laws of the Commonwealth of The Bahamas ("Parent"), and
Atlantic Resorts Holdings, Inc. and Merv Griffin (each, a "Stockholder"
and, collectively, the "Stockholders").
WHEREAS Parent and the Stockholders have previously entered into the
Stockholder Agreement;
WHEREAS Parent, Sun Merger Corp., a Delware corporation and a wholy owned
subsidiary of Parent ("Sub"), and Griffin Gaming & Entertainment, Inc., a
Delaware corporation (the "Company"), have previously entered into an
Agreement and Plan of Merger dated as of August 19, 1996, providing for the
merger of the Company with and into Sub upon the terms and subject to the
conditions set forth therein;
WHEREAS Parent, Sub and the Company have agreed to amend the Merger
Agreement to provide for the merger of Sub with and into the Company, and in
connection with such amendment, parent and the Stockholders desire to amend
the Stockholder Agreement as set forth herein;
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the sufficiency and receipt of
which are hereby acknowledged, the parties agree as follows:
SECTION 1. AMENDMENTS. (a) The first paragraph of the preamble to the
Stockholder Agreement is hereby amended by deleting the clause "the Company
with and into Sub" in the ninth and tenth lines thereof and replacing it with
"Sub with and into the Company".
SECTION 2. REPRESENTATIONS AND WARRANTIES. (a) Each Stockholder hereby,
adversily and not jointly,
<PAGE>
represents and warrants to Parent in respect of itself as follows:
The Stockholder has all requisite power and authority to enter into this
Amendment and to consummate the transactions contemplated hereby. This
Amendment has been duly authorized, executed and delivered by the
Stockholder and constitutes a valid and binding obligation of the Stock-
holder enforceable in accordance with its terms. If the Stockholder is
married and any of the Stockholder's Subject Shares, Options or Warrants
(each as defined in the Stockholder Agreement) constitute community
property or otherwise need spousal or other approval for this Amendment
to be legal, valid and binding, this Amendment has been duly authorized,
executed and delivered by, and constitutes a valid and binding agreement
of, the Stockholder's spouse or the person giving such other approval,
enforceable against such spouse or person in accordance with its terms.
b) Parent represents and warrants to each Stockholder that Parent has all
requisite corporate power and authority to enter into this Amendment and to
consummate the transactions contemplated hereby. The execution and delivery
of this Amendment by Parent, and the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary corporate
action on the part of Parent. This Amendment has been duly executed and
delivered by Parent and constitutes a valid and binding obligation of Parent
enforceable in accordance with its terms.
SECTION 3. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 4. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 5. FULL FORCE AND EFFECT. Except as specifically amended hereby,
the Stockholder Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used therein, the terms
"Agreement", "herein", "hereunder", "hereinafter", "hereto", "hereof",
<PAGE>
and words of similar import shall, unless the context otherwise requires,
refer to the Stockholder Agreement as amended hereby. Any reference in any
document to the Stockholder Agreement shall be deemed to be a reference to
the Stockholder Agreement as amended hereby.
IN WITNESS WHEREOF, each of Parent and the Stockholder that is a
corporation has caused this Amendment to be signed by its officer thereunto
duly authorized and each other Stockholder has signed this Agreement, all as
of the date first written above.
SUN INTERNATIONAL HOTELS
LIMITED,
by /s/ illegible
-------------------------------------
Name:
Title:
ATLANTIC RESORTS HOLDINGS,
INC.,
by /s/ illegible
-------------------------------------
Name:
Title:
/s/ Merv Griffin
-------------------------------------
Merv Griffin
IN WITNESS WHEREOF, each of the Company, The Griffin Group Inc., and
Resorts International Hotel, Inc. consent to this Amendment, all as of the
date first above written.
GRIFFIN GAMING &
ENTERTAINMENT, INC.,
by /s/ illegible
------------------------------------
Name:
Title:
<PAGE>
THE GRIFFIN GROUP INC.,
by /s/ illegible
------------------------------------
Name:
Title:
RESORTS INTERNATIONAL HOTEL,
INC.,
by /s/ illegible
------------------------------------
Name:
Title:
<PAGE>
ANNEX III
STOCKHOLDER AGREEMENT dated as of August 19, 1996, among
GRIFFIN GAMING & ENTERTAINMENT, INC., a Delaware corporation
(the "Company"), and SUN INTERNATIONAL INVESTMENTS LIMITED
(the "Stockholder").
WHEREAS Sun International Hotels Limited, a corporation organized
and existing under the laws of the Commonwealth of the Bahamas ("Parent"), Sun
Merger Corp., a Delaware corporation and a wholly owned subsidiary of Parent
("Sub"), and the Company propose to enter into an Agreement and Plan of Merger
dated as of the date hereof (as the same may be amended or supplemented from
time to time, including any amendment pursuant to Section 1.01 thereof, the
"Merger Agreement") providing for the merger of the Company with and into Sub
(the "Merger") upon the terms and subject to the conditions set forth in the
Merger Agreement; and
WHEREAS the Stockholder owns Ordinary Shares, par value $.001 per
share, of Parent (the "Ordinary Shares"); and
WHEREAS, as a condition to its willingness to enter into, the Merger
Agreement, the Company has requested that the Stockholder enter into this
Agreement.
NOW, THEREFORE, to induce the Company to enter into, and in
consideration of the Company entering into, the Merger Agreement, and in
consideration of the premises and the representations, warranties and agreements
contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. Capitalized terms used but not defined
herein shall have the meanings assigned to such terms in the Merger Agreement.
SECTION 2. Representations and Warranties of the Stockholder. The
Stockholder hereby represents and warrants to the Company that it has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Stockholder and constitutes a valid
and binding obligation of the Stockholder enforceable in accordance with its
terms. The execution and delivery of this Agreement do not, and the consummation
of the transactions contemplated hereby and
<PAGE>
2
compliance with the terms hereof will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time or both) under
any provision of, any trust agreement, loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise, license, judgment, order, notice, decree, statute, law, ordinance,
rule or regulation applicable to the Stockholder or to any of the Stockholder's
property or assets.
SECTION 3. Representations and Warranties of the Company. The
Company hereby represents and warrants to the Stockholder that the Company has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company, and the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary corporate action
on the part of the Company. This Agreement has been duly executed and delivered
by the Company and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms.
SECTION 4. Voting Agreements. (a) Until the termination of this
Agreement in accordance with Section 8, the Stockholder agrees to vote the
Ordinary Shares then owned of record by it, or grant a consent or approval in
respect of such Ordinary Shares, at any meeting of stockholders of Parent or at
any adjournment thereof or in any other circumstances upon which its vote,
consent or other approval is sought, (i) in favor of any amendments to Parent's
Articles of Association that add such provisions as may be necessary as a result
of consummation of the transactions contemplated by the Merger Agreement to
comply with the New Jersey Casino Control Act and (ii) if the Merger Agreement
is amended pursuant to Section 1.01 thereof, in favor of the approval and
adoption of the Merger Agreement and the approval of the terms of the Merger
Agreement and each of the transactions contemplated by the Merger Agreement.
SECTION 5. Further Assurances. The Stockholder will, from time to
time, execute and deliver, or cause to be executed and delivered, such
additional or further consents, documents and other instruments and take such
further actions as the Company may reasonably request for the purpose of
effectively carrying out the transactions contemplated by this Agreement.
<PAGE>
3
SECTION 6. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either of the parties
hereto without the prior written consent of the other party. Any assignment in
violation of the foregoing shall be void. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties hereto and their respective successors and assigns.
SECTION 7. Termination. This Agreement shall terminate upon the
earlier of (a) the termination of the Merger Agreement or (b) the Effective Time
of the Merger.
SECTION 8. Miscellaneous.
(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or sent by overnight courier (providing proof of
delivery) to the Company in accordance with Section 8.02 of the Merger
Agreement and to the Stockholder care of Parent in accordance with Section
8.02 of the Merger Agreement (or at such other address for a party as
shall be specified by like notice).
(c) Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include", "includes"
or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation".
(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed
by each of the parties and delivered to the other party.
<PAGE>
4
(e) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to
the subject matter hereof and (ii) is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.
(f) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of the Bahamas
regardless of the laws that might otherwise govern under applicable
principles of conflicts of law thereof.
(g) Severability. If any term, provision, covenant or restriction
herein, or the application thereof to any circumstance, shall, to any
extent, be held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions herein and the application thereof to any other
circumstances, shall remain in full force and effect, shall not in any way
be affected, impaired or invalidated, and shall be enforced to the fullest
extent permitted by law, and the parties hereto shall reasonably negotiate
in good faith a substitute term or provision that comes as close as
possible to the invalidated or unenforceable term or provision, and that
puts each party in a position as nearly comparable as possible to the
position each such party would have been in but for the finding of
invalidity or unenforceability, while remaining valid and enforceable.
(h) Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this
<PAGE>
5
Agreement, this being in addition to any other remedy to which they are
entitled at law or in equity.
IN WITNESS WHEREOF, each of the Company and the Stockholder has
caused this Agreement to be signed by its officer thereunto duly authorized as
of the date first written above.
GRIFFIN GAMING & ENTERTAINMENT,
INC.,
By: /s/ Thomas E. Gallagher
--------------------------------
Name:
Title: President and CEO
SUN INTERNATIONAL INVESTMENTS
LIMITED,
By: /s/ Charles D. Adamo
--------------------------------
Name: Charles D. Adamo
Title: Authorized Signatory
<PAGE>
AMENDMENT dated as of October 10, 1996,
to Stockholder Agreement dated as of
August 19, 1996 (the "Stockholder
Agreement"), among Griffin Gaming &
Entertainment, Inc., a Delaware corporation
(the "Company"), and Sun International
Investments Limited (the "Stockholder").
WHEREAS the Company and the Stockholder have previously entered into the
Stockholder Agreement;
WHEREAS Sun International Hotels Limited, a corporation organized and
existing under the laws of the Commonwealth of The Bahamas ("Parent"), Sun
Merger Corp., a Delaware corporation and a wholly owned subsidiary of Parent
("Sub"), and the Company have previously entered into an Agreement and Plan
of Merger dated as of August 19, 1996, providing for the merger of the
Company with and into Sub upon the terms and subject to the conditions set
forth therein;
WHEREAS Parent, Sub and the Company have agreed to amend the Merger
Agreement to provide for the merger of Sub with and into the Company, and in
connection with such amendment, the Company and the Stockholder desire to
amend the Stockholder Agreement as set forth herein;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties agree as follows:
SECTION 1. AMENDMENTS. (a) The first paragraph of the preamble to the
Stockholder Agreement is hereby amended by deleting the clause "the Company
with and into Sub" in the ninth and tenth lines thereof and replacing it with
"Sub with and into the Company".
SECTION 2. REPRESENTATIONS AND WARRANTIES. (a) The Stockholder hereby
represents and warrants to the Company as follows:
The Stockholder has all requisite power and authority to enter into this
Amendment and to consummate the transactions contemplated hereby. This
Amendment has
<PAGE>
2
been duly authorized, executed and delivered by the Stockholder and
constitutes a valid and binding obligation of the Stockholder enforceable
in accordance with its terms.
(b) The Company represents and warrants to the Stockholder that the
Company has all requisite corporate power and authority to enter into this
Amendment and to consummate the transaction contemplated hereby. The
execution and delivery of this Amendment by the Company, and the consummation
of the transactions contemplated hereby, have been duly authorized by all
necessary corporate action on the part of the Company. This Amendment has
been duly executed and delivered by Parent and constitutes a valid and
binding obligation of the Company enforceable in accordance with its terms.
SECTION 3. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall be effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 4. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the Commonwealth of The Bahamas,
regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
SECTION 5. FULL FORCE AND EFFECT. Except as specifically amended hereby,
the Stockholder Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used therein, the terms
"Agreement", "herein", "hereunder", "hereinafter", "hereto", "hereof", and
words of similar import shall, unless the context
<PAGE>
3
otherwise requires, refer to the Stockholder Agreement as amended hereby. Any
reference in any document to the Stockholder Agreement shall be deemed to be
a reference to the Stockholder Agreement as amended hereby.
IN WITNESS WHEREOF, each of the Company and the Stockholder has caused
this Amendment to be signed by its officer thereunto duly authorized as of
the date first written above.
GRIFFIN GAMING &
ENTERTAINMENT, INC.,
by /s/ MATTHEW A. KEARNEY
----------------------------
Name: Matthew A. Kearney
Title: Exec. V.P. - Finance - CFO
SUN INTERNATIONAL INVESTMENTS LIMITED,
by /s/ [ILLEGIBLE]
----------------------------
Name: [ILLEGIBLE]
Title:
<PAGE>
Annex IV
August 18, 1996
Sun International Hotels Limited
Coral Towers
Paradise Island, The Bahamas
Attention: Mr. Solomon Kerzner, Chairman of the Board of Directors
Dear Sirs:
We understand that Sun International Hotels Limited ("Sun") intends to enter
into an Agreement and Plan of Merger (the "Merger") pursuant to which Griffin
will merge into one of Sun's subsidiaries ("Mergersub") in a transaction in
which each holder of a share of Griffin common stock will receive .4324
Ordinary Shares of Sun, subject to adjustment as more fully set forth in the
Agreement and Plan of Merger, and each holder of a share of Griffin Class B
common stock will receive .1928 Ordinary Shares of Sun. You have provided us
with the Agreement and Plan of Merger among Sun, Mergersub and Griffin in
substantially final form (the "Merger Agreement").
You have asked us to render our opinion as to whether the Merger is fair,
from a financial point of view, to Sun.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Merger Agreement;
2. reviewed Sun's Annual Reports on Form 20-F for the fiscal years
ended December 31, 1994 and 1995, and its Reports on Form 6-K
setting forth its financial results for the periods ended March
31, 1996;
3. reviewed certain operating and financial information, including
projections, provided to us by management relating to Sun's
business and prospects;
4. met with certain members of Sun's senior management to discuss
its operations, historical financial statements and future
prospects;
5. visited Sun's facilities on Paradise Island, The Bahamas and in
Montville, Connecticut;
<PAGE>
6. reviewed Griffin's Annual Reports to Shareholders and Annual
Reports on Form 10-K for the fiscal years ended December 31, 1993
through 1995, and its Quarterly Reports on Form 10-Q for the
periods ended March 31, 1996 and June 30, 1996;
7. reviewed certain operating and financial information, including
projections, provided to us by Sun's management relating to
Griffin's business and prospects;
8. met with certain members of Griffin's senior management to review
certain operating and financial information and to discuss its
operations, historical financial statements, business and future
prospects;
9. visited Griffin's facilities in Atlantic City, New Jersey;
10. reviewed the historical prices and trading volumes of the common
shares of Sun and Griffin;
11. reviewed publicly available financial data and stock market
performance data of companies which we deemed generally
comparable to Sun and Griffin;
12. reviewed the terms of recent acquisitions of companies which we
deemed generally comparable to Griffin; and
13. conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by Sun and
Griffin. With respect to Sun's and Griffin's projections referenced above, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the managements of Sun
and Griffin as to the expected future performance of Sun and Griffin,
respectively. We have not assumed any responsibility for the information or
projections provided to us and we have further relied upon the assurances of
the managements of Sun that they have no actual knowledge of any facts that
would make the information or projections provided to us incomplete or
misleading. In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets of Sun and Griffin. This opinion does not
address Sun's underlying decision to effect the Transaction. Our opinion is
necessarily based on economic, market and other conditions, and the
information made available to us, as of the date hereof.
Based on the foregoing, it is our opinion that the Merger is fair, from a
financial point of view, to Sun.
We have acted as financial advisor to Sun in connection with Merger and will
receive a fee for such services, payment of a significant portion of which is
contingent upon the consummation of the Merger.
<PAGE>
It is understood that this letter is intended solely for the benefit and use
of the Board of Directors of Sun and is not to be used for any other purpose,
or reproduced, disseminated, quoted or referred to at any time, in whole or
in part, without our prior written consent or as otherwise agreed to by us,
except that it may be reproduced in full in any proxy statement/prospectus or
information statement filed with the Securities and Exchange Commission and
distributed to stockholders of Sun or Griffin.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ David M. Solomon
------------------------
Senior Managing Director
<PAGE>
Annex V
August 19, 1996
Board of Directors
Griffin Gaming & Entertainment, Inc.
1133 Boardwalk
Atlantic City, NY 08401
Members of the Board:
We understand that Griffin Gaming & Entertainment, Inc. ("GGE" or the
"Company"), Sun International Hotels Limited ("Sun") and Sun Merger Corp., a
wholly owned subsidiary of Sun ("Acquisition Sub"), have entered into an
Agreement and Plan of Merger, dated as of August 19, 1996 (the "Merger
Agreement"), which provides, among other things, for the merger (the
"Merger") of the Company with and into Acquisition Sub. Pursuant to the
Merger, each issued and outstanding share of common stock, par value $.01 per
share (the "Company Common Stock") of the Company, other than shares held in
treasury or held directly or indirectly held by the Company or by Sun, will be
converted into the right to receive a certain number (the "Exchange Ratio")
of ordinary shares, par value $.001 per share, of the Sun (the "Sun Ordinary
Shares"), determined pursuant to a certain formula set forth in the Merger
Agreement, but in no event shall the value of Sun Ordinary Shares to be
received in exchange for a share of Company Common Stock be less than $20.50
without the prior consent of the Company. The terms and conditions of the
Merger are more fully set forth in the Merger Agreement. We further
understand that approximately 33% of the outstanding shares of Company Common
Stock are owned by The Griffen Group, Inc. ("Griffin Group").
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
shares of Company Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other information of GGE and Sun, respectively;
<PAGE>
Board of Directors
Griffin Gaming & Entertainment, Inc.
August 19, 1996
Page 2
(ii) reviewed certain internal financial statements and other
financial and operating data concerning GGE and Sun
prepared by the managements of GGE and Sun, respectively;
(iii) analyzed certain 1996 budget information (the "1996 Budget")
prepared by the management of the Company;
(iv) analyzed certain financial projections prepared by
Sun's financial advisors;
(v) discussed the past and current operations and financial
condition and the prospects of the Company and Sun with
senior executives of the Company and Sun, respectively;
(vi) reviewed the reported prices and trading activity for the
Company Common Stock and Sun Ordinary Shares;
(vii) compared the financial performance of GGE and Sun and the
prices and trading activity of the Company Common Stock
and Sun Ordinary Shares with that of certain other
comparable publicly-traded companies and their securities;
(viii) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions;
(ix) participated in discussions among representatives of the
Company, Sun and their financial and legal advisors;
(x) reviewed the Merger Agreement and certain related
documents; and
(xi) performed such other analyses and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, including the 1996 Budget
of the Company, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of the Company and Sun. We have not made any
independent valuation or appraisal of the assets or liabilities of the
Company or Sun, nor have we been furnished with any such appraisals. In
addition, we have assumed that the Merger will be consummated on the terms
set forth in the Merger Agreements including, among other things, that the
Merger will be treated as a tax-free reorganization pursuant to the Internal
Revenue Code of 1986. Our opinion
<PAGE>
Board of Directors
Griffin Gaming & Entertainment, Inc.
August 19, 1996
Page 3
is necessarily based on economic, market and other conditions as in effect
on, and the information made available to us as of, the date hereof.
In arriving at our opinion, Morgan Stanley was not authorized to solicit, and
did not solicit, nor did we receive any indication of, interest from any
party with respect to the acquisition, business combination or other
extraordinary transaction involving the Company or any of its assets.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without
our prior written consent, except that this opinion may be included in its
entirety in any filing made by the Company with the Securities and Exchange
Commission with respect to the Merger. We express no opinion and make no
recommendation as to how the stockholders of the Company should vote at the
stockholders' meeting held in cononection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from
a financial point of view to the holders of shares of Company Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ David Topper
--------------------------------
David Topper
Managing Director
<PAGE>
Annex VI
LICENSE AND SERVICES AGREEMENT
THIS LICENSE AND SERVICES AGREEMENT is made and entered into as of
__________________, 1997, by and among THE GRIFFIN GROUP INC., 780 Third Avenue,
New York, New York 10017 ("Group") for the name, likeness and services of Merv
Griffin, GRIFFIN GAMING & ENTERTAINMENT, INC., a Delaware corporation, 1133
Boardwalk, Atlantic City, New Jersey 08401 [or Survivor Corporation] ("GGE"),
and RESORTS INTERNATIONAL HOTEL, INC., a New Jersey corporation, 1133 Boardwalk,
Atlantic City, New Jersey 08401 ("RIH") (references herein to "the Company"
shall mean both GGE and RIH).
In consideration of the mutual covenants, representations, warranties,
agreements and obligations herein contained and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereby
agree as follows:
1. Scope of License. (a) Group grants to the Company for the term of this
Agreement, the non-exclusive license to utilize the name and likeness of Merv
Griffin ("Name and Likeness") in connection with print advertisements, radio and
television commercials, and in connection with limited merchandising, all for
the sole purpose of advertising and promoting (i) the Company's Casino Hotel in
Atlantic City, New Jersey (the "Atlantic City Property"), (ii) the Atlantis
Resort and Casino on Paradise Island, the Bahamas, and (iii) the Mohegan Sun
Casino located in Connecticut managed by an affiliate of Sun International
Hotels, Ltd. (all such properties hereinafter collectively referred to as the
"Casino Properties"), subject to the terms, conditions and limitations provided
herein.
(b) The Company shall not use the Name or Likeness in any company or
business name or in any way other than as expressly authorized herein.
Specifically, but without limitation, neither the Merv Griffin name nor likeness
shall be used in any manner in connection with any products, services, programs,
plans, ideas, promotions or tie-ins except only as may be expressly approved by
Group in the manner contemplated by Section 8 hereof and then only for purposes
of advertising and promoting the Casino Properties.
(c) The Company shall have the non-exclusive right during the term of
this Agreement to use the shows and gaming concepts created by Group or Merv
Griffin as set forth on Schedule A annexed hereto ("Shows and Concepts") at the
Atlantic City Property.
-1-
<PAGE>
2. Services. (a) Group agrees to provide to the Company, for the term of
this Agreement, on a pay or play basis, the non-exclusive services of Merv
Griffin, subject to the performance by the Company of each and all of its
obligations under this Agreement and in particular the indemnification and
insurance obligations contemplated by Sections 5 and 6 hereof, as a host,
producer, presenter and featured performer relative to various shows to be
presented at the Casino Properties, to furnish marketing and consulting
services, to participate in radio, television and print advertisements, and to
serve as spokesperson for the Company, all such services to be subject to Merv
Griffin's availability in respect of other professional or business matters and
to any personal matters. Merv Griffin shall not, however, be required to make
more than two (2) radio commercials and two (2) television commercials during
each contract year of this Agreement with respect to the Casino Properties. All
photo sessions, tapings and appearances for radio and television commercials
shall be scheduled at a mutually convenient time to Merv Griffin. Group shall,
in addition, approve the makeup and wardrobe person to be used for Merv Griffin
on any television commercial (the cost of which shall be paid solely by the
Company).
(b) In connection with all of the services set forth above and
elsewhere herein and subject to reimbursement for certain costs and expenses as
expressly set forth herein, Group shall provide such personnel in addition to
Merv Griffin, and provide such overhead expenses, as are necessary to carry out
its duties hereunder.
3. Term. The rights and license granted hereunder shall be effective as
of the date hereof and shall continue in force (unless earlier terminated in
accordance with the provisions of this Agreement) until September 16, 2001.
4. Compensation. Upon the execution of this Agreement, GGE is paying to
Group the amount of $10,973,000, which amount represents compensation in the
amount of $2,546,000 for the services hereunder for the period September 17,
1997 to September 16, 1998, $2,673,000 for the services hereunder for the period
September 17, 1998 to September 16, 1999, $2,807,000 for the services hereunder
for the period September 17, 1999 to September 16, 2000, and $2,947,000 for the
services hereunder for the period September 17, 2000 to September 16, 2001.
Group acknowledges payment under the Prior License Agreement (as defined in
Section 19 hereof) for the period from the date hereof to September 16, 1997.
5. Indemnification; Insurance. (a) The Company hereby indemnifies and
agrees to defend and hold harmless forever Group, and its officers, directors,
shareholders, employees, agents and representatives, and Merv Griffin against
any and all claims, demands, losses, costs and expenses (including attorneys
fees), investigations, damages, judgments, penalties, and liabilities of any
kind or nature whatsoever, directly or indirectly arising out of, resulting
from, relating to or connected with (i) any use of the Name and Likeness by the
Company or any person or entity obtaining the right to use the Name and Likeness
directly or indirectly
-2-
<PAGE>
hereunder, or (iii) any actual or alleged damage or any injury resulting from,
occurring on the premises of, relating to or in any way connected with the
Casino Properties or its promotions, or (iv) any actual or alleged inaccuracies
or misrepresentations in connection with the use of the Name and Likeness by the
Company. The Company shall promptly upon receipt of notice of any such claim
engage counsel approved by Group (which approval shall not be unreasonably
withheld) and defend such claim at the Company's sole cost and expense (which
cost and expense must be reasonable); or, if the Company shall fail or refuse to
do so, Group, at its option, may engage counsel and defend such claim at the
Company's sole cost and expense, which cost and expense the Company shall pay to
Group within five (5) business days upon being invoiced therefor.
(b) The Company agrees, at its sole cost and expense, to deliver to
Group on or before execution of this Agreement and to maintain during the term
of this Agreement and for any applicable statute of limitations period
thereafter (but in no event less than six (6) years after the term of this
Agreement) an endorsement naming Group and Merv Griffin, individually, as named
insureds on all insurance policies covering the Company including, without
limitation, with respect to comprehensive public liability and personal injury
insurance, each such policy in amounts no less than Two Million Dollars
($2,000,000.00) per occurrence and an umbrella coverage of no less than Twenty
Five Million Dollars ($25,000,000.00) against all such liability. The Company
will submit to Group certified copies, signed by a legal representative of the
insurance company, of fully paid policies of insurance as specified above naming
Group and Merv Griffin, individually, each as an insured party, and requiring
that the insurer shall not terminate or materially modify such instance without
written notice to Group and Merv Griffin, individually, at least sixty (60) days
in advance thereof. Without limiting any rights or remedies of Group or Merv
Griffin hereunder, all rights granted hereunder to the Company will terminate
automatically upon any failure by the Company to maintain the insurance required
hereby.
6. Directors and Officers Indemnification. (a) The Company shall
indemnify Merv Griffin and any officer, director or employee of Group who at any
time during the term of this Agreement serves as an officer or director of GGE
or any subsidiary or affiliate thereof (each an "Indemnitee" and collectively
"Indemnitees") to the fullest extent permitted by Delaware law in effect as the
date hereof against all costs, expenses, liabilities and losses (including,
without limitation, attorneys' fees, judgments, fines, penalties, ERISA excise
taxes and amounts paid in settlement) reasonably incurred by an Indemnitee in
connection with a Proceeding. For the purpose of this Section 6, a "Proceeding"
shall mean any action, suit or proceeding by reason of the fact that such person
is or was an officer, director or employee of GGE or any subsidiary or affiliate
hereof or is or was serving as an officer, director, member, employee, trustee
or agent of any other entity at the request of GGE.
-3-
<PAGE>
(b) The Company shall advance to each Indemnitee all reasonable costs
and expenses incurred by such Indemnitee in connection with a Proceeding within
20 days after such receipt by the Company of a written request for such advance.
Such request shall include an itemized list of the costs and expenses and an
undertaking by such Indemnitee to repay the amount of such advance if it shall
ultimately be determined that he is not entitled to be indemnified against such
costs and expenses.
(c) No Indemnitee shall be entitled to indemnification under this
Section 6 unless such Indemnitee meets the standard of conduct specified in the
Delaware General Corporation Law. Notwithstanding the foregoing, to the extent
permitted by law neither Section 145 (d) of the Delaware General Corporation Law
nor any similar provision shall apply to indemnification under this Section 6,
so that if an Indemnitee in fact meets the applicable standard of conduct, he
shall be entitled to such indemnification whether or not GGE (whether by the
board of directors, the shareholders, independent legal counsel or other party)
determines that indemnification is proper because such Indemnitee has met such
applicable standard of conduct. Neither the failure of GGE to have made such a
determination prior to the commencement by an Indemnitee of any suit or
arbitration proceeding seeking indemnification nor a determination by GGE that
such Indemnitee has not met such applicable standard of conduct shall create a
presumption that such Indemnitee has not met the applicable standard of conduct.
(d) The Company shall not settle any proceeding or claim in any
manner which would impose on any Indemnitee any penalty or limitation without
such Indemnitee's prior written consent. Neither the Company nor any Indemnitee
will unreasonable withhold its or his consent to any proposed settlement.
(e) GGE shall maintain beginning with the date hereof and continuing
for a period of six (6) years following the expiration or termination of this
Agreement directors' and officers' liability insurance policies as in effect on
the date hereof or replacement policies substantially equivalent in amount and
scope of coverage and shall include and maintain in its Certificate of
Incorporation and Bylaws directors' and officers' liability indemnification
provisions not less favorable than those in effect on the date hereof.
7. Copyright, Trademark, Goodwill. (a) Except as otherwise expressly
provided in Section 1 of this Agreement, the Company has no rights in and shall
not apply for, register, use or claim any rights in any copyright, trademark,
service mark, trade name or business name incorporating the Name and Likeness or
any element thereof or in any of the Shows and Concepts. The Company
acknowledges and agrees that the concept, format, music and scripts of such
Shows and Concepts are the property of Group. The Company further agrees to
offer to Group at the conclusion of its use of the Shows and Concepts any and
all sets, costumes,
-4-
<PAGE>
gamewalls, recorded music, and other materials customarily returned by the
Company to a producer of such creative properties.
(b) The Company understands and agrees that this license is non-
exclusive and that Group and Merv Griffin in its and his sole discretion has the
right to utilize the rights described herein and to grant other licenses in and
to such rights on any terms and conditions it or he deems appropriate. The
Company acknowledges that the use of the Name and Likeness outside the scope of
this Agreement is an infringement of Group's or Merv Griffin's right, title and
interest in and to the Name and Likeness, and the Company expressly covenants
that during the term of this Agreement, and after the expiration or termination
hereof, the Company shall not, directly or indirectly, commit any act of
infringement of such Name and Likeness or take any other action in derogation
thereof.
(c) The Company recognizes the great value of the publicity and
goodwill associated with the Name and Likeness, that the Name and Likeness have
acquired a secondary meaning in the mind of the public whereby the Name and
Likeness are identified exclusively with Group and Merv Griffin and, in such
connection, the Company acknowledges that such goodwill exclusively belongs to
Group and Merv Griffin except only to the limited extent of the specific rights
granted to the Company hereunder.
8. Approvals. The Company agrees that each use of the Name and Likeness,
whenever practicable, shall be subject to the prior written approval of Group,
which shall not, however, be unreasonably withheld. The Company agrees, whenever
practicable, to furnish Group for its prior written approval, the complete text
and layout and all artwork and graphics of all print advertisements, promotional
material and any other publicity, a list of the publications in which such
advertisements or publicity may be issued, the complete script of any radio
commercial, and complete script and storyboard for any television commercial in
which the Name and Likeness will be used or embodied, in each case before any
use of the Name and Likeness in connection therewith. Each radio and television
commercial shall be played in full for Group's written approval prior to any
public broadcast thereof, which approval shall not be unreasonably withheld. Any
proposed change in any approved item must be resubmitted for the prior written
approval of Group. Group shall have twenty (20) business days following receipt
of any request for approval to approve or reject same; provided that Group shall
be deemed to have approved such submission unless Group disapproves same in
writing within such twenty (20) day period, and Group or Merv Griffin may agree
to waive or shorten the required submission period on a case by case basis but
any such agreement or waiver shall apply only to the submissions specified
therein.
9. Additional Undertakings of the Company. The Company agrees and
covenants that:
-5-
<PAGE>
(a) It will not attack the title of Group in and to the Name and
Likeness, nor will it attack the right of Group to grant the license granted
hereunder or the legality of the terms hereof;
(b) It will not harm, misuse or bring into disrepute the Name and
Likeness;
(c) It will utilize the Name and Likeness and otherwise conduct its
business or cause the same to be done only in an ethical, lawful, first-class
and high quality manner and in accordance with the terms and intent of this
Agreement;
(d) It will not create any expense or incur any liability chargeable
to Group; and
(e) It will comply with all applicable laws, regulations, ordinances
and other requirements relating or pertaining to the advertising, promotion and
operation of the Casino Properties; it will obtain all necessary permits,
licenses and other consents for the operation of its business; and it will
comply with the requests of any regulatory agencies which shall have
jurisdiction over the Casino Properties.
10. Additional Representations and Warranties of the Company. GGE and RIH
each represent and warrant that:
(a) GGE is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware; RIH is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey; each of GGE and RIH has full corporate power and authority to
conduct its business as now being conducted and as contemplated hereby; is duly
qualified to do business in each jurisdiction in which the nature of the
business conducted by it requires such qualification; and holds all necessary
licenses and permits from federal, state, county and local authorities for the
proper conduct of said business;
(b) There is not outstanding or threatened any order, writ,
injunction, decree or legal or administrative proceeding of any kind against or
affecting either GGE or RIH which would impair the ability of either GGE or RIH
to perform its obligations hereunder;
(c) Each of GGE and RIH is in compliance with all applicable federal,
state, county and municipal laws, including any such laws which require the
obtaining of licenses or permits to conduct it business; and
(d) Each of GGE or RIH has the unrestricted right, power and
authority to enter into this Agreement and perform its obligations hereunder.
11. Representations and Warranties of Group. Group represents and
warrants that:
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(a) Group is a corporation duly organized, validly existing and in
good standing under the laws of the State of Connecticut; has full power and
authority to conduct its business as now being conducted and as contemplated
hereby; is duly qualified to do business in each jurisdiction necessary in order
for Group to fully perform under this Agreement; and holds all necessary
licenses and permits from federal, state, county and local authorities for the
proper conduct of said business;
(b) There is not outstanding or threatened any order, writ,
injunction, decree or legal or administrative proceeding of any kind against or
affecting Group which would impair Group's ability to perform its obligations
hereunder;
(c) Group is in compliance with all applicable federal, state, county
and municipal laws, including any such laws which require the obtaining of
licenses or permits to conduct its business; and
(d) Group has the unrestricted right, power and authority to enter
into this Agreement and perform its obligations hereunder.
12. Termination by Group.
(a) This Agreement shall terminate, at Group's option, and Merv
Griffin may at his option terminate all of his obligations under this Agreement,
upon written notice to the Company, without prejudice to any other rights or
remedies which Group or Merv Griffin may have, whether under the provisions of
this Agreement, in law, or in equity or otherwise, upon the occurrence of any
one or more of the following events at any time during the term hereof:
(i) if any governmental agency shall determine that the
advertising or promotion or operation of the Casino Properties is materially
improper, and as a consequence thereof, any material fine, penalty, sanctions or
liability should be imposed against the Company or any officer or director
thereof; or
(ii) if the Company shall be unable to pay its debts when due, or
shall make any assignment for the benefit of creditors, or shall file or permit
to be filed any petition under the bankruptcy or insolvency laws of any
jurisdiction or shall have or suffer a receiver or trustee to be appointed for
its business or property, or be adjudicated a bankrupt or an insolvent, or an
order for relief shall have been entered (whether voluntary or involuntary)
under the federal Bankruptcy Code with respect to either GGE or RIH; or
(iii) if (notwithstanding any other provision hereof) as
determined by Group in good faith there is a substantial likelihood of damage to
the
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name or reputation of Group or Merv Griffin because of its or his association
with the Company; or
(iv) if the Company breaches any of its other material covenants,
representations, warranties, conditions, agreements or obligations hereunder and
shall fail to cure such breach within sixty (60) days following written notice
of such breach.
Upon any such termination, Group shall be entitled to retain all monies
paid to it hereunder, including under Section 4 hereof, and shall be entitled to
be paid all amounts owing to it as of the date of termination.
(b) Upon the expiration of this Agreement or in the event of any
termination of this Agreement on account of any of the matters set forth in this
Section 12:
(i) the Company's representations, warranties, covenants and
obligations, and the Company's indemnification of Group hereunder, shall survive
such expiration or termination and the insurance provided for in Section 5(b)
and Section 6 shall be maintained in full force and effect as therein provided;
(ii) The Company shall as soon as practicable and in no event
later than 60 days following such termination immediately cease any and all use
of the Name and Likeness in any manner whatsoever and shall in addition take the
a actions specified in clauses (a) through (d) of Section 18 hereof;
(iii) All rights granted by Group hereunder shall revert to
Group; and the Company shall reimburse Group or Merv Griffin for expenses
incurred but not yet reimbursed, and pay any other compensation and benefits to
which Merv Griffin may be entitled under any applicable plans, programs and
agreements of the Company.
13. Termination by the Company. This Agreement shall terminate, at the
Company's option, in the case of any event described in clause (a) of this
Section 13 upon one hundred and twenty (120) days prior written notice to Group,
in the case of any event described in clauses (b) through (f) of this Section
13, upon 30 days prior written notice to Group, and in the case of any event
described in clause (g) of this Section 13, without prior notice, without
prejudice to any other rights or remedies which the Company may have, whether
under the provisions of this Agreement, in law or in equity or otherwise, upon
the occurrence of any one or more of the following events:
(a) in the event of the death of Merv Griffin, or if by reason of
permanent mental or physical disability Merv Griffin is unable to provide his
services as required under this Agreement; or
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(b) if Group or Merv Griffin shall be unable to pay their debts when
due, or shall make any assignment for the benefit of creditors, or shall file or
permit to be filed any petition under the bankruptcy or insolvency laws of any
jurisdiction, county or place, or shall have or suffer a receiver or trustee to
be appointed for its business or property or be adjudicated a bankrupt or an
insolvent, or an order for relief shall have been entered (whether voluntary or
involuntary) under the federal Bankruptcy Code with respect to either Group or
Merv Griffin; or
(c) if Group or Merv Griffin shall be convicted of, or enter a plea
of no contest to any indictment for, a felony involving moral turpitude under
the laws of the United States or any state, by any court of competent
jurisdiction; or
(d) if Group or Merv Griffin shall be convicted of, or enter a plea
of no contest to any indictment or any other crime under the laws of the Untied
States or any state, which includes as an essential element thereof, larceny,
fraud, misappropriation or self-dealing; or
(e) if Group breaches any of its other material covenants,
representations, warranties, conditions, agreements or obligations hereunder and
shall fail to cure such breach within sixty (60) days following written notice
of such breach; or
(f) if any governmental authority having jurisdiction over the
Company shall enter a final judgment as to which all appeals have been
exhausted, to the effect that the implementation of this Agreement or any
material provisions thereof is in violation of any applicable law, order or
regulation and as a consequence thereof any material fine, penalty, sanctions or
liability shall be imposed against the Company or any officer or director
thereof, or if any such governmental authority shall enter a judgment which is
not final to such effect, if such judgment is obtained on the basis of any
action initiated by a person not a party to this Agreement and on the basis of
alleged misconduct by Merv Griffin or Group constituting a breach by either of
them of the terms of this Agreement; or
(g) the Company shall have determined in its sole discretion to
terminate the Agreement.
Upon any termination of this Agreement on account of any of the matters set
forth in this Section 13, each of the Company's financial obligations to Group
pursuant to this Agreement shall thereupon terminate and neither party shall
thereupon have any continuing rights or obligations under this Agreement, except
for the Company's indemnification and insurance obligations, which shall
continue, without modification or limitation, in the manner set forth in
Sections 6 and 7 of this Agreement, with respect to any and all matters
occurring prior to such termination, and except that:
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(i) within 60 days after such termination the Company shall
cease the use of the Name and Likeness;
(ii) within 60 days after such termination the Company shall
terminate all print advertisements, and radio and television commercials,
utilizing the Name and Likeness;
(iii) within 60 days after such termination the Company shall
remove or otherwise delete or obliterate from any real or personal property
constituting any part of or asset belonging to or used in connection with any of
the Casino Properties any image display, logo and other reference to or use of
the Name and Likeness; and
(iv) the Company after such termination shall have the right to
liquidate in the ordinary course of its business or otherwise dispose of all
remaining stocks or promotional materials and merchandise bearing the Name and
Likeness.
Upon any such termination, Group shall be entitled to retain all monies
paid to it hereunder, including under Section 4 hereof, and shall be entitled to
be paid all amounts owing to it under Section 17 hereof as of the date of
termination.
14. Injunctive and Other Relief. (a) The Company recognizes the unique and
special nature and value of the use of the Name and Likeness and agrees that it
is extremely difficult and impractical to ascertain the extent of the detriment
to Group which would be caused in the event of any use of the Name and Likeness
contrary to the terms of this Agreement. The Company furthermore acknowledges
that Group and Merv Griffin will have no adequate remedy at law in the event the
Company uses the Name and Likeness in any way not permitted hereunder, and that
Group and Merv Griffin shall be entitled to equitable relief by way of temporary
and permanent injunction, and such other and further relief as any court of
competent jurisdiction may deem just and proper, in addition to any and all
other remedies provided for herein and available to Group or Merv Griffin at law
or equity.
(b) Group recognizes the unique and special nature and value of the
use of the Name and Likeness and agrees that it is extremely difficult and
impractical to ascertain the extent of the detriment to the Company which would
be caused in the event the use of the Name and Likeness as provided in this
Agreement were not to be available to the Company. Group furthermore
acknowledges that the Company will have no adequate remedy at law in the event
the Name and Likeness is not available to the Company as provided in this
Agreement and that the Company shall be entitled to equitable relief by way of
temporary and permanent injunction, and such other and further relief as any
court of competent jurisdiction may deem just and proper, in addition to any and
all other remedies provided for herein and available to the Company at law or
equity.
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<PAGE>
15. Reservation of Rights. Group retains all rights not expressly and
exclusively conveyed herein.
16. Performances. The specific terms regarding shows to be hosted or
produced by Merv Griffin at the Atlantic City Property or in which Merv Griffin
is to be featured performer shall be subject to good faith negotiation;
provided, however, that the Company shall provide and pay for all production
personnel, equipment, materials, dressing rooms, musicians, props, staging,
lighting, sound systems, and other goods and services as required by Group to
set up, produce and close the show, sufficient suites, other accommodations,
food and beverages for the show's entourage; rehearsal time, stage, lighting,
sound and personnel; and a minimum of twenty-five (25) complimentary tickets.
Group shall have sole approval of all credits and billing, any opening and
closing act, any sponsors and all publicity and advertising in connection with
each show. The Company shall not permit any taping, filming, recording or any
collateral use whatsoever of any such show or any element thereof other than by
Group.
17. Business, Travel and Other Expenses. The Company shall reimburse Group
promptly upon invoice, or, if requested by Group, shall make the arrangements,
advance the funds and pay directly, in connection with Group's personnel's and
Merv Griffin's need to travel for personal appearances or any advertising,
publicity, promotional or other services specifically requested hereunder, all
required round trip transportation to and from all destinations (including all
required air and ground transportation), hotel accommodations, food and other
living and incidental expense, which in the case of Merv Griffin, shall be of a
first class quality consistent with his celebrity status. All such payments
should be in addition to any other payments set forth herein or in any other
agreement between the parties. Any legal, consulting fees or other expenses
incurred in connection with the preparation and negotiation of this Agreement
shall be paid by the Company.
18. Sale of Resort Property. In the event of any sale or other
disposition by the Company of any of the Casino Properties, and as soon
thereafter as practicable, and in no event later than 60 days following such
sale (120 days if in connection with such disposition, the Company has entered
into an agreement whereby the Company is to provide operating services to such
Casino Property), the Company shall:
(a) cease the use of the Name and Likeness with respect to such
Casino Property;
(b) terminate all print advertisements, and radio and television
commercials, utilizing the Name and Likeness with respect to such Casino
Property;
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<PAGE>
(b) terminate all print advertisements, and radio and television
commercials, utilizing the Name and Likeness with respect to such Casino
Property;
(c) remove or otherwise delete or obliterate from any real or
personal property constituting any part of or asset belonging to or used in
connection with such Casino Property any image display, logo and other reference
to or use of the Name and Likeness; and
(d) liquidate in the ordinary course of its business or otherwise
dispose of all remaining stocks of promotional materials and merchandise bearing
the Name and Likeness.
19. Termination of Prior License and Services Agreement. Group and the
Company agree that the License and Services Agreement dated as of September 17,
1992, as amended (the "Prior License Agreement"), among Group, GGE and RIH shall
terminate as of the date hereof. Notwithstanding any provision of the Prior
License Agreement to the contrary, no payments shall be required to be made by
any party thereto with respect to such termination. Notwithstanding the
termination of the Prior License Agreement, (i) GGE shall pay Group all monies
owing to Group thereunder and (ii) GGE shall be required to continue, without
modification or limitation, the indemnification and insurance obligations
provided for in Sections 7 and 8 of the Prior License Agreement for acts prior
to such termination.
20. Notices. All notices and statements provided for herein shall be in
writing and are to be sent to the respective parties at the addresses first set
forth above, unless otherwise provided in writing.
21. Relationship of Parties. This Agreement does not constitute and shall
not be construed as constituting a partnership or joint venture or agency
relationship between any of the parties hereto. The Company shall have no right
to obligate or bind Group in any manner whatsoever, and nothing herein contained
shall give or is intended to give any rights of any kind to any third person.
22. Non-Assignability. No party to this Agreement, without each other
party's prior written approval, may sell, sublicense, lease, pledge as
collateral, give, assign, franchise or otherwise transfer any of its rights
hereunder or any interest herein, directly in any manner whatsoever. Neither
this Agreement nor any of the rights of any party hereunder shall devolve by
operation of law or otherwise upon any assignee, receiver, liquidator, trustee
or other party.
23. Construction; Forum. This Agreement shall be construed in accordance
with the laws of the State of New York as applied to contracts executed and
intended to be fully performed therein. THE COMPANY HEREBY IRREVOCABLY CONSENTS
TO THE JURISDICTION OF ANY NEW YORK STATE COURT OR ANY FEDERAL DISTRICT COURT
LOCATED IN NEW YORK IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF
OR
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<PAGE>
24. Severability. If any provision or portion of this Agreement shall be
invalid or unenforceable for any reason, there shall be deemed to be made such
minor changes (and only such minor changes) in such provision or portion of this
Agreement as are necessary to make it valid and enforceable. The invalidity or
unenforceability of any provision or portion of this Agreement shall not affect
the validity or enforceability of any other provision or portion of this
Agreement.
25. Counterparts. This Agreement may be executed in several counterparts,
each one of which shall be an original as to the signing party and all of which
shall constitute one and the same Agreement.
26. Waiver; Entire Agreement; Amendment. The waiver by any party of any
breach of this Agreement shall not in any way be construed as a waiver by such
party of any subsequent breach, whether similar or not, of this Agreement. This
Agreement sets forth the entire understanding and agreement of the parties
hereto with respect to the subject matter hereof and supersedes all existing
agreements and understandings between them. This Agreement may not be altered,
amended or modified in any way except upon the agreement of the parties hereto
in writing.
27. Legal Fees. If any legal action, arbitration, or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with this Agreement, the
successful or prevailing party shall be entitled to recover reasonable
attorney's fees and other costs it incurred in that action or proceeding, in
addition to any other relief to which it may be entitled.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first above written.
THE GRIFFIN GROUP INC.
By: ____________________________
GRIFFIN GAMING & ENTERTAINMENT, INC.
By: ____________________________
RESORTS INTERNATIONAL HOTEL, INC.
By: ____________________________
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I hereby affirm that The Griffin Group Inc. is fully authorized to make and
perform each of the undertakings of this Agreement, particularly as they relate
to the licensing of my name and likeness and the furnishing of related services
by me.
--------------------------------
MERV GRIFFIN
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